KLAMATH IRRIGATION DISTRICT, Tulelake Irrigation District, Klamath Drainage District, Poe Valley Improvement District, Sunnyside Irrigation District, Klamath Basin Improvement District, Klamath Hills District Improvement Co., Midland District Improvement Co., Malin Irrigation District, Enterprise Irrigation District, Pine Grove Irrigation District, Westside Improvement District No. 4, Shasta View Irrigation District, Van Brimmer Ditch Co., Fred A. Robison, Albert J. Robison, Lonny E. Baley, Mark R. Trotman, Baley Trotman Farms, James L. Moore, Cheryl L. Moore, Daniel G. Chin, Deloris D. Chin, Wong Potatoes, Inc., Michael J. Byrne, Daniel W. Byrne, and Byrne Brothers, Plaintiffs, v. UNITED STATES OF AMERICA and Pacific Coast Federation of Fishermen‘s Associations, Defendants, and STATE OF OREGON, by and through the Oregon Water Resources Department, Intervenor.
(Federal CC No. 2007-5115; SC S056275)
Supreme Court of Oregon
March 11, 2010
227 P.3d 1145
On certified questions from the United States Court of Appeals for the Federal Circuit; certification order dated July 16, 2008; certification accepted January 29, argued and submitted May 13, 2009; certified questions answered March 11, 2010
Todd D. True, Earthjustice, Seattle, Washington, argued the cause and filed the briefs for defendant Pacific Coast Federation of Fishermen‘s Associations. With him on the briefs was Stephanie M. Parent.
Stephanie L. Striffler, Senior Assistant Attorney General, Salem, argued the cause and filed the briefs for intervenor. With her on the briefs were John R. Kroger, Attorney General, and Jerome Lidz, Solictor General.
Carl Ullman, Klamath Water Project, Chiloquin, filed the brief for amicus curiae Klamath Tribes.
John T. Bagg, Salem, filed the brief for amicus curiae Natural Resources Defense Council. With him on the brief was John D. Escheverria.
KISTLER, J.
Walters, J., concurred and filed an opinion, in which Balmer and Linder, JJ., joined.
The United States Court of Appeals for the Federal Circuit certified three questions to this court, which this court accepted. Klamath Irrigation District v. United States, 345 Or 638, 202 P3d 159 (2009). All three questions arise out of a dispute over water rights in the Klamath River basin. Essentially, they ask whether, as a matter of state law, the farmers and irrigation districts that use water from a federal reclamation project have an equitable property interest in a water right to which the United States holds legal title and whether an equitable property interest in a water right is subject to adjudication in the ongoing Klamath Basin water rights adjudication. In answering those questions, we begin by describing the procedural posture in which the questions arise. We then discuss briefly the common law and statutory context that preceded a 1905 state statute on which the parties’ arguments turn. Finally, we answer the certified questions.
I
The Federal Bureau of Reclamation (the Bureau) manages the Klamath Project, which stores and supplies water to farmers, irrigation districts, and federal wildlife refuges in the Klamath River basin. The plaintiffs in the underlying federal litigation are farmers and irrigation districts that use water from the Klamath Project for irrigation and other agricultural purposes. As a result of drought conditions in 2001, the Bureau terminated the delivery of water to plaintiffs that year in order to make water available for three species of endangered fish.1
Claiming a property right in the water, plaintiffs brought an action in the United States Court of Federal Claims, alleging that the United States had taken their property in violation of the Fifth Amendment and, alternatively, that the United States had breached its contractual obligation to deliver water to them. The United States asked the federal claims court to abstain from deciding plaintiffs’ takings claim until an ongoing state water rights adjudication
In response to that argument, plaintiffs told the federal court that they were not asserting, in federal court, any right to water that the state water rights adjudication would determine. Plaintiffs took the position that the state water rights adjudication would resolve who has the legal title to use the water from the Klamath River basin but that it would not resolve who has an equitable or beneficial property interest in using the water. Plaintiffs accordingly assumed, for the purposes of their federal takings claim, that the United States holds legal title to the water rights, and they elected to proceed in the federal action solely on the theory that they hold an equitable or beneficial interest in the water rights, which the government took when it refused to deliver water to them in 2001. The Court of Federal Claims proceeded on that theory, see Klamath Irrigation District v. United States, 67 Fed Cl 504, 513-14 (2005) (describing plaintiffs’ position), and so do we in answering the certified questions.2
Plaintiffs have argued in the federal action that their equitable property interest in the water arose from two sources: Section 8 of the Reclamation Act of 1902, ch 1093, 32 Stat 388, and state water law. The Court of Federal Claims held that neither source of law gave plaintiffs an equitable interest in the water from the Klamath Project. The court initially reasoned that federal law did not define the scope of plaintiffs’ water rights. 67 Fed Cl at 518-23.3 Turning to
At two points in its opinion, the Court of Federal Claims summarized and quoted excerpts of various contracts between the United States and plaintiffs concerning the distribution of water. Id. at 510-12, 527-30. The court later explained that plaintiffs’ contractual agreements with the United States divided into five basic categories:
“(i) interests based upon an exchange agreement, in which preexisting water rights were exchanged for an interest in the Project water; (ii) interests deriving from district contracts with the United States or the Bureau, claimed by the districts; (iii) interests deriving from the district contracts with the United States, claimed by individual irrigators as alleged third-party beneficiaries; (iv) interests based upon application for the beneficial use of water filed either by homesteaders on reclaimed lands (Form A), or by homesteaders or other landowners whose property does not involve reclaimed lands (Form B), and the patent deeds issued allegedly in response thereto; and (v) interests based upon alleged water rights permits granted by the State Oregon after the repeal of the 1905 Oregon legislation in 1953.”
Id. at 530-31. The court concluded that agreements falling into the first three categories resulted in contractual rights to receive water and that a contractual interest is not a property interest that gives rise to a takings claim under the Fifth Amendment.4 Id. at 531-32. Regarding the fourth and fifth categories, the court concluded that, because the patent deeds and the water rights granted by the state had a later priority date than the United States’ water right, the United States had not taken those rights when it denied water to plaintiffs. Id. at 538-39.
