The Property Right in Water, 9 Hastings West Northwest J

Hastings Environmental Law Journal Volume 9 Article 1 Number 1 Fall 2002

1-1-2002 The rP operty Right in Water Brian E. Gray

Follow this and additional works at: https://repository.uchastings.edu/ hastings_environmental_law_journal Part of the Environmental Law Commons

Recommended Citation Brian E. Gray, The Property Right in Water, 9 Hastings West Northwest J. of Envtl. L. & Pol'y 1 (2003) Available at: https://repository.uchastings.edu/hastings_environmental_law_journal/vol9/iss1/1

This Article is brought to you for free and open access by the Law Journals at UC Hastings Scholarship Repository. It has been accepted for inclusion in Hastings Environmental Law Journal by an authorized editor of UC Hastings Scholarship Repository. For more information, please contact [email protected]. Z

I. Introduction

"We have the water rights. We weren't al- lowed to use them. So they took our private property away." -Mike Byrne, a Tulelake farmer and plaintiff in Klamath Irrigation District v. United States, No. 01-591 L (Fed. Cl. 2001).' The Property Right in Water "A lot of the subsidized farming in the Kla- math Basin can be replaced. These endan- By Brian E. Gray& gered species cannot." -Wendell Wood, Southern Oregon Field Representative for the Oregon 2 Natural Resources Council.

The debate over takings and water rights suffers from bipolar disorder. Consumptive water users-some of whom have relied for generations on the West's developed water resources-believe that their rights are vested and inviolable. Environmentalists-who have successfully argued that many of our river systems have been overdeveloped to the det- riment of fish, wildlife, and water quality-deny that these users have any property

s Professor of Law, University of California, Hastings College of the Law. B.A., Pomona College, 1976; J.D., University of California at Berkeley, 1979. I would like to thank my friends and colleagues: John Leshy, for his helpful comments on this paper, and Joe Sax, Hap Dunning, and Buzz Thompson for their earlier analyses of many of the issues addressed in this article. See, e.g., Joseph L. Sax, "The Constitution, Property Rights and the Future of Water Law," 61 U. Colo. L. Rev. 257 (1990); Harrison C. Dunning, "The Public Right to Use Water in Place," 4 Waters and Water Rights, Part VI (1996 ed.); Barton H. Thompson, Jr., "Judicial Takings," 76 U. Va. L. Rev. 1449 (1990). As with all aspects of water resources law, I have been enriched by their insights. I. Jeff Barnard, "Klamath Farmers File New Suit Over Water," Associated Press, Oct. 12, 2001 (reporting the filing of a $1 billion takings claim against the United States arising out of the Bureau of Reclamation's reduction in water service to irrigation districts and farmers in the Klamath Basin to provide water for three species of fish protected by the Endangered Species Act). 2. Eric Bailey, "Farmers Seek U.S. Help to Regain Water Diverted to Protect Fish," L.A. Times, July 4, 2001, § 2. p. 8 (reporting the filing of an application to convene an "Endangered Species Committee"-i.e., God Squad-to review the biological opinions for the Klamath Project that resulted in the elimination of water service to more than 200,000 acres of farmland in the basin). Brian E.Gray Volume 9, Number I Brian F.Gray Valume 9, Number 1 or contract rights to divert water under cir- -Eric T. Freyfogle, "Regulatory cumstances that harm environmental inter- Takings, Methodically," ests. 31 Environmental Law Reporter 10313 (2001). These opposing views of water rights illustrate a fundamental tension in water rights The Fifth Amendment to the Constitu- law. On the one hand, water rights are recog- tion sets forth the elements of takings claims nized as property under both state and fed- in grammatical sequence: "Nor shall private eral law, and the holders and beneficiaries of property be taken for public use without just these rights have legitimate reliance interests compensation."5 As the text indicates, before in the continued supply of water. In the Kla- property may be "taken," there must exist "private property" math Basin, for example, some users (or their capable of being taken. predecessors) have been farming for more The Supreme Court has made clear in several than 100 years. 3 As one Tulelake resident has important decisions that the plaintiff in tak- put it, "My grandfather homesteaded in 1939 ings cases must establish that he or she pos- and was given the promise that water would sesses property rights vis-4I-vis the be there to irrigate his farm. The devastation government, which the government has taken ' 4 for our family and friends is unbelievable." either by eminent domain or by regulation. If On the other hand, water rights are a unique the plaintiff cannot prove such a property form of property-limited by hydrologic varia- right, the takings claim fails ab initio. bility, competing demands, the doctrines of Two cases involving the federal naviga- reasonable and beneficial use, and in some tional servitude are illustrative. In United states overtly environmental laws such as the States v. Rands,6 the plaintiffs owned land public trust and statutory directives to pro- along the Columbia River near the confluence tect instream flows and water quality. Moreo- with the John Day. They leased the land to ver, in those situations where water is Oregon with an option to purchase. The state supplied by contract (such as in the Klamath planned to use the property as an industrial Project and other components of the federal site and port. If Oregon exercised this option, reclamation system), the terms and condi- however, it would have had to pay market tions of water service set forth in those con- value for the land in the John Day Lock and tracts also may limit the water users' property Dam Project. Instead, the United States then rights. The first question in all water rights condemned the Rands' land as part of the takings cases therefore is: Does the plaintiff John Day Lock and Dam Project and subse- in fact possess water rights (or contract rights quently transferred fee title to the state "at a to water service) that allegedly have been im- price considerably less than the option price paired by government action or regulation? at which respondents had hoped to sell."7 In the condemnation case, the Government as- If. Private Property and Takings serted the federal navigational servitude and argued that all value in the land attributable "The just compensation clause requires com- to its proximity to the Columbia River must pensation for the taking of property, which be excluded from the determination of "just is to say the taking of a thing, tangible or compensation." The district court agreed and intangible, recognized by law as property." decided that the compensable value of the

3. William Kittredge, Balancing Water: Restoring the Kla- 5. U.S. Constitution, Amendment V. The takings math Basin 52-57 (2000). The Klamath Project, one of the clause is applicable to the states through the due process oldest in the federal reclamation system, was authorized by clause of the Fourteenth Amendment. Tahoe-Sierra Preser- Congress in 1905. Water deliveries began in 1910. Id. vation Council v. Tahoe Regional Planning Agency, 122 S. Ct. 4. Peter Hecht, "Scientific Review of Klamath Irriga- 1465, 1470 n.1 (2002). tion Shutoff Begins," Sacramento Bee, Nov. 1I,2001 (quoting Bill Heiney, who was able to irrigate only eight percent of 6. 389 U.S. 121 (1967). his normal planting of mint, alfalfa, potatoes, and sugar beets on his 500 acre farm). 7. Id. at 122. Fall 2002 The Property Right inWater Fall 2002 The Property Right in Water property should be "limited to its value for from the navigational servitude, for exercise sand, gravel, and agricultural purposes and of the servitude is 'not an invasion of any pri- that its special value as a port site could not vate property rights in the stream or the lands be considered. The ultimate award was about underlying it." 1 ' one-fifth the claimed value of the land if used as a port."8 The principle that a takings claimant must first establish the existence of a prop- In upholding the district court's applica- erty right against the government is fre- tion of the federal navigational servitude, the quently overlooked, or misunderstood, both Supreme Court concluded that the plaintiffs by courts and litigants. Indeed, in the two did not have property rights vis-a-vis the most prominent pending takings cases in- United States in any aspect of their property volving water and contract rights, the distinc- subject to the servitude. These included the tion between property rights and takings has flow of the water in the Columbia River, the been inappropriately blurred. In Tulare Lake submerged lands below the median high 2 Water Storage District v. United States, 1 the Court water mark, access to the water, and other of Federal Claims decided that a reduction in values attributable to the property's proxim- water service to several California State Water ity to the river. According to the Court, "these Project contractors-which was caused by a rights and values are not assertable against combination of drought and the application the superior rights of the United States, are of the Endangered Species Act-was a taking not property within the meaning of the Fifth of the contractors' property. The court Amendment, and need not be paid for when reached this conclusion, however, before it appropriated by the United States."9 determined either that the plaintiffs' SWP United States v. Cherokee Nation of contacts gave them the right to water service Oklahoma'° applied the principles of Rands to under these conditions of shortage or that an alleged regulatory taking. The Cherokee the United States' implementation of the En- Nation, which held fee title to the bed and dangered Species Act violated the underlying banks of the Arkansas River, sued the United water rights for the project. 13 Similarly, the States for just compensation for damage to plaintiffs in the Klamath Basin takings case, its interests caused by the Army Corps of En- Klamath Irrigation District v. United States,14 have gineers' construction of navigational im- alleged that the reduction in water service provements in the river. The Tribe claimed from the Klamath Project, also caused by that the treaty that conveyed fee title to the drought and endangered species obligations, riverbed also abrogated the federal naviga- was a taking of their water rights without just tional servitude, The Supreme Court held compensation. The complaint ignores the that the servitude may be waived only by ex- fact that the plaintiffs' rights to water service press and unmistakable language in the from the project are defined by the contracts treaty. Because the treaty was silent on the by which the Bureau of Reclamation delivers question, the United States retained its para- water to them. For takings purposes, mount authority under the federal naviga- whatever water rights the plaintiffs may pos- tional servitude. As in Rands, the Court sess have been superceded by the terms and concluded, "the tribal interests at issue here conditions set forth in those water con- simply do not include the right to be free tracts. '5

8. Id. 14. Court of Federal Claims, No. 01-591 L (complaint filed, Oct. 11, 2001). 9. Id.at 126. 15. The Klamath takings litigation will be a focus of 10. 480 U.S. 700 (1987). part IV. 11.Id. at 708 (quoting Rands, 389 U.S. at 123). 12. 49 Fed. CI. 313 (2001). 13. Tulare Lake will be the focus of part IIIof this arti- Brian E.Gray Volume 9, Number 1 Brian E.Gray Valume 9, Number 1 If the first question in any takings case * hydrologic variability and consequent un- then is whether the plaintiffs actually own certainties regarding the availability of "property" vis-a-vis the government, the more water for diversion, storage, and distribu- intriguing next question arises: What exactly tion; is the property right in water? The answer is " ambiguities in quantification and priority, layered and in some cases elusive. A water as well as inaccuracies in the measurement user's rights may be found in contracts, per- of diversion, use, and return flow; mits and licenses, administrative orders, stat- " tensions between privatization of the re- utes, state constitutions, judicial opinions, source through the water rights system and common law doctrines, and combinations declarations of state ownership of all water thereof. resources; and " express limitations on the property right in IlI. Water Rights and Takings. water-such as reasonable and beneficial use, the federal navigational servitude, and "While plaintiffs correctly argue that a prop- the public trust-that are designed to pro- erty right cannot be taken or damaged with- tect the common and public interest. out just compensation, they ignore the The concept of a "vested" water necessity of first establishing the legal exis- right-protected by the Fifth and Fourteenth tence of a compensable property interest. Amendments from takings without payment Such an interest consists in their right to the reasonable use of the flow of the water .... of just compensation-is defined by these 16 There is now no provision of law which autho- physical and legal limitations. As a conse- rizes an unreasonable use or endows such use quence, both the states and the federal gov- with the quality of a legally protectible inter- ernment have broad authority to regulate the est merely because it may be fortuitously appropriation and use of water-without vio- beneficial to the lands involved." lating the property rights of water right holders and other water users-to protect fish, -Justice Raymond Sullivan, writing wildlife, water quality, and other aspects for a unanimous court California of Supreme Court in Joslin v. the natural environment. The most general, Marin Municipal Water District, and important of the limitations embodied in 67 Cal.2d 132, 143-44 (1967). the water right is the doctrine of reasonable and beneficial use. Application of the doc- Water rights are a unique form of prop- trine is heavily dependent on the facts of erty, because the property right in water is each case, and the definition of reasonable limited (or rendered less certain) by a variety and beneficial use varies from state to state. of factors that seldom affect real property and To understand how the doctrine works as a other property rights. These limitations are potential limitation on the property right in both physical and legal. They include: water, therefore, it is best to look at one * the common nature of the resource (which case-the most significant water rights takings is shared not only by water right holders case litigated to date-Tulare Lake Water Storage United States.' 7 and other consumptive users, but also by in District v. situ uses such as fish and wildlife, aquatic As with the other cases discussed in this and riparian habitat, water quality, and article, Tulare Lake arose out of the application other environmental uses); of the Endangered Species Act to long-stand-

16. The California Supreme Court explained the link sion in nowise remains the same. When the supply is lim- between hydrologic forces and the unique features of the ited public interest requires that there be the greatest water right in Peabody v. City of Vallejo, 2 Cal. 2d 351, 368, number of beneficial uses which the supply can yield." 40 P.2d 486, 491 (1935): "The waters of our streams are not like land which is static, can be measured and divided and 17. 49 Fed. CI. 313 (2001). For a detailed analysis of the division remain the same. Water is constantly shifting, the Tulare Lake litigation, see Melinda Harm Benson, Tulare and the supply changes to some extent every day. A Lake Case: Water Rights, the Endangered Species Act, and the Fifth stream supply may be divided but the product of the divi- Amendment, 32 Environmental Law 551 (2002).

