Smith v. Central Ariz. Water Conservation

• Decision Date: 10 August 2005
• Docket Number: No. 03-16962.,03-16962.
• Citation: 418 F.3d 1028
• Parties: John E. SMITH, husband, and as Trustee of the Smith Family Trust; Mary Lou Smith, wife; Pretzer Land & Cattle, an Arizona corporation, Plaintiffs-Appellants, v. CENTRAL ARIZONA WATER CONSERVATION DISTRICT, a municipal corporation of the State of Arizona, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1028

418 F.3d 1028

John E. SMITH, husband, and as Trustee of the Smith Family Trust; Mary Lou Smith, wife; Pretzer Land & Cattle, an Arizona corporation, Plaintiffs-Appellants, v. CENTRAL ARIZONA WATER CONSERVATION DISTRICT, a municipal corporation of the State of Arizona, Defendant-Appellee.

No. 03-16962.

United States Court of Appeals, Ninth Circuit.

Argued April 14, 2005.

Submitted: August 3, 2005.

Filed: August 10, 2005.

J. Gordon Cook, Phoenix, AZ, for the plaintiffs-appellants.

Stuart L. Somach, Sacramento, CA, for the defendant-appellee.

Appeal from the United States District Court for the District of Arizona; Earl H. Carroll, District Judge, Presiding. D.C. No. CV-03-00505-EHC.

Before: HUG, THOMPSON, and RYMER, Circuit Judges.

DAVID R. THOMPSON, Senior Circuit Judge:

John E. Smith, Mary Lou Smith, the Smith Family Trust, and the Pretzer Land and Cattle Company ("the landowners") own land located within the Maricopa-Stanfield Irrigation and Drainage District and the Central Arizona Irrigation and Drainage District ("the irrigation districts"), respectively. Through a master contract and related subcontracts with the Central Arizona Water Conservation District ("Conservation District") and the United States Department of the Interior, the irrigation districts receive and distribute water reclaimed from the Central Arizona Project ("the project").

In anticipation of a legal settlement, the terms of which would alter the amount of water the irrigation districts receive from the project each year for distribution to landowners and other users within their respective districts, the landowners filed this civil action in Arizona state court against the Conservation District. The landowners sought declaratory relief to prevent modification of the existing contracts, claiming vested water rights pursuant to state and federal law, and pursuant to the terms of the project contracts. The Conservation District removed the action to federal court. The landowners moved the district court to abstain from exercising federal jurisdiction and to instead remand their action back to state court. The district court denied the landowners' motion to abstain and remand. It then dismissed their complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

I.

Congress enacted the Reclamation Act of 1902, ch. 1093, 32 Stat. 388 (1902), to provide federal financing, construction, and operation of water storage and distribution projects throughout the western United States. Pursuant to the 1902 Act, Congress in 1968 enacted the Colorado River Basin Project Act, 43 U.S.C. §§ 1501-1556 (1986 & Supp.2005) ("Project Act"), to further the development of the water resources of the Colorado River Basin, and to apportion those resources among several states. Id. § 1501. The Project Act authorized construction and operation of the Central Arizona Project to store and to deliver Colorado River water to Arizona and western New Mexico for irrigation and municipal and industrial use.¹ See id. § 1521. The Project Act also authorized the Secretary of the Interior to enter into a master contract with a political subdivision of each state to arrange for repayment of project construction and operation costs. See id. § 1524.

To this end, the Arizona legislature created the Conservation District. See Ariz.Rev.Stat. § 48-3701 et seq. (1985). The Conservation District was directed to contract with the Secretary of the Interior to finance the construction and operation of the project. Id. § 48-3703. This master contract was executed in 1972, and amended in 1988 ("master contract").

State law additionally authorized the Conservation District to enter into subcontracts with irrigation districts for the delivery of project water. Ariz.Rev.Stat. § 48-3703. The irrigation districts, in turn, would levy property taxes on landowners within the districts to assist in repayment of the project costs pursuant to the terms of the master contract. Id. The irrigation district subcontracts were executed in 1983, following the Secretary's apportionment of the rights to purchase project water.² Each irrigation district contracted with the Conservation District and with the United States to receive a particular percentage of the non-Indian agricultural priority project water, and in return, each irrigation district agreed to repay the costs related to construction and operation of the facilities needed to deliver their portion of the project water. The master contract and each of the subcontracts were subsequently validated by Arizona state court judgments as required by the terms of the contracts.

