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Case 1:01-cv-00591-FMA

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In The United States Court of Federal Claims
No. 01-591 L (Filed: August 31, 2005) __________ KLAMATH IRRIGATION DISTRICT, et al., Plaintiffs, v. THE UNITED STATES, Defendant, PACIFIC COAST FEDERATION OF FISHERMEN'S ASSOCIATIONS, Defendant-Intervenor. * Motions for partial summary judgment; * Takings claims under Fifth Amendment; * Contract claims; Interests in water of the * Klamath Basin; Private property; Federal * reclamation law Reclamation Act of * 1902; Section 8 - appurtenancy and * beneficial use clause; California; Water * distribution to be determined under state * law; Ickes line of cases; State law * Oregon Act of 1905; Pre-1905 interests; * Post-1905 interests; Interests based on * contracts; Third-party beneficiaries; * Standing of districts to sue; Interests * based on deeds and certificates. __________ OPINION __________ Nancie Gail Marzulla and Roger J. Marzulla, Marzulla & Marzulla, Washington, D.C., for plaintiffs. Kristine Sears Tardiff, United States Department of Justice, Washington, D.C., with whom was Assistant Attorney General Thomas L Sansonetti, for defendant. Todd Dale True, Earthjustice Legal Defense Fund, Seattle, Washington, and Robert B. Wiygul, Waltzer & Associates, Biloxi, Mississippi, for defendant-intervenor.1 ALLEGRA, Judge:

An amicus curiae memorandum was filed by John D. Echeverria, Georgetown Environmental Law & Policy Institute, Georgetown University Law School, on behalf of the Natural Resources Defense Council and in support of defendant. Various other amici have participated in this litigation, including the State of Oregon, the Yurok Tribes, the Klamath Tribes, the Sierra Club, the Northcoast Environmental Center, Waterwatch of Oregon, the Oregon Natural Resources Council, the Klamath Forest Alliance, the Wilderness Society, and the Institute for Fisheries Resources.

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What is property? The derivation of the word is simple enough, arising from the Latin proprietas or "ownership," in turn stemming from proprius, meaning "own" or "proper." But, this etymology reveals little. Philosophers such as Aristotle, Cicero, Seneca, Grotius, Pufendorf and Locke each, in turn, have debated the meaning of this term, as later did legal luminaries such as Blackstone, Madison and Holmes, and even economists such as Coase. Here, the court must give practical meaning to the term "property" as used in a specific legal context, a constitutional one, to wit, the Fifth Amendment's mandate "nor shall private property be taken for public use, without just compensation." In the case sub judice, a group of water districts and individual farmers seek just compensation under the Fifth Amendment, as well as damages for breach of contract, owing to temporary reductions made in 2001 by the Department of Interior's Bureau of Reclamation (the Bureau) on the use, for irrigation purposes, of the water resources of the Klamath Basin of southern Oregon and northern California. At issue in the pending cross-motions for partial summary judgment is whether plaintiffs' various interests in the use of Klamath River Basin water constitute cognizable property interests for purposes of the Takings Clause. Relatedly, the court must consider the limitations, if any, inherent in such interests, particularly regarding various forms of contract rights possessed by the plaintiffs to receive water from the Klamath Basin reclamation project. As will be seen, it is ultimately these contract rights, and not any independent interests in the relevant waters, that dominate the analysis here. TABLE OF CONTENTS I. Facts and Background ...................................................................................................3 A. B. C. D. E. II. Plaintiffs ...............................................................................................................3 The Federal Reclamation Laws ............................................................................3 The Klamath Project ............................................................................................5 Water Rights in Oregon and the Klamath Project ................................................7 History of this Litigation .....................................................................................10 .....................................................................................................................13

Discussion A. B.

Federal Reclamation Law ................................................................................... 14 State Law .............................................................................................................24 1. 2. 3. Pre-1905 Potential Interests .....................................................................29 Post-1905 Potential Interests ....................................................................30 The Nature of the Interests Created in the Post-1905 Transactions .........35 a. Interests based on contracts ..........................................................35 b. Interests based upon applications for water rights or post-1953 grants of water rights by the State of Oregon ...............................46

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III

Conclusion........................................................................................................................48 Appendix...........................................................................................................................49

I.

FACTS AND BACKGROUND2 A. Plaintiffs

Plaintiffs 13 agricultural landowners and 14 water, drainage or irrigation districts in the Klamath River Basin area of Oregon and northern California all receive, directly or indirectly, water from irrigation works constructed or operated by the Bureau. They trace their alleged interests in that water to a variety of sources, including federal reclamation law, general state water law principles, water-delivery contracts between the irrigation districts and the United States, deeds to real property purporting to convey a right to receive water, and a federal-state water law compact. The landowning plaintiffs seek just compensation both as beneficiaries of the district plaintiffs' contracts with the United States and as owners of what they describe as "Klamath Project water rights" that exist independently of the district contracts. The districts, in turn, seek breach of contract damages, as well as just compensation on behalf of their members, who are the beneficiaries of the district contracts and the persons ultimately harmed by the Bureau's reduction in water deliveries in 2001. B. The Federal Reclamation Laws

The Reclamation Act of 1902, ch. 1093, 32 Stat. 388 (codified, as amended, at 43 U.S.C. 371 et seq.) (the Reclamation Act), directed the Secretary of the Interior (the Secretary) to reclaim arid lands in certain states through irrigation projects and then open those lands to entry by homesteaders. As recently recounted by the Supreme Court, this enactment "set in motion a massive program to provide federal financing, construction, and operation of water storage and distribution projects to reclaim arid lands in many Western States." Orff v. United States, 125 S.Ct. 2606, 2608 (2005); see also Nevada v. United States, 463 U.S. 110, 115 (1983); California v. United States, 438 U.S. 645, 650 (1978). Congress originally envisioned that the United States would "withdraw from public entry arid lands in specified western States, reclaim the lands through irrigation projects," and then "restore the lands to entry pursuant to the homestead laws and certain conditions imposed by the Act itself." Nevada, 463 U.S. at 115. Nonetheless, Congress specifically directed, in section 8 of the Reclamation Act, that the United States would act in accordance with state law to acquire title to the water used. 32 Stat. 390 (codified, in part, at 43 U.S.C. 383); see California, 438 U.S. at 650-51. It gave the Department of the Interior responsibility for constructing reclamation projects and for administering the distribution of

These facts shall be deemed established for purposes of future proceedings in this case. RCFC 56(d). -3-

