Last month, the Federal Circuit issued its opinion in United Water Conservation District v. United States, a case we have been following because it attracted an amicus brief. In this appeal, the Federal Circuit reviewed 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. Judge Lourie authored a unanimous opinion for the panel affirming the judgment. This is our opinion summary.
Judge Lourie provided the relevant background:
United is a water conservation district, created pursuant to California law to serve as the water management agency for the Santa Clara River and the Oxnard coastal plain. . . . . The California State Water Resources Control Board (‘the State Board’) issued United a license in 1958 and a permit in 1983, providing United the right to appropriate and divert water from the Santa Clara River for United’s beneficial use, i.e., to recharge groundwater aquifers, deliver surface water to groundwater users, and stabilize the riverbed. . . . In 1987, United’s permit was amended to allow for the construction of the Vern Freeman Diversion dam (‘Diversion dam’), which diverts water from the Santa Clara River into the Freeman Canal. . . . Water that the Diversion dam does not divert into the Freeman Canal remains in the Santa Clara River and flows into the Pacific Ocean. . . .
In 1997, the National Marine Fisheries Service (‘NMFS’), an office of the National Oceanic and Atmospheric Administration within the Department of Commerce, designated the Southern California steelhead trout in the Santa Clara River as an ‘endangered species’ under the Endangered Species Act (‘ESA’). . . . Section 9 of the ESA prohibits taking species that are designated as endangered or threatened under the Act. . . . . The government, however, may allow a taking of steelhead trout otherwise prohibited by the ESA by issuing an incidental-take permit under Section 10 of the ESA, 16 U.S.C. § 1539(a). . . . United, as of the time of the Claims Court’s decision, had not yet applied for such a permit. . . .
In 2016, NMFS’s Office of Legal Enforcement (‘OLE’) issued a letter (‘OLE Letter’) notifying United that ‘a significant issue regarding ongoing take of endangered southern California . . . steelhead [trout] exists at the [Diversion] Dam . . ., which United owns and operates.’ . . . The letter further states that ‘United must commit to implementing interim operating measures that are consistent with the operational criteria set forth in the [Reasonable and Prudent Alternatives (‘RPAs’)] . . . of the 2008 Biological Opinion [(‘2008 BiOp’)].’ . . . According to United’s complaint, RPA 2 of the 2008 BiOp requires an increase in bypass flow, i.e., requiring more Santa Clara River water to either remain in the river or to flow through a fish ladder that is also located in the river (collectively, ‘bypass flow’). . . .
United’s State Board-issued license and permit provide it with the right to appropriate and divert 144,630 acre-feet of Santa Clara River water per year at the Diversion dam and to put that amount of water to beneficial use. . . . United’s complaint therefore alleges that NMFS, by way of OLE’s Letter requiring United’s implementation of RPA 2, ‘caused and required United to increase the amount of Santa Clara River water used as bypass flow to the [Diversion dam] fish ladder and/or remaining in the Santa Clara River for the benefit of the endangered fish species.’ . . . It specifically alleges that ‘compliance with RPA 2 of the BiOp, as interpreted by NMFS, caused United to lose at least 49,800 [acre-feet] of water that it would have been permitted to divert from the Santa Clara River for its beneficial use,’ resulting in a physical taking. . . .
Judge Lourie began by summarizing United’s view of the case. He explained how United argued that, “because the alleged taking should be evaluated as a physical, not regulatory, taking claims, its claim is ripe for adjudication as pleaded.” The court disagreed.
After explaining the court’s standard of review and basic takings law, Judge Lourie explained the difference between physical and regulatory taking claims. According to Judge Lourie, “[r]egulatory takings differ from physical takings in that, instead of asking ‘whether the government has physically taken property for itself or someone else—by whatever means,’ the question is whether the government ‘has instead restricted a property owner’s ability to use his own property.’” “Moreover,” he explained, “a regulatory takings claim ‘is not ripe until the government entity charged with implementing the regulations has reached a final decision regarding the application of the regulations to the property at issue.’”
As to the application of this law to the facts, Judge Lourie noted that “it is undisputed that United acquired a valid, appropriative property right in the beneficial use of water it diverts from the Freeman Canal.” He indicated under California law, which governs here, “the right of property in water is usufructuary, and consists not so much of the fluid itself as the advantage of its use.” Thus, he continued, even though “a private entity cannot own water itself, the right to use that water is considered private property.”
Next, Judge Lourie explained that the Supreme Court and the Federal Circuit’s precedent “provides guidance on the demarcation between regulatory and physical takings analysis with
respect to these rights.” He distinguished this case from from two water rights cases that the Federal Circuit held involved physical takings. Unlike those cases, Judge Lourie noted, “United’s allegations here are materially different.” He explained that, “[u]nlike the water rights holders” in those cases, “United has not alleged that the government completely cut off its access to the water or caused it to return any volume of water it had previously diverted to its possession in the Freeman Canal.” Judge Lourie concluded that “[t]he RPAs therefore operate as ‘regulatory restrictions on the use of’ a natural resource and ‘do not constitute physical takings.’”
One consequence of the conclusion that the allegation by United is a regulatory taking is its impact on the analysis of ripeness. Judge Lourie explained that “[a] regulatory takings claim, as alleged here, is not ripe until the rights holder obtains a final agency action.” Because United has “yet to have been denied an incidental-take permit under Section 10 of the ESA,” he explained that “United has not pleaded a ripe takings claim, and the district court properly dismissed its complaint for lack of subject matter jurisdition.”
As a result of Judge Lourie’s analysis, the panel affirmed the judgment of the Court of Federal Claims.