When it precluded delivery of water to irrigation
users in the Klamath Irrigation Project (Project) in
2001, directing the use of water instead to fish
species listed under the Endangered Species Act (ESA),
did the United States thereby “take” private
property (water rights) without just compensation,
in violation of the Fifth Amendment to the
Constitution? Did it commit an actionable breach of
contracts that provide for delivery of water via
Project facilities? On February 17, 2011, the
United States Court of Appeals for the Federal
Circuit (federal appeals court) issued the latest in
a series of court decisions in a case that raises
these issues, effectively restoring life to claims
to damages that had been denied by the trial court.
Klamath
Irrigation District, et al. v. United States
(2011) 2011 U.S. App. LEXIS 3204 (Fed. Cir. Feb. 17,
2011) (KID IV).
The federal appeals court vacated a decision of the
trial court – the United States Court of Federal
Claims – that had held water users in the Project
had no cognizable property interest in water, and
therefore had suffered no “takings” when they were
denied water in 2001. The federal appeals court
remanded the case to the trial court with specific
direction concerning the applicable principles to
determine whether, by withholding water from the
water users in order to supply water to threatened
or endangered fish species, the government committed
an unconstitutional taking of property without just
compensation. The federal appeals court also
vacated a separate ruling of the trial court that
had held that the United States was not liable for
breach of contract, and directed the trial court to
reconsider this theory in light of applicable legal
standards. The trial court’s decision on remand
will determine whether there is liability on either
the constitutional or contract-based claims, and
will likely be significant in the Project and other
locations where consumptive use of water is subject
to curtailment by regulatory restrictions under the
ESA or other laws.
Background
The U.S. Bureau of Reclamation (Reclamation)
generally developed and oversees operation of the
Project, which stores and delivers water to
irrigation districts and water users. In 2001,
based on biological opinions issued by the U.S. Fish
and Wildlife Service and National Marine Fisheries
Service, Reclamation withheld or prevented delivery
of water to Project water users in order to provide
water for three fish species listed as threatened or
endangered under the ESA. Later that year, various
farmers, ranchers, and irrigation districts brought
an action against the United States in the United
States Court of Federal Claims (the court having
jurisdiction over claims against the United States
for money damages), alleging that the government had
unconstitutionally taken property by withholding
delivery of water without compensation. The trial
court denied the takings claim. The trial court
held that Reclamation obtained rights to the
unappropriated waters of the Klamath Basin in 1905
when it began constructing the Project and that the
irrigation water users had no cognizable property
rights in the water that they used to irrigate their
lands.
See Klamath Irrigation District v. United States,
67 Fed. Cl. 504, 526-27 (Fed. Cl. 2005) (KID I).
In a subsequent decision, the trial court ruled that
the government was not liable for breach of
contracts that provide for delivery of water through
Project facilities, based on the “sovereign acts
doctrine.”
Klamath
Irrigation District v. United States,
75 Fed. Cl. 677 (2007) (KID II).
The farmers and irrigation districts appealed to the
federal appeals court.
Questions
Certified to the Oregon Supreme Court
The principal issue on appeal was whether the
irrigation water users asserted a “cognizable
property interest” for Fifth Amendment purposes.
Following briefing and oral argument, the federal
appeals court concluded that Oregon property law was
pertinent to the question of whether the farmers,
ranchers, and irrigation districts possessed
property rights in Project water and that no
controlling Oregon precedent governed this issue.
Thus, under procedures available to federal courts,
the federal appeals court asked, or “certified,”
three questions bearing upon this issue to the
Oregon Supreme Court.
See
Oregon Supreme Court to Decide Questions of Water
Rights in “Takings” Case. Some of the
questions relate specifically to an Oregon statute
passed in 1905 to facilitate development of
reclamation projects under the 1905 Reclamation
Act. On March 11, 2010, and following briefing and
oral argument, the Oregon Supreme Court modified
slightly, and answered, the federal appeals court’s
questions.
Klamath
Irrigation District v. United States, 348 Or.
15 (2010) (KID III).
Relevant here, the Oregon Supreme Court first
addressed the question of whether Oregon law
precluded districts and landowners in the Project
from acquiring a beneficial or equitable property
interest in water rights for the Project. In cases
involving the water law of several western states,
courts have held that, even if the United States
held legal title to water rights, water users in a
reclamation project hold such interests as
appurtenances to their land. The trial court had,
in essence, concluded that Oregon law was
different. The trial court focused particularly on
a statute enacted in 1905 that provided that, where
Reclamation had claimed water for a project through
certain procedures, the water was “deemed
appropriated” by the United States, and not subject
to adverse claims unless the water was released by
the United States. The Oregon Supreme Court
explained that under Oregon law, a person may
appropriate water for use by others, and this
statute did not preclude landowners from acquiring a
beneficial interest in water rights that arose
through beneficial use under the United States’
appropriation. It also found that no release from
the United States is necessary to give rise to such
a right, because it is not, in the water rights
system, “adverse” to the appropriation on which the
right is based.
KID III,
348 Or. at 40-41.
The Oregon Supreme Court also addressed a question
as to whether landowners served through the Project
have a property interest in water. The question, as
stated by the Court, was:
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 right
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?
KID III,
348 Or. at 22.
The Court answered this question with the following:
Under Oregon law, whether plaintiffs acquired an
equitable or beneficial property interest in the
water right turns on three factors: whether
plaintiffs put the water to beneficial use with
the result that it became appurtenant to their
land, whether the United States acquired the
water right for plaintiffs’ use and benefit,
and, if it did, whether the contractual
agreements between the United States and
plaintiffs somehow have altered that
relationship. In this case, the first two
factors suggest that plaintiffs acquired a
beneficial or equitable property interest in the
water right to which the United States claims
legal title, but we cannot provide a definitive
answer to the court’s second question because
all the agreements between the parties are not
before us.
