Home » Articles » Volume 36 » Issue 4 » ESA Reductions in Reclamation Water Contract Deliveries: A Fifth Amendment Taking of Property?

 
 

ESA Reductions in Reclamation Water Contract Deliveries: A Fifth Amendment Taking of Property?

 

Two United States Court of Federal Claims cases have given different answers to the question posed in the title of this article. One case found a per se physical taking of water users’ property; the other ruled water users lacked property rights protected by the Fifth Amendment. Commentators have widely criticized the finding of a per se physical taking.

This article undertakes a more searching analysis of the takings question than appears in the two cases and the commentary. By untangling federalism complexities in reclamation law and focusing on longstanding state law regarding water distribution organizations, the article shows that water users supplied under Bureau contracts often will have Fifth Amendment property rights. The article then shows why Bureau water delivery reductions made to comply with the ESA come within a gap in Supreme Court takings jurisprudence and suggests there is at least some chance the Court would treat delivery reductions as per se physical takings. Finally, the article explains why it is unclear in many states whether nuisance law or the public trust doctrine constitute preexisting title limitations that would avoid any takings problem, and it suggests a litigation strategy for states concerned about the evolution of their nuisance or public trust law in this regard.

I. Introduction

The Bureau of Reclamation in the United States Department of the Interior (Bureau) operates 476 dams and 348 reservoirs in the seventeen western mainland states.[1] A primary mission of the Bureau is to deliver water from these facilities by contract to municipalities[2] and irrigation districts or similar organizations.[3] The contract water deliveries make up all or part of the supply for thirty-one million urban residents[4] and for farmers irrigating ten million acres.[5]

Many of the Bureau’s dams and reservoirs are on streams that are the habitat of fish species listed as threatened or endangered under the Endangered Species Act (ESA).[6] ESA section 7 obligates every federal agency to insure that its actions are “not likely to jeopardize the continued existence of any endangered species or threatened species.”[7] To comply with this mandate, the Bureau may have to refrain from storing water in a reservoir for later delivery to contract users and instead let the water flow downstream to provide habitat for protected fish species.[8] Similarly, the Bureau may have to release water already stored to provide downstream habitat. In other circumstances, it may have to keep water in storage for species living in the reservoir rather than delivering it to contract users. In all of these situations, water that goes to species habitat will not be available for contract deliveries.[9]

The Bureau’s reduction of contract water deliveries to comply with the ESA has generated three suits against the United States by municipalities, irrigation districts, or irrigation district members to recover for a taking of their property.[10] The Takings Clause of the Fifth Amendment requires the government to pay just compensation when it takes private property for public use.[11] All three suits were filed in the United States Court of Federal Claims, the only court with jurisdiction over takings claims against the United States for more than $10,000.[12]

The court has reached the merits in two of the cases. Different judges decided them and reached contrary conclusions. In Tulare Lake Basin Water Storage District v. United States (Tulare),[13]Judge John Paul Wiese ruled that reduced deliveries to the plaintiffs were per se physical takings of their property requiring just compensation.[14] In Klamath Irrigation District v. United States (Klamath),[15] Judge Francis M. Allegra ruled that the plaintiffs had only contract rights, not property rights in water,[16] and therefore the delivery reductions could not constitute a taking of their property.[17]

A federal study foresees more conflicts between the ESA and Bureau water contracts.[18] A former Acting Solicitor and Deputy Solicitor for the Department of the Interior predicted recently that the Supreme Court ultimately “will be compelled to address” whether delivery reductions to comply with the ESA are a taking of property under the Fifth Amendment.[19]

This Article undertakes a more searching analysis of the takings issue than was made in the Tulareand Klamath opinions and in harshly critical commentary on Tulare(Klamath is too new to have been the subject of published commentary). Part I addresses whether muni­cipalities and irrigation districts with Bureau contracts, or irrigation district members, have property rights in water. A former Soli­ci­tor of the Department of the Interior has observed that the legal relationship between the Bureau and contract water users is “very murky” due to “a number of layers of complexity.”[20] Part II untangles the complexities that bear upon the existence of property rights. It concludes that in most, if not all, states and in most, if not all, circumstances, municipalities and irrigation districts or district members do have property rights under state law.

Part III addresses whether contract delivery reductions are a Fifth Amendment taking of property, with a focus specifically on per se physical takings. This part explains why the takings concept is less straightforward than portrayed by the Tularecritics. To that end, it identifies weaknesses in the critics’ arguments, pinpoints a gap in Supreme Court takings precedents that leaves uncertainty about whether delivery reductions are per se physical takings, and presents a hypothetical that tends to suggest they are.

Since no one can be sure how the Supreme Court will resolve the uncertainty, however, Part IV considers whether the United States could avoid what would otherwise be per se physical takings on the ground that the property rights of municipalities and irrigation districts or district members are subject to a preexisting title limitation justifying reduced water deliveries. Part IV disputes the conventional wisdom that shortage clauses widely used in Bureau water contracts constitute such a title limitation. Part IV also shows that whether state nuisance or public trust laws constitute such title limitations is unsettled in many states, and suggests a litigation strategy for states to resolve the matter in their courts rather than wait for the Court of Federal Claims to do so.

II. Bureau Water Contracts and Property Rights

Section 8 of the Reclamation Act of 1902 defines federal-state relations in reclamation projects.[21] Section 8 is critical to whether municipalities and irrigation districts with Bureau contracts, or irrigation district members, have property rights under state law. The discussion below begins with some rudiments of pre-Reclamation Act western water law that provide background for interpreting section 8. It then examines section 8 in detail, drawing at times on the earlier discussion of western water law. Finally, it critiques Judge Allegra’s ruling in Klamath that the plaintiff irrigation districts and district members had no property rights in Klamath Basin waters.

A. Pre-Reclamation Act Western Water Law

Western courts had built up a significant body of appropriation doctrine water law by the time Congress commenced the federal reclamation program in 1902.[22] Two elements of that body of law bear on what Congress likely intended in section 8. These are, first, the rule that a water right is appurtenant to the land where it is used and, second, the rules defining the relationship between a water supply entity and the irrigators receiving water from it.

1. The Appurtenance Rule

Appurtenance is a conveyancing concept. A deed or mortgage of land also conveys or encumbers a water right that is appurtenant to the land unless the deed or mortgage expressly provides otherwise.[23]

Early western courts generally regarded a water right for irrigation as appurtenant to the land upon which the water was used.[24] They did not find appurtenance, however, unless the same person owned both the water right and the land.[25] The requirement of unitary ownership is attributable to the conveyancing role of appurtenance.[26] Under common law conveyancing, a person cannot convey something he or she does not own.[27] Since a deed or mortgage of land could not convey or encumber a water right unless the landowner also owned the water right, it would have been nonsensical for courts to find appurtenance when the land and water right were owned by different persons.