Plaintiffs appealed to the United States Court of Appeals for the Federal Circuit. Regarding plaintiffs’ takings claim, the Federal Circuit observed that the “answer to [plaintiffs‘] takings question depends upon complex issues of Oregon property law, including the interpretation of Oregon General Laws, Chapter 228, § 2 (1905).” Klamath Irrigation Dist. v. United States, 532 F3d 1376, 1377 (Fed Cir 2008). To assist its resolution of plaintiffs’ takings claim, the Federal Circuit certified three state law questions to this court:
“1. Assuming that Klamath Basin water for the Klamath Reclamation Project ‘may be deemed to have been appropriated by the United States’ pursuant to Oregon General Laws, Chapter 228, § 2 (1905), does that statute preclude irrigation districts and landowners from acquiring a beneficial or equitable property interest in the water right acquired by the United States?
“2. In light of the statute, do the landowners who receive water from the Klamath Basin Reclamation Project and put the water to beneficial use have a beneficial or equitable property interest appurtenant to their land in the water right acquired by the United States, and do the irrigation districts that receive water from the Klamath Basin Reclamation Project have a beneficial or equitable property interest in the water right acquired by the United States?
“3. With respect to surface water rights where appropriation was initiated under Oregon law prior to February 24, 1909, and where such rights are not within any previously adjudicated area of the Klamath Basin, does Oregon State law recognize any property interest, whether legal or equitable, in the use of Klamath Basin water that is not subject to adjudication in the Klamath Basin Adjudication?”
Id. at 1377-78. As noted, we accepted the certified questions.
Before answering those questions, it is helpful to discuss briefly the common-law and statutory context for the Oregon legislature‘s enactment of the 1905 statute. See Stevens v. Czerniak, 336 Or 392, 401, 84 P3d 140 (2004) (explaining that the context for interpreting a statute‘s text “includes ‘the preexisting common law and the statutory framework within which the law was enacted’ ” (quoting Denton and Denton, 326 Or 236, 241, 951 P2d 693 (1998))).5 We begin with the Oregon common law regarding the appropriation of water rights. We then turn to the statutory background that both preceded the 1905 Oregon statute and informs our understanding of it.
Before 1905, the Oregon courts had adopted the doctrine of prior appropriation of water rights. See Fort Vannoy Irrigation v. Water Resources Comm., 345 Or 56, 64-67, 188 P3d 277 (2008) (describing the history of that doctrine in Oregon). To encourage the beneficial use of water, Oregon courts recognized before 1905 that a person who puts surface water to beneficial use acquires a right to use that water that takes precedence over subsequent users. See id. (same). Before the Oregon legislature codified the doctrine of prior appropriation in 1909, this court had held that a person seeking to establish his or her right to use water had to prove three elements:
“First, an intent to apply it to some beneficial use, existing at the time or contemplated in the future; second, a diversion from the natural channel by means of a ditch, canal, or other structure; and third, an application of it, within a reasonable time, to some useful industry.”
Low v. Rizor, 25 Or 551, 557, 37 P 82 (1894).
Customarily, the intent to apply water to a beneficial use was manifested by some form of public notice, and the date of the appropriation related back to the date of the notice, as long as the appropriator both began the diversion of the water and put the water to beneficial use within a reasonable time. Nevada Ditch Co. v. Bennett, 30 Or 59, 84-86, 45 P 472 (1896); see Re Rights to Waters of Silvies River, 115 Or 27, 101-02, 237 P 322 (1925) (describing pre-1909-code methods of providing notice). Put differently, although appropriation was perfected ” ‘only when the ditches or canals [we]re completed, the water diverted from its natural stream or channel, and actually used for beneficial purposes,’ ” the priority date for the water right related back to the date of the notice as long as the diversion and beneficial use were accomplished with reasonable diligence. Nevada Ditch, 30 Or at 90-91 (quoting Clesson S. Kinney, A Treatise on the Law of Irrigation and Water Rights § 167 (1894)).
The scope and extent of the appropriation turned on the appropriator‘s intent, typically manifested in the notice and ultimately limited by the beneficial use to which the water was put. See id. at 98-100 (explaining that the extent of the appropriation with a priority date that related back to the notice turned on the use set out in the notice and did not include other or additional uses). The right to use water, once appropriated, is appurtenant to the land and passes with it, even without an express grant of water rights in the deed conveying the land. Simmons v. Winters, 21 Or 35, 44, 27 P 7 (1891).
Initially, the court‘s decisions focused only on individuals who diverted water for use on property that they owned, and the cases frequently turned on factual disputes, such as the diligence with which the owner had constructed a ditch to put the water to beneficial use. The application of those common-law rules raised potentially more difficult legal issues when a person diverted water for use on land that he or she did not yet own and, in a separate situation, when one person diverted water for another‘s use.
The first situation arose primarily as a result of federal acts, such as the Homestead Act of 1862, ch 79, 12 Stat 392, that promised a tract of federal land to persons who entered onto public land and reclaimed it. Typically, those acts required an initial application, an entry onto the land, and proof that the settler had completed certain requirements within a period of years. E.g.,
Later, the court held that, when a settler had put water to beneficial use on such land, the water right was appurtenant to the land and passed with it even though the settler had not yet received legal title to the land. Hindman v. Rizor, 21 Or 112, 117-18, 27 P 13 (1891). In Hindman, the plaintiff‘s predecessors in interest entered onto federal land in 1863, diverted water onto the land, and cultivated it, but did not perfect their title to the land until 1882. Id. at 115. The question in Hindman was whether the plaintiff‘s predecessors in interest had obtained a water right before 1882 (the date that they perfected their title to the land) that they could pass to the plaintiff.6
In answering that question, this court recognized initially that “[a] settler upon public land has a [possessory] right thereto as against every person except the government, and when such settlement is made with the view of obtaining title, such right is a valuable property right, which the courts will protect and enforce.” Id. at 116-17 (citing Kitcherside).
The Oregon courts also considered, for the first time in Nevada Ditch, whether one person could appropriate water for another‘s use and, if that were possible, what rights the user had in the water. The court explained that, in many instances, individual landowners located at some distance from streams lacked the resources, even when they acted collectively, to construct ditches to divert water to irrigate their lands. Id. at 96. It observed that, “[i]n such cases other persons possessing capital are often willing to make the diversion for the benefit of those who have use for the water * * *” Id. However, that arrangement raised fundamental questions, the foremost of which was whether one person could appropriate water for another‘s use. And if that were possible, questions arose concerning the relationship between the appropriator and the user, the priority date of the water right, and whether the appropriator, the user, or both owned the right.
