Government Must Compensate for Water-Use Restrictions

Tulare Lake Basin Water Storage District v. United States, 2001 WL 474295 (2001).

Roy A. Nowell, Jr., 3L

California water users (Plaintiffs) brought suit claiming that their contractually-guaranteed water rights were taken from them when the National Marine Fisheries Service (NMFS) imposed water-use restrictions under the Endangered Species Act (ESA). The United States Court of Federal Claims ruled in favor of the Plaintiffs in April, granting summary judgment and denying NMFS motion for summary judgment. The court ruled that the government could protect the endangered species in question, but they had to compensate for loss of water rights to private citizens.

Background
The NMFS determined that two endangered species of fish, the delta smelt and winter-run Chinook salmon, faced possible extinction because of limited water flows in California. In order to provide water to citizens, water is diverted from the Sacramento and Feather Rivers and eventually distributed to users through a series of canals. Water that is not diverted flows into San Francisco Bay.

In efforts to protect the fish, the NMFS restricted water out-flows in California’s primary water distribution system, and as a result, a large number of citizens were denied access to the water given to them by contract. The Bureau of Reclamation and the Department of Water Resources contracted with county water districts to allow the districts to use certain quantities of water. In this case, Tulare Lake Basin Water Storage District and Kern County Water Agency have water contracts with the Bureau and Department for an allotment of water, and the remaining Plaintiffs have water contracts through Tulare and Kern Counties. The Plaintiffs brought this action claiming a Fifth Amendment taking of their private water rights.

Takings Issue
The court first addressed the issue of whether the regulations amounted to a taking of property without compensation, which is prohibited by the Fifth Amendment. That Amendment states, “nor shall private property be taken for public use, without just compensation.”1 The purpose of the Takings Clause is to prevent individual owners of property from bearing the entire burden that should be distributed among the public as a whole.2 The court stated that the NMFS has the absolute right to protect endangered species, but considered whether water restrictions amounted to a Fifth Amendment taking.3

Plaintiffs’ Argument: Taking of Water Rights
As a result of the water restrictions, Tulare alleges that they lost almost 10,000 acre-feet of water in 1992, at least 26,000 acre-feet in 1993, and over 23,000 acre-feet in 1994. Kern County claims to have lost at least 319,000 acre-feet during the same time span. The Plaintiffs first urged the court to determine that a taking had in fact occurred, and that the taking by the government was a physical taking versus a regulatory taking. A physical taking occurs when the government’s action amounts to a physical occupation or invasion of the property or strips the owner of possession of the property. A regulatory taking occurs when the government’s action results in a restriction on the owner’s use of the property. Plaintiffs contend that a physical taking had occurred because they held rights to a guaranteed quantity of water, and that by stripping them of this contractual right, the government has rendered the water contract valueless.

Defenses Raised
The NMFS offered three arguments as a defense: The restrictions on water out-flows did not violate the contract, but rather only frustrated the contract, using Omnia Commercial Co. v. United States as the basis for the argument.4 In Omnia, the Supreme Court rejected the Plaintiffs’ takings claim based upon the government’s refusal to fulfill obligations under a contract for steel plates.5 The court held that the Fifth Amendment does not apply to situations in which the contractual rights have merely been frustrated.6 The defendant in the present case argued that, although Plaintiffs’ rights were certainly injured, the contract had not been rendered valueless. While the regulatory action interfered with the contractual expectations, the interference cost the Plaintiffs only a fraction of the overall value of the contract. Finally, the defendant argued the federal government had merely imposed a limit on Plaintiffs’ title for which they could not be held liable. The defendant based this argument on language in the contract that provided immunity for the government in certain situations. The defense argued that the Plaintiffs’ rights were contingent upon the availability of water to the Department of Water Resources, and the subsequent unavailability of the water was out of the government’s control. The court then addressed each of the defense arguments in detail.

Court Analysis
First, the court rejected the defendant’s argument under Omnia that no taking occurred. This argument stated that the actions of the government merely frustrated the contract. However, the court rejected this claim by distinguishing Omnia from the present case because Omnia involved a situation where the Plaintiff was unable to claim ownership of the property. In the present case, the Plaintiffs can clearly claim an interest in the water via their contracts and because they have a property interest, the court held, a taking clearly occurred.

Once the court determined a taking had occurred, they addressed the issue of whether a regulatory or physical taking had occurred. One situation in which a physical taking can occur is when the government strips the owner of possession of the property, thus rendering the property valueless. The court determined that, by taking away the Plaintiffs’ rights to use the water, a physical taking had occurred. By taking away the Plaintiffs’ right to use the water, the government had in fact rendered the right to the water valueless, therefore meeting the elements of a physical taking.

Finally, the court addressed the issue of whether the Plaintiffs in fact owned the property in question. The defendants raised several arguments, including contractual limitation on Plaintiffs’ ownership, unreasonable use of the water, and public nuisance. However, the court promptly discarded each of these arguments holding: 1) no contractual limitations exist; 2) Plaintiffs’ use of the water is reasonable; and 3) Plaintiffs’ use of the water does not constitute a public nuisance. In sum, the court held that Plaintiffs had rights to the use of the water that was provided for by contract.

Conclusion
The court plainly rejected all arguments made by the NMFS and agreed with the Plaintiffs by concluding that a physical taking had occurred, and that Plaintiffs were entitled to compensation for the loss of their rights to water use. However, it must be noted that this case does not stand for the proposition that the United States government, specifically the NMFS, cannot take appropriate measures to protect endangered species. The court clearly states that the government has the absolute right to protect species under the Endangered Species Act. This case stands for the principle that, when the government takes steps to protect an endangered species, it cannot take away contractual rights in property without compensation.

ENDNOTES
1. U.S. CONST. amend. V.
2. Armstrong v. United States, 364 U.S. 40, 49 (1960).
3. 16 U.S.C. § 1536 (a) (2) (1994).
4. Omnia Commercial Co. v. United States, 261 U.S. 502 (1923).
5. Id.
6. Id.