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Ski Areas Sue Forest Service Over Alleged Taking of Private Water Rights on Public Lands

April 3, 2012

The National Ski Areas Association (“Ski Areas”) has filed suit in a federal court in Colorado seeking to invalidate a water rights provision inserted into U.S. Forest Service (“Forest Service”) leases that ski areas assert would force them to transfer private water rights to the U.S. government. The provision at issue is a seven-page clause – called Clause D-30 – that the Forest Service is inserting into permits that allow ski areas to operate on National Forest System Lands. The lawsuit asks the Court to strike down the lease provision under the federal Administrative Procedure Act (“APA”).[1] Clause D-30 has been inserted into three new ski-area permits – one in California (Alpine Meadows), one in Washington (Stevens Pass), and another in Colorado (Powderhorn). If the government prevails, and the provision is allowed to stand, Clause D-30 would create a precedent for the U.S. to use its contracting power to control private interests in water rights associated with any lease or other use of National Forest System lands, including recreation, utilities, logging, mining, oil and gas, and grazing.

Background

Established in 1905, the Forest Service is an agency of the U.S. Department of Agriculture. The Forest Service manages public forest and grass lands, known collectively as the National Forest System, located in 44 States, Puerto Rico, and the Virgin Islands.[2] National Forest System lands comprise 193 million acres – 8.5 percent of the total land area in the United States – an area equivalent to the size of Texas.

Under the Ski Area Permit Act of 1986, the Forest Service is directed to authorize private entities to provide developed, four-season public recreation at ski areas on National Forest System lands.[3] The Ski Areas lease National Forest lands from the Forest Service under “special use permits” – written permits that grant rights or privileges of occupancy and use subject to specified terms and conditions. It is Forest Service policy to manage special uses on National Forest lands in a manner that protects natural resource values, public health and safety, and is consistent with National Forest land and resource management plans. Before a special use proposal is approved, the agency must determine that the proposed use complies with each individual forest's land and resource management plan; that National Environmental Policy Act (NEPA) requirements are met; there is a demonstrated need for the activity on National Forest System lands; and the use is appropriate on National Forest System lands. None of the existing special use authorities provide for permanent use of National Forest System lands. The Forest Service issues ski area special use permits for 40-year terms.[4]

Ski areas use water for a variety of purposes, including snowmaking. Water rights are primarily governed by state law because they are state created property rights. The federal government is also a source of water rights. In particular, the right to use water on federal lands is potentially subject to the “reserved water rights doctrine.”[5] Also known as the “Winters Doctrine” – for the 1908 Supreme Court decision in which it was established – the doctrine holds that a federal reservation of public land can carry implied water rights necessary to fulfill the purpose of the reservation.[6] Such water rights are reserved only for the primary purpose of the federal reservation and that purpose defines the scope and extent of impliedly reserved water rights.[7] Because the purpose of such water rights is defined as of the time of the federal reservation it is very unlikely that the federal reserved interest in water rights on National Forest land includes an interest in water used for ski area operation. However, as the owner of National Forest land, the United States has an interest in claiming water rights associated with that land whether they are reserved water rights or state-based water rights.

From the Forest Service perspective, rights acquired to use water from within the land covered by a ski area Special Use permit are “stacked” on the federal government’s ownership of the land. Ski areas may acquire water rights in a variety of ways, including by establishing rights by putting water to use, by purchasing rights from another water right holder, or by transferring rights from another use. In whatever manner acquired, such rights are generally limited to a particular use. In this case, the permitted uses of water rights held by ski areas are generally limited to snowmaking, domestic water supply, and other uses associated with ski area operation. As a result, ski area water rights are a uniquely valuable asset central to successful ski area operation.

Prior to 2004, however, the Forest Service did not compel ski area permit holders to assign water rights arising under state law to the Forest Service. In 2004, the Forest Service revised the water rights clause in ski area permits to provide, in relevant part, that “[a]fter June 2004, any right to divert water from the permitted NFS land where the use of such water is on the same permitted NFS land shall be applied for and held in the name of the United States and the holder (hereinafter called the ‘joint water rights’).”[8] The 2004 clause did not, however, require ski area permit holders to assign to the Forest Service water rights obtained from outside the permitted lands.[9] The Forest Service included the 2004 clause in ski area special use permits issued under the 1986 Ski Area Permit Act until it issued Clause D-30 in November 2011.