4 Fall 2002 The Property Right in Water ing water supply arrangements. This is no co- ment is that DWR's ability to supply water to incidence, because the Endangered Species customers of the SWP is governed by the con- Act presents the starkest contrast between sultation requirements of section 7 of the En- the ancien rEgime-the era of seemingly limit- dangered Species Act, which without the less water resources development-and our agreement would apply only to the Bureau of contemporary world in which consumptive Reclamation's operation of the CVP. 2 1 At the users must compete both with each other time the litigation arose, two species of fish and with the natural environment for the de- that inhabit the Sacramento-San Joaquin veloped (and, in many cases, overextended) River and Delta water system-the Winter Run water resources. As Judge John Paul Wiese Chinook Salmon and the Delta Smelt-had 22 noted at the outset of his opinion in the case, been listed for protection under the Act. the decisions made by the National Marine The biological opinions for the coordinated Fisheries Service and the United States Fish operation of the two projects for water years and Wildlife Service to protect the Sacra- 1992-1994 gave rise to the plaintiffs' takings 2 3 mento River Winter-Run Chinook Salmon and claims against the United States. the Delta Smelt-"specifically by restricting The reasonable and prudent alternatives water outflows in California's primary water set forth in the biological opinions led to sig- distribution system-bring together, and ar- nificant changes in both CVP and SWP opera- guably into conflict, the Endangered Species tions, including restrictions on pumping to Act and California's century-old regime of pri- 8 protect in-migrating adult salmon and out- vate water rights."' migrating juveniles, the routing of additional The plaintiffs in Tulare Lake are four Cali- flows from the Sacramento River away from fornia water agencies, as well as several water the interior channels of the Delta into the users within the agencies, that receive water Carquinez Strait and San Francisco Bay, and by contract from the California State Water compliance with temperature and salinity Project. 19 The SWP is owned and operated by standards to protect both species of fish dur- the California Department of Water Re- ing their respective spawning seasons. sources, which also holds the water rights for Among the immediate consequences of these the project. Pursuant to a 1985 agreement, changes were shortages in both the CVP and DWR coordinates its operation of the SWP SWP systems. Most CVP agricultural contrac- with the Bureau of Reclamation's operation tors located south of the Delta received only of the Central Valley Project. 20 One conse- about half of their stated contract supplies in quence of the Coordinated Operation Agree- 1993,24 and SWP contractors incurred signifi-

18. Id. at 314. 22. NMFS listed the Winter-Run Chinook Salmon as a threatened species in 1989, 55 Fed. Reg. 12,191 (Apr. 2. 19. Two of these agencies-the Tulare Lake Basin 1989), and as an endangered species in 1994. 59 Fed. Reg. Water Storage District and the Kern County Water 440 (lan. 4, 1994). USFWS listed the Delta Smelt as a Agency-have contracts with the SWP water service. The threatened species in 1993. 58 Fed. Reg. 12,863 (Mar. 5, others two agencies-Lost Hills Water District and Wheeler 1993). In 1999, the agencies listed two other species that Ridge-Maricopa Water Supply District-have subsidiary con- inhabit or pass through the Delta as threatened: the Sacra- tracts with Tulare Lake and KCWA. Id. at 315. mento Splittail, 64 Fed. Reg. 5963 (Feb. 8, 1999); and the 20. Agreement Between the United States of America Sacramento River Spring-Run Chinook Salmon. 64 Fed. and the Department of Water Resources of the State of Cal- Reg. 50394 (Sept. 16, 1999). ifornia for the Coordinated Operation of the Central Valley 23. NMFS issued biological opinions on the effects of Project and the State Water Project (May 20, 1985); see Pub. joint project operations on the Winter-Run Salmon for all L. No. 99-546, 100 Stat. 3050 (1986) (congressional authori- three water years in question. Because of the later listing zation of the "Coordinated Operation Agreement"). of the Delta Smelt, USFWS issued biological opinions only 21. Section 7 requires federal agencies such as the for water years 1993 and 1994. See Tulare Lake, 49 Fed. CI. at Bureau of Reclamation to consult with NMFS or USFWS to 315-16. "insure that any action authorized, funded, or carried out 24. The litigation over the CVP water service deficien- by Ithel agency... is not likely to jeopardize the continued cies is analyzed in Part IV. existence of any endangered or threatened species or result in destruction or adverse modification" of the specie's critical habitat. 16 U.S.C.A. § 1536(a)(2). Brian E.Gray Volume 9, Number I cant shortages as well. Tulare Lake alleged tion for taking their property. 26 Judge Wiese that the restrictions on project operations set based his decision on three grounds. forth in the biological opinions deprived its users of 58,820 acre feet during water years First, he held that the application of the 1992-1994. KCWA claimed that DWR's com- Endangered Species Act to reduce the plain- pliance with the biological opinions cost its tiffs' water supplies did more than simply users 319,420 acre feet over the same pe- frustrate the performance of their State Water 25 riod. Although these shortages were partly Project contracts. 27 Rather, "ItIhose contracts the result of prolonged drought-water years confer on plaintiffs a right to the exclusive 1987 through 1992 were either dry or critically use of prescribed quantities of water, consis- dry years-there also is no question but that tent with the terms of Ithe SWP] permits. the Endangered Species Act contributed to That right remains in place until formally the water supply deficiencies by mandating changed by administrative process." 28 Be- the reallocation of water from consumptive cause the reasonable and prudent alterna- uses in the CVP and SWP systems to the in tives imposed on the project by NMFS and situ needs of the two protected species of fish. USFWS deprived the plaintiffs of this right of The water shortages at issue in Tulare Lake use, the court concluded, the Government en- 29 thus resulted from a hybrid drought-a gaged in a taking of their property. drought caused by both hydrologic and regulatory forces. Second, Judge Wiese ruled that the re- The Court of Federal Claims has con- duction in the plaintiffs' SWP water deliveries cluded that the United States is legally re- was a per se taking under the permanent phys- sponsible for these water shortages and must ical occupation rule of Loretto v. Manhattan Tele- pay the Tulare Lake plaintiffs just compensa- prompter CATV Corp.30 The court analogized

25. See 49 Fed. Cl. at 316. Tulare Lake's SWP normal 29. Judge Wiese rejected the United States' reliance allocation is 118,500 afa, while KCWA's contract allotment on Omnia Commercial Co. v. United States, 261 U.S. 502 is 1,153,400 afa. Id. at 315. All of the SWP contracts pro- (1923), in which the Supreme Court held that the Govern- vide, however, that "Inleither the state nor any of its of- ment did not take Omnia's property when it requisitioned ficers, agents, or employees shall be liable for any damage, Allegheny Steel Company's entire production of steel plate direct or indirect, arising from shortages . . caused by during World War I. Omnia had a contract with Allegheny drought, operation of area of origin statutes, or any other to purchase large quantities of steel plate at below-market cause beyond Itheirl control." California State Water Pro- price and claimed that the United States' preemption of ject Contracts I 18(f); see 49 Fed. Cl. at 320. this contract violated its Fifth Amendment rights. The Su- preme Court held that the Government did not take 26. At this writing, the United States has decided not Omnia's property, to seek an interlocutory appeal, and the parties are prepar- because the takings clause "has always ing to present evidence on damages. been understood as referring only to a direct appropriation, and not to consequential injuries resulting from the 27. The United States argued that the Act rendered exercise of lawful power." Id. at 510 (citation omitted). In full performance of the SWP contracts illegal and thus sim- Tulare Lake, Judge Wiese distinguished Omnia on the ground ply frustrated the contractors' expectations- Accordingly, that the plaintiffs' SWP contract rights to water were more "matured." the Government neither appropriated the contracts them- "Unlike the situation in Omnia, where the plain- selves, nor engaged in a taking of the underlying right to tiff could claim only a contract expectancy but not an own- full water service. See 49 Fed. CI. at 317. ership right in the steel, our plaintiffs can claim an identifiable interest in a stipulated volume of water." 49 28. Id. at 318. The California State Water Resources Fed. Cl. at 318. Control Board has amended the water rights permits for the SWP (and the CVP) inter alia to require project operators to protect all endangered and threatened species in the The court's contract analysis is questionable. For Sacramento-San Joaquin River and Delta system. Califor- what is an executory contract right if not an "ownership nia State Water Resources Control Board, Water Right Or- right" in the steel, water, or other good or service the con- der 95-1 (1995); see California State Water Resources tractor has been promised? More relevant to this article, Control Board, Water Quality Control Plan for the San Fran- however, is the antecedent conclusion that the SWP con- cisco Bay/Sacramento-San Joaquin Delta Estuary (1995); tractors have "an identifiable interest in a stipulated volume California State Water Resources Control Board, Water of water." As explained in the text that follows, this defini- Right Order 95-6 (1995); California State Water Resources tion of the property right in water is incorrect under Califor- Control Board, Water Right Order 98-9 (1998); California nia water rights law. State Water Resources Control Board, Water Right Decision 1641 (1999). 30. 458 U.S. 419 (1982). Fall 2002 The Property Right in Water the case to United States v. Causby,31 in which limitations on the water rights for the the Supreme Court held that the Government SWP-and, hence, the plaintiffs' derivative was liable for the invasion of airspace imme- rights as project contractors-came into play. diately above the plaintiffs' land by military The "plaintiffs' contract rights are subject to planes taking off and landing at a nearby air- the public trust doctrine, the doctrine of rea- field. Judge Wiese also relied heavily on sonable use, and common law principles of three other cases in which the Supreme Court nuisance, all of which provide for the protec- suggested that the construction and operation of fish and wildlife. To the extent that tion of the CVP (and consequent interference the reductions in the water supply that plain- with downstream water rights) was tanta- tiffs suffered are designed to advance those mount to an invasion of land and therefore interests .... the reductions merely reflect the was a taking of property. 32 limitations of title inherent in the background principles of state law, land] no right to com- Third, "[hlaving concluded that a depri- pensation attends the assertion of such back- 34 vation of water amounts to a physical tak- ground principles." ing"-not to mention an abridgement of contract rights-Judge Wiese then turned "to Judge Wiese rejected the Government's characterization of the plaintiffs' property the question of whether plaintiffs in fact rights in the water supplied by the SWP. He owned the property for which they seek to be based his decision compensated." 33 As noted at the outset, the on the water rights permits for the project, which were modified by court's analysis of this question as something the California of an afterthought is backward, because there State Water Resources Control Board in a 1978 decision that is commonly can never be a taking of property or breach of 35 known as Decision 1485 or simply "D-1485. contract unless the plaintiffs in fact possess The Board adopted Decision 1485 concur- the property or contract rights that form the rently with its promulgation of ambient water basis of their claim for just compensation. quality standards for the Delta. 36 As the Cali- The United States argued that the plain- fornia Court of Appeal has explained, tiffs simply did not have rights to water ser- Iiln the Plan, the Board set new water vice under the conditions that gave rise to the quality standards to protect fish and litigation: prolonged drought; water wildlife and to protect agricultural, in- shortages among consumptive users; compe- dustrial and municipal uses of Delta tition between consumptive users and in- waters. In the Decision, the Board stream uses over available supplies; and valid modified the permits held by the U.S. regulatory judgments made by NMFS and Bureau and the DWR to compel the USFWS that the projects could not fully exer- projects to release enough water into cise their appropriative rights without jeop- the Delta or to reduce their exports ardizing the Winter-Run Chinook Salmon and from the Delta so as to maintain the the Delta Smelt. Under these circumstances, the Government contended, fundamental

31. 328 U.S. 256 (1945). explain why he believed this factual distinction was of no consequence. 32. 49 Fed. CI. at 319. Judge Wiese cited United States v. Gerlach Livestock Co., 339 U.S. 725 (1950), and 33. Id. at 320. Ivanhoe Irrigation District v. McCracken, 357 U.S. 275 (1958), and quoted the Court's declaration in Dugan v. 34. 49 Fed. CI. at 320. Rank, 372 U.S. 609, 625 (1963), that a "seizure of water rights need not necessarily be a physical invasion of land. 35. California State Water Resources Control Board, It may occur upstream, as here." He rejected the United Water Right Decision 1485: Sacramento-San Joaquin Delta States' attempt to distinguish these cases on the ground and Suisun Marsh (1978). that "each involved actual diversions of water by the government for its own consumptive use, whereas here, it is 36. California State Water Resources Control Board, claimed, the government has merely regulated the plain- Water Quality Control Plan: Sacramento-San Joaquin Delta tiffs' method of diverting water." Id.Judge Wiese did not and Suisun Marsh (1978). Brian E.Gray Volume 9, Number 1

water quality standards set in the noted, Decision 1485 allocated sufficient 7 Plan.1 water to DWR to enable it to provide full water deliveries to its contractors. The deliv- According to Judge Wiese, because the Water ery of project water to the plaintiffs therefore Quality Control Plan and Decision 1485 fo- could not be termed a nuisance under ex- cused inter alia on fish and allocated the avail- isting principles of California law, because able water to the SWP (and the CVP) based that allocation "was specifically authorized by on the water requirements of the fish and the state in D-1485." 39 Although the SWRCB other in situ uses, the diversion rights set subsequently declared these project opera- forth in D-1485 define the Department of tions to be illegal to the extent they were in- Water Resources' (and its contractors') water reasonable and prudent rights: consistent with the alternatives established by NMFS and Once an allocation has been made-as USFWS, Judge Wiese observed that this modi- was done in D-1485-that determina- fication of the SWP water rights permits oc- tion defines the scope of plaintiffs' curred in 1995-"after the period in dispute, property rights, pronouncements of and cannot therefore be construed as altering other agencies notwithstanding. the scope of plaintiffs' contract rights for the While we accept the principle that 40 1992-1994 period.." California water policy may be ever- evolving, rights based on contracts with the state are not correspondingly Nor would the court accept the Govern- self-adjusting. Rather, the promissory ment's invitation to consider whether full assurances they recite remain fixed water service to the plaintiffs-under condi- until formally changed. In the ab- tions that the fisheries services believed sence of a reallocation by the State would be likely to harm the Winter-Run Chi- Water Resources Control Board, or a nook Salmon and the Delta Smelt-would determination of illegality by the Cali- have violated the reasonable use doctrine fornia courts, the allocation scheme imposed by D-1485 defines the scope and the public trust. These laws "require a 38 of plaintiffs' contract rights. complex balancing of interests," Judge Wiese explained, and call for "an exercise of discre- Judge Wiese acknowledged that all Cali- tion for which this court is not suited and fornia water rights are subject to the require- with which it is not charged." 4' He concluded ment of reasonable use, the public trust that "lilt is the Board that must provide the doctrine, and principles of nuisance law, but necessary weighing of interests to determine he rejected the United States' argument that the appropriate balance under California law the plaintiffs' rights to water service were lim- between the cost and benefit of species pres- ited by these rules during the three water ervation. The federal government is certainly years at issue. Were it not for the restrictions free to preserve the fish; it must simply pay imposed by the biological opinions, he for the water it takes to do so."42

