Water Use Authorization not an Enforceable Contract

Is a Water Use Authorization an enforceable contract?

In a recent case before the Utah Court of Appeals, the issue of whether a Water Use Authorization can constitute an enforceable contract came before the court.  In Brasher v. Christensen, the Utah Court of appeals was asked to overturn the trial court’s determination that a 2013 Water Use Authorization was not an enforceable contract.  Ultimately, the court of appeals upheld the lower court’s decision, finding that “the 2013 WUA was not, by itself, an enforceable contract.”  Furthermore, the court of appeals determined that the trial court did not err when it determined that there was no meeting of the minds to establish an oral contract between the parties.

Brasher’s Need for More Water

Appellee/Defendant Vikki Christensen owns a 260-acre farm in Emery County, Utah, which ownership includes the rights to use irrigation water on the farm.  Christensen’s water rights “are represented by 780 shares of stock in the Huntington-Cleveland Irrigation Company (HCIC).”  Appellant/Plaintiff Reed Brasher owns or leases some 100 acres of land in Emery County.  Brasher raises cattle and grows alfalfa to feed his cattle on those 100 or so acres.

During the summer and fall months, Brasher allows his cattle to graze on 60 acres of irrigated pasture.  During the winter and spring months, Brasher feeds his cattle alfalfa that is farmed from his approximately 30 acre alfalfa farm.  Brasher, like Christensen, owns water stock in HCIC.  However, his shares in HCIC are sufficient to irrigate only 45 acres of his 100 acre farm.  As a result, Brasher must lease enough water to irrigate the remaining 55 acres of his farm to feed his cattle.

Brasher Enters into Water Use Authorization Agreement with Ms. Christensen

In order to irrigate the remaining acreage of his farm, Brasher entered into an agreement with Christensen, whereby Brasher leased 215 class A water shares.  As part of their negotiations, Brasher asked Christensen to lease him the water “until further notice,” but Christensen declined.  Brasher and Christensen both signed a Water Use Authorization form provided by HCIC, which set forth the 2012 start of Brasher’s water lease.

Brasher’s Water Rights Cutoff

On the Water Use Authorization form, Brasher checked the box next to “until further notice,” despite the fact that Christensen told Brasher she was unwilling to agree to such an open-ended lease term.  In light of Brasher’s actions, HCIC contacted Christensen to determine whether she actually intended to lease Brasher the water “until further notice.”  Christensen informed HCIC that she did not, and that Brasher’s lease was just for the 2012 season, ending on October 31st.

Brasher Approaches Christensen With Offer to Buy Farm and Lease Water Shares

In February 2013, Brasher became aware that he could qualify for a subsidized federal program to install sprinkler irrigation on his farm through the National Resources Conservation Service (“NRCS”), so long as he could establish access to sufficient water shares.  Brasher contacted Christensen to inquire whether she would be interested in leasing him water during the 2013 season.  Christensen declined Brasher’s offer, explaining that she was not sure that the water Brasher was interested in leasing would be available.  After several more failed attempts by Brasher to lease the water from Christensen, Brasher told Christensen that he had $5,000 in earnest money and asked Christensen if she would meet with him to discuss the details of his offer.

In March 2013, Brasher, Christensen, and Christensen’s friend, Nedra Swasey, met to discuss Brasher’s offer at Christensen’s home.  Before the meeting, Christensen purportedly told her friend that she would not lease the water to Brasher unless he offered to buy the farm.  Brasher brought two forms with him to the meeting: a blank Water Use Authorization form and a blank Offer to Purchase Real Estate form.  After Brasher and Christensen negotiated the terms of their real estate deal, Ms. Swasey filled in the forms supplied by Brasher, and both parties signed it.

The agreement allowed Brasher to take possession of Christensen’s farm on March 25, 2013, but allowed Christensen to remain in the farmhouse until April 2, 2014.  The agreement further required Brasher to pay Ms. Christensen $5,000 earnest money, but Brasher never paid that money to Christensen.

Brasher and Christensen Also Discuss Water Use Authorization Form

As part of their meeting, Brasher and Christensen also discussed the terms of the potential waters shares lease.  Brasher filled out the Water Use Authorization form, and both parties signed the form.  The Water Use Authorization form read in pertinent part, ““In accordance with a lease and/or other agreement, I Vikki Christensen am authorizing Reed Brasher to call for: 215 shares of Class A Water from my [HCIC] water account starting at the beginning of 2013 irrigation season.”  At the close of their meeting, Brasher left a check for approximately $1,300 with Christensen as payment for the water shares lease.  However, Christensen never cashed that check.

Brasher Falsifies Water Use Authorization Form

Christensen kept with her the signed Real Estate Purchase Offer, and Brasher took the signed Water Use Authorization form to make copies for the parties, but never returned a copy to Christensen.  Instead, Brasher delivered the signed Water Use Authorization form to HCIC.  The Water Use Authorization form delivered to HCIC set forth that the water shares lease would continue until “the end of 2018 irrigation season,” and that it was payable 3/15 each year.”

During trial, it was revealed that Brasher had added the aforementioned terms after meeting with Christensen.  It was also revealed during trial that Christensen told Brasher that she needed to discuss the terms of both the Real Estate Purchase Offer and the Water Use Authorization before proceeding with the deal and that the water shares lease was contingent upon Brasher buying the farm.  Brasher told the trial court that the water shares lease was independent of the offer to purchase the farm and that Christensen only told him that she needed to discuss the offer to purchase the farm with her attorney, and not the Water Use Authorization, before proceeding.

Christensen Nixes Deal

Between March 13th and 24th, Brasher attempted to call Christensen a number of times to determine if she in fact wanted to accept his offer.  Christensen never returned any of Brasher’s calls.  Finally, the day before Brasher was to take possession of the farm, Brasher and Christensen spoke over the phone.  Brasher told the trial court that, after the phone call ended, he was under the belief that his offer would not be accepted.

Brasher Begins Drawing Water Even Though Deal was Rejected

Even though his offer to purchase the farm was not accepted, Brasher began drawing water at the beginning of April, on the belief that the water lease was independent of the offer to purchase the farm.  After Brasher began drawing water, HCIC contacted Christensen to confirm that she wanted to lease Brasher water through the 2018 water season.  Christensen told HCIC the she did not want to lease the water to Brasher, instructing HCIC to stop providing water to Brasher.  As a result, HCIC cutoff Brasher’s water.  Upon finding out that HCIC had terminated his water shares, Brasher allocated his own HCIC water shares to his alfalfa fields and sold all but a few of his cows.

Trial Court Dismisses Brasher’s Claims for Damages

Subsequently, Brasher sued Christensen for damages arising out of the loss of his alfalfa crop for the 2013 year and for losses related to his cattle operation, which amounted to approximately $150,000.  Following a bench trial, the trial court dismissed Brasher’s complaint, “determining that the WUA was not an enforceable contract but rather an instruction from one shareholder to HCIC to deliver water to another person, and that there was no meeting of the minds as to the terms of an oral contract between the parties to lease water.”  Brasher appealed.

On appeal, the Utah Court of Appeals was faced with two issues: 1) whether the trial court erred when it determined that the 2013 Water Use Authorization was not an enforceable contract; and 2) whether the trial court erred when it determined that there was no meeting of the minds to establish an oral contract.

