Amicus Curiae Brief — Orff v. United States

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No. 03-1566

In The

Supreme Court of the United States

FRANCIS A. ORFF, et ai.,

Petitiorers,

UNITED STATES OF AMERICA, et al.,

Respondents.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

BRIEF OF CENTRAL ARIZONA

WATER CONSERVATION DISTRICT,

MARICOPA-STANFIELD IRRIGATION &

DRAINAGE DISTRICT, CENTRAL ARIZONA

IRRIGATION AND DRAINAGE DISTRICT

AND ARIZONA DEPARTMENT OF

WATER RESOURCES AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

MARVIN S. COHEN*

SACKS TIERNEY PA.

4250 North Drinkwater Blvd.,

4th Floor

Scottsdale, AZ 85251-3647

(480) 425-2600

*Counsel of Record for

Amici Curiae

{Additional Counsel On Inside Cover]

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

DOUGLAS K. MILLER

General Counsel

CENTRAL ARIZONA WATER

CONSERVATION DISTRICT

23636 North Seventh Street

Phoenix, AZ 85080-3020

(623) 869-2333

PavtL R. ORME

General Counsel

MARICOPA-STANFIELD IRRIGATION &

DRAINAGE DISTRICT AND CENTRAL ARIZONA

IRRIGATION AND DRAINAGE DISTRICT

1000 Orme Rd., HC 63, Box 3042

Maver, AZ 86333-3042

(623) 465-0445

W. PATRICK SCHIFFER

Chief Counsel

ARIZONA DEPARTMENT OF WATER RESOURCES

500 North Third Street

Phoenix, AZ 85004

602) 417-2420

MARK A. MCGINNIS

SALMON, LEWIS & WELDON, P.L.C.

2850 East Camelback Road, Suite 200

Phoenix, AZ 85016

(602) 801-9060

Attorneys for Central Arizona Irrigation

and Drainage District

DONALD M. PETERS

MILLER, LASoTA & PETERS, PLC

5225 North Central, Suite 235

Phoenix, AZ 85012

(602) 248-2900

Attorneys for Maricopa-Stanfield Irrigation

& Drainage District

TABLE OF CONTENTS

Page

TABLE OF CONTENTS o.oo... cccccccccccccescecceceeseceecseceees, i

TABLE OF AUTHORITIES .00.00.....cccccceccececcecceceececeeeen. iii

IDENTITY AND INTEREST OF AMICI CURIAE ...... 1

Central Arizona Water Conservation District .......... 2

Maricopa-Stanfield Irrigation & Drainage District

and Central Arizona Irrigation and Drainage Dis-

SnINIniAiindithssathdbebenieabscetbensensounisernccsceeesoseseucoseeseeess

I. SECTION 8 OF THE 1902 RECLAMATION

ACT DOES NOT APPLY TO COLORADO

RIVER WATER DELIVERED THROUGH

THE CENTRAL ARIZONA PROJECT...............

A. The Law of the River .......0....ccccccccccccecceseess

The Colorado River Compact................

The 1928 Boulder Canyon Project Act....

Arizona v. California ...........ccccccccceccesees

The 1968 Colorado River Basin Project

i deiiiibiniiiiasindesiecebesesenenteeneeesmsnsieecsone. nes

II. THE FACTS AND LAW APPLICABLE TO

FARMERS IN THE CENTRAL VALLEY PRO-

JECT ARE DIFFERENT FROM THOSE AP-

PLICABLE TO FARMERS IN THE CENTRAL

ARIZONA PROJECT..............cccccccsesescscesessesecsees

i cseeumsorenemeuees

e SF NS

co on Ww

TABLE OF CONTENTS -— Continued

Page

The Orff Petitioners ............::::::seeeeeeeeees 19

Smiths in ArizOna...........ccccrccocccsesccesssees 22

California v. United States, Nevada v.

United States, Nebraska v. Wyoming,

and Tches Vv. FO ..........ccccccccsssseseessereseees 22

B. The Allen Orchards Case.........::::::sccseeeeeeees 26

C. Contractual Provisions ..............:::cceeeseeeeeees 28

TET. CONCLUSION .......ccccccscccsscccscscccccscessesssessseseeees 29

ill

TABLE OF AUTHORITIES

Page

CASES

Arizona v. California, 373 U.S. 546 (1963).........0...... passim

Bryant v. Yellen, 447 U.S. 352, reh’g denied, 448

eae ee CETTE iciestasesssciidaliciiadidnnbonteiitaieiatindsditasisdsbeiebese 24, 25

California v. United States, 438 U.S. 645

SEP UTIE ocnsicaniehdecdeaniiasianiernitincinaiiamadiniiilie oabiendiied 21, 22, 23, 24, 25

City of Fresno v. California, 372 U.S. 627 (1963)....... 23, 24

Fox v. Ickes, 137 F.2d 30 (D.C. Cir. 1943)....0.... eee eee 27

H.F. Allen Orchards v. United States, 749 F.2d 1571

es NE Ma ictendihecibctnietihiaisarthiaidesdccinhianiiristiiiicisdau 11, 21, 26, 27

Ickes v. Fox, 300 U.S. 82 (1937).............ccccceeeeeeeees 21, 22, 26

Ivanhoe Irr. Dist. v. McCracken, 357 U.S. 275 (1958) .. 23, 24

John E. Smith, et al. v. Central Arizona Water

I 3

Long v. Salt River Valley Water Users’ Ass’n, 820

Se Ce I II ITT i inciceecsiccintiserrsnictiaiieesmnsniieinntnienndntaaidiliees 25

