Polo Ranch Co. v. City of Cheyenne

• Decision Date: 08 December 1998
• Docket Number: No. 96-316,96-316
• Citation: 969 P.2d 132
• Parties: POLO RANCH COMPANY; John N. Morris and Norma B. Morris; John C. Graham and Betsy M. Graham, Appellants (Defendants/Plaintiffs), v. CITY OF CHEYENNE, Cheyenne Board Of Public Utilities, Appellee (Plaintiff/Defendant).
• Court: Wyoming Supreme Court

Page 132

969 P.2d 132

POLO RANCH COMPANY; John N. Morris and Norma B. Morris; John C. Graham and Betsy M. Graham, Appellants (Defendants/Plaintiffs), v. CITY OF CHEYENNE, Cheyenne Board Of Public Utilities, Appellee (Plaintiff/Defendant).

No. 96-316.

Supreme Court of Wyoming.

Dec. 8, 1998.

Michael J. Sullivan and Morris Massey of Brown, Drew, Massey & Sullivan, Casper, WY; and Henry F. Bailey, Jr. of Bailey, Pickering & Stock, Cheyenne, WY. Argument presented by Mr. Sullivan, for Appellants.

J. Kent Rutledge of Lathrop & Rutledge; Gregory C. Dyekman and Matthew H. Romsa of Dray, Thomson & Dyekman, P.C., Cheyenne, WY; and Mayo Sommermeyer and Blair J. Trautwein of Sommermeyer, Wick Dow & Campbell, Fort Collins, CO. Argument presented by Mr. Rutledge, for Appellee.

Before LEHMAN, C.J., and THOMAS, MACY, GOLDEN and TAYLOR, ^* JJ.

LEHMAN, Chief Justice.

This case arises out of a 1955 Drilling and Water Use Agreement (Agreement) entered into between the predecessors in interest of appellant, Polo Ranch Company ("Polo Ranch" or "Ranch"), and the City of Cheyenne, Board of Public Utilities (City). For many years, the parties operated under the Agreement without problems, but in the 1970s conflicts began to surface regarding Polo Ranch's contractual entitlement to water. After several years of escalating disputes, litigation ensued, involving declaratory judgment claims, contract claims and extra-contractual claims, all related to the 1955 Agreement. Polo Ranch appeals only three of the many issues decided below. Specifically, Polo Ranch assigns as error the court's determinations regarding 1) the City's obligation to drill and explore the lands covered by the Agreement; 2) assignment of costs for backflow prevention; and 3) Polo Ranch's connections to the City's lake lines. The court's conclusions on the first and third issues are supported by the evidence and in accordance with law and are, therefore, affirmed. However, we find the court's legal conclusion regarding backflow prevention contrary to the parties' intent as expressed by the language of the contract; and on that issue, we reverse.

ISSUES

Polo Ranch advances these issues:

I. Whether the trial court erred in its conclusion that the City did not breach the water lease, finding all of the "remaining lands" had been explored and tested by the City; that there was no obligation to drill or complete additional wells; and its interpretation of development provisions of Paragraph 4 of the water lease, such rulings being clearly erroneous, not supported by substantial evidence and contrary to law. Whether the court similarly erred in its conclusion that if there was such a breach it would not be material to the positions of the parties. Having failed to fulfill its obligation, whether the City can continue to maintain the exclusive right to drill on unexplored and untested lands. Whether the water lease should be terminated as to those lands.

II. Whether the court erred in requiring Polo Ranch to pay for backflow prevention given the fact that all of the groundwater wells and appurtenant equipment are the property of the City, and the collection, distribution, and delivery system in use was designed and constructed by the City.

III. Whether, given the 40-year history of dealings between the parties, the court erred in requiring Polo Ranch to disconnect its taps from the City lake lines or to execute a written agreement formalizing the arrangement between the parties for delivery of water from the lake lines in lieu of water from the north Bell wells.

The City of Cheyenne, appellee, restates the issues in this way:

I. Did the Trial Court correctly interpret the provisions of the 1955 Agreement concerning exploration and testing of the lands subject to the Agreement, and the City's obligation to drill wells, and was there sufficient evidence to support the Trial Court's conclusions that the City complied with those provisions and, in any event, that any breach of those provisions was not detrimental to Polo Ranch?

II. Did the Trial Court correctly determine that the City could require Polo Ranch to pay for backflow prevention reasonably necessary to protect the City's water system?