A Water Use Authorization is Not an Enforceable Contract

As to the first issue, the court of appeals upheld the lower court’s determination that the 2013 Water Use Authorization agreement did not, in and of itself, constitute an enforceable contract.  There, the court of appeals concluded:

[T]he trial court correctly determined that the 2013 WUA was not an enforceable contract.  In particular, it seems clear that the terms of the form did not require offer and acceptance or consideration.  The “WUA instructs HCIC to deliver water to one of the parties for a period of time,” nothing more.  And as the trial court held, the WUA “by its very terms” expressly conditions its enforceability upon “a lease and/or agreement,” contemplating that the parties have reached a separate agreement as to the lease of HCIC stock.  The terms of the form detail no offer by one party, no acceptance by another, and no consideration.  The form is devoid of language establishing a contractual relationship between Brasher and Christensen.  Consequently, the trial court correctly concluded that the 2013 WUA was not, by itself, an enforceable contract between Brasher and Christensen.

No “Meeting of the Minds,” No Oral Contract

Turning to the second issue, whether there was a meeting of the minds sufficient to establish an oral contract, the court of appeals held:

We therefore conclude that the trial court’s finding was supported by evidence and that the court did not clearly err when it found that Christensen told Brasher she needed to discuss the terms of the WUA and the Offer with her family and attorney “before anything was final.”  We further conclude that because Brasher testified that he believed the two agreements were independent of each other and Christensen testified to the contrary—that she intended them to be contingent upon each other—the trial court did not err when it concluded there was no meeting of the minds sufficient to create an oral contract.

Two Key Takeaways

The main takeaway from the court of appeals’ ruling is that a Water Use Authorization, while able to authorize a party to use water from the shares of another, does not, standing alone, create an enforceable contract among the parties.  As a result, even if a party is authorized to use water from another party’s shares, there is no ability to enforce that agreement, absent more.  Additionally, even where a Water Use Authorization does not constitute an enforceable contract, the parties may still enter a binding oral agreement over the water shares, but only if there is a meeting of the minds.

Photo Cred.: yorkmix.com

Copyright 2016

Cache County Water Conservancy District

Cache County Water Conservancy District on ballot

For more than a century now, Cache Valley communities have been able to keep water flowing from homeowners taps and farms properly irrigated without help from a formal water conservancy district.  However, as this November’s election arrives, Cache County voters will attempt (for a third time) to form the Cache County Water Conservancy District, which state politicians and local engineering firms say is needed to protect Cache Valley’s water resources.

Proposed Purpose of the Cache County Water Conservancy District

Cache County has said of the proposed water conservancy district:

The purpose of a District in Cache County is to protect and conserve our long-term agricultural, environmental and municipal water interests with an emphasis on securing our allocation entitlements pursuant to the Bear River Development Act.  The County has experienced increased demands related to water issues and reduced resources to meet the demand.  A district would promote water conservation and safeguard adequate amounts of water for the inhabitants of the areas included within the District at a reasonable cost and in a reasonable manner of delivery.

Nearly Unanimous Support for Putting Cache County Water Conservancy District on the Ballot

Cache County Water Manager Bob Fotheringham has said that the time for Cache Valley to have its own water conservancy district has finally come, and that such an entity will even the playing field for Cache Valley residents.  “I believe that the benefit of having the district is so we can manage water better than we’ve managed it in the past and meet the needs of Cache Valley,” Fotheringham has explained.

Fotheringham’s excitement for the establishment of the Cache County Water Conservancy District has seemed to attract the support of a number of other government officials across Cache Valley.  In fact, 18 of 19 municipal governments voted unanimously to allow the Cache County Water Conservancy District ballot measure to be voted on this November.  The lone dissenting vote was cast by River Heights.

Opponents See Cache County Water Conservancy District as a Way to Levy More Taxes and Access Untapped Bear River

While the water conservancy district measure has made the ballot in November, not everyone is in favor of creating the Cache County Water Conservancy District.  Zack Frankel, executive director of the Utah Rivers Council, has said that the formation of a water conservancy district will be nothing more than another level of government bureaucracy separating Cache Valley residents from their water.  Frankel has also said that the creation of a water conservancy district is just an excuse for Cache County to assess property taxes, which will amass millions of dollars for the county to spend on water projects, including projects on the largely undeveloped Bear River, which Cache County is entitled to 60,000 acre-feet of the approximately 220,000 acre-feet of water that could be developed pursuant to the Bear River Development Act.

Cache County Water Conservancy District Will Be Independent Entity

While the question of whether Cache County Ultimately needs a water conservancy district will be decided by voters in November, it is important to understand the proposed structure of the Cache County Water Conservancy District, including how much the conservancy district can tax residents.  Cache County has said, “The final organization and governance of the District would be created based on input from the citizens.  The District Board of Trustees can include up to eleven members and must include a majority of elected officials.  Input and communication about the formation of the Board are needed to ensure the District serves all water users in the District area and is a fit for Cache County’s needs.”  Furthermore, once created, the Cache County Water Conservancy District will function as an “independent entity to plan, safeguard, and manage water resources for the benefit of the public in the geographic area they represent.

Third Time is the Charm?

As noted, this will be the third time that voters will go to the polls over the fate of the Cache County Water Conservancy District.  The other two attempts to create a water conservancy district in Cache County have failed because voters have never felt comfortable forming a district made up of appointed individuals who have the ability to assess taxes.  The reality is Utah’s water conservancy districts use taxpayer money to build infrastructure like pipelines and dams, pay salaries and lobbyists and even build new buildings. But when a citizen has beef with how this money is spent, there’s no recourse at the ballot box.

Even still some have admitted that a water conservancy district is “the perfect example of taxation without representation.  According to Dan McCool, director of the University of Utah’s Environment and Sustainability and Studies program, “They can tax, they can borrow, but they are in most cases unelected by the public at large.”

10 of 11 Board Members to be Elected

So, what is different this time around?  First, water conservancy district board members may now be elected pursuant to a change in the Utah Code in 2010, which allows water conservancy district board members to be elected or appointed.  Additionally, Utah Code § 17B-2a-1005 requires that a majority of a water conservancy’s board members be elected as opposed to appointed.  Cache County has said that 10 of the water conservancy district’s board will be elected, while the 11th board member will be appointed to represent the interests of the agricultural community.

“There will be no other district in the state that will be operated like this district because it is a new way to manage,” Fotheringham says.  “I think we’ve resolved those issues for people and I believe it’s going to be transparent; it’s going to be accountable and it’s going to do what the people in the area of Cache Valley want it to do, and that’s what we need.”

Conservation Focus

Second, Cache County has said that water conservancy districts have become more and more focused on water conservation following the pronouncement by Utah’s governor in 2000 to reduce per capita water use 25% by 2050.  Cache County says that since that time, Utah as a whole has conserved 18%, but that Cache County has only been able to conserve 6%.  Accordingly, Cache County says, by way of the Cache County Water Conservancy District, its citizens can become more involved in the conservation process.

Tapping Into the Bear River

Third, Cache County has maintained that plans to development the Bear River has progressed since the last time the issue was on the ballot.  Property to build a pipeline from Box Elder County to Salt Lake County, and that reservoir sites in Box Elder County and Cache County are currently being evaluated for construction by water conservancy districts up and down the Wasatch Front.  While any pipeline will not be completed until at least 2035, Cache County has said that the formation of the Cache County Water Conservancy District will provide “the needed structure and authority to form regional contracts that must be in place to utilize Cache County’s Bear River water allocation.”

Cache County Population Growth

Fourth, Cache County population has grown by some 30% in recent years.  According to Cache County, “The population for the County given in the 2000 census was 91,391.  The 2010 census population for the County was 112,656 with a projected population for 2013 of 120,046.”  As a result, Cache County says the growing population will only increase the demand for water and will reduce any current excess water supplies.