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water to agricultural users in a project service area. See Reclamation Act, 2-10, 32 Stat. 388-90. In 1911, Congress enacted the Warren Act, ch. 141, 36 Stat. 925 (codified at 43 U.S.C. 523-25), section 2 of which authorized the Secretary "to cooperate with irrigation districts, water users' associations, corporations, entrymen or water users . . . for impounding, delivering, and carrying water for irrigation purposes." 43 U.S.C. 524. Under a 1912 amendment of the Reclamation Act, individual water users served by a reclamation project could acquire a "water-right certificate" by proving that they had cultivated and reclaimed the land to which the certificate applied. Act of Aug. 9, 1912, ch. 278, 1, 37 Stat. 265 (codified, as amended, at 43 U.S.C. 541). Congress required that the individual's land patent and water right certificate would "expressly reserve to the United States a prior lien" for the payment of sums due to the United States in connection with the reclamation project. 2, 37 Stat. 266 (codified at 43 U.S.C. 542). In 1922, Congress enacted legislation expanding the United States' options to allow it to contract not only with individual water users, but also with "any legally organized irrigation district." Act of May 15, 1922, ch. 190, 1, 42 Stat. 541 (codified at 43 U.S.C. 511). In the event of such a district contract, the United States was authorized to release liens against individual landowners, provided that the landowners agreed to be subject to "assessment and levy for the collection of all moneys due and to become due to the United States by irrigation districts formed pursuant to State law and with which the United States shall have entered into contract therefor." 2, 42 Stat. 542 (codified at 43 U.S.C. 512).3 The Fact-Finders Act of 1924, 43 Stat. 702 (codified at 43 U.S.C. 500-01), required that once two-thirds of a division of a reclamation project was covered by individual water-rights contracts, that division was required to organize itself into an irrigation district or similar entity in order to qualify for certain financial incentives. The newly-formed district would, thereafter, assume the "care, operation, and maintenance" of the project, and the United States would deal directly with the district instead of the individual water users. Id.

The legislative history of the 1922 act reflects that Congress viewed these changes as significant. See H.R. Rep. No. 662, at 2 (1922) ("the Federal Government is dealing with the irrigation district instead of the individual owner or water users' association"); 62 Cong. Rec. 3573 (1922) (statement of Rep. Kinkaid) ("This language authorizes the taking of the district collectively, taking the lands of the district collectively, for the payment of the cost of the construction of the irrigation works, in lieu of holding each farm unit singly for its proportionate share of the cost of the construction."); id. at 3575 (statement of Rep. Mondell) ("The Reclamation Service has for years encouraged the organization of irrigation districts . . . whereby the water users as a body, as a whole, become responsible for all of the charges."); id. at 5859 (statement of Sen. McNary) ("the Government is dealing with organized irrigation districts rather than the various individual entrymen who take water in the projects"). -4-

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In 1926, Congress enacted additional measures providing that, thenceforth, the United States could enter into contracts for reclamation water only with "an irrigation district or irrigation districts organized under State law." Act of May 25, 1926, ch. 383, 46, 44 Stat. 649 (codified as amended at 43 U.S.C. 423e). Thereafter, the United States contracted exclusively with irrigation districts. The exclusivity of these arrangements was reemphasized in the Reclamation Act of 1939, ch. 418, 53 Stat. 1187, section 9(d) of which provided that "[n]o water may be delivered for irrigation of lands . . . until an organization, satisfactory in form and powers to the Secretary, has entered into a repayment contract with the United States." 53 Stat. at 1195 (codified at 43 U.S.C. 485h(d)). Various provisions in these reclamation laws expressed Congress' desire to create a financing mechanism that would allow the government to recoup the costs of constructing and operating the reclamation projects by requiring the irrigation districts to reimburse the United States for water delivery costs through long-term water service contracts. See 43 U.S.C. 391, 419, 423e, 423f, 461, 485a, 485b-1, 492-93. However, there are indications that this financing mechanism has not worked as originally anticipated, leaving significant reclamation costs unamortized. Studies conducted by the General Accounting Office (GAO) have documented this failure and attributed it to several causes: (i) while spreading project repayment obligations over several decades, Congress did not require the payment of interest on the costs of the project, see 42 U.S.C. 485a; (ii) Congress generally has limited the repayment obligation to only those costs that are considered within the irrigation district's ability to pay, see 43 U.S.C. 485b-1(b); and (iii) Congress has enacted charge-offs that selectively eliminate portions of the repayment obligations in the case of certain projects. See GAO, Rep. No. 96-109, Bureau of Reclamations: Information on Allocation and Repayment of Costs of Constructing Water Projects 15-22 (1996); GAO, Rep. No. 81-07, Federal Charges for Irrigation Projects Reviewed Do Not Cover Costs 912 (1981). The parties disagree as to the existence (and, if so, extent) of such a shortfall as to the Klamath Reclamation Project (the Klamath Project). C. The Klamath Project

The Klamath River Basin, naturally a semi-arid region, has been the site of extensive water reclamation and irrigation projects since the late nineteenth century. The Klamath Project, originally authorized in 1905, was one of the first to be constructed under the Reclamation Act. See Bennett v. Spear, 520 U.S. 154, 158-59 (1997); Tulelake Irrigation Distr. v. United States, 342 F.2d 447, 448 (Ct. Cl. 1965). The federal legislation authorizing the project provided, inter alia, that "the Secretary of the Interior is hereby authorized in carrying out any irrigation project . . . to raise or lower the level of" the lakes and rivers of the Klamath River Basin "as may be necessary and to dispose of any lands which may come into the possession of the United States as a result thereof." Act of February 9, 1905, ch. 567, 33 Stat. 714 (codified at 43 U.S.C. 601). The Klamath Project provides water to about 240,000 acres of irrigable land, as well as several national wildlife refuges. It is operated by the Bureau to "serve[] and affect[] a number of interests," including the supply of irrigation water to agricultural interests in the Klamath -5-