37. United States v. State Water Resources Control this contract term "insulates DWR from liability for circum- Board, 182 Cal. App. 3d 82, 111, 227 Cal. Rptr. 161, 175 stances beyond its control; not the federal government." 49 (1986). Fed. Cl. at 321 (emphasis in original). Nor does it "render plaintiffs' interest in the water contingent; it merely pro- 38. 49 Fed. Cl. at 322. vides DWR with a defense against a breach of contract ac- 39. Id. at 323. tion in certain specified circumstances. With that exception, plaintiffs' contract rights are otherwise fully 40. Id. at 322. formed against DWR, and certainly against a third party 41. id. at 323-24. [viz. the United States] seeking to infringe on those rights." 42. Id. at 324. Judge Wiese also decided that the Id. shortage provision in the SWP contracts protected only the State from liability for water supply deficiencies "caused by This aspect of the court's analysis is correct. The ex- drought, operation of area of origin statutes, or any other emption from liability set forth in the shortage provision of cause beyond its control." California State Water Project the contracts expressly applies only to the State and its Contracts I 18(f); see supra note 26. According to the court, officers, agents, and employees, and the court properly re- Fall 2002 The Property Right in Water

Reluctant to delve into the nuances of The doctrine of reasonable use applies to all the reasonable use and public trust doc- uses of water, including water appropriated 45 trines, the Court of Federal Claims seized on and distributed by the State Water Project. Decision 1485 as the conclusive definition of Whether a specific use of water under particu- the water rights for the State Water Project lar circumstances is reasonable depends on and hence the plaintiffs' derivative rights to the facts of each case. 46 Moreover, the defini- water service from the project. In essence, tion of reasonable use is a dynamic and utili- the court decided that an appropriator is le- tarian concept. As the California Supreme gally entitled to engage in (and has property Court has stated: "What constitutes reasona- rights to) any conduct that is authorized by ble water use is dependent upon not only the its water rights permit or license. 4 3 This in- entire circumstances presented but varies as terpretation oversimplifies-and therefore the current situation changes .... misapprehends-the nature of California 'IRleasonable use of water depends on the water rights. circumstances of each case, [and] such an in- The California Constitution declares that quiry cannot be resolved in vacuo from statewide considerations of transcendent 47 Itlhe right to water or to the use or importance.' , flow of water in or from any natural stream or water course in this State is The California courts have applied the and shall be limited to such water as doctrine of reasonable use to overturn long- shall be reasonably required for the 4 8 and they beneficial use to be served, and such standing priorities of water rights, right does not and shall not extend to have held that consumptive uses of water the waste or unreasonable use or un- based on appropriative rights may become reasonable method of use or unrea- unreasonable because of the adverse effects sonable method of diversion of of the diversion or use on the natural envi- 44 water. ronment. 49 Indeed, in its review of the 1978 fused to find a broader implied immunity that would in- 44. California Constitution, art. X, § 2 (West 1996). clude the federal government. The provision may well, as 45. United States v. State Water Resources Control the United States argued, be evidence that the plaintiffs Board, 182 Cal. App. 3d 82, 129, 227 Cal. Rptr. 161, 187 knew (or reasonably should have known) that their annual (1986). water deliveries would be uncertain, variable, and subject to a variety of hydrologic and legal contingencies. But that 46. Id.at 130 n.24, 227 Cal. Rptr. at 187 n.24. evidence would only be relevant to the question whether 47. Environmental Defense Fund v. East Bay Munici- the reductions in water service as required by the biologi- pal Utility District, 26 Cal.3d 183, 194, 605 P.2d I, 6, 161 cal opinions constituted a taking. Specifically, the Govern- Cal. Rptr. 466, 471 (1980) (quoting Joslin v. Marin Munici- ment might be able to use the shortage provision to argue pal Water District, 67 Cal.2d 132, 140, 429 P.2d 889, 894, 60 that the plaintiffs could not have formed reasonable, in- Cal. Rptr. 377, 382 (1967)). vestment-backed expectations that they would receive full water deliveries throughout the term of the SWP contracts 48. See, e.g., Joslin v. Marin Municipal Water District, unaffected by the enactment and implementation of new 67 Cal.2d 132, 429 P.2d 889, 60 Cal. Rptr. 377 (1967) (new laws such as the Endangered Species Act. See, e.g., Good v. appropriative right granted priority over riparian right); United States, 189 F.3d 1355 (Fed. Cir. 1999). This argu- Peabody v. City of Vallejo, 2 Cal. 2d 351,40 P.2d 486 (1935) ment would not be relevant, however, to the antecedent (same); Gin S. Chow v. City of Santa Barbara, 217 Cal. 673, question on which the court was finally focused: In this 22 P.2d 5 (1933) (same); Erickson v. Queen Valley Ranch context, did the plaintiffs have the right to full water ser- Co., 22 Cal. App. 3d 578, 99 Cal. Rptr. 446 (1971) (senior vice notwithstanding the conflicting demands of the En- appropriative use wasteful and unreasonable in light of dangered Species Act? new competing appropriation). 43. The most cogent articulation of this interpretation 49. See, e.g., National Audubon Society v. Superior comes at the conclusion of the court's opinion: "There is, in Court, 33 Cal.3d 419, 658 P.2d 709, 189 Cal. Rptr. 346 (1983) the end, no dispute that DWR's permits, and in turn plain- (effects of Los Angeles' exercise of licensed appropriative tiffs' contract rights, are subject to the doctrines of reason- rights on the Mono Lake ecosystem); Environmental De- able use and public trust and to the tenets of state fense Fund v. East Bay Municipal Utility District, 26 Cal.3d nuisance law. Nor is there serious challenge to the pre- 183, 605 P.2d 1,161 Cal. Rptr. 466, (1980) (potential harm mise that the SWRCB, under its reserved jurisdiction, could to instream uses of the American River by proposed new at any time modify the terms of those permits to reflect the appropriation); Imperial Irrigation District v. State Water changing need of the various water users. The crucial Resources Control Board, 225 Cal. App. 3d 548, 275 Cal. point, however, is that it had not." 49 Fed. CI. at 324. Rptr. 250 (1990) (exercise of pre-1914 appropriative rights

9 Brian E.Gray Volume 9, Number 1

Water Quality Control Plan and Decision without just compensation as a result of the 1485, the court of appeal emphasized that the SWP's compliance with the biological opin- Department of Water Resources' rights to ap- ions. The DWR's rights to divert water under propriate water for distribution to SWP con- its water rights permits for the SWP (and tractors are dependent on the effects of hence the plaintiffs' derivative contract rights project operations on the beneficial uses (in- to water service) depend on DWR's reasona- cluding fish) protected by the water quality ble exercise of it water rights-regardless of standards. In rejecting SWP and CVP contrac- the permit terms set forth in Decision 1485. tors' challenges to the SWRCB's authority to Indeed, the California Supreme Court could alter the projects' water rights, the court ex- not have articulated the link between reason- plained that the board had "determined that able use and the property right in water more changed circumstances revealed in new infor- clearly than in its conclusion in Joslin v. Marin mation about the adverse effects of the Municipal Water District,53 in which the court projects upon the Delta necessitated revised unanimously rejected an inverse condemna- water quality standards. Accordingly, the tion claim brought by riparians whose long- Board had the authority to modify the standing exercise of their water rights had projects' permits to curtail their use of water been destroyed by the construction of an upon the ground that the projects' use and di- stream dam: As a result of the new appropria- version of the water had become unreasona- tion for domestic water supply, the plaintiffs' ble."50 Although the court referred to the continuing exercise of their riparian rights board's power to alter water rights based on a had become unreasonable. "ISlince there finding of unreasonable use, the California was and is no property right in an unreasona- Constitution expressly provides that the rea- ble use, there has been no taking or damag- ' 5 sonable use requirement is "self-executing," ' ing of property by the deprivation of such use and the California Supreme Court has held and, accordingly, the deprivation is not com- that reasonable use is an inherent limitation pensable."54 on all water rights (whether they are subject 52 The Court of Federal Claims also erred in to the board's direct jurisdiction or not). failing to consider whether the provision of The Court of Federal Claims' failure to full water service to the plaintiffs would have address the question whether the provision violated the public trust. In its landmark de- of full water deliveries to the plaintiffs-under cision in National Audubon Society v. Superior circumstances that in the judgment of NMFS Court,55 the California Supreme Court held and USFWS would jeopardize the existence of that the public trust doctrine is an integral the Winter-Run Chinook Salmon and the part of the water rights system and "imposes Delta Smelt-would have been unreasonable a duty of continuing supervision over the tak- is contrary to California water rights law. Fur- ing and use of the appropriated water." The thermore, it also represents an abdication of court's decision to merge the two legal sys- the court's responsibility to determine tems paralleled its articulation of the reason- whether the plaintiffs in fact possessed prop- able use doctrine in three respects. First, the erty rights that were capable of being taken court stated that, along with the principle of

is unreasonable because of flooding caused by wasteful de- 161 Cal. Rptr. 466, 475-76 (1980); Joslin v. Marin Municipal livery and irrigation practices). Water District, 67 Cal.2d 132, 137-39, 429 P.2d 889, 893-94, 60 Cal. Rptr. 377, 381-82 (1967); Imperial Irrigation District 50. United States v. State Water Resources Control v. State Water Resources Control Board, 225 Cal. App. 3d Board, 182 Cal. App. 3d at 130, 227 Cal. Rptr. at 187. 548, 275 Cal. Rptr. 250 (1990). 51. The last sentence of article X, section 2 declares: "This section shall be self-executing, and the Legislature 53. Joslin, 67 Cal.2d 132, 429 P.2d 889, 60 Cal. Rptr. 377 may also enact laws in the furtherance of the policy in this (1967). section contained." California Constitution, art. X, § 2 (West 1996). 54. id. at 145, 429 P.2d at 898, 60 Cal. Rptr. 386.

52. Environmental Defense Fund v. East Bay Munici- 55. 33 Cal. 3d 419, 658 P.2d 709, 189 Cal. Rptr. 346 pal Utility District, 26 Cal.3d 183, 198-200, 605 P.2d 1, 9-10, (1983). Fall 2002 The Property Right in Water Fall 2002 The Property Right in Water reasonable use, the public trust renders all lic trust.62 If the water right holder cannot water rights contingent on their continuing exercise their rights without violating the exercise in a manner that comports with cur- public trust, restricting the exercise of the rent public values-in this case protection of water right to provide water for public trust the natural environment. 56 "In exercising its uses cannot be a taking because there exists sovereign power to allocate water resources no valid water right to be taken. As the Cali- in the public interest," the court declared, fornia Supreme Court stated at the end of its "the state is not confined by past allocation opinion in Audubon, the integration of the decisions which may be incorrect in light of public trust doctrine into the water rights sys- current knowledge or inconsistent with cur- tem "precludes anyone from acquiring a 63 rent needs. The state accordingly has the vested right to harm the public trust." power to reconsider allocation decisions even though those decisions were made after due By declining to consider the effects of consideration of their effect on the public the reasonable use and public trust doctrines 5 7 trust." Second, this evolving governmental on SWP contractors' rights to full water ser- authority means that the property right in vice under conditions that would be likely to water is equally dynamic. The doctrine "pre- jeopardize two species of fish protected by vents any party from acquiring a vested right the Endangered Species Act, the Court of to appropriate water in a manner harmful to Federal Claims thus abjured its first responsi- ' 58 the interests protected by the public trust." bility in a water rights taking case-to deter- Third, neither the public trust nor the con- mine whether the plaintiffs in fact have sumptive use of water necessarily takes pre- "property" capable of being taken by the gov- cedence over the other. Rather, the state has ernment action at issue. For our purposes, a continuing obligation to seek an accommo- the exact determination of the plaintiffs' dation between the competing interests and property rights under California water law is "to preserve, so far as consistent with the less important than what the inquiry illus- public interest, the uses protected by the trates: In takings cases based on state-cre- 59 trust." To emphasize this point, the court ated water rights, the decision whether the held that "[aill uses of water, including public plaintiffs have property rights vis-a-vis the gov- trust uses, must now conform to the standard ernment is a complex, yet unavoidable, in- ' 60 of reasonable use." quiry. The questions that the court should As with the doctrine of reasonable use, have addressed in Tulare Lake include: protection of the public trust is not depen- * Was the allocation of water to protect the dent on enforcement by the SWRCB. The Winter-Run Chinook Salmon and the Delta courts and the Board have "concurrent origi- Smelt set forth in the biological opinions nal jurisdiction in suits to determine water for the coordination operation of the SWP rights," and the public trust is an integral and the CVP during water years 1992-1994 component of such rights.6 1 In other words, reasonable in light of the water available to when a court is asked to evaluate or to con- the projects during the protracted drought, strue a water right, it must consider the pub- the needs of the protected species, and the