Groundwater Management Plan

Finally, the groundwater management plan enacted in September 1999 limited the amount of water that can be drawn from underground aquifers in Cache County.  As it stands now, Cache County says that existing water rights (usually agricultural water rights) have to be used as replacement water.  Cache County says, if formed, the Cache County Water Conservancy District, will allow “for more efficient conversion of water from agricultural to municipal use with the ability to bank water rights.  A conservancy district is needed to have the resources and focus to develop the Bear River allocation.  The developed allocation can help preserve agricultural land by giving an alternative source for water rights in areas that currently have no water rights, such as bench areas, as these areas are developed.”

Increased Property Taxes

As it relates to taxation, the proposed Cache County Water Conservancy District will have the authority to assess taxes.  Cache County has said the water conservancy district may impose a maximum property tax of “0.0001 per dollar before certain activities are commenced, 0.0002 per dollar after certain activities are commenced, and 0.0003 per dollar if an additional levy is necessary to pay maturing bonds or debts.”  In practice, Cache County has said that the tax will play out as follows: “the tax on a $188,000 residence would be $10.34 using a tax rate of 0.0001, $20.68 using a tax rate of 0.0002, and $31.01 using a tax rate of 0.0003.”

Cache County has said the creation of the Cache County Water Conservancy District and a corresponding tax will allow Cache County to protect its shrinking interest in water from the Bear River, provide Cache County residents with a board that is focused on water issues and has the authority to make water decisions and agreements that will protect Cache Valley’s water, and will help the county to carry out the Cache Valley Water Master Plan.

Will Voters Go for it This Time?

While Cache County has offered a host of reasons for adopting the Cache County, will it achieve its objectives, or is its creation just another way to tax Cache Valley residents and provide special water projects to a select group of residents or businesses as opposed to the public at large?  Time will tell, but at least Cache Valley residents will control the issue via the ballot box.  All eyes will be keenly fixed on election night in November.

* Photo Cred.: news.hjnews.com

Copyright 2016

UEP and TCWW in Fight over Short Creek Water Rights

TCWW in UEP crosshairs over Short Creek water rights

In January 2015, United Effort Plan trust (“UEP”) filed suit against Twin City Water Works (“TCWW”), alleging that for a number of years TCWW has unlawfully pumped water from UEP land without compensating UEP.  Additionally, UEP claimed that the utility was funneling revenues generated from Hildale and Colorado City residents to FLDS leaders and TCWW employees, while at the same time charging residents unreasonably high rates (i.e., $12,000 impact fee for a water meter) and providing little or no benefit to residents in return.

UEP Taken Over by State Amid Concerns About FLDS Trying to Bankrupt UEP

The UEP was formed decades ago by FLDS church leaders seeking to manage residents’ “consecrated” properties under a communal system, but Utah’s court system took over the management of the UEP a decade ago amid concerns that FLDS leaders were defaulting on their responsibility to defend trust members’ holdings and driving the trust toward insolvency.  The state’s management of the UEP trust created a situation where FLDS members have been pitted against the trust they had established in an ongoing adversarial relationship.

UEP’s Lawsuit Seeks Control of Water Distributed From UEP Land

UEP’s lawsuit seeks control of the water distributed from UEP owned land, as well as back payment for water taken from the land without compensation to UEP.  It has been alleged that TCWW earned and disbursed more than $4.3 million between 2002 and 2009, none of which was paid to UEP, and that $1.7 million of that was diverted for purposes wholly unrelated to TCWW.  UEP also seeks to have the court put in place a new system of water distribution management to ensure that TCWW is not allowed to take water from UEP land without providing compensation in the future.

Judge Westfall Takes Question of Who Should Control Short Creek Water Rights Under Advisement

The question of who will control the water rights in the Short Creek area is now in the hands of Fifth District Judge G. Michael Westfall.  Late last month, after accepting an agreement between TCWW and UEP, which resolved a number of the issues regarding water rights in the border towns of Hildale and Colorado City, Judge Westfall took under advisement arguments over who has the right to control the water in the neighboring municipalities.

Over the objection of TCWW, Judge Westfall agreed with UEP, ruling that the Fifth District had jurisdictional authority to decide who has control over the water on the Arizona side of the border.  TCWW had argued to Judge Westfall that a Mohave County (Arizona) court should decide the issue, but Judge Westfall disagreed.  As a result, for now, the fate of the water on the Arizona side of the border lies in the hands of a Utah judge.

UEP Argues Its Ownership of the Land Gives it Right to Control Water

In support of its argument that it is entitled to control the water between Hildale and Colorado City, UEP attorney, William Walker, argued that, on account of the fact that UEP owns the land, the law gives UEP sole control over collecting underground water through a “right of fiduciary” and to control surface water via existing property rights.

TCWW Compares Easement to Hunting Permits

In response, James Spendlove, the attorney for the TCWW utility, compared access to underground water to a hunting permit, arguing that, so long as an individual has a permit to hunt animals and is allowed to be on the land, then that person has the right to kill and take the animal and benefit from the meat without having to give the meat back.  Spendlove told the court that UEP granted TCWW an easement some forty years ago to allow TCWW to place its well equipment on UEP’s land and draw water from the ground under the land.  Spendlove also noted that TCWW has an Arizona permit for it well operations.

UEP Says Easement Granted Access Only

UEP replied that the easement granted to TCWW gave the utility access to the water, but it did not vest any control over the water rights in TCWW.  According to UEP, such rights would have to be conveyed in a separate document, and that TCWW rejected the idea of easement rights to the water, alleging that TCWW had the right to take the water by way of “unrecorded leases.”  TCWW has been unable to produce these alleged “unrecorded leases,” UEP told the court.

UEP’s Suit One of Many Legal Woes for TCWW

Judge Westfall has not given a timetable for his decision.  Even still, the battle over the water rights in Hildale and Colorado City is not the only legal trouble the TCWW has had to face over the last year or so.

Utah AG’s Office Sues TCWW Over Illicit Funding of FLDS Church

In March 2015, the Utah Attorney General’s Office filed a lawsuit against TCWW, which asked Washington County, Utah’s Fifth District Court to close down the utility.  The lawsuit was filed as part of the efforts to disrupt the allegedly illicit funding of the FLDS church.  According to the complaint: “The officers of (Twin City Water Works) are not properly discharging their duties, have no knowledge of the operations of the nonprofit corporation, and appear incapable of ensuring that the nonprofit properly uses its revenue to improve, maintain, and expand the TCWW water system.”

“The TCWW water system is in very poor condition, and it appears that little revenue, if any, has been used for the maintenance, expansion, or development of the TCWW water delivery system,” the attorney general’s complaint summarizes.

Willie Jessop Sues TCWW Seeking to Tie Utility to FLDS Church

Just one month later, Hildale businessman and former security representative for the FLDS church, Willie Jessop, filed his own suit against TCWW, seeking to tie the utility to the FLDS church, which owes Jessop approximately $30 million dollars by way of a default judgment entered against the church in 2012.

TCWW Pleads Guilty to Tax Evasion

The TCWW utility also pleaded guilty to tax evasion last year, acknowledging it had failed to pay corporate tax on income of $112,634 per year between 1996 and 2013.  The plea agreement stated the company owed $147,624.61 in back taxes, plus another $223,000 in interest and penalties.

