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Wilson v. Happy Creek, Inc.

Supreme Court of Nevada

September 12, 2019

TIM WILSON, P.E., NEVADA STATE ENGINEER, DEPARTMENT OF CONSERVATION AND NATURAL RESOURCES, DIVISION OF WATER RESOURCES, Appellant,
v.
HAPPY CREEK, INC., Respondent.

          Appeal from a district court order granting a petition for judicial review in a water law case. Sixth Judicial District Court. Humboldt County; Steven R. Kosach, Senior Judge.

          Aaron D. Ford, Attorney General, and James N. Bolotin, Deputy Attorney General. Carson City, for Appellant.

          Taggart & Taggart, Ltd., and Paul G. Taggart and Timothy D. O'Connor. Carson City, for Respondent.

         BEFORE THE COURT EN BANC.

          OPINION

          PICKERING, J.

         NRS 533.395 authorizes the State Engineer to rescind a water rights permit cancellation but provides that if the State Engineer does so, "the effective date of the appropriation under the permit is vacated and replaced by the date of the filing of the written petition [for review of the cancellation] with the State Engineer." Based on the State Engineers adherence to this mandate, respondent in this case lost more than 50 years of priority in water rights-despite having invested nearly $1 million in improving water-use efficiency and otherwise having met all the substantive criteria for maintaining priority of its water rights-because its agent missed a filing deadline by a few weeks. The respondent's groundwater rights lie in an over-appropriated basin, so loss of original priority dates threatens complete loss of use of water should curtailment occur. Given these extraordinary circumstances, and pursuant to State Engineer v. American National Insurance Co., 88 Nev. 424, 498 P.2d 1329 (1972), and its progeny, we hold that the district court properly granted respondent equitable relief, restoring its water rights' original priority dates.

         I.

         Respondent Happy Creek, Inc. ("Happy Creek") is a ranching and farming company that operates Happy Creek Ranch (the "Ranch") in the Pine Forest groundwater basin in northern Nevada. The Ranch comprises 1399 acres of deeded land that includes 855 irrigated acres, 765 of which are irrigated using the groundwater rights at issue on this appeal. In addition to its deeded acres, Happy Creek holds grazing rights to 95, 126 and 6056 acres of public land in the Happy Creek and Hog John Grazing Allotments, respectively. The alfalfa produced on the 765 acres of groundwater-irrigated, deeded land is essential to the economic viability of the Ranch and its cattle operations.

         The Ranch's groundwater irrigation rights, totaling 3063 acre feet annually, were appropriated and certificated in stages and carried original priority dates ranging from 1954 to 1990. Since the first groundwater irrigation appropriation in 1954, Happy Creek and its predecessors-in-interest have diligently put the water to beneficial use. In 1994, Happy Creek hired a water rights professional, John Milton, to manage its water rights and handle its filings with the State Engineer, which Milton did without fail until 2016.

         To use its water more efficiently, Happy Creek decided in 2007 to convert from flood irrigation to a center-pivot irrigation system. Milton advised that the conversion would require Happy Creek to file applications with the State Engineer to change the place of use for the Ranch's certificated groundwater irrigation rights. See NRS 533.325 (any person who wishes to appropriate any of the public waters, or to change the place of diversion, manner of use or place of use of water already appropriated, shall, before performing any work in connection with such appropriation, change in place of diversion or change in manner or place of use. apply to the State Engineer for a permit to do so") (emphasis added). In 2009, at Happy Creek's request, Milton filed change applications with the State Engineer so the work to convert the Ranch from flood to center-pivot irrigation could proceed. The State Engineer approved the change applications and set an April 29, 2012 deadline for Happy Creek to file proofs of beneficial use (PBUs). The permits retained their original priority dates but the change in place of use meant Happy Creek could lose its water rights unless it proved beneficial use consistent with the change applications by April 29, 2012.

         Happy Creek spent almost $1 million and several years upgrading its water system. The PBUs required meter readings for the 6 wells involved in the project for a minimum of 12 consecutive months. Though the conversion work was complete each year one or more of the totalizing flow meters on the irrigation wells failed, resulting in incomplete data needed for the PBUs. As a result, between 2012 and 2015, Milton filed, and the State Engineer granted, extensions of time (EOTs) for Happy Creek to file its PBUs. See NRS 533.380(3); NRS 533.410.

