Takings arguments bubble up as Calif. cuts water rights

By Jeremy P. Jacobs | 07/27/2015 01:03 PM EDT

In drought-stricken California, lawyers are asking a simple question with a complicated answer: Can the state take away water rights? At issue is the U.S. Constitution’s 5th Amendment, which says no property shall be taken without just compensation. If California gets more aggressive in requiring irrigation districts — and particularly so-called senior rights holders, whose claim to divert and use water dates back more than a century — to curtail water use, some property rights lawyers think they can sue the state.

In drought-stricken California, lawyers are asking a simple question with a complicated answer.

Can the state take away water rights?

At issue: the U.S. Constitution’s 5th Amendment, which says no property shall be taken without just compensation.


So if California gets more aggressive in requiring irrigation districts — and particularly so-called senior rights holders, whose claim to divert and use water dates back more than a century — to curtail water use, some property rights lawyers think they can sue the state.

"If these water districts have vested, pre-existing rights that are more than 100 years old, those are legitimate property rights," said Michael Berger, a Los Angeles-based takings specialist at the firm Manatt, Phelps & Phillips LLP. "I don’t think the government can take that away."

Environmental lawyers and some academics disagree. They argue California is enforcing its water rules to address the extreme shortage.

Some irrigation districts have already made a taking claim in some of the earliest drought-related litigation. And property rights groups, emboldened by a recent Supreme Court ruling involving a government raisin program, are confident that takings issues will become increasingly common in drought litigation.

"If you own the right to use it, you own the right to use it — they can’t stop you from using it," Berger said. "The right to use is a property right. If you take away my right to use the property, then you have taken my property."

The State Water Resources Control Board has told about 9,200 water rights holders this year to stop water diversions. In May and June, the board released its most recent curtailment notices, telling about 100 rights holders, including some whose rights go back more than 100 years, to stop using water from the Sacramento-San Joaquin River Delta and its tributaries, the primary water source for 25 million people and 3 million acres of farmland.

Several irrigation districts holding those rights challenged the orders in state Superior Court in Sacramento. A judge agreed with them, ruling that the board had violated the districts’ due process rights by not conducting a hearing before issuing the notices (Greenwire, July 13).

The ruling forced the state to retreat from its earlier policy, telling farmers and businesses only that it had determined their watershed did not contain enough water for them to exercise their rights.

"To the extent that any of the notices described above contain language that may be construed as an order requiring you to stop diversions under your affected water right, that language is hereby rescinded," the water board said (Greenwire, July 16).

The challenging districts had also claimed that their water rights were a "property right," but the judge didn’t rule on that issue.

In a seprate lawsuit filed in state court in Modesto, other districts were more explicit in that contention. The litigation from the San Joaquin Tributaries Authority, Oakdale Irrigation District and South San Joaquin Irrigation District contended that the board’s action was an unconstitutional taking. That case has yet to be decided, but the districts laid out the case for why a water right obtained before 1914, when the state established a formal water permitting regime, is property protected by state common law.

"The right to divert water pursuant to pre-1914 water rights is a property right," they wrote in court documents. "The State Water Board is a state agency which, through its Curtailment Notice, is depriving Petitioners of all economic and beneficial use of their respective rights to divert water. Despite taking Petitioners’ property rights, the State Water Board has not compensated Petitioners for the taking."

Raisins and oysters

Property rights groups think that argument is bolstered by the Supreme Court’s ruling last month that sided with a California farmer who challenged a government program that required him to turn over some of his raisin crop every year.

In Horne v. Department of Agriculture, the court ruled 8-1 that a Depression-era program designed to stabilize the price of raisins by controlling the amount of crop that enters the market ran afoul of the 5th Amendment takings clause.

Chief Justice John Roberts, writing for the court, said that requiring farmers to turn over their crop for limited or no compensation was a "clear physical taking" and that the government is required to pay individuals for obtaining "personal property" just as it must when it seizes land.

"Nothing in this history suggests that personal property was any less protected against physical appropriation than real property," Roberts wrote (Greenwire, June 22).

J. David Breemer of the property-rights-focused Pacific Legal Foundation said that holding should apply to water rights as well.

"The main point that comes out of Horne is that the takings clause is going to apply to anything we normally recognize as property. It’s not just a land clause," he said. "You can’t take people’s property without compensation on the theory that it’s for their own good. That will be a key point in this water litigation."

But California regulators and several law professors pushed back on those arguments.

They say the property rights advocates are mischaracterizing what a water right represents. It only allows the use of the water — it doesn’t grant ownership, said Andy Sawyer, the water board’s assistant chief counsel. The state, he said, has always retained ownership of the water itself.

