District Court Rejects Claims to Area of Origin Priority by Tehama-Colusa Canal Authority

Overview

Water users in the Sacramento Valley have no preferential right to delivery of Central Valley Project (“CVP”) water under the state’s so-called “area of origin” laws, according to the U.S. District Court in Fresno. The “area of origin” laws allow water users within an area where water originates to apply for new diversions, and to obtain priority for such diversions ahead of already existing diversions for export uses by the CVP and the State Water Project. However, this protection does not grant CVP contractors in the area of origin a right to a preferential allocation of water diverted and stored by the CVP. Instead, the Court ruled, the only preference granted by the area of origin laws applies when users in the area of origin seek a separate water right permit from the State Water Resources Control Board (“SWRCB”).

The August 2 summary judgment ruling rejects the claims of CVP contractors in the Sacramento Valley seeking higher deliveries of CVP water as against other CVP contractors in the San Joaquin Valley and San Francisco Bay Area. The Tehama Colusa Canal Authority (“TCCA”) initiated the litigation during the recent drought, during which the U.S. Bureau of Reclamation (“Bureau”) had reduced CVP water deliveries to much of the Sacramento and San Joaquin valleys. TCCA operates facilities delivering CVP water to 16 local water districts with CVP water service contracts, all of which serve primarily agricultural and some municipal users in the Sacramento Valley. TCCA claimed that reduced CVP water allocations to its members in times of water shortage, while still delivering CVP water to users in export areas, violated the area of origin protections. TCCA sought to establish an area of origin priority to CVP contract deliveries pursuant to California Water Code section 11460 et seq. By seeking a special priority to CVP contract water deliveries, TCCA’s suit threatened further reductions in CVP water deliveries to San Joaquin Valley and Bay Area users, particularly during droughts. Westlands Water District and the San Luis & Delta-Mendota Water Authority intervened in the litigation on behalf of the federal defendants.

The Court’s decision affirms the Bureau’s long-standing application of the area of origin laws. The Bureau has long recognized that these laws protect a priority for new diversions by users within the area of origin over diversions by the CVP, but the Bureau has further consistently maintained that these laws create no priority among CVP contractors to allocation of CVP water supplies. The ruling confirms the Bureau’s position that Sacramento Valley water service contractors have no priority to CVP supplies over CVP contractors located south of the Delta.

As detailed below, the Court’s 87-page ruling rejects all of TCCA’s claims and arguments and provides the most extensive analysis to date of the application of California’s area of origin laws to a federal water project. The Court’s ruling includes three major conclusions: (1) that the relevant federal and state statutes grant no priority to use of CVP water to TCCA’s members; (2) that TCCA’s claims for preference are contrary to the terms of the CVP water service contracts signed in 2005; and (3) that state court judgments pursuant to validation statutes and the doctrine of equitable estoppel barred the claims. Thus, the Court rejected TCCA’s claims on multiple grounds.

Reclamation Law Requires That The CVP Be Operated For The Widest Public Benefit Of The Entire Central Valley

The Court found that the federal statutes authorizing construction and operation of the CVP confer no special area of origin priorities to Sacramento Valley water users. Instead, the Court found that such a preference would be inconsistent with the 1950 Act to Authorize Sacramento Valley Irrigation Canals, a unit of the CVP. Section 4 of that 1950 Act reads:

"The Secretary of the Interior is directed to cause operation of said work … to be … coordinated and integrated with the operation of … the existing features of the Central Valley Project in such manner as will effectuate the fullest and most economic utilization of the land and water resources of the Central Valley of California for the widest public benefit." (Pub. L. No. 81-839.)

Accordingly, the Court rejected arguments that comments in speeches by individual legislators or Interior officials justified a preference for the Sacramento Valley users that is not expressed in the statute passed by Congress:

"This case cannot be decided on the anecdotal evidence from individual legislators or conflicting legislative history of the 1950 Act. Despite having knowledge of Reclamation’s alleged “unequivocal policy statements,” Congress not only drafted the 1950 Act without any express provision, or even any language inferentially providing any water rights preference for in-basin users; the 1950 Act contains the exact opposite – a direction that the Unit operate to achieve the widest possible benefit across the entire Central Valley." (Slip. Op. at 38-39.)

