Silver v. Pueblo Del Sol Water Co.

          Appeal from the Superior Court in Maricopa County The Honorable Crane McClennen, Judge Nos. LC2013-000264 LC2013-000271 LC2013-000272

         Opinion of the Court of Appeals, Division One 241 Ariz. 131 (App. 2016) VACATED

          Timothy M. Hogan, Arizona Center for Law in the Public Interest, Phoenix; and Heidi J. McIntosh (argued), Earthjustice, Denver, CO, Attorneys for Robin Silver, M.D.

          F. Patrick Barry, Katherine W. Hazard (argued), United States Department of Justice, Washington, DC, Attorneys for United States of America, U.S. Department of the Interior, Bureau of Land Management

          Daniel J. Adelman, Arizona Center for Law in the Public Interest, Phoenix; and Joy E. Herr-Cardillo, University of Arizona, James E. Rogers College of Law, Tucson, Attorneys for Patricia Gerrodette

          William P. Sullivan (argued), Law Offices of William P. Sullivan P.L.L.C., Phoenix, Attorneys for Pueblo Del Sol Water Company

          Kenneth C. Slowinski, Nicole D. Klobas, Janet L. Miller (argued), Arizona Department of Water Resources, Phoenix, Attorneys for Thomas Buschatzke and Arizona Department of Water Resources

          Jesse Richardson, Jr., Law Offices of Jesse J. Richardson, Jr., Morgantown, WV; and L. William Staudenmaier, Snell & Wilmer L.L.P., Phoenix, Attorneys for Amicus Curiae Water Systems Council

          JUSTICE LOPEZ authored the opinion of the Court, in which VICE CHIEF JUSTICE BRUTINEL, and JUSTICES TIMMER and GOULD joined. CHIEF JUSTICE BALES and JUSTICE BOLICK authored separate opinions concurring in part and dissenting in part, in which JUSTICE PELANDER joined. JUSTICE PELANDER issued an opinion concurring in the partially dissenting opinions of CHIEF JUSTICE BALES and JUSTICE BOLICK.

          OPINION

          LOPEZ, JUSTICE

         ¶1 The issue in this case is whether the Arizona Department of Water Resources ("ADWR") is required to consider unquantified federal reserved water rights when it determines whether a developer has an adequate water supply for purposes of A.R.S. § 45-108. We hold that the statute does not require ADWR to do so.

         I. FACTS AND PROCEDURAL HISTORY

         ¶2 This case arises out of a 2013 adequate water supply designation by ADWR approving Pueblo Del Sol Water Company's ("Pueblo") application to supply water to a proposed development in Cochise County. Pueblo was formed in 1972 and received a Certificate of Convenience and Necessity ("CC&N") from the Arizona Corporation Commission ("Commission") that year. Pueblo's service area covers approximately 4800 acres of land in Cochise County. Castle & Cooke, Inc., which owns Pueblo, seeks to build a mixed-use development called "Tribute," which would include about 7000 commercial and residential units near Sierra Vista. The proposed development site is located approximately five miles from the San Pedro River and is outside a statutory active management area ("AMA"). See A.R.S. § 45-411(A) (identifying Arizona's AM As).

         ¶3 In 1988, Congress established the San Pedro Riparian National Conservation Area ("SPRNCA") and delegated management of SPRNCA to the Secretary of the Interior. See 16 U.S.C. § 460xx-1(a). The Bureau of Land Management ("BLM") manages national conservation areas, including SPRNCA, on behalf of the U.S. Department of the Interior. Congress also created an accompanying federal reserved water right to fulfill SPRNCA's conservation purpose and ordered the Secretary of the Interior to "file a claim for the quantification of such rights in an appropriate stream adjudication." Id. § 460xx-1(d). The right has a priority date of November 18, 1988, for purposes of establishing the federal government's priority in the seniority system that governs competing appropriation rights. Id. In addition to its federal reserved water right, SPRNCA has a 1985 state certificate-based surface water right and other pending state-based applications. SPRNCA's federal reserved water right will eventually be quantified in the Gila River General Stream Adjudication (the "Gila Adjudication") but remains unquantified after nearly thirty years of litigation.