Nebraska v. Wyoming, 325 U.S. 589 (1945).......... 21, 22, 26

Nevada v. United States, 463 U.S. 110, reh’g denied,

Re es ED siciitittriinitiiiitnittiiccidiidaisiaiiininntans 19, 21, 22, 26

Wyoming v. Colorado, 259 U.S. 419 (1922), decree

paceted, SES U.S. GES (1GB7).......ccccccccocccccsccoccccccscescssess 13

FEDERAL STATUTES AND RULES

Sy I i ON I I a icincsesciensinilieitcsenciteiteiinpiinabaniliiintsiaiala 1

ee St iicstdiniesincniiinarineniensisuniiisainidinbiaisimaiiaitiei 9,10

ii acenicaineiisiisaiintiiiintitniascniniatiaiieiieeiatats 9, 10, 20

TABLE OF AUTHORITIES — Continued

Page

BE, Be i vnctttctctescscestsensccinsssccacnvsnsenssnnsinns 14, 23

GT, Be cctccseitccetccccnsscccccesincsesnnseerenenaneinannnsictnaions 14

I , Bi ct ecsccsntctcscccscinsecncnsecesseneseceensnsnanionsnnessassin 15

GTI AE, Be FE cccciccccecscctescccecscnsssccsesnccsenessanscnssane 19

TE, © isd ssncciceccescncsccessnscccessccnsccssinisarsetnanciavese 19

1902 Reclamation Act, 32 Stat. 388, § 8 ...........0....... passim

Colorado River Compact reprinted in. Ariz. Rev.

RI, Fitts, © Ge cccescccicdsescscecsceustscnssscssosacasevasesesneneses 14

1928 Boulder Canyon Project Act, 45 Stat. 1057,

I I ccccasimncsiednencmnnicanansdbonemianiesnndinniuabiatentidasainiddicisianien passim

1968 Colorado River Basin Project Act, 88 Stat. 885....... 19

Arizona Water Settlements Act, P.L. 108-451.......0............ 1

I TID cscscseichivstetiiaiindsicencbinhiaciesoieiieadanationsinaiaeaeabiiaetiteiads 5

III, cali ia leaeiieiligeidadanniinsnmieiniansenembedubuniines 8

I BNI... <s:cciissincadiinninitininesedsaecaiasunnsadinianainapbadunniesconianiniti 5

ARIZONA CONSTITUTION AND STATUTES

i Ce i TR TE © sccicnuveiccionsencaseieineciemsninnhaiinineanninienn 1

Ariz. Rev. Stat. Ann. § 45-103(B) .................:sseeceseeeeeeeeees 2,8

Ariz. Rev. Stat. Ann. § 45-105(A)(Q) ........ cece eeeeeeeeeeeneeees 7

Ariz. Rev. Stat. Ann. §§ 45-107(A)(1) and (2)............::eeees 8

en 15

Ariz. Rev. Stat. Ann. § 45-1302 to -1310 ............. eens 11

Baier, Tiers Tbe, Bem. FB GiB esc ccccccscoccnascscvcsccesscsocsesssneses 14

TABLE OF AUTHORITIES -— Continued

Page

Ariz. Rev. Stat. Ann. §§ 48-3701 to 3738.....00.....cccccccceseeeeeee 2

Ariz. Rev. Stat. Ann. §§ 48-3702, 48-2901.0.00........cccccceeceeees 1

OTHER AUTHORITIES

Contract for Delivery of Water (“Lake Mead

Contract”), reprinted in Ariz. Rev. Stat. Ann.

RRR USER Ee Nr EP RAC ROSS EE Teno HDC L OER OE A 15

Waters and Water Rights § 47.01(b), at 671 (R.

Sa ci aii a 14

IDENTITY AND INTEREST OF AMICI CURIAE'

Three of the amici curiae are defendants in lawsuits

filed by a small group of farmers in two central Arizona

irrigation districts claiming that they are intended benefi-

ciaries of the districts’ Central Arizona Project (“CAP”)

Agricultural subcontracts for Colorado River water. The

lawsuits seek to prevent their irrigation districts from

relinquishing high-priced long-term subcontract water for

low-cost, medium-term water contracts. The relinquish-

ment of the subcontract water is an essential element of

the comprehensive and landmark settlement of CAP water

allocations and repayment obligations and water rights

claims of two major Arizona Indian communities (“Settle-

ment”). The Settlement is embodied-in and authorized by

the recently enacted Arizona Water Settlements Act, P.L.

108-451 (“Settlements Act”).

One of the lawsuits filed by the farmer group is a

federal action against amicus Central Arizona Water

Conservation District (““CAWCD”), now pending on appeal

in the Ninth Circuit (“Federal Case”). The other is a state

* Because the Central Arizona Water Conservation District, thé

Maricopa-Stanfield Irrigation & Drainage District and the Central

Arizona Irrigation and Drainage District are political subdivisions and

municipal corporations of the State of Arizona, they are not required to

obtain consents of the parties to the filing of this brief, and are not

required to make disclosures under U.S. Sup. Ct. R. 37.4, 37.6. Ariz.

