Volume 15, Number 1
By Jeanne M. Zolezzi

Summer 2000

When federal sovereign immunity is superimposed upon state law providing a statutory right to judicial review, litigants can be caught between competing public policies. Recently, public agencies in California that contract with the United States Bureau of Reclamation (Bureau) for water service from the massive Central Valley Project (CVP) were caught in the vise between federal sovereign immunity and competing state law mandates. These agencies’ challenges to a state ruling affecting water rights under contracts with the United States were dismissed from state court when the United States claimed sovereign immunity, and then dismissed from federal court when the State of California claimed immunity from suit under the Eleventh Amendment. This predicament stems from the unique combination of federal and state authority governing water rights in the West.

In California, the United States holds the water rights permits for the CVP; they are granted and continually administered by a state agency, the State Water Resources Control Board (State Water Board). Like most western states, California provides a statutory right to judicial review of actions of the State Water Board. Recently, however, when a water contractor sought review of a State Water Board decision imposing conditions upon water right permits held by the United States, which conditions would then affect the rights of the water contractors, sovereign immunity resulted in denial of the review that is statutorily provided. Because the United States held title to the permit that was the subject of the administrative body’s action, and because the United States could not be made a party due to its assertion of sovereign immunity, the California court determined that the United States was an indispensable party and dismissed the action. San Joaquin County v. State Water Resources Control Board, 54 Cal.App. 4th 1144, 1154 (1997). When the public agencies attempted to obtain review of the state administrative agency’s decision in federal court, they were denied relief because the State of California claimed immunity under the Eleventh Amendment of the United States Constitution.

This turf battle is not merely academic-it profoundly impacts the ability of all citizens to ensure that state administrative agencies properly interpret the laws regulating the use of state water resources. Water contractors and environmental interests are without remedy in state or federal court to challenge the terms and conditions under which the State Water Board will regulate the federal wholesale water supplies. If followed elsewhere, San Joaquin County would bar state courts from reviewing actions of administrative agencies controlling water rights within a state, whenever the water right permit in question directly or indirectly involves federal water rights or federal facilities and the United States invokes its immunity. In California alone the United States is directly obligated to provide 250 water contractors with 9.3 million acre-feet of water per year. This is enough water to supply 18 million households or irrigate 3 million acres of row crops. If courts in the seventeen western states in which the Bureau operates water supply projects were to follow the San Joaquin County rule, billions of acre-feet of water in the western United States could be regulated by administrative agencies without judicial review

This turf war problem is particularly germane in the western half of the United States, where the appropriation doctrine prevails. The appropriation doctrine of all western states except Colorado has two major features: administration of water rights by a state agency, and a permit requirement for all appropriators. In most western states, water may not be taken or used until the user has obtained a permit from the state water agency. Generally, the state agency retains jurisdiction over that water right permit and is able to impose additional conditions and restrictions on it as circumstances change. While some states provide an intermediate appeal to an administrative body, all western states adopting the appropriative system allow holders of water right permits to seek judicial review of agency actions administering appropriative water right permits.

In most western states, no changes may be made to water right permits if other users of water will be injured; the water agency determines whether there is in-jury and whether to grant the change, or grant it with conditions. A complex, but important, example is the statutory requirement in California that the United States may not take any action to implement the CVP that would deprive a watershed of origin of any of the water it reasonably needs. CAL. WATER CODE §11,460 et seq. This requirement has been the center of controversy in California, with many parties arguing that the State Water Board has failed to enforce this law against the United States. The water users rely on judicial oversight to ensure that the laws are being properly and consistently enforced.
The role of the United States stems from the Reclamation Act of 1902, which authorized the Secretary of the Interior, acting through the Bureau of Reclamation, to construct, operate, and maintain water storage and distribution facilities in the seventeen western states. The Bureau currently operates more than 180 projects in those states, providing agricultural, domestic and industrial water to about one-third of the population of the western United States. Farmers of the Bureau’s irrigation projects produce about 13 percent of the value of all crops in the United States, including about 65 percent of all vegetables and 24 percent of all fruits and nuts.

The federal government has left the administration of the water rights governing these projects to the jurisdiction of the states. Section 8 of the Reclamation Act provides that:

[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… (emphasis added)

National Reclamation Act of June 17, 1902, c. 1093, 32 Stat. 388,390.

Pursuant to this congressional direction, the Bureau obtains permits to appropriate water for its irrigation projects from state permitting agencies. The Bureau, in turn, enters into contracts with water users for delivery of the water developed through its irrigation projects, and the water users place that water to beneficial use as required by state law.