         ¶4 Pueblo, which plans to provide the vast majority of Tribute's water services, calculated that it would need to increase its annual groundwater pumping from about 1430 acre-feet to 4870 acre-feet to meet Tribute's needs. When Pueblo applied to ADWR for an adequate water supply designation, BLM, Robin Silver, and Patricia Gerrodette (collectively, "Plaintiffs") objected pursuant to A.R.S. § 45-108.01(B). ADWR then issued a draft decision and order finding that Pueblo's application satisfied the "adequate water supply" requirements under A.R.S. § 45-108(I) by showing that water would be "continuously, legally and physically available" to satisfy Tribute's water needs "for at least one hundred years" and that Pueblo possesses "financial capability" to construct necessary water facilities. Plaintiffs appealed, arguing, among other things, that the increase in Pueblo's groundwater pumping would affect the flow of the San Pedro River and would therefore conflict with BLM's federal reserved water right.

         ¶5 The administrative law judge ("ALJ") agreed with ADWR, concluding that Pueblo met its burden of demonstrating that water would be continuously, legally, and physically available. ADWR then issued an order affirming the ALJ's decision. Plaintiffs filed complaints for judicial review, which the superior court consolidated, but did not challenge the ALJ and ADWR's finding that Pueblo met the physical availability requirement.

         ¶6 The superior court vacated ADWR's decision, ruling that the agency erred in concluding that Pueblo's water supply is "legally available." The court reasoned that ADWR was required to consider potential and existing legal claims that may affect the availability of the water supply, including BLM's unquantified federal water right. The court also awarded Silver and Gerrodette attorney fees under A.R.S. § 12-348 and the private attorney general doctrine.

         ¶7 The court of appeals vacated the superior court's decision and remanded the matter to ADWR. Silver v. Pueblo Del Sol Water Co., 241 Ariz. 131, 134 ¶¶ 4-5 (App. 2016). The court held that the superior court erred in requiring ADWR to consider BLM's unquantified water right under ADWR's legal availability regulation, Arizona Administrative Code R12-15-718, and found that regulation consistent with A.R.S. § 45-108(I). Id. at 141-42 ¶¶ 36-37. However, the court also concluded that, pursuant to ADWR's physical availability regulation, A.A.C. R12-15-716, ADWR "must use its knowledge and expertise" and apply its "educated eye as to what the Gila Adjudication may eventually determine to be BLM's water right" to consider the impact of BLM's unquantified water right on Pueblo's water supply. Id. at 143-44 ¶ 42.

         ¶8 All parties filed petitions for review in this Court. We granted review because whether ADWR is required to consider unquantified federal reserved water rights when determining the adequacy of developers' water supplies presents an issue of statewide importance. We have jurisdiction under article 6, section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24.

         II. STANDARD OF REVIEW

         ¶9 We review issues of statutory interpretation de novo, Ariz. Water Co. v. Ariz. Dep't of Water Res., 208 Ariz. 147, 151 ¶ 16 (2004), but will defer to an agency's factual findings unless they are "arbitrary, capricious, or . . . an abuse of discretion," J. W. Hancock Enters., Inc. v. Registrar of Contractors, 126 Ariz. 511, 513 (1980).

         III. ARIZONA WATER LAW AND THE FEDERAL RESERVED WATER RIGHTS DOCTRINE

         ¶10 "Arizona law distinguishes groundwater from surface water, even though such waters may be hydrologically connected." Davis v. Agua Sierra Res., L.L.C., 220 Ariz. 108, 110 ¶ 10 (2009). The doctrine of prior appropriation governs surface water, including its subflow. Id. at 110 ¶ 10, 112 ¶ 19. Prior appropriation is "a seniority system determined by the date on which the user initially puts water to a beneficial use." In re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source (Gila V), 201 Ariz. 307, 310 ¶ 4 (2001). Senior rights-holders are entitled to use their entire water allotments before junior rights-holders receive any water. Id.

