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IN THE UNITED STATES COURT OF FEDERAL CLAIMS CONSUMERS ENERGY COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 02-1894C (Chief Judge Damich)

DEFENDANT'S RESPONSE TO THE COURT'S ORDER DATED FEBRUARY 8, 2008 Defendant, the United States, respectfully submits this response to the Court's order for supplemental briefing, dated February 8, 2008. The Court requested that the parties respond to two questions concerning the takings claim that plaintiff, Consumers Energy Company ("Consumers"), included in its December 13, 2002 complaint, which is the subject of the Government's August 9, 2007 renewed motion to dismiss Count III of that complaint.1 DISCUSSION Question No. 1: "To what extent do the provisions of the Nuclear Waste Policy Act of 1982 ("NWPA"), 42 U.S.C. §§ 10101-10270, regulating nuclear utilities' ability to independently dispose of spent nuclear fuel and high-level radioactive waste ("SNF") amount to a taking given how the Act conditions the issuance or renewal of such utilities' licenses under 42 U.S.C. §§ 2133-2134 on entry into the Standard Contract or a similar agreement?" A. Any Takings Claim Based Upon Restrictions That The NWPA, Enacted In 1983, Placed Upon Consumers' "Right" To An Unrestricted Operating License Are Time-Barred

The Court's first question relates to the manner in which the provisions of the Nuclear Waste Policy Act ("NWPA") themselves, to the extent that they "regulat[e] nuclear utilities'

Despite the Court's admonition that it "will not consider arguments based on matters outside the pleadings," Order, at 2 (Feb. 8, 2008), Consumers' supplemental brief is replete with references to matters outside the pleadings, including references to the substance of an expert witness report. Reliance on matters outside the pleadings is improper pursuant to RCFC 12(b)(6) and should be disregarded.

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ability to independently dispose of spent nuclear fuel and high-level radioactive waste," amount to a taking of Consumers' property, given "how the Act conditions the issuance or renewal of such utilities' licenses under 42 U.S.C. §§ 2133-2134 on entry into the Standard Contract or a similar agreement." This question presupposes that, prior to the enactment of the NWPA, nuclear utility license holders had a right to obtain or retain a license for nuclear power generation and, without restriction, to dispose of spent nuclear fuel ("SNF") in the manner in which they believed appropriate. We note that Consumers has not raised any such allegation in support of its takings claim. In its supplemental brief, Consumers alleges only that "[e]ntry into the Standard Contract was mandatory." Pl. Response at 2. However, Consumers entered that contract in 1983, almost 20 years before Consumers filed a complaint in this Court alleging a taking. To the extent that Consumers is now alleging that the allegedly "mandatory" entry of a contract constituted a taking, its allegation falls far outside the six-year statute of limitations applicable to takings claims, barring this Court's jurisdiction to entertain it. See 28 U.S.C. § 2501; Seldovia Native Ass'n, Inc. v. United States, 144 F.3d 769, 774 (Fed. Cir. 1998). Further, given that it was the nuclear utility industry that pushed for, lobbied for, and supported enactment of the NWPA, as evidenced by the legislative history associated with the NWPA, see, e.g., App. 1-13,2 it is strange

"[A] district court may take judicial notice of public records or indisputably authentic documents on a 12(b) motion without converting even a 12(b)(6) motion into one for summary judgment." Branch v. Federal Deposit Ins. Corp., 825 F. Supp. 384, 397, 398 n.8 (D. Mass. 1993); see Henson v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994) (court "`may also take judicial notice of matters of public record' without converting a 12(b)(6) motion into a motion for summary judgment"). 2

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indeed that nuclear utilities would now claim that the NWPA "forced" them involuntarily to comply with its terms. Even if Consumers had raised the allegations that the Court identified in its February 8, 2008 order, any takings claim based upon an allegation that the NWPA "took" Consumers' right to maintain a license without the restrictions of the Standard Contract or to dispose of its SNF in some manner other than that controlled by the Standard Contract would similarly be time-barred. "A claim first accrues for purposes of 28 U.S.C. § 2501 `when all events which fix the government's alleged liability have occurred and the plaintiff is or should have been aware of their existence.'" Kinsey v. United States, 852 F.2d 556, 557 (Fed. Cir. 1988) (quoting Oceanic Steamship Co. v. United States, 165 Ct. Cl. 217 (1964)). Here, Congress enacted the NWPA in January 1983. Consumers plainly knew at that time that the provisions of the NWPA required it to enter into a contract with the Department of Energy ("DOE") to the extent that it wanted to renew its existing operating license, see 42 U.S.C. § 10222(b), and any rights that it had to obtain an operating license renewal without such restrictions ended at that time. Consumers did not file its lawsuit here until December 2002, almost 20 years later. Any claim that the Government "took" Consumers' right to a license without the restrictions imposed by the NWPA, or to dispose of SNF without the restrictions imposed by the NWPA, are time-barred. B. Even If Not Time-Barred, The NWPA Did Not Preclude Consumers From Finding Alternative Disposal Options For Its SNF