While appurtenance had the conveyancing effect noted above, the courts declined to give it the additional effect of making a water right inseparable from the land where it was used.[28] Instead, courts allowed the transfer of an appurtenant water right to new land if the change would not injure any other appropriator.[29] Dissatisfaction developed in some quarters with the judicial rule on transferability on the ground that this could fuel speculation.[30] The concern was that initial settlers in an area might obtain water rights in excess of what they actually needed for their lands with the intention of later selling part of their inflated rights for handsome profits.[31] The evil in speculation was that it would hamper new irrigation development if inflated early water rights left no unappropriated water for later settlers, and those settlers had to buy water rights from the speculators.[32]

Legislatures in at least eight western states responded to the speculation concern by enacting statutes that made water rights inseparably appurtenant to the land where the water was used.[33] Critics of the inseparability statutes argued they were bad policy and were unconstitutional for impairing the inherent right of an appropriator to dispose of his property.[34] In time, although not all before the Reclamation Act of 1902, a number of these statutes were repealed or judicially subverted.[35]

2. The Relationship Between a Water Supply Entity and the Irrigators Supplied

The first irrigators in the West settled on lands bordering on or close to streams and appropriated water using small individual ditches or ditches jointly owned by two or three neighbors.[36] Once the lands next to streams were settled and new irrigation had to be on more remote lands, engineering and financial realities made the use of small individual or joint ditches infeasible.[37] Water supply entities emerged that built large ditches and transported water through them for use by numerous individual irrigators.[38]

The water supply entities were of three main types. First, privately owned nonprofit mutual corporations delivered water only to their shareholders and charged only enough to cover costs.[39] Second, privately owned corporations organized for the profit of their investors delivered water by contract–either to selected landowners or, more commonly, to all landowners within the capacity and service area of the corporation’s facilities.[40] Since the latter corporations served the public or a segment thereof, most states regulated them as public utilities.[41] Third, and last to appear, quasi-governmental public entities such as irrigation districts supplied water to their members.[42]

The advent of private water supply corporations, both nonprofit and for profit, generated litigation about the legal relationship between corporation and irrigator (something that was largely avoided with the public supply entities that came along later and operated under detailed statutes).[43] Privately owned nonprofit mutual corporations often, though not always, held formal title to the water rights used to supply their shareholders.[44] Privately owned for-profit corporations almost always held formal title to the water rights they used to supply irrigators.[45] If a private nonprofit or for-profit corporation held formal title to the water right, the inevitable question was what rights the irrigators that it supplied had.

The courts decided that a nonprofit mutual corporation’s shareholders were the beneficial owners of the water right even if they lacked formal title and their rights to receive water required compliance with corporate charter or bylaw provisions.[46] Regarding the for-profit corporation, Samuel C. Wiel reported in his 1911 treatise: “In Colorado and the arid States generally (following the lead of Colorado) the law of appropriation has so completely become the source of rights in waters, that the rights of consumers from corporations are made, as far as possible, to conform to the law of appropriation.”[47] The consumers were not archetypical appropriators because they lacked formal title to a water right and could not receive water without paying the contract rate and complying with other reasonable contract terms.[48] What Wiel meant by “as far as possible” was that “[t]he right of the consumer is not merely a right of service (without any proprietary right in the water-rights or water system), but is a proprietary right in the natural stream.”[49] Accordingly, said Wiel, the for-profit supply corporation was only “a common carrier of water . . . carrying the consumers’ water to them from the natural resource.”[50] While Wiel stated this to be the law of arid states generally, he reported, that California took a different approach. A California irrigator supplied by a for-profit corporation that served the public and was regulated as a public utility had no property right in the stream but only a service right under public utility law.[51]

Half a century after Wiel, Frank J. Trelease–who like Wiel[52] was the preeminent water law scholar of his era[53]–cataloged the methods that various western states were using to give an irrigator receiving water from a supply corporation “some form of a state water right, a property right independent of and superior to the contract right he had from the company.”[54] Trelease reported:

Many states adopted statutes making the water appurtenant to the land. The people of Idaho wrote into their constitution that the sale, rental or distribution of water for irrigation was a public use subject to regulation, and an “exclusive dedication” to the particular use, so the irrigator could not be deprived of the annual use of the water unless he consented, or failed to pay for it. In Arizona the standard definition of an appropriation (“diversion and application to beneficial use”) was seized upon, and the sale of water was said not to be a beneficial use in itself, so that the water right was held to belong to the farmer who finally put the water on the land, and the ditch company was relegated to the position of carrier of the landowner’s water. In Colorado the courts boggled at this, since the farmer was not the diverter, and compromised by saying the appropriation was a joint one, but that this joint interest gave the farmer a property right. Wyoming and several other states devised the “secondary permit” system, under which a water distributor receives a permit to build a dam and to store water, and the consumer may obtain a water right appurtenant to his land by applying for a second permit to apply the water to use.[55]

The methods Trelease identified are self-explanatory except perhaps for the appurtenance statutes. Those statutes rely on the common law rule that appurtenance requires unitary ownership–a water right cannot be appurtenant to land unless the landowner owns the water right as well.[56] A legislative declaration that water is appurtenant to land is another way of saying the landowner owns a property right in the water source.[57]

B. Reclamation Act Section 8

The Reclamation Act of 1902 Act authorized the Bureau, then called the Reclamation Service, to build and operate facilities only for the purpose of supplying irrigation water by contract.[58] Later acts expanded the Bureau’s charter to include supplying water by contract for municipal purposes,[59] selling hydroelectric power,[60] and managing its facilities to serve additional purposes that, depending on the facility, might include navigation, flood control, recreation, and fish and wildlife habitat.[61]

Section 8 of the 1902 Act dealt with the roles of federal and state law in reclamation projects.[62] It remains in force unamended.

1. Text and Legislative History

Section 8 contains four clauses that are highlighted below by the addition of bracketed numbers:

[1] Nothing in this Act shall be construed as affecting or intended to affect or to in any way interfere with the laws of any State or Territory relating to the control, appropriation, use, or distribution of water used in irrigation, or any vested right acquired thereunder, and [2] the Secretary of the Interior, in carrying out the provisions of this Act, shall proceed in conformity with such laws, and [3] nothing herein shall in any way affect any right of any State or of the Federal Government or of any landowner, appropriator, or user of water in, to, or from any interstate stream or the waters thereof: [4] Provided, That the right to the use of water acquired under the provisions of this Act shall be appurtenant to the land irrigated, and beneficial use shall be the basis, the measure, and the limit of the right.[63]

On its face, clause [1] preserves the operation of state laws regarding the control, appropriation, use or distribution of water used in irrigation, and it recognizes the validity of vested rights acquired under those state laws. Clause [2] requires the Secretary of the Interior (Secretary), as supervisor of the Bureau,[64] to proceed in conformity with such state laws in carrying out the Act. It follows that if state laws give irrigators vested rights in water supplied by a water distributor, the Secretary must proceed in conformity with those vested rights. Clause [2] qualifies the Secretary’s duty to proceed in conformity with state laws by instructing him to do so “in carrying out the provisions of this Act.” The qualification raises the question of whether the Secretary has to conform only when pursuing reclamation project purposes, as in reallocating water from one project purpose to another, and not when reallocating water from a project purpose to a nonproject purpose, as in releasing water for the habitat of an endangered species. However, to infer Congress intended to provide vested-rights protection for irrigators in the former situation and deny it in the latter would seem anomalous.