Rev. Stat. Ann. §§ 48-3702, 48-2901; Ariz. Const. art. 13, § 7. The

Arizona Department of Water Resources is the agency of the state with

responsibilities for surface water and interstate stream matters with its

own legal staff. It should qualify as a “similar entity” under Rule 37.4.

However, amici are filing with the Court the consents of all parties.

This brief was not authored in whole or in part by counsel for any

party; no person or entity, other than the amici, has made a monetary

contribution to the preparation or submission of this brief.

court action against amici Maricopa-Stanfield Irrigation &

Drainage District (“MSIDD”) and Central Arizona Irriga-

tion and Drainage District (“CAIDD”) that is the subject of

a petition for special action recently filed with the Arizone

Supreme Court (“State Case”). See Maricopa Stanfield

Irrigation & District, et al., v. Robertson, Arizona Supreme

Ct. No. CV-04-0385-5A. App. 21.

The fourth amicus is the Arizona Department of

Water Resources (the “Department”), the agency for the

State of Arizona with general control and supervision of

surface water, its appropriation and distribution. Ariz.

Rev. Stat. Ann. § 45-103(B).

The purpose of this amici brief is to support the

Respondents and advise the Court that the issues pre-

sented in the State Case and Federal Case arise from facts

and law that differ, in important ways, from the facts and

law in Orff. The Orff Petitioners’ brief is predicated on

their asserted ownership of appurtenant water rights

under Section 8 of the 1902 Reclamation Act. Congress, in

Section 5 of the 1928 Boulder Canyon Project Act, ex-

empted post-1928 Colorado River water rights from the

application of Section 8. Amici, in this brief, urge the

Court to recognize the important differences between the

issues presented by Orff and the issues currently under

review in the Federal Case and State Case.

Central Arizona Water Conservation District

The Central Arizona Water Conservation District is a

multi-county water conservation district and a political

subdivision in Arizona that has contracted with the United

States for the operation and repayment of the Central

Arizona Project, a federal reclamation project. See Ariz. Rev.

Stat. Ann. §§ 48-3701 to -3738.* The CAP annually delivers

to water users in central and southern Arizona 1.5 million

acre feet of Arizona’s entitlement to Colorado River water’

CAWCD was the defendant in case No. CIV 03-0505 in

the United States District Court for the District of Ari-

zona, John E. Smith, et al. v. Central Arizona Water

Conservation District. The plaintiffs in the Federal Case

(hereinafter, “Smiths”) were landowners in two Arizona

irrigation districts - MSIDD and CAIDD (collectively, the

“Irrigation Districts”). Each of the Irrigation Districts was a

party to an Agricultural subcontract with CAWCD and the

United States (“Subcontract”) pursuant to which the

District was to purchase and receive Colorado River water

through the CAP. Smiths were not parties to the Subcon-

tracts, but asserted in the-litigation that they were third-

party beneficiaries. On September 12, 2003, Judge Earl H.

Carroll ruled that Smiths were not third-party beneficiaries

and dismissed the case. App. 1. Smiths have appealed to the

Ninth Circuit, matter No. 03-16962. The appeal has been

fully briefed and is currently pending before that court.

Maricopa-Stanfield Irrigation & Drainage District

and Central Arizona Irrigation and Drainage District

MSIDD and CAIDD are irrigation districts in Pinal

County, Arizona and are parties to long-term Agricultural

* CAWCD and the Secretary in 1972 entered into a Master

Repayment Contract for the delivery of Colorado River water through

the CAP and for the repayment of the allocable costs of the Project. This

Contract was superseded and replaced by the 1988 Master Contract.

See App. 94, and { 9 Joint Statement of Facts, App. 88.

* For the purposes of this brief, the term “Colorado River water”

means post-1928 Colorado River water released from Hoover Dam

pursuant to the Boulder Canyon Project Act of 1928.

CAP Subcontracts with the United States and CAWCD.*

App. 159. The Subcontracts provide for the delivery of

Colorado River water to the Irrigation Districts and

govern the terms of its purchase by each Irrigation Dis-

trict. The individual landowners within the Irrigation

Districts were not parties to the Subcontracts.

The farmers in the Irrigation Districts have never

been able to afford to buy CAP water at the price set by

the Subcontracts. For that reason, neither District has

ever received any CAP water pursuant to its Subcontract.

Exhibit A to CAIDD Statement of Facts, Affidavit of Paul

Orme, 7 9, App. 205. In 1993, when construction of the

CAP was completed, the Irrigation Districts advised

CAWCD that they could not afford to pay the price dic-

tated by the Subcontracts. The Irrigation Districts and

CAWCD dealt with the problem by entering into ten-year

Excess Water Contracts in 1994 that allowed the Districts

to purchase “excess” CAP water at affordable rates. Id.

The Irrigation Districts did receive CAP water pursuant to

the Excess Water Contracts. Those agreements expired at

the end of 2003. Ibid; CAIDD Statement of Fats, {{ 16-

23, App. 197-200.

In 2002, CAWCD entered into the Arizona Water

Settlement Agreement (“Settlement Agreement”) with the

Arizona Department of Water Resources and the United

meted

‘ The Subcontracts with the Irrigation Districts were entered into

__pursuant to the Master Repayment Contract. Except for the names of

each District and subarticle 4.13(a) stating the amount of the Subcon-

tractor’s water entitlement, the terms of the Subcontracts of the

Irrigation Districts are identical. Joint Statement of Facts, J 18, App.

