Irrigation District is Holder of Water Rights Subject to Transfer

Written by Dominic Corollo

In early July 2008 the Oregon Supreme Court ruled that the party with an ownership interest in a certificated water right is the party who initiates and completes the statutory steps necessary to acquire the water right and certificate.  It is not necessarily the person who physically puts the water to beneficial use, or owns the land to which the water right is appurtenant.

 In a unanimous decision, the Court’s decision in Fort Vannoy Irrigation District v. Water Resources Commission that likely sent many irrigation districts sighing with relief, and some irrigators reeling.  Specifically at issue in the case was whether the petitioner, Ken-Wal Farms, Inc., was a “holder” of a water use “subject to transfer” as provided in ORS 540.510.  The transfer statues require a change in use or place of use be made by the “holder” of the water right.

In November 1999, Ken-Wal Farms applied to the Oregon Water Resources Department (OWRD) to transfer and consolidate the points of diversion associated with five certificated water rights to just two locations. The two new proposed points of diversion were owned and operated exclusively by Ken-Wal Farms and would not require any water to be delivered through Fort Vannoy’s facilities. Fort Vannoy protested the proposed change, arguing that the District was the “holder” and proper applicant for transfer of the certificates at issue.  In denying the protest, the Oregon Water Resources Commission (OWRC) concluded that the “holder” of the water right is “the owner of the land to which the right is appurtenant.”  OWRD ultimately issued a final order affirming the determination of OWRC allowing the transfer.

The District appealed the decision of OWRC to the Court of Appeals. The Court of Appeals reversed the decision. Supreme Court affirmed in the decision of the Court of Appeals earlier this month.

 Both courts rejected the notion that Ken-Wal Farms was the “holder” of the right despite Ken- Wal’s arguments that it was the holder of the certificate because (1) it is the party putting the water to beneficial use; and (2) owns the land where the certificated water is authorized for beneficial use.  Instead, after review of the legislative intent and statutory histoy the Supreme Court held that the District holds the ownership interest in the certificated water right making it the proper applicant for a transfer because it was the District who (1) applied for the water permits and submitted all the required paperwork to OWRD; (2) constructed the irrigation works that conveyed the water; and (3) requested the issuance of the water right certificates from OWRD. 

The Supreme Court’s decision also spoke to the trustee relationship between irrigation districts and their patrons.  The Court found that Ken-Wal Farms puts water to beneficial use as the agent of the District. In turn, the District holds the water right in trust for its patrons, rather than as the owner of the water right. The Court noted that a trust implies two estates – on legal and the other equitable. The Court found that the district hold legal title to the water right as trustee and the members hold equitable title as the beneficiaries. Appling the usual tenants of trust law to the facts, the Court reasoned that allowing individual patrons to make decisions affecting the management of the district would run afoul of the trust relationship.

What is not entirely clear from the Fort Vannoy decision is how it may affect other ownership issues. For instance, it is not clear how the Fort Vannoy principals would be applied to a situation where a water right is appurtenant to lands owned by multiple landowners, when or when no special district or other trust relationship is not involved.  However, the Court’s discussion about the trust relationship between an irrigation district and patrons gives strong authority for future arguments in favor of district management over water rights it delivers within its boundaries.  The Fort Vannoy decision effectively bifurcates the ownership interests one can have in a water right, thus, time will tell how the Department will now evaluate those ownership interests in other contexts.

            To read the entire opinion, see:

                        http://www.publications.ojd.state.or.us/S055356.htm