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Rocky Ford Irrigation Co. v. Kents Lake Reservoir Co.

Supreme Court of Utah

July 11, 2019

Rocky Ford Irrigation Company, Appellant,
v.
Kents Lake Reservoir Company and Does 1 Through 200, Appellees, and Beaver City, Intervenor and Appellee.

          On Direct Appeal, Fifth District, Beaver County The Honorable Paul D. Lyman No. 100500156

          Stephen E.W. Hale, Matthew E. Jensen, J. Mason Kjar, Salt Lake City, for appellant.

          John H. Mabey Jr., David C. Wright, Salt Lake City, for appellees Kents Lake Reservoir Company and Does 1 through 200

          Justin W. Wayment, Christian Jones, Cedar City, for intervenor-appellee.

          Associate Chief Justice Lee authored the opinion of the Court, in which Chief Justice Durrant, Justice Himonas, Justice Pearce, and Justice Petersen joined.

          OPINION

          LEE, ASSOCIATE CHIEF JUSTICE.

         ¶1 This case comes to us on direct appeal from the Fifth District Court. Rocky Ford Irrigation Company and Kents Lake Reservoir Company[1] both have water rights in the Beaver River. As changes occurred-both in water rights and in irrigation techniques-the administration of the Beaver River grew increasingly complex. Rocky Ford sued Kents Lake seeking clarification regarding priority of rights and Kents Lake's obligations as to river administration and measurement. Rocky Ford lost on each of its claims below and accordingly appealed. We affirm in part, reverse in part, and remand.

         I

         ¶2 Around 1870, settlers began diverting water from the Beaver River and directly conveying it through canals and ditches to their crops. These initial rights were direct flow rights-the right to take water from the source and apply it directly to the end use without reservoir storage. After most of the base flow of the Beaver River was allocated to direct flow rights, water users constructed reservoirs to store spring runoff and winter flows to allow for later use on their crops.

         ¶3 Rocky Ford and Kents Lake are water users in the Beaver River System. Both have direct flow and storage rights dating back to the first determination of rights in the Beaver River in 1916.

         ¶4 Rocky Ford acquired various direct flow rights with priority dates of 1870, 1890, 1903, 1907, and 1909. Kents Lake and its shareholders also acquired direct flow rights. Kents Lake's direct flow rights had priority dates of 1870, 1890, and 1903.

         ¶5 These parties also hold storage rights in reservoirs they built. Rocky Ford constructed Minersville Reservoir at the bottom of the Beaver River System. It holds a 1907 storage right to divert water into the Minersville Reservoir. Kents Lake constructed Upper Kents Lake and Middle Kents Lake Reservoirs, collectively called the "South Fork Reservoirs," in the headwaters of the Beaver River System. Kents Lake holds an 1890 storage right to divert water into the South Fork Reservoirs.

         ¶6 In the early 1900s, the Fifth District Court conducted a general adjudication of the Beaver River culminating in the issuance of the Beaver River Decree (Decree) in 1931. The Decree established and confirmed priority dates and use limitations on Beaver River water rights. It confirmed direct flow rights acquired by Rocky Ford in 1870, storage rights acquired by Rocky Ford in 1907, and other direct flow rights acquired by Rocky Ford on later dates. It also confirmed storage rights for Kents Lake in South Fork Reservoirs (acquired in 1890) as well as direct flow rights for certain Kents Lake shareholders.[2] The Decree also divided the Beaver River into two- an upper and lower portion of the river with the Patterson Dam serving as the dividing line. Water users located above the dam were denominated "upper users" and were allowed to divert water prior to "lower users" despite a later priority date.[3]

         ¶7 The Decree also required users to "promptly install and perpetually maintain suitable . . . measuring devices at or [as] near as possible to their respective points of diversion or at such other points as may be designated in their decree, for the measurement of all water diverted hereunder for consumptive uses." Under the Decree, water users were "permanently enjoined from diverting . . . any water for such consumptive purposes through any ditch, canal, conduit or other device not provided with proper headgates, control works, and measuring devices."