Despite the congressional direction to do so, the Bureau historically resisted the imposition of conditions upon its water right permits until California v. United States, 438 U.S. 645 (1978). In California, the United States challenged the imposition of restrictions and environmental protection requirements by the State Water Board upon water right permits obtained by the United States. The United States claimed that the state had the right only to grant the permit, not condition it. However, the Supreme Court held that the Bureau must follow state law in all respects not directly inconsistent with congressional directives, because “[t]he legislative history of the Reclamation Act of 1902 makes it abundantly clear that Congress intended to defer to the substance, as well as the form, of state water law.” Id. at 674.

Although California appeared to resolve the conflict between the United States and the states in administering and conditioning water rights, it did not address the interest of the public agencies contracting with the United States to use water, regarding how water right permits are conditioned. Those water users are arguably more directly impacted by conditions imposed upon the water right permits than is the United States; this is because the ultimate water users suffer the actual reductions in quantity or restrictions in use that may result from the conditions imposed. There is often disagreement between the water users and the United States, and with the State Board as well, about how water should be used or how its use should be conditioned.

Disputes have become even more common in California since the enactment by Congress in 1992 of the Central Valley Project Improvement Act, 42 U.S.C. 1971, 1973 to 1976bb-1 (1992) (CVPIA). The CVPIA imposed upon the Bureau of Reclamation the charge of achieving a reasonable balance among competing demands for use of CVP water, including the requirements of fish and wildlife, which had never before been recognized to an extent equal to that of consumptive uses. As a result, the Bureau may be content with environmental conditions imposed upon a water right permit because it advances the new overall goals of the federal government to operate the CVP for fish and wildlife interests, but the state public agencies holding contractual rights to that water may oppose the condition because it reduces the amount of water available and makes the water more costly.

When the state administers the water rights and the federal government holds the water rights, a water user caught between the two can be left without judicial remedy or protection to complain about conditions limiting water availability and use. As sovereign, the United States as a whole and/or its agencies may be sued only when consent has been given. United States v. Mitchell, 445 U.S. 535, 538 (1980). In litigation involving water rights, the United States waived its sovereign immunity under the McCarran Amendment, 66 Stat. 560, codified at 43 U.S.C. § 666(a), which subjects the United States to state court jurisdiction in cases involving the general streamwide adjudication of water rights that comprehensively adjudicates all of the rights of various owners on a given stream. McCarran adjudications must be all-inclusive and comprehensive and must include all federal claims to the use of water. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976).

Although not explicitly water related, Congress has also waived the federal government’s sovereign immunity in the Administrative Procedure Act § 702,5 U.S.C. § 551 (APA) for judicial review of final federal agency actions in violation of federal law. Consequently, review of the Bureau’s final actions in operating the CVP and in administering the federal reclamation laws may be sought in federal court pursuant to the APA’s judicial review provisions, even though such suits are not general streamwide water right adjudications that are covered by the McCarran Amendment. However, the APA waiver of sovereign immunity extends only to suits against the United States in federal court.

Neither of these waivers of sovereign immunity is directly applicable to a suit in state court against a state agency administering a state water law permit held by the United States. Such a case is neither a general streamwide adjudication allowing state court jurisdiction under the McCarran Amendment nor an action directly against the United States in federal court challenging a final agency action under the APA. Consequently, the United States is entitled to exercise its immunity to preclude state court review of administrative action if the United States is brought into the state proceeding.

This is exactly what happened in California when public agencies attempted to obtain review of state administrative agency action conditioning permits held by the United States for the CVP, which provides irrigation water to 1.86 million acres in California. The United States has contracted with
hundreds of public agencies within the state to provide water service from the CVP Since its inception, there has been litigation over who is entitled to use the water from the CVP Generally, that litigation is between local agencies, or between local agencies and environmental groups, and the United States is not included. Sometimes the party being sued will raise the indispensability of the United States as a defense under California Civil Procedure Code § 389, which is almost identical to Rule 19 of the Federal Rules of Civil Procedure. Lower court rulings were split over the indispensability of the United States. A California appellate court finally ruled on the question in San Joaquin County affirming the trial court’s finding that the United States was an indispensable party and dismissed the action after the Bureau refused to waive its sovereign immunity.