The landowners each entered into memoranda of understanding and water service agreements with their respective irrigation districts. These agreements provide that the relevant irrigation district will deliver project water for irrigation purposes to the landowners, such right to be appurtenant to the land, in exchange for which the landowners agree to pay taxes and water service fees. The agreements also provide that wells and other groundwater rights associated with the land are to be conveyed to the irrigation districts, in accordance with state law. Neither the Conservation District, nor the United States, is a party to the memoranda of understanding or to the water service agreements between the irrigation districts and the landowners.

In November 2001, the landowners filed an action in state court against their respective irrigation districts. Smith v. Maricopa-Stanfield Irrigation & Drainage Dist., No. CV-2001-00924 (filed Nov. 6, 2001 Ariz.Super. Ct.). The landowners alleged that the irrigation districts were in the process of considering a settlement agreement — the Arizona Water Settlement Agreement — that would offer the irrigation districts partial debt relief on their project financing obligations, and, in return, would require the irrigation districts to relinquish all or part of their allocated rights to non-Indian agricultural priority project water. Id. The landowners sought a declaratory judgment to preempt the possibility that the irrigation districts would give up these water rights through the proposed settlement. See id. The landowners' action was stayed for approximately one year, with the stay lifted in March 2003 following the Conservation District's formal approval of the Arizona Water Settlement Agreement.³

Following formal approval of the settlement, the landowners continued to litigate the Smith v. Maricopa-Stanfield Irrigation & Drainage District state court action, and in addition they filed this declaratory judgment action in state court against the Conservation District. The landowners alleged possession of vested property rights to reclamation water pursuant to state and federal law, the master contract, and the project subcontracts, and sought a declaration prohibiting the Conservation District from interfering with those rights. The landowners alleged, notwithstanding the Arizona Water Settlement Agreement, that the Conservation District is obligated to continue to deliver project water to the irrigation districts for the benefit of the landowners.

The Conservation District removed the present case to federal court, and then moved to dismiss the landowners' complaint for failure to state a claim, arguing that the landowners could not obtain the requested relief because they are neither parties to, nor third-party beneficiaries of, the relevant contracts. Alternatively, the Conservation District sought dismissal for failure to join the United States as an indispensable party. The landowners opposed the motion to dismiss and moved the district court to abstain and to remand the case to state court, arguing that dismissal pursuant to Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976),⁴ was warranted in light of the pending related state action, Smith v. Maricopa-Stanfield Irrigation & Drainage District.

The district court denied the landowners' motion to abstain and remand. The district court concluded that a stay or dismissal of the federal action was not warranted because the pending state court action was an entirely separate proceeding involving claims distinguishable from those presented in the federal action. The district court then granted the Conservation District's motion to dismiss the landowners' complaint for failure to state a claim, determining that because the landowners were neither parties to nor third-party beneficiaries of the master contract or the project subcontracts, the landowners could not bring suit to enforce those contracts. Because the landowners had failed to state a claim, the district court found it unnecessary to evaluate the Conservation District's contention that the United States is an indispensable party. This appeal followed.

II.

The landowners appeal the district court's decision to exercise its jurisdiction despite their pending state court action against the irrigation districts, Smith v. Maricopa-Stanfield Irrigation & Drainage District. Whether the facts of a particular case conform to the requirements for a Colorado River stay or dismissal is a question of law which we review de novo. United States v. Morros, 268 F.3d 695, 703 (9th Cir.2001).

In Colorado River, the Supreme Court was concerned with the problem posed by the contemporaneous exercise of concurrent jurisdiction by state and federal courts. Gilbertson v. Albright, 381 F.3d 965, 982 n. 17 (9th Cir.2004) (en banc). In such cases, the Court recognized there may be circumstances in which traditional abstention principles do not apply, yet considerations of "`wise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation,'" nonetheless justify a decision to stay or dismiss federal...