Oil and Gas Lawyer Blog
The Texas Supreme Court issued its opinion today in Edwards Aquifer Authority v. Day, more than a year after it was argued and some thirteen years after the controversy began. It has been eagerly awaited as the court’s ruling on whether a landowner has a “vested” right in groundwater under his/her land. The Court held that groundwater, like oil and gas, is “an exclusive and private property right … inhering in virtue of [the landowner’s] proprietorship of the land, and of which he may not be deprived without a taking of private property.” The case is being heralded by property rights advocates as a victory for private property rights. The court’s decision, in an opinion by Justice Nathan Hecht, was unanimous.
The opinion is certainly not surprising. It would have been a surprise to most people to learn that they do not have ownership rights in groundwater under their property. But I question whether it is such a victory for property owners and whether it will materially change the current regulatory scheme for groundwater in Texas.
Justice Hecht’s opinion, 49 pages, includes a good summary of the history of groundwater regulation and litigation in Texas over the last 100 years. Remarkably, in all that time the Court had never ruled on the question of whether landowners have a property right in groundwater. The court held that the same rules should apply to groundwater as apply to oil and gas – in both, the landowner has an ownership right in the substance under his/her land, subject to being divested of that ownership by drainage from wells on adjacent lands, and subject to reasonable regulation by the state.
In EAA v. Day, two farmers owned 350 acres south of San Antonio. They applied to the Edwards Aquifer Authority for a permit for their existing water well on the property. Under the rules of the EAA, their right to use water from the well depended on what use they made of the water during the historic period from June 1, 1972 to Mary 31, 1993. The farmers applied for a permit to pump up to 700 acre-feet per year, for irrigation. The EAA granted a permit for only 14 acres, finding that their proof of historic use was not adequate. The farmers then sued, alleging that denial of their permit for 700 acre-feet constituted a taking of their property without compensation. After holding that the farmers did have a “property right” in their groundwater of which they could not be deprived without compensation, the Court remanded the case to the trial court for additional evidence on whether the EAA’s regulations did in fact constitute a taking of property for which compensation is due.
This is where the case gets interesting. The court discusses how the trial court, when it gets the case back, should decide whether the farmers are entitled to compensation. Relying on a US Supreme Court case, Penn Central Transp. Co. v. New York City, the court adopted a test of “reasonableness”: the trial court must consider “the economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations”; and the “‘character of the government action’ — … whether it amounts to a physical invasion or instead merely affects property interests through ‘some public program adjusting the benefits and burdens of economic life to promote the common good.'” Considering these factors, the court must decide whether the economic impact of the regulation on the farmers, considering the promotion of the common good resulting from the regulation of groundwater imposed by the EAA, rises to the level of a “taking” of private property for public use. This in my opinion does not give the trial court much to go on. It is a pretty subjective test and will depend on particular facts. The Supreme Court remanded the case to the trial court to further develop those facts.
So what does this mean for Texas landowners and groundwater districts? Perhaps more litigation. Landowners unhappy with decisions made by their local water district may sue claiming that the district has “taken” their water rights. But, as can be seen by the Day case, such a battle is not to be taken on lightly — in fact, Mr. Day died before the decision was issued — and will be expensive. And there is the possibility that an unsuccessful claimant would have to reimburse the water district’s legal fees. Most water districts have very limited budgets and so will be reluctant to fight landowners’ inverse condemnation suits. As a result, they may be more cautious in how they draft and enforce their regulations.
All in all, the case is an important, but not surprising, milestone in the continuing development of groundwater rights law in Texas.