Clause [3] serves a highly limited function regarding interstate streams and is unimportant for present purposes.[65] Clause [4], the proviso, seems on its face to create an exception to the general disclaimer of federal preemption of state water laws found in clause [1] by establishing two federal rules on the right to use water under the act: the right depends on beneficial use, and it is appurtenant to the land irrigated. The legislative history, however, creates uncertainty about whether Congress intended such an exception. The House committee report on the 1902 act indicates clause [4] is merely a directive to the Secretary not to construct a project unless state water laws make beneficial use the basis, measure, and limit of water rights and make the rights inseparably appurtenant to the land irrigated. [66] Yet Representative Frank Mondell, who submitted the committee report to the House and was the leading spokesman for the bill on the House floor, made remarks on the floor that could be understood–at least if they are taken in isolation from the House report–to mean clause [4] was intended to establish preemptive federal rules on beneficial use and inseparable appurtenance.[67] This uncertainty may have influenced the Supreme Court in a case discussed later.[68]

2. Section 8 in the Supreme Court

The Supreme Court has interpreted section 8 in several cases. It is necessary, therefore, to consider whether the Court has added a judicial gloss at variance with the text-based interpretation stated above and whether the Court has shed any light on the clause [2] qualifier “in carrying out the provisions of this Act” or on the muddled legislative history regarding whether clause [4] establishes federal rules for water rights.

a. Vested Rights Acquired Under State Law

The Supreme Court first construed section 8 in United States v. Gerlach Livestock Co. (Gerlach),[69] an inverse condemnation action[70] bylandowners with water rights under California’s riparian doctrine for irrigation of their grass lands by natural seasonal overflow of the San Joaquin River.[71] When the Bureau built Friant Dam upstream from the plaintiffs’ lands to store high stage river flows for delivery under water contracts, the overflow irrigation of their lands ceased except for rare intervals of spill over the dam.[72] The Court of Claims awarded the plaintiffs just compensation for a taking of their riparian rights.[73] The Supreme Court affirmed, saying that section 8 “directed the Secretary of the Interior to proceed in conformity with state laws, giving full recognition to every right vested under those laws.”[74] The plaintiffs’ riparian rights to natural overflow were such vested rights, and full recognition of them meant just compensation had to be paid when operation of the project took them.[75] Thus, the Court gave clauses [1] and [2] of section 8 the meaning apparent on their face.

b. State Water Law and Federal Preemption

The Supreme Court dealt with conflicts between state water law and federal reclamation law in a series of four cases. In Ivanhoe Irrigation District v. McCracken (Ivanhoe),[76] the Court held that the Bureau could enforce a prohibition in Reclamation Act section 5 against delivering irrigation water to tracts exceeding 160 acres even though California law allowed delivery to larger tracts.[77] The Court characterized section 5 as “a specific and mandatory prerequisite laid down by the Congress,” and it concluded that Congress did not intend “§ 8 to override the repeatedly reaffirmed national policy of § 5.”[78] In City of Fresno v. California (City of Fresno),[79]the Court decided section 8 did not bar the Bureau from implementing a reclamation law preference for irrigation use over municipal use even though state law called for the opposite preference.[80] In Arizona v. California (Arizona),[81]the Court said section 8 did not require the Bureau to distribute water from its Colorado River project to users in the lower river basin states according to their state law priorities.[82] In these three cases, then, federal law prevailed over contrary state law notwithstanding the general disclaimer of federal preemption in section 8, clause [1].

The last case in the series was California v. United States (California).[83] The issue was whether section 8 required the Bureau to comply with state laws when acquiring a water right for a reclamation project.[84] The Court ruled that while the Bureau had to apply for a state permit to appropriate water, the state could not impose any permit conditions inconsistent with congressional directives for the project.[85] The Court regarded Ivanhoe and City of Fresno as harmonious with this rule; in both cases, congressional directives preempted contrary state laws.[86] The Court distinguished Arizonaas being confined to the Bureau project then before the Court, the “massive” Colorado River project of “unique size and multistate scope.”[87] It explicitly disavowed any dictum in Arizonathat would prevent a state from imposing water permit conditions not inconsistent with congressional directives for the project.[88]

In sum, this series of four cases refines the part of clause [1] in section 8 that preserves the operation of state laws on the control, appropriation, use, or distribution of water for irrigation. That part of clause [1] does not preserve all such state laws. It does not save those that are inconsistent with congressional directives for a project. Furthermore, this refinement no doubt spills over to the other part of clause [1] requiring recognition of vested rights arising under state laws. The only rights recognized would be those arising under operative state laws, that is, state laws not inconsistent with congressional directives.[89] Subject to that refinement, nothing in the series of cases undercuts the Gerlach principle that just compensation is due when the operation of a Bureau project takes property rights created by state water laws.

c. Reallocation of Bureau-Controlled Water

Californiacontains dictum that raises a question about the law governing stored water. After holding that the Bureau had to comply with state laws in acquiring a water right for the project, except for state laws preempted by congressional directives, the Court added that “once the waters were released from the dam, their distribution to individual landowners would again be controlled by state law.”[90] This dictum seems to imply that federal law, and only federal law, governs waters from the time the Bureau stores them behind a dam until the Bureau releases them.[91] A further seeming implication would be that if the water rights irrigators acquired under state law do not reach the waters while they are stored but attach only after the Bureau releases them for distribution to the irrigators, the Bureau could reallocate stored waters from irrigation to ESA habitat purposes unhindered by the Takings Clause of the Fifth Amendment.

However, the Court’s opinion five years later in Nevada v. United States (Nevada)[92] dispelled these possible implications of the California dictum. Nevadais the last of three cases on the rights of irrigators in water stored or controlled by the Bureau and is most fully understood in connection with its two progenitors, Ickes v. Fox (Ickes) [93] and Nebraska v. Wyoming (Nebraska).[94]It is worthwhile to examine these cases closely to be able to evaluate Judge Allegra’s reading of them in Klamath.

In Ickes, the Secretary of the Interior entered into a water delivery contract with a water users association representing irrigators in a unit of a reclamation project in Washington.[95] After delivering the contracted amounts of water for many years, the Secretary issued notices to the irrigators informing them that their water deliveries would be reduced in the future unless they paid more than specified in the contract.[96] The Secretary issued the notices in an effort to raise additional money to help fund a new unit of the reclamation project.[97]

Several irrigators sued to enjoin the Secretary from enforcing the notices.[98] They alleged they had fully complied with the Reclamation Act, had paid all sums required to repay construction costs and annual operation and maintenance charges, and had acquired vested water rights appurtenant to their lands for the full water quantities they had been using.[99] The Secretary moved to dismiss the suit on the basis that the United States was an indispensable but unjoined party.[100] The trial court denied the motion but allowed immediate appeal, and the Court of Appeals affirmed.[101]

In the Supreme Court, the Secretary supported his claim that the United States was an indispensable party by arguing that the United States owned the project water rights, that the plaintiffs merely had executory contract claims to water, and that the relief they sought therefore amounted to specific performance of a contract with the United States.[102] The Court ruled that the United States was not an indispensable party because the suit was not for specific performance of a contract. Rather, the suit was to enjoin the Secretary from acting beyond his authority by depriving the plaintiffs of vested property rights.[103] The Court said the United States did not own the water rights because Reclamation Act section 8, a state statute, and the water delivery contract all made the water rights appurtenant to the land irrigated.[104] Explaining further, the Court said the government diverted, stored, and distributed the water not for its own use but rather “under the Reclamation Act, for the use of the landowners; and by the terms of the law and of the contract already referred to, the water rights became the property of the landowners, wholly distinct from the property right of the government in the irrigation works.”[105]

Ickes is notable for two points. First, the irrigators had property rights because of the appurtenance provisions in Reclamation Act section 8, state law, and the water delivery contract.[106] Second, since Ickes involved the terms upon which the Secretary would release stored water to the irrigators, itimplies that the irrigators’ property rights reached the water while it was stored behind the Bureau’s dam and not merely after the Bureau released the water for distribution to them.[107]

Nebraskawas a suit for the equitable apportionment of an interstate river between states,[108] and the United States intervened to ask the Court to apportion water for two reclamation projects to it directly rather than to the states in which the projects were located.[109] The Court refused to decree an apportionment to the United States because the irrigators were the real owners of the water rights.[110] Relying on Ickes, the Court said the appropriations were not made for the use of the government but for the use of the landowners.[111] It concluded: “The water right is appurtenant to the land, the owner of which is the appropriator. . . . [I]ndividual landowners have become the appropriators of the water rights, the United States being the storer and the carrier.”[112]

The two reclamation projects were in Nebraska and Wyoming, states having what Trelease called a “secondary permit” system.[113] Under that system, the United States made water right filings for the projects in its name, and once the irrigators put the water to beneficial use, the states issued water right certificates to them individually.[114] This fact also seemed to play into the Court’s decision.[115] In terms of the methods Trelease identified by which different states have given property rights to water users served by a supply entity, Ickes relied on appurtenance while Nebraska relied on appurtenance and perhaps also on the secondary permit system.

