On November 14, 2017, the Montana Supreme Court affirmed the Water Court’s order settling a title dispute over four irrigation water rights between two neighboring ranches that in the past formed a single ranch. After interpreting a prior decree confirming the rights and weighing both sides’ evidence of historical use, the Water Court divided the water rights based on the parties’ respective irrigated acreage. [Quigley v. Beck, 2017 MT 278, 405 P.3d 627 (Mt. 2017).]

Background

James Quigley and Richard Beck own neighboring ranches in the Blackfoot River Basin in Powell County, Montana. In the past, the two ranches formed a single ranch–the Finn Ranch–once owned by John Blair. In 1909, the Powell County District Court entered a decree (1909 Decree) determining all of the then existing water rights on Nevada Creek. In the 1909 case, the court confirmed four irrigation water rights in Nevada Creek belonging to Blair’s Finn Ranch with priority dates ranging from 1876 to 1898 and a combined flow rate exceeding 10 cubic feet per second of time.

In 1912, Blair subdivided and sold the Finn Ranch as two parcels that have since remained in separate ownership. Despite many changes in ownership over the years, no deed for either parcel ever identified or reserved Blair’s specific water rights from the 1909 Decree. Under Montana law, when a water right is established and used in connection with a tract of land and the land is then transferred to a new owner without a specific reservation of the water right, the water right is presumed to have transferred with the land. Quigley now owns approximately 270 irrigated acres of the former Finn Ranch situated in sections 33 and 34, and Beck, approximately 630 irrigated acres in sections 27 and 28. Both Quigley and Beck irrigate with water from Nevada Creek, a tributary of the Blackfoot River.

In the early-1980s as a part of Montana’s statewide adjudication of all existing water rights, both Quigley’s and Beck’s predecessors claimed 100 percent ownership of the same four irrigation rights decreed for Blair’s Finn Ranch in 1909. During the claim review process, the Montana Department of Natural Resources and Conservation noted the conflicting claims, and the Water Court included an issue remark in the preliminary decree for the Blackfoot Basin. Issue remarks are required to be resolved, either through settlement or adjudication, before a final decree will enter. Quigley and Beck filed formal objections to the other’s claims and the case was assigned to a Water Master for adjudication.

After discovery and a two-day trial, the Water Master determined the four rights should be proportionally split between Quigley and Beck using the formula announced in the 1963 Montana Supreme Court case, Spaeth v. Emmett. Under the Spaeth formula, when an owner divides irrigated land and neglects to specify how the associated water right should be divided among the two parcels, the water right is split in proportion to the total irrigated acreage. In this case, since Beck acquired 70 percent of the irrigated acreage of the former Finn Ranch and Quigley 30 percent, the Water Master divided all four water rights along the 70/30 percentages. Despite Quigley’s objections to Water Master’s report, the Water Judge issued an order approving the allocation. Quigley then appealed to the state Supreme Court.

The Montana Supreme Court’s Decision

Whether The 1909 Decree Determined the Place of Use

On appeal, Quigley first argued the Water Court incorrectly interpreted the 1909 Decree by concluding the four water rights at issue were appurtenant to the entire Finn Ranch, and not to the specific acreage acquired by Quigley. In other words, Quigley maintained that the Water Court should not have split the water rights, because the language of the 1909 Decree required the rights to be used on land owned by Quigley, preventing the rights from passing to Beck as a result of the 1912 subdivision. Quigley emphasized a specific provision in the 1909 Decree stating the rights were “for the purpose of irrigating the lands belonging to them and described in the answer of the said John W. Blair.” Under Quigley’s theory, the 1909 court incorporated into the decree parts of Blair’s pleading from the 1909 case where Blair described which parcels of land he irrigated with the rights.

The Supreme Court disagreed with Quigley’s interpretation and pointed out the 1909 court rejected many of Blair’s allegations in his pleadings, including Blair’s claimed flow rates and appropriation dates. The Supreme Court also noted that Blair combined a number of water rights claims in the 1909 case for two separate ranches that he owned, the Finn Ranch and the Brazil Ranch. In the 1909 Decree, the court categorized the water rights awarded to Blair based on two categories, one for each of the two ranches. The Decree also contained separate findings of fact and conclusions of law for the water rights associated with each ranch. Based on this, the Court concluded:

• . . .a review of Blair’s pleadings and decree shows that the district court declared the water rights appurtenant to the irrigated lands of each separate ranch. But the decree put few restrictions on where Blair could use the water appropriated to Finn Ranch for beneficial purposes within Finn Ranch itself.

As a result, the Supreme Court affirmed the Water Court’s ruling that the 1909 Decree did not prevent the Nevada Creek water rights from becoming appurtenant to Beck’s land.

Whether the Water Rights Were Historically Used on the Beck Property

Quigley further argued that regardless of the Water Court’s interpretation of the 1909 Decree, the court did not give enough weight to various evidence showing that Blair did not historically use all four of the water rights on the land now owned by Beck. The Supreme Court disagreed, stating that Beck presented substantial evidence that Blair traditionally used Nevada Creek water on Beck’s parcel. The Water Court found the evidence, when taken as a whole, did not conclusively tie any specific water right to a specific part of the former Finn Ranch. Without conclusive evidence on this point, the Supreme Court reasoned that the Water Court appropriately relied on the Spaeth formula to allocate the water between Quigley and Beck.

Quigley’s final argument focused on the anticipated equitable outcome of the Water Court’s decision to split the water rights 70/30. Quigley asserted that the court’s ruling would result in less water to Quigley than he historically used under the rights. The Court suggested that the Spaeth formula may be adjusted in certain cases based on the duty of water, crop requirements, and soil composition factors. However, in this case, the Court determined that Quigley did not present sufficient evidence to justify an adjustment:

• Although witness testimony before the Water Master referenced the different composition of the soils, Quigley provided no further evidence to the Water Master that quantified the different water requirements. . . . ¶ 29.

The Court further concluded that while Quigley may have been left with less water than he initially claimed, Quigley cannot enlarge the water rights to which he is entitled.

Conclusion and Implications

While the outcome in this case largely depended on the facts, the case is one that real estate and transactional attorneys in Montana should take note of going forward. Large ranches, such as the Finn Ranch, are commonly subdivided and sold without careful attention to how appurtenant water rights ought to be divided or reserved. Often, parties to these types of transactions rely on blanket appurtenance clauses in their land deeds to pass title to water rights. This case demonstrates the risk associated with that approach. The case is also important for the court’s conclusion that without a specific limitation on the place of use for an irrigation right in a historical water decree, the right may be determined appurtenant to the entire acreage, rather than any specific parcel of subdivided land. Lastly, the case illustrates how the outcome in fully litigated title fights is dependent on the weight of each party’s historical use evidence and possibly, the claimants’ respective water requirements.

(Jason Groves, Paul Noto)