III. Did the Trial Court correctly determine that the City could require Polo Ranch to disconnect from the City's lake lines or to execute a written agreement formalizing the arrangement between the parties for delivery of water from the lake lines in lieu of water from the north Bell wells?

FACTS

On September 29, 1955, John H. Bell (Bell) entered into a Drilling and Water Use Agreement with the City of Cheyenne. ¹ The gist of the Agreement was to give the City the exclusive right to drill for subsurface water under the lands of what is now known as Polo Ranch and to use the water produced from the Ranch, subject to delivery of a portion of the water to Bell. At the time the Agreement was entered, Bell had drilled eight wells in the Crow Creek Valley which were flowing at the surface, although none had been pumped.

The Agreement provided that the City was to drill test wells in Crow Creek Valley west of the eight flowing wells, and to complete and pump the test wells if sufficient quantities of water were present to justify development. The remainder of the lands covered by the Agreement were to be explored and tested with reasonable diligence and equipped with pumps until the area was fully tested. The City agreed to furnish Bell specified percentages of the produced water for irrigation, domestic, and stock watering purposes, and to deliver the water to Bell at the surface of the ground at the respective wells. The amount of water to be pumped is entirely within the City's discretion, but Bell is entitled to at least 43 million gallons of water each year at the City's expense. Bell is also entitled to have additional water produced, at his own expense, up to a percentage of the reasonable capacity of the field. The Agreement contains a provision which permits the City to terminate the Agreement in whole or in part if it determines that the area does not provide a feasible source of supply for its purposes. Bell has the right to terminate if production capacity is less than 155.5 million gallons in a twelve-month period, provided he gives the City notice and an opportunity to correct the deficiency.

In the two years following execution of the Agreement, the City drilled twenty-five test holes and completed ten of those wells for production. Of the ten completed wells, seven are south of the railroad tracks, in the Crow Creek Valley, and are referred to as the south Bell wells. The three wells north of the railroad tracks are above Crow Creek, and are referred to as the north Bell wells. Shortly after the City began producing the south Bell wells, it installed pipelines, valves, and other appurtenant equipment necessary to collect the water from these wells and transport it to Cheyenne. For reasons not documented, the City asked Bell to take his water from the south Bell wells from the collection pipeline rather than at the surface of the ground at the wells, as provided by the Agreement. Similarly, in lieu of water from the north Bell wells, Bell was provided water from the City's lake line which transports surface water from west of Cheyenne. The parties acted informally under the Agreement in other respects as well; Polo Ranch received water without regard to volumetric limitations in the Agreement, and was not charged for excess water. Despite these deviations, the Agreement has never been amended, and there are no other contracts between the City and Polo Ranch that govern the respective rights and responsibilities of the parties.

The parties operated for many years under the 1955 Agreement without dispute. However, starting in the mid-1970s, after Polo Ranch had succeeded to the Bells' interest, the parties' relationship began to deteriorate. The City began billing Polo Ranch for the expenses associated with producing water in excess of Polo Ranch's free entitlement. As well efficiencies decreased, the billing costs for additional water increased and became a subject of much dispute. Over the years, Polo Ranch's water needs increased as it expanded the number of acres irrigated and began using pivot sprinklers. Although much of the municipal water supply comes from surface water, the City's demands on the Bell field also increased because the City blends its surface water with ground water to comply with federal lead and copper content restrictions. The increased water needs of both parties created added tension and conflicts. Other disagreements centered around Polo Ranch's taps on the City's lake line and potential contamination at the Ranch's cross- connections on the City's collection line from the south Bell wells.

The litigation in this case began in August 1990, when the City filed a complaint against Polo Ranch, seeking $6,613.47 for pumping expenses under the Agreement. Polo Ranch raised numerous affirmative defenses and filed counterclaims seeking a declaration of the parties' rights, duties and obligations under the Agreement and equitable relief. In November 1994, the City sought declaratory relief permitting the City to require Polo Ranch to disconnect from the City's water transmission system or to install a backflow prevention system at Polo Ranch's expense. Again, Polo Ranch set forth numerous affirmative defenses and counterclaims alleging breach of the covenant of good faith and fair dealing, negligent operation and maintenance of the wells, civil rights violations under § 1983, and inverse condemnation. The City subsequently amended the November complaint to include a claim for declaratory relief regarding connections to the City's lake line. A third suit, commenced by the City in December 1994, sought relief concerning access to Polo Ranch. In December 1995, Polo Ranch sued the City for, among other things, breach of the Agreement for...