Appeal
from a district court order denying a petition for judicial
review in a water rights matter. Second Judicial District
Court, Washoe County; William A. Maddox, Senior Judge.
McDonald Carano LLP and Debbie Leonard, Reno, for Appellant.
Aaron
Ford, Attorney General, and Tori N. Sundheim, Deputy Attorney
General, Carson City, for Respondents Tim Wilson as State
Engineer and Division of Water Resources, Department of
Conservation.
Brownstein Hyatt Farber Schreck, LLP, and Bradley J. Herrema
and Arthur A. Zorio, Reno, for Respondent IWS Basin, LLC.
BEFORE
GIBBONS, C.J., HAEDESTY and PICKERING, JJ.
OPINION
HARDESTY, J.
Intermountain
Water Supply, Ltd., [1] holds water rights permits to transmit
water to Lemmon Valley for municipal use and was granted an
extension of time by the State Engineer in which to apply the
water to beneficial use. Appellant Sierra Pacific Industries
argues that the extension impermissibly allowed Intermountain
to speculate the water, as Intermountain had no intention to
put the water to beneficial use itself but was instead
seeking a third-party buyer of the permits to perfect the
water appropriation. We consider whether Nevada's policy
mandating beneficial use of water requires application of the
anti-speculation doctrine to requests for extensions of time
such that a permittee who is not planning to use the water
must show evidence of its formal relationship with a third
party who will be using the water in its place. Based on
Nevada's ongoing requirement that a permittee show
reasonable diligence to apply the water to beneficial use, we
conclude that the anti-speculation doctrine applies to
requests for extensions of time.
Intermountain
submitted an affidavit claiming the existence of an
"[o]ption [a]greement" with two unidentified
"worldwide engineering and construction firms" and
an agreement that, as described, does not comport with the
place of use specified in the permits, as evidence of its
reasonable diligence to support its extension request. We
adopt Colorado's ruling in Front Range Resources, LLC
v. Colorado Ground Water Commissioner, 415 P.3d 807, 813
(Colo. 2018)-that a generic option contract does not save an
applicant from the anti-speculation doctrine-and conclude
that the State Engineer abused his discretion in determining,
on this scant record, that Intermountain's averred option
agreements satisfied the anti-speculation doctrine. Without
the averred option agreements, the record does not contain
sufficient detail to demonstrate reasonable diligence under
NRS 533.380(3)-(4) and our decision in Desert Irrigation,
Ltd. v. State, 113 Nev. 1049, 1057, 944 P.2d 835, 841
(1997). Accordingly, we reverse and remand so the State
Engineer can reevaluate the extension in light of these
authorities.
FACTS
AND PROCEDURAL HISTORY
In
2002, the State Engineer granted respondent Intermountain
Water Supply, Ltd., three water rights permits in the Dry
Valley Hydrographic Basin (the Basin). The three permits were
for a transmission pipeline to deliver water to Lemmon
Valley, Nevada, for municipal purposes. In its application
for the first permit, Intermountain estimated that the
project would be completed in five years and that the water
would be put to beneficial use in ten years. Over time, the
State Engineer granted Intermountain five additional permits,
modifying the points of diversion in the original permits,
but maintaining the same place of use: Lemmon Valley.
Intermountain
has since applied for and received numerous extensions
pursuant to NRS 533.380 to extend the time of construction
and to put the water to beneficial use. In its first
application for an extension of time (filed in 2005),
Intermountain stated that it had delayed the project because
of issues involving endangered species on the land.
Intermountain sought subsequent extensions based on economic
conditions. Since 2011, Intermountain has requested
extensions because it was seeking a buyer for its water
rights.
Appellant
Sierra Pacific Industries (SPI) owns ranching and farming
operations in the Basin and the surrounding area, and seeks
cancellation of Intermountain's permits so that it can
acquire the water rights to expand its irrigation and
agricultural development. In 2015, anticipating another
request for an extension by Intermountain, SPI pre-fixed an
objection to Intermountain's applications, arguing, among
other things, that Intermountain did not have good cause to
request an extension and Intermountain was engaging in water
speculation. In 2016, Intermountain filed applications for
extensions of time in which it again indicated that it was
seeking a buyer for its rights. At the time of these
applications, Intermountain had not yet constructed the
pipeline or sold its water rights.
The
State Engineer granted Intermountain's 2016 applications
for extensions of time, concluding that Intermountain had
demonstrated good faith and reasonable diligence in
perfecting the appropriation. The State Engineer relied on a
sworn affidavit by Robert Marshall, one of the Intermountain
pipeline managers, who stated that Intermountain had entered
into option contracts with an unidentified engineering firm
and a separate, also unidentified construction firm, had
negotiated a contract with a public utility company to
distribute water to its customers (but in Cold Springs, not
Lemmon Valley), and was negotiating with home developers.
Intermountain did not submit the alleged option agreements or
Cold Springs utility contract, though it did submit an
expense sheet and invoices, which Marshall outlined in the
affidavit. Marshall attested to Intermountain having spent
$3, 000, 000 over the life of the project and that it had
incurred total expenses of $23, 300.39 in the previous year
"in moving the project forward" and responding
"to the vexatio[us] litigation" from SPI's
challenges to its permits' extensions. The State Engineer
rejected SPI's claim that Intermountain was speculating
the water, finding that Intermountain's sworn affidavit
demonstrated ...