Turning now to Nevada, the federal district court for Nevada issued a decree in 1944 adjudicating the Truckee River, which originates in California and flows into Nevada.[116] The decree, known as the Orr Ditch decree, awarded the United States a large water right acquired under Nevada law with a priority of 1902 for the Newlands Reclamation Project in that state.[117] The decree also awarded the United States, as trustee of the Pyramid Lake Paiute Tribe, a small Indian reserved water right with a priority of 1859 for irrigating land within the Pyramid Lake Reservation.[118] In 1973, the United States returned to the federal district court and argued that the Orr Ditch decree merely determined the Tribe’s reserved water right for irrigation, and the United States asked the court to award it an additional reserved water right to maintain the Tribe’s Pyramid Lake fishery.[119]

A key feature of the Newlands Project is the Bureau’s Derby Diversion Dam, a dam on the Truckee River that, as its name implies, does not store water but rather diverts it into a canal.[120] The canal delivers some of the water to nearby irrigators and transports the rest to the Carson River, where it is stored behind another Bureau dam for delivery to more irrigators.[121] In the 1983 suit, the United States sought to divert less water at the Derby Diversion Dam for irrigation and instead let the water flow down the Truckee River into Pyramid Lake for fishery purposes.[122]

The federal district court dismissed the United States’ claim for an additional Indian reserved right for fish preservation as barred by res judicata.[123] Res judicata was still at issue when the case reached the Supreme Court.[124] The United States asserted it was only seeking “reallocation of the water decreed in Orr Ditch to a single party–the United States–from reclamation uses to a Reservation use with an earlier priority,” and that “res judicata does not bar a single party from reallocating its water in this fashion.”[125] The Court rejected the United States’ assertion that it owned the water right for Newlands Reclamation Project lands:

Once these lands were acquired by settlers in the Project, the Government’s “ownership” of the water rights was at most nominal; the beneficial interest in the rights confirmed to the Government [by the Orr Ditch decree] resided in the owners of the land within the Project to which these water rights became appurtenant upon the application of Project water to the land. As in Ickes v. Fox and Nebraska v. Wyoming, the law of the relevant State and the contracts entered into by the landowners and the United States make this point very clear.[126]

The state law to which the Court referred requires beneficial use to perfect an irrigation water right and makes the right appurtenant to the land on which it is used.[127] The contracts to which the Court referred, or at least most of them, provide that irrigators would have “a permanent water right for the irrigation of and to be appurtenant to all of the irrigable area . . . developed.”[128]

Nevadashows that the Newlands irrigators, like the Ickes irrigators, have vested rights to continued supply that reach the water while it is physically controlled by Bureau facilities.[129] Because the irrigators’ rights extend to the water while it is in the Bureau’s control, the United States is not free to disregard the irrigators’ rights and reallocate some of the water it controls to tribal fishery habitat.[130]

Nevadaalso answers the question raised earlier about the language in section 8 requiring the Secretary to proceed in conformity with state law “in carrying out the provisions of this Act.”[131] This means the Secretary must conform to state law not only when reallocating water from one project purpose to another but also when reallocating water from a project purpose to a nonproject purpose, as in releasing water for fishery habitat sought by the Tribe rather than delivering it to irrigators with Bureau contracts.[132]

Nevadaappears to qualify Ickes in one notable respect. Nevadarelied only on state law and Bureau water contracts in finding water rights in the irrigators. Ickes relied on state law, a Bureau water contract, and Reclamation Act section 8–all of which made the right to use water appurtenant to the land irrigated.[133] In Nevada, the Court might have omitted any reference to the appurtenance provision in section 8, clause [4] for either or both of two reasons. First, the legislative history on section 8 creates doubt whether the appurtenance provision in clause [4] was intended to be a federal appurtenance rule and thus a federal source of vested water rights.[134] Second, the Court’s decision five years earlier in Californialikely precludes treating the appurtenance provision as a federal source of irrigator property rights. The Californiaholding that the Bureau must acquire water rights for its projects under state law is predicated on a long history “of purposeful and continued deference to state water law by Congress.”[135] If the history of deference cuts against general congres­sional intent to allow the Bureau to bypass state law, it should also cut against a federal source of property rights for irrigators. Regardless of the Court’s reasons in Nevadafor omitting any reference to the section 8, clause [4] appurtenance provision, the omissionis of no consequence for future cases where state law gives irrigators vested rights to continued supply under any of the methods Trelease identified.

In Klamath, Judge Allegra downplayed the significance of the Court’s statements in Ickes, Nebraska, and Nevada that irrigators supplied by the Bureau have vested water rights.He discounted Ickes because of its procedural posture, and he regarded the Nebraskaand Nevadastatements as dicta.[136] While the Court’s Nebraskastatement might have been gratuitous, Judge Allegra’s views of Ickes and Nevadaseem unduly cramped.

Procedurally, Ickes arose upon a motion by the Secretary of the Interior to dismiss for nonjoinder of an indispensable party.[137] The motion itself did not challenge any of the plaintiffs’ allegations, including the allegation that they had vested water rights.[138] However, the Secretary argued to the Court that the United States was an indispensable party because it owned the water rights and the plaintiffs only had executory contract rights.[139] The Secretary’s argument in support of his motion to dismiss directly controverted the plaintiffs’ allegation that the plaintiffs owned the water rights.[140] The Court’s statement that the irrigators had vested property rights, not just contract rights, was integral to resolving the indispensable party issue.[141] Of course, given the procedural context, the Court’s ruling for the plaintiffs did not establish that they actually had vested property rights. The plaintiffs still had to prove on remand that they put all the water the Bureau delivered to them to beneficial use on their lands and complied with their contract payment obligations before they would actually have vested property rights.[142] If they proved that on remand, the Court’s opinion leaves no doubt that the plaintiffs would have vested property rights.[143]

In Nevada, the United States sought to avoid res judicata by arguing that it was the owner of the Newlands Project water rights, and that res judicata does not bar an owner from reallocating how it uses its own property.[144] The Court’s statement that the Newlands Project irrigatorswere the beneficial owners of the water rights went to the heart of what was contested before the Court.[145] The statement was hardly gratuitous.