No Water Without Compensation

While it remains to be seen what Judge Westfall will decide as it relates to water rights in the Short Creek Area, it is clear that the UEP wants a new system put in place to ensure TCWW cannot remove water from UEP land without compensating UEP.  Like others suing the utility, UEP appears increasingly concerned that revenues generated by TCWW are neither being paid to UEP nor are being used to maintain the TCWW water system.  Instead, those funds appear to be lining the pockets of FLDS leaders and TCWW employees.

Hildale/Colorado City Residents Real Losers in Water Rights Dispute

Beyond UEP, the big losers in the battle over water rights in the Short Creek area are the residents in Hildale and Colorado City that are being victimized via unreasonably high rates charged by TCWW.  Hildale instituted a steep hike in impact fees for water services in March 2015.  UEP employees said the hike in impact fees frustrated efforts to sell some vacant lots without water and sewer at an auction earlier in the month.

Another issue affecting the auction was the cost of constructing an 8-inch water main to some of the properties.  “The city is telling them these lots will not be served until we get an 8-inch main to serve the entire area because we can’t just take 1-inch, 2-inch lines off of a 1-inch, 2-inch line,” UEP employee Jethro Barlow said.  UEP attorney Jeff Barlow said a problem with the requirement is Hildale is asking each resident to pay for the entire stretch of pipe to their property, so at $25,000 per block, a resident four blocks from the access point would pay $100,000. So would any other residents within the 4-block area, he said.

* Photo Cred.: sltrib.com

Copyright 2016

CWR - WOTUS Decision Left to Sixth Circuit

11th Circuit: CWR decision belongs to 6th Circuit

The Eleventh Circuit Court of Appeals recently dealt a significant blow to opponents of the Obama administration’s controversial Clean Water Rule (CWR), which redefines the “waters of the United States” (WOTUS).  The three-judge panel sitting in Atlanta ordered that an appeal taken on behalf of a number of states, including Utah, would be put on hold pending a decision from the Sixth Circuit Court of Appeals in a case that made an identical challenge to the CWR.

Sixth Circuit Issues National Stay of CWR in Split Decision

The Sixth Circuit ordered a nationwide stay of the CWR last year in In re EPA, while it determined whether it had jurisdiction to hear the case.  In February, the Sixth Circuit decided that it, and not a lower federal district court, had jurisdiction over the case.  in a splintered decision, two of the three judges deciding the jurisdiction question concluded that the Sixth Circuit had jurisdiction to hear challenges to the CWR under either 33 U.S.C § 1369(b)(1)(E) or (F).  While acknowledging that the WOTUS rule does not fit neatly into the categories for which § 1369 provides for circuit court jurisdiction, Judge David McKeague concluded that these provisions have been given expansive interpretations by the courts, sufficient to provide for jurisdiction.

A Strange Concurrence

Judge Richard Allen Griffin concurred in the result, even though he concluded that neither provision of § 1369 supplied the Sixth Circuit with jurisdiction to hear challenges to the CWR.  Nonetheless, Judge Griffin set forth that the Sixth Circuit was obligated to conclude that the court had jurisdiction under § 1369(b)(1)(F) pursuant to the ruling in National Council of America v. U.S. EPA.  In National Council of America, the Sixth Circuit held that it had jurisdiction over any regulation “governing” permits.  According to Griffin, while there would be no jurisdiction under a “plain text reading” of the statute, he concluded he was “constrained by our court’s precedent holding that ‘issuing or denying any permit’ means more than just that.”

Senior Judge Damon J. Keith dissented from Judge McKeague’s majority opinion, claiming that the relevant portions of the CWA do not provide for jurisdiction to challenge the WOTUS rule in a circuit court, and that the National Cotton Council decision should not be read so broadly as to provide for jurisdiction here.

Georgia Federal Court Determines Jurisdiction Rests With Court of Appeals

While the Sixth Circuit has decided it can hear a challenge to the CWR, other opponents of the CWR filed a similar case against the CWR in federal court in the Southern District of Georgia on June 30, 2015.  In that case, the plaintiffs made much the same contentions as those in the Sixth Circuit case—namely that the CWR was invalid and that the Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers (USACE) should be enjoined from enforcing the rule.  On August 27, 2015, the Georgia federal court denied the plaintiffs’ motion to enjoin enforcement of the CWR, concluding that 33 U.S.C. § 1369(b)(1) gives courts of appeals exclusive original jurisdiction over challenges to the rule.  Plaintiffs appealed the court’s ruling to the Eleventh Circuit in Atlanta.

Eleventh Circuit Asks Parties to File Supplemental Briefing in Light of Sixth Circuit’s Decision

After the Sixth Circuit determined that it had jurisdiction over challenges to the CWA, the Eleventh Circuit asked the parties to brief:

1) whether this appeal is moot in light of the Sixth Circuit’s nationwide stay of enforcement of the Clean Water Rule in In re EPA I;

2) whether we should stay any further proceedings in this case while the In re EPA I stay order remains in effect;

3) whether we should hold this appeal in abeyance pending the Sixth Circuit’s decision concerning the validity of the rule;

4) whether we are bound by the Sixth Circuit’s determination in In re EPA II that courts of appeals have exclusive original jurisdiction over challenges to the rule;

5) whether the determination of jurisdiction in In re EPA II has preclusive effect on that issue in this appeal; and

6) if not, what persuasive weight we should give to In re EPA II.

Eleventh Circuit Leaves CWR Determination Up to Sixth Circuit

Following oral argument on the aforementioned issues, the Eleventh Circuit issued an opinion declining to hear the merits of the appellant’s case, instead deferring to any ruling on the merits from the Sixth Circuit.  According to the Eleventh Circuit, it would be a “colossal waste of judicial resources” for it to get involved in the ongoing legal challenge to the rule.  Citing the general rule against “duplicative litigation,” the Eleventh Circuit said:

If there were an exhibition hall for prudential restraint on the exercise of judicial authority, this case could be an exemplar in the duplicative litigation wing. The case before us and the case before the Sixth Circuit involve the same parties on each side, the same jurisdictional and merits issues, and the same requested relief … It would be a colossal waste of judicial resources for both this Court and the Sixth Circuit to undertake to decide the same issues about the same rule presented by the same parties.

All Eyes on the Sixth Circuit

Given the Eleventh Circuit’s decision to defer to the Sixth Circuit, all eyes are on the Sixth Circuit and its impending decision on the merits of the challenge to the CWR.  Petitioners’ initial substantive briefs on the merits are due September 30, 2016, respondent agencies’ brief is due November 30, 2016, and replies are due January 20, 2017 (Inauguration Day).   The court has ordered the parties to submit a joint appendix of documents from the administrative record for the court’s consideration by February 3, 2017.  The Sixth Circuit will then schedule oral argument.  The extended schedule reflects the complexity of the litigation and while the current Administration will file the respondents’ brief, the next Administration will argue the cause.

U.S. Chamber and Others Ask Tenth Circuit to Revive Challenge to CWR

In addition to the Sixth Circuit and Eleventh Circuit cases over the CWR, The U.S. Chamber, along with the National Federation of Independent Business, Portland Cement Association, State Chamber of Oklahoma, and Tulsa Regional Chamber, filed their own appeal at the Tenth Circuit Court of Appeals, asking the Tenth Circuit to reverse the U.S. District Court for the Northern District of Oklahoma’s decision to dismiss the case.