The court answered two of those questions in Nevada Ditch. It held initially that one person could appropriate water for another‘s use; that is, “the bona fide intention which is required of the appropriator to apply the water to some useful purpose may comprehend a use to be made by or through another person, and upon lands and possessions other than those of the appropriator.” Id. at 97. It also held that, under Oregon law, the persons who used water that another person had appropriated had the same priority date (the date of the notice) as long as the later user put the water to beneficial use within a reasonable time and the use came
The court noted but did not decide two aspects of the relationship between the appropriator and the persons who put the water to beneficial use. It noted initially that “it would seem that he who designed the scheme and made the diversion [the appropriator] was the principal, rather than the user, who applies the result of the former‘s labor to his beneficial purpose.” Id. at 97-98.8 Having noted that that “seem[ed]” to be the relationship, the court did not decide whether that was the relationship. Rather, it observed that, “in whatever capacity the parties to the appropriation may be considered,” both were necessary to appropriate the water. Id. at 98. The court next raised the question of who, as between the appropriator and the user, “would own the appropriation when it is completed.” Id. The court again found it unnecessary to decide that issue but observed, in dicta, that “[w]e are of the opinion * * * that it is the subject of contract between the person who initiates the appropriation and the user.” Id. at 98. The court went on to note that, in any event, both the appropriator and the user were necessary to perfect and maintain an appropriation. Id.
Later Oregon decisions, issued after 1905, have addressed the respective rights of appropriators and users of a water right when one person appropriates water for
That was the state of the Oregon common law of appropriation before 1905, with the later gloss placed on it by Eldredge, Smith, and Walla Walla River. The common law that preexisted the 1905 statute is, however, not the only context for the 1905 statute. Both the state and the federal government passed various statutes before 1905 that inform our understanding of the 1905 Oregon statute. Those statutes share a similar purpose; they were intended, in one way or another, to get water to the arid lands in Oregon (and the west) so that those lands could be settled and reclaimed. However, those acts differ in their details, and that difference potentially has significance in understanding what the Oregon legislature intended in 1905. Accordingly, we briefly summarize the Oregon act of 1891 and the Oregon act of 1895 before turning to the federal legislation and Oregon‘s response to it.
In 1891, Oregon passed a law giving private companies a franchise to construct ditches and provide water for irrigation and related purposes to persons whose lands were adjacent to or within reach of the ditches. Or Laws 1891, p 52, § 1. For the company‘s use of the water to come within the terms of the 1891 act, the company had to supply the water to
The act required the private company to post a notice and, within 10 days, to file a copy of the notice with the county clerk identifying the point at which the head-gate would be constructed, the general course and size of the ditch, the number of cubic inches of water to be appropriated, and the number of reservoirs, if any. Or Laws 1891, p 52, §§ 4-5. The act also required the company to begin constructing the ditch within six months and to “prosecute the [construction of the ditch] without intermission [except for certain contingencies] until the same be completed.”
This court did not have occasion before 1905 to interpret the rights arising under that act, at least as they bear on the issues in this case. In 1924, this court read the 1891 act in light of the provisions of the 1909 statute setting out Oregon‘s water code; it suggested that a beneficial use was necessary to perfect an appropriation of water under the 1891 act and, relying on dicta from Eldredge, that the persons who used the water were the true owners of the water right. See Re Water Rights of Hood River, 114 Or 112, 134-39, 227 P 1065 (1924) (quoting dicta from Eldredge for the proposition that ” ‘even in cases of public service corporations organized for profit and selling water to the general public, * * * the water and ditch rights really belong to the individual appropriator’ “).
In 1933, this court held that the dicta in Eldredge did not apply to corporations acting pursuant to the 1891 act.
In 1895, the Oregon legislature took a different approach. It authorized the formation of irrigation districts that would acquire water rights and hold them in trust for their members. Or Laws 1895, p 13; see Little Walla Walla Irrigation Dist. v. Preston, 46 Or 5, 78 P 982 (1904) (describing the source and terms of the 1895 act). Specifically, the 1895 act authorized persons owning land susceptible to irrigation to petition for the creation of an irrigation district. Or Laws 1895, p 13, §§ 1, 2. In addition to providing procedural protections for the members of the district, the act authorized the board of directors of an irrigation district “to acquire, either by purchase or condemnation (or other legal means), all lands and waters and water rights, and other property necessary for the construction, use, supply, maintenance, repair and improvements of said canal or canals and works.”
The persons who acquired public land pursuant to the Homestead and Desert Land Acts typically “chose those lands which were the nearest or most accessible to the streams,” leaving more remote and less accessible lands uncultivated. Clesson S. Kinney, 3 A Treatise on the Law of Irrigation and Water Rights § 1314 (2d ed 1912). Congress sought to promote cultivation of those more remote lands by enacting the Carey Act in 1894. Carey Act, ch 301, § 4, 28 Stat 422. That act authorized the Secretary of the Interior to “donate, grant, and patent to [certain] State[s] * * * such desert lands, not exceeding one million acres in each State, as the State may cause to be irrigated, reclaimed, [and] occupied.”
Specifically, the President proposed that
“These irrigation works should be built by the Government for actual settlers, and the cost of construction should, so far as possible, be repaid by the land reclaimed. The distribution of the water, the divisions of the streams among irrigators, should be left to the settlers themselves, in conformity with the state laws, and without interference with those laws or with vested rights. The policy of the National Government should be to aid irrigation in the several States and Territories in such a manner as will enable the people in the local communities to help themselves, and as will stimulate needed reforms in the State laws and regulations governing irrigation.”
Id. Within six months after President Roosevelt‘s speech to Congress, the Congress passed and the President signed into law the Reclamation Act of 1902. Id. at 2238.
Or Laws 1901, p 378, § 1. The Oregon legislature authorized the State Land Board to enter into contracts with private companies to construct ditches, if the companies agreed to meet certain conditions.
