...have widely criticized the Finding of a per se physical taking.

This Article undertakes a more searching analysis of the takings question than appears in the two eases and the commentary. By untangling federalism complexities in reclamation law and focusing on longstanding state law regarding water distribution organizations, the article shows that water users supplied under Bureau of Reclamation (Bureau) contracts often will have Fifth Amendment property rights. The Article then shows why Bureau water delivery reductions made to comply with the ESA come within a gap in Supreme Court takings jurisprudence and suggests there is at least some chance the Court would treat delivery reductions as per se physical takings. Finally, the Article explains why it is unclear in many states whether nuisance law or the public trust doctrine constitute preexisting title limitations that would avoid any takings problem, and it suggests a litigation strategy for states concerned about the evolution of their nuisance or public trust law in this regard

I. INTRODUCTION II. BUREAU WATER CONTRACTS AND PROPERTY RIGHTS A. Pre-Reclamation Act Western Water Law 1. The Appurtenance Rule 2. The Relationship Between a Water Supply Entity and the Irrigators Supplied. B. Reclamation Act Section 8 1 Text and Legislative History 2. Section 8 in the Supreme Court a. Vested Rights Acquired Under State Law b. State Water Law and Federal Preemption c. Reallocation of Bureau-Controlled Water d. Types of Bureau Water Contracts i. Water Service Contracts ii. Municipal Water Contracts C. The Klamath Case 1. Judge Allegra's Opinion 2. What Judge Allegra Overlooked a. The Factual and Legal Context of the 1905 Oregon Statute b. Other Oregon Water Law D. Summary III. TAKINGS LAW AND WATER RIGHTS A. The Structure of Takings Law B. Where Bureau Water Delivery Reductions Fit in the Takings Structure 1. The Tulare Opinion and Its Critics 2. Usufructuary Rights 3. Temporary Versus Permanent Physical invasion a. The Loretto Takings Categories b. Loretto in the Lower Federal Courts c. A Closer Look at Loretto 4. Lucas and Other Supreme Court Land Use Cases IV. PREEXISTING TITLE LIMITATIONS A. Shortage Clauses in Bureau Contracts B. State Nuisance and Property Law 1. Existing Nuisance Case Law 2. Existing Property Case Law (The Public Trust Doctrine) 3. Evolution of Nuisance and Public Trust Law V. CONCLUSION

I. INTRODUCTION

The Bureau of Reclamation in the United States Department of the Interior (Bureau) operates 476 dams and 348 reservoirs in the seventeen western mainland states. (1) A primary mission of the Bureau is to deliver water from these facilities by contract to municipalities (2) and irrigation districts or similar organizations. (3) The contract water deliveries make up all or part of the supply for thirty-one million urban residents (4) and for farmers irrigating ten million acres. (5)

Many of the Bureau's dams and reservoirs are on streams that are the habitat of fish species listed as threatened or endangered under the Endangered Species Act (ESA). (6) ESA section 7 obligates every federal agency to insure that its actions are "not likely to jeopardize the continued existence of any endangered species or threatened species." (7) To comply with this mandate, the Bureau may have to refrain from storing water in a reservoir for later delivery to contract users and instead let the water flow downstream to provide habitat for protected fish species. (8) Similarly, the Bureau may have to release water already stored to provide downstream habitat. In other circumstances, it may have to keep water in storage for species living in the reservoir rather than delivering it to contract users. In all of these situations, water that goes to species habitat will not be available for contract deliveries. (9)

The Bureau's reduction of contract water deliveries to comply with the ESA has generated three suits against the United States by municipalities, irrigation districts, and irrigation district members to recover for a taking of their property. (10) The Takings Clause of the Fifth Amendment requires the government to pay just compensation when it takes private property for public use. (11) All three suits were filed in the United States Court of Federal Claims, the only court with jurisdiction over takings claims against the United States for more than $10,000. (12)