In their opening brief, the appellants argued to the Tenth Circuit that it has an independent obligation to determine its jurisdiction.  Additionally, to the extent the district court deferred to the Sixth Circuit, the appellants argued the district court erred because the CWA’s text and the established default rule under the Administrative Procedure Act (APA) clearly indicate that the district court has original jurisdiction over the WOTUS rule, as none of the CWA’s limited exceptions providing for original jurisdiction in the courts of appeals apply in this case.  Finally, appellants argued that the agencies’ policy-based reading of the CWA finds no support in Supreme Court or Tenth Circuit precedent, much less in the plain text of the CWA.  The Tenth Circuit has not yet ruled on the question of jurisdiction before it.

* Photo Cred.: capitalpress.com

Copyright 2016

HEAL Utah Abandons Appeal

HEAL Utah abandons Green River nuke appeal

Last week, utahwaterlaw.com reported on the Utah Court of Appeal’s recent decision in  HEAL Utah v. Kane County Water Conservancy District, which upheld the approval of two change applications that will provide much-needed water for the Green River nuclear power plant project.

HEAL Utah Decides Not to Appeal to Utah Supreme Court

Following the court of appeal’s decision, HEAL Utah said it would review the court’s ruling before deciding whether to appeal to the Utah Supreme Court.  However, on Wednesday, HEAL Utah and the other principal environmental groups involved in the lawsuit, Uranium Watch and Living Rivers, announced “they are dropping the legal challenge to the project’s water rights.”

HEAL Utah and Other Groups Maintain Nuclear Project is “Struggling”

While the HEAL Utah and the other environmental groups have dropped their legal challenge to the Green River nuclear project, the groups maintain that “all facts available show the project is struggling, having attracted very little investment from utilities.”  More specifically, HEAL Utah has said that “[d]ropping their legal appeal will likely hasten the project’s demise, because Blue Castle Holdings, the company behind the troubled, nearly-decade-old reactor plan, will now have to make large cash payments to southern Utah water districts.”

“By dropping the appeal we are actually forcing them to put up or shut up as they sometimes say,” HEAL Executive Director Matt Pacenza told reporters outside Matheson Courthouse in Salt Lake City.  “We don’t think they can.”

“Blue Castle may be winning in the courts, but they’re losing everywhere else. When no one wants to invest in your company and no utility wants to buy your power, you’re in deep trouble,” Pacenza said.  “Everything we have learned over the last nine years is that this is a project that has not gotten off the ground.”

Uranium Watch Says Court of Appeals’ Decision “Does Not Change” Fact that Project is in Financial Trouble

Similarly, Sarah Fields, program director of Moab-based Uranium Watch reiterated that the Blue Castle nuclear power plant project has “never been a viable project. The Court of Appeals decision does not change that.”

“None of the utilities in Utah and the surrounding states have agreed to join the project at any level,” Fields said.  “There is no realistic source of funding to construct nuclear reactors in Utah.”

Fields also pointed out that although Blue Castle is purportedly putting together a permit application, the company has not had contact with the Nuclear Regulatory Commission since 2011.  Furthermore, Fields, like Pacenza, questions whether Blue Castle will be able to make the hefty payments to the Kane and San Juan County Water Conservancy Districts, which start at $180,000 per year for the first five years, and then increase to $580,000 a year after the nuclear reactor comes online.  Given Blue Castle’s inability to raise funding from outside sources, just over $500,000 since 2007, Fields and Pacenza may very well be right about Blue Castle’s inability to pay for the needed water.

Living Rivers Says Water Availability is Still an Issue for the Project

Echoing Pacenza and Fields, John Weisheit of Living Rivers added water availability also remains a huge issue for Blue Castle. “The project is a non-starter for one very important reason: There isn’t enough water available from the Colorado River. The demand for water by the seven states of this basin exceeds the natural supply.”

Weisheit also said that the effects of climate change may further plague Blue Castle in its attempt to complete its nuclear project.  “Increasing aridity is becoming a major cause of depletion,” he said.  “Over the last 16 years the average decrease in the natural flow has been 20 percent, or 3 million acre-feet.”

Blue Castle Holdings Fires Back Over Claims of Financial Struggles

The Green River nuclear power plant project is the brainchild of former Utah County Republican lawmaker Aaron Tilton, who is the president and CEO of Blue Castle Holdings.  Following the Utah Court of Appeals’ decision, Tilton said in a news release:

The original approval by the State Water Engineer has now stood the test of an appeal where the relevant evidence was weighed.  The ruling is a major de-risking milestone for the Blue Castle Project. It provides future utility participants greater certainty that the major asset, water for the deployment of a new nuclear plant, has been secured economically.

In response to the claims made by HEAL Utah and the other environmental groups regarding Blue Castle’s finances, Blue Castle attorney, David Wright said, “HEAL Utah is simply not privy to Blue Castle’s finances and does not know what Blue Castle has been doing, concerning its efforts in developing the project.  Blue Castle has honored the terms of its leases with the two water conservancy districts and intends to continue to do so.”

Blue Castle Holdings Moving Forward to Select Builder of Power Plant

Last month, Blue Castle announced it was moving forward with the project and that it was beginning the process of selecting contractors to build the power plant.  Blue Castle said its power plant will create between 2,200 and 3,000 megawatts of power, which will increase Utah’s ability to generate power by up to 50%, while consuming only 1% of its water diversions.

Time Will Tell if Power Plant Project will Come to Fruition

While the legal fight between HEAL Utah and Blue Castle Holdings may be over for now, time will tell whether the Green River nuclear power plant project will ultimately be a success.  Aside from raising resources to continue to fund the project and pay for the water necessary to fuel the plant, climate change and states’ efforts to draw more water from the Colorado River may further impact the vitality of the project.

* Photo Cred.: deseretnews.com

Copyright 2016

Change Application - HEAL UTAH v. Kane County Water Conservancy District

Change applications and existing water rights

A district court’s decision to approve two change applications over the existing water rights of two Utah water conservancy districts was at issue in a recent case before the Utah Court of Appeals.  In HEAL Utah v. Kane County Water Conservancy District, the Utah Court of Appeals was asked to determine whether the district court “properly approved two change applications requesting to change the points of diversion and the nature of use of water already appropriated to Kane County Water Conservancy District and San Juan County Water Conservancy District.”

Prior Appropriation System Adopted in Utah

As part of its responsibility to the public over water in Utah, the State has adopted the “prior appropriation system—a capture system of water allocation—to maximize productive usage of water.”  Through Utah’s prior appropriation system, those wishing “withdraw water from the natural environment” are required apply to the Utah State Engineer.  In the application to the State Engineer, potential water users must include: “the nature of the proposed use,” the “quantity of water in acre-feet,” “the time during which it is to be used,” “the name of the stream or other source from which the water is to be diverted,” “the place on the stream or source where the water is to be diverted and the nature of the diverting works,” and any “other facts that clearly define the full purpose of the proposed appropriation.”

However, an appropriation by the State Engineer “may be made only for a useful and beneficial purpose.”  Thus, the State Engineer “must ensure that the waters of the state are used by appropriators in accordance with their priorities and that diverted waters are used for proper beneficial purposes.”

Change Applications Under Utah Law

Once a potential user obtains the right to use unappropriated water, “a water right holder is entitled to change the point of diversion or the place or nature of use of water so long as vested rights are not impaired by the change.”  In order to exercise the right to change the point of diversion or the place or nature of use of water, a water user must file a change application with the State Engineer.  Under Utah law, the State Engineer is required to “follow the same procedures . . . for applications to appropriate water and applications for permanent changes of point of diversion, place of use, or purpose of use.”  More specifically, the Utah Code “requires the State Engineer to approve a change application unless it impairs any vested [water] right without just compensation.”