Clause D-30 revises the 2004 agreement between the Forest Service and the Ski Areas to create a system of “shared” ownership of water rights acquired both within and outside the permitted land. Under the new policy contained in Clause D-30, Forest Service staff are now told that when ski area permits are reissued or modified “water rights must be inventoried and classified with respect to ownership of the water right, the location of the point of diversion and use on or off National Forest System lands, and the location of the point of diversion and use inside or outside the permit boundary.”

Under Clause D-30, water rights are now treated differently depending on where, when, and how they are acquired. For some types of water rights, Clause D-30 resurrects the terms of the ski area permit in effect at the time the water right was first filed, even if the permit in effect at the time the water right was perfected has since expired or otherwise terminated and a new permit with different terms has taken its place.[10] If the terms of the old permit called for United States ownership, the current permit holder must assign ownership of the water right to the United States, via quitclaim deed if necessary.[11] For other types of water rights, Clause D-30 requires the permit holder to apply for joint ownership of the water right, and share ownership with the United States.[12] For some types of water rights, the permit holder must apply for and acquire the water rights solely in the name of the United States.[13]

For some types of water rights, Clause D-30 also states that the Forest Service need only use the water “primarily” in support of the ski area, and may divert some water for other uses.[14] The permit holder may not use the water rights subject to Clause D-30 for any other purposes.[15] For all types of water rights, upon termination or revocation of the permit, the permit holder must transfer its interest in the water rights, no matter how or when acquired, to any succeeding permit holder, or to the United States if the use is not reauthorized.[16] As a condition of receiving the permit, the permit holder must waive any right to compensation against the United States for the transfer of water rights or for restrictions on the dividing, transferring, severing, or modification of any water rights.[17] These terms are all substantially more restrictive of ski area’s water rights than the relationship that existed prior to Clause D-30.

Ski Areas’ Suit

The National Ski Areas Association is a trade association representing 325 ski resorts throughout the country. Prior to filing suit, the Ski Areas asked the Forest Service to set aside Clause D-30 and start over. The Ski Areas’ request was supported by congressional members from many western states who requested in writing that the agency issue a moratorium on implementation of Clause D-30.[18]

The Ski Area’s lawsuit asks the Court to hold Clause D-30 unlawful and issue a nationwide injunction to set it aside under the federal Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2), on grounds that it is arbitrary, capricious, in excess of the Forest Service’s statutory authority, compels an uncompensated taking of private property, and was adopted without public notice or an opportunity to comment as required by the APA and by the National Forest Management Act (“NFMA”).

The Ski Areas claim that Clause D-30:

a. Compels ski area permit holders to permanently assign or quit claim to the United States Government privately owned water rights without payment of compensation by the United States;

b. prohibits ski area operators from selling water rights used at the ski area to anyone except the future ski area operator, even water rights that the ski area obtains from private lands or lands miles away from the ski area;

c. requires ski area permit holders to permanently assign water rights to the Forest Service to which the Forest Service believes it was entitled under long expired ski area permits to which the current permit holders were never subject;

d. significantly reduces the economic value of water rights acquired by ski area operators at great expense;

e. forces ski area permit holders to grant the Forest Service a power of attorney so that the Forest Service itself can execute necessary documents to seize, control, and transfer the permit holders’ water rights to the Forest Service;

f. requires ski area permit holders to waive any legal claim for compensation against the United States for privately owned water rights seized, taken, and subject to compelled transfer under the 2011 Directive; and

g. requires permit holders to use water rights solely in support of the ski area, but permits the Forest Service to use such water rights for other purposes.[19]