Although the Court suggests in its order that the NWPA somehow "regulat[ed] nuclear utilities' ability to independently dispose of" SNF, nothing in either the NWPA or the Standard Contract supports that statement. Certainly, there are Nuclear Regulatory Commission ("NRC") requirements, which existed prior to 1983 and have existed since 1983, regulating the disposal or 3

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storage of SNF. However, those requirements exist independently of the NWPA. To the extent that Consumers can comply with those requirements, it and other utilities were and remain free to deal with their SNF in a manner other than through the Standard Contract.3 Consumers has not identified a single provision in the NWPA that "took" those alternatives away from Consumers. C. Consumers Cannot Distinguish Its Contract-Based Claims From Its Takings Claims

Consumers appears to focus almost the entirety of its supplemental brief upon an argument that "[t]he Standard Contract itself is properly viewed as a regulation," which, for some reason, should be viewed separate and apart from its contract claims. Pl. Response at 3. However, the regulation in which the terms of the Standard Contract were published, see 10 C.F.R. § 961.11, creates no rights in and has no effect upon Consumers. It is only when an entity enters into a contract containing the terms identified in 10 C.F.R. § 961.11 that any rights or

Consumers misleadingly cites to 10 C.F.R. Part 50, Appendix F, an NRC regulation which provides that "[d]isposal of high-level radioactive fission product waste will not be permitted" on land not "owned and controlled by the Federal Government." Pl. Response at 3. Appendix F of 10 C.F.R. Part 50, which was first promulgated in 1970, relates to the "Policy Relating To The Siting Of Fuel Reprocessing Plants And Related Waste Management Facilities." 10 C.F.R. Part 50, App. F (emphasis added). As evidenced by Appendix F, the regulation relating to disposal of "high-level radioactive fission product waste" only applies to waste generated during reprocessing, not through the operation of commercial nuclear reactors. See http://www.ans.org/pi/resources/glossary/ (American Nuclear Society website, defining "high level waste" as "[h]ighly radioactive solid material that results from chemical reprocessing of spent fuel from a nuclear fission reactor" (emphasis added)). Reprocessing involves taking the spent nuclear fuel already generated during the production of nuclear power and reprocessing it into other forms. Id. (defining SNF as follows: "Nuclear fuel elements removed from a nuclear reactor after they have been used to produce power. Spent fuel has great potential for use as a fuel after reprocessing; thus `used fuel' is a more accurate term."). The requirements of 10 C.F.R. Part 50, Appendix F, do not apply to SNF, only to "high-level radioactive fission product waste." Further, these restrictions have existed since 1970, well before the NWPA was enacted. 4

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obligations regarding SNF acceptance from that entity are created.4 However, those rights are created pursuant to the contract that is executed. Absent the contract, DOE has no obligation, either under the NWPA or under any other statute or regulation, to accept Consumers' SNF. Consumers cannot somehow claim contract damages for a breach of its own Standard Contract and, at the same time, claim that the regulation that creates its contract terms created some harm that is separate and distinct from its rights under its contract. As we have discussed in prior briefing, absent its execution of the Standard Contract, Consumers would be wholly responsible for the storage and disposal of its SNF. See Commonwealth Edison Co. v. United States, 56 Fed. Cl. 652, 656 (2003) ("prior to the Standard Contract DOE did not have an obligation to accept or dispose of plaintiff's SNF"). Consumers asserts that it is the passage of NWPA that represents the Government's acceptance of responsibility for the disposal of SNF. Compl. ¶ 9. However, pursuant to the NWPA, DOE's obligation to dispose of a generator's or owner's SNF was conditioned upon the existence of a contract between the generator (or owner) and DOE. 42 U.S.C. § 10222(a). Where a party's rights are created by contract with the Government, a party cannot state a takings claim against the Government founded upon a breach of that contract unless the Government has somehow impinged upon the contract holder's original range of contract

Consumers appears to confuse case law regarding the manner in which contract terms that were generated through notice-and-comment rulemaking should be interpreted, which should be interpreted in accordance with the rules applicable to interpreting regulations, see Santa Fe Eng'rs, Inc. v. United States, 801 F.2d 379, 381 (Fed. Cir. 1986), with whether the Standard Contract that it actually executed is a "regulation." To the extent that Consumers' contract with DOE is a regulation, Consumers' contract claims against the United States should immediately be dismissed. 5