         On May 19, 2016, the State Engineer mailed Happy Creek notice that it needed to file the PBUs (or EOTs) within 30 days to avoid cancellation of its groundwater permits. Happy Creek received the notice on May 23, 2016, and emailed it that same day to Milton, but Milton missed the June 18, 2016 deadline. (When questioned later, Milton explained that he either temporarily lost the email when he changed his computer's operating system or confused the conversion project's groundwater irrigation permits with other Ranch permits he was processing for Happy Creek at the time.) Regardless, on July 8, 2016. Milton realized his error, and on July 11, 2016, before receiving anything further from the State Engineer, Milton filed a petition on Happy Creek's behalf under NRS 533.395(2) asking the State Engineer to review the then-impending permit cancellations. But as mandated by NRS 533.410. the State Engineer cancelled Happy Creek's groundwater permits on July 19, 2016.

         The State Engineer held a hearing on Happy Creeks petition to review the cancellations on October 12, 2016, which Milton and a Happy Creek representative attended. The hearing was recorded but not transcribed. Happy Creek represents, and the State Engineer does not deny, that Happy Creek's representative asked the hearing officer both to rescind the cancellations and restore the water rights' original priority dates, but the hearing officer explained that NRS 533.395(3) did not give him. the authority to restore the original priority dates. Following the hearing, the State Engineer rescinded the cancellations contingent on Happy Creek filing PBUs or EOTs within 30 days, which it did. On November 1, 2016. the State Engineer reinstated the permits. But as mandated by NRS 533.395(3), the State Engineer changed the permits' priority dates to July 11, 2016.

         Happy Creek timely filed in district court a notice of appeal and a petition for judicial review. In its petition, Happy Creek asked for equitable relief in the form of an order restoring its groundwater rights' original senior priority dates. The district court granted Happy Creeks request for equitable relief, holding that even though NRS 533.395(3) constrained the State Engineer to change the priority dates to July 11, 2016, equity demanded that the permits retain their senior priority dates. In support of its decision, the district court found that Happy Creek spent several years and nearly $1 million upgrading its irrigation system; that Happy Creek continuously put the water to beneficial use: that Happy Creek attempted in good faith to protect its water rights; that the Pine Forest groundwater basin is overappropriated and subject to priority-based curtailment in the future; and that the value of the Ranch depends on the priority of Happy Creek's groundwater irrigation rights, In the district court's words, the "punishment" of losing senior priority dates "'does not fit the crime" of the human filing-date error that occurred.

         The State Engineer appeals. On appeal, the State Engineer challenges the authority of the district court to grant equitable relief by restoring Happy Creek's original senior priority dates.

         II.

         A.

         Enacted in 1913, NRS 533.025 declares: "The water of all sources of water supply within the boundaries of the State whether above or beneath the surface of the ground, belongs to the public." The elevated importance of water in society leads to the conclusion that it should be distributed fairly and in the broad interests of the public.'" David H. Getches, Colorado River Governance: Sharing Federal Authority as an Incentive to Create a New Institution, 68 U. Colo. L. Rev. 573. 590 (1997); Sarah F. Bates et al., Searching Out the Headwaters: Change and Rediscovery in Western Water Policy 182 (1993) [hereinafter Headwaters] ("The principle of equity arises out of the shared, public nature of water.'"); see also Kansas v. Colorado, 206 U.S. 46, 104 (1907) (quoting Elliot v. Fitchburg R.R., 64 Mass. 191, 196 (1852), for the proposition that the right to use of water is publici juris[:] a right to the flow and enjoyment of the water, subject to a similar right in all the proprietors, to the reasonable enjoyment of the same gift of Providence"). Thus, it was a "balancing of competing interests and equitable principles that shaped the foundations of Nevada water law." Sylvia Harrison, The Historical Development of Nevada Water Law, 5 U. Denv. Water L. Rev. 148. 154 (2001). And. despite that Nevada often follows its arid Western sister states in codifying and modifying the law of prior appropriation, "consideration of equity or fairness in access and distribution is one of the cardinal principles underlying every enduring water management system." Stephen P. Mumme, From Equitable Utilization to Sustainable Development: Advancing Equity in U.S.-Mexico Border Water Management, Water, Place, and Equity, at 117 (John M. Whiteley et al. eds., 2008); see also Anthony Dan Tarlock & Jason Anthony Robison, Law of Water Rights and Resources § 1:1 (2018) (recognizing that although states have modified water rights by statute, "in all jurisdictions, judge-made law remains crucial to the understanding of water allocation legislation").