         ¶8 A few years after the Decree, Kents Lake sought to build an additional reservoir-Three Creeks Reservoir. And in 1938 Kents Lake filed an application with the State Engineer under Utah Code section 100-3-3, seeking to change the place of storage of 830 acre-feet of water from South Fork Reservoir to Three Creeks Reservoir. Then, in 1940, Kents Lake submitted an application with the State Engineer, seeking the right to store an additional 1, 193 acre-feet of water in Three Creeks Reservoir. The State Engineer reviewed the applications and put the other water users in the Beaver River System on notice of Kents Lake's proposed changes. Rocky Ford protested both the change and the new application for appropriation before the State Engineer. The State Engineer found that despite Rocky Ford's protests, both Kents Lake's changed use and new appropriation request would put the water towards a beneficial use and not impair existing rights. Accordingly, the State Engineer granted both Kents Lake's requests.[4]

         ¶9 In 1953, Rocky Ford and Kents Lake entered into an agreement (Agreement) to "provide for the practical administration of storage . . . and to prevent future controversy concerning the diversion for storage." The Agreement provided that (1) Rocky Ford would not protest Kents Lake's planned change application seeking an option storage right in Three Creeks Reservoir, (2) Kents Lake would not oppose Rocky Ford's enlargement of its reservoir, and (3) Rocky Ford has an exclusive right to store all water available to it from November 1 to the following April 1 each year.

         ¶10 As agreed, Kents Lake submitted a change application to the State Engineer seeking to create an option storage right in Three Creeks Reservoir. Rocky Ford, as promised, did not protest the application. The State Engineer approved the application and granted Kents Lake's request for these "direct-storage changes." Kents Lake now had a direct-storage right, allowing it to either use the water directly or store it in Three Creeks Reservoir.

         ¶11 Once Kents Lake's change application was approved, Kents Lake sought to "perfect" its changed use. This entailed entering into a "period of proof" where Kents Lake applied the water to the changed use under the supervision of the State Engineer. Once the State Engineer was satisfied that the water was being used in accordance with the change application and was put to a beneficial use, Kents Lake received a certificate from the State Engineer that served as "prima facie evidence of the owner's right to the use of the water in the quantity, for the purpose, at the place, and during the time specified therein, subject to prior rights." Utah Code § 73-3-17 (1953). Kents Lake received a certificate from the State Engineer perfecting its direct-storage right.

         ¶12 Beginning in the 1970s, users of the Beaver River began to gradually convert from flood irrigation to sprinkler systems. Sprinklers are a more efficient watering mechanism. They require diversion of less water and produce less return flow.[5] Some upper river users store these efficiency gains, reducing the amount of water flowing in the Beaver River. This reduction in flow can adversely affect downstream users like Rocky Ford if there is insufficient water in the river to fulfill lower users' rights.

         ¶13 The above changes, decrees, advancements, and agreements have made the administration of the Beaver River increasingly complex. In 2003, Rocky Ford asked the State Engineer to enhance oversight of the Beaver River storage. Over the next year and a half, Rocky Ford, Kents Lake, and the State Engineer corresponded about improved storage regulation. And the State Engineer found that Kents Lake's measurement devices were deficient.

         ¶14 Still unsatisfied, Rocky Ford filed a lawsuit in district court in November 2010 alleging water right interference, conversion of water rights, and negligence, and seeking declaratory relief, injunctive relief, and rescission of the 1953 Agreement. Rocky Ford contends that its water rights have been impaired by direct-storage changes and other actions taken by Kents Lake, including Kents Lake's failure to measure its water in accordance with the Beaver River Decree. Kents Lake filed a counterclaim seeking clarifications of the parties' water rights under the Agreement. Three years later Beaver City was allowed to intervene.

