United States v. Barthelmess Ranch Corporation, 386 Mont. 121 (2016) (holding: (i) the U.S. Bureau of Land Management could perfect stockwatering appropriation claims in its reservoirs irrespective of contentions rooted in historic water use from the same source and (ii) the United States owned reserved water rights for stockwatering in a pothole lake on federal grazing land pursuant to an Executive Order).

The United States Bureau of Land Management (“BLM”) filed six water right claims in Montana. These included five reservoir claims rooted in Montana law, and a reserved water right in Pothole Lake, a natural feature located on a federal land reservation. The BLM claimed to use each water source, all located wholly or partially on federal land, for wildlife and stockgrazing for grazing permittees, the latter being the primary focus in the following discussion.

The BLM’s five reservoir claims relate to the agency’s acquisition of Funnells Reservoir in 1951, and its construction of the Windy Day Reservoir in 1955, Tallow Creek Reservoir in 1936, North Flat Creek Reservoir in 1937, and the Sharon Reservoir in 1961. The sources of contention regarding the BLM’s water right claims, including Pothole Lake, stemmed from the respective holders of property interest in surrounding land (“Objectors”). The Objectors claimed proper ownership of BLM’s water rights, claiming instead their own right that derived from ancestral free grazers who, prior to the reservoir construction, owned and grazed livestock on the appurtenant land.

BLM claimed a reserved water right in Pothole Lake pursuant to two legal frameworks: (1) the Stock Raising Homestead Act enacted in 1916, which permitted the Secretary of the Interior to reserve lands containing “waterholes or other bodies of water needed or used by the public for watering purposes”; and (2) the Public Water Reserve No. 107 (“PWR 107”) enacted pursuant to a 1926 Executive Order, which “reserved all springs and water holes on vacant, unappropriated, and unreserved public land throughout the country.” The Objectors claimed, however, that ancestral free grazers owned and watered stock in the same area.

The BLM moved for summary judgment for all objections and the Montana Water Court consolidated them into this single case. The water court first addressed the validity of the Objectors’ claims to BLM reservoirs. The water court recognized as undisputed that the BLM developed the Windy Day, North Flat Creek, Tallow Creek, and Sharon Reservoirs with a stockwater right priority date coinciding with their respective completion and since consistently used the reservoirs for stockwatering. Then, after addressing the common law elements for valid water appropriation, the water court determined that impounding water into a reservoir is a sufficient diversion and the sole contention rested on whether the BLM applied the water to beneficial use. The Objectors claimed that the BLM itself did not own livestock or use reservoir water and thus under Montana law, BLM could not perfect its stockwatering claims.

However, the water court examined principles from a governing precedent, Bailey v. Tintinger, that “an appropriation of water for the use of others was complete upon the completion of the diversion system [in this case the reservoirs] and making the water available for use by others.” When extending this principle to the present case, the water court determined that Montana law did not require that BLM own and graze livestock to perfect water rights and complete appropriation.

Similarly, the water court found it undisputed that BLM consistently used Funnels Reservoir since acquiring its property interest. Thus under Montana law, BLM also acquired any appurtenant water rights.

Although the Objectors claimed prior use by their ancestral free grazers precluded BLM’s six water right claims, this contention ran counter to the core principle of water rights governed by Montana law that “multiple appropriators can enjoy rights from the same source.” The water court also clarified that the Objectors’ claimed stockwatering by direct uses from water sources, not by reservoir impoundments, and it followed that the Objectors’ claims differed from the subsequent BLM reservoir claims.

The water court next addressed the Objectors’ claim to Pothole Lake and determined that PWR 107 reserved Pothole Lake’s respective land and water.

The Objectors appealed. The Montana Supreme Court (“Court”), under the “clearly erroneous” standard, reviewed two issues on appeal: (1) whether the BLM held stockwatering rights in constructed reservoirs under Montana law and (2) whether the BLM owned reserved water rights for stockwatering in Pothole Lake. The Objectors made multiple contentions and the Court rejected each as invalid when evaluating them pursuant to relevant federal and Montana law.