In summary, Ickes, Nebraska, and Nevada dovetail with the text-based interpretation of section 8 set out earlier in this section on federal reclamation law. They support the proposition that if operative state laws regarding the relationship between a water supplier and the irrigators it supplies vest property rights in the irrigators to continuance of their supply, the Bureau in its capacity as a water supply entity must proceed in conformity with those property rights.

d. Types of Bureau Water Contracts

The Bureau uses two basic types of irrigation water contracts–repayment contracts and water service contracts.[146] A repayment contract obligates an irrigation district to repay its share of the project construction costs allocated to irrigation[147] plus its share of annual operation and maintenance charges.[148] The repayment period can be up to forty years and can be preceded by a development period of up to ten years.[149] Repayment is of principal only; no interest is paid.[150] The irrigation district distributes the water it receives from the Bureau to individual irrigators and collects revenues from them necessary to repay construction costs and pay annual operation and maintenance charges.[151] Although repayment contracts have their origin in the Reclamation Act of 1902, they presently are governed by section 9(d) of the Reclamation Project Act of 1939.[152] For this reason, they are also known as 9(d) contracts.

In contrast, a water service contract obligates an irrigation district to pay only an “appropriate share” of the construction costs allocated to irrigation and the annual operation and maintenance charges.[153] The share that is “appropriate” can vary annually with the irrigators’ ability to pay taking into account drought, depressed crops prices, or similar problems.[154] A water service contract runs for a fixed term not to exceed forty years.[155] Water service contracts are also known as 9(e) contracts for the provision of the Reclamation Project Act of 1939 that first authorized and still governs them.

In 1956, Congress required the Bureau to include in both existing and future 9(e) contracts, if requested by the other party, a right of renewal on mutually agreeable terms and conditions.[156] Another provision of the 1956 legislation applicable to both 9(d) and 9(e) contracts requires the Bureau to provide that the other party shall have a permanent right to a stated share or quantity of the project’s available water supply upon complete repayment of its share of construction costs, subject to a duty to continue paying its share of annual operation and maintenance costs.[157]

As noted earlier, the Bureau delivers water by contract not only for irrigation but for municipal use.[158] The Bureau’s municipal water contracts are also of two basic types, and these more or less parallel the two types of irrigation water contracts. The contracting municipality can agree either to repay its share of construction costs allocated to municipal supply plus annual operation and maintenance charges or alternatively to repay only an appropriate share of construction costs plus annual operation and maintenance.[159]

In Ickes, Nebraska, and Nevada, the Court said irrigators who received water under repayment contracts had property rights. The Court did not address whether irrigators supplied under water service contracts have property rights or merely contract rights to water service. Nor did the Court address whether municipal water contracts can result in property rights. Those two issues are analyzed below.

i. Water Service Contracts

Reclamation Act section 8 is a logical starting point for analyzing whether 9(e) irrigators have property rights or only contract service rights. The disclaimer in section 8, clause [1] of federal interference with state water law “or any vested right acquired thereunder” is broad enough to apply to water service contracts as well as repayment contracts. The fact that 9(e) contracts are for a fixed term should not disqualify irrigators from having property rights under section 8. A leasehold in real property for a fixed term is a property interest protected by the Takings Clause.[160] Furthermore, the various state methods that Trelease catalogued for giving irrigators property rights–appurtenance, exclusive dedication, emphasis on the beneficial use element of an appropriation, joint appropriation, and a secondary permit system[161]–are no less applicable to a fixed term than to a perpetual right.[162]

So far, then, it appears that 9(e) irrigators should have property rights under state law. But two potential complications must now be considered. The first arises from California’s longstanding view that irrigators supplied by a private for-profit corporation serving all landowners who could be supplied by its system have only service rights as public utility consumers, not property rights.[163] Some people have analogized 9(e) irrigators to public utility consumers.[164] The California Supreme Court seemed equivocal about the analogy in its Ivanhoe opinion.[165]

Although the status of 9(e) irrigators might be unsettled in California, their status is not so problematic everywhere in the West. As noted earlier,[166] Wiel reported that in numerous other western states, irrigators who were supplied by a private for-profit corporation supplying all landowners in its service area had water rights, not just service rights.[167] In those states, even if the Bureau’s role under 9(e) contracts were analogized to that of a public utility, the irrigators it supplies would have property rights under state law.[168]

The second complication relates to the preemption rule of California, which makes state water law inoperative if it is inconsistent with a congressional directive.[169] This rule means that even if state law would otherwise give 9(e) irrigators property rights, they will have only service rights if Congress has so directed. The Senate committee report on the 1956 legislation providing for renewal of 9(e) contracts and giving both 9(d) and 9(e) contract holders a permanent right upon complete repayment of the their share of construction costs states: “The bill avoids any attempt to provide a water right, as recognized under State laws, but does give assurance of the right to permanent water service to the extent that a water supply is available.”[170] Perhaps this statement could be read as a congressional directive that irrigators shall have no more than service rights, and not water rights, even after completion of repayment.

But a different interpretation seems more appropriate. The Court based its narrow California federal preemption rule–that is, state law is not preempted absent an inconsistent congressional directive–on a long history “of purposeful and continued deference to state water law by Congress.”[171] Given the longstanding practice of federal deference to state water law, Congress arguably intended in the 1956 legislation merely to refrain from creating federal water rights in irrigators and instead to allow state law to determine whether 9(e) irrigators have water rights.[172] The inclusion in the 1956 legislation of language nearly identical to Reclamation Act section 8, which Congress added to the original bill draft “to avoid any possibility that [the 1956 legislation] might be construed to depart from the basic policy of section 8 of the Reclamation Act of 1902,”[173] bolsters this interpretation. In sum, once all the complexities are sorted out, 9(e) irrigators likely have property rights in addition to their contract rights if that is what state law gives them.

ii. Municipal Water Contracts

As noted, the Reclamation Act of 1902 authorized the Bureau to enter into contracts only to deliver water for irrigation.[174] Accordingly, the disclaimer in section 8, clause [1] of federal interference with state laws refers only to state laws on water used in irrigation and vested rights acquired under them.[175] When Congress later authorized the Bureau to contract to deliver water for municipal purposes, it did not make a corresponding change in the section 8, clause [1] disclaimer to include municipal water. Therefore, that disclaimer is of no help to municipalities in establishing property rights under state law.

While this leaves municipalities in a more muddled position than irrigators, the critical question is whether Congress intended to preempt state law giving municipalities a property right in water supplied to them. The long history of federal deference to state water law noted above suggests that the omission of Congress to amend section 8, clause [1] when it authorized municipal water supply was more likely an oversight than a directive that municipalities should not have property rights state law would otherwise give them.

As for Trelease’s catalog of methods states use to create property rights in persons receiving water from a water supply entity, all but one of the methods can operate with municipal water contracts as readily as with irrigation water contracts. The exception is Idaho’s exclusive dedication method because it is expressly limited to water used in agriculture.[176] Perhaps Idaho could still give municipalities property rights under appurtenance reasoning.[177]

C. The Klamath Case

The Klamath Reclamation Project delivers irrigation water by contract for land in southern Oregon and northern California and also provides water for several national wildlife refuges.[178] The Bureau stores project water principally “in Upper Klamath Lake on the Klamath River in Oregon.”[179] Upper Klamath Lake lacks capacity, however, to store extra water during wet years to carry over for use in dry years.[180] On April 6, 2001, the Bureau announced that due to a drought, it was terminating the delivery of irrigation water from Upper Klamath Lake for the remainder of the year in order to provide critical habitat for two endangered fish species in Upper Klamath Lake and a third endangered fish species downstream in the Klamath River.[181]

Six months later, fourteen Klamath irrigation districts and thirteen individual irrigators[182] sued the United States to recover just compensation for a taking of their property.[183] Later, they added a breach of contract claim.[184] Upon cross-motions for summary judgment regarding the takings claim, Judge Allegra ruled that the plaintiffs’ lacked property rights protected by the Takings Clause of the Fifth Amendment.[185]

