In Re: The Application of High Valley Farms, LLC (14CW3095)

Can a water user appropriate a water right under Colorado law in order to grow marijuana commercially?  This quandary is a matter of first impression before the state’s Division 5 water court.  The issue was first raised in August of 2014 when Basalt-based High Valley Farms, LLC filed a water court application in order to irrigate its marijuana plants as well as better protect this cash crop in times of drought.  High Valley Farms (“High Valley”) operates a 25,000 square-foot grow operation in the Roaring Fork basin in western Colorado.  The grow operation supplies a recreational marijuana store in downtown Aspen called Silverpeak Apothecary.

In order to claim a water right, a user must first put it to “beneficial use.”  Pursuant to Colorado statute 37.92-103(4), “‘[b]eneficial use’ means the use of that amount of water that is reasonable and appropriate under reasonably efficient practices to accomplish without waste the purpose for which the appropriation is lawfully made.”

As part of the application process, the Division 5 engineer, Alan Martellaro, submitted a Consultation Report to the Division 5 water referee, Holly Krisner Strablinzky, recommending against approval until High Valley addressed a number of concerns.  Among the issues Martellaro raised, High Valley needed to explain how its application shows the element of beneficial use in light of the requirement that an appropriation must be “lawfully made.”

In its response to the Consultation Report, High Valley’s attorney Rhonda Bazil argued that Amendment 64, the 2012 state constitutional amendment legalizing the consumption and sale of recreational marijuana, also legalized the cultivation of recreational marijuana, making High Valley’s proposed use lawful—and therefore beneficial—under state law.

In addition to Amendment 64’s statutory language regarding the legalization of marijuana cultivation, Bazil also pointed to federal policy by the Bureau of Reclamation (“BOR”) saying that—while it would not approve its own facilities or water to be used to by the Colorado marijuana industry—it would not prohibit the use of other water that merely passes through its facilities for these businesses to utilize.  The BOR instituted this policy in 2014, the same year High Valley filed its original application.  The BOR has since renewed its stance until May 2017. Bazil highlighted that her client’s proposed augmentation water would come from non-federal sources (Wolford Mountain Reservoir) and is thus consistent with the BOR’s policy.

Additionally, Bazil pointed to the McCarran Amendment, a 1952 law in which the federal government ceded its power to manage water rights to the states, arguing this law favors High Valley’s interpretation of “lawfully” because state law exclusively controls in water law issues and marijuana cultivation is legal according to the state constitution.

Bazil also argue that the state water engineer has previously approved of the use of water to grow marijuana plants on two different occasions: once in October 2014 for a well and once in March of 2015 for irrigation purposes.  In those two statements supporting the use of water for marijuana cultivation, the Colorado state engineer said that state officials should allow water rights holders to use their irrigation rights to irrigate any type of plant that is legal to grow under Colorado state law, including marijuana.

If water officials rule that growing marijuana fails to constitute a beneficial use, the decision could have widespread implications for Colorado’s entire cannabis industry, which is dependent on water.  Ultimately, Bazil cautions that an adverse decision could call into question the ability of Colorado marijuana grow operation without access to municipal water to grow plants.

But High Valley’s argument is not without some vulnerability.  For example, a recent state Supreme Court decision that works in High Valley’s disfavor is Coats v. Dish Network, LLC.  In this case, a paraplegic Colorado medical marijuana patient challenged the drug policies of his corporate employer, Dish Network, after being terminated for testing positive for marijuana use.  In this decision, the Court interpreted a “lawful” activity as one that must be legal under both state and federal law in the context of an employment statute.  Thus, even though the employee had a right to use marijuana medicinally under Colorado state law, the Court upheld the corporation’s decision to fire him because marijuana’s federal designation under the Controlled Substances Act precludes it from being a lawful use federally.  If the issue raised in High Valley’s application were to reach the state Supreme Court, the same rationale may be used to deny the applicant’s proposed use as not satisfying the lawful aspect of beneficial use under both state and federal law.