The genesis of the San Joaquin County case was the State Water Board’s implementation of its water quality control plan pursuant to the requirements of the Federal Clean Water Act. The State Water Board amended, at the request of the United States, several of the water right permits for the CVP. Several entities holding contracts for water service with the Bureau opposed the amendments, asserting that the State Water Board was not following the law and claiming that their contractual rights would be adversely affected. Those water users claimed that they were entitled to protection under California Water Code §§ 11,460 et seq., commonly referred to as the watershed protection statutes, and that the State Water Board had not enforced those protections. The public agencies sought state court review of the State Water Board’s decision pursuant to California Water Code § 1126, which allows any party aggrieved by any decision or order of the State Water Board to file a petition for a writ of mandate for its review. The trial court dismissed the case, however, finding that the United States was an indispensable party because its interests in the permit would be affected by any decision on the action and because it was indispensable under California Civil Procedure 5 389(b), which requires the court, if such a person cannot be made a party, to determine “whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensable.” The appellate court affirmed the dismissal because:

The availability of an adequate remedy’ is one, but only one, factor that the trial court evaluates in making its determination. Each case turns on its factors. To deem the unavailability of an alternative forum a conclusive factor in all cases and circumstances would, in effect, rewrite the statute, because the statute directs the court to consider all four factors in making this determination.

San Joaquin County, 54 Cal.App. 4th at 1154.

Seeking an alternate forum for review after the trial court’s dismissal, some of the plaintiffs in the California case attempted to obtain review of the state administrative action in federal court by suing both the Bureau of Reclamation and the State Water Resources Control Board. The federal district court dismissed the State Water Board, pursuant to its claim of immunity under the Eleventh Amendment of the Constitution. Central Delta Water Agency v. United States, No. CV-F-96-5738 (D. Cal. Nov. 4,1996) (Memorandum Opinion and Order Granting State Defendants’ Motion to Dismiss). As a result, the public agencies holding water right contracts from the United States could not obtain judicial review of the actions of the State Water Board in any forum, despite a California state law mandating such review.

Ironically, the California appellate court in a footnote dismissed the potential prejudice to the water users:

Referring to matters outside the record, appellants argue they lack an adequate remedy in the federal court action because the state subsequently asserted Eleventh Amendment immunity against new complaints…The trial judge is not Nostradamus, nor is the trial judge expected to monitor the various federal court actions and reevaluate indispensable party determinations to guarantee appellants a perfect alternative forum. The trial court evaluates the four factors as they exist at a particular point; there are no ironclad assurances, nor could there be…This is not to say the lack of an “adequate remedy” in federal court in insignificant, indeed in some instances the state trial court may conclude the lack of an alternative forum outweighs the other three factors set forth in section 389, subdivision (b). However, as explained above, the trial court’s determination pursuant to section 389, subdivision (b), involves the balancing of competing consideration as to a particular point in time. No one factor is conclusive under all circumstances and the determination is not revisited in light of subsequent events.

San Joaquin County, 54 Cal.App. 4th at 1154, n.7.

Unfortunately, the trial court’s evaluation was based upon its assumption at the time that an alternative forum would be available; that assumption later proved false. The trial court may well have concluded differently if it had had the most accurate information. The abuse of discretion standard utilized by the appellate court paves the way for unintended consequences in the western United States as turf wars result in inconsistent or arbitrary allocations of water.

While it appears that the problem of state and federal immunity’s leaving a plaintiff without remedy has so far surfaced only in the State of California, it has proved to be an important issue there. In addition to San Joaquin County, a similar action is pending before the California Appellate Court. Putah Creek Council v. Solano Irrigation District Case No.3 CIVIL C025791 (Cal.App. 3d). In this case, environmental interests sued water contractors for increased instream flows from a project, for which the United States held the water rights and owned the facilities. The trial court determined that the United States was not indispensable, allowed the trial to proceed to judgment, and ultimately approved increased environmental instream flows. The defendant water users are requesting the appellate court to vacate the judgment, claiming the United States was necessary and indispensable under California Civil Procedure Code § 389.

What is not certain is whether California is simply the first state to face this jurisdictional problem or whether there are fundamental differences in physical or legal factors in other western states that would prevent this problem from arising in those states in the future. From a practical perspective, this jurisdictional issue would likely never be a problem in some western states, such as Idaho and Colorado, where most of the water right permits are subject to general stream adjudications. The United States is a party to these adjudications, made subject to state court jurisdiction through the provisions of the McCarran Amendment; and the courts retain jurisdiction over the general adjudication. Therefore, the courts also retain jurisdiction over the United States. In other states, such as New Mexico, most of the water rights held by the United States are federal reserved rights not subject to administration by state agencies and judicial review of state agency action is not an issue. In Arizona, Montana, Washington, and Oregon, however, there is every reason to believe that similar situations will arise in the future.