89.

States through the Secretary of the Interior (“Secretary”).’

App. 60. The Settlement Agreement established the

processes for implementing the Settlement embodied in

the Settlements Act enacted by Congress on November 17,

2004 and signed by the President on December 10, 2004.

CAWCD, in December 2002 pursuant to the Settlement

Agreement, adopted a new policy for marketing excess

water to irrigation districts. Under this policy, the districts

were offered new contracts for the purchase of excess CAP

water at low rates through 2030 in exchange for relin-

quishment of their CAP Agricultural Subcontract alloca-

tions. Districts could retain Subcontract water rights, but

no district would be allowed to purchase excess CAP water

at the low price until it had ordered and paid the full price

for any Subcontract water it had retained. See Settlement

Agreement, subparagraphs 6.3, 6.4, App. 70-71.

Pursuant to the Settlement Agreement, CAWCD

offered a package of benefits to each Irrigation District in

exchange for relinquishment of its subcontract rights Id.

{1 7, 8, App. 72-75. Both of the Irrigation Districts held

elections to determine whether landowners favored the

District’s relinquishment of subcontract water rights in

return for the various benefits that were offered. A major-

ity of the votes cast in each of the Irrigation Districts

favored the proposed relinquishment. CAIDD Statement of

Facts, Affiaavit of Paul Orme, {{ 18, 24, App. 207-208.

In 2001, Smiths with approximately thirty-nine other

landowners, filed a civil action in the Pinal County Superior

* While the United States did not execute the Settlement Agree-

ment in 2002, the Settlements Act authorizes and directs the Secretary

to execute the Settlement Agreement. See § 2 (34), § 106(a)(2).

Court against the Irrigation Districts. Smith et al. v.

Maricopa-Stanfield Irrigation & Drainage District, et al.,

No. CV 2001-00924.° The action sought to prevent the

Irrigation Districts from relinquishing any of the CAP

Subcontract water in which Smiths claimed appurtenant

ownership interests.’ Over two hundred landowners joined

the Irrigation Districts in defending against Smiths in the

State Case.

In December, 2003, Smiths moved for partial sum-

mary judgment. The Irrigation Districts and defendant

landowners filed cross-motions for summary judgment. On

November 16, 2004, the trial court entered its minute

entry ruling granting summary judgment to Smiths. App.

14. The state trial court held that rights to Colorado River

water under the CAP subcontracts were appurtenant to

Smiths’ land and that rights under each of the Agricul-

tural CAP Subcontracts were contractually vested in the

landowners and enforceable by them. The trial court also

held that the landowners were intended third-party

beneficiaries of the CAP Subcontracts and that an Irriga-

tion District could not modify its Subcontract in any way

that would affect a landowner’s purported appurtenant

rights without that landowner’s consent.

* Plaintiffs in the State Case will also be collectively referred to

herein as “Smiths”.

’ Of the 293,795 acre-feet of Agriculcural CAP water potentially

available to the Secretary for the Settlement, up to 180,000 acre-feet

were to be relinquished by the Irrigation Districts. Settlement Agree-

ment, subpara. 4.1.5, Table 5.1.4, App. 64-66, 68. If the two Irrigation

Districts are not able to relinquish this water, the Secretary will not

receive the 197,500 acre-feet required to implement the Settlement.

(293,795 minus 180,000 equals less than 197,500.)

On December 14, 2004, the Irrigation Districts and

200 landowners filed a Petition for Special Action with the

Arizona Supreme Court, urging the Court to take special

action jurisdiction because of the state-wide importance of

the case and to reverse the lower court’s ruling. App. 21°

On pages 1 through 5 of the Petition, the elements of the

Settlement and their importance to Arizona are described.

The Arizona Department of Water Resources

The Department is the agency for the State of Arizona

with general control and supervision of surface water, its

appropriation and distribution. Ariz. Rev. Stat. Ann. § 45-

103(B). The Director of the Department is charged with

the duty of prosecuting and defending “all rights, claims

and privileges of this state [the State of Arizona] respect-

ing interstate streams,” which includes the Colorado River.

Ariz. Rev. Stat. Ann. § 45-105(A)(9). |

The Director is also authorized, on behalf of the State

of Arizona, to consult, advise and cooperate with the

Secretary of the United States Department of the Interior

(“Secretary”) in the exercise of the Secretary's authority

under the Boulder Canyon Project Act as well as the

Secretary's authority to contract for the delivery of water

from the main stream of the Colorado River for use within

* Briefs amicus curiae have been filed with the Arizona Supreme

Court in support of the Petition for Special Action by the Arizona

Department of Water Resources, CAWCD, the Gila River Indian

Community, the Cities of Scottsdale, Mesa, Chandler, Glendale, and.

Goodyear, the Hohokam Irrigation & Drainage District and San Carlos

Irrigation & Drainage District, and the Salt River Project.

the State of Arizona. Ariz. Rev. Stat. Ann. § 45-107(A)(1)

and (2).

The Department has a strong interest in the trial

court’s ruling in the State Case and in the appellate result

in the Federal Case for two reasons. If landowners are

held to be intended beneficiaries of the Irrigation Districts’

Agricultural CAP Subcontracts, with the power to prevent

relinquishment of Subcontract water, the landmark

Settlements Act cannot be implemented. The Agricultural

CAP Subcontract water voluntary relinquished by agricul-

tural CAP subcontractors (such as the Irrigation Districts)

is to be used by the United States to settle current and

future Indian water claims. If agricultural subcontractors

fail to relinquish sufficient CAP water to enable the

Secretary to make the required reallocations, the Settle-

ment Act will fail.