The Act provided that persons entering onto the land
“shall, in addition to compliance with the homestead laws, reclaim at least one-half of the total irrigable area of his entry for agricultural purposes, and before receiving patent for the lands covered by his entry shall pay to the Government the charges apportioned against such tract as provided [above].”
The Act contemplated that, when the “major portion of the lands irrigated from the waters of any works herein provided for” has been paid, then the “management and operation of such irrigation works shall pass to the owners of the lands irrigated thereby.”
“That nothing in this Act shall be construed as affecting or intending to affect or to in any way interfere with the laws of any State or Territory relating to the control, appropriation, use, or distribution of water used in irrigation, or any vested right acquired thereunder, and the Secretary of the Interior, in carrying out the provisions of this Act, shall proceed in conformity with such laws * * *: Provided, That the right to the use of water acquired under the provisions of this Act shall be appurtenant to the land irrigated, and beneficial use shall be the basis, the measure, and the limitation of the right.”
The United States Supreme Court has explained that, in enacting the Reclamation Act, Congress intended that “the Secretary would have to appropriate, purchase, or condemn necessary water rights in strict conformity with state law.” California, 438 US at 665. The Court also explained that Congress intended that, “once the waters were released from the Dam [or project], their distribution to individual landowners would again be controlled by state law.” Id. at 667. The Court observed, however, that
“Congress did not intend to relinquish total control of the actual distribution of the reclamation water to the States. Congress provided in § 8 itself that the water right must be appurtenant to the land irrigated and governed by beneficial use, and in § 5 Congress forbade the sale of reclamation water to tracts of land of more than 160 acres.”
In response to the Reclamation Act, the 1905 Oregon legislature passed an act that, among other things, created a procedure for the United States to appropriate water for the
“Whenever the proper officers of the United States, authorized by law to construct works for the utilization of water within this State, shall file in the office of the State Engineer a written notice that the United States intends to utilize certain specified waters, the waters described in such notice and unappropriated at the time of the filing thereof shall not be subject to further appropriation under the laws of this State, but shall be deemed to have been appropriated by the United States; provided, that within a period of three years from the date of filing such notice the proper officer of the United States shall file final plans of the proposed works in the office of the State Engineer for his information; and provided further, that within four years from the date of such notice the United States shall authorize the construction of such proposed work. No adverse claims to the use of the water required in connection with such plans shall be acquired under the laws of this State except as for such amount of said waters described in such notice as may be formally released in writing by an officer of the United States thereunto duly authorized, which release shall also be filed in the office of the State Engineer.”
The state act also authorized the state engineer to gather the necessary data to determine any prior rights to use water from a stream system on which the United States planned to construct irrigation works; it authorized the Oregon Attorney General to file a suit in state court, on the Secretary of the Interior‘s request, to determine and declare those rights; and it specified that any decree resulting from such a suit shall “declare, as to the water right adjudged to each party * * * the extent, the priority, amount, purpose, place of use, and, as to water used for irrigation, the specific tracts of land to which it shall be appurtenant.”
On February 28, 1905, a representative of the United States posted a notice claiming “all the unappropriated waters of the Klamath River.” The notice stated that “[t]he [w]ater is to be used for irrigation, domestic, power, mechanical and other beneficial uses in and upon lands situated in Klamath Oregon and Modoc California counties.” On
“Notice is hereby given that the United States intends to utilize * * * [a]ll of the waters of the Klamath Basin in Oregon * * *.
“It is the intention of the United States to completely utilize all the waters of the Klamath Basin in Oregon, and to this end this notice includes all lakes, springs, streams, marshes and all other available waters lying or flowing therein.
“That the United States intends to use the above described waters in the operation of works for the utilization of water in the State of Oregon under the provisions of the act of Congress approved June 17, 1902 (32 Stat, 388), known as the Reclamation Act.”
Klamath Irrigation Dist., 67 Fed Cl at 524 (quoting the notice filed with the state engineer).13 With that background in mind, we turn to the Federal Circuit‘s questions.
III
A
The Federal Circuit‘s first question asks:
“Assuming that Klamath Basin water for the Klamath Reclamation Project ‘may be deemed to have been appropriated by the United States’ pursuant to Oregon General Laws, Chapter 228, § 2 (1905), does that statute preclude irrigation districts and landowners from acquiring a beneficial or equitable property interest in the water right acquired by the United States?”
In answering that question, we assume that the United States appropriated water rights pursuant to the 1905 statute14 and that it acquired and presently holds legal title to
The first sentence in section 2 of the 1905 statute provides that, if the United States files a notice and meets two other conditions, all the unappropriated waters described in the notice “shall not be subject to further appropriation under the laws of this State, but shall be deemed to have been appropriated by the United States.”
Second, section 2 designates the United States as the “appropriator” of the water right. Potentially, designating the United States as the “appropriator” of a water right could express an intent to preclude others from acquiring an equitable property interest in that right. Because appropriation was a term of art, we look to the way that the Oregon courts and legislature had used that term before 1905 in order to understand the significance of that designation. As noted, this court had held in Nevada Ditch that one person may appropriate water for another‘s use and that a later user who puts the water to beneficial use within a reasonable period of time pursuant to the appropriator‘s original plan takes the same priority date as the appropriator. As also noted, this court declined to decide in Nevada Ditch, as between the appropriator and the user, who owned the
The different ways in which the 1891 and 1895 Oregon statutes describe the relationship between an appropriator and a user reinforce that conclusion. Under the 1895 statute, an irrigation district acquires and holds legal title to a water right but it holds that right in trust for the district‘s members who put the water to beneficial use.
