People v. Jacobs

• Decision Date: 08 June 2020
• Docket Number: Supreme Court Case No. 19SA106
• Parties: The PEOPLE of the State of Colorado EX REL. Kevin G. REIN, State Engineer, and Steve J. Witte, Division Engineer for Water Div. No. 2, Plaintiffs-Appellees, v. Steven J. JACOBS, Jr., in his individual capacity; Casas Limited Partnership #4, a Colorado Limited Partnership; and IQ Investors, LLC, a Colorado Limited Liability Company, Defendants and Third-Party Plaintiffs-Appellants, v. Park Forest Water District, Third Party Defendant-Appellee
• Court: Colorado Supreme Court

465 P.3d 1

The PEOPLE of the State of Colorado EX REL. Kevin G. REIN, State Engineer, and Steve J. Witte, Division Engineer for Water Div. No. 2, Plaintiffs-Appellees,

v.Steven J. JACOBS, Jr., in his individual capacity; Casas Limited Partnership #4, a Colorado Limited Partnership; and IQ Investors, LLC, a Colorado Limited Liability Company, Defendants and Third-Party Plaintiffs-Appellants,

v.Park Forest Water District, Third Party Defendant-Appellee

Supreme Court Case No. 19SA106

Supreme Court of Colorado.

June 8, 2020

Attorneys for Plaintiffs-Appellees: Philip J. Weiser, Attorney General, Christopher R. Stork, Assistant Attorney General, Paul L. Benington, First Assistant Attorney General, Denver, Colorado

Attorneys for Defendants and Third-Party Plaintiffs-Appellants: Sherman and Howard L.L.C., Stephen A. Hess, Colorado Springs, Colorado, Carlson, Hammond & Paddock, LLC, Karl D. Ohlsen, Denver, Colorado

Attorney for Third-Party Defendant-Appellee: MacDougall & Woldridge, P.C., Julianne M. Woldridge, Colorado Springs, Colorado

En Banc

JUSTICE GABRIEL delivered the Opinion of the Court.

¶1 In this appeal from a number of orders of the water court, Dr. Steven Jacobs, Casas Limited Partnership #4, LLP, and IQ Investors, LLC (collectively, "Jacobs") contend that the water court erred in (1) granting summary judgment for the State Engineer and the Division Engineer for Water Division No. 2 (the "Engineers") and partial summary judgment for the Park Forest Water District ("PFWD"); (2) imposing civil penalties for Jacobs's violations of the Division Engineer's order requiring Jacobs to cease and desist unlawfully storing state waters in two ponds on his properties; and (3) certifying its summary judgment rulings as final pursuant to C.R.C.P. 54(b).

¶2 Because the issue pertains to our jurisdiction to hear this appeal, we conclude first that the water court properly exercised its discretion in certifying its summary judgment orders pursuant to C.R.C.P. 54(b). Accordingly, this appeal is properly before us. Next, we conclude that the water court properly granted both the Engineers’ summary judgment motion and PFWD's motion for partial summary judgment because the summary judgment record established, as a matter of law, that (1) Jacobs did not comply with the Division Engineer's order to cease and desist the unlawful storage of water in the ponds on his properties and (2) PFWD did not breach a so-called Inclusion Agreement between it and Jacobs. Last, we conclude that the water court properly imposed civil penalties under section 37-92-503(6)(a)(II), C.R.S. (2019).

¶3 Accordingly, we affirm the judgment of the water court, conclude that both the Engineers and PFWD are entitled to an award of the reasonable attorney fees that they incurred in this appeal, and remand this case to the water court to allow that court to determine the amount of fees to be awarded.

I. Facts and Procedural History

¶4 In 2012, Casas and IQ Investors acquired certain real properties, together with associated water rights and three ponds, in unincorporated El Paso County. Dr. Jacobs is, through a corporation, the manager of IQ Investors, and he is a general partner of Casas.

¶5 In order to satisfy the water needs of the properties, Jacobs negotiated with PFWD to join the properties to PFWD, and these parties formalized their arrangement in an Inclusion Agreement. Under paragraph 8 of this Agreement, PFWD agreed to add the ponds to its plan for augmentation, provide replacement/augmentation water sufficient to maintain the ponds "at a full stage," and augment depletions resulting from surface evaporation. The Agreement further provided that, with the exception of the above-noted requirement to provide augmentation water and the obtaining of a decree from the water court allowing PFWD to do so, "nothing in this Agreement shall require or otherwise obligate [PFWD], at any time or for any other purpose, to provide fill or re-fill water to the Existing Ponds."

¶6 Pursuant to the Inclusion Agreement, PFWD filed an application seeking to amend its augmentation plan to add Jacobs's ponds to it. In seeking this amendment, PFWD made clear that it was not requesting new water storage rights for the ponds but rather was simply proposing to replace evaporative losses from them. The water court granted PFWD's application and ruled that the ponds would be augmented consistent with the requirements of PFWD's augmentation plan.