The Settlement Act also allocates up to 96,295 acre-feet

of relinquished water to the Director of the Department for

future reallocation to Arizona non-Indian municipal and

industrial water users. PL. 108-451, § 104(a\(2). Conse-

quently, the Department has a specific interest in ensuring

that the Settlement Act is implemented.

Summary

The question presented in the Orff petition before this

Court appears, on its face, to be the same question that

was ruled on by the Arizona District Court in the Federal

Case and by the trial court in the State Case. The underly-

ing facts and law in the Orff matter are, however, signifi-

cantly different from the facts and law in the Federal Case

and the State Case. The Orff matter involves the San Luis

Unit of Central Valley Project, a Reclamation project in

California on the San Joaquin River that is subject to

Section 8 of the Reclamation Act. Amici express no view as

to whether Section 8 confers on the Orff Petitioners the

rights they assert, but even if it did, the Federal Case and

State Case involve the Central Arizona Project, a Recla-

mation project in Arizona for the delivery of water from

the Colorado River. The delivery of Colorado River water is

not subject to Section 8 of the Reclamation Act.

Amici have a direct interest in ensuring that the

differences between the Orff case and the Arizona cases in

which they are parties are called to the attention of this

Court so that the Court’s decision is made with recognition

of these differences. At stake for the amici and for the

state of Arizona as a whole is the preservation and imple-

mentation of the Settlement twenty years in the making

that was recently authorized by Congress and the Presi-

dent.

SUMMARY OF ARGUMENT

The Orff petition before this Court presents the

question of whether farmers in an irrigation district’ that

is governed by California law and located in a Reclamation

project’ that is subject to Section 8 of the 1902 Reclama-

tion Act (43 U.S.C. §§ 372, 383) are intended third-party

beneficiaries of their irrigation district’s water service and

repayment contracts with the United States.

* Westlands Water District.

The San Luis Unit of the Central Valley Project.

The Federal Case and the State Case in which these

Arizona amici are involved present the questions of:

1) whether landowners in an Arizona irrigation dis-

trict receiving Central Arizona Project water are

owners of Colorado River water rights appurte-

nant to their land, and

2) whether they are intended third-party beneficiar-

ies of the master repayment contract between

CAWCD and the Secretary and the Subcontracts

among CAWCD, the Irrigation Districts and the

Secretary.

Petitioners describe the history and scope of the

Reclamation program undertaken by the United States,

through the Secretary and the Bureau of Reclamation

(“Bureau”) beginning in 1902. Petitioners’ Brief on the

Merits, at 4. Although the description is generally accu-

rate, it does not take into account the often unique circum-

stances of the individual Reclamation projects in the

program. For instance, Petitioners cite Section 8 of the

1902 Reclamation Act as support for their assertion that

“(p)roperty rights are a key feature of the Reclamation

program.” Jd. at 3. Section 8 provides that state laws shall

govern the control, appropriation, use ane distribution of

water used in irrigation and that the “right to the use of

water” acquired under state laws “shall be appurtenant to

the land irrigated, and beneficial use shall be the basis,

the measure, and the limit of the right.” Reclamation Act

of 1902, c. 1093, § 8, 32 Stat. 388, 43 U.S.C. §§ 372, 383.

The general effect of Section 8 is that state water law

governs the acquisition of water rights for Reclamation

projects, but Section 8 does not apply to water rights in all

Reclamation projects.

In particular, it does not apply to post-1928 rights in

Colorado River water. Post-1928 Colorado River water is

not allocated among the basin states, or between users

within those states, based upon prior appropriation or

other state law principles. Instead, the seven Colorado

River Basin states allocated the river between the Upper

and Lower Basins by interstate compact in 1922;" and

Congress, in the 1928 Boulder Canyon Project Act, 45 Stat.

1057 (“1928 Act”), allocated rights to the river among the

three Lower Basin states (California, Arizona, and Ne-

vada) and granted the Secretary of the Interior expansive

authority to allocate and contract for the delivery of

Colorado River water to the various entities within the

states.

After 1928, Colorado River water could be used only

by contract with the Secretary, not under or pursuant to

state water law. The decision of this Court in Arizona v.

Caifornia, 373 U.S. 546 (1963), clearly confirmed that

Section 8 is superseded by the body of law that governs the

Colorado River, known collectively as “the Law of the

River.”

The Petitioners in Orff base their claim of intended

beneficiary status on their ownership of water rights

appurtenant to their land, pursuant to Section 8; the

decision of the Federal Circuit Court in H.F Allen Or-

chards v. United States, 749 F.2d 1571 (Fed. Cir. 1984);

and other general federal Reclamation court decisions.”

" Reprinted in Ariz. Rev. Stat. §§ 45-1302 to -1310; Boulder

Canyon Project Act § 13(a), (45 Stat. 1057, 1064).

* Amici are not here agreeing with the Orff Petitioners that the

ownership of appurtenant water rights is determinative of third party

beneficiary status. That status is generally determined on the basis of

(Continued on following page)

The status of users of Colorado River water in the Central

Arizona Project is, however, clearly not governed by

Section 8 and these non-Colorado River cases. Amici

request that this Court affirm the lower court’s decision. If,

however, the Court reverses that decision, we urge the

Court to recognize in its opinion the fundamental and

important differences between the Central Valley Project

and the Central Arizona Project.