1. Judge Allegra’s Opinion

Judge Allegra began by rejecting the plaintiffs’ assertion that the Reclamation Act section 8 proviso on beneficial use and appurtenance conferred on them property rights in Klamath waters.[186] He ruled that whether they had property rights in the waters depended on state law.[187]

Turning to Oregon law, Judge Allegra focused on a 1905 statute authorizing the United States to file notice with the state engineer of its intent to use specified waters for a reclamation project and declaring that upon such filing the waters specified “shall be deemed to have been appropriated by the United States,” provided the United States followed up by submitting final project plans to the state engineer within three years and authorizing construction within four years.[188] The United States filed notice in 1905 with the state engineer of its intent to use all the unappropriated waters of the Klamath River basin for the Klamath project, and later it timely met the other statutory requirements.[189] Therefore, Judge Allegra ruled that the United States obtained appropriative water rights under the statute with a 1905 priority.[190]

Judge Allegra also read the 1905 statute as having a further effect. The statute stated that the waters described in the government’s notice of intent “shall not be subject to further appropriation under the laws of this state” and that “[n]o adverse claims to the use of the water required in connection with such plans shall be acquired under the laws of this State.”[191] Judge Allegra concluded that these provisions prevented the plaintiffs from obtaining property rights in water under state law by putting project water to beneficial use on their lands.[192]

Having concluded that the plaintiffs did not have property rights in water under state law, Judge Allegra then considered whether the contract rights they had were within the Takings Clause. Although he acknowl­edged that contract rights against the United States are property under the Takings Clause,[193] he also noted that the Federal Circuit–which has appellate review of Court of Federal Claims cases[194]–limits takings recovery for such contract rights under two rationales.[195] First, if the United States contracts in its commercial or proprietary capacity, rather than its sovereign capacity, the other party’s remedies arising from the contract must sound in breach of contract rather than in takings law.[196] Second, although a contract right is property under the Takings Clause, no governmental taking of the other party’s property occurs if the party retains the range of remedies associated with vindication of a contract;[197] and this is true even if it is ultimately determined that no breach occurred.[198] Judge Allegra found that both rationales fit the facts, that is, the Bureau entered into the Klamath contracts in its proprietary capacity and contract remedies were available to the plaintiffs.[199] He thus concluded that the plaintiffs had no takings claim of any kind.[200]

Finally, Judge Allegra opined–without actually ruling, since the parties had not yet completed briefing of the issue–that there likely was no breach of contract.[201] He reasoned that most of the contracts contained water shortage clauses authorizing reduced deliveries and, regardless, the sovereign acts doctrine made the contracts subject to any later legislation of general applicability, including the ESA, that would hinder the government’s contract performance.[202]

2. What Judge Allegra Overlooked

Judge Allegra noted that soon after Congress enacted the Reclamation Act in 1902, western states “began to pass reclamation legislation, often prompted by the desire of luring a project within their borders.”[203] He went on to suggest that the 1905 Oregon statute was an example of such legislation.[204] Unfortunately, however, Judge Allegra ignored the factual and legal context of the “luring” statutes and consequently misperceived the intended effect of the 1905 Oregon statute. This misperception caused him to forgo inquiring whether any other provisions of Oregon water law gave the plaintiffs property rights to Klamath water.

a. The Factual and Legal Context of the 1905 Oregon Statute

The appropriation doctrine allocates water to users during times of shortage according to time priority, that is, the dates their appropriations were established.[205] When the water supply is insufficient to satisfy all appropriations, water officials deny water to appropriations in inverse order of priority, thus ensuring that the more senior appropriations are satisfied.[206] As a consequence, relative priority dates are crucial in determining whether a particular appropriation will be filled during shortages.

Originally, when the appropriation doctrine was governed entirely by common law, an appropriation’s priority was the date the appropriator commenced construction of water diversion or storage works if he then proceeded with due diligence to complete the works and put the water to beneficial use.[207] Between 1890 and 1920, however, most western legislatures enacted permit systems for water appropriation[208] and in so doing changed the rule so that priority was fixed as the date when an appropriator applied for a permit if he then completed the project within a time specified in the permit.[209]

The rules on fixing priority dates, under both the common law and permit systems, created a problem for federal reclamation projects. Before the Bureau could commence construction or file a permit application, as required to fix a priority date, engineering investigation and design work had to be done and the project had to be authorized–a process that typically took many years with the Bureau’s large and complex projects. Consequently, there was a risk that other parties with simpler and smaller projects would come along and get earlier priority dates, leaving insufficient unappropriated water in the river for the Bureau project to be feasible.[210] In Trelease’s vivid and apt phrasing, a smaller project might “cut the heart out” of a larger Bureau project.[211]

In response, various western states enacted statutes taking different approaches to solving the problem. Trelease reported:

[Statutes in several states] insure an early priority date by allowing the United States to reserve unappropriated waters in advance of filing formal applications for permits. The same result is reached in other states by permitting state officials to withdraw water from appropriation. In Utah the governor may suspend the right of the public to appropriate, for the benefit of projected Bureau projects, and in California the State Department of Finance has made broad filings on unappropriated water that were later assigned to the United States in aid of the Central Valley Project.[212]

The 1905 Oregon statute was yet another approach. It allowed the United States to file a notice of intent to use water and thus be deemed to have an appropriation as of that date so long as it submitted final plans for the project to the state engineer within three years and authorized the project within four years.[213]

As noted, Judge Allegra read the 1905 Oregon statute to go beyond solving the priority problem for the United States. Specifically, he inferred that the statute also barred irrigators supplied by the Klamath Project from acquiring individual property rights to that water under state law.[214] Judge Allegra relied on two clauses in the statute for this conclusion. The first declared that the waters described in the United States’ notice of intent to use “shall not be subject to further appropriation under the laws of this state.” The second stated that “[n]o adverse claims to the use of the water required in connection with such plans shall be acquired under the laws of this state.”[215]

Judge Allegra’s literal interpretation of these two clauses defies common sense. Section 8 of the Reclamation Act preserves the operation of state laws regarding the use of water for irrigation and also protects vested rights acquired under those laws. There is no reason why the 1905 Oregon Legislature would have intended, in a statute designed to lure Bureau projects to the state by solving the priority date problem, to disadvantage its own citizens by denying them property rights in Bureau water that Oregon law would otherwise give them, while citizens of other states receiving Bureau water would not be so hindered. More likely, the legislature intended those two clauses to serve some other purpose.

The key to identifying the true purpose lies, ironically, in Judge Allegra’s observation that the 1905 Oregon statute did not require the United States to put the water to beneficial use.[216] The statute only required the United States to file a notice of intent to use water, provided it followed up by filing final project plans within three years and authorizing the project within four years. The water right that the statute gave the United States was not an appropriation in the traditional sense because that requires beneficial use of water.[217] The disparity between the United States’ statutory water right and a traditional appropriation explains why the legislature did not declare that the United States “shall have” an appropriation but instead declared that it “shall be deemed to have” an appropriation. A standard definition of “deem” is “to regard as.”[218] So the legislature was saying that the United States should be regarded as having an appropriation even if it was not a traditional one.

