In re 2007 Administration of Appropriations of the Waters of the Niobrara River

In re 2007 Administration of Appropriations of the Waters of the Niobrara River, 820 N.W.2d 44 (Neb. 2012) (holding (i) the law-of-the-case doctrine did not prevent junior rights holders from objecting to issues pertaining to the burden of proof and the Department of Natural Resources alignment as a party litigant; (ii) the alignment of the Department of Natural Resources as an adverse party was proper in a case where plaintiffs challenge their administrative methods; (iii) the burden of proof was on objecting junior rights holders when challenging closing notices; (iv) denial of a request to amend a complaint was not an abuse of discretion when the requested amendment is meritless; and (v) parties appropriately raised the issue of abandonment and forfeiture of appropriation rights through statutory and common-law methods).

The Nebraska Public Power District (“NPPD”) operates a hydropower facility on the Niobrara River near Spencer, Nebraska.  NPPD owns three appropriation rights for the facility.  Jack Bond and Joe McClaren Ranch (“junior appropriators”) own property upstream of the Spencer facility with surface water appropriation rights for agricultural use.  On March 7, 2007 NPPD called for the Nebraska Department of Natural Resources (“Department”) to curtail upstream junior users, asserting the Niobrara River flow was insufficient to satisfy the Spencer facility appropriation rights.  After repeated measurements of the Niobrara River, the Department determined that the flow was insufficient to satisfy the Spencer facility appropriation rights. Accordingly, the Department issued closing notices to the junior appropriators and approximately 400 other junior rights holders.

The junior appropriators filed an administrative hearing request before the Department alleging that NPPD abandoned its appropriation rights and that they were not subject to the closing notices under the futile call doctrine.  The Department appointed an independent attorney to act as the hearing office.  During the hearing, the junior appropriators objected to the Department appearing as a party.  The hearing officer determined that the Department was a proper party.

The junior appropriators filed a petition for condemnation of NPPD’s water rights in Boyd County Court (“county court”).  The county court granted a condemnation award to the junior appropriators with a 20-year compensation award for NPPD.  NPPD filed to dismiss the administrative proceedings because the condemnation award rendered moot the proceedings. Accordingly, the Department dismissed the administrative proceedings for lack of subject matter jurisdiction.  On appeal to the Nebraska Supreme Court (“Court”), the junior appropriators argued that the proceedings were not moot because a determination on the status of NPPD appropriation rights could benefit them since they would not need to pay NPPD for water if NPPD’s appropriation rights were void.  The Court held the proceedings were not moot and remanded for further proceedings.

On remand back to the Department, the junior appropriators sought to amend their complaint by adding a claim based on estoppel.  They also wished to add information asserting that NPPD had not called for administration of water in 50 years and the Department never previously issued closing notices on NPPD’s behalf. The Department appointed a different independent attorney to be the hearing officer.  This hearing officer refused to allow the junior appropriators to amend their complaint.  NPPD next filed a motion to impose Nebraska’s rules of evidence and to exclude evidence that the Spencer facility had wasted water through leakage. The hearing officer granted NPPD’s motion.

The hearing officer allowed several exhibits over the objections of NPPD because the exhibits were not relevant to the proceedings.  The Director of the Department soon issued his final order based on the hearing.  He overruled the hearing officer concerning the exhibits.  Additionally, he determined that the junior appropriators initiated the action under Neb. Rev. Stat. § 61-206; which places the burden of proof on the junior appropriators.  Further, the Department’s status as a party was proper because the junior appropriators were challenging the Department’s methods for water administration.

The director also determined that the dispute over whether NPPD had abandoned its water rights was irrelevant for an action brought under § 61-206 because the junior appropriators did not properly challenge NPPD’s water rights under Neb. Rev. Stat. §§ 46-229 to 46-229.05.  The director also noted that the junior appropriators did not provide any evidence that NPPD had abandoned its water rights.  The director then ruled that the junior appropriators failed to meet the burden of proof to dispute the futile call analysis and denied their claims regarding the propriety of the closing notices.

The junior appropriators appealed to the Nebraska Supreme Court (“Court”) claiming that the director erred in (i) aligning the Department as a party litigant; (ii) assigning burden of proof to the junior appropriators; (iii) excluding evidence that the Spencer facility had wasted water through leakage; (iv) declining to allow the junior appropriators to amend their complaint; (v) rejecting evidence after the hearing officer had admitted the evidence; (vi) determining that the claims against NPPD’s water rights were excluded from the proceedings; (vii) determining that NPPD had not abandoned a portion of its rights; (viii) concluding that NPPD could call for the full amount of its water rights; and (ix) determining that the Department conducted a proper futile call analysis.

First, the Court held that the junior appropriators were not prevented from objecting to the assignment of the Department as a party litigant based on the law-of-the-case doctrine.  The Court reasoned that the original appeal of this case did not address the issue of the Department’s status and the junior appropriators were not bound by the hearing officer’s original decision that the Department was a proper party.  The Court then ruled since the junior appropriators challenged the administration of the Departments enforcement of water rights, it is appropriate for the Department to defend its methods of administration.  The junior appropriators then argued that the Departments alignment as a party violated due process.  The Court held some mixing of judicial and prosecutorial functions is acceptable and that the functions were not improperly combined.

Next the Court held the burden of proof was on the junior appropriators to prove NPPD had abandoned its water rights because they raised questions outside the scope of the call for administration.  Additionally, the court held the junior appropriators request for hearing was more akin to a petition.  The Court then held the denial of the junior appropriators request to amend their complaint was appropriate and not an abuse of discretion.  The hearing officer sustained NPPD’s objections to the junior appropriators’ request to amend because the Department does not have general equitable jurisdiction and cannot be estopped from its legal duties.

Finally, the court held the director erred in refusing to address whether NPPD abandoned its water rights.  The Court held Neb. Rev. Stat. § 46-229 only specified a procedure the Department must follow when cancelling appropriations.  The statute did not remove common-law methods for challenging appropriations.

Accordingly, the Court again remanded that case back to the Department with direction to determine if NPPD’s appropriations were abandoned or forfeited.