In concluding its interpretation of the federal statutes, the Court found that “[i]t is not the role of a trial court to grant Plaintiff relief that Congress and its delegee, the Bureau, have continuously refused to provide” and “Plaintiff’s demand under § 11460 is in material contravention to the express intent of Congress, and would turn the world of federal CVP water contracting on its head.” (Slip. Op. at 55-56.)

State Law Requires That Water Users File An Application For An Area Of Origin Right

In its operation of the CVP, the Bureau is required to comply with California law “relating to the control, appropriation, use, or distribution of water used in irrigation.” 43 U.S.C. § 383. California Water Code section 11460, on which TCCA primarily relied, provides:

"In the construction and operation by the department of any project under the provisions of this part a watershed or area wherein water originates, or an area immediately adjacent thereto which can conveniently be supplied with water therefrom, shall not be deprived by the department directly or indirectly of the prior right to all of the water reasonably required to adequately supply the beneficial needs of the watershed, area, or any of the inhabitants or property owners therein."

This section uses the term “department,” which is defined to mean the California Department of Water Resources (“DWR”), but section 11460 is made applicable to the Bureau by Water Code section 11128.

TCCA argued that the CVP water service contracts held by its members, combined with section 11460, afforded a “prior right” to CVP water deliveries. The Court rejected TCCA’s claim, holding that section 11460 does not create any preferential area of origin right to CVP contract deliveries. In part, the Court reached this ruling by reading Water Code sections 11460 and 11462 together. Section 11462 provides that the area of origin statutes shall not be construed so as to create any new property rights other than against DWR. The Court concluded that “Section 11462 categorically precludes a finding that Section 11460 confers a right in users in the area of origin to insist on a preferential water contract to Bureau’s diverted and stored water.” (Slip. Op. at 40.)

The Court found additional support for its interpretation in a seminal 1955 California Attorney General Opinion that extensively analyzed the area of origin laws (“AG Opinion”). (25 Ops. Cal. Att’y. Gen. 8 (1955).) Consistent with the conclusions of the AG Opinion, the Court ruled under section 11460 plaintiffs had at most an “inchoate” right, one they had not exercised, because they had not pursued a water right through the SWRCB’s water right permitting processes. (Slip. Op. at 40, fn. 6.) The Court also relied on two recent California appellate decisions, El Dorado Irr. Dist. v. SWRCB, 142 Cal.App.4th 937 (2006) and Phelps v. SWRCB, 157 Cal.App.4th 89 (2007). Both of these cases held that the area of origin right referred to in section 11460 does not extend or apply to CVP water that has been previously appropriated and stored. The Court explained “[t]his California water jurisprudence defeats TCCA’s Section 11460 priority assertion by interpreting Section 11460 to mean that once water has been properly appropriated to storage by the Bureau, Section 11460 is inapplicable.” (Slip. Op. at 49.)

As the linchpin of its legal arguments, TCCA relied on the following dicta in State Water Resources Control Board Cases, 136 Cal.App.4th 674, 758 (2006):

"To the extent § 11640 reserves the inchoate priority for the beneficial use of water within its area of origin, we see no reason why that priority cannot be asserted by someone who has [or seeks] a contract with the Bureau for the use of that water. (See, Robie & Kletzing Area of Origin Statutes – the California Experience (1979) 15 Idaho L. Rev. 419, 436-438 (discussing right of area of origin users to contract with the department for SWP water.))"

The Court explained that this dicta was unpersuasive. The SWRCB Cases decision did not address the federal statutes authorizing the CVP, the application of Water Code section 11462, or the terms of CVP contracts. And, even if the dicta were accepted, the SWRCB Cases decision itself cautioned that a contractor could not obtain more water than it was entitled to under the terms of its contract. As is explained next, the Court found that is exactly what TCCA was attempting to do.

The Bureau Is Authorized By The TCCA Contracts To Reduce Allocations To TCCA Members Under Conditions Of Shortage

The Court’s decision examined the over 40-year history of performance of the original and interim CVP contracts, as well the negotiations leading to the existing contracts. The Court found that like previous TCCA water service contracts, the current long-term CVP water service contracts entered in 2005 do not contain an area of origin priority. Instead, the Court found that the renewed contracts, like their predecessors, include shortage provisions that authorize the Bureau to apportion shortages among its CVP water service contractors, without regard to area of origin.