ARGUMENT

I. SECTION 8 OF THE 1902 RECLAMATION ACT

DOES NOT APPLY TO COLORADO RIVER WA-

TER DELIVERED THROUGH THE CENTRAL

ARIZONA PROJECT.

A. The Law Of The River

1. The Colorado River Compact

The Colorado River is a navigable watercourse that

flows through seven states and Mexico. See Arizona uv.

California, 373 U.S. 546, 552 (1963). Non-Indians in

several areas along the Colorado first began diverting

water from the river in the late 1800s. See id. The erratic

nature of the river resulted in alternating periods of floods

and droughts during this time. Jd. at 553. The early

farmers in southern California who had been diverting

Colorado River water through the Alamo Canal, as well as

a few early users in other states, desired to obtain federal

the clear intent of the parties as expressed in the contract. However,

since the focus of Petitioners’ argument is on Section 8 and asserted

appurtenant water rights, amici primarily address those issues in this

brief.

—_—-———

funding to build flood control and water storage and

transmission facilities on the river. Jd. At the same time,

residents and potential users outside California were

concerned that the “first in time, first in right” principles

of prior appropriation water law might be applied to the

river, so that the early California users would acquire a

superior right to all or most of the water from the river. Id.

These residents outside California were concerned that

this problem would be further exacerbated if the Federal

Government spent money to promote additional early use

in California.”

To address these concerns, in 1922 representatives of

the seven Colorado River Basin states met for several

months to discuss an agreement to allocate water from the

river. Unable to agree upon an allocation among the

individual states, they settled on an allocation between the

“Upper Basin” (the area above Lee Ferry in the Grand

Canyon) and the “Lower Basin.” This compromise is

embodied in the 1922 Colorado River Compact. See id. at

* See id. at 555-56 (“The prospect that the United States would

undertake to build a national project .. . brought to life strong fears in

the northern basin States that additional waters made available by the

storage and canal projects might be gobbled up in perpetuity by faster

growing lower basin areas, particularly California. .. . These fears were

net. without foundation, since the law of prior appropriation prevailed

in most of the Western States.... In 1922, ... [the United States

Supreme Court] held that the doctrine of prior appropriation could be

given interstate effect... . Nevada, Utah, and especially Arizona were

all [also] apprehensive that California’s rapid declaration of appropriat-

ive claims would deprive them of their just share of basin water

available after construction of the proposed United States project.”)

(citing Wyoming v. Colorado, 259 U.S. 419 (1922), decree vacated, 353

U.S. 953 (1957), which had applied prior appropriation in a dispute

between two states, where both states applied prior appropriation in

their internal water allocation).

—

557-58; see also Coiorado River Compact, reprinted in Ariz.

Rev. Stat. Ann. § 45-1311.

Although Arizona’s representative signed the Com-

pact, the Compact required that it be ratified by the

respective legislatures of the signatory states. The Arizona

Legislature refused to ratify the Compact, largely based

upon continued concerns that the Lower Basin’s share of the

river had not been divided among Arizona, California, and

Nevada and the possible implications of prior appropriation

law on such a future division. Arizona v. California, 373

U.S. at 559-60."

2. The 1928 Boulder Canyon Project Act

Congress eventually authorized construction of the

proposed Boulder Canyon Project over Arizona's objection,

passing the Boulder Canyon Project Act in 1928, 45 Stat.

1057, codified at 43 U.S.C. §§ 617-617t. The 1928 Act gave

the Secretary of the Interior control over the allocation of

Colorado River water among the individual states and

among the various entities within those states. The Act

also authorized the Secretary to enter into contracts with

Arizona, California, and Nevada, with an allocation of

Colorado River water as follows: Arizona — 2.8 million

acre-feet (“MAF”); California — 4.4 MAF; and Nevada — 0.3

MAF. See id. § 617c. Arizona entered into a contract with

* “The concept of an allocation between basins quieted the fears of

Upper Basin states that California would grab water to their detriment.

But Arizona, lying largely in the Lower Basin, still feared that the

neighboring Lower Basin state of California would get virtually all the

water that new federal facilities would make available below Lee Ferry.

Consequently, Arizona refused to ratify the compact.” Waters and Water

Rights § 47.01(b), at 671 (R. Beck, ed.) (1996).

the Secretary for its 2.8 MAF in 1944. See Contract for

Delivery of Water (“Lake Mead Contract”), reprinted in

Ariz. Rev. Stat. Ann. § 45-1301. Section 5 of the 1928 Act

provided that state law for allocating water did not apply

to post-1928 uses of Colorado River:

The Secretary of the Interior is hereby au-

thorized, under such general regulations as he

may prescribe, to contract for the storage of wa-

ter in said reservoir and for the delivery thereof

at such points on the river and on said canal as

may be agreed upon, for irrigation and domestic

uses. ... No person shall have or be entitled

to have the use for any purpose of the water

stored as aforesaid except by contract made

as herein stated.

43 U.S.C. §617d (emphasis added). Section 5 further

stated that “[clontracts for the use of water ... shall be

made with responsible applicants therefor who will pay

the price fixed by the said Secretary with the view of

meeting the revenue requirements herein provided for.”