The lack of a traditional appropriation for the United States under the statute likely explains why the legislature thought it advisable to declare that the waters described in the government’s notice of intent “shall not be subject to further appropriation” and that “[n]o adverse claims to the use of the water . . . shall be acquired.”[219] To remove any doubt about the effect of a statutorily “deemed” appropriation, the first of the two clauses puts the waters off limits to appropriation by others, and the second one puts the waters off limits to adverse riparian rights claims.[220]

Trelease drew a distinction between external and internal relations in a water supply project that provides a useful way to talk about the 1905 Oregon statute. He said most states regard a water supply entity as owner of the project appropriation for external purposes, such as protecting the project water supply against outside persons who might claim water rights in conflict with the project. Internally, however, these states regard project water users as having property rights against the distributor to protect their individual supplies.[221] Using Trelease’s distinction, the Oregon Legislature clearly aimed the 1905 statute at external relations–the problem of outsiders making appropriations during the Bureau’s investigation and planning process that might cut the heart out of the Bureau project. The statute solved the problem by deeming the United States to have an appropriation and, to remove any uncertainty arising from the nontraditional nature of the government’s appropriation, by declaring that outsiders cannot appropriate the water or use it under the riparian doctrine. Reading the statute to reach internal relations as well as external relations is undue and uncomprehending literalism. No reason exists why the legislature would have wanted to aim the statute internally to the disadvantage of its citizens receiving Bureau water if other Oregon law would give them property rights.

b. Other Oregon Water Law

Oregon law has made a water right appurtenant to the land where it is beneficially used since before the Klamath Project.[222] Appurtenance was the basis for the Supreme Court’s conclusions in Ickes and Nevada that reclamation project irrigatorshad vested property rights in project water.[223] It should follow that the appurtenance rule of Oregon water law would produce the same result for the KlamathProjectirrigators–unless some quirk of state water law prevents that result.

Complicating things is an 1891 Oregon statute, still in force, that declares the sale, rental, or distribution of water to all landowners adjacent to or within the reach of delivery works is a franchise subject to rate regulation.[224] In 1932, the Oregon Supreme Court applied the statute to a for-profit water supply corporation.[225] Furthermore, the court interpreted it to mean that the corporation owned the water right and the consumers it supplied had only contract rights, not property rights.[226]This decision aligned Oregon law with what Wiel reported two decades earlier to be the California law regarding water users supplied by for-profit corporations selling or renting water to the general public.[227]

If the 1891 statute were to apply to the Bureau in delivering water by contract to the Klamath irrigators, the irrigators would have no property rights. But the statute should not apply. It provides that the legislature or an authorized state official can fix water rates, provided that the rates shall not be “lower than will allow the net profits of any ditch, canal, flume or system thereof to equal the prevailing legal rate of interest on the amount of money” invested in the works.[228] The statute is aimed at for-profit water supply entities; that excludes the Bureau.

Although the statute, read literally, does not apply to the Bureau, the Oregon court’s California-like interpretation of it leads to a remaining applicability issue if any of the Klamath irrigators received water under a water service contract rather than a repayment contract (a point on which Judge Allegra’s opinion is silent). The issue is the same one upon which the California court equivocated in Ivanhoe: is the Bureau’s delivery of water under a water service contract sufficiently analogous to the sale or rental of irrigation water by a private for-profit corporation that water service contract irrigators should have only service rights and not property rights? Just as the issue is unsettled in California because of the state court’s equivocation, it appears to be unsettled in Oregon due to a lack of any case law.

D. Summary

In numerous western states, irrigators and municipalities receiving water under Bureau contracts likely have state-created property rights in the supply source independent of the contracts. In California, Oregon, and perhaps some other states, however, irrigators and municipalities might or might not have state-created property rights if they receive water under water service contracts. Regarding the many irrigators and municipalities with property rights acquired under state law, the next question is whether the Bureau’s reduction of water deliveries to them in order to comply with the ESA would violate the Takings Clause of the Fifth Amendment.

III. Takings Law and Water Rights

A. The Structure of Takings Law

Apart from formal eminent domain proceedings, the Supreme Court has recognized two basic types of takings: physical takings and regulatory takings.[229] A physical taking occurs when “the government physically takes possession of property,”[230] or as restated, where there is “direct government appropriation or physical invasion of private property.”[231] The classic example of physical invasion is government construction or authorization of a dam that permanently floods upstream land.[232] Such government action is a per se taking[233] unless the property owner’s title was subject to a preexisting limitation that allowed the government to appropriate or physically invade the property.[234]

A regulatory taking occurs when the government does not physically appropriate or invade private property but regulates it in a way so onerous as to be tantamount to appropriation.[235] The concept of a regulatory taking goes back to Justice Oliver Wendell Holmes’s famous dictum in 1922that”while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”[236] The vague “too far” standard has generated considerable litigation. In 1978, the Court reviewed its regulatory takings cases in Penn Central Transportation Co. v. City of New York[237]and reported that they contained no set formula but instead used a multifactor balancing approach requiring “essentially ad hoc, factual inquiries.”[238] The Court also embraced the continued use of multifactor balancing and identified three factors of “particular significance.”[239] The first two are “[t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations.”[240] The third factor is “the character of the governmental action.”[241] Regarding the third factor, the Court indicated that if a regulation adjusts the benefits and burdens of economic life to promote the public interest, that weighs against finding a taking.[242] In practice, proof of a regulatory taking under the Penn Central multifactor balancing is no easy task.[243]

In two cases since Penn Central, the Court has declined to test regulations under multifactor balancing and instead found per se takings. In Loretto v. Teleprompter Manhattan CATV Corp. (Loretto),[244] a state regulation required apartment landlords to allow cable television companies to install cable facilities upon their buildings. The Court said that when government authorizes the permanent physical occupation of property, there is a taking without regard to the public interests it serves and even though the economic impact on the owner is minimal.[245]

In Lucas v. South Carolina Coastal Council,[246] beachfront management regulation enacted to accomplish ecological and other public purposes[247] prevented the owner of two lots from constructing any permanent habitable structures on them. The regulation made the lots valueless.[248] The Court held that when a regulation denies all economically beneficial use of land, it is a taking of the land without regard to the public interests advanced.[249] Such regulation is a taking unless the owner’s title was subject to a preexisting limitation under the state’s law of property or nuisance allowing the denial of all economically beneficial use.[250]

B. Where Bureau Water Delivery Reductions Fit in the Takings Structure

1. The Tulare Opinion and Its Critics

The plaintiffs in Tularewere California water districts with contracts for water from a state project that shared a coordinated pumping system in the Sacramento-San Joaquin Delta with a Bureau project.[251] When the Bureau restricted pumping from the delta from 1992 through 1994 to meet its ESA responsibilities, the water supply for the state project was necessarily reduced. Although some plaintiffs were affected more than others, the aggregate reduction of supply to all of them over the three years was about ten percent.[252]

The United States argued Penn Central balancing should govern whether the reductions were a taking because it did not physically invade the plaintiffs’ property but merely regulated the pumping of water from the delta.[253] It further argued there was no taking under Penn Central because the economic impact of the 1992-1994 delivery reductions on the plaintiffs was very small relative to the their total benefits from past and future contract deliveries and because the plaintiffs lacked reasonable investment-backed expectations in light of longstanding regulatory concern regarding fish and wildlife.[254] If Penn Central balancing governed, the plaintiffs likely would have lost.