A final contextual source bears on the issue. The Oregon legislature enacted the 1905 statute in response to Congress’ passage of the Reclamation Act. It follows that the Reclamation Act, as originally passed, sheds light on the terms on which the Oregon legislature understood that the United States would hold the water right that the 1905 act authorized the United States to appropriate.15 As noted, the
In passing the Reclamation Act, Congress sought to make water rights available for the benefit of those persons who would use the water to reclaim the land. See Ickes v. Fox, 300 US 82, 95, 57 S Ct 412, 81 L Ed 525 (1937) (“Appropriation was made not for the use of the government, but, under the Reclamation Act, for the use of the land owners * * * “). Reading the 1905 Oregon statute in light of the Reclamation Act that the Oregon legislature sought to facilitate, we conclude that, in authorizing the United States to appropriate water for the construction of irrigation works, the Oregon legislature did not intend to give the United States carte blanche to use the water rights it appropriated in whatever way it chose. Rather, the Oregon legislature authorized the United States to appropriate state water rights pursuant to the 1905 act for the benefit of those persons who the Reclamation Act contemplated would put water to beneficial use. That context is directly at odds with the notion that, in providing for the United States to appropriate water rights, the legislature intended to preclude landowners and irrigation districts from acquiring a beneficial or equitable property interest in the water right.16
The decision in Umatilla River does not advance the United States’ position that the Oregon legislature intended to preclude landowners and irrigation districts from acquiring a beneficial or equitable property interest in water rights that the United States appropriated. In determining the priority of the United States’ water right in Umatilla River, the court neither considered nor addressed the relationship between the United States and the landowners who took water under that appropriation. Rather, the question before the court was the relative priority of competing appropriators (Western‘s predecessor in interest and the United States). Umatilla River has no bearing on our answer to the Federal Circuit‘s first question.
The United States also relies on the second sentence of section 2 of the 1905 act, which states:
The United States’ argument rests on the assumption that, when the Oregon legislature enacted the 1905 statute, it would have understood that the landowners and irrigation districts that took water under the United States’ appropriation would have an “adverse claim” to the water. That is not how that phrase was commonly used. As this court used those terms before 1905 in water rights disputes, “adverse claim” referred to one of two situations. The court used those terms to refer to a claim brought by a person who contended that he or she had a right to use water by adverse possession. See, e.g., Beers v. Sharpe, 44 Or 386, 394, 75 P 717 (1904); Mattis v. Hosmer, 37 Or 523, 532, 62 P 17, 62 P 632 (1900); Bowman v. Bowman, 35 Or 279, 283, 57 P 546 (1899); Huston v. Bybee, 17 Or 140, 147-48, 20 P 51 (1888) (all illustrating proposition). The court also used those terms to refer to a claim brought by another appropriator who contended that his or her water right had an earlier priority date. See, e.g., Brown v. Baker, 39 Or 66, 69, 65 P 799, 66 P 193 (1901); Oviatt v. Big Four Mining Co., 39 Or 118, 126, 65 P 811 (1901); Carson v. Gentner, 33 Or 512, 518, 42 P 506 (1898) (illustrating that usage).
Conversely, the court had not described the relationship between an appropriator and those persons who took water under that appropriation as either “adverse” or as a “claim.” See Nevada Ditch, 30 Or at 98. Rather, the court had
B
The Federal Circuit‘s second question asks:
“In light of the [1905] statute, do the landowners who receive water from the Klamath Basin Reclamation Project and put the water to beneficial use have a beneficial or equitable property interest appurtenant to their land in the water right acquired by the United States, and do the irrigation districts that receive water from the Klamath Basin Reclamation Project have a beneficial or equitable property interest in the water right acquired by the United States?”
As we understand the second question, it asks whether beneficial use alone is sufficient to acquire a beneficial or equitable property interest in a water right to which another person holds legal title. The answer to that question, as we have restated it, is “no.” Beneficial use is a necessary but not a sufficient condition to acquire a beneficial or equitable property interest in a water right. In explaining our answer, we first address an assumption that underlies the court‘s question—whether, under Oregon law, one person can hold a beneficial or equitable property interest in a water right to which another person holds legal title. We then explain why beneficial use alone is not sufficient. Finally, we explain what, as a matter of Oregon law, is required to establish a beneficial or equitable property interest in a water right.17
Oregon has recognized since 1862 that one person may hold legal title to property and that another person may hold equitable title to that property. See Smith v. Ingles, 2 Or 43, 44-45 (1862) (when defendant caused property to be conveyed to his sons for defendant‘s use and benefit, the sons held legal title to the property and defendant held equitable title). That rule applies equally to water rights. Eldredge, 90 Or at 594 (recognizing that one person could hold legal title to a water right while another holds equitable title). As this court explained in Fort Vannoy, “[t]he existence of [a] trust relationship [between an irrigation district and its members] bifurcates the ownership interest in each certificated water right.” 345 Or at 86. “The district holds legal title to the water right as trustee, and the members hold equitable title as the beneficiaries.” Id.; see also id. at 87 (referring to an irrigation district member‘s “equitable ownership interest” in the water right).18
In Oregon, equitable property interests in water rights have not derived solely from formal trust agreements. For instance, this court recognized that beneficial users who transferred appropriated water rights to a corporation and took shares in the corporation in return held an equitable ownership interest in the water right. Silvies River, 115 Or at 102-03. In reaching that conclusion, the court explained that the corporation was formed “for the purpose of enabling the various owners of land to have a system that would serve all of them“; that is, even though the corporation held legal title to the water right, it held the water right for the use and benefit of its members. Id. at 98-99. That was sufficient for the court to conclude that the shareholders held an equitable property interest in the water right.19 As the court explained,
This court has reached the same conclusion without regard to whether the shareholders in a corporation appropriated a water right and transferred that right to the corporation or whether the corporation appropriated the water right and held it for the use and benefit of its shareholders. See In re Water Rights of Willow Creek, 119 Or 155, 195, 199, 236 P 487, 237 P 682 (1925) (corporation held appropriated water right in trust for the benefit of its shareholders who put the water to beneficial use); Eldredge, 90 Or at 596 (explaining that a mutual water company organized for the purpose of transmitting and delivering water appropriated by its shareholders held the water right as a trustee for the use and benefit of its shareholders). That is, even though the shareholders owned the stock and the corporation owned the water right, the court, sitting in equity, “look[ed] beyond” that formal arrangement and, considering its substance, ruled that the persons who put the water to beneficial use held an equitable property interest in the water right.
We draw two conclusions from those cases. First, the premise of the Federal Circuit‘s question is well-founded. Oregon has recognized and continues to recognize that persons who put water to beneficial use can acquire an equitable or beneficial property interest in a water right to which someone else holds legal title. Second, in determining when such an equitable property interest in a water right exists, this court looks beyond form and focuses on substance. The court has sought to determine from the structure of a particular relationship and the agreements among the parties to that relationship whether the party that holds legal title to the right does so for the use and benefit of the persons who put the water to beneficial use.