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River Basin and the supply of water to the Tule Lake and Lower Klamath National Wildlife Refuges "for permanent and seasonal marshlands and irrigated crop lands." Pacific Coast Federation of Fishermen's Associations v. Bureau of Reclamation, 138 F. Supp.2d 1228, 1230 (N.D. Cal. 2001) (hereinafter PCFFA). Water for the project is stored primarily in Upper Klamath Lake, on the Klamath River in Oregon. See Kandra v. United States, 145 F. Supp.2d 1192, 1196 (D. Or. 2001). The Link River Dam regulates water flows from Upper Klamath Lake into the lower portions of the Klamath River. Id. The Klamath Project lacks a major water storage reservoir, and because Upper Klamath Lake is itself relatively shallow and "unable to capture and store large quantities of water from spring run-off," the Bureau is unable to store up enough water during wet years for use in subsequent dry years a fact that apparently makes the Klamath Project more vulnerable to droughts. Id. at 1197. In operating the Klamath Project, the Bureau prepares periodic streamflow forecasts and annual operating plans "in order to provide operating criteria and to assist water users and resource managers in planning for the water year." Kandra, 145 F. Supp.2d at 1197. In the late 1990s, the Bureau announced its intent to establish a new, long-term operating plan for the project. As of mid-2001, that plan was still not in place, and the Bureau instead was operating the Project using one-year interim plans. Id. at 1197; see PCFFA, 138 F. Supp.2d at 1232. Those plans required it to "manage water resources carefully in order to meet . . . competing purposes and obligations," a balance that was particularly difficult to strike because of the limited storage capacity caused by the shallowness of the lake. PCFFA, 138 F. Supp.2d at 1231. In its operations, the Bureau must take into account its obligation, under the Endangered Species Act (ESA), to ensure that project operations are not "likely to jeopardize the continued existence of any endangered species." 16 U.S.C. 1536(a)(2). In regards to this statute, the Supreme Court has stated: "[t]he plain intent of Congress in enacting this statute was to halt and reverse the trend toward species extinction, whatever the cost." Tennessee Valley Authority v. Hill, 437 U.S. 153, 184 (1978). That obligation requires the agency to perform a biological assessment "for the purpose of identifying any endangered species which is likely to affected" by the operations of the Klamath Project. 16 U.S.C. 1536(c)(1). The Bureau has delegated its authority to conduct such assessments for two species the coho salmon and suckerfish to the National Marine Fisheries Service (NMFS) and the Fish and Wildlife Service (FWS), respectively.4 See 50 C.F.R. 17.11, 402.01(b). Under the ESA, if the Bureau determines that an endangered or threatened species may be affected by its proposed action, it must send the NMFS or the FWS a request for a "formal consultation," in response to which the appropriate agency will produce its biological opinion. See 16 U.S.C. 1536(a)(2), (b); 50 C.F.R. 402.14. "If the Biological Opinion concludes that the proposed action is likely to jeopardize a protected species, the agency must modify its proposal" to alter that result. See Natural Resources Defense Council v. Houston, 146 F.3d 1118, 1125 (9th Cir. 1999), cert. denied, 526 U.S. 1111 (1999).

NMFS is now part of the National Oceanographic and Atmospheric Administration (NOAA) and known as "NOAA Fisheries." For the sake of clarity and convenience, the court will continue to use this agency's old title in this opinion. -6-

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Failure to observe this procedure has led to litigation and injunctive relief against the Bureau for violating the ESA. See, e.g., PCFFA, 138 F. Supp.2d at 1248. D. Water Rights in Oregon and the Klamath Project

Shortly after passage of the 1905 federal authorization for the Klamath Project, the State of Oregon enacted legislation permitting an appropriate Federal official to file with the State Engineer "a written notice that the United States intends to utilize certain specified waters . . . unappropriated at the time of the filing." Or. Gen. Laws, 1905, Ch. 228, 2, p. 401. The filing of such a notice would result in those waters being "deemed to have been appropriated by the United States" and "not . . . subject to further appropriation" under state law. Id. at 401-02 On May 17, 1905, the Bureau filed a notice indicating that "the United States intends to utilize . . . [a]ll of the waters of the Klamath Basin in Oregon, constituting the entire drainage basins of the Klamath river and Lost river, and all of the lakes, streams and rivers supplying water thereto or receiving water therefrom" for purposes of the "operation of works for the utilization of water . . . under the provisions of the . . . Reclamation Act." Agents of the United States also posted notices of its appropriation on sites along the Klamath and Link Rivers in Oregon and in the California portions of the Basin. In 1905, the Oregon legislature passed a second law, providing that "for the purpose of aiding in the operations of irrigation and reclamation . . . the United States is hereby authorized to lower the water level of" various Klamath Basin lakes. Or. Gen. Laws, 1905, ch. 5, 1, p. 63. This law ceded to the United States "all the right, title, interest, or claim of this State to any land uncovered by the lowering of the water levels." Id. The reclaimed lands were ultimately sold or ceded by the United States to homesteaders, including predecessors to some of the plaintiffs in this action. The Bureau required these and other homesteaders who wished to receive deliveries of Project water to file with the Bureau one of two "water rights applications." The first type, a "Form A" water rights application, was used by homesteaders on reclaimed land and, by its terms, generally sought sufficient water as "may be applied beneficially in accordance with good usage in the irrigation of the land." This form included a "water shortage" clause that allowed the applicant an "equitable proportionate share . . . of the water actually available." The second type of application, a "Form B" water rights application, was used by existing landowners in the Basin who were not on reclaimed lands. This form typically provided that "the measure of the water right" applied for was "that quantity of water which shall be beneficially used for the irrigation" of the applicant's land, "but in no case exceeding the share proportionate to irrigable acreage, of the water supply actually available as determined by the Project Manager or other proper officer of the United States." By 1911, when the Warren Act was passed, apart from the United States, water rights in the Klamath Project were mostly held by individual landowners although as early as 1905, the Bureau entered into a "repayment contract" with an incorporated entity, the Klamath Water Users Association, which was made up of owners and occupiers of lands within the Project, some of whom were already appropriators of water for irrigation. According to this contract, the -7-

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association "guarantee[d] the payments [to the United States] for that part of the cost of the irrigation works apportioned by the Secretary of the Interior to each shareholder" and also undertook to collect shareholders' payments on the government's behalf. It appears that at least ten of the plaintiff irrigation, drainage or water districts in this action initially entered into contracts with the Bureau under the auspices of the Warren Act.5 As noted above, the decades that followed saw the reclamation laws shift away from having the Bureau enter into individual water-rights contracts and toward district-level water delivery contracts. As part of this trend, 13 of the 14 districts involved in this action eventually obtained contracts with the Bureau for the delivery of Klamath Project water.6 The fourteenth district, Klamath Hills District Improvement Company, has no such contract. Of the 13 districts that have water delivery contracts with the Bureau, eight include provisions holding the United States harmless for "any damage, direct or indirect," resulting "[o]n account of drought or other causes" of "a shortage in the quantity of water available" from Project sources.7 Some of those provisions also require the United States to "use all reasonable means to guard against such shortage[s]." Four other districts' contracts include a similar provision stating that "[t]he United States shall not be liable for failure to supply water under this contract caused by . . . unusual drought."8 The contract for plaintiff Van Brimmer Ditch Company includes no such shortage provision. Certain individual water users' application contracts with the Bureau plainly have been superseded by the district-level contracts, under which the districts assumed both the individual water users' repayment obligations and the Bureau's water delivery obligations. The Bureau's