The first issue raised three primary contentions. First, the Court confirmed that BLM appropriated water. However, Objectors argued that irrespective of a capability to appropriate water, the BLM failed to meet the requirements for perfecting water rights because it did not charge grazers for reservoir use. The Court quickly dismissed this contention when reiterating that Bailey expressly recognized that, “as long as the water is made available for sale, rental, or distribution or disposal to others, it is a valid appropriation.” Additionally, the Court acknowledged that Montana public policy encourages capable individuals and entities to appropriate water and make it available for use by others. Further, the Court recognized that Montana law commits to “recognizing the ability to appropriate water for its ultimate use by a third party.”

Second, the Objectors argued that even if BLM could appropriate water, it did not do so by impounding water in reservoirs because “simply facilitat[ing] use of water already appropriated” by ancestral free grazers did not constitute a valid appropriation. Again, the Court dismissed this contention as unsupported by Montana water law and public policy when noting, “multiple appropriators can claim water rights from the same source, and that the first in time has the best right.” Along that vein, the first user on a water source does not obtain the right to exclude all others from claiming water from the same source. The Court noted, for example, if Objectors held viable stockwatering claims based on ancestral free grazers, then those rights would be senior to those claimed by BLM because each right has its own priority in time.

Third, the Objectors contended that by developing new reservoirs, the BLM “simply modified” prior stockwatering practices by ancestral free grazers rather than creating a new appropriation. The Court acknowledged, however, that although a direct-flow water user can construct reservoirs to stabilize available water without creating new appropriations, the BLM claimed no such direct-flow water rights. BLM only claimed new rights to stored water with mid-twentieth century appropriation dates, which created separate rights with their respective priority dates.

Once resolving the contentions, the court then emphasized its unwillingness to depart from the “bedrock principles” of Montana water law that multiple appropriators can perfect claims from the same water source and thus the water use by ancestral free grazers did not preclude the BLM from claiming water rights to the same source. Further, Montana public policy encourages the benefits arising from allowing appropriations that make water available to third party users.

The second issue led the Court to determine the broad language of PWR 107 reserving “every spring or waterhole, located on unsurveyed public land” encompassed Pothole Lake. Therefore, the BLM maintained a reserved stockwatering right on federal land and the Objectors raised no valid contentions to undermine this established right.

Accordingly, the court affirmed the water court holding that the BLM maintained valid appropriations in its reservoirs under Montana law and the BLM owned reserved water rights for stockwatering in Pothole Lake pursuant to PWR 107.

Justice Laurie McKinnon, dissenting.

Justice McKinnon disagreed with the majority’s application of Bailey to conclude that the BLM put water to beneficial use and completed an appropriation. Instead, the dissent argued that the majority expanded Bailey’s narrow exception that applied to public service corporations. The Bailey court determined that to require a corporation to perfect a water right upon showing of an actual beneficial use would be impractical because corporations could not perfect a water right until a third party put water to a beneficial use. Here, the dissent argued the majority misinterpreted that exception to include “anyone” who “distributes” water could perfect a water right. In so doing, the dissent raised foundational legal principles to conclude that beneficial use “ is one that inures to the benefit of the appropriator.” Along that vein, the dissent contended that the ancestral free grazers inured to their benefit when their cattle grazed and drank water, and thus completed a valid appropriation. Conversely, the dissent further argued the BLM did not perfect a water right because it “never owned the livestock that appropriated the water or grazed federal lands” and thus, irrespective of reservoir construction, the BLM did not appropriate water under Montana law.

Gia Austin

Image: Cattle graze on a pasture near Browning Montana. Flickr user Mark Stevens, Creative Commons.

 


Rand Props., LLC v. Filippini, No. 66933, 2016 WL 1619306 (Nev. Apr. 21, 2016) (holding that: (i) a person who has acquired a right to a quantity of water from a stream may take it at any point of the stream and may change the character of use as long as it does not affect the rights of others; (ii) stock water rights on public lands pass by chain of title in Nevada; and (iii) a private party may convey a stock water appropriation certificate).