Even still, the Utah Supreme Court has explained that water right owners have a vested right to the “quality as well as the quantity which he has beneficially used.”  Thus, while there is a presumption in favor of approving change applications, the “State Engineer must first determine that the proposed changes will not impair any vested [water] right to the beneficial use of a certain quality and quantity of water.”

Aggrieved Person May Seek Judicial Review of State Engineer’s Decision to Approve Change Application

Even though the State Engineer is authorized to determine whether a change application should be approved, “a person aggrieved by the State Engineer’s decision may obtain judicial review in accordance with Title 63G, Chapter 4, Administrative Procedures Act.”  As part of a district court’s review, the court “is not sitting in its capacity as an adjudicator of rights, but is merely charged with ensuring that the state engineer correctly performed an administrative task.”  Furthermore, in its review of the State Engineer’s decision, a “district court may only consider issues ‚subject to determination by the [State] Engineer because the effect of the court’s judgment is the same as it would have been if the Engineer had reached the same conclusion in the first instance.”  Thus, the district court “stands in the same position as the State Engineer,” and may only review those “issues determined by the State Engineer.”

Green River Power Plant Project’s Need for More Water

In HEAL, the Kane County Water Conservancy District and the San Juan County Water Conservancy District had for some time leased their existing water rights to Blue Castle Holdings Inc. “for the propose development of a nuclear power plant near” Green River, Utah.  Because the proposed nuclear power plant project “will require the continuous depletion of nearly all of the Districts’ apportioned water to create steam to generate power and to cool the power plant,” The water conservancy districts and Blue Castle sought “to move the Districts’ approved points of diversion from several small tributaries to a single location on a larger river upstream from the existing points of diversion.”

The Change Applications at Issue

In January 2012, the State Engineer approved two change applications as it related to the existing water rights of the Kane County Water Conservancy District and the San Juan County Water Conservancy District.  San Juan County Water Conservancy District’s change application “proposed to change the point of diversion from the smaller San Juan River to the Green River in Emery County, Utah.” San Juan County Water Conservancy District’s change application “also proposed that San Juan County Water Conservancy District’s water would be stored in a new reservoir and be used for the Project.”

Kane County Water Conservancy District’s change application proposed a change not only in the point of diversion, but also in the nature of the water use.  Kane County Water Conservancy District “holds rights to 29,600 acrefeet of water from Wahweap Creek and Lake Powell in Kane County, Utah, for steam generation in the abandoned Kaiparowits Power Project.”  In its change application, Kane County Water Conservancy District “proposed to use its water rights to aid in producing nuclear power for the [power plant] [p]roject,” and “[r]ather than diverting the water from Lake Powell, the Kane County Water Conservancy District proposed to divert the water from the same location proposed by the San Juan County Water Conservancy District in the Green River.”

HEAL Utah Challenges State Engineer’s Approval of Change Applications

Following the State Engineer’s advertisement of the Districts’ change applications, “nearly fifty protests were filed against the Kane County Water Conservancy District’s application and close to thirty protests [were filed] against the San Juan County Water Conservancy District’s application.”  Even still, the State Engineer ultimately approved both change applications.

HEAL Utah, a Utah environmental protection group, sought judicial review of the State Engineer’s decision to approve the two change applications in district court.  The two cases were consolidated, and a bench trial was held in September 2013.  Following the bench trial, the district court ruled in favor of the Districts and Blue Castle, upholding the State Engineer’s decision to approve the change applications.  HEAL Utah subsequently appealed.

HEAL Utah’s Three Challenges on Appeal

On appeal, HEAL Utah argued that the district court erred when it approved the change applications because the applicants had “not satisfied the burden of demonstrating the Change Applications meet the” necessary statutory requirements.  Specifically, HEAL Utah argued that: “(1) there is no unappropriated water in the proposed source, (2) the proposed diversion will have an unreasonable impact on the natural stream environment and is contrary to the public welfare, and (3) the proposed change is not feasible and is speculative.”

Utah law sets forth that a change application should be approved if “there is reason to believe” that “there is unappropriated water in the proposed source,” “the proposed use will not impair existing rights or interfere with the more beneficial use of the water,” the proposed plan is “physically and economically feasible” and “would not prove detrimental to the public welfare,” and “the applicant has the financial ability to complete the proposed works.”

Utah Court of Appeals Rejects Contention that Green River is “Overapportioned”

In addressing HEAL Utah’s first contention, that there is no unappropriated water in the Green River and therefore the water rights upon which the change application is based do meet the requirements of Utah law.  There, the court of appeals rejected HEAL Utah’s argument that the Green River is “overapportioned.”  “HEAL Utah’s argument ignores the fact that the Green River and its tributaries form an interconnected system of which the Flaming Gorge Reservoir is only a part,” the court of appeals noted.  “HEAL Utah’s evidence and experts were unable to demonstrate the extent of impact the diversions would have on the fish or the stream.”

HEAL Utah’s Briefing Deemed Inadequate on Several Points

Turning to HEAL Utah’s next contention, the court of appeals determined that “there is reason to believe the proposed changes will not unreasonably affect public welfare and the natural stream environment.”  The court concluded that “HEAL Utah has failed to meet its burden of persuasion on appeal.”  The court said that while “[m]ere probabilities and speculative evidence may be sufficient to challenge a change application … HEAL Utah has not actually challenged the district court’s factual findings … [and] cites no legal authority to support its arguments, and offers no references to the parts of the record on which it relies.”  The court of appeals made similar statements in regards to certain of the other arguments raised by HEAL Utah.

Utah Court of Appeals Says, Although Project is a “Risky Venture,” the Applicants Presented Enough Evidence it was Both “Physically and Economically Feasible”

Finally, the court of appeals addressed HEAL Utah’s contention that “the proposed beneficial use of water—supplying a currently unbuilt nuclear power plant—is neither financially feasible nor anything more than a purely speculative use of water.”  The court of appeals determined that “although the Project is a risky venture and has not yet been licensed through the Nuclear Regulatory Commission, the Applicants presented evidence that the Project is both physically and economically feasible.”

Similarly, the court rejected HEAL Utah’s argument that the power plant project is speculative or that the change applications attempt to create a monopoly over future water use.   According to the court of appeals:

But here, there are contracts in place assigning the Districts’ current water rights to Blue Castle. Although Blue Castle does not intend to build the power plant without the assistance of other entities, the purpose and use of the water is clearly defined—it will be used for the generation of nuclear power. Unlike the applicants in Western Water, Blue Castle has proposed a site for the plant, invested money to develop the plant, and offered a detailed description of the purpose for the water and specific amount of water needed. This enormous risk and detailed plan for the nuclear plant demonstrates that Blue Castle’s interest in obtaining this water is not merely speculative.

HEAL Utah Will Review Ruling Before Deciding to Appeal Further

In a press release, Matt Pacenza, executive director of HEAL Utah, said the group is “disappointed” by the ruling, but still optimistic.  “Utahns opposed to the project shouldn’t worry. This remains a project which has failed to attract investment or interest from any utility,” Pacenza said. “If no one wants to fund your project, or buy the product you’re selling, then you’re going nowhere.”  HEAL Utah said it will review the court of appeals’ ruling before making and decision about whether to appeal to the Utah Supreme Court.

In its opinion, the court of appeals, noted several weak spots in HEAL Utah’s original filing, which may impact any further appeal.  The court’s opinion sets forth that “[o]ur analysis of HEAL Utah’s arguments is limited because its arguments are often inadequately supported and briefed.  In response, Pacenza has acknowledged that their appellate brief could have been stronger. “We developed some issues with our counsel late in the process,” he said.  “We didn’t present as strong a case as we had hoped. But we still believed these critical issues should be heard by the court.”

