Contra Costa Times
October 2, 2009

The federal government must compensate two regional water authorities for water diverted to preserve the environment, a federal appeals court ruled this week in a landmark decision that could open the floodgates for agencies who contend the government is taking water from them for fish.

After a 16-year legal battle, the 2-1 decision came down as California is coping with a drought and new environmental rules that are cutting into the water supplies of farmers and cities across the state. The ruling appears to create an opening for San Joaquin Valley farm districts that are lashing out at environmental regulations to seek payment for water lost to environmental needs.

Whether the districts are entitled to recover damages from the government will depend on language in their water contracts, why specifically water was not delivered and issues beyond the scope of the decision handed down this week, lawyers said.

The ruling, by the U.S. Court of the Appeals for the Federal Circuit, appears to be the first in which an appeals court has concluded the government has breached a water contract when water is diverted from contractors to environmental needs.

“The door is open for contractors similarly situated to assert the same breach of contract claims, ” said Walnut Creek lawyer Roderick E. Walston of Best Best & Krieger, who has argued water cases in the U.S. Supreme Court. “I consider this a very significant decision.”

Until recently, courts generally showed deference to federal agencies which shorted water agencies to preserve or enhance the environment. Now, however, the law is shaping up in a way that requires the government to pay water agencies for that lost water, at least in some cases, Walston said. Earlier this year, the same court ruled that government must compensate a Southern California water district for water lost to a fish ladder built for steelhead.

A spokeswoman for the Westlands Water District, which is bearing the brunt of water shortages this year, said the ruling sets a new precedent.

“There is a question as to how much we can take away from contractors, ” said district spokeswoman Sarah Woolf. “Contract holders do have some rights.”

At issue are contracts for water between the U.S. Bureau of Reclamation and the two districts, Stockton East Water District and the Central San Joaquin Water Conservation District. The water stored behind New Melones Dam — the last major government-built dam in California — that was supposed to go to those districts instead was used to help the Delta and recover salmon populations.

A lawyer for the water districts said their contracts called for them to receive 155,000 acre-feet a year, but they never received more than 90,000 acre-feet and in some years got no water at all. The damages likely will run into many millions of dollars, plaintiffs’ lawyers said.

The federal government argued it had no choice but to cut deliveries to the water districts because of the requirements of the 1992 Central Valley Project Improvement Act, a law co-authored by Rep. George Miller and signed by President George H.W. Bush that rededicated 800,000 acre-feet of water from water users in the project, especially San Joaquin Valley farms, to the environment.

But the court rejected that argument because, it ruled, the contracts allowed the government to underdeliver water only in circumstances that are beyond the control of the federal government. An act of Congress is within the control of the federal government, it ruled.

Whether other water districts would be able to get compensation for water they lost due to the 1992 law or other environmental purposes is not clear. The Stockton contracts refer specifically to issues beyond the control of the federal government, while other contracts do not.

“Those districts would want to sit down and analyze their contracts” and the reasons they were not filled, said Roger Marzulla, a property rights lawyer who represented the Stockton districts and has sued the government many times for what he contends are unconstitutional “taking” of water from recipients of water from government projects.

“There are some that are similar to this case, ” he added. “You can’t simply turn off the spigot and expect the city of Stockton or the farms in the San Joaquin County to fold up shop and say, well, I guess we have no more water.”

The court did not weigh in on whether the government must compensate water contractors for underdeliveries due to cuts made to protect endangered species, Walston said. But, he added, the ruling could be interpreted to mean that the government must compensate water users for those losses.

A spokeswoman for the Bureau of Reclamation said the agency had no comment.

The government could ask the appeals court to reconsider the decision before a larger panel or it could petition to the Supreme Court.

Walston said it is hard to predict what the Supreme Court might do but he is skeptical that the government could get the ruling overturned.