SUBDISTRICT v. Getty

• Citation: 997 P.2d 557
• Decision Date: 10 April 2000
• Docket Number: No. 99SA75.,99SA75.
• Parties: MUNICIPAL SUBDISTRICT, NORTHERN COLORADO WATER CONSERVANCY DISTRICT, Appellant/Cross-Appellee, v. GETTY OIL EXPLORATION COMPANY, Appellee/Cross-Appellant, and Orlyn G. Bell, Division Engineer, Water Division 5, Appellee Pursuant to C.A.R. 1(e).
• Court: Supreme Court of Colorado

997 P.2d 557

MUNICIPAL SUBDISTRICT, NORTHERN COLORADO WATER CONSERVANCY DISTRICT, Appellant/Cross-Appellee, v. GETTY OIL EXPLORATION COMPANY, Appellee/Cross-Appellant, and Orlyn G. Bell, Division Engineer, Water Division 5, Appellee Pursuant to C.A.R. 1(e).

No. 99SA75.

Supreme Court of Colorado, En Banc.

April 10, 2000.

Trout & Raley, P.C., Bennett W. Raley, Bart L. Rickenbaugh, Denver, Colorado, Attorneys for Appellant/Cross-Appellee.

Williams, Turner & Holmes, P.C., Anthony W. Williams, J.D. Snodgrass, Mark A. Hermundstad, Grand Junction, Colorado, Attorneys for Appellee/Cross-Appellant.

Ken Salazar, Attorney General, Barbara McDonnell, Chief Deputy Attorney General, Alan J. Gilbert, Solicitor General, Felicity Hannay, Deputy Attorney General, Wendy C. Weiss, First Assistant Attorney General, Carl D. Angel, Senior Assistant Attorney General, Natural Resources Section Denver, Colorado, Attorneys for Orlyn G. Bell, Division Engineer, Water Division 5.

Moses, Wittemyer, Harrison and Woodruff, P.C., James R. Montgomery, Kevin J. Kinnear, Boulder, Colorado, Attorneys for Amicus Curiae Union Oil Company of California.

Balcomb & Green, P.C., Scott Balcomb, David Sandoval, Glenwood Springs, Colorado, Attorneys for Amicus Curiae Mobil Oil Corporation.

Porzak, Browning and Johnson, LLP, Glenn E. Porzak, Steven Bushong, Boulder, Colorado, Attorneys for Amicus Curiae Exxon Corporation.

Friedlob, Sanderson, Raskin, Paulson & Tourtillott, LLC, Brian M. Nazarenus, Denver, Colorado, Attorneys for Amicus Curiae Public Service Company of Colorado and Climax Molybdenum Company.

Dufford & Brown, P.C., Jack F. Ross, Joanne Herlihy, Denver, Colorado, Attorneys for Amicus Curiae Chevron Shale Oil Company.

Carlson, Hammond & Paddock, William A. Paddock, Peter C. Fleming, Denver, Colorado, Attorneys for Amicus Curiae OXY USA, Inc.

David C. Hallford, Jill C. Harris, Leavenworth & Tester, P.C., Loyal E. Leavenworth, Glenwood Springs, Colorado, Attorneys for Amicus Curiae the Colorado River Water Conservation District.

Justice RICE delivered the Opinion of the Court.

The Municipal Subdistrict, Northern Colorado Water Conservancy District (Subdistrict), appeals a finding of reasonable diligence in the development of conditional water rights entered by the District Court, Water Division No. 5 (water court).¹ Getty Oil Exploration Company (Getty) owns the conditional water rights, located in Garfield and Mesa Counties in Western Colorado, at issue in this case. After a trial, the water court ruled that Getty had demonstrated reasonable diligence to complete the appropriation given the economic circumstances of the oil shale industry. We now hold that the evidence supports the water court's findings and conclusions. Accordingly, we affirm the judgment of the water court.

I. FACTS AND PROCEEDINGS BELOW

Getty owns or controls approximately 50,000 acres of land in Garfield and Mesa Counties that contain oil shale reserves estimated at thirteen billion barrels. Developing these oil shale lands will require significant amounts of water, which Getty plans to obtain from two sets of conditional water rights. The first set of water rights, owned by Getty, consists of the rights at issue in the instant case. The second set of water rights consists of rights leased by Getty from the Bluestone Water Conservancy District and the Colorado River Water Conservation District (the Bluestone rights).

In 1977, Getty Oil Company (now Getty Oil Exploration Company), Cities Service Company (now OXY USA, Inc.), and Chevron Shale Oil Company formed a joint venture named GCC Joint Venture (GCC) for the purpose of allowing all three companies to participate in acquiring land and in planning, constructing, operating, and maintaining water facilities to divert conditional water rights held by each company. Under the GCC Joint Venture Agreement, Getty serves as operator and proposes a work plan for each calendar year that must be approved by the other two members.