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remedies. Castle v. United States, 301 F.3d 1328, 1342 (Fed. Cir. 2002); see Def. Renewed Motion at 7-9. This Court repeatedly has rejected takings claims in the SNF cases because they are, in reality, disguised contract claims. Northern States Power Co. v. United States, 78 Fed. Cl. 449, 472 (2007); Pacific Gas & Elec. v. United States , 70 Fed. Cl. 766, 778 (2006); Canal Electric Co. v. United States, 65 Fed. Cl. 650, 656 (2005); Southern Nuclear Operating Co. v. United States, No. 98-614C, slip op. at 5 (Fed. Cl. Apr. 7, 2004); Commonwealth Edison Co. v. United States, 56 Fed. Cl. 652, 656 (2002). In its brief, Consumers fails to identify a single case supporting the proposition that a takings claim can arise from a breach of contract. Instead, Consumers attempts to analogize its cause of action to takings claims arising from physical occupations of property by the Government, such as Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982), in which the Supreme Court found that the permanent physical occupation of plaintiff's property through the installation of cable cross-over wires constituted a taking. Id. at 427, 434-35. However, Consumers does not allege that DOE's breach of the Standard Contract resulted in a physical occupation of the Big Rock Point or Palisades sites.5 To the contrary, until the date of the sale to Entergy, Consumers owned the SNF at its facilities, given that title to the SNF does not transfer until DOE accepts the SNF, Indiana Michigan Power Co. v. Department of Energy, 88 F.3d 1272, 1276 (D.C. Cir. 1996), precluding a "physical invasion" argument. See The

Consumers incorrectly appears to suggest that there has been some type of physical invasion of its former property, stating that the Government's delay in SNF has somehow created a "constructive" physical taking. Consumers has provided no support for this proposition, and we are unaware of any legal authority for a "constructive" physical invasion takings theory. Further, the SNF on Consumers' site belongs to Consumers, not the Government. No third-party "physical invasion" has occurred. 6

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Stearns Co. Ltd. v. United States, 396 F.3d 1354, 1357 (Fed. Cir. 2005) (rejecting claim for physical invasion takings claim unless "the government itself occupies the property or 'requires the landowner to submit to physical occupation of its land'" (citations omitted)).6 The cases upon which Consumers relies are far afield from the claims that it is pursuing here. This Court should look instead to the cases cited in the Government's renewed motion to dismiss for guidance as to the viability of Consumers' contract-based takings claim. Consumers also failed to articulate any viable regulatory taking of its property. Before the Court analyzes whether Government action constituted a regulatory taking, the plaintiff must identify whether a protected property interest exists, apart from the context of its contract. See Def. Renewed Motion at 14-18. Consumers has not identified any regulation by the Government that allegedly took its property. To the extent that Consumers attempts to identify the NWPA as the basis for a regulatory taking, this claim fails as a matter of law. Statutes like the NWPA generally may not form the basis of a protected property interest for purposes of a takings claim. Members of the Peanut Quota Holders Ass'n, Inc. v. United States, 421 F.3d 1323, 1334 (Fed. Cir. 2005); see Def. Renewed Mot. at 16-17.7 Rather than identify any regulation that has "taken" Consumers' right to SNF disposal, the true "taking" that Consumers has alleged is the

Similarly, Consumers' reliance upon Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 162 (1980), is equally misplaced. Webb's involved the State of Florida's attempt permanently to appropriate interest earned upon a private account at the clerk's office. Here, there has been no appropriation of property. Rather, Consumers has alleged precisely the opposite ­ the failure of the Government to accept Consumers' SNF. Even if the NWPA could, as a matter of law, create a protected property interest that is compensable under the Fifth Amendment, Consumers has failed to cite any specific provision of the NWPA that would confer such a protected property interest. 7
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Government's failure to begin accepting SNF beginning on January 31, 1998 ­ the date contained in the Standard Contract. Nor does the Supreme Court's decision in Nollan v. California Coastal Commission, 483 U.S.825 (1987), change the result in this case. In Nollan, homeowners challenged the coastal commission's conditioning of its grant of permission to rebuild their house on their transfer to the public of an easement across their beachfront property. Id. at 827. The Supreme Court held that the conditioning of a permit upon the granting of an easement constituted a compensable takings under the Fifth Amendment. Id. at 841-42. Consumers acknowledges in its supplemental brief that there "is some difficulty in applying the concepts of Nollan to the present case since Nollan involves land use restrictions which are not directly analogous to the present facts." Pl. Response at 8. As the United States Court of Appeals for the Federal Circuit recognized in another case interpreting Nollan, the fact that "[n]o such physical intrusion ­ by government or the public ­ occurred here" renders Nollan inapplicable. Norman v. United States, 429 F.3d 1081, 1089 (Fed. Cir. 2005). We agree that Nollan, by its very terms, has no application to the facts in this case. Regardless of whatever conditions may have been placed upon entry into the Standard Contract, the fact remains that there is a contract between the Government and Consumers, and Consumers has not alleged that the decision to enter into the Standard Contract somehow constitutes a takings, a claim that, if made, would be time-barred. Question No. 2. "To what extent would a claim for damages stemming from Plaintiff's allegation of a taking of real property overlap with the currently pending claim for damages in regard to Defendant's liability for partial breach of the Standard Contract?" Consumers' takings and breach of contract claims overlap identically. Consumers acknowledges that the Government's performance obligations is contained exclusively in the

