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Silver v. Pueblo Del Sol Water Co.

Court of Appeals of Arizona, First Division

November 8, 2016

ROBIN SILVER, M.D.; UNITED STATES OF AMERICA, U.S. DEPARTMENT OF INTERIOR, BUREAU OF LAND MANAGEMENT; and PATRICIA GERRODETTE, Plaintiffs/Appellees,
v.
PUEBLO DEL SOL WATER COMPANY, an Arizona corporation; THOMAS BUSCHATZKE, in his official capacity as Director of the Arizona Department of Water Resources; ARIZONA DEPARTMENT OF WATER RESOURCES, an agency of the State of Arizona, Defendants/Appellants.

         Appeal from the Superior Court in Maricopa County No. LC2013-000264-001, LC2013-000271-001, LC2013-000272-001 (Consolidated). The Honorable Crane McClennan, Judge, Retired

         VACATED; AGENCY ACTION REMANDED

         COUNSEL

          Denver, Earthjustice, Heidi J. McIntosh (pro hac vice)

          Cynthia Christine Tuell Counsel for Plaintiff/Appellee Silver

          U.S. Department of Justice Environment & Natural Resources Division, by John L. Smeltzer, R. Lee Leininger, Katherine J. Barton (pro hac vice) Counsel for Plaintiff/Appellee United States of America et al.

          Arizona Center for Law in the Public Interest, by Joy Herr-Cardillo, Timothy M. Hogan And David McDevitt Counsel for Plaintiff/Appellee Patricia Gerrodette

          Law Office of William P. Sullivan, P.L.L.C., by William P. Sullivan Counsel for Defendant/Appellant Pueblo

          Arizona Department of Water Resources, by Kenneth C. Slowinski, Nicole D. Klobas, Janet L. Miller Counsel for Defendant/Appellant ADWR et al.

          Law Office of Bruce A. Burke, P.C. By Bruce A. Burke Counsel for Amicus Curiae Leshy and Glennon

          Law Offices of Jesse J. Richardson Jr., Morgantown, West Virginia By Jesse Richardson, Jr. (pro hac vice) And Snell & Wilmer, L.L.P., Phoenix By L. William Staudenmaier Counsel for Amicus Curiae Water Systems Council

          Fennemore Craig, P.C., Phoenix By Sean T. Hood, Rhett A. Billingsley Counsel for Amicus Curiae Freeport Minerals Corporation

          Presiding Judge Jon W. Thompson delivered the opinion of the Court, in which Judge Maurice Portley (Retired) and Judge Patricia K. Norris joined.

          OPINION

          THOMPSON, PRESIDING JUDGE

         ¶1 This is an Adequate Water Supply Designation (AWSD or Designation) case. We are asked to decide whether the superior court erred by reversing the decision of the Arizona Department of Water Resources (ADWR or Department) approving the application by Pueblo Del Sol Water Company (Pueblo) to allow its development in Cochise County to proceed. We are also asked to decide whether the Department erred by not considering the unquantified federal water rights reserved to the United States Department of the Interior, Bureau of Land Management (BLM). Finally, we are asked to determine whether the court erred by awarding the individual plaintiffs, Robin Silver, M.D., and Patricia Gerrodette, attorneys' fees.

         ¶2 By statute, "Adequate Water" is "[sufficient groundwater, surface water or effluent of adequate quality [that] will be continuously, legally and physically available to satisfy the water needs for the proposed use for at least one hundred years" and requires that the proposed user has demonstrated the "financial capability . . . to construct the water facilities necessary to make the supply of water available for the proposed use, including a delivery system and any storage facilities or treatment works." Ariz. Rev. Stat. (A.R.S.) § 45-108(I) (2009) (emphasis added).

         ¶3 At issue is whether ADWR was required to consider the unquantified federal water rights of BLM in determining whether such water was statutorily available to Pueblo. Specifically, BLM asserts the Department erred in its "legally available" analysis. BLM and the individual plaintiffs (collectively, unless identified separately, Plaintiffs) additionally argue Pueblo's proposed pumping will eventually interfere with the San Pedro Riparian National Conservation Area's (Conservation Area) water rights.