Those 10 are Klamath Drainage District, Sunnyside Irrigation District, Klamath Basin Improvement District, Malin Irrigation District, Westside Improvement District No. 4, Shasta View Irrigation District, Poe Valley Improvement District, Midland District Improvement Co., Enterprise Irrigation District, and Pine Grove Irrigation District. Those 13 are Klamath Irrigation District, Klamath Drainage District, Tulelake Irrigation District, Sunnyside Irrigation District, Klamath Basin Improvement District, Malin Irrigation District, Westside Improvement District No. 4, Shasta View Irrigation District, Poe Valley Improvement District, Midland District Improvement Co., Enterprise Irrigation District, Pine Grove Irrigation District, and Van Brimmer Ditch Company. Those 8 with the same or substantially similar provisions are Klamath Irrigation District, Tulelake Irrigation District, Klamath Drainage District, Sunnyside Irrigation District, Klamath Basin Improvement District, Malin Irrigation District, Westside Improvement District No. 4, and Shasta View Irrigation District. Those four are Enterprise Irrigation District, Poe Valley Improvement District, Midland District Improvement Co., and Pine Grove Irrigation District. The Poe Valley and Midland contracts omit the word "unusual" before "drought." -88 7 6

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September 10, 1956, contract with Tulelake Irrigation District, for example, states that "[t]he United States hereby consents to the cancellation of individual water right applications issued pursuant to Public Notice No. 13 of September 29, 1922 . . . . [u]pon the furnishing to the United States of the written consent of the person or persons in whose ownership said individual water right application is vested." Likewise, the July 20, 1953, contract between the Bureau and the Poe Valley Improvement District provides that "[t]he United States and the District agree and recognize that certain lands included within the District are subject to contracts with the United States for water supply, and that it is the intent of the parties to such contracts to terminate the same," subject to enumerated conditions. And the November 29, 1954, contract with the Klamath Irrigation District provides that "[t]he District hereby assumes and agrees to carry out . . . all the obligations imposed upon the United States by the contracts listed on Exhibit `A' . . . for the carriage and delivery of water," and that "the District shall be entitled to collect and retain for its own use . . . all revenues payable to the United States under the hereinabove mentioned contracts." This contract also states, however, that "[a]ll other provisions of said contracts shall remain unaffected hereby." Other district contracts, however, make no mention of the individual water users' contracts and do not explicitly provide for the cancellation of the individual water rights applications of the district members; several do state that the water rights accruing to the district under the contract are "inferior and subject to prior rights reserved for the lands of the Klamath Project." Several plaintiffs claim other sources of property rights in Klamath Project water. Thus, certain plaintiffs who acquired their land as homesteaders were, after complying with a regulatory scheme, granted title to their land in "patent deeds." To obtain a patent deed, homesteaders were required to file with the Bureau two documents: an Application for Permanent Water Right Form A, and an affidavit "attesting to the fact that [the homesteader] had put [the] Klamath Project water to beneficial use." Once an applicant met the requirements, he was issued the patent deed conveying the land "together with the right to the use of water from the Klamath Reclamation Project as an appurtenance to the irrigable lands . . . subject to any vested and accrued water rights for mining, agricultural, manufacturing, or other purposes." The parties disagree as to the scope of the interest in irrigation water conveyed by the patent deeds. Two of the plaintiffs, the Klamath Drainage District and the Klamath Hills District Improvement Company, hold water right permits that they claim evidence their ownership of a "vested and determined water right" under Oregon law. These permits, which were limited both in terms of a specific cubic feet per second of water, as well as to the amount of water that could be applied to beneficial use, were issued after the State of Oregon repealed the 1905 law in 1953. In addition, it should not be overlooked that a number of Oregon tribes, including the Klamath and Yurok, hold fishing and water treaty rights in the Klamath Project waters. In some instances, these rights derive from treaties, see Treaty of 1864, 16 Stat. 708; Or. Dept. of Fish & Wildlife v. Klamath Indian Tribe, 473 U.S. 753, 766-78 (1985), while, in other instances, they were created by statute and executive order, see Hoopa-Yurok Settlement Act of 1988, Pub. L. No. 100-580, 102 Stat. 2924 (confirming the existence of these water rights).

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Oregon state law has a procedure for sorting out certain competing interests to water. Thus, the Water Rights Act of 1909 authorizes the adjudication of federal reserved and state law water rights initiated prior to the passage of the Act. See Or. Rev. Stat. 539.005-240 (2003). All water rights "that had vested prior to 1909, but had never been subject to a judicial determination" were "left intact as `undetermined vested rights.'" United States v. Oregon, 44 F.3d 758, 764 (9th Cir. 1994) (quoting Or. Rev. Stat. 536.007(11)). Any person holding an "undetermined vested right" or federal reserved right is required to file a "registration statement" with the Oregon Water Resources Department that must state, among other things, the stream from which the claimed water was diverted, the claimed beneficial use to which it was put, and the time the claimed used first began. See Or. Rev. Stat. 539.240(2). All such claims are then entered into the state's records, and are made subject to a final determination of rights in a statutory adjudication process. See Or. Rev. Stat. 539.240(8), 539.10-240; see also United States v. Oregon, 44 F.3d at 764. An adjudication process for the Klamath River Basin (the Adjudication) was initiated in 1976 and remains pending. The Bureau, plaintiffs, and a variety of other organizations and individuals have filed competing claims in that proceeding. No final decisions regarding those claims have been rendered. E. History of this Litigation

For decades, Klamath Basin landowners generally received as much water for irrigation as they needed. In severe drought years, they simply received somewhat less. That changed in the spring of 2001, when several federal agencies produced studies indicating that water levels in the basin were so low as to threaten the health and survival of certain endangered species. Water forecasts for 2001 predicted that year would be "critical[ly] dry," with an inflow volume into Upper Klamath Lake of 108,000 acre-feet from April through September "the smallest amount of inflow on record." Kandra, 145 F. Supp. 2d at 1198. In January, 2001, the Bureau forwarded a biological assessment of the Project's operations on the coho salmon and requested the initiation of formal consultation with the NMFS under section 7 of the ESA. Id. A similar assessment regarding the endangered shortnose and Lost River suckerfish two species that "live in Upper Klamath Lake and nearby Project waters and nowhere else," PCFFA, 138 F. Supp. 2d at 1230 was forwarded to the FWS in March 2001. Kandra, 145 F. Supp. 2d at 1198. Both assessments concluded that operation of the Project was likely to affect adversely the three species in violation of the ESA, 16 U.S.C. 1531, et seq. The two agencies then performed their own analyses and delivered draft Biological Opinions in March, 2001. Both draft opinions concluded that the Project's operations in 2001 would jeopardize the endangered species in question. Upon review of those opinions and the "reasonably prudent alternatives" for the benefit of the fish proposed in them, the Bureau advised the agencies that "the forecasted water supplies for 2001 were not adequate to meet the needs" of the proposed alternatives, which involved maintaining water levels and river flows sufficient to increase water quality for the endangered fishes' habitat. On March 28, 2001, the Governor of Oregon issued an executive order declaring a "state of Drought Emergency in Klamath County." -10-