56. Consistent with its earlier description of the pub- 59. Id. at 446-47, 658 P.2d at 728, 189 Cal. Rptr. at 365. lic trust, see Marks v. Whitney, 6 Cal. 3d 251, 491 P.2d 374, 98 Cal. Rptr. 790 (1970), the court held that the doctrine 60. Id. at 443, 658 P.2d at 725, 189 Cal. Rptr. at 362. may be applied to protect brine shrimp in Mono Lake (which it decided qualified as a "fishery" under the tradi- 61. Id. at 451, 658 P.2d at 731, 189 Cal. Rptr. at 368. tional public trust cases), as well as recreational and eco- logical interests such as "the scenic views of the lake and 62. The court did note that, "lilf the nature or com- its shore, the purity of the air, and the use of the lake for plexity of the issues indicate that an initial determination nesting and feeding by birds." Audubon, 33 Cal. 3d at 435, by the board is appropriate, the courts may refer the matter 658 P.2d at 719, 189 Cal. Rptr. at 356. to the board" for assistance in adjudicating the public trust claims. Id. at 452, 658 P.2d at 732, 189 Cal. Rptr. at 369. 57. id. at 447, 658 P.2d at 728, 189 Cal. Rptr. at 365. 58. Id. at 445, 658 P.2d at 727, 189 Cal. Rptr. at 364. 63. Id. Brian E.Gray Volume 9, Number 1

competing consumptive uses of water sup- mandated restrictions on the exercise of state plied by the projects? water rights, the Court of Federal Claims " Were the restrictions on pumping and should give deference to the decisions made other changes in project operations di- by NMFS and USFWS just as a court would rected by the biological opinions reasona- provide in direct review of the agencies' deci- ble, taking into account the limited water sions under section 706 of the Administrative available in the system, the needs of the Procedure Act 65 . For example, the court must species, the reasonable demands for water accept the services' opinions that the provi- by project contractors, and the contractors' sion of full water service to SWP contractors ability to conserve or to obtain water from would have jeopardized the existence of the other sources (such as water transfers or Winter-Run Chinook Salmon and the Delta increased groundwater pumping)? Smelt-and therefore the water supply limita- * Were the limitations imposed on water ser- tions imposed by the biological opinions vice to SWP contractors reasonably neces- were necessary to protect the species-unless sary to protect the public trust in the the court concludes that the reasonable and waters of the Sacramento-San Joaquin prudent alternatives set forth in the biologi- River and Delta system? Did the reasona- cal opinions were not supported by the re- 66 ble demands for water by SWP contractors cord or were arbitrary and capricious. outweigh the needs of the two protected The unique characteristics of the prop- species of fish? Did the allocation of addi- erty right in water thus add layers of complex- tional water in compliance with the biolog- ity to the analysis of water rights takings ical opinions "better balance the diverse cases that go far beyond takings cases involv- interests" than would full water deliveries ing land or other types of property. In most under conditions that would have been takings cases, the existence of the property likely to jeopardize the existence of the 6 4 right is uncontroversial- the government re- species? stricts the use or development of a fee inter- The answers to these questions necessa- est in real property (or possessory interest in rily subject federal regulatory decisions to ju- personal property) and the litigation quickly dicial review under state law. Yet, this focuses on the question whether the restric- awkwardness is unavoidable in water rights tion is a taking. By comparison, in water takings cases, because state law defines the rights takings cases the plaintiff has the bur- property right in water. The Court of Federal den of first proving that it had the right to ap- Claims (or any other court that adjudicates propriate water (or, as in Tulare Lake, the right such a takings case) must decide the "reason- to water service) under the conditions that ableness" of restrictions on state water rights gave rise to the government regulation. In imposed by NMFS or USFWS only for the pur- California, at least, the laws that define the pose of deciding whether the plaintiffs pos- water right-including the reasonable use sess water rights to support their takings doctrine and the public trust-render this as- claim. The court does not review the reason- pect of the plaintiff's case far from certain. ableness of the federal regulatory decision on Yet, just as the assertion of a water right the merits and of course has no authority to does not satisfy the plaintiff's burden of prov- enjoin or to invalidate that decision in adju- ing the existence of "property" capable of be- dicating the takings claim. Moreover, in de- ing taken by the government regulation in termining the reasonableness of the federally question, the counter-assertion that the

64. Id. at 447, 658 P.2d at 728, 189 Cal. Rptr. at 365. 146 F.3d 1118, 1125 (9th Cir. 1998). "A court may set aside an agency action under (the APAI if it was 'arbitrary, capri- 65. 5 U.S.C. § 706 (1996). cious, an abuse of discretion, or otherwise not in accor- 66. Judicial review of agency decisions under section dance with law' or if it was found to be 'without observance 7 of the Endangered Species Act is authorized by section of procedure required by law."' Id. (quoting 5 U.S.C.A. 702 of the Administrative Procedure Act, 5 U.S.C.A. § 702 § 706(2)(A) & (D)). (1996). Natural Resources Defense Council v. Houston, Fall 2002 The Property Right in Water plaintiff's exercise of its water rights would alternative crops were grown or more efficient have been unreasonable or contrary to the irrigation practices employed); and an evalua- public trust does not necessarily negate the tion of the availability and cost of alternative takings claim. supplies (from water transfers and additional pumping of groundwater). First, the decision whether the use of water restricted by the regulation would have Second, the legal standards used to eval- been unreasonable in light of the competing uate the factual evidence will vary greatly needs of the protected species is heavily de- among jurisdictions. Although water rights in pendent on the facts of each case. In Tulare most states are subject to the requirement of Lake, these facts would include the following: reasonable or beneficial use, each state has a determination of the quantity of water re- its own definition of what these principles quired to protect the Winter-Run Chinook mean in practice.6 7 Even in California-which Salmon and the Delta Smelt (including the has perhaps the most expansive concept of water flows, pumping restrictions, and other reasonable use-the Supreme Court has ques- changes in project operations needed to en- tioned whether the "test of unreasonable use sure that the delivery of SWP water to the • . .referlsl only to inordinate and wasteful plaintiffs would not be likely to jeopardize the use of water or to any use less than the opti- existence of the two species); an assessment mum allocation of water."68 Moreover, most of the quantity of water used by the plaintiffs other western states have not integrated the 69 to irrigate their crops (perhaps with a com- public trust into their water rights systems. parison of the water that would be needed if In these states, analysis of the property right

67. The laws of most western states declare that "ben- ing the use of public and private funds to facilitate im- eficial use is the basis, the measure, and the limit of all provements." 121 Wash. 2d 459, 475, 852 P.2d 1044, 1053 rights to use water." See, e.g., Ariz. Rev. Stat. Ann. § 45- (1993). The court rejected the claim that the reasonable 141(B) (1994 & 2001 Supp.); Nev. Rev. Stat. Ann. § 533.035 use analysis also must include the "impacts to the water (1995); NM. Stat. 72-1-2 (1978 & 1997 Supp.); Or. Rev. Stat. source and its flora and fauna," however, concluding that § 540.610(1) (1988); Utah Code Ann. § 73-1-3 (1989); Wyo. "these factors cannot operate to impair existing water Rev. Code Ann. § 41-3-101 (2001); cf. Wash. Rev. Code Ann. rights." Id. at 475-76, 852 P.2d at 1053. § 90.03.010 (1992) ("Subject to existing rights, all waters within the state belong to the public, and any right thereto, In contrast, the Nevada Supreme Court has stated or the use thereof, shall be hereinafter acquired only by that water rights are "'regarded and protected as real prop- appropriation for a beneficial use .... "). Most states also erty"' Town of Eureka v.State Engineer, 108 Nev. 163, 167, prohibit the waste of water, although there is little agree- 826 P.2d 948, 951 (1992) (quoting Carson City v. Estate of ment on what constitutes wasteful practices. See Steven I. Lompa, 88 Nev. 541, 542, 501 P.2d 662, 662 (1972)). Al- Shupe, Waste in Western Water Law, 61 Or. L. Rev. 483 though water rights are subject to the requirement of bene- to the general (1982). ficial use and may be regulated according police power, they are not governed by the principle of rea- Beyond these basic principles, however, the defini- sonable use. tion of the property right in water varies widely among jurisdictions. The Utah Supreme Court, for example, has For summaries of each state's water law-including construed the statutory mandate of beneficial use as in- reasonable and beneficial use decisions-see Robert E. cluding a reasonable use requirement. Thus, in In re Water Beck, ed., 6 Waters and Water Rights, Part XIB (1991 ed. & Rights of the Escalante Valley Drainage Area, 10 Utah 2d Supp. 2002). 77, 82, 348 P.2d 679, 682 (1960), the court held that "the 68. National Audubon Society v. Superior Court, 33 use of water must not only be beneficial to the lands of the Cal.3d 419, 447 n.28, 658 P.2d 709, 728 n.28, 189 Cal. Rptr. appropriators, but it must also be reasonable in relation to 346, 365 n.28 (1983) (citing Peabody v. City of Vallejo, 2 Cal. the reasonable requirements of subsequent appropriators, 2d 351, 40 P.2d 486 (1935); loslin, 67 Cal.2d at ?, 429 P.2d and the Court has the power to order improved methods of 889, 60 Cal. Rptr. 377. conveying, measuring and diverting water so as to assure the greatest possible use of the natural resource." 69. The Washington Supreme Court and the Idaho Su- preme Court have rejected the application of the public The Washington Supreme Court also has held that trust as a potential limitation on the exercise of water water rights are limited by reasonable use and that a senior rights. Rettkowski v. Department of Ecology, 122 Wash.2d appropriator may be required to use water in a "reasonably 219; 858 P.2d 232 (1993): In re Snake River Basin Adjudica- efficient" manner. Although "Illocal custom and the relation, 128 Idaho 155, 157, 911 P.2d 748, 750 (1995). tive efficiency of irrigation systems in common use are important elements," they "must be considered in connection In contrast, the Arizona Supreme Court has held un- with other statutorily mandated factors, such as the costs constitutional a statute in which the Arizona Legislature and benefits of improvements to irrigation systems, includ- declared that the "public trust is not an element of a water Brian E.Gray Volume 9, Number 1

in water would focus only on the terms and described above, the California law of reason- conditions set forth in the water right, appli- able use is a dynamic and utilitarian con- cable statutory law, and the doctrine of rea- struct. The property right in water is sonable use. dependent on the user's exercise of the right Third, there may be temporal problems in manner that is consistent with public poli- associated with the reasonable use or public cies that include a variety of factors that ex- trust argument. The Supreme Court has held tend well beyond the water right holder's that property rights "are not created by the purpose and efficiency of use. These factors Constitution. Rather, they are created and include competing demands for the available their dimensions are defined by existing rules water and the effects of the appropriation on the environment. 73 or understandings that stem from an inde- third parties and 70 pendent source such as state law." Yet, the Moreover, the definition of reasonable Court also has cautioned that, while the law use may change over time. The California that governs private property may change Court of Appeal stated this principle most over time, the takings clause imposes limits forcefully in its review of the Sacramento-San on the state's power to redefine property Joaquin Delta Water Quality Control Plan and rights. In Webb's Fabulous Pharmacies, Inc. v. Decision 1485. After observing that the 71 Beckwith, for example, the Court declared SWRCB had "determined that changed cir- that "a state by ipse dixit may not transform cumstances revealed in new information private property into public property without about the adverse effects of the projects upon compensation. This is the very kind of thing the Delta necessitated revised water quality that the Taking Clause ... was meant to pre- 72 standards," the court concluded that the state vent." The application of the reasonable "had the authority to modify the projects' per- use and public trust doctrines to limit the ex- mits to curtail their use of water on the ercise of water rights for the benefit of endan- ground that the projects' use and diversion of gered species and other environmental uses 7 4 the water had become unreasonable."' The court thus presents its own takings question: When emphasized the flexibility of the reasonable the government restricts the impoundment or use inquiry. It reiterated that the SWRCB and diversion of water to prevent unreasonable the courts have the power to decide that "par- use or to protect the public trust, is it simply ticular methods of use have become unrea- asserting a public servitude (or some other sonable by their deleterious effects upon type of limitation) that inheres in the water water quality" and concluded that "some ac- right, or is it effectively changing the defini- commodation must be reached concerning tion of the property right in water to impose a the major public interests at stake: the qual- new limitation on the exercise of that right? ity of valuable water resources and transport The California reasonable use and public of adequate supplies for needs southward. trust cases vividly illustrate this concern. As The decision is essentially a policy judgment