Id. § 617d(c).

3. Arizona v. California

The 1928 Act clearly established that Colorado River

water is allocated exclusively by contract with the Secre-

tary. Although this basic tenet of the Law of the River was

set forth in 1928, this Court in Arizona v. California made

it even more clear. The Court discussed the history of

regulation and allocation of the Colorado River and upheld

the Secretary's broad authority to allocate such water

among the three Lower Basin states and between individ-

ual entities in the various states by entering into water

delivery contracts with those entities. The Court stated

that, having authorized the use of federal money to build

projects on the Colorado River in the 1928 Act, Congress

clearly established that the Federal Government would

control the use of water from those projects:

Having undertaken this beneficial project, Con-

gress, in several provisions of the [1928] Act,

made it clear that no one should use mainstream

[Colorado River] waters save in strict compliance

with the scheme set up by the Act. Section 5 au-

thorized the Secretary [of the Interior] “under

such general regulations as he may prescribe, to

contract for the storage of water in said reservoir

and for the delivery thereof at such points on the

river * * * as may be agreed upon, for irrigation

and domestic uses * * * .” To emphasize that wa-

ter could be obtained from the Secretary alone,

get water. The general authority to make con-

tracts normally includes the power to choose with

whom and upon what terms the contract will be

made. When Congress in an Act grants authority

to contract, that authority is no less than the gen-

eral authority, unless Congress has placed some

limit on it.... Significantly, no phrase or provi-

sion indicating that the Secretary’s contract power

was to be controlled by the law of prior appropria-

tion was substituted either then or at any time be-

fore passage of the Act, and we are persuaded that

had Congress intended so to fetter the Secretary’s

direction, it would have done so in clear and un-

equivocal terms, as it did in recognizing “present

perfected rights” [i.e., those rights acquired prior

to passage of the 1928 Act] in § 6.

§ 5 further declared, “No person shall have or be Id. at 580-81 (emphasis added).

entitled to have the use for any purpose of the ' + ter ,

water stored as aforesaid except by contract h baad eanasng v. California this Court, after discussing

mate on basen chee’ * the Reclamation Act and the 1928 Act, stated:

373 US. at 579-80. ... [W]e hold that the Secretary in choosing be-

tween users within each State and in settling the

Basing its analysis on the express statements by terms of his contracts is not bound by these sec-

tions [e.g., Section 8 of the Reclamation Act] to

follow state law.... While the States were gen-

erally free to exercise some jurisdiction over

Congress in the 1928 Act, the Court reiterated that con-

tracts with the Secretary were the exclusive means to

allocate legal rights to the waters of the Colorado River, these waters before the Act .

both as among the states and among individual users right was subject to re Pedensd P saad

within the states: right to regulate and develop the river....

[W]here the Secretary’s contracts, as here, carry

out a congressional plan for the complete distri-

bution of waters to users, state law has no

place.

These several provisions, even without legis-

lative history, are persuasive that Congress in-

tended the Secretary of the Interior, through

his § 5 contracts, both to carry out the allo-

cation of the waters of the main Colorado .

River among the Lower Basin States and to oe a SODSS Cemphante altel.

decide which users within each State would

This Court recognized that federal Reclamation projects

for the use of Colorado River water are inherently different

from other projects and water rights, even those other

projects constructed pursuant to the 1902 Reclamation Act.

With respect to the interstate and international Colorado

River, the Federal Government plays a more pervasive role

in constructing and operating project facilities and promoting

repayment of costs. The Court concluded its description of

the broad authority of the Secretary to contractually allocate

Colorado River waters as follows :

All this vast, interlocking machinery — a

dozen major works delivering water according to

congressional fixed priorities for home, agricul-

tural, and industrial uses to people spread over

thousands of square miles — could function effec-

tively only under unitary management, able to

formulate and supervise a coordinated plan that

could take account of the diverse, often conflicting

interests of the people and communities of the

Lower Basin States. Recognizing this, Congress

put the Secretary of the Interior in charge of these

works and entrusted him with sufficient power,

principally the § 5 contract power, to direct, man-

age, and coordinate their operation. Subjecting the

Secretary to the varying, possibly inconsistent,

commands of the different state legislatures could

frustrate efficient operation of the project and

thwart full realization of the benefits Congress in-

tended this national project to bestow. We are satis-

fied that the Secretary's power must be construed

to permit him, within the-boundaries set down in

the Act, to allocate and distribute the waters of the

mainstream of the Colorado River.

373 U.S. at 589-90.

4. The Colorado River Basin Project Act

The Secretary’s exclusive power to allocate the waters

of the mainstream of the Colorado River was reaffirmed in

1968 when Congress passed the Colorado River Basin

Project Act (“1968 Act”), authorizing construction of the

Central Arizona Project. See 43 U.S.C. §§ 1501 to 1556.

The 1968 Act also provided for the Secretary to enter into

“master contracts” for the repayment of CAP construction

costs with a single political subdivision of the State of

Arizona. Id. § 1524. The 1968 Act expressly stated that it

“shall not be construed to alter, amend, repeal, modify, or

be in conflict with” the 1922 Compact, this Court’s 1963

Arizona v. California decision, or other portions of the Law

of the River. 43 U.S.C. § 1551(a).