Sawyer added that actions taken by the state so far — including curtailment notices — are only efforts to enforce a system designed to cope with shortages. The "huge variability" in annual rainfall in California led to the current framework.

"The system is intended, through the priority system, to make use of water in times of abundance," he said, "and then cut back by priority" when water is scarce.

That, he said, is exactly what the state is doing by telling those whose water rights are junior — meaning, established later — to senior rights holders to reduce their use.

"What we’re doing is applying the priority system in a time of extreme shortage," Sawyer said. "You have no right to divert when there is only enough water to meet the needs of those who have rights senior to yours, and any water you divert would amount to taking water at the expense of someone who, unlike you, has a right to that water."

Law professors also read Horne differently than the property rights activists.

They note that the court was very careful to draw a distinction between the raisin program and a precedent set by a 1929 case, Leonard & Leonard v. Earle. That was a challenge to a Maryland regulation that mandated packers of oysters to turn over 10 percent of their empty shells after they are shucked. The state used those shells for fertilizer, road paving and other purposes.

The court ruled that the policy was not a taking because the oysters and, consequently, their shells belonged to the state to begin with.

In the Horne decision, Roberts carefully delineated the raisins from the oyster shells.

"Raisins are not like oysters: they are private property — fruit of the growers’ labor," Roberts wrote after noting that the oysters "belonged to the state."

Richard Frank, a environmental law professor at the University of California, Davis, said that while the property rights groups will be encouraged by the Horne decision, water is more like the oysters than the raisins.

"Horne cuts both ways," he said. "It’s another win for the property rights activists — like the Pacific Legal Foundation — where the Supreme Court applied the takings clause in a muscular fashion. But water is different."

Takings rubrics

A key legal issue that is sure to be litigated in future drought litigation is whether a curtailment order or other state diversion qualifies as a physical or regulatory taking.

Property rights and irrigation districts will undoubtedly push for the physical, or per se, standard, which means the government must automatically compensate the owner for the property.

And they will likely cite a unique 2008 federal appeals court decision to support their argument. In that case, the Casitas Municipal Water District in central California challenged a Fish and Wildlife Service requirement that the water regulatory construct and divert water from its existing water project to a fish ladder in order to protect the endangered West Coast steelhead trout.

Judge Kimberly Moore, writing for a divided U.S. Court of Appeals for the Federal Circuit panel, sided with the district, saying the water that’s diverted "is permanently gone."

"Casitas will never, at the end of any period of time, be able to get that water back," she said. Therefore, she said, the diversion was a physical taking.

Berger, the California takings attorney, said courts are more willing to side with the physical taking argument if they can picture the property.

And in the hypothetical where a water rights holder is told to reduce his or her use, he said, that diversion would be easy to envision.

"What I had a right to before was a right to use the water," he said. "If you stop me from using that property, that water is gone. You took it away from me. I think you can visualize that as a physical taking."

Environmentalists and legal professors strongly disagree with that characterization of water, as well as the importance of the Casitas opinion.

John Echeverria, a takings expert at Vermont Law School, called Moore’s opinion a "screwy" ruling and noted that it never went into effect because it was later determined that Casitas was never actually denied any water because of the trout ladder.

Further, no other circuit court has adopted the precedent that a water diversion qualifies as a physical taking.

"Property rights people read [the ruling] fairly broadly," Echeverria said. "Environmentalists read it very narrowly."

Any action taken by California in response to the drought, he added, would likely be reviewed under the "regulatory" taking rubric. In that scenario, the court would conduct a balancing test, weighing public benefit of the state’s action against what the property owner lost.

Ilya Somin, a George Mason University law professor and takings specialist who frequently takes the property owners’ side in these issues, agreed.

He said that while most takings cases are dependent on the facts presented, if California takes steps that could infringe on a water rights holder’s use of those rights, the state would probably earn review under the regulatory framework.

"The state could say we are not depriving you of your right entirely — you can still take some, just not as much as before," Somin said. "And we are not permanently depriving you of it — just as long as the drought lasts."

While most of the arguments are only hypotheticals now, Frank, the UC Davis law professor, expects them to become real very quickly.

The recent ruling on due process blocking the state board’s first efforts, he said, is likely to spur many more lawsuits.

"The favorable ruling is going to embolden a lot of water users up and down the state who feel disadvantaged to go off to court and file their own legal challenges," he said. "That’s not to say they will win those cases, but I think state officials are likely to be embroiled in this type of litigation."