The court has reached the merits in two of the cases. Different judges decided them and reached contrary conclusions. In Tulare Lake Basin Water Storage District v. United States (Tulare), (13) Judge John Paul Wiese ruled that reduced deliveries to the plaintiffs were per se physical takings of their property requiring just compensation. (14) In Klamath Irrigation Distinct v. United States (Klamath), (15) Judge Francis M. Allegra ruled that the plaintiffs had only contract rights, not property rights in water, (16) and therefore the delivery reductions could not constitute a taking of their property. (17)

A federal study foresees more conflicts between the ESA and Bureau water contracts. (18) A former Acting Solicitor and Deputy Solicitor for the Department of the Interior predicted recently that the Supreme Court ultimately "will be compelled to address" whether delivery reductions to comply with the ESA are a taking of property under the Fifth Amendment. (19)

This Article undertakes a more searching analysis of the takings issue than was made in the /b/are and Klamath opinions and in harshly critical commentary on Tulare (Klamath is too new to have been the subject of published commentary). Part I addresses whether municipalities and irrigation districts with Bureau contracts, or irrigation district members, have property rights in water. A former Solicitor of the Department of the Interior has observed that the legal relationship between the Bureau and contract water users is "very murky" due to "a number of layers of complexity." (20) Part II untangles the complexities that bear upon the existence of property rights. It concludes that in most, if not all, states and in most, if not all, circumstances, municipalities and irrigation districts or district members do have property rights under state law.

Part III addresses whether contract delivery reductions are a Fifth Amendment taking of property, with a focus specifically on per se physical takings. This part explains why the takings concept is less straightforward than portrayed by the Tulare critics. To that end, it identifies weaknesses in the critics' arguments, pinpoints a gap in Supreme Court takings precedents that leaves uncertainty about whether delivery reductions are per se physical takings, and presents a hypothetical that tends to suggest they are.

Since no one can be sure how the Supreme Court will resolve the uncertainty, however, Part IV considers whether the United States could avoid what would otherwise be per se physical takings on the ground that the property rights of municipalities and irrigation districts or district members are subject to a preexisting title limitation justifying reduced water deliveries. Part IV disputes the conventional wisdom that shortage clauses widely used in Bureau water contracts constitute such a title limitation. Part IV also shows that whether state nuisance or public trust laws constitute such title limitations is unsettled in many states, and suggests a litigation strategy for states to resolve the matter in their courts rather than wait for the Court of Federal Claims to do so.

II. BUREAU WATER CONTRACTS AND PROPERTY RIGHTS

Section 8 of the Reclamation Act of 1902 defines federal-state relations in reclamation projects. (21) Section 8 is critical to whether municipalities and irrigation districts with Bureau contracts, or irrigation district members, have property rights under state law. The discussion below begins with some rudiments of pre-Reclamation Act western water law that provide background for interpreting section 8. It then examines section 8 in detail, drawing at times on the earlier discussion of western water law. Finally, it critiques Judge Allegra's ruling in Klamath that the plaintiff irrigation districts and district members had no property rights in Klamath Basin waters.

A. Pre-Reclamation Act Western Water Law

Western courts had built up a significant body of appropriation doctrine water law by the time Congress commenced the federal reclamation program in 1902. (22) Two elements of that body of law bear on what Congress likely intended in section 8. These are, first, the rule that a water right is appurtenant to the land where it is used and, second, the rules defining the relationship between a water supply entity and the irrigators receiving water from it.

1. The Appurtenance Rule

Appurtenance is a conveyancing concept. A deed or mortgage of land also conveys or encumbers a water right that is appurtenant to the land unless the deed or mortgage expressly provides otherwise. (23)

Early western courts generally regarded a water right for irrigation as appurtenant to the land upon which the water was used. (24) The courts did not find appurtenance, however, unless the same person owned both the water right and the land. (25) The requirement of unitary ownership is attributable to the conveyancing role of appurtenance. (26) Under common law conveyancing, a person cannot convey something he or she does not own. (27) Since a deed or mortgage of land could not convey or encumber a water right unless the landowner also owned the water right, it would have been nonsensical for courts to find appurtenance when the land and water right were owned by different persons.