         ¶4 We uphold the Department's interpretation of "legally available, " as outlined in its regulation R12-15-718[1], finding the Department's interpretation serves a valid purpose in the context of the entire application process. The Department's AWSD process, when taken as a whole, adequately considers whether sufficient water will be continuously, legally, and physically available to satisfy the needs of the proposed user for at least one hundred years and insures that the proposed user has the financial capability to construct, store, and deliver that supply of water. See A.R.S. § 45-108(I). Nevertheless, as we also explain, during the regulatory process, the Department must consider BLM's unquantified federal water rights in determining whether Pueblo has demonstrated the availability of "adequate water" under A.R.S. § 45-108. Accordingly, we vacate the superior court's judgment in favor of Plaintiffs.

         ¶5 Further, we remand this matter back to the Department. On remand the Department shall give educated consideration to the unquantified priority federal reserved water rights of BLM, until such amount is quantified in the General Stream Adjudication for the Gila River System and Source (Gila Adjudication). After the quantification in the Gila Adjudication, the quantified amount must be included in the AWSD process. The Department is not required to consider separately the potential impact of proposed pumping on area streams or the San Pedro River. Further, ADWR is not required to consider the potential impact of proposed pumping on either the San Pedro Riparian National Conservation Area or on the Conservation Area's water right. We also vacate the $155, 861.50 in attorneys' fees awarded to Plaintiffs Silver and Gerrodette.

         FACTUAL AND PROCEDURAL HISTORY

         A. San Pedro Riparian National Conservation Area

         ¶6 The San Pedro River flows from northern Mexico through southeastern Arizona for approximately 130 miles until it joins with the Gila River at Winkelman, Arizona. The San Pedro River is one of the few remaining free-flowing and undammed rivers in the desert southwest and it is home to diverse flora and fauna.[2] The town of Sierra Vista, the military installation Fort Huachuca, and most of the Conservation Area are located within the Sierra Vista Subwatershed.

         ¶7 In 1988, the United States Congress designated approximately 36 miles of the San Pedro River basin as a national conservation area. At the same time, Congress created a federal water reserve right for the Conservation Area "in a quantity sufficient to fulfill the purpose" of protecting "the riparian area and the aquatic, wildlife, archeological, paleontological, scientific, cultural, educational, and recreational resources of the public lands surrounding the San Pedro River." 16 U.S.C. §§ 460xx, (a), (1)(d); Arizona-Idaho Conservation Act of 1988, Pub. L. No. 100-696, 102 Stat. 4571.

         ¶8 The Department of the Interior, through BLM, is mandated to manage the Conservation Area, and in 1989 BLM asserted a water rights claim in the Gila Adjudication.[3] At this time, the Gila Adjudication has been active for approximately 40 years. ADWR is a technical advisor in the Gila Adjudication.

         ¶9 Since 1989 BLM has filed three amended federal statements of claim for the Conservation Area that cover the full range of surface water and groundwater. The Conservation Area has both a 1988 priority reserved federal water right and a 1985 state certificate-based water right (CWR No. 33-90103), as well as two or more state-based pending applications.

         ¶10 BLM's federal reserved rights will be quantified in the Gila Adjudication. See Pub. L. 100-696. The Gila Adjudication has exclusive jurisdiction to adjudicate the conflicting claims and water rights. In re the Gen. Adjudication of all Rights to Use Water in the Gila River Sys. & Source (Gila III), 195 Ariz. 411, 416, ¶ 12, 989 P.2d 739, 744 (1999) (holding federal reserved water rights could be invoked to protect groundwater from diversion) (citing to the McCarran Amendment, 43 U.S.C. § 666(a)).

         ¶11 As explained below, calculating BLM's water rights is not a straightforward mathematical equation. BLM's asserted federal and state water rights do not cover the exact same geographic area. BLM's water right claims do not serve identical purposes or claim identical water sources. Finally, importantly, BLM's federal claim and state water volume claims are not identical.

         B. Pueblo Del Sol's Application

         ¶12 Pueblo is a private water company.[4] Pueblo's service area covers more than 4, 000 acres and is located, variously, 4.5 to 5 miles from the San Pedro River. In June 2011, Pueblo filed an application for an AWSD through the year 2032. Such a designation would allow Pueblo to pump groundwater for the Tribute Master Planned Community (Tribute) in Sierra Vista, and other projects, as required by Cochise County for new construction.[5] Tribute could contain up to 6, 959 residential units. As planned, the subdivision would proceed in four phases and has water conservation measures, including xeriscape and requirements for water-saving devices in the homes, as well as for potential rainwater harvesting. As of the time of the administrative law judge (ALJ) hearing, Castle & Cooke had invested over $7 million in the Tribute project, exclusive of the cost of the land.

