Summary of a Recent
Judicial
Development in
Water Law
Government-Ordered Diversion of Water Could
Amount to Compensable Taking
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Casitas Municipal Water District v. United States, 543 F.3d 1276 (Fed. Cir. 2008), the United States Court of Appeals for the Federal Circuit held that the government was immune from liability for breach of contract pursuant to the sovereign acts doctrine for its conduct regarding a contract for the supply of water, but that its regulatory actions could amount to a compensable taking of the district's water.
Background
A municipal water district sued the United States, claiming that the government's diversion of irrigation water from its water reclamation project and the additional costs of installing a fish ladder to protect steelhead trout pursuant to the Endangered Species Act (ESA) constituted an uncompensated taking of its property and a breach of its repayment contract with the Bureau of Reclamation (BOR). Id. at 1282. In 1956, the government entered into a contract with the district to construct a series of dams, reservoirs, and a canal in Ventura County, California (collectively "the Project"). Id. at 1280. The contract provided that the district "shall have the perpetual right to use all water that becomes available through the construction and operation of the Project." Id. at 1282. After the steelhead trout was listed as an endangered species in 1997, the government compelled the district to construct a fish ladder facility and to divert water from the Project to the fish ladder, resulting in a permanent loss of a certain amount of water per year. Id. The district complied, but it brought an action against the government. Id. The United States Court of Federal Claims held that there was no governmental breach of contract and no compensable taking under the Fifth Amendment, and it granted the government's motion for summary judgment. Id. at 1279-80. The district appealed. Id. at 1280.
Arguments
The district argued that the government's actions constituted a breach of contract because the installation cost of the fish ladder made the total reimbursable cost of the Project exceed the contract limit, and the consequent loss of its water amounted to a compensable Fifth Amendment taking. Id. at 1282.
The government argued that the contract's terms did not indemnify the district for installing and paying for the fish ladder or guarantee it a water supply, and alternatively that the district's claims were barred by the sovereign acts doctrine. Id. at 1283. The government also argued that its actions did not amount to a compensable taking because there was no actual physical diversion of water, but merely a requirement that water to be left in the stream. Id. at 1290.
Analysis and Holdings
The court found that the installation of the fish ladder was a maintenance and operational cost chargeable to the district, not to the government, because it was installed so that the district could remain in compliance with the ESA and continue its operations without penalties. Id. at 1285-86. The court did find that the contract constituted a promise by the government that the district would have the perpetual right to water made available by construction and operation of the Project and that it would not appropriate any of the Project water for other uses, including fish ladders. Id. at 1286-87. However, the court concluded that the government was shielded from liability under the sovereign acts doctrine because sovereign acts made it impossible for the government to perform its contractual requirements. Id. at 1288. As for the takings claim, the court found that the character of the government action was a physical diversion for a public use (the protection of an endangered species) and the diversion had permanently taken water away from the district, and the court concluded that the issue should have been analyzed under the physical takings analysis. Id. at 1296. The court therefore affirmed the lower court's dismissal of the breach of contract claim, and it reversed and remanded the takings claim for further proceedings. Id.
The case was decided on September 25, 2008.