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Sierra Pacific Industries v. Wilson

Supreme Court of Nevada

May 2, 2019

SIERRA PACIFIC INDUSTRIES, Appellant,
v.
TIM WILSON, P.E., IN HIS CAPACITY AS NEVADA STATE ENGINEER; DIVISION OF WATER RESOURCES, DEPARTMENT OF CONSERVATION, AN AGENCY OF THE STATE OF NEVADA; AND IWS BASIN, LLC, A NEVADA LIMITED LIABILITY COMPANY, Respondents.

          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 ...


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