Irrigaters vs BOR - Schroeder Law Offices, PC

Ninth Circuit Rules in Favor of the Bureau of Reclamation: Irrigaters Cannot Sue as Third Party Beneficiaries to Federal Dam Operation Contract and ESA Responsibilities Can Alter Pre-ESA Reclamation Contracts (October, 1999)

Submitted by Emilee Moeller
as edited by Laura Schroeder

Klamath Water Users Association v. Patterson, ____ F.3d____,1999 WL 695193

(9th Cir. September 9, 1999).

Submitted to and published in Western Water Law & Policy Reporter, Argent Communications Group, P.O. Box 1425, Foresthill, CA 95631

A water user’s right to water delivery under a contract with the United States Bureau of Reclamation is generally protected by basic principles of contract law. However, as the Ninth Circuit recently decided, third parties to a dam operation contract, such as irrigators, are not afforded the same protection. On September 9, 1999, in Klamath Water Users Association v. Patterson, 1999 WL 695193 (9th Cir.(Or.)) (hereinafter Klamath), the Ninth Circuit ruled that irrigators depending on water from the Link River Dam operation in the Klamath Basin in Oregon and California were merely “incidental third party beneficiaries” to the contract and could not sue to enforce the contract that had historically supplied them water. In addition, the court ruled that Section 7 of the Endangered Species Act (ESA) may apply to alter contractual agreements between dam operators and the federal government.

Background

In 1905, the United States Bureau of Reclamation (Bureau), pursuant to the Reclamation Act of 1902, appropriated water in the Klamath River and Lost River and their tributaries and began the Klamath Project by building diversion projects. In 1917, Pacificorp (at that time, “Copco”) and the Bureau entered into a contract for Copco to construct the Link River Dam, convey it to the United States, and retain the right to operate it for the purpose of conveying water to its hydroelectric facilities and to fulfill the Bureau’s contracts to supply water to irrigators on the project. The contract was renewed for fifty years in 1956.

The Klamath Project is home to the threatened coho salmon and the endangered Lost River and shortnose suckers. The operation of the Link River Dam by Pacificorp is subject to federal requirements under the Endangered Species Act and the Federal Energy Regulatory Commission (FERC). Federal agencies regulating the project are bound by a 1992 Biological Opinion issued by the United States Fish and Wildlife Service, which designated minimum elevations for Upper Klamath Lake to avoid jeopardy to the salmon and suckers. The Bureau, to meet its requirements under the ESA, implemented a yearly operating plan for the Klamath Project. The Bureau released its 1997 interim plan on May 1, 1997.

After Pacificorp announced it couldn’t implement the plan because of conflicts with its FERC license, Pacificorp and the Bureau entered into negotiations to resolve the conflict. During the negotiation stage, irrigation groups met with Pacificorp attorneys to discuss the negotiations. Ultimately, Pacificorp and the Bureau modified the contract to compensate for minimum lake levels.

The Klamath Water Users Association, representing irrigation interests affected by the modification, filed suit in federal district court for the District of Oregon to enforce the original contract between the Bureau and Pacificorp. Numerous northwest environmental groups intervened in the suit.

Plaintiffs argued they were intended third party beneficiaries to the contract based on language in the contract and the Bureau’s intent to use the dam for irrigation projects. Plaintiffs also argued that Pacificorp was not subject to the requirements of the ESA in operating the dam and therefore was not bound by the minimum levels set by the U.S. Fish and Wildlife Service. The government and Pacificorp counterclaimed and argued that the irrigators could not sue on the contract as they were incidental beneficiaries, not intended third party beneficiaries to the contract. Defendant Pacificorp argued that the dam was subject to Section 7 of the ESA because the dam operation was a federal activity, and thus, Pacificorp was not liable to the irrigators for implementing the Bureau’s water allocation for the Klamath Project because the ESA could alter the obligations of the government contract.

The District Court ruled in favor of the defendants on both issues.

