On September 12, 2019, the Nevada Supreme Court issued a decision that confirmed the authority of Nevada’s District Courts to grant equitable relief when reviewing non-discretionary decisions of the Nevada State Engineer. The Court held that, even though the State Engineer has no discretion to restore the original priority date of a permit when rescinding its cancellation, a court may. Happy Creek followed a long line of Nevada cases that affirmed the courts’ equitable powers to right perceived wrongs in statutory water rights matters, even where the legislature declined to grant the State Engineer authority to do so. [Wilson v. Happy Creek, Inc., 135 Nev.Adv.Op. 41 (Nev. 2019).]
Nevada’s Permit Cancellation Statute
As in many other western states, a permit to appropriate water in Nevada is conditional. The permit holder must meet certain statutory deadlines for filing a proof of competition of the diversion works and proof of beneficial use (PBU) before the State Engineer will issue a water rights certificate. Failure of the permit holder to meet these deadlines or to timely seek an extension of time (EOT) requires the State Engineer to cancel the permit. Nev. Rev. Stat. §533.395(1); 533.410.
A permit holder may petition the State Engineer to review the cancellation, which after considering evidence, the State Engineer may affirm, modify or rescind. Nev. Rev. Stat. § 533.395(2). However, even if the State Engineer reinstates the cancelled permit, the State Engineer cannot restore the permit’s original priority date. Rather, the State Engineer must assign as a new priority date the date on which the permit holder filed its petition to rescind the cancellation. Nev. Rev. Stat. §533.395(3). The statute does not afford the State Engineer any discretion on this point.
Precedent for the Exercise of Equitable Powers Over Statutory Water Permits
The Nevada Supreme Court has a long line of precedent upholding the authority of the courts to grant equitable relief in water cases. As noted by the Supreme Court:
. . .[a]lthough [the statute] provides that water permits ‘shall’ be cancelled by the State Engineer when a permittee fails to file proof of application of water to beneficial use, this directive does not affect the power of the District Court to grant equitable relief to a permittee when warranted.” Engelmann v. Westergard, 647 P.2d 385, 387 (Nev. 1982).
Even where the State Engineer correctly cancelled a permit due to his statutory mandate, a court still has power to grant equitable relief to the permit holder to restore the permit. See id., citing Bailey v. State of Nevada, 594 P.2d 734 (Nev. 1979); State Engineer v. American Nat’l Ins. Co., 498 P.2d 1329, 1330 (Nev. 1972); Donoghue v. Tonopah Oriental Mining Co., 198 P. 553 (Nev. 1921) [This is consistent with the Supreme Court’s jurisprudence regarding equitable relief, generally, which broadly allowed a court to fashion equitable remedies when legal remedies “are not available or are inadequate.] State Dep’t of Health & Human Services, Div. of Pub. & Behavioral Health Med. Marijuana Establishment Program v. Samantha Inc., 407 P.3d 327, 329 (Nev. 2017) (quoting Richard J. Pierce Jr., Administrative Law Treatise, 1700, 1701 (5th ed. 2010)).
As recently as 2010, the Supreme Court had fashioned appropriate equitable remedies to address an error committed by the State Engineer. See, Great Basin Water Network v. State Eng’r, 234 P.3d 912, 920 (Nev. 2010).
Factual and Procedural Background
The permit holder at issue in Happy Creek was a ranching and farming company that operates a ranch with 1,399 acres of deeded land and 855 irrigated acres. The groundwater irrigation rights for the ranch, totaling 3,063 acre-feet annually, had priority dates ranging from 1954 to 1990. They had been put to beneficial use and certificated under Nevada’s statutory procedures. The ranch enlisted the help of a licensed water rights surveyor to serve as its agent to handle all its filings with the State Engineer.
To use its water more efficiently, Happy Creek decided in 2007 to convert from flood irrigation to a center-pivot irrigation system. To effectuate this conversion, the ranch—through its agent—filed applications to change the place of use for the ranch’s certificated groundwater rights, as required under Nevada’s statutes. See, Nev. Rev. Stat. § 533.325. The State Engineer approved the change applications and set an April 29, 2012 deadline for Happy Creek to file PBUs.
Happy Creek spent almost $1 million and several years upgrading its water system. The PBUs required Happy Creek to submit meter readings for 12 consecutive months. Though the conversion work was complete, each year one or more of the totalizing flow meters on the irrigation wells failed, resulting in incomplete data. As a result, Happy Creek’s agent filed, and the State Engineer granted, EOTs for Happy Creek to file its PBUs. See, Nev. Rev. Stat. § 533.380(3), 533.410.
On May 19, 2016, the State Engineer mailed Happy Creek notice that it needed to file the PBUs (or EOTs) within 30 days to avoid cancellation of the permits. Happy Creek received the notice on May 23, 2016, and emailed it that same day to its agent, but the agent accidentally missed the deadline, realizing his mistake shortly thereafter. As mandated by statute, the State Engineer cancelled Happy Creek’s permits.
Happy Creek petitioned for review of the cancellation, and the State Engineer reinstated the permits. However, because he was statutorily barred from doing so, the State Engineer did not restore the permits’ original priority dates. Instead, as required by statute, he made the new priority date the date on which Happy Creek filed its petition.
Happy Creek sought judicial review and equitable relief. The District Court agreed with Happy Creek, concluding that based on these facts, equity demanded that the permits retain their senior priority dates. The State Engineer appealed.
The Supreme Court’s Decision
On appeal, the State Engineer contended that the Nevada Supreme Court’s precedent was no longer good law because the core cases addressed a pre-1981 version of Nev. Rev. Stat. § 533.395, which made no provision for the State Engineer to review permit cancellation cases. The Court disagreed, concluding that “neither the text nor the legislative history of the 1981 amendments” implicitly terminated the courts’ authority to grant equitable relief. The Court emphasized that a:
. . .court’s exercise of its equitable authority to revise priority date changes mandated by NRS 533.395(3) differs fundamentally from its deferential review of the State Engineer’s discretionary decision to affirm, modify, or rescind a cancellation.
The Nevada Legislature, the Court reasoned, did nothing to limit the equitable jurisdiction of the courts.
Evaluating the facts, the Court determined that equitable relief in this case improved: 1) efficiency of Nevada’s water laws; 2) sustainability of the resource; 3) fairness; and 4) clarity in the law and was therefore warranted. It affirmed the District Court’s decision.
The Dissent
Happy Creek contained a scathing dissent from two justices. The dissenters opined that the Court’s precedent was distinguishable and that the 1981 statutory amendment rendered that precedent inapplicable now. They also disagreed with the majority’s conclusion that equitable relief was justified in this case.
Conclusion and Implications
This case reconfirms the powers of the courts to provide equitable relief where Nevada’s water statutes create draconian results. It implicates separation of powers issues, holding that, even where the Legislature has declined to give the State Engineer the authority act, the courts may step in. A single ranch can have numerous water permits, each with its associated filing deadlines. The paperwork can be onerous, and it is not uncommon for deadlines to be overlooked. Where a priority date can mean everything to the long-term sustainability of a ranch in a state such as Nevada where water is scarce, Happy Creek gives permit holders comfort that inadvertent mistakes will not have devastating implications. For more information on the case and decision, see, http://caseinfo.nvsupremecourt.us/public/caseView.do?csIID=44498
(Debbie Leonard)