On June 7, 2011, Daniel and Eddyann Filippini (“Filippini”) filed a complaint to adjudicate stock and irrigation water rights on Trout Creek against Julian Tomera Ranches, Inc. (“Tomera”), and Rand Properties, LLC. (“Rand”). The Sixth Judicial District Court, Lander County adjudicated the case on April 8, 2013, and established priority dates for each party’s stock and irrigation water rights. Rand appealed to the Supreme Court of Nevada on grounds that the district court erred in its finding of priority dates, stock water rights title passage, and conveyance of a stock appropriation certificate.

First, Rand asserted that its priority date began in 1869, and that the district court erred by finding that Rand’s priority date began in 1901. The district court found that a change in the place of use on Trout Creek by Rand’s predecessors in interest created a new appropriation instead of a continuation of the chain of title because it occurred before statutory enactment of a law allowing for one to change the place of use. By setting a later priority date, the district court did not rule on whether Rand had proper title to its claim dating to 1869.

The Court overturned the district court, finding it relied on an erroneous conclusion of law. The Court looked to Nevada common law and held that a person who has acquired a right to a quantity of water from a stream may take it at any point of the stream, and he may change the character of its use at will as long as it does not affect the rights of others. The Court then vacated and remanded the issue for further proceedings as to Rand’s connection to the chain of title.

Second, Rand argued that the district court did not sufficiently explain its decree that Filippini’s priority date began in 1871 through a connection by title to a predecessor in interest named James Hughes and lacked the evidentiary support of a conveyance. The petitioner claimed that Filippini did not offer evidence that established a connection of title between 1891 and 1897. The Court concluded the district court’s ruling relied upon was insufficient. Under the district court’s ruling, it did not need to rule on the connection of title because it held that Rand’s priority date did not predate 1897. Accordingly, the Court vacated and remanded for further proceedings on the issue.

The Court then turned to the district court’s finding that a predecessor in interest named J.R. Bradley established the domestic stock water priority date held by Filippini in 1862 because Bradley’s outfit drank and diverted water from Trout Creek. The district court found that federal grazing permits acted as a proxy for establishing stock water rights and that proof of a chain of title is unnecessary for stock water rights on public lands owned by the United States and that each party held federal grazing permits. The Court disagreed, finding that stock water rights on public domains pass by chain of title in Nevada and that federal grazing rights and water rights are separate issues. Subsequently, the Court vacated and remanded to the district court to find on the issue of the party’s current rights to the disputed stock water that had passed by a chain of title.

Finally, the Court overturned the district court’s decision to prohibit the conveyance of a grazing certificate to Rand. Leroy Horn originally secured the certificate, certificate 12160, by building the Trout Creek pipeline to water his 600 cattle on a federal grazing allotment in 1979. In 1989, Horn agreed to sell his grazing preferences to Tomera and to sell Badger Ranch to Filippini in a three-way contract. The contract included the federal grazing privileges and all water rights, including stockwatering rights used in connection with the land. However, when Rand purchased Trout Creek Ranch from Broughton in 2009, the deed purported to convey certificate 12160 to it. On appeal, Rand argued that, because a Nevada statute requires conveyance of water rights by deed, Tomera cannot be the proper owner, and Rand was a bona fide purchaser nonetheless.

The district court relied on a Nevada statute prohibiting conveyance of stock water appropriation certificates to conclude that Rand could not own certificate 12160. The district court found that Rand could not put the water to beneficial use under the statute since it did not possess a grazing preference for 600 cattle at the place of use. The Court concluded that the district court erred in determining that the statute prohibited the conveyance to Rand; although the statute prevents issuance of a certificate from the State Engineer, it does not prohibit conveyance of certificates by a private party. Nevertheless, the Court found that Tomera could be the proper owner, since the conveyance occurred prior to the enactment of the statute requiring a person to obtain title to a certificate by deed. The Court then vacated and remanded to the district court to properly review Rand’s bona fide purchaser defense.

Accordingly, the Court reversed the judgment of the district court and remanded for further proceedings.

 

Dalton Kelley

A stock watering tank in Nevada. Flickr user Thure Johnson, Creative Commons.