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Water may be increasingly the staff of life in the West, but it also is the engine of litigation in federal courts with potentially sweeping implications for property rights and the environment. The U.S. Supreme Court early next year will hear arguments in a breach-of-contract case whose legal question, while narrow, arises from what is fast becoming a familiar battle: The federal government, implementing a congressional mandate to preserve an endangered species or some other policy, diverts or reduces the amount of water from a federal water management project or river that farmers believe they have a legal right to use. Orff v. U.S., No. 03-1566. For Francis Orff and other farmers in California’s San Joaquin Valley, two reductions in water and a price hike for what water they did receive meant huge economic burdens and, for some, bankruptcies, sellouts and an end to a family farming tradition. “What my farmers ask me every day is: ‘Bill, I thought there was such a thing as water rights,’” said William M. Smiland of Los Angeles’ Smiland & Khachigian, who will argue the high court case. “My answer is the rules may have changed in the middle of the game. We are going to ask the Court to reaffirm they haven’t changed. We have a rule of law here.” As Smiland prepares to face off against the government in his contract challenge, government lawyers are negotiating with leading property rights advocates over a recent $26 million damages ruling — the first of its kind — for another group of California farmers. A U.S. Court of Federal Claims judge held three years ago that water restrictions imposed on the farmers by the government under the Endangered Species Act (ESA) were an unconstitutional taking without just compensation. Tulare Lake Basin Water Storage District v. U.S., No. 98-101 L. And waiting in the wings is a $1 billion lawsuit filed by the Klamath Tribes against power company PacifiCorp last spring in the U.S. district court in Portland, Ore., seeking damages for dam construction on the Klamath River that prevents salmon from reaching the upper Klamath Basin. The tribes, whose lawyers say the federal government may be sued as well, are seeking compensation for loss of their historic treaty rights to fish in the river’s headwaters. “There are sure to be more cases claiming damages for the government’s taking of water rights and/or breach of water contract rights, particularly in view of the Tulare decision,” said Jerry Stouck of Washington, D.C.’s Spriggs & Hollingsworth, a property rights specialist who has litigated major contract disputes against the government. And referring to massive breach-of-contract litigation against the government by savings and loans and by nuclear plants in recent years, he added, “I don’t want to say this is the next Winstar [savings and loan collapses] or spent [nuclear] fuel, but it may be.” WATER BATTLES Mark Twain once wrote that in the West, “Whiskey is for drinking, and water is for fighting.” As Twain’s observation indicates, water has been crucial to the development of the West. “There’s a whole series of cases, at least a dozen in the Supreme Court, going back many years, that involve similar issues,” said Stouck. “Historically, the government was trying to improve the water-management system. They were doing water management for water management’s sake.” The U.S. Bureau of Reclamation did that by building dams, or as in the Orff and Tulare cases, building the Central Valley Project, the largest federal water-management project in the United States, a 400-mile-long system of dams, reservoirs and canals begun in 1937. Along the way, farmers and others created water districts that entered into contracts with the bureau for distribution of water. “What is happening now — which is reflected in the current wave of litigation, with ESA cases so far the predominant type — is that the government is doing something other than water management,” said Stouck. “It’s trying to pursue some other policy in a way that affects the flows of water.” In the Orff and Tulare cases, water was diverted for the protection of the delta smelt and the winter-run Chinook salmon. “Basically it’s what you might call ‘in-stream’ values that are at stake,” said environmental law scholar Joseph Sax of the University of California, Berkeley School of Law. “Traditionally in the West, water has been allocated for irrigation and municipal use. People take water out of streams. But many streams dried up. “In recent years, because of recreational, aesthetic and environmental concerns, there’s been an effort to get water back into those streams, to restore fisheries for example,” he said. “This has become most controversial with the ESA just because it’s such a strong law and it gets enforced.” But it’s not just environmentalists. As seen from the Klamath Tribes’ suit, involving coho salmon, Native American claims are another important element of the water rights litigation. “Those are sometimes in-stream claims,” said Sax. “Indians want water for fisheries. But they also want water for its economic value. There is a long history where the federal government was building [water] projects for cities and farmers and not doing anything for the Indians.” But in recent