         ¶13 Pueblo's water is supplied by wells and the area at issue is outside a statutory active water management area.[6] Groundwater is proposed to be the source of the water supply.[7] Pueblo projected its water demand for that service area, through 2032, would rise from 1, 430.85 acre-feet per year (APY) to as much as 4, 870.39 APY. The mandatory 3-D hydrology model submitted by Pueblo with its designation application concluded that such a draw would put the groundwater level no greater than 650 feet below the surface after 100 years of pumping. By ADWR regulation, groundwater in the service area may be no greater than 1200 feet below land surface. See R12-15-716(B)(2). Pueblo's application also referenced its 1972 public utility certificate of convenience and necessity (CC&N) from the Arizona Corporation Commission.[8]

         ¶14 BLM, Silver, and Gerrodette each filed objections to the application.[9], [10] ADWR responded to the objections and issued a decision letter and draft decision. The letter stated that after consideration of the objections, ADWR concluded Pueblo's application satisfied the requirements for the AWSD.

         ¶15 Plaintiffs filed separate appeals and participated in a five- day evidentiary hearing before an ALJ in late 2012. Witnesses included three hydrologists, an engineer with experience in water treatment plant engineering, the senior vice president of Castle & Cooke, and ADWR's Manager of Recharge, and Adequate and Assured Water Supply Programs. The ALJ's 24-page decision made 143 findings of fact and 35 conclusions of law. The ALJ determined that Pueblo had satisfied the continuously, physically and legally available requirements of A.R.S. § 45-108. Ultimately, the ALJ concluded that Plaintiffs had not demonstrated ADWR's decision was contrary to law or issued in error. The ALJ dismissed Plaintiffs' appeals. In April 2013, ADWR adopted the ALJ's decision with some revisions (the Decision).

         ¶16 Plaintiffs filed complaints in superior court seeking judicial review of the Decision.[11] The complaints were consolidated. After briefing and argument, the superior court vacated the Decision. The superior court found ADWR's regulation defining "legal availability, " R12-15-718(C), erroneously provided for a decision on this prong based solely on whether the applicant had a CC&N "without any investigation of whether there might be any possible legal constraints on the intended supplies, including ones based on hydrologic conditions or impacts on superior water rights." The superior court held "ADWR failed to meet its mandatory duty under A.R.S. § 45-108 to ensure that the proposed source of water will, among other things, be legally available for at least 100 years" and, therefore, abused its discretion. The court stated that, on remand, "in determining whether the amount of water requested by [Pueblo] is legally available, ADWR must consider the existing legal claims and/or rights and determine whether and to what extent those claims and/or rights may affect the availability of the water supplies requested in [Pueblo's] application."

         ¶17 Under the private attorney general doctrine, the superior court found an upward deviation in the statutory attorneys' fees rate of $75 per hour was appropriate and it awarded legal fees in the amount of $84, 210 for Plaintiff Silver and $71, 651.50 for Plaintiff Gerrodette. ADWR and Pueblo appealed the superior court's judgment to this court. We have jurisdiction pursuant to A.R.S. §§ 12-913 (2016), -2101(A)(1) (2016).

         ISSUES

         ¶18 Appellants ADWR and Pueblo assert on appeal:

1. ADWR properly determined, under Arizona's statutes and Department regulations, that Pueblo satisfied the requirements for an Adequate Water Supply Designation;
2. ADWR was not required to consider or determine the extent to which existing legal claims and water rights "may affect" the legal availability of groundwater when considering Pueblo's application;
3. ADWR was not required to consider whether the grant of an adequate water designation could have an adverse impact on the instream surface flow of the San Pedro River; and
4. The superior court abused its discretion in awarding attorneys' fees against Pueblo under the private attorney general doctrine.

         ¶19 In response, Plaintiffs assert:

1. ADWR violated A.R.S. § 45-108 and abused its discretion in granting Pueblo an AWSD because the Department failed to make a valid determination of legal availability without first examining any senior legal rights or priorities to the water held by BLM for the conservation of the San Pedro Riparian Area;
2. Regulation R12-15-718(C), defining legal availability, conflicts with A.R.S. § 45-108 and is unlawful;
3. ADWR has the authority to determine BLM's unquantified water reserve and the extent to which groundwater is required ...

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