In a decision with enormous potential ramifications for environmental regulation, a federal appellate court has ruled that a Bureau of Reclamation mandate requiring a Ventura County water district ensure adequate river flow for an endangered fish species was a physical appropriation of the water. The court ruled that the Casitas Municipal Water District's claims should be considered under the physical takings doctrine, not under the much narrower regulatory takings standard.

The United States Court of Appeals for the Federal Circuit did not specifically rule that a compensable physical taking had occurred. Instead, the court sending that question back to the Court of Federal Claims for consideration. However, the appellate panel's 2-1 majority made clear what it thought.

"By its own admission, the government required construction of a fish ladder and compelled the water to be rerouted to the fish ladder in order for the fish ladder to operate. This is no different than the government piping the water to a different location. It is no less a physical appropriation," Judge Kimberly Moore wrote for the majority.

In a dissenting opinion, Judge Haldane Robert Mayer said that Casitas does not own the water in question because water sources in California belong to the public. Even if the agency does own the water, he wrote, the Bureau of Reclamation's restriction is "plainly regulatory in nature," and not physical.

The ruling is somewhat similar to that in Tulare Lake Basin Water Storage District v. United States, 49 Fed. Cl. 313 (2001), in which the court ruled that appropriation of water for endangered species should be considered a physical taking (see CP&DR Environment Watch, March 2004). However, that ruling was roundly criticized at the time and was later disclaimed in light of the Supreme Court's decision in Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002), which clearly delineated the differences between a regulatory taking and a physical taking. Still, the Court of Appeals majority in the Casitas case declined to "opine on whether Tulare was rightly decided," and said, "Tahoe-Sierra did not depart from the substantial body of precedent dictating that the government's physical appropriation of a portion of a water right is compensable."

The decision worries environmentalists and regulatory agencies, who fear the precedent could hamper the government's ability to reallocate natural resources for environmental purposes. In an advisory, Nossaman attorneys Alfred Smith III and Melissa Poole said the decision "could have dramatic repercussions, particularly in the western United States."

Russ Baggerly, a Casitas board member who has opposed the lawsuit from the outset, told the Ventura County Star, "If it stands as good law, there isn't going to be enough money in the treasury to deal with all of the takings claims all across the country." The board has consistently split 3-2 on whether to continue the litigation.

Property rights advocates, however, celebrated the decision. "The Federal Circuit reached the right decision in this case," said Nancie Marzulla, one of Casitas's attorneys. "The government's argument that it can take the municipal water district's water for any reason, without paying for the water it takes, is a breathtaking proposition."

In 1956, Congress authorized the Ventura River Project, which comprises Casitas Dam, Lake Casitas, the Robles Diversion Dam and the Robles-Casitas Canal. Essentially, the dam creates a reservoir on Coyote Creek, and the canal diverts water from the Ventura River into the reservoir. After project completion in 1959, Casitas Municipal Water District took over operation of the project. A state license grants the district the right to divert up to 107,800 acre-feet of water per year from the Ventura River, and to deliver up to 28,500 acre-feet annually.

In 1997, the National Marine Fisheries Service listed the West Coast steelhead trout as an endangered species. In 2003, after negotiations with the Casitas district, the Bureau of Reclamation (BOR) directed the district to construct a fish ladder at the intersection of the Ventura River, the diversion dam and the canal, and to divert adequate water for fish to reach historic spawning and rearing habitat that the water project had blocked. Casitas built the fish ladder under protest and then sued the federal government for breach of contract and an unconstitutional taking.

Court of Federal Claims Judge John Wiese ruled for the federal government. The Court of Appeals for the Federal Circuit, based in Washington, D.C., unanimously upheld Wiese on the contract claims, but divided 2-1 on overturning Wiese's ruling that Casitas had presented a regulatory taking claim in which it could not prevail.

The appellate panel majority built its decision on three Supreme Court cases: International Paper Co. v. United States, 282 U.S. 399 (1931), United States v. Gerlach Live Stock Co., 339 U.S. 725 (1950), and Dugan v. Rank, 372 U.S. 609 (1963). International Paper concerned a World War I-era government directive that the Niagara Falls Power Company cut off water to an International Paper plant so that Niagara could boost hydroelectric power production. The Supreme Court determined that the government "directly appropriated what International Paper had a right to use," the appellate panel explained. Gerlach was filed by San Joaquin Valley farmers who claimed the BOR's construction of Friant Dam eliminated their access to overflow irrigation. "The Supreme Court analyzed the government's action as a physical taking," the appellate panel explained. Dugan also involved Friant and the rights of downstream water users. The Supreme Court concluded the government had physically taken the landowners' water rights.

Federal government attorneys argued those three cases did not apply to the Casitas controversy because they all involved direct appropriation of water, not a restriction on the use of water. But the appellate panel majority said the situations are the same.

"[T]he government did not merely require some water to remain in stream, but instead actively caused the physical diversion of water away from the Robles-Casitas Canal – after the water had left the Ventura River and was in the Robles-Casitas Canal – and towards the fish ladder, thus reducing Casitas' water supply," Judge Moore wrote. "Similar to the petitioner in International Paper, Casitas' right was to use the water, and its water was withdrawn from the Robles-Casitas Canal and turned elsewhere (to the fish ladder) by the government."

The court bluntly rejected the government's contention that a regulatory taking analysis should apply to what the government characterized as a restriction on use of a natural resource. "[T]his case involves physical appropriation by the government," Moore responded. "The United States actively caused water to be physically diverted away from Casitas after the water had left the Ventura River and was in the Robles-Casitas Canal."

The majority ruling sends the case back to the Court of Federal Claims for a determination of whether a taking occurred and what compensation, if any, Casitas is entitled to.

In his dissent, Judge Mayer insisted that the lower court must also consider whether Casitas has a property interest in the water. Mayer made clear how he would rule: "California subjects appropriative water rights licenses to the public trust and reasonable use doctrines, so Casitas likely has no property interest in the water, and therefore no takings claim."

Mayer continued, "The government is not appropriating or taking possession of Casitas' property, but rather is prohibiting Casitas from making private use of a certain amount of the river's natural flow under a public program to promote the common good. Labeling such an action as a physical taking blurs the line Tahoe-Sierra carefully draws between physical and regulatory takings."

Still, the majority contrasted its holding with Tahoe-Sierra because the latter case "did not involve a claim of physical taking, nor did it involve water rights."

The Case:
Casitas Municipal Water District v. United States, No. 05-CV-168. Published September 25, 2008.
The Lawyers:
For Casitas: Roger Marzulla, (202) 822-6760.
For the United States: Katherine Barton, Department of Justice, (202) 514-2000.