Oregon Supreme Court to Address Right of Klamath Basin Water Users to Compensation for Water Taken to Protect Species under ESA

The Oregon Supreme Court has agreed to hear a case which will affect the outcome of claims for $100 million in compensation for an alleged “taking” of constitutionally protected water use rights in the Klamath Basin in Oregon. The case, Klamath Irr. Dist. v. United States,[1] which was certified to the State Supreme Court on July 16, 2008, arises from an April, 2001 decision by the Bureau to respond to drought conditions in the Basin by terminating water deliveries to Klamath Basin farmers and irrigators (“Klamath Irrigators”) in order to make water available for three species of endangered fish. The State Supreme Court will address whether the United States Bureau of Reclamation (“Bureau”) or its customers, farmers and irrigators, control the right to water delivered under contract to the Klamath Basin via federally constructed and operated irrigation works.

Background

The Bureau manages the Klamath Project, which stores and supplies water to farmers, irrigation districts, and federal wildlife refuges in the Klamath River Basin. The Basin is a naturally semi-arid region in which the Bureau has constructed and operates extensive water reclamation and irrigation projects pursuant to the Reclamation Act.[2] The Klamath Project, begun in 1905, supplies water to about 240,000 acres of irrigable land, including to agricultural irrigators and two federal wildlife refuges. The Project is vulnerable to droughts because it lacks a major water storage reservoir and the primary storage area, Upper Klamath Lake, is relatively shallow.

The Klamath Irrigators, plaintiffs in the underlying federal litigation, are farmers and irrigation districts that use water from the Klamath Project. As a result of drought conditions in 2001, the Bureau terminated water deliveries to the Klamath Irrigators in order to make water available for three species of endangered fish. Claiming both a constitutionally protected property right and a contractual right to water deliveries, the Klamath Irrigators brought an action in the Court of Federal Claims alleging that the United States had unconstitutionally taken their property and deprived them of their contractual rights.

The Klamath Irrigators initially sued for $1 billion on claims that the taking was permanent. As further discussed below, the suit has since been limited to claims for the 2001 water reductions, amounting to $100 million.

Klamath Irrigators’ Claims at the Court of Federal Claims

Relying on an Oregon statute, the Court of Federal Claims ruled in 2005 that the Klamath Irrigators interests in the use of Klamath Basin water were not cognizable property interests under the takings clause and had no equitable right in the water that they used to irrigate their land.[3] The Court of Federal Claims held that the Klamath Irrigators claims sounded, “if at all in contract.”[4] In a March 2007 opinion, the Court denied these remaining claims, concluding that the sovereign acts doctrine provides the United States with a complete defense to the Irrigators breach of contract claims.[5] Specifically, the Court of Claims found that the irrigation contracts “must be read to imply that the United States reserved its ability to exercise its sovereign powers without the threat of liability for failing to deliver water.”[6] For more on the Court of Federal Claims’ decisions see our earlier article, J. Ferrell Klamath Basin Decisions Leave Irrigators High and Dry, Marten Law Group News (April 25, 2007).

Water law is a creature of state law. Oregon water law, like most western water law, operates on the “prior appropriation” system. Prior appropriation is based on a “first in time, first in right” policy which means that the first party to put a water quantity to beneficial use has exclusive senior rights to that water and later junior users can only make additional water withdrawals on the condition that the senior user’s rights are met first. The prior appropriation doctrine recognizes a right to use water but actual water ownership is generally reserved to the public, through the state.

The ESA mandates that the Secretary of the Interior determine species whose survival is threatened or endangered through all or a significant part of their range.  Based on the best available science, the ESA provides for listing such species and designates their critical habitat. After a species is listed, federal agencies must ensure that any federal and non-federal action they authorize, fund, or carry out is not likely to jeopardize any listed species or harm critical habitat.[7] The ESA also prohibits any person from “tak[ing]” listed species, which includes disturbing habitat.[8] Although Congress amended the ESA in 1982 to expressly provide that state water rights will be given special deference in enforcing the ESA’s mandates, the provision has not routinely been enforced.[9]

Under the ESA, federal resource agencies can potentially require state and other federal government agencies to restrict water rights, regardless of their priority date, in order to protect ESA-listed species. Most courts that have addressed the legal interactions between the ESA and state water rights have held that the ESA provisions trump both federal water contracts and state water rights when they conflict with the Act. For example, in United States v. Glenn-Colusa Irrig. Dist.,[10] the court held that although the ESA requires federal agencies to cooperate with states to resolve water resource issues in concert with endangered species protection, Congress did not intend to suggest that state water rights survive where they conflict with the ESA.[11]
For more on other significant cases involving the ESA and water rights see J. Kray, Small Fish Causes Big Splash in California as State Ponders Water Rationing to Protect Endangered Species, Marten Law Group Environmental News (September 26, 2007).