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On April 5, 2001, the FWS, acting in furtherance of its statutory duties under the ESA, issued a final biological opinion concluding that the proposed 2001 Operation Plan for Upper Klamath Lake, Link River Dam, Tulelake, and the related irrigation delivery facilities threatened the continued existence of the shortnose and Lost River sucker fish. Noting that 2001 was "likely to be the driest year on record," resulting in "extremely limited water resources" in the Basin, the opinion concluded that the proposed operation plan for 2001 would likely result in "loss of larval and juvenile sucker habitat at critical phases of their life cycle," significantly increased "loss of life" among suckerfish, and potentially lethal water quality conditions. The next day, on April 6, 2001, the NMFS issued a final biological opinion concluding that the proposed Operation Plan threatened the coho salmon. The opinion concluded that the proposed plan would "result in the continued decline in habitat conditions" such that "the survival and abundance of . . . coho salmon would be expected to decrease." See NMFS Biological Opinion for Klamath Project Operations 3 (May 31, 2002) (describing conclusions of Biological Opinion issued April 6, 2001). As required by the ESA, the biological opinions of both agencies included "reasonable and prudent alternatives"9 to address the threat to the three fish species, including reducing the amount of water available during 2001 for irrigation from Upper Klamath Lake. On April 6, 2001, the Bureau issued a revised Operation Plan that incorporated the "reasonably prudent alternatives" proposed by the agencies. That plan terminated the delivery of irrigation water to plaintiffs for the year 2001.10 Three days later, on April 9, 2001, two of the plaintiffs herein, the Klamath Irrigation District and the Tulelake Irrigation District, filed a breach-of-contract action in the U.S. District Court for the District of Oregon to challenge the validity of the biological opinions and to enjoin the Bureau from implementing the revised Operation Plan. That court denied a preliminary injunction motion, and the two districts voluntarily dismissed their suit in early October 2001. On October 11, 2001, plaintiffs then brought suit in this court. Their complaint raised two claims: one for just compensation for their water rights, which they aver were taken by defendant's termination of delivery of irrigation water in 2001; and another for just compensation for the impairment of their water rights, which they allege were recognized and vested by the interstate agreement known as the Klamath Basin Compact.

The ESA directs the Secretary of the Interior or the Secretary of Commerce to suggest "reasonable and prudent alternatives" when consulted about Federal activities that might adversely affect endangered species. See Tulare Lake Basin Storage Dist. v. United States, 49 Fed. Cl. 313, 315 n.2 (2001) (citing 16 U.S.C. 1536(b)(3)(A)). Plaintiffs concede that defendant released 70,000 acre-feet of Klamath Project water to users in July 2001, but assert that this delivery came too late in the growing season to allow them to grow crops. -1110

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In May 2002, defendant filed a motion to stay this action, arguing that the rights claimed by plaintiffs are "a matter of state law," and that because the "questions at issue in the Adjudication also are required elements of Plaintiffs' takings claims," this court should stay this action pending resolution of the Adjudication. On March 24, 2003, plaintiffs filed an amended complaint, in which, in addition to their prior takings claims, they added a breach of contract count. In September 2003, plaintiffs filed a motion for partial summary judgment seeking a determination that their interests in Klamath Project water were not property interests at issue in the Adjudication. On October 3, 2003, defendant filed a cross-motion for summary judgment on the issue of the nature and scope of plaintiffs' property interest in Klamath Project water and the question whether that interest was a compensable property interest for purposes of the Takings Clause of the Fifth Amendment. On November 13, 2003, this court denied defendant's motion to stay and granted plaintiff's motion for partial summary judgment, concluding that plaintiffs' claim "assert[ed] no property interest determinable in the Adjudication," because plaintiffs claim not title to, "but only `vested beneficial interests' in, the Klamath Basin Project water." This action was then permitted to proceed with the understanding that "plaintiffs are barred from making any claims or seeking any relief in this case based on rights, titles, or interests that are or may be subject to determination in the Adjudication."11 On January 27, 2004, plaintiffs filed a cross-motion for summary judgment on the issues of the nature and scope of their property interest and whether the United States was liable to pay just compensation for the taking of that interest. On March 23, 2004, the court granted defendant's motion to hold in abeyance the portions of plaintiffs' brief addressing the issue of ultimate liability. This case was transferred to the undersigned on December 9, 2004. On January 11, 2005, plaintiffs were permitted to file a second amended complaint, in which they reduced their damages claim. On February 28, 2005, the court granted a motion to intervene filed by the Pacific Coast Federation of Fishermen's Associations. See Klamath Irrigation Dist. v. United States, 64 Fed. Cl. 328 (2005). On March 14, 2005, the parties simultaneously filed supplemental briefs on the property right issue. Two weeks later, on March 30, 2005, the court held oral argument on the parties' cross-motions for summary judgment on the property rights issue.12 It bears noting at this juncture that there is no per se rule requiring this court to abstain in favor of a state water rights adjudication. Indeed, as a general rule, "federal courts have a virtually unflagging obligation . . . to exercise the jurisdiction given them." Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 15 (1983) (quoting Colorado River. 424 U.S. 800, 817 (1976)); see also New Orleans Public Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 358 (1989) ("The [federal] courts . . . are bound to proceed to judgment . . . in every case to which their jurisdiction extends."). On April 12, 2005, plaintiff filed a motion to reconsider the court's order granting, in part, and denying, in part, the motion to intervene. On April 21, 2005, the court denied plaintiff's motion to reconsider and, by separate order, invited defendant and defendant-intervenor to file short briefs replying to portions of plaintiff's reconsideration motion that appeared to be directed at the property-rights issue. On May 19, 2005, defendant and defendant-intervenor filed -1212 11

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II.