2
With that background in mind, we return to the Federal Circuit‘s second question: Is beneficial use alone sufficient to create a beneficial or equitable property interest in
The United States Supreme Court considered similar factors in deciding that, even though the United States held legal title to the water right for the Newlands Project (a Reclamation Act project in Nevada), the landowners who had put the water to beneficial use held a beneficial or equitable property interest in the water right. Nevada v. United States, 463 US 110, 122-26 and n 9, 103 S Ct 2906, 77 L Ed 2d 509 (1983). In that case, landowners had settled on land within the Newlands Project and had entered into contractual agreements with the United States for water. Id. at 126 n 9. The Court explained that five different forms of contracts had been used since the creation of the Newlands Project. Id. “Two of the forms provide[d] for an exchange of a vested water right by the landowner in return for the right to use Project water.” Id. The other three forms of contracts provided a water right in an amount that may be beneficially applied to a specified tract of land. Id. The Court noted that, of the three latter forms, the one most commonly used was an application for a permanent water right for the irrigation of the settler‘s land. Id.
In 1913, the United States filed suit in federal district court, the Orr Ditch suit, to adjudicate the water rights to the Truckee River for the benefit of the Pyramid Lake
In 1973, the United States sought to reallocate the water decreed to it. Id. at 121. More specifically, the United States sought to divert water that it had acquired for reclamation use to another federal use and argued that, because it owned the water right, it was free to do so. Id. The Court reached a different conclusion. It explained that, even though the United States held legal title to the water right, it held the water right in trust for the landowners. As the Court explained,
“Once these lands were acquired by settlers in the Project, the Government‘s ‘ownership’ of the water rights was at most nominal; the beneficial interest in the rights confirmed to the Government resided in the owners of the land within the Project to which these water rights became appurtenant upon the application of Project water to the land.”
Id. at 126; see also id. at 127 (explaining that the United States, in arguing that it could reallocate the water to a different use, had overlooked “the obligations that necessarily devolve upon it from having mere title to water rights for the Newlands Project, when the beneficial ownership of these water rights resides elsewhere“).
In determining that the landowners had an equitable or beneficial property interest in the water right to which the United States held legal title, the Court considered three factors: (1) under state law, the water right became appurtenant to the land once it was put to beneficial use;20 (2) the United States’ relationship with the landowners under the Reclamation Act; and (3) the contracts between the United
3
The first factor is whether the water right was appurtenant to the land. Under Oregon law, the water right became appurtenant to the land once the persons taking the water from the Klamath Project applied it to their land and put it to beneficial use. That is true even if those persons had not yet perfected title to the land. As the court explained in Hindman, settlers who entered onto public land (but who had not yet perfected title to the land) acquired “a valuable property right [in the land] which the courts will protect and enforce,” and the water they put to beneficial use became appurtenant to the land. Hindman, 21 Or at 116-17. The court was careful to note in Hindman that, until the settlers perfected title to the land, the possessory right in the land that the settler acquired was valid against every person except the government. Id. at 117. That reservation, however, merely recognized that, if the United States cancelled the entry because the settler failed to comply with its terms, the settler could lose his or her right to the land and, along with it, the appurtenant water right. This court did not suggest that the settler lacked a valuable property right in the water that the state courts would not recognize and protect.21
The second factor requires us to determine the relationship that exists between the federal government and plaintiffs. In the United States’ view, it stands in the same relationship to the water users as the private for-profit company did in Walla Walla River; that is, the United States
Neither party‘s analogy is perfect. The United States is not a corporate entity (either a for-profit corporation as in Walla Walla River or a mutual water company as in Eldredge), and plaintiffs are not its shareholders. However, the Court‘s decision in Nevada v. United States persuades us that the United States holds the water right that it appropriated pursuant to the 1905 Oregon act for the use and benefit of the landowners. In explaining that the United States held the water right it acquired in the Orr Ditch suit in trust for the landowners in the Newlands Project, the Court explained that “the primary purpose of the Government in bringing the Orr Ditch suit in 1913 [and obtaining title to the water rights in the decree] was to secure water rights for the irrigation of land that would be contained in the Newlands Project, and that [in doing so] the Government was acting under the aegis of the Reclamation Act of 1902.” 463 US at 121. In support of that statement, the Court noted that, in filing the Orr Ditch suit, the United States had alleged that the “litigation was designed to quiet title to the Government‘s right to the amount of water necessary to irrigate the lands set aside for the [Newlands] Project,” and that the decree entered in that suit gave the United States title to the water ” ‘for the irrigation of 232,800 acres of land on the Newlands Project, for storage in the Lahontan Reservoir, for generating power, for supplying the inhabitants of cities and towns on the project and for domestic and other purposes.’ ” Id. at 121 n 8 (quoting decree).
That persuaded the Court that, in obtaining title to the water under the aegis of the Reclamation Act, the United States was not acting for its own benefit but for the benefit of the persons who put the water to beneficial use reclaiming the land. As the Court explained in Ickes, 300 US at 95, and reiterated in Nevada, 463 US at 123, “[a]ppropriation was
The United States argues that Nevada, Ickes, and a third case, Nebraska v. Wyoming, 325 US 589, 65 S Ct 1332, 89 L Ed 1815 (1945), are all distinguishable on their facts. We agree that Ickes and Nebraska are distinguishable, at least as the parties have presented this case to us. In both those cases, the Court concluded that the landowners had acquired title to the water.23 In this case, by contrast, the parties have assumed that the United States holds the title to the water right. Nevada, on the other hand, is far closer to this case. In Nevada, the United States held title to the water right as a result of the Orr Ditch suit, and we assume that the United States holds title to the right here. But, regardless of whether distinctions could be drawn between Nevada and this case, we think that the United States’ argument misses the larger point. In that case, as well as in Ickes and Nebraska, the
The third factor is the contractual agreements between the United States and plaintiffs. That factor bears on the second. Even though we have concluded that, in appropriating the right to use the waters in the Klamath Basin, the United States did so for the benefit of the landowners, the United States and plaintiffs remained free within statutory and constitutional limits to enter into agreements that clarified, redefined, or even altered that relationship. Whether they did so requires a full consideration of the agreements between plaintiffs and the United States. On that point, it appears that various plaintiffs have entered into different forms of agreement with the United States and that those agreements have been renegotiated, perhaps more than once, since the Klamath Project began.
