Barcellos and Wolfsen, Inc. v. Westlands Water Dist.

• Decision Date: 07 June 1990
• Docket Number: No. 89-15098,89-15098
• Citation: 899 F.2d 814
• Parties: 20 Envtl. L. Rep. 20,672 BARCELLOS AND WOLFSEN, INC., et al., Plaintiffs, and Boston Ranch Company; Edwin R. O'Neill; West Haven Farming Co., Plaintiffs-Appellants, v. WESTLANDS WATER DISTRICT, et al., Defendants, and United States Department of Interior, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 814

899 F.2d 814

20 Envtl. L. Rep. 20,672

BARCELLOS AND WOLFSEN, INC., et al., Plaintiffs,

and

Boston Ranch Company; Edwin R. O'Neill; West Haven Farming

Co., Plaintiffs-Appellants, v. WESTLANDS WATER DISTRICT, et al., Defendants, and United States Department of Interior, Defendant-Appellee.

No. 89-15098.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 4, 1989.

Decided March 16, 1990.

As Amended on Denial of Rehearing and Rehearing En Banc June

7, 1990.

William M. Smiland, Donnelly, Clark, Chase & Smiland, Los Angeles, Cal., for plaintiffs-appellants.

Robert L. Klarquist, U.S. Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before FLETCHER, FERGUSON and FERNANDEZ, Circuit Judges.

FLETCHER, Circuit Judge:

Boston Ranch Company, Edwin R. O'Neill, and West Haven Farming Company appeal the district court's denial of their motion to order the Department of Interior to sell water to them at a certain price pursuant to a contract incorporated into a consent judgment. They argue that Sec. 224(h) of the Reclamation Reform Act of 1982, 43 U.S.C. Sec. 390ww(h), if applied to them, impairs their contract rights and interferes with the consent judgment in violation of due process and the separation of powers required by the Constitution. We affirm the district court.

FACTUAL AND STATUTORY BACKGROUND

This appeal turns on the interpretation of contracts made and a judgment rendered under the aegis of the Reclamation Act of 1902, 32 Stat. 388, and subsequent statutes amending it. The purpose of the original 1902 Act was to encourage people to go West, not to engage in big-time speculation, see Ivanhoe Irrig. Dist. v. McCracken, 357 U.S. 275, 297, 78 S.Ct. 1174, 1186, 2 L.Ed.2d 1313 (1958), but to grow crops on modest family farms in the country's drier regions so that the nation's agricultural bounty would increase. The Act promoted the farming of lands in the arid West by creating a system under which the federal government would provide funds to build water projects from which water would be sold at a subsidized price. The Interior Department was directed to charge water users prices that would recapture the cost of building the project exclusive of interest. 43 U.S.C. Sec. 461. The original 1902 Act allowed this subsidized water to be sold only to resident farmers and only for parcels of land no larger than 160 acres. 43 U.S.C. Sec. 431. But the strict restriction against larger farms inhibited Congress' goal of increasing agricultural production. In 1926 Congress amended the Act to allow Interior to sell water for larger tracts, but only if the owner promised to divest himself of the lands in excess of 160 acres on terms to be worked out by Interior. 43 U.S.C. Sec. 423e.

The appellants are landowners. Each owns more than one thousand acres of farm land in California's Central Valley.

They buy water from the Westlands Water District (the District). The District and the Department of Interior (Interior) entered into a contract in 1963 (the 1963 Contract), under which the District bought water at a subsidized rate of $8.00 per acre foot (including a $0.50 drainage service component) from a federal reclamation project (the Project) for resale under certain conditions to subscribers within the District. As subscribers, the appellants are beneficiaries of the 1963 Contract, even though they are not parties to it.

The 1963 Contract prohibits the District from furnishing Project water to an owner who wishes to use the water to irrigate his "excess lands," or lands in excess of 160 acres, ¹ unless the owner agrees in a separate, recordable contract with Interior to certain significant restraints on his rights to the excess lands. Each appellant entered into at least one such recordable contract with Interior between 1969 and 1974. ² The appellants' recordable contracts are identical except for the description of the owner's particular excess lands.

Article 5 of the recordable contracts provides:

All rights of the Landowner to receive Project Water for its excess lands shall be subject to the provisions of the District Contract and this contract.