         ¶11 Groundwater, by contrast, is not subject to prior appropriation, but is instead "governed by the traditional common law notion that water percolating generally through the soil belongs to the overlying landowner, as limited by the doctrine of reasonable use." In re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source (Gila II), 175 Ariz. 382, 386 (1993). "The doctrine of reasonable use permits an overlying landowner to capture as much groundwater as can reasonably be used upon the overlying land and relieves the landowner from liability for a resulting diminution of another landowner's water supply." In re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source (Gila III), 195 Ariz. 411, 415 ¶ 7 n.3 (1999) (citing Bristor v. Cheatham, 75 Ariz. 227, 237-38 (1953)). Our legislature has codified the right of overlying landowners to "[w]ithdraw and use groundwater for reasonable and beneficial use" in areas outside AMAs. A.R.S. § 45-453(1). AMAs are subject to the more stringent "assured water supply" regulations, see A.R.S. § 45-576, whereas non-AMA areas are subject to "adequate water supply" requirements, see § 45-108(A), (I).

         ¶12 Although surface water and groundwater are governed by different legal regimes in Arizona, both are subject to the federal reserved water rights doctrine. See Gila III, 195 Ariz. at 420 ¶ 31 (holding that the federal reserved water rights doctrine applies to groundwater in addition to surface water). Under that doctrine, when the federal government creates a federal reservation of public land, it also reserves "only that amount of water necessary to fulfill the purpose of the reservation, no more." Cappaert v. United States, 426 U.S. 128, 141 (1976). Determining the purpose of a reservation and "the waters necessary to accomplish that purpose are inevitably fact-intensive inquiries that must be made on a reservation-by-reservation basis," Gila III, 195 Ariz. at 420 ¶ 31 (citing United States v. New Mexico, 438 U.S. 696, 700 (1978)), and we construe federal reserved water rights narrowly due to their "disruptive effect in prior appropriation jurisdictions," In re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source, 231 Ariz. 8, 13 ¶ 16 (2012).

         ¶13 The federal reserved water rights doctrine applies to groundwater, but only "where other waters are inadequate to accomplish the purpose of a reservation." Gila III, 195 Ariz. at 420 ¶ 31; see also Agua Caliente Band of Cahuilla Indians v. Coachella Valley Water Dist., 849 F.3d 1262, 1271 (9th Cir. 2017). If a federal reserved water right is infringed by groundwater pumping, the federal government may obtain an injunction. See Gila III, 195 Ariz. at 422 ¶ 38 (citing Cappaert, 426 U.S. at 141). But any injunction that issues must "be appropriately tailored to [the reservation's] minimal need," and we do not apply "a zero-impact standard of protection for federal reserved rights." Id. Thus, the federal reserved water rights doctrine effectively modifies the doctrine of reasonable use, as codified in § 45-453, because it restricts an overlying landowner's right to pump groundwater to the extent required "to preserve the waters necessary to accomplish the purpose of [a federal] reservation." See Gila III, 195 Ariz. at 421-22 ¶¶ 34-38.

         ¶14 Another regulation on the use of water in Arizona is the adequate water supply designation process. Under A.R.S. § 11-823(A), a county, at its option, may require a developer to obtain an adequate water supply designation from ADWR before approving a new subdivision.^[1] The director of ADWR ("Director") is charged with determining "whether there is an adequate water supply for the subdivision." § 45-108(B). Section 45-108(I) provides a two-part definition of "adequate water supply." First, it means that "[s]ufficient groundwater, surface water or effluent of adequate quality will be continuously, legally and physically available to satisfy the water needs of the proposed use for at least one hundred years." § 45-108(I)(1). Second, it requires a developer to demonstrate that it has "[t]he financial capability . . . to construct the water facilities necessary to make the supply of water available for the proposed use." § 45-108(I)(2).

