Joe McClaren Ranch, L.L.C. v. Neb. Pub. Power Dist.

Joe McClaren Ranch, L.L.C. v. Neb. Pub. Power Dist. (In re 2007 Admin. of Waters of the Niobrara River), 851 N.W.2d 640 (Neb. 2014) (holding that: (i) the legislative history of the statutes governing the procedures by which the Nebraska Department of Natural Resources cancels water rights was not relevant to the issues of common law abandonment or statutory forfeiture, but its improper admission by the Department was harmless; (ii) NPPD’s failure to call for administration of the Niobrara River prior to 2007 was not evidence of an intent to abandon its water rights; (iii) forfeiture of water appropriations through nonuse is governed by the period of limitations relating to real estate, and the Department’s factual findings demonstrated that NPPD did not statutorily forfeit its appropriations; (iv) the Department’s policy of allowing senior appropriators to place a call for the full amount of its water despite the existence of subordination agreements is not arbitrary, capricious, or unreasonable; and (v) the Department’s determination that it conducted a futile call analysis where appropriate was not arbitrary, capricious, or unreasonable).

Joe McClaren Ranch (“McClaren”) applied for an appropriation to divert water from the Niobrara River in 2006. Weinreis Brothers Partnership (“Weinreis”) held five water rights with priority dates between 1969 and 2006. The Nebraska Public Power District (“NPPD”) held three water appropriations for hydropower generation at its Spencer plant with priority dates of 1896, 1923, and 1942. The NPPD’s three appropriations for the Spencer plant amounted to a total water discharge of 2,035 cubic feet per second (“cfs”). The Spencer plant is located approximately 145 miles downstream from the McClaren and Weinreis properties.

In early 2007, the water resources manager at NPPD placed a call for administration on the Niobrara because he learned that the Nebraska Department of Natural Resources (“Department”) was not proactively administering the portion of the Niobrara near Spencer. On April 30, 2007, the Department took a measurement roughly ten miles upstream from the Spencer plant showing a discharge of only 1,993.73 cfs.

On May 1, 2007, the Department issued closing notices to approximately 400 junior appropriators, including McClaren and Jack Bond, Weinreis’s successor in interest, directing them to cease water diversions from the Niobrara. The junior appropriators filed a request for a hearing with the Department. After the hearing, the Department found that the administration of the Niobrara was proper.

The junior appropriators appealed to the Nebraska Supreme Court (“Court”). The Court reversed and remanded, finding that the Department had improperly excluded the issues of abandonment and statutory forfeiture from nonuse. After the second hearing on remand, the Department again found that the administration of the Niobrara was proper, and NPPD had not abandoned or statutorily forfeited its appropriations. The junior appropriators appealed.

On appeal, the Court first considered whether the Department erred by relying on evidence from the hearing officer, who took judicial notice of the legislative history L.B. 302, an amendment to Neb. Rev. Stat. § 46-229. First, the Court noted that the Administrative Procedure Act permits agencies to take judicial notice of legislative history. For a court or agency to inquire into a statute’s legislative history, the statute must be open to construction. The Court had previously held that L.B. 302 is unambiguous; that by its plain language, it addresses only the procedure by which the Department must abide in order to terminate an owner’s appropriation right and does not address the common law theories of abandonment or nonuse. Therefore, the legislative history was irrelevant to the issues being considered on remand. However, because no relevant evidence was excluded, and the Department made findings of fact supported by other relevant evidence, the Court concluded that the decision to admit the legislative history was harmless.