Article 25(b)(i) of the District Contract states that as a condition precedent to the right to receive Project water, the landowner shall

[agree] to dispose of his land ... to persons who can take title thereto as nonexcess land ... within a period ten (10) years after the date of the execution of said recordable contract and agree[ ] further that if said land is not so disposed of within ... ten years, the Secretary [of Interior] shall have the power to dispose of said land ... on behalf of such large landowner.

The District contract and the recordable contracts provide not only that the landowner must sell his excess land within ten years, but also that he must sell at an artificially low appraised price--artificially low because the appraiser may not take into account the fact that the owner of the land has access to water from the Project. Furthermore, the landowner may not sell his excess lands without Interior's approval.

Although the contracts give the landowner a ten-year period during which he may transfer his excess lands without being subject to the Secretary of Interior's power of attorney over the lands, Article 13 of the recordable contracts provides:

the computation of the ten-year period ... shall not include any year or years in which water or service from the Project may not be available to the land involved through no fault of the District or the Landowner.

Article 13 is potentially important to this dispute, because during the ten-year term of the several recordable contracts at issue, events intervened to prevent the contracts from being performed according to the original design.

In 1976, a federal district court issued an injunction against the Department of Interior, prohibiting it from approving excess land sales pursuant to recordable contracts until Interior promulgated, in accordance with the Administrative Procedure Act, rules governing the criteria and procedures for approving such sales. National Land for People v. Bureau of Reclamation, 417 F.Supp. 449 (D.D.C.1976). While the injunction was in effect, from 1976 to 1982, the appellants were not permitted to sell their excess lands in the manner envisioned by the recordable contracts. However, only one appellant, O'Neill, attempted to sell. ³

With regard to those excess lands governed by recordable contracts executed prior to 1972, the ten-year period in which to The landowners argue that Article 13 must be construed to toll the ten-year period for disposing of land, because Interior's approving excess land sales is a "service." They also argue that if the injunction tolled the ten-year period for disposing of their excess lands, it also provided them with extra time to receive water from the Project at a subsidized price. They point to Article 8 of the recordable contracts, which provides:

sell expired at some time during the period the injunction was in effect. Nonetheless, during this period, Interior provided Project water at the same rate for lands whose ten years had run as for those whose time had not run. It is disputed whether the contracts required this treatment or whether Interior was simply attempting to act equitably in light of a circumstance (the injunction) unforeseeable at the time it entered into the various contracts with the District and the landowners.

None of the excess land ... shall be entitled to receive water nor shall service be made available to such land pursuant to the District Contract, except while owned by the Landowner, unless the same shall have been sold to a person who [would be] qualified as a nonexcess landowner to receive Project water ...

Appellants argue that Article 8 must be construed to mean that as long as a landowner owns excess lands under recordable contract, he is entitled to receive subsidized Project water for those lands. The merits of these arguments are discussed elsewhere.

In 1978, the Solicitor of the Interior Department, Leo Krulitz, issued a legal opinion stating that the $8.00 rate specified in the 1963 Contract was inadequate to recover the escalating costs of the Project and was therefore contrary to the federal reclamation laws, see 43 U.S.C. Sec. 461, and not binding. Op. Solic. 85 Interior Dec. 297 (1978). The Krulitz opinion did not address the question of whether excess lands under recordable contracts for more than ten years should receive Project water at the same price as other land or whether they should receive Project water at all. As a result of the Krulitz opinion, the Interior Department began to charge the District between $13.30 and $16.40 per acre foot for all Project water.

In 1979 the appellants sued the District in state court, seeking among other things to have the $8.00 rate enforced. The District joined the United States as a party and removed the action to United States District Court for the Eastern District of California. While the parties were litigating this action, a number of changes in the law occurred.

In 1982, partly as a result of the injunction against Interior concerning excess land sales, Congress passed the Reclamation Reform Act of 1982 (RRA), 43 U.S.C. Secs. 390aa et seq., which comprehensively revised reclamation law. The RRA explicitly required Interior to establish rules for disposing of excess lands over which it had a power of attorney, RRA Sec. 209(d), 43 U.S.C. Sec. 390ii(d), and it thus superseded the injunction.

The RRA created a new regime of benefits and burdens for excess landowners that would apply to all contracts between Interior and water districts entered into or amended after the date of enactment. ⁴ It also provided for a transition regime, allowing districts and landowners already parties to contracts with Interior to operate in...