KID III,
348 Or. at 57.
Thus, the Oregon Supreme Court articulated the
principles of Oregon law that apply to the question
of whether plaintiffs have property rights in water,
but did not draw a definite conclusion because it
did not have before it all of the contracts between
Reclamation and the districts and water users that
pertain to Project operation and water delivery.
The Oregon Supreme Court also addressed a question
related to the ongoing Klamath Basin water rights
adjudication being conducted by the state of Oregon,
concluding that, in general, equitable or beneficial
property interests in a water right are not subject
to determination in state water rights
adjudications.
KID III,
348 Or. at 52-57.
With the Oregon Supreme Court’s work concluded, the
federal appeals court resumed its consideration of
the case. It ordered further briefing, and
conducted oral argument.
Appellate
Court Decision
In
KID IV, the federal appeals court relied on
the Oregon Supreme Court’s answers and analysis, and
vacated the decision of the trial court that had
found the water users have no property rights. The
federal appeals court found that the trial court had
concluded incorrectly that Oregon law precluded the
recognition of a beneficial or equitable property
interest in water rights for the Project.
KID IV,
2011 U.S. App. LEXIS 3024, at *32‑37. The federal
appeals court noted, however, that the Oregon
Supreme Court had not definitively answered the
question of whether the plaintiffs did, in fact,
acquire a beneficial or equitable property interest
in Project water, but had articulated a three-part
test (quoted above) for making this determination.
The federal appeals court found that two parts of
the test articulated by the Oregon Supreme Court
were not disputed. Specifically, the parties did
not dispute that plaintiffs put Project water to
beneficial use and that the United States acquired
relevant water rights for plaintiffs’ use and
benefit. The federal appeals court, therefore,
directed the trial court to determine whether
contractual agreements between plaintiffs and the
government have clarified, redefined, or altered the
foregoing beneficial relationship so as to deprive
plaintiffs of cognizable property interests for
purposes of their takings claims. It is noteworthy
that the federal appeals court ruled that the
government will bear the burden of demonstrating
with specificity how the beneficial/equitable rights
of one or more plaintiffs have been clarified,
redefined, or altered.
KID IV,
2011 U.S. App. LEXIS 3024, at *40. Finally, if the
trial court determines that the plaintiffs have a
property right, it will then proceed to determine
whether the right was taken and, if so, the damages
which plaintiffs are due.
Id.
The other issue on appeal was whether the government
was immune from liability for breach of contract
based on the “sovereign acts doctrine” without first
proving impossibility of performance. Under the
sovereign acts doctrine, the government is not
liable for breach of contract whenever it takes any
generally applicable action in its sovereign
capacity that incidentally frustrates performance of
a contract to which it is a party.
See
Horowitz v. United States, 267 U.S. 458, 461
(1925). There are, the federal appeals court ruled,
two parts to this inquiry: (1) whether the
sovereign act is a genuine public and general act,
as opposed to one designed to relieve the government
of its contract duties, and (2) whether the act
would otherwise release the government from
liability under ordinary principles of contract
law.
KID IV, 2011 U.S. App. LEXIS 3024, at *45‑48.
In analyzing this issue, the federal appeals court
held that Reclamation’s halting of water deliveries
in response to biological opinions issued under the
ESA constituted a genuine public and general act
that only incidentally fell upon the contracts at
issue. Thus, the government met the first part of
the relevant inquiry.
KID IV,
2011 U.S. App. LEXIS 3024, at *45‑48. The federal
appeals court also held, however, that in order to
escape liability from breach of contract, the
government has the burden of establishing that
performance of the various contracts at issue was
impossible. Thus, the trial court erred in holding
that impossibility of performance is not a factor to
be taken into account in considering the sovereign
acts doctrine.
Id.
at *46‑48. On remand, the government will be
required to make the necessary showing in order to
avoid contract liability.
Conclusions and Implications
The KID
case involves several issues of interest. One,
recurrent in the west, involves the nature of
interests in water rights for reclamation projects
held by the end users of water. Another concerns
the government’s liability or potential liability
for water re-allocation decisions based on the ESA,
an issue that has now arisen with frequency in the
Court of Claims. The federal appeals court found
that the trial court had not properly construed
Oregon law on the property rights question and
remanded the case to the trial court to determine
whether plaintiffs had a cognizable property
interest in Project water based on principles
articulated by the Oregon Supreme Court. Although
the determination will be specific to Oregon law,
that law is in line with that of other states where
courts have determined that the users have a
beneficial or equitable interest in reclamation
project water rights. The trial court’s evaluation
of whether these rights were taken will thus likely
have future implications for the Project and
elsewhere. The federal appeals court also clarified
the sovereign acts doctrine and directed the Federal
Court of Claims to consider whether it was
impossible for the government to comply with its
contractual delivery obligations.
Finally, in the Klamath Basin, two settlement
agreements (the Klamath Basin Restoration Agreement
and Klamath Hydroelectric Settlement Agreement) were
signed last year and the parties to the agreements
seek congressional authorization necessary for full
implementation. The two agreements involve a
comprehensive set of measures that seek to minimize
future resource-related conflicts such as those
arising from the events of 2001 in the Klamath
Project.
For additional information, contact Paul Simmons at
psimmons@somachlaw.com.
Somach
Simmons & Dunn provides the information in its
Environmental Law & Policy Alerts and on its website
for informational purposes only. This general
information is not a substitute for legal advice,
and users should consult with legal counsel for
specific advice. In addition, using this
information or sending electronic mail to Somach
Simmons & Dunn or its attorneys does not create an
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