Water Conservancy Districts and Blue Castle Rejoice in Victory

Conversely, the water conservancy districts and Blue Castle rejoiced in their victory. “”We have believed in this project since the beginning and yet another court has agreed with us,” said attorney David Wright, who defended the state engineer’s decision.  “We are pleased with the outcome.”  Blue Castle’s Aaron Tilton, a former Utah lawmaker, said the company is sifting through contractors and plans to begin site preparation work at Green River in about two years.  “Our project has been scrutinized at many levels, including the state engineer, the district court and now the appeals court,” he said. “We have fully complied and satisfied all the requirements of the law and we can assure the public the level of scrutiny that has been applied to the process is welcomed.”

* Photo Cred.: dreamplango.com

Copyright 2016

Navajo Nation - San Juan River

Navajo Nation closes in on water rights settlement

It appears that the Navajo Nation, the federal Bureau of Reclamation, and the State of Utah are closing in on a settlement over the Utah Navajo’s water rights to the San Juan River.  While the settlement must still be approved by Congress, the aforementioned parties are all in agreement on a settlement they say is both fair and likely to calm uncertainty as it relates to the San Juan River, which is a major tributary of the Colorado River that covers some 383 miles in the Four Corners area.  If approved, the Navajo Nation settlement will resolve one of the largest outstanding water rights claims in Utah.

Navajo Nation’s Water Rights Have Been Hard to Quantify Historically

The Navajo Nation was originally established via a treaty in 1868, which was long before many of the current users began drawing water from the region’s rivers.  By law, the Navajo Nation theoretically holds senior water rights to most competing uses, according to the “first in time, first in right” principle.  But for the Navajo Nation, as with many tribes, quantifying those rights has meant decades-long trudges through political negotiations and, sometimes, litigation.

The Navajo Nation Approves Settlement Over Water Rights, Allocating 81,500 Acre-Feet of Water Annually

In January 2016, lawmakers in the Navajo Nation approved the settlement by a vote of 13-7 without any debate.  The approved settlement will give the Navajo 81,500 acre-feet of water annually, which the settlement allows the Navajo to draw from aquifers and the San Juan River and its tributaries.  The Navajo could also potentially draw their share of water from Lake Powell, but the Navajo have said they have no interest to do so.

While the Utah Navajo currently use only a small portion of the 81,500 acre-feet of water that will be allocated to the tribe under the settlement, it has been reported that “the agreement will allow for economic development and leasing of water to entities off the reservation, and the tribe wouldn’t lose any water it did not put to use, according to the settlement.”  Tribal President Russell Begaye has said, “We do not intend to only utilize the water for drinking or housing purposes. We would also like to see it benefit business startups, tribal offices, schools and other programs on the Navajo Nation.”

Husband and Wife Attorney Team Hired to Advise Navajo Nation Over Settlement

The Navajo Nation has hired Daniel Cordalis and his wife Amy Cordalis, both attorneys and members of the Navajo tribe, to advise the Navajo Nation as it relates to the settlement over the San Juan River.  Mr. Cordalis has said, “That analysis led us to believe the settlement is fair and provides the Navajo Nation a favorable resolution of their Utah water rights claims.”

Congress to Allocate $200 Million for Navajo Nation Water Projects

In addition to the annual water allocated to the Navajo, the settlement calls for a Congressionally allocated, $200 million Utah Navajo Water Development Fund for Utah Navajo water projects.  The settlement also includes a waiver of any past legal claims by the Navajo Nation against the State of Utah and the U.S. government within Utah, a provision that is standard operating procedure in Indian water settlements.

Is First in Time Really Last in Line?

A somewhat controversial part of the settlement contains an agreement by the Navajo Nation that, if there is not enough water to fill its needs, the Navajo Nation will not assert priority over pre-existing, non-Native water users.  This provision of the settlement has purportedly raised some concerns in the water conservation community over the value of water rights conservationists say cannot be enforced.  “It kind of tells me that the state of Utah understands that there’s no water left for the tribes,” said John Weisheit, conservation director for Living Rivers, a Utah-based water advocacy group. “They’re first in rights, but last in line for water.”

However, Mr. Cordalis has said that while water supplies from the Colorado River may be in doubt, that is not the case as it relates to the San Juan River.  “The San Juan River is not burdened with downstream water rights such that those existing water rights present a significant detriment to Navajo’s 81,500 acre-feet a year (AFY) right,” he said. “In our opinion, there will be enough water in the San Juan River to achieve the full settlement value on a yearly basis.”

Grassroots Activists Feeling Left Out

Some grassroots activists have also complained that they have been left in the dark about the settlement’s terms, a concern that harkens back to 2012, when a massive outcry among Navajo activists led to the defeat of the Navajo-Hopi Little Colorado River Water Settlement Act of 2012.

“We want to be part of the decision-making, but we are not,” said Anna Frazier, a long-time activist with the Navajo grassroots group Diné CARE.  Still, there has not been public opposition to the Utah San Juan settlement as there was to the Little Colorado proposal in 2012.

Indian Water Settlements Proving Costly for Federal Government

In addition to the Utah settlement, American Indian water rights settlements nationwide have cost the federal government $4.3 billion, the Interior Department has said.  Congress enacted most of the 31 other settlements, while the others came about through federal agencies or court order. Four are pending in Congress for tribes in Montana, Oregon and California, according to the Interior Department.

Time Will Tell What Settlement Will Mean for Future of Navajo Nation and its Use of Water

While the Navajo settlement in Utah still needs the blessing of Congress, it appears that it may help with development and infrastructure within the tribe.  “What the settlement does is provide that flexibility for tribal members to both use water now and have enough water for future development, which ultimately is most important,” Mr. Cordalis said.  Similar to Mr. Cordalis, Leonard Tsosie, a Navajo Nation Council delegate, has promoted the settlement among his colleagues and constituents as a way to support existing and future Navajo communities in southeastern Utah.  “We can dream all we want but if there is no water, there is no development,” he said.

Only time will tell whether the Navajo settlement will provide the necessary water the tribe needs to fulfill their visions for progress and expansion.  Furthermore, demand on the Colorado and San Juan Rivers will only increase over time, which may mean that although the Navajo’s water rights are superior, they may be limited by the right of other non-Native users as set forth in the settlement.  It would seem awkward that the Navajo Nation has been granted this water right, but other non-Native users may trump that right if there is not enough water to fulfill the Navajo’s allocation.  In that case, first in right will be last in line.

* Photo Cred.: chrisbrownphotography.com

Copyright 2016

PSC - Well Lease Agreement

PSC decision over well lease stands

In a recent case before the Utah Court of Appeals, a decision by the Utah Public Service Commission (“PSC”) involving a well lease agreement originating in 1977 was at issue.  In Dansie v. Public Service Commission, the court was asked to determine whether PSC had exceeded its jurisdiction when it concluded that the well lease was void and unenforceable.

1977 Well Lease Agreement and Subsequent Amendment

In 1977, Jesse H. Dansie (the Dansie Trust’s predecessor) entered into a well lease agreement with Gerald Bagley (Hi-Country’s predecessor), which allowed Bagley to connect his water system to Dansie’s well for ten years.  In return, Dansie received and initial payment and monthly rental fees, as well as water and a number of free residential hook-ups.  Eight years after they entered into the well lease agreement, Dansie and Bagley agreed to an amendment to the lease.  The amendment gave Dansie “the right to receive up to 12 million . . . gallons of water per year from the combined water system at no cost for culinary and yard irrigation on the Dansie property.”  The amendment also stated that the well lease bound Bagley, Dansie, and their successors and assigns in perpetuity.