The Ninth Circuit’s Decision

The Ninth Circuit affirmed, and held that, although one of the purposes of the dam was to satisfy Bureau contracts for water delivery to irrigators, the intent of the contracting parties and the language of the contract indicated the irrigators were not intended to have enforceable rights from the contract. Language cited by the plaintiffs provided that Pacificorp would operate the dam subject to the requirements of the Bureau’s Contracting Officer in maintaining minimum lake elevation “if in his opinion such must be maintained in order to protect the irrigation and reclamation requirements of Project Land.” Additional language relied on by plaintiffs was similar: “No Klamath Water shall be used by Copco when it may be needed or required by the United States or any irrigation or drainage district, person or association obtaining water from the United States.” Both these excerpts were interpreted by the court as evidencing an intent for the government to retain control over the dam, not to confer rights to irrigators based on the contract.

The Ninth Circuit also held that the sovereign power of the United States allows it to alter its contractual obligations with private parties by implementing Section 7 of the ESA, which, in this case and in most cases, was enacted after the contract was formed. This principle is limited, however, by the requirement that the federal government retain some control or discretion over the project. Section 7 requires federal agencies to adopt measures to avoid jeopardizing listed or threatened species by any federal action or project. Section 7 is not to be applied retroactively, only to “projects which remain to be authorized, funded, or carried out” by the federal government. In Klamath, the Bureau retained the authority to manage the dam and still owned the dam in fee simple. Therefore, the court concluded, the Bureau’s ESA responsibilities include “taking control of the Dam when necessary to meet the requirements of the ESA, requirements that override the water rights of the Irrigators.” Id.

Nevertheless, this decision implies that contracts entered into before the passage of the ESA that involve no ongoing action by the government remain unalterable by Section 7 requirements. In Sierra Club v. Babbitt, 65 F.3d 1502 (9th Cir.1995), the Bureau of Land Management (BLM) was not required to meet the consultation requirements of Section 7(a)(2) for road construction in spotted owl habitat because it had limited discretion to modify or deny its grant of a right-of-way pursuant to a reciprocal agreement with private landowners. The court found that the narrowly-tailored agreement between the BLM and the landowner did not leave room for objection by the BLM for protection of species, only for requiring a more direct route, preventing substantial interference with other federal facilities, or for preventing soil erosion. Id. at 1506. Thus, narrow contract language precluded application of Section 7(a)(2) because consultation with U.S. Fish and Wildlife under those circumstances would be “a meaningless exercise.” Id. at 1509.

In Klamath, the contract between the Bureau and Copco requires active participation by the Bureau’s Contracting Officer. The contract states: “Copco may regulate the water level of Upper Klamath Lake between the elevations 4143.3 and 4137, . . . except at such times, and on such conditions, as may be satisfactory to the Contracting Officer: Provided, That the Contracting Officer from time to time may specify a higher minimum elevation than 4137.” Thereby, the Bureau retains veto power over the dam’s operations to impose minimum water levels in the Upper Klamath Lake.

Conclusion

The court ruled Section 7 applies to the Link River Dam operation in part because the Bureau, as stated above, still retains title to the dam. But what about other Reclamation contracts in which irrigation districts retain title to the project/dam while contracting with the Bureau to provide water? Does this ruling apply Section 7 to these contracts/projects?Klamath indicates the answer may lie in the language of each contract.

Although this decision is specific to Pacificorp’s contract to operate the Link River Dam, the ramifications extend to other irrigators in Oregon in that they cannot sue to enforce a contract that they themselves were not a party to or were not “intended” to benefit from by the terms of the contract. More importantly, however, is the accompanying ruling that, even if a plaintiff is able to enforce a dam operation contract, standard language in individual Reclamation repayment contracts and principles of sovereignty may allow the federal government to get out of its delivery obligations in order to satisfy environmental statutory obligations, such as preserving endangered species habitat under the ESA. 1999 WL 695193 (9th Cir.(Or.)), citing O’Neill v. United States, 50 F.3d 677, 680-681 (9th Cir.1995). Although this is not the equivalent of federal reserved water rights for the ESA, it operates in much the same way. Repayment contract language cited in the lower opinion (which was affirmed by the Ninth Circuit’s ruling) limits the United States’ liability for water shortages caused by “drought, canal breaks, inaccuracy in distribution, or other causes.” “Other causes” was effectively argued by Reclamation to include the Bureau’s responsibilities under the Endangered Species Act. Therefore, irrigators may be unable to enforce even their own delivery contracts if the ESA shifts the government’s responsibility from irrigation to preservation of species habitat.