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Standard Contract. Despite its protestations to the contrary, Consumers' response makes evident that its takings claim is predicated upon the Standard Contract. Indeed, it frames the issues in this case as "[w]hether Defendant DOE's failure to begin accepting, transporting, and disposing of spent nuclear fuel . . . states a causation of action for a taking" of its real property and its "vested contract rights." Pl. Response at 2 (emphasis added). Yet, as we explained in our renewed motion to dismiss, and which Consumers does not dispute, the only basis for Consumers' claimed obligation on the part of the Government to accept, transport, and dispose of Consumers' SNF derives from the Standard Contract. A plaintiff's failure to recover under a cognizable breach of contract claim does not convert that failed claim into, or otherwise create, a constitutional taking of property, and a plaintiff cannot plead a takings claim in an attempt to recover damages that are otherwise unrecoverable under a breach of contract theory. See Home Sav. of Am., F.S.B. v. United States, 51 Fed. Cl. 487, 495-96 (2002). Consequently, if the contract claim is rejected, either in whole or in part, a party cannot simply make up the difference with a takings claim. Nor may Consumers retain its takings claim as an "alternative" to its breach of contract claim. The Federal Circuit's decisions in cases such as Castle and LaVan v. United States, 382 F.3d 1340, 1351-52 (Fed. Cir. 2004), plainly establish that Consumers's takings claim here is not viable, making resolution of this motion appropriate. Further, this Court in Klamath Irrigation District v. United States, 67 Fed. Cl. 504 (2005), rejected the notion of "alternative" breach of contract and takings claims, explaining that it is inconsistent with the nature of rights created by a contract with the Government. Id. at 532 n.46. In this case, where there is no allegation that

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the Government has taken Consumers' contract remedies, Consumers may not, as a matter of law, maintain a takings claim ­ whether as an alternative to its breach claim or otherwise. Consumers relies upon the Court's decision denying the Government's motion for summary judgment in Boston Edison Co. v. United States, 64 Fed. Cl. 167 (2005), for the proposition that there exists a factual dispute regarding a takings claim that somehow justifies denial of the Government's motion to dismiss. Pl. Response at 18. As we explained in our motion, the Court in Boston Edison concluded that a factual dispute existed as to the origin of plaintiff's rights. Boston Edison, 64 Fed. Cl. at 187. However, in a decision by the Federal Circuit issued shortly after the Court's decision in Boston Edison, the Federal Circuit reaffirmed that the nature of a plaintiff's property interest is a question of law rather than a question of fact. Texas State Bank v. United States, 423 F.3d 1370, 1379 (Fed. Cir. 2005). As the Court explained in Canal in dismissing another SNF's plaintiff's takings claim as a matter of law, "[r]uling that the parties should conduct discovery on investment-backed expectations or other factual issues as plaintiff has urged would only create delay and waste resources." Canal, 65 Fed. Cl. at 656. In light of the facially deficient nature of Consumers' takings claim as a matter of law, no "factual development" would improve the viability of Consumers' claim. Consequently, dismissal under the circumstances is appropriate. CONCLUSION The Government respectfully requests that the Court grant the Government's renewed motion to dismiss Count III of Consumers' complaint. Respectfully submitted, JEFFREY S. BUCHOLTZ Acting Assistant Attorney General 10

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JEANNE E. DAVIDSON Director

s/ Harold D. Lester, Jr. HAROLD D. LESTER, JR. Assistant Director

OF COUNSEL: JANE K. TAYLOR Office of General Counsel U.S. Department of Energy 1000 Independence Avenue, S.W. Washington, D.C. 20585 STEPHEN FINN JOSHUA E. GARDNER Trial Attorneys Department of Justice Washington, D.C. 20530 March 7, 2008

s/ Scott R. Damelin by s/ Harold D. Lester, Jr. SCOTT R. DAMELIN Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 305-2312 Fax: (202) 307-2503

Attorneys for Defendant

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ATTACHMENT

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CERTIFICATE OF FILING I hereby certify that on this 7th day of March, 2008, a copy of foregoing "DEFENDANT'S RESPONSE TO THE COURT'S ORDER DATED FEBRUARY 8, 2008" BRIEFING" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/ Harold D. Lester, Jr.