         ¶15 Following discovery, Rocky Ford moved for partial summary judgment. It asserted that (1) the direct-storage changes maintain an 1890 priority date only to the extent they don't impair Rocky Ford's direct flow rights, and (2) Rocky Ford's direct flow rights are not subordinated or waived under a plain language reading of the Agreement. The district court denied the motion. In so doing, the court concluded that Rocky Ford had "intentionally waived its direct flow rights against [Kents Lake] through its entrance into the 1953 agreement" and that Kents Lake could continue to store its water as it has "even to the detriment of [Rocky Ford]'s direct flow rights."

         ¶16 The parties stipulated to dismissal of all claims for damages, leaving only claims for injunctive relief, declaratory relief, and rescission of contract. At trial, the court's denial of Rocky Ford's motion for summary judgment precluded any evidence concerning the priority of the direct-storage changes or the meaning of the Agreement. The court focused on Kents Lake's measurement obligations and Rocky Ford's claims related to the continued efficacy of the Agreement. During the three-day bench trial, the court refused to admit evidence from Rocky Ford's expert about the impact of sprinklers on the historic return flow to the Beaver River.

         ¶17 On June 28, 2016, the trial court issued its written Memorandum Decision. The court first denied Rocky Ford's request for injunctive and declarative relief regarding Kents Lake's measurement obligations. Because Kents Lake had followed the instructions of the State Engineer with regard to measurement, the district court concluded that Rocky Ford was not entitled to declarative or injunctive relief. The district court also declined to rescind the 1953 Agreement. It concluded that Rocky Ford had not proved material breach, impracticability, frustration of purpose, or mutual mistake. Lastly, the district court awarded attorney fees to Kents Lake and Beaver City sua sponte under Utah Code section 78B-5-825.

         ¶18 The district court later denied Rocky Ford's rule 59 motion seeking reversal of the fee award. Rocky Ford then filed this appeal.

         II

         ¶19 Rocky Ford seeks reversal of the district court's decision denying the motion for partial summary judgment, its entry of final judgment, and its award of attorney fees. Five principal questions are presented for review. First, did the trial court commit legal error when it denied Rocky Ford's motion for summary judgment? Second, did the trial court err in refusing to declare that Kents Lake could not store the water it saved through improved efficiency? Third, did the trial court err in refusing to declare that Kents Lake must measure its usage consistent with the requirements of the Beaver River Decree? Fourth, did the trial court err in refusing to rescind the 1953 Agreement? And fifth, did the trial court err in awarding attorney fees to Kents Lake and Beaver City?

         ¶20 We affirm the denial of Rocky Ford's motion for partial summary judgment on alternative grounds. And we affirm the trial court's holdings that Rocky Ford had no claim on Kents Lake's efficiency gains and that the 1953 Agreement should not be rescinded. But we reverse and remand on the district court's refusal to enter a declaratory judgment regarding Kents Lake's measurement obligations. We also reverse the denial of the rule 59 motion and hold that Kents Lake and Beaver City are not entitled to attorney fees.

         A

         ¶21 The first question presented for review is whether the district court committed legal error in denying Rocky Ford's motion for summary judgment. The court concluded that Rocky Ford had intentionally subordinated its direct flow rights to Kents Lake's rights and that Kents Lake could take and use water to Rocky Ford's detriment. The court treated this issue as a matter of contract interpretation. In denying the motion, the district court concluded that the 1953 Agreement was clear and unambiguous and established that Rocky Ford intentionally subordinated its direct flow rights, allowing Kents Lake to use the water to Rocky Ford's detriment. We disagree with the district court's determination that the Agreement clearly and unambiguously established that Rocky Ford intentionally subordinated its direct flow rights. Yet we affirm the denial of the motion for summary judgment on alternative grounds advanced by Kents Lake.

         1

         ¶22 In its order denying Rocky Ford's motion for summary judgment, the district court relied entirely on the language of the Agreement. The first two recital paragraphs of the Agreement state that both Rocky Ford and Kents Lake have "various rights in the Beaver River."[6] The fourth recital paragraph identifies the priority dates of some of these rights.[7] And the fifth recital paragraph describes the purpose of the Agreement-"to provide for the practical administration of storage under the water rights mentioned above and to prevent future controversy ...


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