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Federal Court Rejects Klamath Basin Irrigators’ Property Rights Claims Arising From 2001 Drought and Distinguishes Tulare Lake Decision

September 28, 2005

In a case pitting agricultural irrigators against the federal government, with fisherman and environmental groups intervening on the government’s side, the U.S. Court of Federal Claims has rejected 5th Amendment takings claims by Oregon and California agricultural water users receiving water from the U.S. Bureau of Reclamation. Klamath Basin Irrigation Dist. V. United States, ___ Fed. Cl. ___, 2005 WL 2100579 (August 31, 2005). The Klamath Basin decision pointedly distinguished the Court’s decision in Tulare Lake Basin Water Storage District v. United States, 49 Fed. Cl. 313 (2001), in which the Court held that similarly situated irrigator’s were entitled to compensation, finding that the Tulare decision “was wrong on some counts, incomplete in others, and distinguishable at all events.” Klamath Basin, 2005 WL 2100579. The Klamath Basin decision held that the irrigators’ “claims sound in contract not takings.” Id. While the Court did not decide the irrigators’ contract claims, because the contract issue was not fully briefed, it did observe that the irrigators’ contracts with the Bureau are generally subject to broad water shortage clauses which allow the Bureau to restrict or cut-off water use.

The Klamath Basin decision arises out of the highly publicized water disputes in the Klamath Basin area in Southern Oregon and Northern California. The Klamath Reclamation Project provides water to about 240,000 acres of irrigable land. In early 2001, the Bureau applied the federal Endangered Species Act (“ESA”), 16 U.S.C. § 1531 to 1534, to substantially reduce Klamath Basin water users’ water diversions during the agricultural growing season. The Bureau’s 2001 decision to reduce the irrigator’s water use “undercut crops and sent some farmers skittering toward bankruptcy.” Eric Bailey, Farmers Lose Klamath Water Fight, L.A. Times, September 1, 2005, available at www.latimes.com.

Following a lengthy examination of federal reclamation law, Oregon state law, and the irrigators’ property interests in the water, the Klamath Court concluded that, under relevant Oregon law, the United States obtained rights to the Klamath Basin’s unappropriated water. Klamath Basin, 2005 WL 2100579. However, the Court went on to conclude that whatever rights the irrigators obtained to the water were wholly dependent upon their agreements with the United States. From this premise, the Court found that “[b]oth of the rationales favoring use of contractual remedies over takings remedies apply here – that is, the United States may be viewed as acting in its proprietary capacity in entering into the water contracts in question, and it appears that the [irrigators] retain the full range of remedies with which to vindicate their contract rights.” Id. Therefore, the Court held that while the contracts between the irrigators and the United States “gave rise to private property rights within the meaning of the Fifth Amendment, the proper remedy for the alleged infringement lies in a contract claim, not one for a takings.” Id. (citing Allegre v. United States, 60 Fed. Cl. 11, 18-19 (2004) (additional citations omitted)).

After dismissing the irrigators’ takings claims, and despite its statements about the irrigators’ range of contract remedies, the Court went on to make some “observations” about, but did not decide, whether the irrigators’ contract claims were valid. First, the Court observed that the irrigators’ “beneficial interest” in the Klamath Project is not absolute but is, for the most part, limited by express contract provisions absolving the United States from liability for water shortages. Klamath Basin, 2005 WL 2100579. Second, the Court suggested that under the “sovereign acts doctrine” the Bureau’s water reductions might not result in contract breaches. Id. The sovereign acts doctrine, “shields the United States from contract liability based upon its ‘public and general acts as a sovereign.’” Id. (citing Horowitz v. United States, 267 U.S. 458, 461, 45 S. Ct. 344, 69 L. Ed. 736 (1925) (additional citations omitted)). The Klamath Court observed that “[s]everal courts have concluded that the enactment and subsequent enforcement of the ESA should be viewed as sovereign acts that override the Bureau's obligations to provide water under various contracts.” Id. (See, e.g., Klamath Water Users Protective Ass'n, 204 F.3d at 1213 (noting “[i]t is well settled that contractual arrangements can be altered by subsequent Congressional legislation”); see also Madera Irr. Dist. v. Hancock, 985 F.2d 1397, 1406-07 (9th Cir.1993) (Hall, J., concurring)).

Significantly, the Court distinguished Tulare Lake Basin Water Storage District v. United States, 49 Fed. Cl. 313 (2001). Similar to the Klamath Basin case, in Tulare Lake, irrigation districts in California sued arguing that the Bureau of Reclamation’s water use restrictions under the ESA took away irrigators’ contractually conferred water rights. There the court ruled that the water restrictions resulted in a physical taking. 49 Fed. Cl. at 319.

The KlamathBasin Court made several primary points in distinguishing Tulare Lake. First, that the Tulare decision held that state law defined the irrigators’ property rights, yet found a taking of property without applying, or even analyzing, state law. Second, that the Tulare decision treated the irrigators’ contract rights as absolute without considering possible contract limitations. Third, that the Tulare decision did not consider the sovereign acts and unmistakeability doctrines which would arguably have shielded the United States from liability. Therefore, the Court concluded that Tulare Lake lent no support to the Klamath Basin irrigators claims. Klamath Basin, 2005 WL 2100579. For critical analysis of the Tulare decision’s takings analysis see Lucas’s Unlikely Legacy: The Rise of Background Principles as Categorical Takings Defenses,” 29 Harv. Envtl. L. Rev. 321, 329 (2005). See also, Melinda Harm Benson, The Tulare Case: Water Rights, The Endangered Species Act, And The Fifth Amendment, 32 Envtl. L. 551 (2002).

The Klamath Basin and Tulare Lake decisions stand in stark contrast, both in analytical method and result. The Klamath Court wrote that its “ruling may disappoint a number of individuals who have long invested effort and expense in developing their lands based upon the expectation that waters of the Klamath Basin would continue to flow, uninterrupted, for irrigation.” As the Court’s comment foreshadowed, the irrigator’s attorney called the Klamath Basin decision a “pretty scary prospect for all the Western states.” Eric Bailey, Farmers Lose Klamath Water Fight, L.A. Times, September 1, 2005, available at www.latimes.com. On the other side, environmentalists and fishermen called the decision “a major victory.” Id. Their reaction is a notable given that some of those same interests characterized as “fraught with peril” the federal government’s December 2004 decision to settle the Tulare case by paying irrigators $16 million. http://www.earthjustice.org/news/display.html?ID=961. While the Klamath Basin irrigators have not yet determined whether to appeal, there will very likely be more litigation, in this case or others, seeking to harmonize the Klamath Basin and Tulare Lake decisions’ divergent approaches to analyzing what water rights irrigators have under their agreements with the Bureau and state water authorities.

For more information, contact Jeff Kray.

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