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Court Holds that Physical Takings Standard Applies to Mandatory Diversion of Water for Species Protection

By: Alfred E. Smith
10/01/08

In a case that could have dramatic repercussions, particularly in the western United States, the Federal Circuit recently held that a requirement to provide water for species protection under the Endangered Species Act could constitute a physical taking of water by the federal government thereby triggering the just compensation clause in the Fifth Amendment of the Constitution. Though the appellate court remanded the matter to the trial court – or Court of Federal Claims – to make the determination whether a physical taking occurred, the decision is nevertheless noteworthy because it builds upon prior precedent signaling a willingness of the judiciary to apply the physical taking doctrine as opposed to the narrower regulatory taking doctrine to governmental restrictions on the exercise of valid water rights.

The Decision:

On September 25, 2008, the United States Court of Appeals for the Federal Circuit held that the United States Bureau of Reclamation's requirement that the Casitas Municipal Water District construct and operate a fish ladder that restricted its water supplies was subject to analysis under the physical takings standard, as opposed to the regulatory takings standard, which had been applied by the trial court. The court in Casitas Municipal Water District v. United States, concluded with regard to the water district's takings claim:

Casitas will never, at the end of any period of time, be able to get that water back. The character of the government action was a physical diversion for a public use – the protection of an endangered species. The government-caused diversion to the fish ladder has permanently taken that water away from Casitas. This is not temporary, and it does not leave [Casitas' water right] in the same state it was before the government action. The water, and Casitas' right to use that water, is forever gone. . . . The government requirement that Casitas build the fish ladder and divert water to it should be analyzed under the physical takings rubric.

Casitas Municipal Water District v. United States, Case No. 05-CV-168 (Sept. 25, 2008) at p. 30.  To view the full opinion, click here.

Background:

The Ventura River Project ("Project") provides water supply for various uses in Ventura County and forms a large portion of the water supply for the Casitas Municipal Water District ("Casitas"). In 1956, the United States and Casitas entered into a contract providing for the construction of the Project in exchange for a commitment by Casitas to repay the construction costs over a forty-year period. Decades after the construction of the Project, the National Marine Fisheries Service ("NMFS") listed the southern California population segment of the West Coast steelhead as an endangered species. 62 Fed. Reg. 43,937 (Aug. 18, 1997). Thereafter, to avoid liability for "take" of the steelhead under section 9 of the Endangered Species Act ("ESA"), the Bureau of Reclamation ("Bureau") sought a biological opinion ("BiOp") related to operation of the Project. As a result of the BiOp, the Bureau required Casitas to construct a fish ladder and divert water from the Project to the fish ladder for the protection of the steelhead, resulting in a permanent loss to Casitas of a certain amount of water annually. Casitas complied with the order under protest and filed suit against the United States, alleging that the imposition of the restrictions on the exercise of its water rights constituted a breach of its contract with the government and was a taking under the Fifth Amendment of the Constitution.

In October 2006, the trial court granted summary judgment on the contract claim in favor of the United States, and in March 2007 the trial court granted the United States' partial summary judgment motion on the takings claim, holding that the regulatory takings standard applied to Casitas' claim. The trial court held that while a prior decision, Tulare Lake Basin Water Storage District v. United States, 49 Fed. Cl. 313 (2001), had held that a deprivation of water amounts to a physical taking under somewhat similar circumstances, the Supreme Court's intervening decision in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002) clarified takings law and required that the regulatory takings standard apply to Casitas' takings claim. Casitas appealed the grant of summary judgment on both claims.

With respect to the contract claim, the appellate court upheld summary judgment in favor of the United States on the basis of the sovereign acts doctrine, which states that "the two characters which the government possesses as a contractor and a sovereign cannot be thus fused; nor can the United States while sued in the one character be made liable in damages for their acts done in the other." Casitas Municipal Water District v. United States at p. 13 (quoting Jones v. United States, 1 Ct.Cl. 383, 384 (1865)). The appellate court held that the development and adoption of the BiOp are sovereign acts that made it impossible for the United States to perform its duties under its contract with Casitas for construction and operation of the Project.

On the takings claim, the appellate court held that the Court of Claims had applied the wrong standard and that Casitas' claims required analysis under the physical takings standard because Casitas was required to physically construct the fish ladder, and operation of the fish ladder resulted in water being diverted away from the Casitas Reservoir, which served Casitas. The appellate court stated:

the government did not merely require some water to remain in stream, but instead actively caused the physical diversion of water away from the Robles-Casitas Canal – after the water had left the Ventura River and was in the Robles-Casitas Canal – and towards the fish ladder, thus reducing Casitas' supply.

Id at p. 22. The appellate court was not persuaded by the argument that the government did not actually appropriate water for its own use or for use by a third party, finding the fact that the government did not divert the water itself of no import to its decision, rather holding that "there is little doubt that the preservation of the habitat of an endangered species is for government and third party use – the public – which serves a public purpose." Id at p. 23.

The appellate court remanded the case back to the Court of Claims for analysis of the Casitas' taking claims under the physical takings standard.

Implications:

This decision is the latest in a long line of cases dealing with regulatory restrictions on the exercise of water rights – including those imposed to protect species – and the extent that those restrictions constitute compensable takings under the Fifth Amendment. The case is important because it signals a willingness on the part of the judiciary to analyze regulatory restrictions on the exercise of water rights via the physical takings doctrine, which requires a more straightforward analysis of whether a physical invasion of property rights has occurred than the regulatory takings doctrine. That said, this area of law is likely to continually evolve in the coming years, as limitations on the availability of water become more acute in much of the West.

Alfred E. Smith, II specializes in environmental, water and complex commercial litigation. He represents public and private water purveyors, major water users, corporations and public agencies on matters including environmental compliance, water rights disputes, conjunctive use, public utility regulation, groundwater management and litigation over allegedly contaminated water and soil. He can be reached at 213.612.7800 or asmith@nossaman.com.

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