While appurtenance had the conveyancing effect noted above, the courts declined to give it the additional effect of making a water right inseparable from the land where it was used. (28) Instead, courts allowed the transfer of an appurtenant water right to new land if the change would not injure any other appropriator. (29) Dissatisfaction developed in some quarters with the judicial rule on transferability on the ground that this could fuel speculation. (30) The concern was that initial settlers in an area might obtain water rights in excess of what they actually needed for their lands with the intention of later selling part of their inflated rights for handsome profits. (31) The evil in speculation was that it would hamper new irrigation development if inflated early water rights left no unappropriated water for later settlers, and those settlers had to buy water rights from the speculators. (32)

Legislatures in at least eight western states responded to the speculation concern by enacting statutes that made water rights inseparably appurtenant to the land where the water was used. (33) Critics of the inseparability statutes argued they were bad policy and were unconstitutional for impairing the inherent right of an appropriator to dispose of his property. (34) In time, although not all before the Reclamation Act of 1902, a number of these statutes were repealed or judicially subverted. (35)

2. The Relationship Between a Water Supply Entity and the Irrigators Supplied

The first irrigators in the West settled on lands bordering on or close to streams and appropriated water using small individual ditches or ditches jointly owned by two or three neighbors. (36) Once the lands next to streams were settled and new irrigation had to be on more remote lands, engineering and financial realities made the use of small individual or joint ditches infeasible. (37) Water supply entities emerged that built large ditches and transported water through them for use by numerous individual irrigators. (38)

The water supply entities were of three main types. First, privately owned nonprofit mutual corporations delivered water only to their shareholders and charged only enough to cover costs. (39) Second, privately owned corporations organized for the profit of their investors delivered water by contract--either to selected landowners or, more commonly, to all landowners within the capacity and service area of the corporation's facilities. (40) Since the latter corporations served the public or a segment thereof, most states regulated them as public utilities. (41) Third, and last to appear, quasi-governmental public entities such as irrigation districts supplied water to their members. (42)

The advent of private water supply corporations, both nonprofit and for profit, generated litigation about the legal relationship between corporation and irrigator (something that was largely avoided with the public supply entities that came along later and operated under detailed statutes). (43) Privately owned nonprofit mutual corporations often, though not always, held formal title to the water rights used to supply their shareholders. (44) Privately owned for-profit corporations almost always held formal title to the water rights they used to supply irrigators. (45) If a private nonprofit or for-profit corporation held formal title to the water right, the inevitable question was what rights the irrigators that it supplied had.

The courts decided that a nonprofit mutual corporation's shareholders were the beneficial owners of the water right even ff they lacked formal title and their rights to receive water required compliance with corporate charter or bylaw provisions. (46) Regarding the for-profit corporation, Samuel C. Wiel reported in his 1911 treatise: "In Colorado and the arid States generally (following the lead of Colorado) the law of appropriation has so completely become the source of rights in waters, that the rights of consumers from corporations are made, as far as possible, to conform to the law of appropriation." (47) The consumers were not archetypical appropriators because they lacked formal title to a water right and could not receive water without paying the contract rate and complying with other reasonable contract terms. (48) What Wiel meant by "as far as possible" was that "[t]he right of the consumer is not merely a right of service (without any proprietary right in the water-rights or water system), but is a proprietary right in the natural stream." (49) Accordingly, said Wiel, the for-profit supply corporation was only "a common carrier of water ... carrying the consumers' water to them from the natural resource." (50) While Wiel stated this to be the law of arid states generally, he reported, that California took a different approach. A California irrigator supplied by a for-profit corporation that served the public and was regulated as a public utility had no property right in the stream but only a service right under public utility law. (51)