It is peculiar that this jurisdictional problem has only recently been confronted, when the United States has been administering reclamation water rights in the western states for nearly ninety years. The explanation in California may be the recent change in direction of federal reclamation law resulting from the CVPIA. Prior to enactment of the CVPIA, as a general rule, the interest of the Bureau of Reclamation and the interest of its contracts were ordinarily consistent. Consequently, if a water user objected to a decision of the State Water Board, the Bureau would ordinarily object as well and would itself demand judicial review of that administrative decision by a state court. Since enactment of the CVPIA, however, the interests of the Bureau and its contractors have often been at odds; approximately eight lawsuits have been filed against the United States by water contractors since enactment of the CVPIA-nearly one each year since its enactment.

Because the CVPIA requires the Bureau to balance fish and wildlife needs and to allocate water to fish and wildlife, the Bureau may not challenge environmental conditions imposed upon its water right permits by the various state water agencies; a water contractor may oppose such conditions. Consequently, the water contractor may seek judicial review of the water agency’s decision, while the United States may not. Because of this disparity in the interest of the United States and its contractors, it is more likely that the issue of judicial review stifled by claims of immunity will surface. The environmental shift of the Bureau has not been limited, however, to the CVP. Despite the lack of specific congressional direction on other reclamation projects throughout the West, the Bureau is providing more water to fish and wildlife interests as a result of Endangered Species Act requirements and the policies of the Department of the Interior. United States Department of the Interior Strategic Plan FY 1998-2000 (Sept. 30, 1997).

The tension between the availability of judicial review and the protection afforded by sovereign immunity is complex. Both policies are deeply imbedded in our judicial system and supported by public policy. The necessity for judicial review derives from the concept of separation of powers as a principle of constitutional law and has a long history in the courts. The role of the court in reviewing administrative decisions is to reconcile democratic safeguards and standards of fair play with the effective conduct of government. Conversely, the concept of sovereign immunity is also firmly grounded in our judicial system, based upon the concept that property held by the government is in trust for all citizens: if, through a lawsuit, a party can collect money from the government for a wrong, the public treasury will be reduced for the benefit of that one person.

When balancing these two important policies, it is possible that we would begrudgingly accept the occasional loss of judicial review in order to support the overriding importance of sovereign immunity. This willingness is decreased, however, when sovereign immunity is used to impose a one-sided limitation upon the availability of judicial relief from review of administrative actions. There is a fundamental unfairness in using sovereign immunity to allow the United States to pick and choose those decisions of state administrative bodies that are to be subject to judicial review and those that are not. If the United States agrees with and benefits from the decision of a state administrative body, that decision will stand, immune from judicial review because the United States will not consent to state court jurisdiction. If the United States is dissatisfied with the decision, it can obtain judicial review under state law. For instance, in California, Montana and Washington, the United States has appealed decisions of the administrative agencies of those states to state court when it wished to challenge the agencies’ affecting its water right permits. In other in-stances, such as in California, however, the United States has immunized decisions from state court review by asserting its sovereign immunity and allowing the actual defendants in the case to assert that the United States is indispensable. If the United States has availed itself of the state’s statutory review process for its benefit, it would only seem fair that the United States should assume the burdens of that review.

If the purpose of sovereign immunity is to protect the sovereign’s assets from being used by a few to the detriment of all, it would not seem appropriate to use it to control the parameters of judicial review of administrative decisions of state agencies. The importance of this issue was recognized by California’s Third District Appellate Court, which held that the inadequacy of a remedy in state court alone was sufficient justification for a court to hold that in equity and good conscience an action should proceed without the United States. Vanoni. v. County of Sonoma, 40 Cal. App. 3d 743 (1974). In Vanoni, taxpayers commenced an action against local public agencies that had contracted with the Bureau for water, arguing that the public agencies had done so m violation of the law. The public agencies argued that the Bureau was indispensable and that action should be dismissed. The court, noting that no direct authority was found on the question of whether the United States should be regarded as indispensable in such a situation, determined that because the taxpayers would be left without a remedy in the state courts if their action were dismissed, “equity and good conscience” suggested that the action should proceed. Vanoni at 747. San Joaquin County said only that Vanoni was not controlling. San Joaquin County at 1153. The result in Vanoni, however, appears to establish a much more equitable rule that attempts to balance the need for judicial review with the importance of sovereign immunity.

The ramifications are great for western states in which the United States is one of the largest water suppliers. Because of the sheer number of water right permits affected, the lack of judicial review could adversely affect development and administration of the state’s water laws if administrative agencies are left to interpret and apply state water laws without judicial constraint. The Bureau is the largest water appropriator in California. If the State Water Board fails to enforce state law, such as the watershed protection statutes, against the Bureau and no judicial review is possible, the actions of the administrative agency could affect most of the water rights of the state.