The Court noted that for decades under the previous contracts the Bureau had consistently reduced water deliveries and applied CVP-wide apportionment reductions to TCCA members in years when the Bureau had declared conditions of shortage. The Court found that TCCA had full knowledge of how the contract terms had been and would be applied by the Bureau. The Court reviewed various terms of the current contracts and concluded that the Bureau was well within its discretion to allocate reduced deliveries to TCCA members during shortages. The Court found it significant that TCCA members had negotiated and renewed long-term CVP water service contracts with terms virtually identical to previous contracts under which shortages had been imposed and with full understanding of how they would be implemented:

"Plaintiff ignores and refuses to acknowledge that since the inception of the CVP and through the manifestly significant amendments to add non-water service priorities through the CVPIA, the Bureau has never recognized it is under any legal obligation to observe any area of origin ‘priority;’ has never reduced CVP water deliveries on the basis of any area of origin legal obligations to Sacramento Valley CVP contractors; and has continuously and consistently refused to accept such an interpretation of Plaintiff’s water service contracts…. The Bureau’s contractual interpretation and its performance and Plaintiffs’ performance under prior and existing TCCA Renewal CVP Water Service Contracts comply with federal and state law and are not arbitrary or capricious." (Slip. Op. at 68.)

Validation Of The Contracts Barred Any Claim That The Shortage Term Is Contrary To Area Of Origin Laws

The Court also found it significant that TCCA members had validated their contracts in state superior court. These state court validation judgments essentially immunized the contracts from future claims that the contract terms are contrary to state area of origin law. Accordingly, the Court found that TCCA and its members were “categorically barred from raising any challenge to the legality, validity, and enforceability of the TCCA Renewal Contracts they signed and by which they agreed to be bound. … These validated contracts are as a matter of law enforceable and not illegal. Plaintiff and its Members sought validation knowing of this dispute and are presumed to know the legal effect and consequences of their choice.” (Slip. Op. at 78-79.)

TCCA’s Members Are Equitably Estopped From Claiming An Area Of Origin Priority To CVP Water

Lastly, the Court found it would be inequitable to allow TCCA to avoid the terms of the CVP contracts its members had voluntarily executed and validated in 2005, yet rely on those same CVP contracts as the basis for a priority under section 11460. The Court explained:

"For decades, Plaintiff and its Members could have filed a claim with the SWRCB that the Bureau was allegedly violating its water permits from the SWRCB by performing the TCCA contracts to reduce water deliveries in times of CVP water shortage. They did not. Plaintiffs could have filed a lawsuit to determine area of origin rights long ago. They did not. Instead, they judicially validated their latest long-term Renewal Contracts. The Bureau, as contracting party, was entitled to rely upon Plaintiff and its Members’ acquiescence in the Bureau’s categorically consistent interpretation that federal CVP Water Service Contracts do not and have never been performed to recognize any area of origin priority in water allocations." (Slip. Op. at 83-84.)

Thus, the Court applied the doctrine of equitable estoppel, finding:

"If the Bureau had known the true facts that Plaintiff and its Members did not intend to perform the Renewal Contracts as they had always been performed, the Bureau could have gained Plaintiff’s express acquiescence and waiver, or elected not to execute new contracts. Plaintiff and its Members’ conduct requires they be equitably estopped from obtaining the benefit of federal CVP water service without accepting the burden of those that reduces their water allocation during water shortages. (Slip. Op. at 84.)

Conclusion

This ruling is significant in several respects. First, it reaffirms the analysis and conclusion in the 1955 AG Opinion that to assert an area of origin priority right under section 11460, a water user in the area of origin must apply for a state water right from the SWRCB. It rejects the dicta in the SWRCB Cases suggesting that a CVP contract can be a basis for a preferential allocation of CVP water in times of shortage. Second, it confirms that CVP contractors in the area of origin cannot claim a priority that is contrary to the express terms of their CVP water service contracts. Third, it finds that with limited exception, the federal statutes authorizing the CVP intended an integrated operation of many of its facilities and an allocation of CVP water supplies for the widest possible public benefit. Finally, it avoids the significant disruption and dislocation of established uses within the San Joaquin Valley and other export regions that could otherwise have resulted from a ruling in favor of TCCA. There will likely be continued debate and disagreement regarding the application of the area of origin laws, and each circumstance will present unique legal and factual issues. But with respect to TCCA’s members and their particular area of origin claims to CVP water, barring an appeal, the debate is now over.

Questions

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