Most cannabis growers in Colorado have been using water in order to grow their marijuana plants without running into water law issues.  This is because these grow facilities most likely use municipal water, whereas High Valley is asking Division 5 to approve an entirely new water right.  The application includes approval for a groundwater water right, a surface water right, a water storage right, and a plan for augmentation and exchange.  The company has sought water rights for exchange and augmentation from two other water districts, in order to safeguard its ability to access water rights in times of scarcity.  Currently, High Valley has an existing domestic well on site and two irrigation ditches that already provide water to its operations.

In sum, water is a state resource and under the Colorado constitution, “[t]he right to divert the unappropriated waters of any natural steam to beneficial uses shall never be denied.”  However, the water right High Valley wishes to receive is for a novel purpose: growing state-legal, yet federally-illegal marijuana. Thus, whether Division 5 officials will deny the company its sought water rights remains unseen, but the decision could spur wide-ranging repercussions for Colorado’s entire marijuana industry.

Coincidently, the Roaring Fork Club, one of High Valley’s neighbors and an opposer in the grow operation’s water application, was also at the center of another significant Supreme Court decision on the limits of beneficial use.  In 2015, the Court held in St. Jude’s Co. v. Roaring Fork Club, LLC, the Court held that fly-fishing failed to constitute a beneficial use under the very same statutory definition High Valley is arguing over.  In that decision, the Court wrote that the club’s proposed “uses” of the water could not be considered a beneficial use because the only purpose its application provided was the unquantifiable subjective enjoyment of the club’s guests.   Thus, the club was denied a new appropriation of “aesthetic, recreation and piscatorial (fishing)” water rights for its private fly-fishing stream.  While Roaring Fork Club’s opposition statement does not touch on the beneficial use issue, it does argue that approving High Valley’s application could potentially injure its own vested and conditional water rights.

Currently, the final decision in High Valley’s application is pending even though the application’s initial filing occurred more than two years ago.  In High Valley’s two amended applications, there has been a repeated increase in the size of water right sought.  Originally, the farm wanted a right to use 2.89 acre-feet on a yearly basis from the Roaring Fork River as well as its on-premises well.  Most recently, however, the farm is seeing to use 9.24 acre-feet annually, more than three times the original amount.

As of writing, the Division 5 referee has postponed a planned October status conference in anticipation of another Consultation Report from the division engineer.  As soon as this report is submitted, both High Valley and the opposers will each have thirty days to respond, respectively. Then the referee will schedule the status conference. When a ruling is eventually issued regarding the application, if High Valley’s requested water right decree is denied, the company can appeal the decision to the water court judge. Then, once the water court judge makes a determination, that eventual ruling could also be appealed directly to the Colorado Supreme Court.

Overall, the issue High Valley Farms application raises is an important one, and not just for the Colorado marijuana industry. As other states are legalizing marijuana for medical and recreational uses, those regulatory regimes could also implicate water law issues. Decision-makers in those states are surely looking to this eventual decision as an example in determining how legalized marijuana might fit into their particular water law frameworks.

Kathleen (K.C.) Cunilio

Image: A hydroponically-grown, indoor marijuana plant. Flickr user Aram Vartian, Creative Commons.

Sources:

Colo. Const. art. XVI, § 5, 6.

Colo. Rev. Stat. §37-92-103(4) (Westlaw 2016).

Coats v. Dish Network LLC, 303 P.3d 147 (Colo. 2015).

St. Jude’s Co. v. Roaring Fork Club, LLC, 351 P.3d 442 (Colo. 2015).

Brent Gardner-Smith, Silverpeak owner applies for water rights for pot greenhouse, ASPEN JOURNALISM, (Oct. 14, 2014), http://aspenjournalism.org/2014/10/14/silverpeak-owner-applies-for-water-rights-for-pot-greenhouse-near-basalt/.

Brent Gardner-Smith, Basalt water case could affect state’s pot industry, ASPEN JOURNALISM, (Feb. 8, 2016), http://aspenjournalism.org/2016/02/08/basalt-water-case-could-%E2%80%A8aff ect-states-pot-industry/.

Brent Gardner-Smith, A hazy legal question lingers over water rights for Basalt marijuana facility, ASPEN JOURNALISM, (Sept. 7, 2016), http://aspenjournalism.org/2016/09/07/a-hazy-legal-question-lingers-over-water-rights-for-basalt-marijuana-facility/.