¶7 Shortly thereafter, the water commissioner wrote to Jacobs to determine the status of an initial fill of two of the three ponds on Jacobs's properties, which had occurred sometime previously, after the two ponds were drained for reconstruction work. Specifically, the commissioner stated his understanding that the augmentation plan only provided for the replacement of evaporative losses and did not provide for an initial fill after draining. The commissioner reminded Jacobs of his obligation to provide for a legal initial fill and stated that although Jacobs's attorney had indicated that PFWD was going to provide the initial fill from its excess return flow credits, the commissioner had not received confirmation that the credits were purchased for that initial fill. Suspecting that the initial fill after reconstruction was thus not legally obtained, the commissioner requested that Jacobs provide him with the source of the initial fill and advised that if he did not receive such confirmation, then he would seek an order requiring the release of any illegally stored water.

¶8 Discussion of this issue apparently went on for more than a year. In the course of such discussions, Jacobs took the position that the Inclusion Agreement covered the initial fill. PFWD, however, contended that that Agreement did not do so and that PFWD was not obligated to provide replacement water for the ponds.

¶9 On December 23, 2016, having not received satisfactory proof that Jacobs's initial fill of the ponds was lawful, the Division Engineer issued an administrative order (the "2016 Order") to Jacobs pursuant to section 37-92-502(3), C.R.S. (2019), which empowers a division engineer to order the release from storage of illegally or improperly stored water. The 2016 Order required, within thirty days of receipt, that Jacobs permanently cease and desist the storage of state waters within the ponds and prepare a plan for draining the ponds by April 1, 2017. Alternatively, the 2016 Order required that by April 1, 2017, Jacobs either provide for legally obtained return flow credits from PFWD or apply to the State Engineer's Office for approval of a substitute water supply plan to use any other legally obtained water source capable of delivering water to the Cottonwood Creek drainage upstream of the subject ponds.

¶10 Jacobs did not comply with the 2016 Order by the deadline set forth therein. The Engineers thus filed a complaint in the water court for injunctive relief, penalties, and costs to enforce the 2016 Order. Several months of unsuccessful settlement negotiations ensued, after which the Engineers filed a motion for a preliminary injunction to compel Jacobs to comply with the 2016 Order.

¶11 As the case between the Engineers and Jacobs unfolded, Jacobs filed a third-party complaint against PFWD in the water court, and Casas and IQ Investors filed a separate complaint against PFWD in the El Paso County District Court. Both of these complaints alleged that PFWD had breached the Inclusion Agreement in a number of ways. In addition, in the water court proceeding, Jacobs sought a declaratory judgment setting forth the rights and obligations of the parties regarding, among other things, "[t]he extent to which PFWD is obligated under the Inclusion Agreement to provide water to fill the ponds on [Jacobs's] property." PFWD denied breaching the Inclusion Agreement, and, in the water court case, it filed a counterclaim seeking rescission of the Inclusion Agreement on grounds unrelated to the fill issue. The El Paso County District Court subsequently stayed the complaint before it, pending the resolution of the claims in the water court, in order to avoid the potential for conflicting jurisdiction between the two courts.

¶12 In the briefing that followed in the water court, Jacobs asserted that the Inclusion Agreement was unambiguous and that its plain language required PFWD to provide augmentation for, or water to fill or re-fill, Jacobs's ponds after they were drained for reconstruction. The Engineers, in contrast, argued that the Inclusion Agreement did not obligate PFWD to fill or re-fill the ponds beyond filling to replace evaporative losses.

¶13 The water court subsequently held an evidentiary hearing on the Engineers’ motion for a preliminary injunction. At this hearing, the parties presented conflicting testimony regarding the meaning of paragraph 8 of the Inclusion Agreement. As pertinent here, the water commissioner testified that the 2016 Order was issued because the commissioner had determined that Jacobs had no decreed right to fill the ponds after they had been drained for construction and therefore the water was being unlawfully stored in those ponds. The commissioner further testified, based on his experience and understanding, that paragraph 8 of the Inclusion Agreement did not provide a legal basis for the re-fill because when one maintains a storage vessel "at a full stage," which is what the Agreement required, "it's already been full or legally filled and typically an augmentation plan or other source that can be legally used to maintain it full replaces the evaporative losses of a pond." Accordingly, maintaining a vessel "at a full stage" did not mean more than filling to make up for evaporative depletions.

¶14 Dr. Jacobs also testified, and he disagreed with the commissioner. In his view, the language in paragraph 8 of the Inclusion Agreement stating that PFWD "shall provide replacement/augmentation water sufficient to maintain the Existing Ponds at a full...