One of the reasons Congress directed the Bureau to follow state law was for consistency. The Supreme Court acknowledged this in California v. United States by reviewing some of the legislative history of the Reclamation Act:

In the arid Western States, for more than 80 years, the law has been the water above and beneath the surface of the ground belongs to the public, and the right to the use thereof is to be acquired from the State in which it is found, which State is vested with the primary control thereof. Since it is clear that the States have the control of water within their boundaries, it is essential that each and every owner along a given water course, including the United States, must be amenable to the law of the State, if there is to be a proper administration of the water law as it has developed over the years.

S. Rep. No. 755, 82d Cong., 1st Sess., 3,6, (1951). California v. United States, 438 U.S. at 678.

By preventing judicial review of the actions of administrative agencies in implementing the laws of the state when decisions are favorable to it, and demanding review when they are not, the United States could affect the direction and substantive implementation of state water right law. In doing so, the United States may indirectly accomplish that which Congress clearly did not want: interference with the proper administration of state water laws.

Solutions to the problems created by the jurisdictional conflicts are not readily apparent. The issue of indispensability may be decided differently by different courts in the exercise of their own discretion. At best this will lead to inconsistency and lack of predictability. Alternatively, one interpretation of Section 8 of the Reclamation Act could preclude this problem from arising at all. To the extent that the United States is required by Section 8 to subject itself to the water right process of the state in which it is obtaining a right, arguably, the United States must subject itself to the entire water rights statutory scheme in that state-both procedural and substantive. The United States has generally agreed with this premise by voluntarily subjecting itself to the jurisdiction of the state administrative bodies. If Section 8 creates a mandatory obligation, and if the state’s statutory scheme provides for state court review of administrative agency water permit decisions, the United States would be subject to the state court’s jurisdiction.

This argument turns on what California v. United States meant when it stated that the United States must follow the state’s statutory water rights scheme but only to the extent that it does not conflict with express congressional intent.

A similar interpretive issue arose in United States v. Idaho, 508 U.S. 1 (1993), where the Supreme Court was asked to determine whether the waiver of sovereign immunity granted by the McCarran Amendment extended to costs imposed by state courts. Idaho argued that the United States must comply with all state laws. The United States argued that it was amenable only to state substantive law of water rights and not to any of the state adjective law governing procedure or fees. The Supreme Court determined that the United States did not have to pay the costs requested because of specific congressional direction that no costs should be imposed. However, importantly, the court concluded that the United States is generally subject to state adjective law as well as to state substantive law of water rights. Arguably, then, when Congress submitted the United States to compliance with state water laws by enactment of Section 8 of the Reclamation Law, it also submitted the United States to the procedures associated with those laws, including the statutory requirement for judicial review of administrative actions of water right permits.

California has attempted to fashion a solution by amending its Water Code. California Water Code § 1126 had previously provided only for the right to judicial review of a final State Water Board decision, as do most state review statutes. In 1998, in response to the San Joaquin County case, the California legislature added the following provisions to California Water Code § 1126:

It is the intent of the Legislature that all issues relating to state water law decided by the board be reviewed in state courts, if a party seeks judicial review It is further the intent of the Legislature that the courts assert jurisdiction and exercise discretion to fashion appropriate remedies pursuant to Section 389 of the code of Civil Procedure to facilitate the resolution of state water rights issues in state courts.

In any court case reviewing a decision or order by the State Water Board relating to a permit or license to appropriate water held by the state through the department or any other state agency, or to a permit or license to appropriate water held by the United States through the Bureau of Reclamation or any other federal agency, the election by the United States, or any agency thereof, not to be a party shall not, in and of itself, be the basis for dismissal pursuant to Section 389 of the Code of Civil Procedure or any other provision of law.

This legislative amendment has not been considered by a court, and concerned practitioners question whether it will be effective. While the amendment provides legislative intent, the determination of indispensability still lies within the discretion of the trial court.

The public policies supporting sovereign immunity and the indispensable party rule do not dictate that administrative decisions regarding a critical state resource be exempt from either state or federal court review Nor are those policies intended to influence the delicate balance between the administrative and judicial branches of government. Should the ruling adopted by the California Third District Court of Appeal remain the law in California, and become the law in other western states, future actions of state administrative agencies overseeing water rights would be immune from judicial review whenever those actions adversely affect the United States. Such a result could frustrate the historical congressional intent that the federal government should not interfere with the proper administration of state water laws.