years, he said, Indians are making “very powerful” property claims for rights that date back to the establishment of their reservations. In the end, however, the water rights litigation, Sax believes, is about “a change in terms of society’s priorities and a need to figure out how to adapt people with traditional uses and expectations to that change.” RIGHTS MOVEMENT Raising the temperature of the already-heated water rights litigation, according to some scholars and observers, is the involvement of the property rights movement. In the Tulare case, for example, the water districts and farmers are represented by Roger and Nancie Marzulla of Washington, D.C.’s Marzulla & Marzulla, long-time property rights advocates. Nancie Marzulla is head of Defenders of Property Rights, a public interest law firm. Another major property rights group, the Pacific Legal Foundation (PLF), is also handling a number of water rights cases. Andrew Lloyd, director of PLF’s Western Water Law Project, said that the Tulare decision has “changed the landscape over how water is going to be fought over in the next 10 years.” In Tulare, the water districts and farmers argued that they had contract rights entitling them to the use of a specified quantity of water. The government reduced that quantity three years in a row. By preventing them from using that water, the farmers argued that the government had deprived them of the entire value of their contract right — a physical taking of property. The Court of Federal Claims rejected all of the government’s arguments, including that this was a regulatory, not a physical, taking, and that the public trust doctrine, the doctrine of reasonable use and nuisance law limited the scope of the farmers’ property right. “The federal government is certainly free to preserve the fish; it must simply pay for the water it takes to do so,” said Senior Judge John Paul Wiese. “Wiese said every drop of water is a piece of property you own,” said Stouck. “That concept has implications for lots and lots of takings. The government is always saying, ‘Even though we may have done something to hurt you, you have lots of property, lots of value left.’ If true, it’s not a taking. Judge Wiese said rights in water are absolute.” However, Stouck cautioned, there are lots of water contracts with varying details that could make a critical difference in the next case. The government, to the disappointment of California and environmentalists, has not appealed Wiese’s decision. Stouck suggests that the government may not feel that winning the appeal would end all cases because of the varying contract provisions, and it could lose. Other lawyers suggest that the Bush administration may not be too unhappy with a property rights victory here because it is not a strong supporter of the ESA. “A lot of folks on the environmental side are really quite nervous about the value of Tulare,” said PLF’s Lloyd. “If the government has to pay for what it takes, that really changes the approach and cost of environmental regulation.” Sax, who filed an amicus brief supporting the government in Tulare, agreed, saying, “This can affect things like water quality, hydropower, so-called bypass flows to protect fisheries. And, because we have a property rights movement that’s very eager to sort of test the limits of property rights against all sorts of government regulation, my own view is that Tulare will be taken around from state to state, for all kinds of regulations that adversely affect traditional uses. This is something states ought to be nervous about.” THREE TYPES OF CASES PLF’s Lloyd said he sees three types of water rights cases percolating around the country: classic takings cases like Tulare and Klamath Tribes, access cases and groundwater cases. The government owns a lot of land in the West, he noted, much of it in the mountains where water gets diverted. In the access cases, an irrigation district may have a license to move water across the land. But a few suits, primarily by environmentalists, claim that the Forest Service can put new restrictions on the easements limiting how much water can be moved to protect stream flows. “The argument is: You still have the water right but you just can’t get to it and that’s not our problem,’” explained Lloyd. “It seems to me that is a taking.” In the groundwater arena, he said, “It’s hard to get a new water right in this country because so many rivers are spoken for. Groundwater is another potential place. Water districts are starting to say, ‘If you want to build a new division or want a building permit, you’ve got to give us your groundwater right or you have to go and buy one.’” Sax believes that water rights suits are the result of a failure by the parties to negotiate as was done in enforcement of habitat conservation plans. “They don’t want to settle; they don’t want to make a deal,” he said. Farmers’ counsel Smiland said his clients think the “ideal” constitutional answer is the government can’t have the water. “The middle ground is if they get it, they should at least pay for it. The other extreme is taking it for free and that’s what they’re doing.” Lloyd agreed, adding that “Tens of billions of dollars are at stake. This fight is a long way from done.”

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