         Consistent with this history, these policies, and the importance of water to Nevada's citizens, long-standing precedent establishes that both this court and the district courts have the authority, "when warranted," to grant equitable relief in water law cases beyond the relief, if any, that the water law statutes allow the State Engineer to grant. State Eng'r v. Am. Nat'l Ins. Co., 88 Nev. 424, 426, 498 P.2d 1329. 1330 (1972) (citing Donoghue v. Tonopah Oriental Mining Co., 45 Nev. 110, 1.17. 198 P. 553. 555 (1921)); see Great Basin Water Network v. State Eng'r, 126 Nev. 187, 199. 234 P.3d 912. 919-20 (2010) (citing cases “recogniz[ing] the district courts power to grant equitable relief when water rights are at issue" and "confirm[ing] that this court [also] has the power to grant equitable relief in water law cases"): Blaine Equip. Co. v. State, 122 Nev. 860, 868, 138 P.3d 820, 825 (2006) (suggesting that "[t]his court has, in the past, affirmed the district court's use of equitable power to grant relief contrary to that mandated by the language of a statute," but noting that the cases so holding "involve[d] an interpretation of the intent behind a joint resolution passed by [Congress] during World War 1," citing Donoghue, 45 Nev. at 116, 198 P. at 554, or "the unique area of state water law," citing Am. Nat'l. 88 Nev. at 426, 498 P.2d at 1330).

         American National presented facts similar to those in this case. The respondent applied for a permit to appropriate water, which the State Engineer approved; then, after putting its permitted water to beneficial use, the respondent permittee failed to file its PBU or an EOT by the statutory deadline. 88 Nev. at 425, 498 P.2d at 1330. As mandated by NRS 533.410, the State Engineer cancelled the permit. The permittee filed for judicial review under NRS 533.450, seeking equitable relief. Despite the statutory directive in NRS 533.410 that "the State Engineer shall cancel the permit" if the permittee misses the PBU deadline, the district court granted equitable relief from the permit cancellation. On appeal, the State Engineer "press[ed] the point that the [district] court should not have overruled him since the word 'shall' as used in NRS 533.410 required him to cancel the permit." Am, Nat'l, 88 Nev. at 426, 498 P.2d at 1330. Affirming, this court held that NRS 533.410's statutory "directive to [the State Engineer's] office does not . . . affect the power of the district court to grant equitable relief. . . when warranted." Id.

         Over the past 50 years, this court has repeatedly reaffirmed that equitable relief is available, when warranted, in water law cases. See Dep't of Conservation & Nat. Res., Div. of Water Res. v. Foley, 121 Nev. 77, 83. 109 P.3d 760, 764 (2005) (stating that "this court [has] embraced the principle that the district court may grant extraordinary equitable relief [where] the water rights . . . were of record [and] the holders of water rights either exercised diligence in the placement of water to beneficial use or sought relief in response to defects in the cancellation notice"); Preferred Equities Corp. v. State Eng'r. 119 Nev. 384, 389, 75 P.3d 380, 383 (2003) (recognizing that water rights holders may seek and obtain equitable relief, when warranted); Desert Irrigation, Ltd. v. State, 113 Nev. 1019, 1061 & n.7, 944 P.2d 835, 843 & n.7 (1997) (granting equitable relief to certificated water rights holder who applied to change the place of use then failed to prove beneficial use according to the conditions specified in the permit, resulting in the cancellation of the permit and consequent loss of senior, : certificated water rights); Engelmann v. Westergard, 98 Nev. 348. 351. 647 P.2d 385, 387 (1982) ("Although NRS 533.410 provides that water permits 'shall' be cancelled by the State Engineer when a permittee fails to file proof of application of water to beneficial use, this directive does not affect the power of the district court to grant equitable relief to a permittee when warranted."); Bailey v. State, 95 Nev. 378, 383, 594 P.2d 734, 737 (1979) (reversing the district court's denial of a permittee's request for equitable relief from the State Engineer's cancellation of its permitted water rights).

         In 2003, the Colorado River Commission of Nevada published the seminal treatise Nevada Water Law, which summarizes these principles and their special application to water rights permit cancellations as follows:

Judicial review of the state engineer's cancellation of unperfected permits has raised a special rule of judicial equity. A reviewing court may consider equitable factors in sustaining a permit, even if the state engineer could not. Notwithstanding that the state engineer must; adhere to statutory procedures and standards for cancellation of permits for failure to prove that the permittee has put the water to beneficial use. the district court has discretion to provide equitable relief, as in cases where notice of prospective cancellation was not provided to the permittee. The equitable ...

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