right" in basin-wide adjudications." The Court reasoned cluding non-navigable surface waters and groundwater. In that the "public trust doctrine is a constitutional limitation re Water Use Permit Applications, 94 Haw. 97, 9 P.3d 409 on legislative power to give away resources held by the (2000). Relying both on the Hawaii Constitution and Audu- state in trust for its people. The Legislature cannot order bon, the court also held that "the maintenance of waters in the courts to make the doctrine inapplicable to these or their natural state constitutes a distinct 'use' under the any proceedings." San Carlos Apache Tribe v. Superior water resources trust." Id. at 136, 9 P.3d at 448. Court, 193 Ariz. 195, 215; 972 P.2d 179, 199 (1999) (citing Arizona Center for Law in the Public Interest v. Hassell, 172 70. Board of Regents v. Roth, 408 U.S. 564, 577 (1972). Ariz. 356; 837 P.2d 158 (1991)). It concluded that the appli- 71. 449 U.S. 155 (1980). cability of the public trust "depends on the facts before a judge, not on a statute. It is for the courts to decide 72. Id. at 164. whether the public trust doctrine is applicable to the facts." 73. See cases cited in notes 49 & 50 supra. Id. 74. United States v. State Water Resources Control The Hawaii Supreme Court has decided that the Board, 182 Cal. App. 3d 82, 130, 227 Cal. Rptr. 161, 187 public trust applies to all water resources in the state, in- (1986) (emphasis added). Fall 2002 The Property Right in Water requiring a balancing of the competing public also appears to involve a retroactive defini- 75 79 interests." tion of the property right in water. It is certainly within California's (or any The key to this conundrum lies in the in- other state's) authority to define the reasona- tricacies of California water rights law. For ble use doctrine in whatever way it believes the Tulare Lake plaintiffs, the answer is simple. best serves the public interest in promoting The water rights permits for the SWP create the fair, efficient, and socially beneficial use only contingent property rights. A permit is of its scarce water resources. Yet, by defining valid only "for such time as the water actually reasonable use-and hence the property right appropriated under it is used for a useful and in water-in this flexible and evolving manner, beneficial purpose,"80 and the court of appeal California runs the risk that a court in a water has ruled that the SWP permits are subject to rights takings case will conclude that the modification to comply with ambient water state's negation of a water right on the quality standards, to fulfill the requirements ground that the use "had become unreasona- of reasonable use, to protect fish and wildlife, ble" is an ex post facto definition of the property and to promote the public trust.8i Limita- right. tions on storage and diversion rights or other The public trust doctrine presents simi- changes in project operations to achieve these purposes-even if imposed after the lar concerns. In the Tulare Lake case, for ex- SWP permits were granted-do not abridge ample, the water rights permits for the State rights of the SWP, its contractors, or Water Project were granted in 1967.76 Yet, the the water project water users. As the California Su- California Supreme Court did not hold that preme Court held more than a quarter cen- the interests protected by the public trust tury before the SWP permits were issued, doctrine include environmental quality and until an appropriator fulfills all conditions set resource preservation until 197 1. 7 7 And it forth in its permit, and the permit is con- was not until its 1983 decision in National Au- verted into a license, the appropriator "ac- dubon Society v. Superior Court78 that the court quires no property right or any other right held that the public trust may limit the exer- 8 2 against the state." cise of California water rights. Thus, application of the public trust to determine the In other contexts, the question whether plaintiffs' rights to water service in Tulare Lake application of contemporary concepts of rea-

75. Id. here define precisely all the public uses which encumber tidelands." Id. 76. See id. at 106, 227 Cal. Rptr. at 172. 78. 33 Cal.3d 419, 658 P.2d 709, 189 Cal. Rptr. 346 77. Marks v. Whitney, 6 Cal. 3d 251, 491 P.2d 374, 98 (1983). Cal. Rptr. 790 (1971). The California Supreme Court observed that the public trust doctrine traditionally was "de- 79. In addition, the public trust presents the same fined in terms of navigation, commerce and fisheries." Id. flexible allocation questions that arise under the reasona- at 259, 491 P.2d at 380, 98 Cal. Rptr. at 796. It observed, ble use doctrine. As the California Supreme Court held in however, that the trust is Audubon, in deciding whether a particular use of water com- plies with the public trust, a court must determine inter alia sufficiently flexible to encompass changing pub- whether the challenged appropriation outweighs the uses lic needs. In administering the trust the state is protected by the trust-i.e., "whether some lesser taking not burdened with an outmoded classification would better balance the diverse interests." Id. at 447, 658 favoring one mode of utilization over another. P.2d at 728, 189 Cal. Rptr. at 365. There is a growing public recognition that one of § 1971). the most important public uses of the tide- 80. Cal. Water Code 1390 (West lands-a use encompassed within the tidelands 81. United States v. State Water Resources Control trust-is the preservation of those lands in their Board, 182 Cal. App. 3d 82, 127-33 & 148-52, 227 Cal. Rptr. natural state, so that they may serve as ecologi- 161, 185-90 & 200-202 (1986). cal units for scientific study, as open space, and as environments which provide food and habitat 82. East Bay Municipal Utility District v. Department for birds and marine life, and which favorably af- of Public Works, I Cal. 2d 476, 480-81, 35 P.2d 1027, 1029 Indeed, to underscore that the permittees hold fect the scenery and climate of the area. (1935). only a contingent interest in the appropriated water, the Id. at 259-60, 491 P.2d at 380, 98 Cal. Rptr. at 796 (citation California Water Code declares the interest to be noncom- omitted). The court concluded that it "is not necessary to pensable: Brian E. Gray Volume 9, Number I Brian E.Gray Valume 9, Number 1 sonable use and the public trust to define ex- second question more accurately describes isting water rights is a taking of property is the property right in water. I have written more difficult to resolve. The answer will de- previously on the history of reasonable use in pend on the courts' historical analysis of the California and have come to the conclusion doctrine of reasonable use itself.83 Do the that water rights are-and always have cases that articulate a dynamic and utilitarian been-fragile.85 Rights of diversion, storage, reasonable use doctrine as a tool of environ- and use that are granted in permits, licenses, mental protection represent a "fundamental pre-1914 appropriative rights, and riparian departure from stare decisis and ... traditional rights are neither fixed nor vested. The Cali- 8 4 rules of property"? Or, has California always fornia Supreme Court has long held that a defined water rights in a mann'er that allows use that was perfectly lawful when first recog- the state continually to reevaluate both the nized may not be lawful because changing exercise of the right and the property right in circumstances render the use unreasonable. water based on evolving and contemporary The changed circumstance may be a new, judgments of what is reasonable under the competing consumptive use of the water,86 or circumstances? it may be recognition of the cumulative ef- Although a detailed analysis would ex- fects of long-standing water uses on water tend well beyond the scope of this article, the

Every permittee, if he accepts a permit, does so Water Resources Control Board, 182 Cal. App. 3d 82, 227 under the conditions precedent that no value Cal. Rptr. 161 (1986)). whatsoever in excess of the actual amount paid to the State therefor shall at any time be as- 85. Brian E. Gray, "In Search of Bigfoot": The Common Law Origins of Article X, Section signed to or claimed for any permit granted or 2 of the California Constitution, 17 issued under the provisions of this division, or Hastings Con. L.Q. 225 (1989). This article traces the his- for any rights granted or acquired under the pro- tory of the reasonable use doctrine from the earliest com- visions of this division, in respect to the regula- mon law water rights cases through the enactment of tion by any competent public authority of the Article X, Section 2 of the California Constitution in 1928, services or the price of the services to be ren- to the modern environmental applications of the doctrine. dered by any permittee or by the holder of any I later summarized my interpretation of this history as fol- rights granted or acquired under the provisions lows: of this division .... ITIhe view that "reasonable water use is depen- Cal. Water Code § 1392 (West 1971). dent upon not only the entire circumstances presented but varies as the current situation 83. The California Supreme Court has held that the changes" is not new. Rather, it may be traced determination whether a particular diversion or use of back to the very first water rights case decided by water is consistent with the public trust ultimately comes the California Supreme Court in 1855. This dy- back to the question of reasonable use. As noted in the namic and utilitarian conception of water rights text, the court declared in Audubon that "Iaill uses of water, formed the basis of the court's adoption of prior including public trust uses, must ... conform to the stan- appropriation as the water law of the West and dard of reasonable use." 33 Cal. 3d at 443, 658 P.2d at 725, permeated its subsequent cases that recognized 189 Cal. Rptr. at 362. This means that the government may the doctrine of riparian rights, incorporated the reallocate water to serve public trust uses only if protection principle of reasonable use, and ultimately inte- of the public trust is reasonable under the circum- grated the riparian and appropriative systems. stances-i.e., taking into account the consumptive users' Thus, the decisions and policies of the modern and the environmental needs, alternative sources of supply era that sanction the reallocation of California's (both for the consumptive use and the public trust), poten- water resources are simply the culmination of a tial conservation measures, and other relevant factors. long history of state water rights, which regards Stated differently, water may be reallocated from a con- the property right in water as fragile and depen- sumptive use to public trust purposes only if continuation dent on contemporary economic and societal val- of the consumptive use would be unreasonable inter alia be- ues. cause of the harm it causes to the public trust. Thus, for the purpose of defining the property right in water, the Brian E. Gray, The Modern Era in California Water Law, 45 Has- public trust is subsumed within the doctrine of reasonable tings L.I. 249, 307 (1994) (quoting United States v. State use. Water Resources Control Board, 182 Cal. App. 3d 82, 130, 227 Cal. Rptr. 161, 187 (1986)). 84. Clifford Schultz & Gregory Weber, Changing Public Attitudes Toward Property Rights in California Water Resources: 86. See, e.g., Town of Antioch v. Williams Irrigation Dis- From Vested Rights to Utilitarian Reallocations, 19 Pac. L.I. 1031, trict, 188 Cal. 451, 205 P. 688 (1922); Peabody v. City of Val- 1110 (1988) (citing National Audubon Society, 33 Cal.3d lejo, 2 Cal. 2d 351, 40 P.2d 486 (1935); loslin, 67 Cal.2d 132, 419, 658 P.2d 709, 189 Cal. Rptr. 346; United States v. State 429 P.2d 889, 60 Cal. Rptr. 377.

16 Fall 2002 The Property Right JinWater

quality, navigation, fisheries, and other in situ vice. Cities and farms that receive their water 8 7 uses. from the federal reclamation system have The historical understanding of the rea- contract rights-or are the beneficiaries of sonable use doctrine-and its influence on water contracts-with the United States Bu- the definition of the property right in reau of Reclamation. In addition, water is de- water-will be developed in future water rights livered by contract in a number of states. The takings cases. For our purposes, it is ade- California State Water Project is a notable ex- quate simply to emphasize that this historical ample. analysis must take place. If it does not-if the The takings law applicable to govern- courts compel the government to compen- ment contracts is cleaner in many respects sate water users when the government acts to than the principles that govern alleged regu-" prevent an unreasonable use that is not part latory takings of water rights. In the federal of the water right-then water users will re- reclamation system, for example, the water ceive a windfall. For without a valid water user's rights vis-a-vis the United States are de- right-a right that may be exercised consist- fined by the terms of the contract, and if the ently with the inherent requirement of rea- Government violates those contract rights it sonable use-there can never be a taking of is obligated to compensate the user indepen- property. dent of the Fifth Amendment law of takings. If the government regulation does not breach IV. Water Contracts. the terms of the contract, however, there is no liability. In either case, it is unnecessary "Congress can change federal policy, but it for the court to engage in the complex inves- cannot write on a blank slate. The old poli- tigation into the nature of water rights de- cies deposit a moraine of contracts, convey- scribed in the preceding section. ances, expectations and investments. Lives, families, businesses, and towns are built on As with the water rights takings cases, the basis of old policies. When Congress the most prominent litigation in which water changes course, its flexibility is limited by contractors (or contract beneficiaries) have those interests created under the old policies claimed that implementation of the modern which enjoy legal protection. Fairness toward environmental laws has abridged their prop- those who relied on continuation of past poli- erty rights arose out of the application of the cies cuts toward protection. Flexibility, so Endangered Species Act to reduce water ser- that government can adapt to changing con- vice to agricultural users in the California's ditions and changing majority preferences 88 San Joaquin Valley. In O'Neill v. United States, cuts against. Expectations reasonably based upon constitutionally protected property a group of landowners within the Westlands rights are protected against policy changes by Water District claimed that the United States the Fifth Amendment. Those based only on breached its contract obligations to provide economic and political predictions, not prop- water service from the Central Valley Project erty rights, are not protected." when it delivered only fifty percent of stated contract supplies during the 1993 water -Judge Andrew Kleinfeld, writing for 89 the Ninth Circuit in Madera Irrigation year. California had suffered from six years District v. Hancock, 985 F.2d 1397, of drought, and storage within the CVP was 1400 (9th Cir. 1993). severely depleted. Moreover, the Bureau of Reclamation was constrained by several laws Property rights in water also come in the to allocate a portion of project water supplies form of government contracts for water ser- to environmental and other nonconsumptive

