Vol. 50-1 Water Rights

By Emily Willms Rogers, Kimberly Kelley, and Rachel C. Nipper

Water Rights

Groundwater Permitting

Introduction

Under Texas law, a person’s property rights include ownership of groundwater beneath his or her property.^[1] A recent Fifth Circuit case concluded these property rights are subject to Fifth Amendment takings claims.^[2] In Stratta v. Roe, the Fifth Circuit reversed and remanded a district court’s dismissal of a landowner’s claim that a groundwater-conservation district (GCD) violated the Constitution’s Equal Protection and Takings clauses by allowing a city to drain groundwater from underneath the landowner’s property without compensation.^[3]

Stratta v. Roe

The Brazos Valley Groundwater Conservation District (BVGCD) is a state political subdivision that manages, protects, and conserves water resources within its jurisdiction.^[4] Both the Texas Constitution and the Texas Water Code provide for such GCDs,^[5] which create groundwater-management plans regulating water production and conservation, govern water use, study water quantities flowing into and out of aquifers, and minimize waste.^[6] Under this authority, BVGCD created new rules in December 2004 governing landowners’ groundwater production.^[7] Through spacing requirements and production limitations, BVGCD regulates the amount of water landowners can withdraw from a well.^[8] The rules differentiate between existing wells, new wells, and wells with historic use^[9]  and regulate groundwater pumpage apply in each category.^[10] For instance, the rules cap the amount of allowable production for new wells based on a formula that calculates the number of contiguous acres required to be assigned to the well site.^[11]

Almost a week after BVGCD’s new rules took effect, the City of Bryan drilled a well on a 2.7-acre land tract located less than 3,000 feet from appellant Fazzino’s property.^[12] The city applied for a permit to operate the well at a groundwater-production rate of 3,000 gallons per minute (gpm).^[13] Under the currently-enacted rules, the city would have been required to own a 649-acre tract to pump water at that rate from a “new” well.^[14] However, BVGCD classified the city’s well as an “existing” well—one for which drilling or significant development began before the effective date of the rules^[15]—and conditionally granted the permit, authorizing production of 4,838 acre-feet annually at the requested rate.^[16] BVGCD later reissued an identical conditional permit in 2013, despite the fact that there was no growth of city acreage around the well and even though, before the rules took effect, the well at most existed “in the form of ‘significant development,’ at least on paper.”^[17] Had the city’s well been classified as a “new” well, the rules would have capped the well’s maximum allowable production at over fifteen times less than what the conditionally-granted permits allow.^[18]

BVGCD created the new rule’s spacing and production requirements to minimize “the drawdown of the water table and the reduction of artesian pressure, to control subsidence, to prevent interference between wells, to prevent degradation of water quality, and to prevent waste.”^[19] However, as the new rules do not apply to the city’s well, they do not operate to protect Fazzino from the potential threat of dissipation from the city’s pumping; as water comes from a well, it creates a cone-of-depression impact, and Fazzino’s property is within the city well’s anticipated cone of depression.^[20] Fazzino filed a complaint challenging BVGCD’s designation of the well as an “existing” or “historical use” well, but the State Office of Administrative Hearings found that he did not have standing to assert such a claim.^[21] Therefore, in an effort to “offset” the production, Fazzino applied for a permit to operate the well on his larger piece of property at the same groundwater-production rate as the city.^[22] BVGCD twice denied Fazzino’s request, citing insufficient acreage—Fazzino owned 26 contiguous acres, but like any “new” well owner, he must own or control 649 acres to support production at the requested 3,000 gpm rate.^[23] Fazzino then sued BVGCD and its directors under 42 U.S.C. § 1983, alleging violations of the Equal Protection and Takings clauses.^[24]

Jurisdictional Objections

Eleventh Amendment Immunity

First, the Fifth Circuit held that the district court erroneously concluded that BVGCD is an arm of the state and immune from suit in federal court under the Eleventh Amendment.^[25] A court looks to six factors identified in Clark v. Tarrant County to determine whether a governmental agency qualifies for Eleventh Amendment immunity.^[26] The first Clark factor considers whether state statutes and case law view the agency as an arm of the state.^[27] The Fifth Circuit held that a GCD is a political subdivision rather than a state agency, and most political subdivisions are not entitled to this immunity.^[28] Because one of Eleventh Amendment’s goals is to protect state treasuries, the second Clark factor considers the source of the entity’s funding.^[29] The Fifth Circuit concluded that GCDs lack any meaningful financial relationship with the Texas treasury—weighing against immunity.^[30] The third Clark factor considers the entity’s degree of local autonomy.^[31] While GCDs have broad authority to make and enforce rules,^[32] the Texas Water Development Board and the Texas Commission on Environmental Quality provide assistance,^[33] and the Texas Water Development Board must approve local groundwater management plans.^[34] A state auditor^[35] and the state legislature also occasionally audit GCDs’ operations.^[36] The Fifth Circuit reasoned that all these facts considered together “at most merely offset each other.”^[37]

The fourth Clark factor considers whether the entity deals mostly with local rather than state problems.^[38] The fact that an entity deals with local problems suggests that it is not an arm of the state.^[39] Because GCDs can exercise their authority only within their territorial boundaries, the Fifth Circuit reasoned this factor weighed against granting immunity to BVGCD.^[40] The Fifth Circuit set aside the fifth and sixth Clark factors, considerations of whether the entity has authority to sue and be sued in its own name and its right to hold and use property, because all parties and the district court agreed they weighed against granting immunity.^[41] The Fifth Circuit thus concluded that the district court erred in dismissing the landowners’ action for lack of jurisdiction in this regard.^[42]