Judge Wiese ruled, however, that the water delivery reductions were a per se physical taking,[255] which left only the issue of whether the plaintiffs’ property interests were subject to any preexisting title limitation that would allow the government to cut their water deliveries to comply with the ESA. Judge Wiese found no such title limitations for reasons to be noted later. The United States did not appeal but instead settled with the Tulareplaintiffs for $16.7 million.[256]

Commentators have nearly unanimously criticized Judge Wiese’s opinion.[257] They have particularly lambasted his ruling that the water delivery reductions were a per se physical taking rather than a regulatory taking in the Penn Central balancing category.[258] Their main criticisms are the following: first, there was no physical invasion because a water right is only a usufructuary interest and as such is incapable of being physically invaded.[259] Second, the per se Loretto takingcategory is limited to permanent physical occupation, and the delivery reductions in Tularewere not permanent.[260] Third, treating reduced water deliveries as a physical taking is inconsistent with Lucas and other Supreme Court land use regulation cases.[261]

The discussion below examines these criticisms and finds them all flawed. Although the criticisms are unpersuasive, it does not necessarily follow that delivery reductions like those in Tulareare per se physical takings. Indeed, the discussion points out a gap in Supreme Court takings precedents that leaves that issue uncertain, though the discussion also presents a hypothetical that tends to suggest such delivery reductions might well be per se physical takings.

2. Usufructuary Rights

Generally, western states regard water flowing in rivers within state borders as owned by the public or by the state in trust for the public.[262] A water right, whether obtained under the riparian doctrine or the appropriation doctrine, is a usufruct, that is, it confers no ownership of the flowing water but only allows its holder to take and use waters belonging to the public or the state.[263] A usufruct is an incorporeal interest,[264] that is, an intangible.[265] This does not mean, however, that a water right cannot be the subject of a physical taking.

The Supreme Court found just such a taking in Dugan v. Rank.[266] Landowners along the San Joaquin River claiming to own riparian and other water rights[267] in the river alleged that the Bureau’s storage of water upstream behind Friant Dam left insufficient water in the river to supply their water rights. The Court held that the allegation, if proved, would establish a partial taking:[268]

A seizure of water rights need not necessarily be a physical invasion of land. It may occur upstream, as here. Interference with or partial taking of water rights in the manner it was accomplished here might be analogized to interference or partial taking of air space over land . . . . Therefore, when the Government acted here “with the purpose and effect of subordinating” the respondents’ water rights to the Project’s uses “whenever it saw fit,” “with the result of depriving the owner of its profitable use, (there was) the imposition of such a servitude (as) would constitute an appropriation of property for which compensation should be made.”[269]

Clearly, the Court viewed the Bureau’s upstream storage activities as a “seizure” or “appropriation” of property–a traditional physical taking not governed by multifactor balancing. The Court’s treatment of Dugan as a traditional physical taking makes sense. Although a water right may be incorporeal, it entitles its owner to take physical possession of tangible water molecules and use them.[270] The Bureau’s actions deprived the plaintiffs of physical control of water molecules to which they had a right.

Dugan does not stand alone in Supreme Court takings jurisprudence. Gerlach[271]is similar both factually (even involving Friant Dam interference with downstream water rights) and in outcome. Gerlach contains no hint of multifactor balancing. In International Paper Co. v. United States,[272] the government’s World War I requisition of all the hydropower capable of being produced at a certain power company’s plant also ended International Paper’s use of water at its mill because all of its water had to go instead to the plant.[273] The Court stated: “[International Paper’s] right was to the use of the water; and when all the water that it used was withdrawn from [its] mill and turned elsewhere by government requisition for the production of power it is hard to see what more the Government could do to take the use.”[274] There was no hint in the opinion of multifactor balancing, so the Court evidently saw the case as a traditional physical taking of International Paper’s right to water.[275] Dugan, Gerlach,and International Paper refute the idea that there can be no physical taking of a water right because it is a usufructuary interest.

Furthermore, these three cases are conceptually sound. In an earlier physical taking case, the Court observed that the Takings Clause does not use the term “property” “in its vulgar and technical sense of the physical thing” but rather “in a more accurate sense to denote the group of rights inhering in the citizen’s relation to the physical thing, as the right to possess, use and dispose of it.”[276] The Court elaborated: “When the sovereign exercises the power of eminent domain it substitutes itself in relation to the physical thing in question in place of him who formerly bore the relation to that, which we denominate ownership.”[277] Viewing Dugan and Gerlach in this light, the Bureau substituted itself in relation to physical water molecules in the San Joaquin River in place of the plaintiffs by controlling the molecules for federal project purposes rather than allowing them to flow downstream to the plaintiffs. [278]

3. Temporary Versus Permanent Physical Invasion

As noted, Judge Wiese’s critics have asserted that the delivery reductions in Tularecould not have been a per se physical taking because they only lasted three years, while Loretto requires permanent physical occupation for a per se taking.

a. The Loretto Takings Categories

In Loretto, the Court divided its takings precedents into three categories according to whether they involved “a permanent physical occupation” of property, “a physical invasion short of occupation,” or “a regulation that merely restricts the use of property.”[279] Cases in the first category are per se takings[280] while those in the other two are subject to multifactor balancing to determine the taking question.[281]

The regulation challenged as a taking in Loretto prohibited residential landlords from interfering with the installation of cable television facilities on their property.[282] The case obviously did not belong in the third category because the regulation authorized the physical invasion of the plaintiff’s apartment building rather than merely restricting her use of it. As between the first two categories, the Court held there was a permanent physical occupation because she had to allow the equipment on her building “[s]o long as the property remains residential and a [cable television] company wishes to retain the installation.”[283]

The Court justified treating permanent physical occupation as a per se taking on the ground that “[s]uch an appropriation is perhaps the most serious form of invasion of an owner’s property.”[284] It gave three reasons why such an invasion is so serious. First, the owner has no right to possess and use the occupied space and cannot exclude the occupier from possession and use of it.[285] Second, the owner is forever denied any control of the property, even nonpossessory use.[286] Third, the owner cannot dispose of the occupied space for value because a purchaser would be unable to possess and use it.[287]

b. Loretto in the Lower Federal Courts

Lower federal courts have disagreed about what distinguishes “a permanent physical occupation” from “a physical invasion short of occupation.” The Second Circuit decided that each of the three reasons given in Loretto for the seriousness of permanent physical occupation is a required element for a permanent physical occupation.[288] Under this approach, a physical invasion is not permanent unless the owner is forever denied control of the property invaded. Temporary denial is not enough.[289]

The Federal Circuit took a contrary view in Hendler v. United States:[290]“‘[P]ermanent’ does not mean forever, or anything like it. A taking can be for a limited term–what is ‘taken’ is, in the language of real property law, an estate for years, that is a term of finite duration . . . .”[291] Going further, the Federal Circuit said “temporary” refers to government occupancy “that is transient and relatively inconsequential, and thus properly can be viewed as no more than a common law trespass . . . . [A] truck driver parking on someone’s vacant land to eat lunch is an example.”[292]

The Federal Circuit later refused to apply the Hendler statements literally in Boise Cascade Corp. v. United States.[293]The court said the statements were intended “merely . . . to focus attention on the character of the government intrusion necessary to find a permanent occupation, rather than solely focusing on temporal duration.”[294] After Hendler but before Boise Cascade, the Federal Circuit held in Skip Kirchdorfer, Inc. v. United States[295]that the Navy’s seizure of a locked warehouse early in the morning by breaking and entering, and its subsequent control of the warehouse for about nine months,[296] constituted a per se Loretto taking.[297]The Kirchdorfer court read Hendler as ultimately distinguishing between a “permanent” and a “temporary” invasion based on “the nature of the intrusion, not its temporal duration.”[298] It concluded: “A ‘

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