87. People v. Gold Run Ditch & Mining Co., 66 Cal. 88. 50 F.3d 677 (9th Cir. 1995). 138, 4 P. 1152 (1884); Environmental Defense Fund v. East Bay Municipal Utility District, 26 Cal.3d 183, 605 P.2d 1, 161 89. The Westlands Water Service Contract, which was Cal. Rptr. 466 (1980); State Water Resources Control Board, executed in 1963 for a term of 40 years, authorizes the dis- 182 Cal. App. 3d 82, 127-33 & 148-52, 227 Cal. Rptr. 161, trict to receive 900,000 acre feet of project water each year 185-90 & 200-202. from the CVP's Delta pumping facilities. See id. at 680. Brian E.Gray Volume 9, Number 1 uses. Decision 1485 required the Bureau to system that would not otherwise exist. The release sufficient water from project reser- fifty percent supply deficiency that spawned voirs to comply with the ambient water qual- the O'Neill case occurred in a 120 percent of ity standards set forth in the Water Quality average water year, for example, and CVP Control Plan for the Sacramento-San Joaquin contractors worried that regulatory shortages Delta and Suisun Marsh; and the biological would become a permanent feature of project 94 opinions for the Sacramento River Winter- operations. Run Chinook Salmon and the Delta Smelt di- The plaintiffs in O'Neill alleged that the rected it to curtail pumping and to alter pro- Bureau's failure to provide full water service ject operations as necessary to protect the two species.90 The Bureau also was subject to them as beneficiaries of the Westlands to a new law, the Central Valley Project Im- contract was a breach of that contract. The provement Act of 1992,91 which added "fish plaintiffs did not sue for damages. Rather, and wildlife mitigation, protection, and resto- they requested specific performance of the ration" to the list of authorized purposes of contract and asked the court to enforce a the project and ordered the Bureau to under- 1986 stipulated judgment in which the United take a variety of specific measures to mitigate States agreed that the Westlands contract the damage to fish, wildlife, riparian habitat, was valid. Although the O'Neill litigation therefore was not a conventional takings wetlands, stream flows, water quality, and other environmental values caused by CVP case, it nonetheless illustrates how the prop- operations over the past fifty years.9 2 The erty right in water supplied under contract is most important of these measures (and the determined. For the court to decide whether one that gave rise to the O'Neill litigation) was to enforce the Westlands contract, it must the directive that, upon enactment of the first find that the contract conferred on the CVPIA, the Bureau shall "dedicate and man- plaintiffs the rights they claimed-viz, full age annually 800,000 acre feet of Central Val- water service despite the contrary mandates ley Project yield for the primary purpose of of the Endangered Species Act and the implementing the fish, wildlife, and habitat CVPIA. As the Ninth Circuit held in an earlier restoration purposes and measures author- takings case based on the alleged impairment 93 ized by [the Actl." of CVP contracts, "the first step in -both due process and taking analyses is to determine These laws combined to create what the whether there is a property right that is pro- ' 95 CVP contractors characterized as a "regulatory tected by the Constitution." drought." In other words, the legal requirements that the Bureau of Reclamation release The district court and the court of ap- project water (or limit diversions) to provide peals rejected the plaintiffs' claim that the additional water to fish and other environ- United States breached its obligations under mental uses create water shortages within the the Westlands contract. 96 The Ninth Circuit

90. Id.at 681. Increase in CVP Water Supply Allocation for Water Year 2002 (May 91. Pub. L. No. 102-575, 106 Stat. 4706 (1992). 16, 2002). 92. Id. § 3406. 95. Peterson v. Department of the Interior, 899 F.2d 93. Id. § 3406(b)(2). 799, 807 (citing Bowen v. Public Agencies Opposed to So- cial Security Entrapment, 477 U.S. 41, 54-55 (1986); Federal 94. This concern was prescient. In water year 1998, Housing Administration v. The Darlington, Inc., 358 U.S. 84, which produced approximately 160 percent of average pre- 91 (1958)). cipitation statewide (170% of average in the Sacramento River basin), the Bureau delivered only 85 percent of stated 96. Barcellos & Wolfsen v. Westlands Water District, contract supplies to CVP agricultural contractors located 849 F. Supp. 717 (E.D. Cal. 1993), affd sub nom. O'Neill v. south of the Delta. See Glenn Martin, El Niuo's Gift to Irriga- United States, 50 F.3d 677 (9th Cir. 1995). In the compan- tion Dependent State is a Huge Snowpack, S.F. Chronicle, Apr. 1, ion case of Westlands Water District v. United States, 850 F. 1998, at AI5. For water year 2002-which the Bureau has Supp. 1388 (E.D. Cal. 1994), judge Oliver Wanger also ruled classified as a "dry" year, the latest water allocation for that the United States did not breach the Westlands con- these contractors is 60 percent. United States Bureau of tract when it reduced water service to the district in water Reclamation, Mid-Pacific Region, Reclamation. Announces an year 1993. The Westlands case was a multifaceted attack on Fall 2002 The Property Right in Water

based its decision on three grounds. First, lamation laws, the United States agrees, at the court held that the Westlands contract the option of the District, to negotiate does not confer on the district (or its mem- amendments of appropriate articles of this bers) the right to full water service when there contract, all consistently with the provisions is insufficient water to enable the Bureau of of such . . . amendment.' 99 According to the Reclamation to fulfill both its contract obliga- court of appeals- "IaIrticle 26 is not at all in- tions and the in situ water requirements es- consistent with the notion that 'any other tablished by state and federal environmental causes' broadly and unambiguously contem- laws. Article II of the Westlands con- plates the effects of subsequent Congres- tract-which is titled "United States Not Lia- sional mandates"-viz. the enactment and ble for Water Shortage"-states that "[tihere implementation of the Endangered Species may occur at times during any year a shortage Act and the CVPIA. "Relieving the govern- in the quantity of water available for furnish- ment from liability for delivering Westlands' ing to the District ...but in no event shall full contractual amount of water where a re- any liability accrue against the United States duction is mandated by statute," the court • . . for any damages . . . arising from a reasoned, "is not incompatible with giving shortage on account of errors in operation, Westlands an option to renegotiate its con- drought, or any other causes."97 In the Ninth Cir- tract to conform to changes in reclamation cuit's opinion, the highlighted phrase encom- law."100 Indeed,the anticipation of future le- passes water shortages that arise from any gal changes embodied in article 26 does not cause, and the contract therefore "unambigu- insulate Westlands' water service rights from ously absolves the government from liability new environmental laws. Rather, it merely for its failure to deliver the full contractual gives the plaintiffs "'a choice between rene- amount of water where there is a shortage gotiating their contracts to bring them into 98 caused by statutory mandate." conformity with the new law or withdrawing ' 01 Second, the court rejected the plaintiffs' from the reclamation program." As the Ninth Circuit contention that this exclusion from liability is held in an earlier breach of contract challenge to the Reclamation Reform ambiguous in light of a different article of the 0 2 contract that, in the plaintiffs' view, protected Act, this article does not grant project water users them from legal changes that might reduce "the right to continue to receive their water supplies during the term of the reclamation water under the terms of the pre- contract. Article 26 provides that "[iln the existing contracts if those terms violate the law."'10 3 event that the Congress of the United States newly amended ...amends.., provisions of the Federal rec- the CVPIA and included the claim that the implementation the District the right to the use of any of the water supply provided for of the Endangered Species Act and the CVPIA was a taking herein." Id. (quoting Westlands Water Service Contract art. of the district's contract rights. After Judge Oliver Wanger 11 (b)) (emphasis added). decided against Westlands, he permitted the O'Neill plain- 98. Id. at 689. tiffs-who were landowners within the "Area I" region of the Westlands Water District-to intervene for the purpose of 99. See id. at 683 (quoting Westlands Water Service appealing the decision. The takings claim is now before Contract art. 26). the Ninth Circuit in Orff v. United States, No. 00-16922 (ap- 100. Id. at 684. peal pending). 101. Id. at 683-84 (quoting Peterson v. Department of 97. See O'Neill, 50 F.3d at 682 n.2 (quoting Westlands the Interior, 899 F.2d 799, 812 (9th Cir. 1990)). Water Service Contract art. I I(a)) (emphasis added). Arti- 102. 43 U.S.C A. §§ 390aa et cle I I also provides that if "in any year there is delivered to seq. (1986). the District by reason of any shortage or apportionment as 103. Peterson v. Department of the Interior, 899 F.2d provided in subdivision (a) of this article ... less than the 799, 812 (9th Cir. 1990). The plaintiffs in Peterson included quantity of water which the District otherwise would be en- most of the CVP contractors, as well as other beneficiaries titled to receive, there shall be made an adjustment on ac- of water supplied by the project. They alleged that the count of the amounts paid to the United States by the United States breached their water service contracts by District for water for said year . . .To the extent of such changing both the price of project water and the eligibility deficiency, such adjustment shall constitute the sole remedy of the requirements to participate in the federal reclamation pro- District or anyone having or claiming to have by, through, or under gram during the term of their contracts. The Ninth Circuit Brian E.Gray Volume 9, Number 1 Brian E.Gray Volume 9, Number 1 Third, the court of appeals concluded the Endangered Species Act and the CVPIA that, even if the Westlands contract "did obli- and to direct federal agencies such as NMFS, gate the government to supply, without ex- USFWS, and the Bureau of Reclamation to ception, 900,000 acre-feet of water," the apply those laws to existing water service plaintiffs "would still not be entitled to pre- contracts. Nor do the contracts purport to vail as the contract is not immune from sub- exempt Westlands (or its water users) from sequently enacted statutes."'10 4 The court the effects of these laws.' 0 6 Rather, the con- relied on a series of United States Supreme tract "contemplates future changes in recla- Court opinions that articulate special rules of mation laws in Article 26, and Article 11 interpretation that apply to contracts to limits the government's liability for shortages which the federal government is a party. due to any causes."'1 7 The court concluded These rules recognize that the United States that the Endangered Species Act and the acts in both a proprietary capacity and as a CVPIA "markled] a shift in reclamation law sovereign government: modifying the priority of water uses" and there is "nothing in the contract that pre- While the Federal Government, as 0 8 such a shift."' sovereign, has the power to enter cludes contracts that confer vested rights, The Ninth Circuit's opinion in O'Neill il- and the concomitant duty to honor lustrates the elements of the plaintiff's case those rights, we have declined in the in a breach of contract action against the context of commercial contracts to United States. A water contractor (or contract find that a "sovereign forever waives beneficiary) must prove that the contract the right to exercise one of its sover- grants it the right to full water service under eign powers unless it expressly reserves the right to exercise that conditions of hydrologic and regulatory power in" the contract. Rather, we drought; and the contract (or underlying leg- have emphasized that "[without] re- islation) must expressly and unmistakably gard to its source, sovereign power, protect the plaintiff from the effects of new even when unexercised, is an endur- laws that alter the terms of the contract or ing presence that governs all con- render full performance of the contract ille- tracts subject to the sovereign's gal. jurisdiction, and will remain intact unless surrendered in unmistakable Since the decision in O'Neill, the law of terms." Therefore, contractual ar- government contracts has changed in one rangements, including those to which significant respect. In United States v. Winstar 1 a sovereign itself is party, "remain Corp., 0 9 the Supreme Court held that the subject to subsequent legislation" by United States may be liable for damages for 0 5 the sovereign. 1 breach of a contract to which the Government is a party when Congress amends the law to According to the Ninth Circuit, there is eliminate (or to diminish) the rights of the nothing in the Westlands contract that "sur- contractor in violation of an express provision renders in 'unmistakable terms' Congress' of the contract in which the Government as- sovereign power" to enact new laws such as sumed the risk of such regulatory change." 0 concluded that the plaintiffs did not possess the contract 109. 518 U.S. 839 (1996). rights they were asserting and therefore rejected their takings and due process claims. 110. In Winstar, the Supreme Court held that the 104. O'Neill, 50 F.3d at 686. United States was liable for damages for breach of contract for 105. Bowen v. Public Agencies Opposed to Social Se- Congress' enactment, and the Office of Thrift Supervi- sion's implementation, of the Financial curity Entrapment, 477 U.S. 41, 52 (1986) (quoting Merrion Institutions Re- v. licarilla Apache Tribe, 455 U.S. 130, 148 (1982)). form, Recovery, and Enforcement Act of 1989 ("FIRREA"). The litigation arose out of contracts between the Federal 106. O'Neill, 50 F.3d at 686. Bank Board (the predecessor of OTS) and three savings and 107. Id. loan institutions that the Board and the Federal Savings and Loan Insurance Corporation ("FSLIC") had encouraged 108. Id to acquire insolvent savings and loan companies. One of Fall 2002 The Property Right in Water Fall 2~O2 The Property Right in Water Justice Souter's plurality opinion carefully against the Government is conceded, stated that the contracts at issue in Winstar a requirement to pay money sup- did poses no surrender of sovereign power by a sovereign with the power not purport to bind the Congress from to contract. ' I enacting regulatory measures, and respondents do not ask the courts to in- fer from silence any such limit on The decision in Winstar thus amends the sovereign power as would violate the elements of a breach of contract case against holdings of Merrion and Cherokee Na- the United States: a plaintiff may recover tion. The contracts have been read as damages for breach of its federal contract if solely risk-shifting agreements and re- the contract confers the right that is allegedly spondents seek nothing more than impaired by the government regulation, and the benefit of promises by the Gov- the contract anticipates the enactment and ernment to insure them against any implementation of the new law that author- losses arising from future regulatory ized the regulation by expressly assigning fi- change. They seek no injunction nancial liability for such regulatory change to against application of the law to the them, as the plaintiffs did in Bowen United States. If the plaintiff is suing to and Merrion, and they acknowledge enjoin the application of the new law, how- that the [contracting federal agencies] ever, the analysis remains the same as set could not bind Congress (and possi- forth in O'Neill. A federal contract does not bly could not even bind their future insulate the contractor from the effects of selves) not to change regulatory pol- subsequent congressional action to alter the icy. terms of the contract (or to modify its per- Nor do the damages respondents formance) unless the contract contains an "unmistakable waiver" seek amount to exemption from the of that sovereign new law, in the manner of the com- power. As Justice Souter stated in his plural- pensation sought in Bowen. Once gen- ity opinion in Winstar, "a contract with a sov- eral jurisdiction to make an award ereign government will not be read to include the Bank Board's duties was to establish minimum capital ment and application of FIRREA thus breached the express reserve requirements for all thrift institutions. Because the terms of the contracts to which the United States was a acquisition by a "healthy" S&L of an insolvent institution party and rendered the contracting thrifts "insolvent" ac- could push the acquiring thrift's net assets below the mini- cording to the newly defined capital standards. mum capital reserve requirements (or, in some cases, even into insolvency), the Bank Board agreed to use a special In concluding that the United States was liable for accounting method for these "supervisory mergers." The damages for breach of contract, the Supreme Court ac- Bank Board promised that the acquiring S&L could treat cepted two findings of the Court of Federal Claims and the the difference between the failed S&L's assets and liabili- Court of Appeals for the Federal Circuit. First, the United ties (in all cases a negative number) as an asset, rather States promised that the special accounting principles than as a liability. The Bank Board called this fictitious as- used to measure minimum capital requirements would re- set "supervisory goodwill" and promised the acquiring main in effect for the duration of the amortization period thrifts that they could amortize the supervisory goodwill applicable to such capital assets. See id.at 862-64 (plurality over a period of 25 to 40 years. Id. at 847-51. opinion); id. at 919 (Scalia, I.,concurring in the judgment). Second, "when the law as to capital requirements changed In FIRREA, Congress amended the law to make per- (because of the enactment of FIRREA] . . .. the Govern- formance of these two promises illegal. The statute re- ment was unable to perform its promise and, therefore, be- quired each thrift to maintain "core capital" reserves of not came liable for breach." Id. at 870 (plurality opinion). less than three percent of the S&L's total assets, and it de- Under these circumstances, although Congress retained its fined "core capital" to exclude "unidentified intangible as- sovereign power to change the law and thereby to bar "the sets" such as goodwill. Id. at 856-58. Congress thus took Government from specifically honoring its agreements, we away precisely what the Bank Board had promised the hold that the terms assigning the risk of regulatory change three plaintiff institutions as an essential inducement to to the Government are enforceable, and that the Govern- them to acquire failed thrifts. In response to the enactment is therefore liable in damages for breach." Id. at 843 ment of FIRREA, the OTS (as successor to the Bank Board) (plurality opinion); see id.at 919 (Scalia, J.,concurring in the promptly issued new regulations that eliminated the con- judgment). cept of supervisory goodwill. This action in turn caused each of the plaintiff S&L's to fall below the core capital re- 111.Id. at 881; see id. at 920-21 (Scalia, I.,concurring in serve requirements set forth in FIRREA," Id. The enact- the judgment). Brian E.Gray Volume 9, Number 1 an unstated term exempting the other con- regulatory changes to the contractors, rather tracting party from the application of a subse- than placing liability for that risk on the quent sovereign act (including an Act of United States. Article 26 "contemplates fu- Congress), nor will an ambiguous term of a ture changes in reclamation laws" and pro- grant or contract be construed as a convey- vides that in the event of such changes the ' 12 ance or surrender of sovereign power."" contractors have no rights to water service in The O'Neill plaintiffs have renewed their violation of the amended law or to damages breach of contract claim against the United for water shortages caused by the Bureau of States and are now seeking damages instead Reclamation's compliance with the new law. of equitable enforcement of the contract.'"' Rather, the contractor's only right in response Winstar will not affect the analysis of the to such regulatory changes is the choice of "'renegotiating their contracts to Westlands water service contract set forth in bring them O'Neill, however, for two reasons. First, into Conformity with the new law or withdraw- program.""' 15 (before and after Winstar) the plaintiffs must ing from the reclamation establish that the Westlands contract grants them the right to full water service notwith- O'Neill suggests the difficulty that federal standing the mandates of the Endangered water contractors and project water users Species Act and the CVPIA. But the Ninth may have in establishing a claim for breach of Circuit has interpreted the contract as not contract for water shortages caused by the conferring such a right, because Article 11 Bureau of Reclamation's compliance with the "unambiguously absolves the government Endangered Species Act and other contem- from liability for its failure to deliver the full porary environmental laws. Yet, as with the contractual amount of water where there is a water rights cases discussed in part Ill, it is shortage caused by statutory mandate."'' 14 impossible to reach generalized conclusions Second, as with the contracts in Winstar, the because the federal reclamation contracts Westlands water service contract contains vary from project-to-project and sometimes "risk-shifting" language. Unlike those con- differ among contractors in the same pro- tracts, however, the Westlands contract ex- ject.1 16 A brief look at the Klamath Basin tak- pressly assigns the financial risk of future ings litigation, however, will illustrate how