The Ski Areas argue that Clause D-30 takes from ski resorts tens of millions of dollars in private water rights.[20] They assert that Clause D-30 violates the APA and the NFMA because the Forest Service did not publish Clause D-30 in the Federal Register, did not provide public notice or an opportunity for public comment on Clause D-30 under the APA, and has not established an applicable administrative appeals procedure. Therefore, the Ski Areas ask the court to enter an order declaring that the Forest Service violated the APA and the NFMA by enacting Clause D-30, declaring that the Forest Service may not condition ski area special use permits on “assignment of, or restriction of alienability or severance of, water rights,” and enjoining the Forest Service nationwide from applying Clause D-30. The Ski Areas also seek their costs and reasonable attorneys’ fees under the Equal Access to Justice Act.[21]

The Forest Service and the Department of Agriculture have not yet responded to the Ski Areas’ suit. However, the Forest Service does not appear likely to withdraw Clause D-30. Water rights are strongly tied to the “place of use.” In a December 2011 interview, Forest Service acting Deputy Chief Jim Pena said that Clause D-30 was instituted to ensure that “we don’t sever the resource [water] from the land.”[22] Similarly, former Forest Service winter sports coordinator Ed Ryberg recently wrote a letter to Sen. Mark Udall (D. Colo.) arguing that Clause D-30 “will not negatively impact ethical ski areas who met their agreed-to obligations of their permits.”[23] The Forest Service’s position is that water rights established on national forest land are tied to the land and, therefore, that ski areas cannot establish water rights separate from their contractual rights with the United States under the Special Use permits. The Ski Areas’ suit brings to the fore an important unresolved issue about who owns water rights associated with contracts to use federal land that will likely set precedent not only for ski areas but for other uses of National Forest System lands, including recreation, utilities, logging, mining, oil and gas, and grazing.

For more information on Marten Law’s water resources practice please contact Jeff Kray.

[1] 5 U.S.C. § 706(2).

[2] See U.S. Forest Service website at http://www.fs.fed.us/aboutus/meetfs.shtml.

[3] 16 U.S.C. §§ 497, 497b, 497c.

[4] 16 U.S.C. § 497b(b)(2).

[5] Winters v. United States, 207 U.S. 564 (1908).

[6] Id.

[7] See United States v. Adair, 723 F.2d 1394, 1408-08 (9th Cir. 1983).

[8] 2004 Clause F.3.

[9] Id. The 2004 Clause provides that it “shall not apply to water rights that are acquired by the permit holder from a source off of the permitted NFS land and transferred to a point of diversion or storage on the permitted NFS land.”

[10] Clause D-30 at 4, 6, F.2.a(2), and F.2.b(2).

[11] Id. at 4, F.2.a(3).

[12] Id. at 4, F.2.a(1).

[13] Id. at 5-6, F.2.b(1).

[14] Id. at 3, 5, 7, F.2.a, F.2.b(1), F.2.d.

[15] Id. at 4, 6, 7, F.2.a(3), F.2.b(3), F.2.c(1), F.2.c.(2).

[16] Id. at 8, F.2.d.

[17] Id. at 9, F.2.f.

[18] Members of Congress supporting the Ski Areas included Sen. John Barrasso (R-WY), Sen. James Risch (R-ID), Sen. Mark Udall (D-CO), Sen. Michael Bennet (D-CO), Colorado Governor John Hickenlooper (D), Colorado representatives Scott Tipton (R) and Jared Polis (D), Doc Hastings (R-WA), Chairman of the House Committee on Natural Resources, Frank Lucas (R-OK) Chairman of the House Committee on Agriculture, Mike Simpson (R-WY), Chairman of the Appropriations Subcommittee on Interior and the Environment, and Jack Kingston (R-GA), Chairman of the House Subcommittee on Agriculture, Rural Development.

[19] Ski Areas’ Complaint at pp. 2-3.

[20] Matt Baldwin, “Ski Group Plans Water Rights Lawsuit” (Whitefish Pilot, January 4, 2012).

[21] 28 U.S.C. § 2412(d).

[22] Jason Blevins, The Denver Post (January 11, 2012).

[23] E&E News, Ski group sues Forest Service over water rights change (January 12, 2012)(subscription required).

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