PSC Grants Foothills CPCN to Operate as Public Utility

In 1985, Bagley created the Foothills Water Company, and thereafter applied to the PSC to operate the water system as a public utility.  The PSC granted Foothills’’ request, providing Foothills with a certificate of public convenience (“CPCN”) and authorizing interim rates.  Later that same year, Bagley transferred all interest and stock in Foothills to Dansie, but Dansie and Foothills were subsequently sued by H-Country Estates Homeowners Association, contesting Foothills’ and Dansie’s interests in the water system and seeking to quiet title in the Association.

PSC Finds Well Lease Agreement Void Unenforceable

In March 1986, the PSC held general rate setting hearings for Foothills and issued an order.  In the course of determining “just and reasonable rates,” the PSC considered the well lease agreement.  The PSC determined that the well lease was:

[G]rossly unreasonable e requiring not only substantial monthly payments, but also showering virtually limitless benefits on Jesse Dansie and the members of his immediate family.  The PSC further determined that it would be unjust and unreasonable to expect Foothills’ . . . active customers to support the entire burden of the Well Lease Agreement.  If Dansie and his family received water through the water system, the PSC ordered that they would have to pay the actual pro-rata . . . costs for power chlorination and water testing involved in delivering that water.

PSC Decertifies Water System as Public Utility

In 1993, the Homeowners Association assumed control of the water system and the CPCN and developed a new well, discontinuing the use of the Dansie well. A year later, the Association disconnected the water lines to the Dansie property after the Dansies alleged refused to pay the costs required by the PSC’s 1986 order.  Then, in 1996, the PSC decertified the Association as a public utility.

Hi-Country Estates I

In 2005, a court determined that the well lease was an enforceable contract, finding that the contract was neither void as against public policy nor unconscionable.  The Utah Court of Appeals affirmed that decision in Hi-Country Estates I.  There, the Utah Court of Appeals found that after the PSC revoked the status of the water system as a public utility, the PSC no longer had jurisdiction.  That meant that the Dansies were not required to pay the costs ordered by the PSC’s 1986 order.

Hi-Country Estates II

Following the Court of Appeals decision, the Dansies filed a motion to modify the judgment against them in light of the appellate ruling that they were not responsible to pay the costs associated with the 1986 order.  The lower trial court denied the motion, and the Dansies again appealed to the Utah Court of Appeals.  The Court of Appeals affirmed (Hi-Country Estates II), explaining that ‚”the effect of the Final Judgment . . . is that the Dansies are, going forward, entitled to their contractual rights to free water and free hookups unless the PSC intervenes and determines otherwise.”

PSC Reassumes Jurisdiction Over Water System

In the time after Hi-Country Estates II was decided, the Homeowners Association presented evidence that it was providing water services to customers outside its boundaries and requested reinstatement of the CPCN.  The PSC reinstated the CPCN, bringing the water system back within the PSC’s jurisdiction.  A year later, the Homeowners Association filed a general rate case application with the PSC.  The application included a specific rate for the Dansie Trust.

The Dansie Trust argued to the PSC that he had a right to 12 million gallons of water from the well at no cost, and so the rate charge ordered by the PSC was prohibited under the well lease agreement.  However, similar to their 1986 order, the PSC determined:

There has been no evidence presented that would persuade us to overturn our prior 1986 order finding that the Well Lease . . . is unreasonable, unjust, and not in the public interest. Therefore, based on the [PSC]’s earlier order, the lack of contrary evidence, and the Division’s evidence and recommendation in this docket, we decline to deviate from our prior precedent. We find the Well Lease . . . is void and unenforceable as against the public interest. Thus, the [Association] has no obligation to provide water to Mr. Dansie, and therefore, the [Association’s] proposed fee of $3.85 per 1,000 gallons to deliver water to Mr. Dansie is moot and disallowed from the tariff.

The PSC also concluded that Dansie’s western-most 40-acre parcel falls within the Association’s service area, but the remainder of his “back 80” acres does not.  Dansie requested rehearing and reconsideration.  The PSC denied these requests. The Dansie Trust timely petitioned this court for judicial review of the PSC’s order.

On appeal, the Dansie Trust set forth three issues: 1) that the PSC exceeded its jurisdiction by declaring the Well Lease void and unenforceable; 2) that the PSC improperly approved the Association’s rate case without then-trustee Jesse Rodney Dansie’s presence at the rate case hearings; and 3) that the property was owned by Dansie and had been covered under the original service area for the water system.

Utah Court of Appeals Determines PSC has Jurisdiction

In addressing PSC’s jurisdiction, the Court of Appeals noted that the legislature granted the PSC “broad powers,” and included in those broad powers was the authority to set rates for public utilities.  Or, in other words, the PSC’s authority to fix rates overcame any “antecedent contracts,” like the well lease in the instant case.  The Court of Appeals highlighted that its determination in Hi-Country Estates II came at a time when the PSC had revoked the water system’s status as a public utility, but that the PSC had now reasserted its jurisdiction over the water system when it reinstated the water system as a public utility.

As to the issue approving the rate case without the Dansie Trust’s trustee present at the rate hearing, the Court of Appeals determined that the PSC adequately addressed the trustee’s inability to attend the rate case hearing.  While the court rejected the issue on the grounds that it was inadequately briefed, the court did note:

It originally scheduled the hearing for March 4, 2014.  When the Trustee was unable to attend due to his hospitalization, the PSC continued the hearing one week.  It did so with the agreement of all parties, including the Trust’s attorney, who stated that March 11 was “acceptable” and that if the Trustee was still not available on that date, another member of the Trust would be able to testify.  When the Trustee could not attend the March 11 hearing and no other member of the Trust appeared, the Trust’s attorney asked the PSC to continue the hearing a second time, but the attorney did not know when the Trustee would be available.  The Trust’s attorney acknowledged at both hearings that the PSC ‚is statutorily required to issue a decision within 240 days‛ and was facing that deadline.  Additionally, prior to the March 4 hearing, the Trustee had submitted direct and surrebuttal written testimony.  When he was unable to attend the March 11 hearing, the PSC gave the Trust the opportunity to file a post-hearing brief, which it did not do.  Finally, the Trustee’s absence did not disadvantage the Trust alone, but also other parties, because it gave the Trust the right to submit the Trustee’s testimony in written form without cross-examination.

Turning to the final issue, the Court of Appeals held that the PSC properly excluded Dansie property from the service area.  Again, the court found that this argument was inadequately briefed, and that:

The Trust identifies no provision of the Well Lease or any other evidence that would obligate the Association to provide water service to the excluded portions of the Dansie property.  The PSC noted that the Trust “presented no basis in law or fact for altering” the Association service area and we conclude the same on appeal.

PSC has “Broad Authority”

The major takeaway from Dansie is that the PSC has broad authority for setting rates as it relates to public utilities, and that authority trumps antecedent contracts.  In Dansie’s case that meant that a contract, which gave the Trust access to approximately 12 million gallons of water a year in perpetuity, is no longer enforceable, and the Trust is now liable to pay the costs of the PSC’s rate order.  The fact that the Utah Court of Appeals had found the contract enforceable in Hi-Country Estates II was of no consequence once the PSC re-established its jurisdiction over the water system.  Once jurisdiction was re-established, the rates associated with the water system were in the PSC’s control.

* Photo Cred.: marvelcinematicuniverse.wikia.com

Copyright 2016