Half a century after Wiel, Frank J. Trelease--who, like Wiel, (52) was the preeminent water law scholar of his era (53)--cataloged the methods that various western states were using to give an irrigator receiving water from a supply corporation "some form of a state water right, a property right independent of and superior to the contract right he had from the company." (54) Trelease reported:

Many states adopted statutes making the water appurtenant to the land. The people of Idaho wrote into their constitution that the sale, rental or distribution of water for irrigation was a public use subject to regulation, and an "exclusive dedication" to the particular use, so the irrigator could not be deprived of the annual use of the water unless he consented, or failed to pay for it. In Arizona the standard definition of an appropriation ("diversion and application to beneficial use") was seized upon, and the sale of water was said not to be a beneficial use in itself, so that the water right was held to belong to the farmer who finally put the water on the land, and the ditch company was relegated to the position of carrier of the landowner's water. In Colorado the courts boggled at this, since the farmer was not the diverter, and compromised by saying the appropriation was a joint one, but that this joint interest gave the farmer a property right. Wyoming and several other states devised the "secondary permit" system, under which a water distributor receives a permit to build a dam and to store water, and the consumer may obtain a water right appurtenant to his land by applying for a second permit to apply the water to use. (55)

The methods Trelease identified are serf-explanatory except perhaps for the appurtenance statutes. Those statutes rely on the common law rule that appurtenance requires unitary ownership--a water right cannot be appurtenant to land unless the landowner owns the water right as well. (56) A legislative declaration that water is appurtenant to land is another way of saying the landowner owns a property right in the water source. (57)

B. Reclamation Act Section 8

The Reclamation Act of 1902 Act authorized the Bureau, then called the Reclamation Service, to build and operate facilities only for the purpose of supplying irrigation water by contract. (58) Later acts expanded the Bureau's charter to include supplying water by contract for municipal purposes, (59) selling hydroelectric power, (60) and managing its facilities to serve additional purposes that, depending on the facility, might include navigation, flood control, recreation, and fish and wildlife habitat. (61)

Section 8 of the 1902 Act dealt with the roles of federal and state law in reclamation projects. (62) It remains in force unamended.

1. Text and Legislative History

Section 8 contains four clauses that are highlighted below by the addition of bracketed numbers:

[1] Nothing in this Act shall be construed as affecting or intended to "affect or to in any way interfere with the laws of any State or Territory relating to the control, appropriation, use, or distribution of water used in irrigation, or any vested right acquired thereunder, and [2] the Secretary of the Interior, in carrying out the provisions of this Act, shall proceed in conformity with such laws, and [3] nothing herein shall in any way affect any right of any State or of the Federal Government or of any landowner, appropriator, or user of water in, to, or from any interstate stream or the waters thereof: [4] Provided, That the right to the use of water acquired under the provisions of this Act shall be appurtenant to the land irrigated, and beneficial use shall be the basis, the measure, and the limit of the right. (63)

On its face, clause [1] preserves the operation of state laws regarding the control, appropriation, use or distribution of water used in irrigation, and it recognizes the validity of vested rights acquired under those state laws. Clause [2] requires the Secretary of the Interior (Secretary), as supervisor of the Bureau, (64) to proceed in conformity with such state laws in carrying out the Act. It follows that ff state laws give irrigators vested rights in water supplied by a water distributor, the Secretary must proceed in conformity with those vested rights. Clause [2] qualifies the Secretary's duty to proceed in conformity with state laws by instructing him to do so "in carrying out the provisions of this Act." The qualification raises the question of whether the Secretary has to conform only when pursuing reclamation project purposes, as in reallocating water from one project purpose to another, and not when reallocating water from a project purpose to a nonproject purpose, as in releasing water for the habitat of an endangered species. However, to infer Congress intended to provide vested-rights protection for irrigators in the former situation and deny it in the latter would seem anomalous.