DISCUSSION

Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. RCFC 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The Takings Clause of the Fifth Amendment provides: "[N]or shall private property be taken for public use, without just compensation." U.S. Const. amend. V. In order to prevail on their claim under this amendment, the plaintiff-irrigators must each establish that they had a property interest in the waters of the Klamath Basin as of the date of the alleged taking in 2001.13 Whether their respective interests in the waters of the Klamath Basin qualified as "private property" protected by the Fifth Amendment is ultimately a question of federal constitutional law. Powelson, 319 U.S. at 279. However, "[b]ecause the Constitution protects rather than creates property interests," Phillips v. Wash. Legal Foundation, 524 U.S. 156, 164 (1998), "property," for purposes of the Takings Clause, is defined by law independent of the Fifth Amendment. Thus, it has been said that "[t]he Constitution neither creates nor defines the scope of property interests compensable under the Fifth Amendment," which interests instead are defined by "`existing rules or understandings' and `background principles' derived from an independent source, such as state, federal, or common law." Maritrans Inc. v. United States, 342 F.3d 1344, 1352 (Fed. Cir. 2003) (quoting Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1030 (1992)).14 Under these principles, it is axiomatic that "not all economic interests are `property rights'; only those economic advantages are `rights' which have the law back of them." United States v. Willow River Power Co., 324 U.S. 499, 502 (1945); see also Thomas W. Merrill, "The Landscape of Constitutional Property," 86 Va. L. Rev. 885, 970-81 (2000).15

supplemental briefs in response to the court's order of April 21, 2005. Additional memoranda were filed by the parties on July 14, 2005, and July 22, 2005. See Karuk Tribe v. Ammon, 209 F.3d 1366, 1374 (Fed. Cir. 2000) (stating that under a takings analysis, "[f]irst, a court determines whether the plaintiff possesses a valid interest in the property affected by the governmental action"); Skip Kirchdorfer, Inc. v. United States, 6 F.3d 1573, 1580 (Fed. Cir.1993), cert. denied, 516 U.S. 870 (1995) (citing United States ex rel. Tennessee Valley Auth. v. Powelson, 319 U.S. 266, 281 (1943)). See also Palazzola v. Rhode Island, 533 U.S. 606, 626-28 (2001); Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972); Hansen v. United States, 65 Fed. Cl. 76, 123 (2005). Federal constitution law, of course, still impacts the definition of private property interests for purposes of the Takings Clause. In Lucas, supra, for example, the Supreme Court said that state-law definitions of private property rights must be based on an "objectively reasonable application of relevant precedents." 505 U.S. at 1032 n.18. Such objectivity is vital if the integrity of the Takings Clause is to be preserved as against entirely novel and unprincipled -1315 14 13

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In applying these principles to water, it is important to understand that the issue here is not who owns the water. Generally speaking, water "belongs to the public" and is held in trust by the states involved. See, e.g., California Oregon Power Co. v. Beaver Portland Cement Co., 295 U.S. 142 (1935); Shively v. Bowlby, 152 U.S. 1, 11-14 (1894). This is certainly true in the two States at issue, Oregon and California. See Or. Rev. Stat. 537.110 ("[a]ll water within the state from all sources of water supply belongs to the public"); Milton v. Coast Property Corp., 151 Or. 208, 213 (Or. 1935) (noting that Oregon statute dates to 1909); Cal. Const., Art. 10, 2. Rather, at least in the first instance, this case involves so-called "usufructuary" rights a right to use the water, ordinarily for a particular purpose and with specified limitations and priorities. Rencken v. Young, 300 Or. 352, 363 (Or. 1985); Rank v. Krug, 90 F. Supp. 773, 787 (C.D. Cal. 1950) ("Such water rights are `usufructuary, and consist not so much of the fluid itself as the advantage of its uses,' and have been so regarded since the earliest day.") (quoting Eddy v. Simpson, 3 Cal. 249 (Cal. 1853)).16 Based on these principles, the issues whether and, if so, to what extent, the plaintiffirrigators possess property rights in the waters of the Klamath Basin require the court to look at three possible sources for such rights: Federal law, apart from the Constitution; Oregon, and to the extent relevant, California, law; and, potentially, contract law, looking at whether the farmers acquired rights from a third party. The court will consider these potential sources, and the parties' conflicting arguments with respect thereto, seriatim. A. Federal Reclamation Law

Plaintiffs' banner assertion is that their property interests in the Klamath water spring from the Reclamation Act of 1902, 32 Stat. 388 (1902) (codified, as amended, at 43 U.S.C. 371 et seq.). Their view is bottomed on section 8 of that Act, which provides, in pertinent part:

definitions of property designed artificially to defeat or buttress a takings claim. See Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 164 (1980).
16

As explained in Rencken, 300 Ore. at 363

"[W]aters of a natural stream or other natural body of water are not susceptible of absolute ownership as specific tangible property. Prior to the segregation of water from the general source, the proprietary right is usufructuary in character." 1 Clark (ed.), Water and Water Rights 349 (1967) (footnotes omitted). "According to the modern accepted doctrine, it is the use of water, and not the water itself, in which one acquires property in general." Sherred v. City of Baker, 63 Or. 28, 39, 125 P. 826 (1912). See also Washoe County v. United States, 319 F.3d 1320, 1322 (Fed. Cir. 2003). -14-

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[N]othing in this Act shall be construed as affecting or intended 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, and nothing herein shall in any way affect any right of any State or of the Federal Government or of any landowner, appropriator, or use of water in, to, or from any interstate stream or the water thereof: Provided, That the right to 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 limit of the right. 32 Stat. 388, 390 (1902) (codified at 43 U.S.C. 372, 383 (2000)) (emphasis added). Focusing on the highlighted language, the irrigators asseverate that because they own the irrigated land that is appurtenant to the water in question, the statute confers upon them a property interest in that water. Thus, they contend, their interests in the water derive directly from Federal law, rather than the law of Oregon or California. There are sundry reasons, however, why this contention is rootless. To begin with, there is the statutory language.17 On its face, section 8 requires the Secretary, in carrying out his responsibilities under the Reclamation Act, to "proceed in conformity with" state laws relating to the "control, appropriation, use, or distribution of water." It is beyond peradventure that, rather than authorizing the Secretary to acquire his water rights independent of state law, this section treats the Secretary as an appropriator under the states' appropriation laws, requiring him to obtain his water rights in the same manner as others. Nothing in this language suggests that third parties, including irrigators, could obtain title to appropriative water rights at Bureau projects other than through state law. Indeed, while the Reclamation Act indicates that the right to the use of certain water "shall be appurtenant to the land irrigated," this language refers only to water "acquired under the provisions of this Act," which "provisions" require the claimant to obtain those rights in accordance with state law. Accordingly, the Reclamation Act does not, as plaintiffs intimate, independently define who owns interests in the water of Bureau projects, including the Klamath Basin. To the contrary, that question is controlled by state law, in this case, that of Oregon, or perhaps, California. This reading of the statute is confirmed by extensive legislative history. As private and state efforts at irrigating the arid lands of the West failed, pressure mounted during the last decade of the 19th century for some form of federal support for irrigation. Many bills were "Statutory construction must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose." Park 'N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985); see also BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004). In this regard, the Supreme Court has instructed that "[t]he plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole." Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). -1517