Allen Best, Cannabis in Colorado, water rights and federal law, MOUNTAIN TOWN NEWS, (Feb. 21, 2016), http://mountaintownnews.net/2016/02/21/4076cannabis-in-colorado/.

Charles Bethea, High Times with Aspen’s Cannabis Kingpin, OUTSIDE, (Mar. 4, 2016), http://www.outsideonline.com/2059671/high-times-aspens-cannabis-kingpin.

Bureau of Reclamation, Reclamation Manual (Temporary Release): Use of Reclamation Water or Facilities for Activities Prohibited by the Controlled Substances Act of 1970, PEX TRMR-63 (May 16, 2015), http://www.usbr.gov/recman/temporary_releases/pectrmr-63.pdf (last visited Nov. 8, 2016).

Resp. Am. Summ. Consultation, In Re: The Application of High Valley Farms, 14CW3095 (Nov. 13, 2015), https://www.documentcloud.org/documents/3101645-2015-11-13-13-39-33-Response-to-Amended-Summary.html#document/p1/a317097 (last visited Nov. 8, 2016).


Upper Eagle Reg’l Water Auth. v. Wolfe, 371 P.3d 681 (Colo. 2016) (holding that an owner of multiple water rights can choose to divert and make absolute any of its in-priority, conditional water rights and is not required to make absolute a senior conditional water right before a junior conditional water right, so long as the owner lives with his or her choice and does not injure the rights of other water users).

Effective as of March 25, 2004, the Upper Eagle Regional Water Authority (the “Authority”) formed a water service agreement with the Edwards Metropolitan District and the Cordillera Metropolitan District.  Under the agreement, the Cordillera Metropolitan District gave certain water rights and facilities to the Authority, which in turn provided water services to the Cordillera area.  The rights conveyed to the Authority included the SCR Diversion Point No. 1 conditional water right (the “Senior Lake Creek Right”), with a priority year of 1989, and the Eagle River Diversion Point No. 2 conditional water right (the “Junior Eagle River Right”), with a priority year of 1991.  Pursuant to the agreement, the Authority would limit use of both conditional water rights to irrigation, domestic, commercial, and fire protection purposes, with diversions to occur at the Edwards Drinking Water Facility.

On July 4, 2004, a day on which there was no call on the Colorado and Eagle Rivers, the Authority diverted 0.716 cubic feet per second (“cfs”) of water at the Edwards Drinking Water Facility on the Eagle River for beneficial use in the Cordillera area.  The Authority allocated 0.47 cfs of this diversion to its Junior Eagle River Right.  On December 29, 2004, the Authority filed an Application for a Finding of Reasonable Diligence and to Make Water Right Absolute (“Application”).  The Application requested confirmation that the Authority had made absolute 0.47 cfs of the Junior Eagle River Right at the Edwards Drinking Water Facility for irrigation, domestic, commercial, and fire protection purposes during free conditions.  The State and Division Engineers (the “Engineers”) opposed the Application.

The Engineers initially argued the Authority must make diversions in accordance with the “seniors first” policy, requiring that users first attribute diversions to senior absolute water rights, then to senior conditional rights, and finally, junior conditional rights.  A Water Court granted the Engineers’ motion for summary judgment in part and denied the Authority’s claim for making 0.47 cfs of the Junior Eagle River Right absolute.  The court held the Authority did not have discretion to choose a junior water right over a senior water right when both rights decreed the same point of diversion for the same purposes at the same place of use.

The Authority appealed the Water Court’s decision, arguing that it should have the discretion to choose the conditional water right it wants to divert and use.  The Colorado Supreme Court reviewed de novo the Water Court’s conclusions of law.

The Court only examined whether Authority had to attribute its diversion to a senior water right.  The Engineer partially based its argument on a previous Colorado Supreme Court holding, which required that applicants seeking to make a conditional water right absolute first show they appropriated water in excess of an existing absolute decree.  The Court rejected that argument by distinguishing the facts of this case as involving a choice between two conditional rights rather than a choice between a conditional right and an absolute right.  The Court reasoned that the previous case was not compatible, because the Authority had to attribute one of its conditional rights to a needed water diversion.