Next, the Court considered whether the Department erred in finding that the junior appropriators failed to prove NPPD abandoned its appropriations in whole or in part. The junior appropriators argued that NPPD failed to call for administration of the river, or enter into more subordination agreements before 2007, demonstrating intent to abandon its appropriations. The Court found no Nebraska case law establishing that a failure to call for administration demonstrates intent to abandon. Instead, the Court found persuasive a Colorado Supreme Court case, which held that there is no requirement that a senior appropriator must place a call for administration of the river in order to effectuate its water rights. The Court explained that the emphasis is on whether there is evidence demonstrating intent to abandon a right, rather than on whether there is evidence showing that the user acted to preserve its rights. In finding that NPPD did not intend to abandon its appropriations, the Department noted that the Spencer plant had been in operation since 1927; NPPD had spent a significant amount of funds to staff, operate, and maintain the facility; and the water resources manager at NPPD was under the assumption that the Niobrara was proactively administered by the Department.

The Court then considered whether the Department erred in finding the junior appropriators failed to prove NPPD statutorily forfeited its appropriations in whole or in part. The Department applied the cancellation proceedings provided for in Neb. Rev. Stat. §§ 46-229 through 46.229.05. The Court stated that the issue on appeal was common law nonuse, which is governed by Neb. Rev. Stat. § 25-202, the period of statutory limitations relating to real estate. Under § 25-202, a lack of beneficial use for over ten years may result in the loss of an appropriation. The Court concluded that though the Department relied on the incorrect statute, it made factual findings that did not support a finding of nonuse. For example, in 2006 NPPD used its full 2,035 cfs. Based on the factual findings, the Court concluded that there was no ten-year nonuse period and NPPD did not statutorily forfeit its appropriations.

The Court next considered whether the Department erred in issuing closing notices without taking into account the subordination agreements and express limitations in NPPD’s appropriations. A subordination agreement allows junior appropriators to pay a fee to the senior appropriator in exchange for the right to continue to divert water out of priority. The junior appropriators argued that the Department’s policy of allowing a senior appropriator to place a call for its full amount of water, while having subordination agreements with junior appropriators, allows senior appropriators to collect both money and water. However, a field office supervisor for the Department testified that NPPD’s subordination agreements were taken into account, and the Department’s policy was to not send closing notices to junior appropriators who have a subordination agreement. Therefore, “a senior appropriator is not allowed to simultaneously enforce its right against, and collect compensation from, the same junior appropriator.” Accordingly, the Court held that the Department’s policy was not arbitrary, capricious, or unreasonable, and the Department was entitled to deference for its technical expertise in this area.

Finally, the Court considered whether the Department erred in failing to conduct a futile call analysis. The junior appropriators asserted that it is the duty of the administrative officers, prior to issuing closing notices, to determine whether or not a usable amount of water can be delivered. In this case, the evidence showed that the Department did not conduct a futile call analysis because the Niobrara is a “wet river.” The Court held that the Department is entitled to deference in this area, and the Department’s determination that it conducted futile call analyses where appropriate was supported by competent and relevant evidence.

Accordingly, the Court upheld the Department’s determination that administration of the Niobrara was proper, and that NPPD had not abandoned or statutorily forfeited its appropriations in whole or in part.

Connolly, J., Dissenting.

Justice Connolly argued that the Niobrara has too many appropriations, and the Department’s method of administration is fundamentally flawed. Connolly noted that, based on recorded historical flows, the Department would be able to shut down junior appropriators for about 97 percent of the time from July to January, and almost 87 percent of the time from February to June. He argued that to permit NPPD to shut down these junior appropriators in 2007, after not having done so for sixty years, would be unjust and contrary to the nature of its permits.

Connolly also argued that NPPD had forfeited the right to demand 550 cfs under its 1942 appropriation. NPPD’s 1942 appropriation had a limitation in it allowing for water to be denied during times of scarcity. Connolly noted that since 1942 the Department had approved over 400 new surface appropriations. NPPD failed to object to the majority of the applications, despite its knowledge that the river was over appropriated and of the conditional clause contained in its permit. Accordingly, Connolly argued that NPPD’s acquiescence to the Department’s activities should have constituted a forfeiture of its right to demand the 550 cfs under the 1942 appropriation.

 

The title picture features the Niobrara River Norden Chute in Nebraska. The owner of this image released it to the public domain.