         ¶15 We consider in this case ADWR's regulations defining physical and legal availability. With the background of Arizona water law in mind, we turn first to the physical availability regulation.

         IV. PHYSICAL AVAILABILITY

         ¶16 We agree with all parties that the court of appeals erred in directing ADWR to consider BLM's unquantified federal reserved water right under ADWR's physical availability regulation. We interpret agency regulations according to principles of statutory construction. Home Depot USA, Inc. v. Ariz. Dep't of Revenue, 230 Ariz. 498, 501 ¶ 10 (App. 2012). Accordingly, if a statutorily authorized regulation is unambiguous, "we apply it without further analysis." Glazer v. State, 237 Ariz. 160, 163 ¶ 12 (2015).

         ¶17 ADWR's physical availability regulation, A.A.C. R12-15-716, requires an applicant for an adequate water supply designation to submit a hydrologic study to the Director that "accurately describes the hydrology of the affected area." Id. R12-15-716(B). The Director, in turn, "shall determine" that groundwater is physically available if two requirements are met. Id. First, the groundwater must be withdrawn "from wells owned by the applicant or the proposed municipal provider that are located within the service area of the applicant or the proposed municipal provider." Id. R12-15-716(B)(1)(a). Second, the groundwater must be "withdrawn from depths that do not exceed the applicable maximum 100-year depth-to-static water level." Id. R12-15-716(B)(2). Here, the applicable 100-year depth-to-static water level is "1200 feet below land surface" because the Tribute development site is not located in an AMA and Tribute will not be a dry lot development. See id.; see also id. R12-15-701(36) (defining "[d]ry lot development" as "a development or subdivision without a central water distribution system"). Most relevant to the court of appeals' holding is the regulation's requirement that the Director consider, in calculating the projected 100-year depth-to-static water level, "[t]he projected declines [in the water level] caused by existing uses." Id. R12-15-716(B)(3)(b); see also Silver, 241 Ariz. at 142 ¶ 39.

         ¶18 As Plaintiffs concede, Pueblo satisfies both prongs of the physical availability regulation. Pueblo's wells are located within its service area, which satisfies the first prong. The uncontested evidence from Pueblo's hydrologic model satisfies the second prong. The model shows that the development's groundwater will be withdrawn from a depth-to-static level of no greater than 650 feet after 100 years of pumping-well within the 1200-foot limit of A.A.C. R12-15-716(B)(2).

         ¶19 Although BLM did not challenge ADWR's physical availability finding in the superior court, the court of appeals relied on the "existing uses" language in A.A.C. R12-15-716(B)(3)(b) to require ADWR to consider BLM's unquantified federal reserved water right. Silver, 241 Ariz. at 142 ¶ 39. It reasoned that "[t]he water supporting [SPRNCA] is . . . an 'existing use'" that ADWR must consider in making its physical availability determination. Id. But by ordering ADWR to assess the impact of "projected declines" in groundwater supply caused by Pueblo's pumping on BLM's "existing use," the court of appeals misconstrued the physical availability regulation.

         ¶20 On its face, the regulation requires ADWR to do the converse. Namely, it requires the agency to measure the impact of "existing uses" on groundwater supply available for an applicant, not the impact of the applicant's proposed groundwater use on "existing uses." See A.A.C. R12-15-716(B)(3)(b). The regulation operates to ensure that enough groundwater is physically available in the aquifer to meet the needs of the applicant, after accounting for declines in supply "caused by existing uses." See id. The regulation is not a mechanism for considering potential legal disputes between groundwater users. Because Pueblo indisputably satisfies both prongs of the physical availability regulation, the court of appeals erred in requiring ADWR to consider BLM's unquantified federal reserved water right as part of the physical availability analysis.