In attempting to assess the effect of the parties’ agreements on the relationship between them, we face a significant difficulty. All the agreements between the United States and plaintiffs in the present litigation do not appear to be before us.24 The Court of Federal Claims summarized the types of agreements that the parties entered into, and it quoted portions of those agreements. However, we hesitate to rely on that summary of the parties’ agreements when, in assessing the effect of those agreements on the state law issue that the second certified question presents, we might view other aspects of the agreements or their significance under state law differently. We also note that the Court of
We are aware that the agreements that the Court of Federal Claims described in its decision are similar to the two forms of agreement that the Court concluded in Nevada supported its determination that the United States held title to the water rights in that case in trust for the landowners. However, without all the agreements before us and without briefing on them, we are in no position to provide a definitive answer whether, as a matter of state law, the various contractual agreements between the United States and plaintiffs support or defeat plaintiffs’ claim that they have an equitable or beneficial property interest in the water right that the United States appropriated pursuant to the 1905 act.
For instance, we cannot foreclose the possibility that plaintiffs could have bargained away any equitable or legal right to the water in return for a reduced payment schedule or forgiveness of their debt. Conversely, the United States may have granted plaintiffs either patents, water rights, or contractual rights that would be sufficient, as a matter of state law, for plaintiffs to have acquired at a minimum an equitable property interest in the water.25 In sum, whatever conclusion we might draw on the basis of the first two factors
C
The Federal Circuit‘s third question asks:
“With respect to surface water rights where appropriation was initiated under Oregon law prior to February 24, 1909, and where such rights are not within any previously adjudicated area of the Klamath Basin, does Oregon State law recognize any property interest, whether legal or equitable, in the use of the Klamath Basin water that is not subject to adjudication in the Klamath Basin Adjudication?”
The answer to the Federal Circuit‘s third question is “yes.” A person asserting only a beneficial or equitable property interest in a water right is not a “claimant” who must appear in the Klamath Basin adjudication and file a claim to determine that interest. Conversely, a person who claims legal title to a water right must file a claim in the adjudication or lose the right.26
In answering the court‘s third question, we begin with the text of
“Whenever proceedings are instituted for determination of rights to the use of any water, it shall be the duty of all claimants interested therein to appear and submit proof of their respective claims, at the time and in the manner required by law. Any claimant who fails to appear in the proceedings and submit proof of the claims of the claimant shall be barred and estopped from subsequently asserting any rights theretofore acquired upon the stream or other body of water embraced in the proceedings, and shall be held to have forfeited all rights to the use of the water theretofore claimed by the claimant.”
Oregon‘s water code does not define the term “claimant,” and both the United States and plaintiffs have proposed plausible interpretations of that term. The statutory context, however, cuts against the United States’ interpretation in two respects. First, what is now
A second statutory clue points in the same direction. Under Oregon‘s water code, a claim for water, if proved, results in the issuance of a certificated water right giving the holder title to the right. See Fort Vannoy, 345 Or at 84 (describing that process);
That has long been the rule in Oregon. As this court explained 85 years ago, “[i]f this were a proceeding for determining the relative rights between different appropriators [i.e., a streamwide adjudication], the court would not consider the controversy between an appropriator and those claiming under him.” Willow Creek, 119 Or at 191. Under Oregon law, controversies between appropriators and those claiming under them are not part of a water rights adjudication to determine the relative rights of different appropriators. The court has, however, recognized one exception, and that exception proves the rule, as the facts in Willow Creek illustrate.
In Willow Creek, two persons had initiated a water rights adjudication in 1909 to determine the right to use the water in Willow Creek. Id. at 163.27 The Willow Creek Land and Irrigation Company (the irrigation company) had appropriated water from that creek for others’ use, and the irrigation company (but not its shareholders who claimed a beneficial property right) appeared in the 1909 adjudication. Id. at 163, 181-82. Some of the irrigation company‘s water rights “had become vested through appropriation and use, while others were at that time inchoate.” Id. at 163. Recognizing that fact, the first decree entered in 1916 provided that the irrigation company would be allowed until January 1, 1918, “to complete its said irrigation system and apply the impounded waters to beneficial use.” Id. at 163-64.28
In resolving the parties’ arguments, this court noted that the only issue before it was the right to water under a single certificate and that the disputes between an appropriator and persons taking under the appropriator “ordinarily would not be considered in a proceeding of this nature“—i.e., in a supplemental proceeding to adjudicate rights among different appropriators. Id. at 182. The court reasoned, however, that it could not determine the land on which the water had been put to beneficial use and thus could not issue a water rights certificate to the irrigation company without first resolving the subsidiary dispute between the irrigation company and the persons who took water under it. Id. In resolving that subsidiary dispute, the court held that the irrigation company could not use the water it had appropriated to benefit its land to the detriment of the persons who had
Willow Creek is telling in at least four respects. First, the court recognized that the irrigation company held the water right for the benefit of the stockholders. Second, the court did not hold that the stockholders’ failure to file a claim in the initial adjudication precluded them asserting an equitable interest in the certificated water right that the irrigation company sought. Third, the court recognized that, as a general rule, the only claims that will be adjudicated in a water rights adjudication are the competing claims of different appropriators, not the equitable interests of those persons who take under an appropriator. Finally, it held that that rule is not without exceptions; controversies between an appropriator and the persons who take under that appropriator may be resolved in a general adjudication when necessary to determine the extent of a certificated water right.
Given Willow Creek and the other statutory context discussed above, we conclude that the term “claimant” in
It is necessary to add a caveat to our answer. Given the limited record before us, we cannot foreclose the possibility that circumstances comparable to those in Willow Creek might arise in the Klamath Basin adjudication that would permit, in that adjudication, the determination of the interests of persons claiming an equitable or beneficial property
IV
In summary, in answering the Federal Circuit‘s questions, we have assumed that the United States appropriated the right to use the waters described in its notice and that it presently holds legal title to that water right. We also have assumed that plaintiffs are asserting only an equitable or beneficial property interest in the water right to which the United States holds legal title. Who presently holds legal title to that water right and the scope of that right are questions for the Klamath Basin adjudication, and we express no opinion on those issues. Given those assumptions, we have answered the court‘s questions as follows:
- The 1905 Oregon act did not preclude plaintiffs from acquiring an equitable or beneficial property interest in a water right to which the United States holds legal title. Moreover, under the 1905 act, a formal written release from the United States is not necessary for plaintiffs to have acquired an equitable or beneficial property interest in the water right that the United States appropriated.