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introduced in Congress during this decade and up until 1902.18 As reflected in these bills, a primary point of contention was whether the irrigation projects should be built and operated by the Federal government or instead be built by the Western States using land ceded to them for this purpose. Ultimately, those who supported the Reclamation Act's passage, particularly representatives from the Western States that stood to benefit most from the Act's passage, convinced a majority that reclamation was a national function and that the projects should be built by the federal government.19 A robust secondary debate involved whether the Federal government or the States should control the appropriation and distribution of project water. Opponents of what would become the Reclamation Act espoused the view that, if the Federal government was to build and operate the projects, it should control the appropriation and distribution of the water. Supporters, however, retorted that this control should reside in the Western States, each of which, by this time, had regimes for dealing with water rights. They noted that the creation of a Federal regime for establishing water rights would inevitably compete with the preexisting state regimes, threatening a life-blood issue for the arid states and leading potentially to unintended results.20 The approach of placing control in the States, these See, e.g., 57th Cong., 1st Sess (1902): H.R. 52, H.R. 63, H.R. 125, S. 595, H.R. 7676, H.R. 9676, and S. 3057; 56th Cong., 2d Sess. (1901): H.R. 13846, S. 5833, H.R. 13993, H.R. 14072, H.R. 14088, H.R. 14165, H.R. 14192, H.R. 14203, H.R. 14241, H.R. 14250, H.R. 14280, H.R. 14388; 56th Cong., 1st Sess. (1900): S. 205, H.R. 5022; 55th Cong., 3d Sess. (1899): H.R. 11795; 55th Cong., 2d Sess. (1898): S. 4017, H.R. 9994. S. 3057 is the bill that ultimately became, as amended, the Reclamation Act. See H. Rep. No. 57-1468, at 3-4 (1902); S. Rep. No. 57-254, at 5 (1902); see also 35 Cong. Rec. 6675-76 (1902) (Cong. Mondell); id. at 6673, 6734 (Cong. Newlands); id. at 6673 (Cong. Shafroth); id. at 6740 (Cong. Reeder). President Roosevelt, a main supporter of this approach, stated in a 1901 message to Congress that "[t]he distribution of the water, the division of the streams among irrigators, should be left to the settlers themselves in conformity with State laws and without interference with those laws or with vested rights." 35 Cong. Rec. 6775 (1902). Senator Clark of Wyoming, the chief senatorial sponsor of S. 3057, which became the Reclamation Act, disclaimed the notion that "a great Government bureau . . . shall have control of all the . . . waters in our arid regions." 35 Cong. Rec. at 2222. In a floor statement, he further explained The question of the conservation of waters is one of national importance; the question of reservoir sites and reservoir building is one that appeals to the Government as a matter of national import, but the question of State or Territorial control of waters after having been released from their bondage in the reservoirs which have been provided is a separate and distinct proposition. . . . [I]t is right and proper that the various States and Territories should control in the distribution. The conditions in each and every State and Territory are different. What would be applicable in one locality is totally and absolutely inapplicable in another. . . . [T]o take from the legislatures of the various States and Territories, -1620 19 18

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legislators emphasized, had been adopted by Congress in passing the Mining Acts of 1866 and 1870, and the Desert Land Act of 1877.21 The legislative history not to mention the statutory language reflects that the latter view won out. In this regard, the relevant Senate Report provided that "[b]y section 8 there is to . . . be no interference with State or Territorial laws on the subject of irrigation." S. Rep. No. 254, supra, at 2. The accompanying House Report, in much greater detail, adumbrates that "[s]ection 8 recognizes State control over waters of nonnavigable streams such as are used in irrigation, and instructs the Secretary of the Interior in carrying out the provisions of the act to conform to such laws." H. Rep. No. 1468, supra, at 6. It emphasizes that "nothing in the act shall be held as changing the rule of priorities on interstate streams," id. at 6, noting further that "[u]nder this section uniformity of record of the rights is secured and the rules of priorities of rights are not disturbed," id. at 7. Describing the Federalism balance struck by the legislation, this same report reveals that the portions of section 8 requiring appurtenancy and beneficial use, together with those in section 5 of the Reclamation Act, limiting, for example, the size of certain irrigated parcels to 160 acres, were designed not to supplant state water law, but rather to ensure that under that law, monopolistic ownership of public waters (and eventually the lands associated therewith) would not occur. Id. at 6-7 (noting that these provisions were designed to "absolutely insure the user in his right and prevent the possibility of speculative use of water rights").22 the control of this question at the present time would be something little less than suicidal. They are the men qualified to deal with the question, the laws are written upon their statute books and read of all men . . . . Id. A parallel history is revealed by the debates in the House. See 35 Cong. Rec. 6676 (Cong. Mondell) (asserting that section should "reserv[e] control of the distribution of water for irrigation to the respective States and Territories); id. at 6678 (Cong. Mondell); id. at 6672-73 (Cong., Shafroth); id. at 6748 (Cong. Glenn); id. at 6752 (Cong. Jones); id. at 6763 (Cong. Mercer); id. at 6770 (Congressman Sutherland) ("if the appropriation and use were not under the provisions of the State law the utmost confusion would prevail"); id. at 6728 (Cong. Burkett). See Mining Act of 1866, ch. 262, 14 Stat. 251, 253, (1866), as amended by Act of July 9, 1870, ch. 235, 16 Stat. 217, 218 (1870) (protecting a miner's claim to water to the extent based on "local customs, laws, and the decisions of the courts"); Desert Land Act of 1877, 19 Stat. 377 (1877) (settlers' water right "shall depend upon bona fide prior appropriation"); see also 35 Cong. Rec. 6678 (Cong. Mondell) (noting the desire to "follow[] the well-established precedent in national legislation of recognizing local and State laws relative to the appropriation and distribution of water"); California, 438 U.S. at 656-58 (observing this point in construing these statutes); California Oregon Power Co. v. Beaver Portland Cement Co., 295 U.S. 142, 153-58 (1935) (same). See also 35 Cong. Rec. 6679 (1902) (Cong. Mondell) (provision designed to prevent "the evils which come from recognizing a property right in water with power to sell and dispose of the same elsewhere and for other purposes than originally intended"); 35 Cong. Rec. 2222-23 -1722 21