         V. LEGAL AVAILABILITY

         ¶21 Plaintiffs and our dissenting colleagues contend that ADWR's legal availability regulation, A.A.C. R12-15-718, is unenforceable because it is inconsistent with § 45-108(I). We disagree. Section 45-108(I) requires, in part, that a proposed development's water supply be legally available "to satisfy the water needs of the proposed use for at least one hundred years," which Plaintiffs and the dissents view as meaning the agency must consider unquantified federal reserved water rights. A.A.C. R12-15-718 provides that a private water company (such as Pueblo) has a "legally available" supply of groundwater when it possesses a CC&N. See id. R12-15-718(B)(3)(a), (C).

         ¶22 "Our primary goal in interpreting statutes is to effectuate the legislature's intent" as expressed in the statute's text. Rasor v. Nw. Hosp., LLC, 243 Ariz. 160, 164 ¶ 20 (2017). If a statute is unambiguous, "we apply it without further analysis." Glazer, 237 Ariz. at 163 ¶ 12. If a statute is ambiguous, we may consider secondary tools of statutory construction, including the prior-construction canon of statutory interpretation. Cf. Moore v. Chilson, 26 Ariz. 244, 254 (1924) (recognizing the prior-construction canon); see also In re Marriage of Friedman & Roels, 244 Ariz. 111, 115 ¶ 14, 116 ¶ 20 (2018) (applying the prior-construction canon). According to that canon, "[i]f a statute uses words or phrases that have already received . . . uniform construction by . . . a responsible administrative agency, they are to be understood according to that construction." Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 322 (2012). The canon applies whenever the "administrative interpretation antedates the [legislative] enactment" because in such cases, "[t]he term has acquired . . . a technical legal sense," apart from its ordinary meaning, "that should be given effect." Id. at 324; see also Fed. Deposit Ins. Corp. v. Phila. Gear Corp., 476 U.S. 426, 437 (1986) ("When the statute giving rise to the longstanding [agency] interpretation has been reenacted without pertinent change, the 'congressional failure to revise or repeal the agency's interpretation is persuasive evidence that the interpretation is the one intended by Congress.'" (quoting NLRB v. Bell Aerospace, 416 U.S. 267, 275 (1974))); Bell Aerospace, 416 U.S. at 274-75 ("[A] court may accord great weight to the longstanding interpretation placed on a statute by an agency charged with its administration.").

         ¶23 Here, the term "legally available" is ambiguous concerning consideration of unquantified federal reserved water rights. In fact, the statutory scheme is silent on the issue. It does not mention federal reserved water rights at all, nor does it define "legally available." It is also not apparent from the term's plain language that it encompasses unquantified water rights that cannot be enforced now (or possibly ever) to enjoin a developer's groundwater pumping. "Legally available" could be interpreted as requiring ADWR to consider every conceivable water right that might someday affect a prospective developer's right to pump groundwater. Alternatively, it could mean that ADWR is only required to consider conflicting rights that are presently enforceable, or that a developer has a right to pump groundwater pursuant to the reasonable use doctrine. In other words, "legally available" is a broad phrase that could be interpreted in myriad ways. Indeed, it is a textbook example of a term that is "[c]apable of being understood in either of two or more possible senses" or "[u]ncertain as regards course or outcome" -the dictionary definitions of "ambiguous." Ambiguous, Webster's Second New International Dictionary 81 (1949).

         ¶24 Chief Justice Bales' dissent hinges on the premise that "legally available" is unambiguous and requires ADWR to consider unquantified federal reserved water rights. He reasons that "[i]f the legislature had meant that a CC&N alone could establish 'legal availability,' it could have easily said so." Infra ¶ 54. However, the legislature could have also said that "ADWR shall consider unquantified federal reserved water rights in making its legal availability ...