Curry v. Pondera Cnty. Canal & Reservoir Co., DA 14–0529.

• Decision Date: 29 March 2016
• Docket Number: No. DA 14–0529.,DA 14–0529.
• Citation: 383 Mont. 93,370 P.3d 440,2016 MT 77
• Parties: Gene R. CURRY, Cheryl S. Curry, and Curry Cattle Co., Plaintiffs, Counterclaim–Defendants and Appellants, v. PONDERA COUNTY CANAL & RESERVOIR COMPANY, Defendant, Appellee and Cross–Appellant.
• Court: Montana Supreme Court

383 Mont. 93

370 P.3d 440

2016 MT 77

Gene R. CURRY, Cheryl S. Curry, and Curry Cattle Co., Plaintiffs, Counterclaim–Defendants and Appellants,

v.PONDERA COUNTY CANAL & RESERVOIR COMPANY, Defendant, Appellee and Cross–Appellant.

No. DA 14–0529.

Supreme Court of Montana.

Argued and Submitted Sept. 30, 2015.

Decided March 29, 2016.

For Appellants: Holly Jo Franz (argued), Ada C. Montague, Franz & Driscoll, PLLP, Helena, Montana.

For Appellee: John E. Bloomquist(argued), Bloomquist Law, P.C., Helena, Montana.

For Amicus Curiae Montana Trout Unlimited: Laura S. Ziemer, Patrick Byorth, Meg Casey, Montana Trout Unlimited, Bozeman, Montana.

For Amicus Curiae Montana Water Resources Association: Michael J.L. Cusick, Abigail R. Brown, Moore, O'Connell & Refling, PC, Bozeman, Montana.

Justice MICHAEL E. WHEATdelivered the Opinion of the Court.

¶ 1 Gene R. Curry, Cheryl S. Curry, and Curry Cattle Co. (Curry) appeal from an order of the Montana Water Court that determined Pondera County Canal & Reservoir Company (Pondera) is entitled to claim beneficial use based on the maximum number of shares authorized by the Montana Carey Land Board (MCLB), a service area for its place of use, the extent of the acreage included in the service area, the adjustment of the flow rate for Claim Nos. 41M 162000–00 and 41M 162109–00, and the reversal of the dismissal of Claim No. 41M 199797–00. Pondera cross-appeals from the portion of the order regarding the tabulation for Claim Nos. 41M 131103–00 and 41M 199796–00. We affirm in part, reverse in part, and remand for further proceedings.

ISSUES

¶ 2 We review the following issues:

1. Did the Water Court err when it determined the water rights of an entity developed under the Carey Land Act for the purpose of sale or rental are not limited by the stockholders' actual historic water use?

2. Did the Water Court err when it granted Pondera a "service area" rather than a place of use based on historically irrigated land?

3. Did the Water Court err by ruling Pondera's storage rights were beneficially used on the Birch Creek Flats prior to 1973?

4. Did the Water Court err by substituting its judgment for the trier of fact in regard to Claim Nos. 41M 162000–00 and 41M 162109–00 (Gray Right), and Claim No. 41M 199797–00?

5. Should the Water Court's tabulation for Claim Nos. 41M 131103–00 (Curry claim) and 41M 199796–00 (Pondera claim) include volume measurements?

We address each issue in turn.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 The present case originates from a water distribution controversy on Birch Creek, a tributary of the Marias River. Both Curry and Pondera own rights to divert waters from Birch Creek. This case is before this Court as a result of a certification order from the Ninth Judicial District Court, Pondera County, which referred the case to the Water Court for the "determination of the existing water rights that are involved in [the] matter." The water rights that are the subject of this appeal are located in the Marias River Basin, 41M, which has yet to receive final adjudication. Subsequent to the filing of this appeal a preliminary decree was entered, and now it controls the rights in the Basin. Accordingly, the Court recognizes all water users in this Basin, including the parties to this appeal, will have an opportunity to fully participate in the adjudication process and additional litigation related to the rights at issue herein may occur.

A. Historical and Factual Background

¶ 4 Pondera is a water supply company organized under Montana law, which supplies water to Pondera County residents primarily for irrigation. Pondera owns rights to divert water from Birch Creek. In addition to its Birch Creek water rights, it owns a complete distribution system, including canals, ditches, siphons, and headgates.