Getty filed an Application for Finding of Reasonable Diligence on October 31, 1995, to maintain its conditional water rights, pursuant to section 37-92-301(4)(a)(I), 10 C.R.S. (1999).² The Subdistrict opposed Getty's application and a trial was held before the water court.

After the trial, the water court issued its findings of fact, conclusions of law, judgment, and decree. The court concluded that Getty met the "can and will" standard because the evidence established that the project was technically feasible given current technology and that Getty would proceed with the project when the economics of the industry permitted it. The court found that despite the fact that the adverse economic conditions of the oil shale industry made the project currently not economically feasible, Getty had engaged in sufficient project and site-specific activities to demonstrate a steady application of effort to complete the appropriation in a reasonably expedient and efficient manner. Therefore, the court held that Getty demonstrated reasonable diligence during the relevant period to maintain its conditional water rights.

The Subdistrict appealed the water court's ruling to this court pursuant to section 13-4-102(1)(d), 5 C.R.S. (1999).³

II. ANALYSIS

A conditional water right provides the holder with the ability to perfect the right in the future. The advantage of a conditional water right is that when the right matures and is completed by actual application of the water to beneficial use, the priority of the water right relates back to the original date of the decree. See § 37-92-305(1), 10 C.R.S. (1999). In this way, conditional water rights are designed to aid and encourage the development and use of water resources by providing incentive for the completion of large water projects requiring extended periods of time. See Metropolitan Suburban Water Users Ass'n v. Colorado River Water Conservation Dist., 148 Colo. 173, 194, 365 P.2d 273, 285 (1961)

.

To prevent hoarding of conditional water rights, the legislature requires the holders of these rights to prove "reasonable diligence" by demonstrating "the steady application of effort to complete the appropriation in a reasonably expedient and efficient manner under all the facts and circumstances." § 37-92-301(4)(b), 10 C.R.S. (1999). The holder of a conditional water right must file an application for a finding of reasonable diligence every six years or the right shall be considered abandoned. See § 37-92-301(4)(a)(I). Outside of requiring proof of reasonable diligence every six years, the legislature has not enacted a maximum time frame during which the conditional water right must mature.

In this appeal, the Subdistrict alleges three points of error in the water court's ruling. First, the Subdistrict argues that Getty's application for reasonable diligence was void when it was filed and that Getty could not cure this defect after the expiration of the statute of limitations. Second, the Subdistrict contends that the water court's finding of reasonable diligence is not supported by the record. Third, the Subdistrict asserts that the water court's interpretation of section 37-92-301(4)(c) is inconsistent with the policy of maximizing the beneficial use of the state's water resources.

In addition, Getty cross-appeals the water court's ruling that work performed on the Bluestone rights could not be considered as part of the same "project or integrated system" for purposes of determining diligence on the rights at issue. We address each contention below in turn.

A. STANDARD OF REVIEW

Initially, we address the applicable standard of review of the water court's decision, which presents issues of both law and fact. The water court's interpretation and application of Colorado statutes and case law concerning conditional rights is subject to de novo review. See Municipal Subdistrict, Northern Colo. Water Conservancy Dist. v. OXY USA, Inc., 990 P.2d 701, 706 (Colo.1999)

[hereinafter OXY ]. The water court's finding of diligence, on the other hand, is a factually driven inquiry requiring the court to make a case-by-case consideration of several factors. See Dallas Creek Water Co. v. Huey, 933 P.2d 27, 36 (Colo.1997). These factors include, but are not limited to, the following:

(1) economic feasibility; (2) the status of requisite permit applications and other required governmental approvals; (3) expenditures made to develop the appropriation; (4) the ongoing conduct of engineering and environmental studies; (5) the design and construction of facilities; and (6) the nature and extent of land holdings and contracts demonstrating the water demand and beneficial uses which the conditional right is to serve when perfected.

Id. A water court's factual findings of reasonable diligence are entitled to deference and we will not disturb them on appeal if there is competent evidence in the record to support them. See Public Serv. Co. v. Blue River Irrigation Co., 829 P.2d 1276, 1277 (Colo. 1992)

[hereinafter Blue River III ]. Having addressed the proper standard of review, we turn now to a discussion of the Subdistrict's arguments on appeal.

B. DEFECT IN GETTY'S CORPORATE STATUS

The Subdistrict first argues that Getty's application for a finding of reasonable diligence was void when filed because, at that time, Getty had not complied with the requirements of section 7-115-102(1), 2 C.R.S. (1999), and, consequently, Getty's application was barred by the six-year statute of limitations found in section 37-92-301(4)(a)(I). Getty contends that this defect in its corporate status at the time it filed the application was cured retroactively when Getty obtained a certificate of authority prior to trial.⁴ The water court ruled that section 37-92-301(4)(a)(I) did not divest it of jurisdiction to proceed with Getty's application because Getty complied with the requirements of section 7-115-102(1) before the commencement of the trial on the merits.

Section 7-115-101(1...