469 P.3d 153
Mont.2020Background
- Elk Grove developed a platted subdivision served by a closed-loop water system and a water right (Water Use Permit No. 41H-110168-00). The subdivision’s recorded Real Covenants included a "Water Distribution Covenant" restricting Water Distribution Properties to use "exclusively" for the subdivision and dedicating them to public use.
- "Water Distribution Properties" was defined to include "all water and water rights related to or arising out of" the Water Use Permit and the physical distribution infrastructure (wells, pipelines, pumps, utility lots, easements).
- The original owner conveyed the water right/system to Utility Solutions, which applied to DNRC in 2006–2007 to change the place of use to supply an adjacent parcel (APK). Utility Solutions later sold the system and water right to Four Corners County Water and Sewer District (Water District) in 2015; the deed was subject to the recorded covenants.
- Elk Grove sued and moved for summary judgment seeking an injunction to prohibit the Water District from supplying water from the subdivision wells or the Water Right to property outside the subdivision; the District Court granted summary judgment and enjoined off‑site use.
- The Montana Supreme Court reversed in part: it held the covenant, to the extent it restrains alienation of the water right (i.e., prohibits changing place/use of the water right), is repugnant to the interest created and invalid under § 70-1-405, MCA, and remanded unresolved factual issues about system capacity, DNRC proceedings, and other physical-assets restrictions.
Issues
| Issue | Elk Grove's Argument | Water District's Argument | Held |
|---|---|---|---|
| Whether the Water Distribution Covenant is a reasonable restraint on alienation of the subdivision’s water right | Covenant valid; it reasonably restricts use to subdivision lots and protects subdivision supply | Covenant is an unreasonable restraint; it usurps state water law and prevents DNRC‑authorized beneficial uses | Covenant is invalid to the extent it restrains alienation/change of the water right; Water District entitled to summary judgment on that question |
| Whether DNRC change/approval and factual issues (notice, capacity, validity of permit extension) preclude off‑site service | Covenant controls and prevents off‑site transfers regardless of DNRC action | DNRC change and agency determinations (and lack of timely objection) permit off‑site service | Court did not resolve these factual/agency issues; remanded for further development (not decided here) |
Key Cases Cited
- Edgar v. Hunt, 706 P.2d 120 (Mont. 1985) (Michigan factors and Montana law: reasonable restraints on alienation may be valid)
- Urquhart v. Teller, 958 P.2d 714 (Mont. 1998) (factors for assessing reasonableness of restraints on alienation)
- Nelson v. Brooks, 329 P.3d 558 (Mont. 2014) (water right is a usufructory right—use of state‑owned waters)
- Montana Trout Unlimited v. Beaverhead Water Co., 255 P.3d 179 (Mont. 2011) (a water right confers no ownership of the water itself)
- 79 Ranch v. Pitsch, 666 P.2d 215 (Mont. 1983) (water rights subject to abandonment and beneficial‑use requirements)
- Woodward v. Perkins, 147 P.2d 1016 (Mont. 1944) (land ownership does not give exclusive right to waters)
- Ford v. Gregson, 14 P. 659 (Mont. 1887) (contractual restraints that indefinitely tie up water rights are against public policy)