112. Id. at 878 (plurality opinion). not include any provision that resembles article 26 of the Westlands contract (a provision that is common to the 113. The breach of contract claim, along with an array other CVP water service contracts). These differences are of statutory, administrative law, and common law chal- based on the type of water supply provided to the contrac- lenges to the application of the Endangered Species Act tor. The "exchange contractors" had pre-project water and the CVPIA are now pending before the Ninth Circuit. rights to the flow of the San Joaquin River that were de- Orff v. United States, No. 00-16922 (appeal pending). The stroyed by the construction and operation of Friant Dam, district court granted summary judgment in favor of the and their contract reflects this fact. The United States Government after concluding that the plaintiffs were not agreed to provide Sacramento River water to these users third-party beneficiaries of the Westlands water service from the CVP Delta pumping facilities in exchange for the contract. The court based this decision on Klamath Water contractors' forbearance of their pre-project water rights in Users Protective Association v. Patterson, 204 F.3d 1206 the San Joaquin River. In contrast, most of the CVP water (9th Cir. 1999), which held that recipients of water from the service contracts authorize the delivery of project water to Klamath Project have no rights to sue under the provisions users who either did not have pre-project water rights or of a contract between the Bureau of Reclamation and the did not give up any water rights as a condition of receiving California-Oregon Power Company that governs the opera- water service from the CVP. See Westlands Water District v. tion of the Link River Dam. United States, 153 F. Supp. 2d 1133 (E.D. Cal. 2001). 114. O'Neill, 50 F.3d at 686. For a comparison of the Exchange Contract with other CVP water 115. Id. at 683-84 (quoting Peterson v. Department of service contracts, see Central Valley Pro- the Interior, 899 F.2d 799, 812 (9th Cir. 1990)). ject Documents Part 2, Operating Documents, H.R. Doc. No. 246, 85th Cong. 1st Sess. (1957) (amended exchange 116. In the Central Valley Project, for example, the contract); Westlands Water District v. United States, 850 F. "Exchange Contract" between the Bureau of Reclamation Supp. 1388, 1395-98 (E.D. Cal. 1994) (five CVP water ser- and four San Joaquin Valley agricultural water agencies vice contracts). contains a significantly different shortage provision than those set forth in the CVP water service contracts and does Fall 2002 The Property Right in Water the principles of O'Neill and Winstar apply in As fields were fallowed, and the farm- 7 other contexts." 1 lands and wetlands in the basin began to dry out over the summer, the Klamath Basin be- In April 2001, the Bureau of Reclamation announced that it would deliver only about came the epicenter of the national debate ten percent of the water that it normally sup- over the Endangered Species Act. Although plies to 1,200 farms in the Klamath Basin. the Bureau later released 75,000 acre feet Farmers in nineteen of the twenty-one irriga- from Upper Klamath Lake, the water was too tion districts served by the Bureau would re- late for many farmers and ran out in less than ceive no water at all. As in the SWP and CVP a month. In October, thirteen irrigation dis- cases, this acute water shortage was the re- tricts and twelve individual water users filed sult of hybrid drought. The previous winter's suit against the United States in the Court of snowpack and spring rains were among the Federal Claims, alleging that the reductions lowest in recorded history, and the Bureau in water service caused by the Bureau of Rec- classified water year 2001 as a "critical dry" lamation's compliance with the Endangered year. After consultations with USFWS and Species Act constituted a taking of their water NMFS under section 7 of the Endangered rights without just compensation in violation Species Act, the Bureau announced that only of the Fifth Amendment. The plaintiffs asked 70,000 acre feet of Klamath Project Water the Court to certify the case as a class action, and they have claimed damages in excess of would be available for irrigation uses served 120 by two of the reservoirs in the southern part $1 billion. of the basin. The balance of the water in the It is not surprising that the Klamath Pro- system, including all of the water impounded ject contractors and water users would file a by the largest facility, Upper Klamath Lake, takings claim seeking compensation for the would be kept in the reservoirs to support economic losses they have suffered. Al- two species of suckerfish-the Lost River and though there have been increasing conflicts Shortnose Suckers-or released for the benefit between agricultural demands and the needs of migrating Coho Salmon."18 of fish for more than a decade, the events of Headgates were closed on April 7, 2001. 2001-complete elimination of water service Water users brought suit in federal court in to most of the farms in the basin-was un- Eugene to enjoin the Bureau from withhold- precedented. What is striking about the Kla- ing irrigation water, but Judge Ann Aiken de- math takings claim, however, is that the nied their request. She concluded: "While the plaintiffs have misstated the nature of their court sympathizes with plaintiffs and their property rights to the water supplied by the plight, I am bound by oath to uphold the law. Klamath Project. The complaint asserts that The law requires the protection of suckers the reduction in water service for 2001 was a and salmon as endangered and threatened taking of their water rights without just com- species and as tribal trust resources, even if pensation in violation of the Fifth Amend- plaintiffs disagree with the manner in which ment.' 2 1 The problem with this allegation is the fish are protected or believe that they in- that it ignores the document that defines the equitably bear the burden of such protec- plaintiffs' rights vis-a-vis the United tion."119 States-their federal reclamation contracts.

117. Reed Benson has written a detailed histroy of 119. Kandra v. United States, 145 F. Supp. 2d 1192, the events that led to the Klamath Basin Controversy. 1210 (D. Ore. 2001). Reed D. Benson, Giving Suckers (and Salmon) an Even Break: Klamath Basin Water and the Endangered Species Act, 15 Tulare 120. Complaint for Just Compensation and Damages, Environmental Law Journal 197 (2002). Klamath Irrigation District v. United States, No. 01-591 L (Fed. CI. filed Oct. 11, 2001). 118. In 1988, the USFWS listed the Lost River and Shortnose Suckers as endangered. 53 Fed. Reg. 27,130 121. Id. at 13. The complaint alleges that "under the (luly 18, 1988). Acting pursuant to court order, NMFS constraints imposed by Ithel biological opinions, plaintiffs listed the Coho Salmon as a threatened species in 1998. will not receive water in dry or normal years, i.e., six to 63 Fed. Reg. 42, 587 (Aug. 10, 1998). seven years out of 10" and that farming in the Klamath Ba- Brian E.Gray Volume 9, Number 1

The complaint states that each of the States . . . for any damage, direct or plaintiffs "is either a landowner or a legal rep- indirect, arising therefrom .... 121 resentative of landowners who possess ap- Article 27 then declares that neither party purtenant water rights" and that they receive "shall be considered to be in default in re- their irrigation water from the Klamath Pro- 22 spect to any obligation hereunder, if pre- ject.' Even if this allegation is true, it vented from fulfilling such obligation by misses the point. The action that the plain- reason of uncontrollable force."' 24 The con- tiffs allege was a taking was the Bureau of tracts define the term "uncontrollable force" Reclamation's failure to deliver project water; to mean "any cause beyond the control of the and the plaintiffs' rights to receive water from party affected, including but not limited to the Klamath Project are defined by their con- . . .restraint by court or public authority, tracts, not by any pre-project water rights which by exercise of due diligence and fore- they might possess. The plaintiffs' takings sight such party could not reasonably have claim therefore will stand or fall on the terms ' 25 been expected to avoid."' of their contracts. These contract terms will determine In the contracts for the Klamath Project, whether the plaintiffs have the property rights the Bureau of Reclamation agreed to supply they claim in the takings litigation-the right water from the project to irrigation districts to receive project water under conditions of and other water agencies in the Klamath Ba- drought when the release of water for the sin. The contracts do not enumerate a fixed benefit of the contractors (in the judgment of quantity of water that the districts are enti- NMFS and USFWS) would be likely to jeop- tled to receive each year. Rather, they iden- ardize the existence of the three species of tify the lands within the districts that will fish protected under the Endangered Species receive project water. Until recently, the Bu- Act. The principles of contract interpretation reau's practice has been simply to deliver set forth in O'Neill, Winstar, and the other water to each contractor as needed to irrigate cases described above suggest that it will be these lands. As with the CVP water service difficult for the plaintiffs to establish this contracts, however, the Klamath contracts right. contain a provision titled: "United States Not The Klamath contracts acknowledge that Liable for Water Shortage." The wording of water shortages periodically will occur within this article differs slightly from the shortage the project, and the contracts expressly ex- provision of the Westlands water service con- empt the United States from liability for such tract analyzed in O'Neill. Article 26 of the Kla- shortages. As with the CVP supply deficien- math contracts provides: cies adjudicated in O'Neill, the 2001 Klamath shortages were caused by a combination of On account of drought or other low precipitation and storage in the basin causes, there may occur at times a shortage in the quantity of water and the directives of the Endangered Species available in Project reservoirs and, Act. Article 26 of the Klamath contracts stip- while the United States will use all ulates that "in no event shall any liability ac- reasonable means to guard against crue against the United States" for water such shortage, in no event shall any shortages that are the result of "drought or liability accrue against the United other causes." The Ninth Circuit's interpreta- States and the Tulelake Irrigation District at 31 (Sep. 10, sin "is not viable in these circumstances." Id. It also states a claim for impairment of water rights under the Klamath 1956). Basin Compact of 1957. California Water Code §§ 5900- 5901 (West 1971). 124. Id. 122 Id. at 11. 125. Id. Other examples of uncontrollable forces are: 123. See, e.g., Amendatory Contract Between the "failure of facilities, flood, earthquake, storm, lightning, United States of America and the Klamath Irrigation Dis- fire, epidemic, war, riot, civil disturbance, labor distur- trict at 26 (Nov. 29, 1954); Contract Between the United bance, landl sabotage." Id. Fall 2002 The Property Right in Water Foil 2002 The Property Right in Water tion of "other causes" in O'Neill to include ject and the United States as a sovereign gov- "shortagelsl caused by statutory mandate" ernment. Under this construction, the should serve alone to dispose of the plain- Bureau of Reclamation would be required to tiffs' contention that the United States has use reasonable means to guard against water breached its contract obligations. shortages in its management and operation of the project, but would not be constrained Unlike the Westlands contract, however, by contract from complying with the direc- the Klamath shortage provisions also contain tives of all laws-including new laws enacted the caveat that "the United States will use all by Congress in its sovereign capacity-that reasonable means to guard against such govern project operations. shortage." The plaintiffs might argue that the Government has violated this clause by en- Indeed, the Ninth Circuit has already acting and implementing the Endangered reached this conclusion. In Klamath Water Species Act, which created (or at least exacer- Users Protective Association v. Patterson,127 project bated) the supply deficiencies within the pro- water users argued that the Bureau had no ject. However, this argument would neglect authority to order the California Oregon the placement of the clause in Article 26. The Power Company, which manages the Link "reasonable efforts" reference appears just River Dam under contract with the United before the absolute exemption from liability States, to operate the dam in compliance embodied in the statement that "in no event with the biological opinions for the Coho shall any liability accrue against the United Salmon and the two protected species of States ...for any damage" arising from water suckerfish. The court of appeals rejected this shortages. Read in context, the Govern- contention: ment's promise to "use all reasonable means It is well settled that contractual ar- to guard against such shortagels]" may create rangements can be altered by subse- an enforceable duty to protect against supply quent Congressional legislation .... deficiencies (for example, by not contracting Even in circumstances where the ESA for the sale of water beyond the firm yield of was passed well after the agreement, the project), but it does not give the contrac- the legislation still applies as long as tors a right to compensation for the Govern- the federal agency retains some mea- ment's failure in this regard. sure of control over the activity. Therefore, when an agency, such as Nor could this clause be interpreted to Reclamation, decides to take action, prevent the United States from enforcing the the ESA generally applies to the con- 28 mandates of the Endangered Species Act tract. 1 without violating the Supreme Court's admo- of nition that "'sovereign power... is an endur- The court therefore held that performance ing presence that governs all contracts ... the Klamath Project contract at issue was and will remain in effect unless surrendered subject to the mandates of the Endangered in unmistakable terms."'126 The Government's Species Act. promise to use reasonable efforts to protect Finally, under Winstar, there is nothing in against water shortages is hardly an unmis- the Klamath contracts that expressly assigns takable waiver of Congress' sovereign author- financial responsibility for changes in the law ity to enact and to implement new laws that governing project operations to the United govern the Klamath Project. A more plausi- States. In fact, the contracts provide to the ble interpretation of the clause would distin- contrary. As discussed above, article 26 de- guish between the United States' role as clares that "in no event" shall the United proprietor of the water supplied by the pro- States be liable for water shortages that re-

