Last week, the Federal Circuit heard oral argument in United Water Conservation District v. United States, a takings case that attracted an amicus brief. In this case, the Federal Circuit is reviewing a dismissal of a takings claim by the Court of Federal Claims. That court held that a restriction of water rights did not constitute a physical taking but rather a regulatory taking, which presented an unripe controversy. Judge Lourie, Judge Hughes, and Judge Gilstrap (sitting by designation from the Eastern District of Texas) heard the oral argument. This is our argument recap.
Frank Murray argued for United Water Conservation District. He explained that “the question before the court in this appeal is whether United pled a physical takings claim, or a regulatory takings claim.” He argued that recent Supreme Court precedent, in particular Cedar Point Nursery v. Hassid, “described the central test of whether something is a physical or regulatory taking.” According to Murray, the Supreme Court concluded that, “if it’s an appropriation of private property,” then “it’s a physical taking.” He went on to argue it does not matter whether, “if it’s in the garb of a regulation or statute,” because, “if it appropriates property, it’s a physical taking.”
A judge asked whether the claim of a regulatory taking is premature “because there was no application for a permit.” Murray responded by arguing that United doesn’t dispute that, “if this were to be appropriately reviewed as a regulatory taking, it would be premature.” Rather, what United disputes, he said, is “that the court applied the proper framework.” He argued “this is a physical taking because it’s an appropriation.” He claimed the government was “essentially, appropriating the water that United otherwise had a vested property right under California law to divert, appropriate, and put to beneficial use.” He argued another Supreme Court precedent, International Paper Co. v. United States, is “controlling.”
In response, a judge quickly remarked, “I don’t know if that’s true.” This judge said “that’s a really old case” and “it didn’t really confront the boundary between physical and regulatory takings.” This judge asked about another case, Casitas Municipal Water District v. United States, “because that’s our main case on point.” The judge highlighted that the Federal Circuit in Casitas “seemed to base its finding that the water diversion there” was “for a very similar purpose,” where the “water [was] being actually placed” and “then physically diverted from the canal after it was placed there.” In response, Murray argued that, here, “the election of the use of water is at the point of diversion, where the government says we are claiming the use of this water for fish migration, rather than allowing us our license rights to take and appropriate.”
The same judge asked Murray to “assume that drought conditions disappear, the water flow in the river increases dramatically, so that you can still get your full beneficial use.” The judge suggested it would not be a taking if “water flow increases” so much “that both objectives can be maintained here,” in particular “you’ll get your full amount” and the “fish ladder will be operable.” Murray responded by agreeing that, “in that counterfactual hypothetical, absolutely that would likely be the case.”
A judge later suggested concern that Murray was not addressing the “Casitas case, which is the most relevant case on point and binds us.” The judge indicated that, “under a fair reading of the Casitas case,” the claim here is a regulatory taking because Casitas “was very specific” and the “entire reason [it] was a physical taking, as opposed to a regulatory taking, was that the water had entered into the Casitas canal and was diverted from that.” After some back and forth, Murray indicated that “Casitas could not overrule International Paper.”
A judge then asked about the “much healthier robust line of precedent from the Supreme Court about what constitutes a regulatory taking.” Murray responded by arguing that “the way to visualize this” case is to consider “a pie.” He argued that, “under our license rights,” the “diversion is the device by which we divide that pie and take our slice.” According to Murray, essentially what the government did here was to say, “we think your slice of the pie is too much, and so we’re going to take our own slice” for “fish migration.” According to Murry, “that’s an appropriation.”
Tamara Rountree argued for the United States. A judge asked her to respond to the pie analogy. In response, Rountree argued “United’s point is that they believe they’ve lost the water, as if they were entitled to particular molecules of water, and once those molecules pass them by, they could never get them back.” She suggested that, “in their view, is a permanent loss.” She argued, however, that, “the river is constantly gravity fed and flowing.” As a result, she continued, “just because this particular molecule passed by the canal doesn’t mean that, at some point, more molecules can come and United can channel it into their system, and then [they can] divert it into their canal and then make use of it.”
The judge suggested that, in Rountree’s view, the government hasn’t “taken any of their ownership right” but “just prevented them from enjoying the benefits of that ownership right,” and as a result the plaintiff’s claim is “still a regulatory claim.” Rountree agreed. “Yes, if anything,” she argued, “it’s a restriction on use and thus analyzed under” a “regulatory takings claim analysis.”
A judge later asked about International Paper. In response, Rountree argued that, in that case, either “the water was in the mill and the government made it be withdrawn” or “the government prevented the water from ever entering the mill. ” She argued that the case “has no application here” because the “facts as alleged do not establish either circumstance.”
A judge asked about the impact and effect of a “letter from the National Fisheries.” Rountree suggested the “letter is fundamental here, because it’s the sole source of the alleged taking.” She explained that in the court below the government explained how “the letter, if anything, wasn’t a final agency action; it was just a letter.” She argued that, “on that basis alone, what we alleged below was sufficient to say that this isn’t a proper basis for takings claim, because it’s not a final agency action.”
Later in the argument a judge set forth a hypothetical based on a taxpayer with $100,000 in his or her bank account. The judge imagined the “IRS says this taxpayer owes us money” and presented two situations. In one, “the bank puts a hold on the money; it stays in the account, but the account holder can’t access [it], their checks bounce, and their withdrawals are refused.” In the other scenario, the judge continued, “the IRS says, ‘give me the $100,000’ and the bank actually takes it out of the taxpayers account and delivers it to the IRS.” The judge then asked, “Is one a regulatory taking and one a physical taking?” In response, Rountree argued that only in the “circumstance in which one is dispossessed of something one owned” is there “a physical taking.” “But if it’s just a restriction on use,” she continued, or an “interference with a limitation on use,” then that would “be more regulatory.”
Rountree concluded by arguing two points. First, she argued, “the facts alleged in the complaint do not establish” that the government’s correspondence either commandeered or ousted or regulated any water in which United had a possessory ownership interest.” Second, she argued, the “facts alleged failed to show that United no longer possesses its water right or any portion of its water right.”
In his rebuttal, Murray argued that once the government “cut off that piece of our pie slice” and said “I want that part of the pie for [the] fish ladder,” then his clients “no longer have any ability to use that piece” taken by the government. He argued “that’s why it’s a physical taking, because they’ve appropriated that” piece of the pie.
A judge asked Murray if there are “[a]ny cases from our court where this kind of upstream water diversion has been termed physical taking.” This judge remarked that “the only physical taking case . . . from our court involving water rights is Casitas, and you seem to be wanting to run away from that case as fast as you can.” In response, Murray argued “Casitas didn’t and couldn’t say” consistent with International Paper “that the [water] has to be in the canal first; it certainly cited that as factor” in its analysis, but “it’s not a requirement” or a “prerequisite.”
Murray concluded by arguing that “Cedar Point really is a very key consideration for this court” to recognize. According to Murray, a judge must ask whether the government “appropriated water we otherwise had a right to,” or instead whether the government “just limit[ed] our ability to use water that we never got in the first place.”
We will continue monitoring this case and report on developments.