Arizona Dep’t. of Water Res. v. McClennen

Arizona Dep’t. of Water Res. v. McClennen, 360 P.3d 1023 (Ariz. 2015) (holding that: (i) Ariz. Rev. Stat. Ann. § 45-172 provides the only grounds for which the Arizona Department of Water Resources can deny an application for severance and transfer of a water right; and (ii) the statute defines “interested persons” as those with interests protected by § 45-172 and whose rights the transfer would affect).

In 2010, Freeport Minerals Corporation (“Freeport”) sent applications to the Arizona Department of Water Resources (“ADWR”) to sever water rights from Planet Ranch in Mohave County and transfer them to a wellfield near Wikieup. The proposed transfer would not physically remove any water, but rather it would give Freeport the right to use water for mining and municipal uses without losing priority.

Freeport previously entered into settlement agreements with the Arizona Game and Fish Department, the Hualapai Tribe, and the Department of the Interior, which Congress approved in the Bill Williams River Water Rights Settlement Act of 2014 (“Act”). The Act was scheduled to expire in December 2015 if Freeport failed to fulfill certain conditions, including the ADWR granting Freeport’s applications.

Upon receiving Freeport’s applications, the ADWR published notice in numerous Mohave County newspapers stating ‘any interested person’ could file a written objection. Mohave County (“County”) filed an objection to Freeport’s applications, arguing that the transfer would affect the county’s water supply, increase taxes, and was against the public interest. The ADWR rejected the County’s arguments, finding that the county did not have an affected water right. Additionally, the ADWR concluded it was not authorized to deny the applications on the basis it would cause an increase in tax burdens to residents or it would be against public interest. An administrative law judge upheld the ADWR’s decision finding that none of the County’s objections were based on the “limitations and conditions” enumerated in Ariz. Rev. Stat. § 45-172.

In December 2014, the County filed an appeal in superior court, which vacated the ADWR’s final decision in June 2015. Freeport and the ADWR filed appeals with the Arizona Court of Appeals and moved to transfer the case to the Supreme Court of Arizona (“Court”). The Court granted the petition for special action.

The Court first addressed whether the ADWR had authority to deny severance and transfer applications for reasons other than those listed in the statute. Section 45-172(A) provides: “[a] water right may be severed from the land to which it is appurtenant . . . [and] may be transferred for use . . . without losing priority theretofore established, subject to the following limitations and conditions.” One such limitation is that the ADWR director must publish notice of applications in a newspaper in the county where the drainage or watershed lies. The published notice must include that any interested person may file written objections within thirty days from the last day of published notice.

In construing this statute, the Court analyzed legislative intent. The statute identifies specific limits or conditions in approving water rights transfers. The Court found that the ADWR’s review of an application is a “licensing decision,” which prohibits the ADWR from basing its decision on any condition not specifically authorized by the statute.

The County argued that the ADWR has discretion under § 45-172(A) to consider other factors because the statute says water rights “may” be severed and transferred. However, the Court found “may” to refer to the ability to sever and transfer the water right. The Court reasoned that interpreting “may” to allow the ADWR broad discretion to deny an application overlooks the rest of the sentence stating “subject to the following limitations and conditions.” The County cited various statutes purportedly supporting that the ADWR could deny applications for reasons not listed in § 45-172(A), but the Court found them unconvincing. Thus, the Court found the ADWR did not abuse its discretion in denying the County’s objections, which were not listed in § 45-172(A).

The Court next addressed whether the County qualified as an “interested person” entitled to file objections to the transfer and severance applications. Because the phrase “any interested person” is ambiguous, the Court found it was subject to more than one meaning.

The County first argued that the Court should interpret the phrase “any interested person” as anyone having an interest or concern about the transfer and severance of water rights. The Court found this interpretation would allow almost anyone to file objections, rendering the word “interested” essentially meaningless. The Court specifically noted that words should not be construed in isolation, but rather taken together in context.

Read in context, the Court construed the phrase “any interested person” to mean any person having a statutorily protected interest that would be affected by the application for proposed transfer and severance. The Court concluded the County was not an “interested person” entitled to file an objection in this case because it had no such protected interest.

Second, the County contended that “interested persons” should encompass more than those persons who have existing water rights because the statute requires the director to give notice of the applications. The County reasoned that if “interested persons” were only those having an interest protected by statute, it could send notice directly to those persons, rather than circulating notice in a newspaper. The Court found this argument unpersuasive because publication requirements are not inconsistent with imposing limitations on who may file objections.

Third, the County argued it qualified as an “interested person” because approval of the severance and transfer would cause it injury. Specifically, the severance would increase tax burdens on county residents and could negatively effect water supplies. The Court found that this argument improperly conflated standing, which requires plaintiffs to allege sufficient injury in order to appear in court.

Fourth, the County claimed that the ADWR must first consult with the County before deciding on applications under Ariz. Rev. Stat. § 11-269.09(A). The County also contended it has an obligation under Ariz. Rev. State § 11-804 to protect water resources in the county. The Court found neither statute applied.

Last, the County argued the Court should construe § 45-172(A) liberally to “promote the ends of justice.” The County cited Armer v. Superior Court, in which the Court adopted this approach when interpreting the phrase “party beneficially interested.” Finding that “any interested person” was not synonymous with the phrase “party beneficially interested,” the Court declined to adopt this approach.

Accordingly, the Court vacated the superior court judgment and affirmed the ADWR’s final decision.

The featured image was taken near Phoenix, Arizona.  It is part of the public domain.