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New Court Decisions Affect Water Industry

By: Paul S. Weiland, Alfred E. Smith
05/18/06

In Allegretti & Co. v. County of Imperial, 138 Cal.App.4th 1261, the Fourth District California Court of Appeal held that government imposed restrictions on groundwater pumping did not constitute a taking, thus rejecting the Plaintiff's argument that a permit condition which restricted the amount of groundwater pumped by an overlying owner on an annual basis gave rise to a claim for inverse condemnation.

The Allegretti holding is important because it calls into question the 2001 decision of the Federal Court of Claims in Tulare Lake Basin Water Storage District v. United States, 49 Fed.Cl. 313 (2001), where that Court held that government imposed water use restrictions constituted a compensable physical taking of a contractual entitlement to water ("To the extent, then, that the federal government, by preventing plaintiffs from using the water they would otherwise have been entitled, have rendered the usufructuary right to that water valueless, they have thus effected a physical taking").

In the Allegretti case, the Plaintiff, owner of property overlying a groundwater basin, filed an application with the defendant, Imperial County ("County") for a conditional use permit ("CUP") to redrill an inoperable water well in order to farm additional acres of its property. The County approved the CUP subject to conditions, including that Plaintiff limit its pumping activities to 12,000 acre feet/year from all production wells on its property.

Plaintiff brought an inverse condemnation claim against the County arguing that the pumping restrictions contained in the CUP resulted in an unlawful taking of Plaintiff's property. The trial court held that the County's action in granting the CUP and imposing groundwater pumping restrictions did not constitute a taking and thus the trial court denied Plaintiff's inverse condemnation claim.

Plaintiff appealed the trial court's decision to the Fourth District Court of Appeal. The Court of Appeal upheld the trial court's decision holding that the County's action did not result in a physical taking, nor did such action result in a regulatory taking. With respect to the analysis of Plaintiff's physical taking argument, the Court stated: "imposition of a permit condition limiting the total quantity of groundwater available for Allegretti's use – cannot be characterized as or analogized to the kinds of permanent physical occupations or invasions sufficient to constitute a categorical physical taking." Id. at 1273. In addition, the Court declined to rely on the Tulare Lake case, supra, pointing out the ruling in that case had been undercut by Klamath Irrigation District v. Untied States, 67 Fed.Cl. 504 (2005) and stated quite strongly "we disagree with Tulare Lake's conclusion." The Court also noted that in the Tulare Lake case there were identifiable contractual rights between the plaintiffs and the water rights holder, rights not present in the Allegretti case.

In holding that no regulatory taking had occurred, the court noted that the CUP restriction did not result in a complete deprivation of all economically beneficial use of Plaintiff's property because a significant portion of the property was being farmed by a rent-paying tenant. The court also engaged in a thorough analysis of the factors for a regulatory taking set forth by the United States Supreme Court in Penn Central, 438 U.S. 104 (1978), concluding that the Plaintiff had failed to satisfy the requirements for a regulatory taking to support its inverse condemnation claim because: 1) the relevant property at issue was the Plaintiff's entire parcel and not merely its right to pump groundwater, and Plaintiff had not demonstrated any economic impact from the pumping restriction; 2) the restriction had not been shown to have interfered with Plaintiff's distinct investment backed expectations; and 3) the County's action did not physically invade or appropriate the Plaintiff's property or groundwater.

The Allegretti Court also held that the California Supreme Court's decision in Landgate, Inc. v. California Coastal Commission, 17 Cal.4th 1006 (1998), did not save Plaintiff's takings claim because Landgate, which dealt with whether an erroneous land use decision could be the basis for a temporary takings claim, only requires a court to "assess whether there exists a ‘sufficient connection between the land use regulation in question and a legitimate governmental purpose.'" Id. at 1283 citing Landgate, supra, 17 Cal.4th at p. 1022. The Allegretti court held that there was such a connection between the pumping restriction imposed by the County and the legitimate government purpose of preserving groundwater resources.

Alfred E. Smith, II is a Partner in Nossaman's Los Angeles office who 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. Alfred is an appointed member of the Association of California Water Agencies' (ACWA) Legal Affairs Committee. He can be reached at (213) 612-7800 or asmith@nossaman.com.

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