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Indeed, the House Report anticipated that the Secretary would not begin construction of works for the irrigation of lands in any State or Territory "until satisfied that the laws of said State or Territory fully recognized and protected water rights of the character contemplated." Id. at 7. Recounting this legislative history, the Supreme Court, in California, supra, concluded that "the Act clearly provided that state water law would control in the appropriation and later distribution of the water." 438 U.S. at 664. Writing on behalf of the majority, then Justice, now Chief Justice, Rehnquist emphasized that "[f]rom the legislative history of the Reclamation Act of 1902, it is clear that state law was expected to control in two important respects." Id. at 665. "First," he noted, "the Secretary would have to appropriate, purchase, or condemn necessary water rights in strict conformity with state law." Id. Repudiating dicta in earlier cases, Justice Rehnquist then dismissed the notion that state law control over the appropriation of water was a mere technicality, in the process making short shrift of the argument that " 8 merely require[s] the Secretary of the Interior to file a notice of his intent to appropriate but to thereafter ignore the substantive provisions of state law." Instead, he found that the legislative history made it "abundantly clear that Congress intended to defer to the substance, as well as the form, of state water law." Id. at 675; see also Nebraska v. Wyoming, 295 U.S. 40, 42-43 (1935). "Second," Justice Rehnquist continued, "once the waters were released from the Dam, their distribution to individual landowners would again be controlled by state law." California, 438 U.S. at 667. The only exceptions to these rules, he indicated, were two specific provisions of the Reclamation Act that were to govern to the extent inconsistent with state law: section 5, which forbade the sale of reclamation water to tracts of land of more than 160 acres, and section 8 of the Act, which required that the water right must be appurtenant to the land irrigated and governed by beneficial use. Id. at 668 n.21. California thus authoritatively teaches that defining property rights as to the water in question is a matter of state, not federal, law. Consistent with this view and the statute's legislative history, courts and commentators alike have viewed the appurtenancy/beneficial use clause at the end of section 8 merely as an overlay to state law, designed to prohibit monopolistic control over western waters.23 If the law were otherwise, a property owner could claim water

(1902) (Sen. Clark) (indicating that these provisions were designed to prevent "large areas of public domain" from being "placed in the hands of the larger corporate interests"). Subsequent Supreme Court cases construed these limitations consistent with this legislative history. See, e.g., Bryant v. Yellen, 447 U.S. 352, 368 n.19 (1980) (noting that the 160 acres limitation "helps open project lands to settlement by farmers of modest means, insures wide distribution of the benefits of federal projects, and guards against the possibility that speculators will earn windfall profits from the increase in value of their lands resulting from the federal project"); Ivanhoe Irrig. Dist. v. McCracken, 357 U.S. 275, 297 (1958) ("The project was designed to benefit people, not land"). See, e.g., Peterson v. United States Dept. of Interior, 899 F. 2d 799, 802 (9th Cir.), cert. denied, 498 U.S. 1003 (1990) ("Congress was particularly concerned that the reclamation -1823

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rights under section 8 solely based upon appurtenancy and beneficial use, even without a contract or some other arrangement to receive project water. Yet, such naked claims have been rejected by courts holding that the appurtenancy and beneficial use concepts of section 8 only apply to properties otherwise entitled to receive distributions of project water. Thus, for example, in United States v. Alpine Land & Reservoir Co., 878 F.2d 1217 (9th Cir. 1989), the Ninth Circuit explained [T]he beneficial use requirement occurs only in the context of determining how much water duty is appropriate for lands already entitled to receive Project water. Section 8 of the Act strictly limits the beneficial use concept to properties that are entitled to receive Project water. Section 8 explains that beneficial use is the measure of the right to the use of water acquired under the provisions of this Act. The critical defect with the transferee properties involved in this case, however, is that they generally have no right to receive Project water. The landowners do not hold contracts or certificates entitled their properties to be irrigated. The beneficial use discussion . . . is therefore of no consequence to the presumed right of transferee properties to receive transferred water rights. Id. at 1228-29 (emphasis in original); see also United States v. Clifford Matley Family Trust, 354 F.3d 1154, 1163 (9th Cir. 2004); Reed D. Benson, "Whose Water Is It? Private Rights and Public Authority Over Reclamation Project Water," 16 Va. Envtl. L.J. 363, 397-98 (1997). Seeking to sidestep the California case, plaintiffs place heavy reliance on a triumvirate of cases Ickes v. Fox, 300 U.S. 82 (1937), Nebraska v. Wyoming, 325 U.S. 589 (1945) and Nevada v. United States, 463 U.S. 110 (1983). They claim that these cases hold that the Reclamation Act establishes a federal property right to the use of water in the case of irrigation appurtenant to the land, subject to beneficial use. But, even a cursory review of these cases reveals that they hold nothing of the sort, but rather merely reflect the perceived result of the interaction between the Reclamation Act and the particular laws of the states involved. Given the importance of this point, a few words of elaboration are in order. Plaintiffs cite statements in these cases describing water rights associated with reclamation projects and arising out of appurtenancy as "the property of the land owners," Ickes,

projects not fuel land speculation in the West or contribute in any way to the monopolization of land in the hands of a few private individuals."); Joseph L. Sax, "Problems of Federalism in Reclamation Law," 37 U. Colo. L. Rev. 49, 67 (1964-65) (appurtenancy/beneficial use was "designed to insure that the benefits of federal irrigation programs went to, and stayed with, small family farmers, and that water did not fall into the hands of large speculators and corporations"); Paul S. Taylor, "The Excess Land Law: Execution of a Public Policy, 64 Yale L.J. 477, 483-86 (1955) (the Reclamation Act was "drawn with unusual care to prevent monopoly of water on reclaimed public lands"). -19-

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300 U.S. at 95, or a "property right," Nebraska, 325 U.S. at 614, or conversely, recognizing that the United States ownership of certain water rights was "at most nominal," Nevada, 463 U.S. at 126. But, read in context and in their entirety, these statements only describe either: (i) the impact of section 8 on water rights that were deemed established under state law; or (ii) the fact that that section does not confer independently any significant interest in the reclamation waters upon the United States. In Ickes, supra, for example, the Supreme Court held that the United States was not an indispensable party to a lawsuit brought by farmers in Washington against the Bureau. Ickes, 300 U.S. at 96-97. In concluding that the United States did not become the owner of the water rights at issue, the Court rejected the government's reliance upon the Reclamation Act and instead relied on contracts and a Washington state law that provided that "[t]he right to the use of water which has been applied to a beneficial use in the state shall be and remain appurtenant to the land or place upon which the same is use