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Click here for the full text of this decision FACTS:The Clayton Sam Colt Hamilton Trust owns a 3,200-acre tract of land called “the Moore Ranch” in Val Verde County. This ranch is in the city of Del Rio’s extraterritorial jurisdiction and is not subject to regulation by any groundwater conservation district. Although the ranch does not have any surface water, it does have lying underneath it a groundwater formation that is part of the Edwards-Trinity Aquifer. Although no one lives on the ranch, the trustee and his son (the sole beneficiary of the trust) visit occasionally. In 1997, the trust sold 15 acres from the ranch’s western border to the city of Del Rio for $56,000. This 15-acre tract borders a state highway to the west. To the south, north and east, it is surrounded by the Moore Ranch. The warranty deed, dated Jan. 8, 1997, conveying the 15-acre tract to the city provides that: “Grantor RESERVES unto Grantor, its successors, heirs and assigns forever all water rights associated with said tract, however, Grantor may not use any portion of the surface of said tract for exploring, drilling or producing any such water.” In 2000, three years after the city purchased the 15-acre tract, the city realized that it needed to augment its municipal drinking water supply. So, it decided to drill a water well (the Y-well) on the 15-acre tract. A year and a half later, the city began drilling on the tract and had the well tested for 10 hours, pumping approximately 500 gallons per minute and producing several hundred thousand gallons of groundwater. The Y-well was completed in the summer of 2002, at a cost to the city of about $850,000. About six months after the city had the pump tested, Hamilton, the trustee of the trust, during one of his infrequent visits to the Moore Ranch, noticed the drilling activity on the 15-acre tract. He then had the trust’s attorney send the city a letter demanding that it neither produce nor capture any water from the Y-well. A short time later, the trust’s attorney gave formal notice of a $500,000 claim against the city. The trust also drilled four new water wells on the Moore Ranch, stretching in a line from just south of the city’s 15-acre tract to the southeast corner of the ranch. Each well could produce several thousand gallons of groundwater a minute. After the city rejected the trust’s claim, the trust filed suit against the city, seeking a declaratory judgment that: 1. it owned the groundwater beneath the 15-acre tract; and 2. the city’s claim of ownership to those water rights should be rejected. The trust also sought monetary damages for unconstitutional taking and action for trespass. The city responded with a counterclaim, seeking a declaratory judgment that the warranty deed did not leave the trust with “right, title, or interest in any groundwater pumped to the surface by the City” on the 15-acre tract and that any groundwater pumped to the surface was the city’s property. Alternatively, the city pleaded for condemnation of the water rights reserved by the trust. The parties agreed to sever their respective declaratory judgment actions (but not attorneys’ fees) from the other issues and try the case on stipulated facts. The trial court concluded: 1. the water rights reservation was valid and enforceable; 2. the city’s argument that groundwater, until captured, cannot be the subject of ownership was an incorrect statement of the law; and 3. ownership to the groundwater rights beneath the 15-acre tract belonged to the trust. The city appealed. HOLDING:Affirmed. With respect to the trust’s reservation of “all water rights associated with said tract” in the deed, the city and the trust disagreed about the relationship between the “rule of capture” and the “absolute ownership of groundwater.” The city argued that the trust’s “water rights” reservation could not prevent it from drilling into the subsurface water. According to the city, pursuant to the rule of capture, the corpus of groundwater cannot be “owned” until it is reduced to possession. And, because the trust never drilled or pumped on the 15-acre tract, the city argued that it never reduced the groundwater underneath the tract to its possession. Moreover, the city argues that the “absolute ownership” doctrine does not refer to ownership of the actual corpus of water beneath the land but only to a right of the surface estate owner to acquire possession of the water. Thus, the city reasoned that the trust only had a right to obtain possession of the subsurface water but never did so, because it did not drill or pump subsurface water from the 15-acre tract, thereby reducing the water to its possession. In response, the trust reasoned that if a property owner’s interest in groundwater only vests once the water is reduced to possession, then groundwater conveyances “would essentially be defined by the size of the bucket transporting the water.” In other words, only when the groundwater is drawn to the surface and placed in a container for transport off the surface would a conveyance or reservation be effective. The sheer practical complexities of the city’s position, the trust argued, would essentially bring to a standstill any attempt to transfer groundwater in Texas. The court agreed with the trust’s analysis. The Texas Supreme Court, the court noted, has stated that percolating water is a “part of, and not different from, the soil” and the landowner is the absolute owner of it. Thus, under the absolute ownership theory, the trust was entitled to sever the groundwater from the surface estate by reservation when it conveyed the surface estate to the city of Del Rio. Thus, pursuant to the deed, the city never obtained ownership of the groundwater. And, because the city does not have ownership of the groundwater, the court found that it could not rely on the rule of capture. In addition, the court found that because the trust would have access to the groundwater beneath the 15-acre tract from its adjacent lands, the water rights reservation in the deed did not violate the Texas Constitution’s prohibition against perpetuities. OPINION:Angelini, J.; Stone, Angelini and Simmons, JJ.

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