¶ 5 Pondera's predecessors secured some of its water rights through use of the Carey Land Act, a federal act that encouraged settlement of the arid West.¹ 43 U.S.C. §§ 641–644 (2012). This federal law provided for the passage of fee title to federal lands to state settlers if the state complied with various prerequisites. To ensure the procedures were properly followed states created Carey Land Boards to manage the process. Typically, Carey Land Act projects occurred and passed title in a systematic fashion. First, the federal government promised title to arid lands to a state upon the conditions of both reclamation and actual settlement of the land. Next, the state contracted with a construction company to construct an irrigation system to service the land and to secure settlement of the land by settlers. Once construction of the irrigation system was complete, the state could request the patents of the land from the federal government. Upon approval by the Carey Land Board, the construction company could sell shares of stock in an operating company to settlers and the state could sell the patented land serviced by the irrigation system to the stockholder-settlers. Thus, the operating company was comprised of stockholders who had the right to water per acre of land owned, and also proportionate ownership in the irrigation system. Once 90% of the total stock was sold by the construction company to settlers, the ownership of the system was turned over to the operating company. Ultimately, the settler-shareholders owned the land upon which the water was used, had ownership in the operating company, but the operating company itself retained ownership of the water rights.

¶ 6 The original appropriators of the rights now owned by Pondera began appropriating water for the purpose of irrigating and selling water to other irrigators. The Conrad brothers acquired these rights and appropriated water in order to irrigate approximately 50,000 acres of their land in the Marias River Valley. At some point in the late 1800s, the Conrads hired an engineer to construct a ditch system to divert water from Birch and Dupuyer Creeks, which was approximately fifty miles in length and irrigated a portion of their land, in the range of five to six thousand acres. This land was irrigated under the Conrad Investment Company. The Conrads also organized the Pondera Canal Company to sell water they diverted from the Lake Francis Reservoir into a diversion to the Dry Fork of the Marias. This company project irrigated approximately 13,000 acres of shareholder land. The current Pondera project is an extension of these two original systems.

¶ 7 In 1908 the Conrads sold their land and holdings to W.G. Cargill. Cargill and the same engineer hired to develop the Conrads' first original system then began efforts to irrigate under the then recently-enacted Carey Land Act provisions. Pursuant to the Carey Land Act, two companies were formed: a construction company and an operating company. The operating company went through various name changes and was eventually organized as Pondera in 1927. In 1948, the physical construction of the project was completed and a request for final approval was filed with the MCLB. The MCLB approved the project as complete in 1953, at which time Pondera took ownership of the project from the construction company. Prior to the MCLB's final approval, the development of the project required an independent assessment of the ability to provide an adequate supply of water. Both the MCLB and the federal government were involved in determining whether the Pondera project could properly supply water to its shareholders.

¶ 8 Similar to other operating companies formed under the Carey Land Act, Pondera is owned by its membership and water is distributed to shareholders on a per-share-owned basis. Generally, the water rights are appurtenant to the land described in the share certificates issued by Pondera to its shareholders. Under the development of the project the settler-shareholders did not receive individual water rights to irrigate their land, but instead they received the right to available water in common with other settler-shareholders regardless of when they purchased their shares or when they initially irrigated their land.

¶ 9 Initially the Pondera project sought to irrigate 160,000 acres. Over time this irrigable acreage amount was reduced. The State engineer assigned to the project concluded in his final evaluation that the lands contemplated would be serviced by the issuance of a maximum of 72,000 shares, with each share equivalent to one acre of irrigable land.² Pondera's bylaws contemplate the movement of water within the project's boundaries. Specifically, they state:

[T]he shares and water rights evidenced thereby shall become and forever be inseparably appurtenant to such lands, subject, nevertheless, to the power of the Board of Directors of this corporation, for good cause shown, at the request and with the consent of the owner thereof, to make said certificate of stock appurtenant to other land which is so located that the Irrigation System as then and now constructed can readily and efficiently serve the same.

¶ 10 Curry is a private landowner with irrigation water rights at various locations in an area known as the Birch Creek Flats (the Flats). Curry came into possession of his lands and appurtenant water rights beginning in 1988. Some of Curry's rights are of the oldest in Basin 41M. For many years, Curry and Pondera both received water from Birch Creek despite disagreeing over the priorities of each other's rights. In 2004, Pondera advised Curry of what it believed to be the extent of Curry's water rights, which was less than what had been previously indicated by a former Pondera employee. Then in 2005 Pondera locked Curry's headgate, which left him without water and ultimately led to the current dispute.

B. Procedural History

¶ 11 In June 2005, Curry filed a complaint in the Ninth Judicial District Court, Pondera County, which alleged interference with his water rights by Pondera. In August 2005, Curry filed a motion for preliminary injunction and certification to the Water Court for a determination...