The Engineers then argued that application of a “seniors first” policy here would help effectively administer the prior appropriation system and “correctly express” the Colorado Constitution and state statutes.  The Engineers believed that if the Court allowed the Authority to freely select among its conditional water rights, the Authority could change its attribution of diversions from one day to the next.  The Engineers claimed that this potential behavior was dangerous because it could allow the Authority to make absolute more water rights than it actually needed.  The Court did not accept the Engineers’ argument.

The Court ruled that once the Authority makes 0.47 cfs of the Junior Eagle River Right absolute, it must live with that choice; the only way the Authority could later perfect its other conditional water rights is through showing with quantifiable evidence that it requires more water than 0.47 cfs of the Junior Eagle River Right to fulfill the need of the Cordillera area.  The Court summarized that, absent any evidence of waste, hoarding, or injury to the rights of other water users, the Authority may choose which of its conditional water rights it wishes to divert and make absolute.

Accordingly, the Court reversed the order of the Water Court that the July 4, 2004 diversion must be allocated to the Senior Lake Creek Right, and remanded the case with instructions to make 0.47 cfs of the Junior Eagle River Right absolute.

Tina Xu

Image: Flowing water on the way up to Hanging Lake located in Glenwood Canyon, Colorado. Flickr User Zach Dischner, Creative Commons.


Najas Realty, LLC v. Seekonk Water Dist., 821 F.3d 134 (1st Cir. 2016) (holding that a real estate developer and home builder failed to state facts sufficient to establish a facially plausible claim to relief in their complaint, which alleged that a water district and its superintendent deprived them of federal and state constitutional rights when the superintendent raised valid objections of public concern against the construction of a subdivision).

In 2012, Najas Realty, LLC (“Najas”) purchased a ten-acre parcel of land (the “Property”) in Seekonk, Massachusetts (the “Town”) and filed a preliminary subdivision plan application to develop a ten-lot subdivision (the “Pine Hill project”).  The Seekonk Board of Health met to discuss the application.  The Seekonk Water District’s Superintendent, Robert Bernardo, attended the meeting and expressed concerns that Pine Hill project could potentially impact one of the Town’s wells, Well GP-4.  Bernardo asserted that a malfunctioning septic system servicing a nearby middle school caused high nitrate levels in the soil around GP-4.  As a solution, the Board of Health required that Najas perform a nitrate loading analysis.

After the Seekonk Board of Health initially met, Bernardo expressed concerns at two other meetings that the Pine Hill project’s septic system could increase nitrate levels and expose unborn babies and nursing infants to “Blue Baby Syndrome,” and that nitrate contamination requires high clean-up costs.  Najas rejected these claims.

After these meetings, Najas completed its nitrate loading analysis and submitted a definitive subdivision plan. Najas claimed the plan satisfied regulatory requirements for septic systems and kept nitrate levels in the GP-4 area within regulatory limits.  The Board of Health initially voted to approve the analysis.  After approval, the Planning Board held a public hearing. At the hearing, Bernardo claimed the nitrate loading analysis’ data was false.  In response, the Planning Board reviewed and denied the Pine Hill project.  Najas then appealed to the Massachusetts Land Court.

The appeal led to a settlement allowing Najas to proceed if it reduced the number of lots from ten to nine and shortened the subdivision’s road length.  The Planning Board reviewed the revised plan at another public meeting.  Bernardo again attended and voiced concerns about water contamination issues.  The Planning Board approved the revised Pine Hill project.  The Seekonk Water District then filed a petition to the Planning Board to rescind or modify the approved plan.  The Planning Board denied the petition, and the Pine Hill project continued in accordance with the revised plan.

Najas, joined by Petra Building Corporation (“Petra”) (collectively, “Plaintiffs”), filed a complaint in the United States District Court for the District of Massachusetts against the Seekonk Water District and Bernardo (collectively, “Plaintiffs”), asserting claims under the United States Constitution and analog claims under the Massachusetts Constitution.  The complaint asserted: (1) Defendants retaliated against the Plaintiffs for asserting First Amendment rights to petition and freedom of speech; (2) Defendants violated Plaintiffs’ Fourteenth Amendment equal protection rights by singling them out; (3) Defendants violated Plaintiffs’ Fourteenth Amendment due process rights by opposing the plan; and (4) Defendants tortuously interfered with Plaintiffs’ business.  The district court granted judgment on the pleadings in favor of the Defendants, stating that Najas and Petra failed to state a viable claim.  Subsequently, Plaintiffs submitted a second complaint, which the district court also dismissed in a final judgment.