126. Bowen v. Public Agencies Opposed to Social Se- 128. Id. at 1213 (citing Merrion v. Jicarilla Apache curity Entrapment, 477 U.S. 41, 52 (1986) (quoting Merrion Tribe, 455 U.S. 130, 148 (1982); O'Neill v. United States, 50 v.licarilla Apache Tribe, 455 U.S. 130, 148 (1982)). F.3d 677, 686 (9th Cir. 1995); Natural Resources Defense Council v. Houston, 146 F.3d 1118, 1125 (9th Cir. 1998)). 127. 204 F.3d 1206 (9th Cir. 1999). Brian E.Gray Volume 9, Number 1

suit from drought or other causes. And arti- broad and adaptive regulatory powers on the cle 27 reinforces this admonition by declaring government and concomitantly limit the neither party to be in default of its contract plaintiffs' rights to appropriate or to receive obligations "if prevented from fulfilling such water under conditions that conflict with stat- obligation by reason of uncontrollable force utory mandates to protect endangered spe- ... including, but not limited to . .. restraint cies, water quality, and other environmental by court or public authority." The parties interests. Yet these examples should not de- thus have anticipated that outside tract from the article's central thesis-that the forces-including actions based on legal man- statutes, constitutional law, judicial deci- dates-might limit performance of the con- sions, and contract terms that define the tract at some point in the future. The property right in water must be carefully stud- operating constraints that reduced project ied in every case to determine whether the water deliveries in 2001 were imposed by plaintiff has "private property" capable of be- public authorities-NMFS and USFWS. In- ing taken by the government regulation in deed, the consultations that preceded the bi- question. ological opinions were themselves the result In states such as California that-by con- order. 129 of a court stitutional mandate, statutory directive, and The Klamath Project water contracts thus common law doctrine-have conferred only a expressly absolve the United States of liabil- conditional and fragile property right in ity for all types of water shortages-hydro- water, few water rights takings cases are likely logic, regulatory, or hybrid-that may occur to succeed. In other states-which have not within the system. As such, the contractors recognized the public trust as a potential re- and beneficiaries have no "property" right to straint on water rights and where the doc- receive project water in violation of the direc- trines of reasonable and beneficial use have tives of the Endangered Species Acts or other only narrow application-claims for just com- laws that govern project operations. The pensation for regulatory impairments of United States therefore has not breached its "vested" water rights stand a much better contract obligations, nor has it taken property chance. Similarly, the rights of water contrac- without just compensation. tors in the federal reclamation system depend entirely on the terms and conditions of V. Conclusion. their contracts. Users whose rights to project water are based on agreements that resemble "There remains, finally, the question that has the Westlands and Klamath contracts are un- loomed ominously in the background, await- likely to prevail on breach of contract claims. ing its turn to cause mischief. If lawmakers Federal reclamation contractors whose con- do wield the power to redefine private water tracts do not include broad shortage provi- rights, is there any limit to how far they can sions and express exemption of government go? Can they redefine property rights into oblivion? Is there a usable distinction be- liability may present viable claims that the tween redefinition and confiscation?" United States is responsible for "regulatory water shortages" caused by water supply and -Eric T. Freyfogle, "Water Rights operational restrictions imposed under the and the Common Wealth," Endangered Species Act or other environ- 26 Environmental Law 27, 46 (1996). mental laws. The cases analyzed in this article suggest Moreover, even in situations where the that the plaintiffs' burden of establishing water right or contract is defined in a manner compensable property rights is a difficult that preserves broad regulatory authority to one, because both the water rights law and limit the right to protect environmental inter- the contracts at issue in these cases confer ests, the government must have a lawful rea-

129. Pacific Coast Federation of Fishermen's Associa- (N.D. Cal. 2001); see Kandra v. United States, 145 F. Supp. tions v. Bureau of Reclamation, 138 F. supp. 2d 1228, 1251 2d 1192, 1199-1200 (D. Ore. 2001). Fall 2002 The Property Right in Water son to reallocate water from the consumptive analysis of takings claims. If a takings plain- uses embodied in the water or contract right tiff can prove that there was no lawful justifi- to the instream uses it is acting to protect. In cation for the regulatory decision that caused the Klamath Basin, for example, a research (or exacerbated) the water shortages for committee appointed by the National Acad- which the plaintiff seeks compensation, the emy of Sciences has tentatively concluded government should be held liable. Although that "there is no substantial scientific founda- water rights (and contract rights) are limited tion at this time" to support the principal forms of property, they are nonetheless prop- change in project operations set forth in the erty. If the government cannot defend the ac- 2001 biological opinions for the Coho Salmon tions that led it to restrict the exercise of the and Lost River and Shortnose Suckers.' 30 The plaintiff's water rights (or to reduce water ser- committee specifically found that there was vice .to its contractors), it acts beyond the no evidence to support the Fish and Wildlife scope of the limitations embodied in the 32 Service's findings that the suckerfish would plaintiff's property rights in water. benefit from maintenance of higher water With this caveat, takings claims based on levels in the Upper Klamath Reservoir that water rights and water contracts will stand or existed during water years 1990 through 2000. fall on the court's determination of the plain- It also tentatively concluded that retention of tiffs' property rights vis-a-vis the government. water in the reservoir for later release to sup- Indeed, in many situations, the property port migrating salmon, as directed by NMFS, rights inquiry will be an all or nothing deci- actually could harm the salmon by increasing sion. In the water contract cases, if the par- the temperature of the water in the main ties have assigned financial responsibility for stem of the Klamath River below the reser- 13 water shortages caused by the enactment and voir. enforcement of new environmental laws to The committee's Klamath Basin study the government, and a water shortage occurs will not be completed for at least another because performance of the contract is lim- year, and the committee's final conclusions ited by the implementation of such a law, in any event will not carry the force of law. then the government will be liable for dam- The investigation into the science behind the ages for breach of contract. If the contract is biological opinions, however, illustrates the silent on this question, or expressly exempts potential interplay between judicial review of the government from liability for water agency decisions on the merits and judicial shortages, the courts may not find a breach of

130. National Research Council, Interim Report from the Resources Control Board, 182 Cal. App. 3d 82, 113, 227 Cal. Committee on Endangered and Threatened Fishes in the Klamath Rptr. 161, 176 (1986). River Basin: Scientific Evaluation of Biological Opinions on Endan- gered and Threatened Fishes in the Klamath River Basin 3 (2002) It is possible, of course, that the terms of some (prepublication copy). water contracts might preclude liability even where the government cannot defend the factual or scientific basis for 131. Id. at 2-3. The committee also stated, however, the water shortage that resulted from regulatory action. that "there is no scientific basis for operating the lake at For example, the Westlands contract excuses the United mean minimum levels below the recent historical ones States from liability for water shortages that are caused by "errors (1990-2000)," as the Bureau of Reclamation had proposed in operation." See O'Neill v. United States, 50 F.3d before consultation with NMFS and USFWS, because 677, 682 n.2 (quoting Westlands Water Service Contract art. "lower lake levels would require acceptance of undocu- I I(a)). And the Klamath contracts state that "in no event mented risk to suckers." Id. at 3. shall any liability accrue against the United States" for water shortages. In the only judicial opinion on this point, 132. As noted in part 111,judicial review of the scien- Judge Wanger held that the shortage provision of the tific basis and justification for regulatory actions to protect Westlands contract would not absolve the United States environmental interest would be under a highly deferential from liability if the plaintiffs could prove either "that there standard. Federal agency decisions are reviewed under the was no CVP water shortage" or that the Bureau's imple- arbitrary and capricious standard of section 706 of the Ad- mentation of the Endangered Species Act and the CVPIA ministrative Procedure Act. 5 U.S.C.A. § 706(2)(A) (1996). "were unlawful or unreasonable in light of the Bureau's See supra note 67. In most jurisdictions, state regulatory ac- contractual duties." Orff v. United States, No. CV-F-93-5327 tions would be subject to a comparably deferential stan- OWW SMS, Memorandum Opinion and Order (E.D. Cal. dard of review. See, e.g., United States v. State Water 1997), at 64-65, appeal pending, No. 00-16922 (9th Cir.). Brian E.Gray Volume 9, Number I Brian E.Gray Volume 9, Number 1 contract based on the government's enact- courts follow Judge Wiese's lead and apply a ment and implementation of new laws that categorical takings standard, the determina- the other terms of the contract. In either tion vel non of the property right in water will alter 33 case, the contract claims will be decided by be conclusive in water rights takings cases. the terms of the contract, and the general law If the government's creation of a regulatory of takings will have no applicability. water shortage infringes on the plaintiff's Many water rights takings cases also will water rights-i.e., if the plaintiff would have be decided by the court's analysis of the had the right to appropriate or use water in plaintiff's water rights, as limited by the doc- the absence of the regulatory limitation on trine of reasonable and beneficial use (and in the exercise of the right-then there is a tak- some jurisdictions by statutory and common ing per se. If not, the plaintiff does not have "private property" on which to base a takings law restrictions on the right to appropriate the claim must fail. 134 and use water, as well). Indeed, if other claim, and therefore

133. In Tulare Lake, the court concluded that, "by limit- its decisions-the permanent physical occupation of real ing plaintiffs' ability to use an amount of water to which property by (or authorized by) the government. See, e.g., they would otherwise be entitled, the government has es- Loretto v. Manhattan Teleprompter CATV Corp., 458 U.S. sentially substituted itself as the beneficiary of the contract 419 (1982); United States v. Causby, 328 U.S. 256 (1946); rights with regard td that water and totally displaced the Pumpelly v. Green Bay Co., 13 Wall. 166 (1872). On the contract holder." 49 Fed. Cl. at 319. According to the other hand, the decision to make additional water availa- court, this "complete occupation of property-an exclusive ble for the benefit of endangered and threatened species of possession of plaintiffs' water-use rights for preservation of fish by preventing SWP contractors from making full use of the fish"-is a categorical taking. Id. their water supplies does resemble the action that the Su- preme Court concluded was a taking in Pennsylvania Coal Although detailed analysis goes beyond the scope of Co. v. Mahon, 260 U.S. 393 (1922)-the conscription of pri- to water this article, the application of a per se takings rule vate property for public use. rights cases is questionable. On the one hand, the reallocation of water from SWP contractors to endangered species uses does not at all resemble the type of action that 134. For an analysis of the takings issues in Tulare gave rise to the categorical rule on which the court based Lake, see Melinda Harm Benson, supra note 18, at 577-86.