Ripeness for Adjudication

Second, the Fifth Circuit concluded that, contrary to the district court’s findings, Fazzino’s takings claim was ripe for adjudication.^[43] The district court had relied on Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, a case recently overturned by the Supreme Court, in its dismissal of Fazzino’s takings claims as unripe.^[44] The Fifth Circuit reasoned that not only had Fazzino already pursued available administrative remedies, but the Supreme Court had also held that a property owner can bring a federal-court claim at the time he or she suffers a violation of Fifth Amendment rights, and a landowner is said to have suffered such a violation when the government takes his or her property without just compensation.^[45]

Abstaining under Burford

Third, the Fifth Circuit concluded that the district court abused its discretion when it decided to abstain under Burford.^[46] Burford allows a federal court to dismiss cases presenting “difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar” or if “its adjudication in a federal forum ‘would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial state concern.’”^[47] A Burford analysis involves five considerations.^[48] Fazzino’s claims allege constitutional violations, satisfying the first consideration—whether the cause of action arises under federal or state law—in favor of federal jurisdiction.^[49] The second consideration involves “whether the case requires inquiry into unsettled issues of state law or into local facts.”^[50] The district court reasoned there was an unsettled issue in state courts pertaining to the applicability of Texas oil and as common law to GCDs’ regulations.^[51] However, the Fifth Circuit reasoned that the Texas Supreme Court has already settled that landowners own the groundwater beneath their properties and that such ownership “may be enforced in takings law and under doctrines of equal protection.”^[52]

Because Fazzino asked that BVGCD either apply its rules equally to landowners or give landowners just compensation, the Fifth Circuit reasoned his lawsuit “poses little threat to the general state interest,” the third Burford consideration.^[53] The fourth consideration involves the state’s need for a coherent policy, here regarding groundwater regulations.^[54] Because GCDs are “decentralized” and “fragmentary” to enforce their own rules in their local areas, the Fifth Circuit concluded Fazzino’s lawsuit does not threaten a coherent policy.^[55] Lastly, the Fifth Circuit reasoned that the fifth consideration involving the presence of a special state forum for judicial review did not apply because state courts review GCD decisions.^[56]

Merits of the Case

The district court dismissed Fazzino’s takings and equal protection claims because it concluded “they rested on unsettled questions” regarding the application of oil and gas law to a landowner’s rights in groundwater beneath his or her property.^[57] However, the Fifth Circuit concluded that the law is settled enough for Fazzino’s claims to be heard because such a formulation of his claims “is at too high a level of generality.”^[58]

Takings Clause

The Fifth Circuit recognized that Fazzino’s property rights “constitute whatever he has that BVGCD may not constitutionally ‘take’ without compensation.”^[59] The Texas Supreme Court in Edwards Aquifer Authority v. Day held that a landowner’s property rights, subject to takings claims, include ownership of the groundwater beneath his or her land.^[60] Indeed, the Texas Water Code specifies that nothing in the code can be “construed as granting the authority to deprive or divest a landowner . . . of the groundwater ownership and rights” described in the section.^[61] It requires groundwater districts, like BVGCD, to consider many factors in permitting groundwater production, including the effect on the supply and other permit holders.^[62] Thus, giving groundwater owners their fair shares involves more than considering surface area.^[63] Fazzino claimed BVGCD “took” his groundwater without compensation when it allowed the City of Bryan to drain water from an area far outside its surface ownership, including the surface area of Fazzino’s property.^[64] The Fifth Circuit reasoned it to be the task of the district court to assess whether BVGCD’s groundwater regulation scheme resulted in a “taking” of Fazzino’s interest.^[65]

Equal Protection Clause

The Fifth Circuit concluded that Fazzino’s property rights provide “the baseline by which to determine whether he has been treated ‘unequally’ by the district vis a vis the City’s permit.”^[66]  The Texas Water Code requires GCDs like BVGCD to consider groundwater ownership and rights and to develop rules that are fair and impartial.^[67] Indeed, one of the purposes of groundwater regulation is to afford fair shares to owners in common reservoirs.^[68] Fazzino alleged that BVGCD unequally applied its new rules by exempting the City of Bryan from the production limit’s surface-area formula while enforcing it against Fazzino, resulting in what the Fifth Circuit considered “dramatic” results.^[69] Fazzino also alleged that BVGCD had no rational basis for treating him differently, implying the disparate treatment resulted from the relationship between BVGCD board members and the City of Bryan.^[70] A class-of-one equal protection claim like this involves “whether the plaintiff was ‘intentionally treated differently from others similarly situated’” and “whether there was a ‘rational basis’” for the difference.^[71] Because Fazzino sufficiently alleged disparity and intentional conduct, the Fifth Circuit reasoned the allegations’ substance needs to be tested by discovery and further proceedings, and it reversed the dismissal.^[72]

Emily Willms Rogers is the Managing Partner of Bickerstaff Heath Delgado Acosta LLP and represents public and private clients in water rights, water quality, utility, and environmental law matters.

Kimberly Kelley is an attorney at Bickerstaff Heath Delgado Acosta LLP and practices in the areas of municipal, open government, water, and environmental law. She earned her undergraduate degree from Texas A&M University and graduated Texas Tech University School of Law, where she served on the editorial board of the Law Review.

Rachel C. Nipper is a third-year student at The University of Texas School of Law and Managing Editor of the Texas Environmental Law Journal.