Merced Irrigation Dist. v. Cnty. of Mariposa, CASE NO. 1:12-cv-01645-LJO-SKO

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
Writing for the CourtSheila K. Oberto
Decision Date04 March 2013
PartiesMERCED IRRIGATION DISTRICT, a California Irrigation District, Plaintiff, v. COUNTY OF MARIPOSA, a political subdivision of the State of California, Defendant.
Docket NumberCASE NO. 1:12-cv-01645-LJO-SKO

MERCED IRRIGATION DISTRICT, a California Irrigation District, Plaintiff,
COUNTY OF MARIPOSA, a political subdivision of the State of California, Defendant.

CASE NO. 1:12-cv-01645-LJO-SKO


Dated: March 4, 2013




Plaintiff Merced Irrigation District ("MID") filed a declaratory relief action against the County of Mariposa ("Mariposa") in Merced County Superior Court on September 5, 2012. On October 5, 2012, Mariposa removed Plaintiff's declaratory relief action to this Court. (Doc. 1.) On November 2, 2012, MID filed a motion to remand the action to Merced County Superior Court. (Doc. 13.) Mariposa filed a brief in opposition to MID's motion on December 5, 2012, and MID filed a reply brief on December 12, 2012. On December 18, 2012, the Court ordered the parties to submit additional briefing. On January 4, 2013, Mariposa filed a supplemental brief and on January

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15, 2013, MID filed a supplemental brief. (Docs. 24, 25.) For the reasons set forth below, the undersigned RECOMMENDS that MID's motion to remand be GRANTED.


A. The 1960 Agreement

MID owns and operates the Merced River Hydroelectric Project (the "Project"), located in Mariposa County. (Doc. 1-1 (Cmplt.), ¶ 9.) The Project impounds waters of the Merced River to form Lake McClure behind the New Exchequer Dam, and Lake McSwain behind the McSwain Dam. (Cmplt., ¶ 9.) The Project provides irrigation waters for agricultural farmland in Merced County, Lakes McLure and McSwain provide recreational benefits to the residents of Merced and Mariposa counties, and the Project includes a hydroelectric power generation output capacity of 103 megawatts. (Cmplt., ¶ 9.)

The contract at dispute between the parties in this litigation arises out of the original permitting and construction of the Project. In December 23, 1954, MID filed applications with the California Water Rights Board (now known as the State Water Resources Control Board) for appropriation of water from the Merced River to be diverted for the Project. (Cmplt., ¶ 10.) The first application (No. 16186) sought to appropriate 900,000 acre feet ("AF") of water per year from the Merced River for irrigation and domestic use. (Cmplt., ¶ 11.) The second application (No. 16187) sought a permit to use the same 900,000 AF per year appropriation for power generation. (Cmplt., ¶ 11.) In March 1955, MID filed an application with the Federal Power Commissioner (now known as the Federal Energy Regulatory Commission ("FERC")) for a preliminary permit for development of the hydroelectric generation components of the Project. (Cmplt., ¶ 12.)

Mariposa objected to MID's water applications to the California Water Rights Board and the application for a license from FERC. Mariposa asserted it had a senior right to use the waters of the Merced River that MID was proposing to use for its Project. (Cmplt., ¶¶ 13, 17.) At that time,

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Mariposa was analyzing its own plans for water diversion projects, which involved diversions of approximately 100,000 AF of water per year from the South Fork of the Merced River. (Cmplt., ¶ 14.)2

MID and Mariposa engaged in extended negotiations, and on March 1, 1960, executed an agreement that Mariposa would withdraw its opposition to MID's applications to the California Water Rights Board and to MID's FERC licensing application (the "1960 Agreement"). (Cmplt., ¶¶ 15-26.) In relevant part, the 1960 Agreement provides:

1. [MID] and [Mariposa] will jointly request the State Water Rights Board to grant and issue permits to [MID] under said Applications No. 16186 and 16187 subject to conditions to be set forth or incorporated by reference substantially as follows:
The permits and all rights acquired or to be acquired thereunder are and shall remain subject to depletion of stream flow in the quantities set forth in sub-paragraphs (a), (b) and (c) by future appropriations of water for reasonable beneficial use within Mariposa County; provided such future appropriations shall be initiated and consummated pursuant to law.
(a) From the South Fork of the Merced River a maximum of 500 cubic feet per second of water not to exceed a total of 112,000 acre-feet annually by direct diversion to beneficial use and/or by diversion to storage to be later applied to beneficial use; provided that such future appropriations shall not be made in whole or in part within the payout period of the bonds by which [MID] shall finance the project under those permits, but not to exceed a period of 55 years beyond the date of the beginning of construction of the projects of [MID] as allowed under the permits or extensions thereunder, unless the person or agency making such future appropriation shall compensate [MID] for the loss of power revenue resulting during said period from said appropriation.
. . .3
2. In the event, and only in the event, that the State Water Rights Board shall grant and issue to [MID] permits under said Applications No. 16186 and 16187, substantially as applied for by [MID], and subject to the conditions substantially in conformity with paragraph numbered 1 as hereinabove set forth, and in the event that [MID] shall pursuant to said permits proceed to construct and constructs a project or portion of project from which power is developed on the Merced River substantially as contemplated by [MID], as provided and set forth in its said Applications No. 16186 and 16187, and the proposed amendments thereto, then and in such event [MID] will pay to

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[Mariposa] for use in water development within Mariposa County or investment by [Mariposa] of such funds and the earning of interest thereon during the period in which proper disposition of said funds is under study, the amounts of money at the times and in the manner as specified either in paragraph (a) or (b) of this paragraph numbered 2 at [MID's] option.
. . .4
3. Beginning one year from the date of final payment of all bonds sold by [MID] to finance the project under said applications No. 16186 and No. 16187, [MID] will make annual payments to [Mariposa] each year in the amount and for the period as described in paragraphs (a) and (b) of this paragraph numbered 3.
(a) Each such payment shall be the greater of either (1) 20% of the gross power revenue from [MID's] completed project on the Merced River earned during the year preceding such payment or (2) 25% of the amount of said gross power revenue after first deducting the actual operation and maintenance costs and expenses of the Merced Irrigation District in its entirety during said preceding year.
(b) Said annual payments shall continue for either (1) a period of 50 years from their commencement or (2) until the cost of financing construction of a project by [Mariposa] to fully exercise and utilize the water from the South Fork of the Merced River as set forth in paragraph numbered 1 hereof, has been repaid, whichever occurs first.
4. [MID] agrees, upon condition that permits be issued to it as herein contemplated, not to protest or to oppose any application for permit or license which may be filed by [Mariposa] in the future for the appropriation of water as set forth and contained in the permit conditions set forth in paragraph numbered 1 hereof.

(Cmplt., Doc. 1-2, Exhibit A.)

To finance the construction of the New Exchequer Dam component of the Project, MID issued bonds from the revenues generated by the sale of hydroelectric power from the New Exchequer Dam. (Cmplt., ¶ 37.) MID's repayment of this indebtedness and retirement of the bonds to finance the Project are expected to be concluded on or about July 1, 2014. (Cmplt., ¶ 37.)

B. The National Wild and Scenic Rivers Act ("WSRA")

In 1968, following the parties' 1960 Agreement, Congress enacted the WSRA, 16 U.S.C. §§ 1271-1287, in an effort to identify and protect certain "rivers which, with their immediate

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environments, possess outstandingly remarkable scenic, recreation, geologic, fish and wildlife, historic, cultural, or other similar values." 16 U.S.C. § 1271. Section 7 of the WSRA provides that "no department or agency of the United States shall assist by loan, grant, license, or otherwise in the construction of any water resources project that would have a direct and adverse effect on the values for which such river was established, as determined by the Secretary charged with its administration." 16 U.S.C. § 1278(a). Section 7 requires the Secretary of the Interior to evaluate whether a "water resources project . . . would have a direct and adverse effect" on the river's values. When a water resources project is found to have a "direct and adverse effect" on a wild and scenic river, the project cannot be authorized or funded absent congressional intervention. Id. "The WSRA also provides that Congress may authorize the Secretary of the Interior or the Secretary of Agriculture to study additional rivers for inclusion in the wild and scenic rivers system [("WSRS")]. After such a study, the Secretary submits a report, along with comments by other federal...

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