Plaintiffs appealed to the United States Court of Appeals for the First Circuit, claiming the district court required too much at the pleading stage and the complaint was sufficient to deny a motion for judgment on the pleadings.  The court reviewed the appeal de novo.

The court started its analysis noting that for constitutional claims under 42 U.S.C. § 1983, plaintiffs must prove the conduct complained of was committed under color of state law and that the conduct worked as a denial of rights secured by the United States Constitution.  The court accepted that Bernardo acted under the color of state law, and proceeded by determining whether he encroached on the Plaintiffs’ constitutional rights.

To begin, the court analyzed whether Bernardo had retaliated against the Plaintiffs’ First Amendment right to petition and freedom of speech.  The court stated a cognizable retaliation claim under the First Amendment requires plaintiffs show the conduct was constitutionally protected and that a causal connection existed between the protected conduct and the retaliatory response.  The court found it was unclear whether Najas’s conduct was protected petitioning conduct or free speech comprising commentary on a matter of public concern.  Instead, the court evaluated the test’s second prong, whether the Plaintiffs had established a causal connection between the protected conduct and the retaliatory response.

For this element, Najas pointed to Bernardo’s accusation that the data submitted for the Pine Hill project was “fabricated, false, inflammatory, and baseless.”  The court first discussed the retaliatory conduct and found the record offered no indication that Bernardo did not genuinely hold his concerns.  Graphs revealed “variable and sometimes excessive” nitrate levels from in the monitoring the area dating back to 1995.  The record also showed that members on the Board of Health previously expressed concerns regarding nitrate levels before Bernardo spoke at the initial meeting.  The court also took judicial notice that the Environmental Protection Agency has linked excessive nitrate levels to Blue Baby Syndrome and that nitrate contamination requires high clean-up costs. Therefore, the court found the Plaintiffs’ allegations of retaliatory conduct were conclusory and that Bernardo had a duty to raise objections about potential public health impacts that he believed were valid.

The court then discussed whether Bernardo violated the Defendants’ protected First Amendment right to free speech on a matter of public concern.  Matters of public concern are those “relating to any matter of political, social, or other concern.”  The court found Bernardo had not committed such a violation because, as superintendent, he had an obligation to speak out on matters of public concern.

Next, the court analyzed the claim that Bernardo violated the Plaintiffs’ Fourteenth Amendment equal protection rights by singling them out for unique reasons.  To prevail on this claim, the complaint had to show the Defendants were motivated by bad faith or malicious intent to injure when they treated the Plaintiffs differently from others similarly situated and without a rational basis for doing so.  However, the court found the Plaintiffs failed to explain how other developers and builders were similarly situated because they did not provide basic information, such as when other projects were located, and when they were built.

After the equal protection claim, the court examined the Plaintiffs’ substantive due process claim under the Fourteenth Amendment.  To assert a viable substantive claim, plaintiffs must prove deprivation of an established life, liberty, or property interest, and that the deprivation occurred through governmental action that shocks the conscience.  The court found it unclear what deprivation occurred, and noted the Plaintiffs “oddly” claimed that by opposing the project, Defendants deprived them of life and liberty.  The court instead analyzed the claim as a deprivation of property.

Substantive due process claims regarding deprivation of property cases are only available in “horrendous situations.”  The court found that, at worst, the Defendants actions were “doggedly persistent,” and this did not amount of “brutal, meaning, and harmful” conduct as is necessary in such a claim.

Finally, the court analyzed the Plaintiffs’ claim that Bernardo intentionally interfered with a business expectation, opportunity, and advantage.  Here, the court addressed whether Bernardo’s actions directly attempted to interfere with business relations.  The court granted Bernardo immunity for his actions under Massachusetts common law, where public officials who act in good faith and exercise judgment and discretion are not liable for errors in making decisions.  Here, the court again stated that the Plaintiffs’ complaint failed to state a plausible claim for bad faith or malice intent.

Accordingly, the court affirmed the order of the district court.

Kole Kelley

Image: Drawbridge on the Seekonk River, a tidal extension of the Providence River. Flickr user rprata, Creative Commons.