- Under Oregon law, whether plaintiffs acquired an equitable or beneficial property interest in the water right turns on three factors: whether plaintiffs put the water to beneficial use with the result that it became appurtenant to their land, whether the United States acquired the water right for plaintiffs’ use and benefit, and, if it did, whether the contractual agreements between the United States and plaintiffs somehow have altered that relationship. In this case, the first two factors suggest that plaintiffs acquired a beneficial or equitable property interest in the water right to which the United States claims legal title, but we cannot provide a definitive answer to the court‘s second question because all the agreements between the parties are not before us.
To the extent that plaintiffs assert only an equitable or beneficial property interest in the water right to which the United States claims legal title in the Klamath Basin adjudication, plaintiffs are not “claimants” who must appear in that adjudication or lose the right. As a general rule, equitable or beneficial property interests in a water right to which someone else claims legal title are not subject to determination in a state water rights adjudication.
The certified questions are answered.
WALTERS, J., concurring.
The court answers “no” to the restated second question posed by the Federal Circuit: whether, under Oregon law, beneficial use alone is sufficient to acquire a beneficial or equitable property interest in a water right to which another person holds legal title. 348 Or at 40-41.1 I agree with that answer and with the majority‘s further statement that, even considering additional factors, we cannot reach a definitive answer to a more pointed question—whether plaintiffs in this case acquired a beneficial or equitable property interest in a water right held by the United States. Id. at 50.
I write to explain the reasons that the latter, more specific, question is an open one that, in my view, cannot be resolved at this time on this record.
First, this case reaches us in a posture in which the following issues are contested in the Klamath Basin adjudication and have not been decided by any court: (1) whether beneficial use is necessary to the United States’ appropriation of water rights; (2) whether the United States has appropriated the water rights at issue here; and (3) whether plaintiffs also have appropriated water rights and own them independently or jointly with the United States. Id. at 36 n 14. In answering the questions posed by the Federal Circuit, we are nevertheless asked to assume that the United States has appropriated and acquired sole ownership of the water rights at issue. See Id. at 36-37 (“[W]e assume that the United States appropriated water rights pursuant to the
When this court previously has considered the nature of the interests of water users or providers, it has done so on the premise that beneficial use is a necessary prerequisite to perfection of appropriation and in the context of discussing perfected (and sometimes certificated and thereby vested) appropriation. As the majority explains, it has been the law in Oregon since at least 1896 that appropriation is perfected “only when the ditches and canals are completed, the water diverted from its natural stream or channel, and actually used for beneficial purposes.” Nevada Ditch Co. v. Bennett, 30 Or 59, 90, 45 P 472 (1896). Thus, as the court recently stated, in Fort Vannoy Irrigation v. Water Resources Comm., 345 Or 56, 88, 188 P3d 277 (2008), a joint effort between landowners and irrigation companies or districts has been required to “bring the certificated water rights into existence” and beneficial use has been one action required in that joint effort.2 When we are asked to assume instead, as we understand that we have been instructed to do, that beneficial use may not be necessary to perfected appropriation, and that plaintiffs do not hold perfected or certificated interests, our precedent, premised as it is on different assumptions, is of little assistance.
Second, the Federal Circuit Court has not defined what it means by the term “beneficial or equitable property interest.” This court‘s prior consideration of the nature of the interests held by landowners who apply water to beneficial
In Eldredge v. Mill Ditch Co., 90 Or 590, 177 P 939 (1919), this court concluded that a quasi-public irrigation company served as the agent of its stockholders when it delivered water for their use. The court held that equity precluded a third-party judgment creditor from forcing a sale of the company‘s interests to the detriment of the stockholders. Id. at 596.
Re Rights to Waters of Silvies River, 115 Or 27, 237 P 322 (1925), was a case in which three men posted a notice of appropriation and then formed a corporation to serve as their agent in constructing irrigation ditches and making water available for use. The court held that the priority date for the water right that the corporation acquired related back to the date of the men‘s original notice of appropriation. Id. at 98-103.
In In re Waters of Walla Walla River, 141 Or 492, 16 P2d 939 (1933), this court reached a different conclusion concerning a disputed priority date. The court held that a private irrigation company that had appropriated water in 1903 was the principal and that landowners who were not shareholders in the company, but who put its water to beneficial use pursuant to rental contracts, served as the company‘s agents. When some of the landowners later formed a new irrigation
In Fort Vannoy, the court noted that a statute that required an irrigation district to hold all property it acquired “in trust for *** the uses and purposes set forth in the Irrigation District Law,” gave rise to a trust relationship between the irrigation district and its members, 345 Or at 85-86 (emphasis omitted), but the court characterized the relationship between the district and the landowners who put the water to beneficial use as one of principal (district) and agents (landowners). Id. at 88-90. To resolve the particular question before it, the court looked to the statutory allocation of rights and responsibilities between the irrigation district, on the one hand, and its members and water users, on the other hand, and concluded that neither the members nor the users were “holder[s] of any water use subject to transfer.” Therefore, the court held, the members did not have the right to change the point of diversion associated with the water right. Id. at 86-93.
Although in each of those cases “the water of a public stream [was] eventually applied to a beneficial use, and the general purposes of such appropriations accomplished,” Nevada Ditch, 30 Or at 98, factors other than intended benefit or use determined the answers to the particular legal questions presented. And, for the most part, those cases involved the rights of third parties vis-à-vis the irrigation districts. Only Fort Vannoy decided the nature of the interests acquired by water users. In that case, it was the statutory allocation of rights and responsibilities, not whether the legislature intended that users benefit by the actions of irrigation districts, that was determinative.
Labels and short-hand descriptions used by the court in particular contexts for particular purposes do not resolve other legal questions, particularly difficult ones. In enacting and proceeding under the Reclamation Act, the United States intended, among other things, to provide some
Balmer and Linder, JJ., join in this opinion.