Clause [3] serves a highly limited function regarding interstate streams and is unimportant for present purposes. (65) Clause [4], the proviso, seems on its face to create an exception to the general disclaimer of federal preemption of state water laws found in clause [1] by establishing two federal rules on the right to use water under the act: the right depends on beneficial use, and it is appurtenant to the land irrigated. The legislative history, however, creates uncertainty about whether Congress intended such an exception. The House committee report on the 1902 act indicates clause [4] is merely a directive to the Secretary not to construct a project unless state water laws make beneficial use the basis, measure, and limit of water rights and make the rights inseparably appurtenant to the land irrigated. (66) Yet Representative Frank Mondell, who submitted the committee report to the House and was the leading spokesman for the bill on the House floor, made remarks on the floor that could be understood--at least if they are taken in isolation from the House report--to mean clause [4] was intended to establish preemptive federal hales on beneficial use and inseparable appurtenance. (67) This uncertainty may have influenced the Supreme Court in a case discussed later. (68)

2. Section 8 in the Supreme Court

The Supreme Court has interpreted section 8 in several cases. It is necessary, therefore, to consider whether the Court has added a judicial gloss at variance with the text-based interpretation stated above and whether the Court has shed any light on the clause [2] qualifier "in carrying out the provisions of this Act" or on the muddled legislative history regarding whether clause [4] establishes federal rules for water rights.

a. Vested Rights Acquired Under State Law

The Supreme Court first construed section 8 in United States v. Gerlach Livestock Co. (Gerlach), (69) an inverse condemnation action (70) by landowners with water rights under California's riparian doctrine for irrigation of their grasslands by natural seasonal overflow of the San Joaquin River. (71) When the Bureau built Friant Dam upstream from the plaintiffs' lands to store high stage river flows for delivery under water contracts, the overflow irrigation of their lands ceased except for rare intervals of spill over the dam. (72) The Court of Claims awarded the plaintiffs just compensation for a taking of their riparian rights. (73) The Supreme Court affirmed, saying that section 8 "directed the Secretary of the Interior to proceed in conformity with state laws, giving flail recognition to every right vested under those laws." (74) The plaintiffs' riparian rights to natural overflow were such vested rights, and full recognition of them meant just compensation had to be paid when operation of the project took them. (75) Thus, the Court gave clauses [1] and [2] of section 8 the meaning apparent on their face.

b. State Water Law and Federal Preemption

The Supreme Court dealt with conflicts between state water law and federal reclamation law in a series of four cases. In Ivanhoe Irrigation District v. McCracken (Ivanhoe), (76) the Court held that the Bureau could enforce a prohibition in Reclamation Act section 5 against delivering irrigation water to tracts exceeding 160 acres even though California law allowed delivery to larger tracts. (77) The Court characterized section 5 as "a specific and mandatory prerequisite laid down by the Congress," and concluded that Congress did not intend "[section] 8 to override the repeatedly reaffirmed national policy of [section] 5." (78) In City of Fresno v. California (City of Fresno), (79) the Court decided section 8 did not bar the Bureau from implementing a reclamation law preference for irrigation use over municipal use even though state law called for the opposite preference. (80) In Arizona v. California (Arizona), (81) the Court said section 8 did not require the Bureau to distribute water from its Colorado River project to users in the lower fiver basin states according to their state law priorities. (82) In these three cases, then, federal law prevailed over contrary state law notwithstanding the general disclaimer of federal preemption in section 8, clause [1].

The last case in the series was California v. United States (California). (83) The issue was whether section 8 required the Bureau to comply with state laws when acquiring a water right for a reclamation project. (84) The Court ruled that while the Bureau had to apply for a state permit to appropriate water, the state could not impose any permit conditions inconsistent with congressional directives for the project. (85) The Court regarded Ivanhoe and City of Fresno as harmonious with this rule; in both cases, congressional directives preempted contrary state laws. (86) The Court distinguished Arizona as being confined to the Bureau project then before the Court, the "massive" Colorado River project of "unique size and multistate scope." (87) It explicitly disavowed any dictum in Arizona that would prevent...

NOTE: All illustrations and photos have been removed from this article.



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