Oregon Supreme Court Decision to Accept Certified Questions

In July 2008, the United States Court of Appeals for the Federal Circuit determined that appeals from the Court of Claims decisions presented the question of whether the United States violated an interstate water compact in failing to provide water to the Klamath Irrigators.[12] The U.S. Court of Appeals further determined that “the answer to the takings question depends upon complex issues of Oregon property law.”[13]

The United States Court of Appeals for the Federal Circuit therefore certified three state law questions to the Oregon Supreme Court:

1. Assuming that Klamath Basin water for the Klamath Reclamation Project ‘may be deemed to have been appropriated by the United States’ pursuant to Oregon General Laws, …, does th[e] statute preclude irrigation districts and landowners from acquiring a beneficial or equitable property interest in the water right acquired by the United States?
2. In light of the statute, do the landowners who receive water from the Klamath Basin Reclamation Project and put the water to beneficial use have a beneficial or equitable property interest appurtenant to their land in the water acquired by the United States, and do the irrigation districts that receive water from the Klamath Basin Reclamation Project have a beneficial or equitable interest in the water right acquired by the United States?
3. With respect to surface water rights where appropriation was initiated under Oregon law prior to February 24, 1909, and where such rights are not within any previously adjudicated area of the Klamath Basin, does Oregon State law recognize any property interest, whether legal or equitable, in the use of the Klamath Basin water that is not subject to adjudication in the Klamath Basin Adjudication.[14]

The Oregon Supreme Court has continuing “discretion to decline to provide an answer to a certified question, or rephrase a question if it turns out, after full briefing, that it is appropriate to do so.”[15] After considering briefs filed by Klamath Irrigation, the Bureau, the Pacific Coast Federation of Fisherman’s Associations, the Natural Resources Defense Council (“NRDC”), and the Oregon Department of Water Resources (as amicus curiae), the Oregon Supreme Court accepted the certified questions.

The Court decided to hear the case on grounds that all three questions present issues of Oregon law that are both preliminary to and potentially dispositive of plaintiffs’ federal takings claim.[16] If, for instance, Oregon law precludes plaintiffs from obtaining an equitable interest in any water right that the United States acquired under Oregon law, then “that could resolve plaintiffs’ takings claim, at least as plaintiffs have reportedly litigated that claim in federal court.”[17] Whether beneficial use by the landowners is sufficient to create an equitable interest under state law is also potentially dispositive of the plaintiffs’ takings claim.  Finally, if the equitable interest that plaintiffs assert in the water right may or must be litigated in a pending state water rights adjudication and if, as the United States argues, plaintiffs disclaimed reliance on such rights then the Oregon Supreme Court’s decision may dispose of plaintiffs’ takings claim.

Central to the Klamath Basin issues before the Oregon Supreme Court is Section 8 of the Reclamation Act of 1902 (“Reclamation Act”). Congress passed the Reclamation Act to provide for the “construction and maintenance of irrigation works … for the reclamation of arid and semiarid lands in the western states and territories.”[18] Section 8 provides that the Act does not affect state laws “relating to the control appropriation, use, or distribution of water used in irrigation, or any vested right thereunder, and the Secretary of the Interior, … shall proceed in conformity with such laws.”[19] The Klamath Irrigators argue that the United States acquired Oregon water rights under Section 8 to which the Irrigators obtained, at minimum, an equitable interest and even perhaps a property interest when they put to beneficial use the water that they received from the Bureau.

The Oregon Supreme Court’s decision may indicate the strength of water users’ property interests in federally delivered water nationwide. Ten million acres of farmland are irrigated by water provided by the Bureau.[20] One in five western farmers, over 140,000 farmers in total, receives water from the Bureau.[21] If the Oregon Supreme Court determines that the Klamath Irrigators hold state property rights to the water, then it will be significantly more difficult for the Bureau to curtail those water deliveries, or any others, without compensating those receiving water from the Bureau. For example, on February 13, 2009, the Bureau announced that low natural inflows into the Shasta Reservoir have triggered shortage criteria in its contracts with major California water users, and that, in accordance with contracts, available water quantities for key parts of California will be significantly reduced for 2009.[22]  

For more information on Marten Law Group’s water and wetlands practice please contact Jeff Kray.