Il. THE FACTS AND LAW APPLICABLE TO FAR-

MERS IN THE CENTRAL VALLEY PROJECT

ARE DIFFERENT FROM THOSE APPLICABLE

TO FARMERS IN THE CENTRAL ARIZONA

PROJECT.

A. Water Rights

1. The Orff Petitioners

The Petitioners in Orff claim their water rights under

California law and the doctrine of prior appropriation as

applied to federal Reclamation projects by Section 8 of the

1902 Federal Reclamation Act. Congress passed the

Reclamation Act for the purpose of having the Federal

Government play a more prominent role in the develop-

ment of the West, particularly with respect to the devel-

opment of water resources. See Nevada v. United States,

463 U.S. 110, 115, reh’g denied, 464 U.S. 875 (1983). At the

same time, however, the states were concerned about

Federal interference in internal water matters. For that

reason, Congress included Section 8 of the act, which

provides:

Nothing in this Act shall be construed as af-

fecting or intended to affect or to in any way in-

terfere with the laws of any State or Territory

relating to the control, appropriation, use, or dis-

tribution of water used in irrigation, or any vested

right acquired thereunder, and the Secretary of the

Interior, in carrying out the provisions of this Act,

shall proceed in conformity with such laws, and

nothing herein shall in any way affect any right of

any State or of the Federal Government or of any

landowner, appropriator, or user of water in, to, or

from any interstate stream or the waters thereof.

43 U.S.C. § 383. Therefore, for most federal Reclamation

projects, all water rights must be acquired pursuant to

state law. For those projects, individual users (or a water

users’ associations acting expressly on behalf of those

individual users) follow state-mandated procedures in

order to obtain appropriative rights to water, and those

water rights are allocated on a “first in time, first in right”

basis. In those situations, the fact that an individual owns

land within the boundaries of a federal Reclamation

project does not give that person a right to use water

unless the water right acquisition procedures under state

law have been satisfied.

According to Petitioners, the landowners in the San

Joaquin Valley applied to the State of California to estab-

lish surface water rights on the basis of prior appropria-

tion under California law. In order to proceed with the San

Luis Unit of the Central Valley Project, the landowners

assigned their state applications to the United States,

which proceeded to obtain water rights under state law.

See Petitioners’ Brief on the Merits, at 4-6. The contracts

between the Westlands Water District and the United

States contain provisions referring to the farmers’ right to

use the water and indicate a remedy for not receiving the

water “of anyone claiming such right or remedy by or

through the District.” Jd. at 20. Each of the contracts was

made pursuant to the federal Reclamation law, including

Section 8 of the 1902 Act. The Orff Petitioners cite four of

this Court’s decisions for the proposition that the farmers

who apply the water in a Reclamation project to their land

“equitably own, property rights in the water which are

appurtenant to their lands. Nevada v. United States, 463

U.S. 110, 121-28 (1983); California [v. United States, 438

U.S. 645 (1978)] at 664, 653, 665, 667; Nebraska v. Wyo-

ming, 325 U.S. 589, 611-16 (1945); Ickes v. Fox, 300 U.S.

82, 93-96 (1937).” Petitioners’ Brief on the Merits, at 21.

They also rely on Allen Orchards, in which the court

stated: “it was undisputed that appellants [landowner/

farmers] have a property right in the water to the extent

of their beneficial use thereof.” Jd. at 26; Allen Orchards,

749 F.2d at 1576.

The Orff Petitioners summarize their position regard-

ing ownership and appurtenance of the water rights as

follows:

The farmers equitably own the water rights

which were perfected and are preserved by their

use of the very water sold and delivered under

the 1963 contract. They do not simply enjoy an

indirect economic benefit as a result of its use.

They hold a property right in its usage which is

appurtenant to their lands.

Id.

2. Smiths in Arizona

The contrast between the Orff Petitioners and Smiths

in the Arizona cases is striking. Smiths made no efforts to

acquire appropriative rights in Colorado River water

under Arizona law and no efforts to assign any such rights

to the United States for the Central Arizona Project.

Unlike the situation in the San Luis Unit of the Central

Valley Project, the Secretary needed no state law water

rights to establish and operate the CAP. Again, unlike the

San Luis Unit, there was no need for a landowner to put

the contract water to use in order to perfect and protect a

state water right. And unlike the San Luis Unit, the

provisions of Section 8 of the 1902 Act do not have any

application to Colorado River water delivered through the

Central Arizona Project. So the bases on which the Orff

Petitioners claim appurtenant water rights simply do not

exist with regard to the Central Arizona Project.

3. California v. United States, Nevada v.

United States, Nebraska v. Wyoming,

and Ickes v. Fox

The four Supreme Court cases Petitioners cite for

their assertion of equitable ownership of appurtenant

water rights all rely on Section 8 and do not involve

Colorado River water.

a. California v. United States

In California v. United States, the dispute involved

rights to the Stanislaus River under the Central Valley

(California) Project. 438 U.S. at 645. The Bureau of Rec-

lamation, on behalf of the Project landowners, applied for

a permit to appropriate water from the California State

Water Resources Control Board. Jd. at 652. Although the

controversy in the case involved what conditions the State

Board could impose on the Bureau’s application, there was

no disagreement that Section 8 of the Reclamation Act

required the Bureau to apply for a state law prior appro-

priative right. See id.

Although one could argue that California v. United

States overturned the general holding in Arizona v. Califor-

nia with respect to the 160-acre limitation by “disavow|[ing]

the dictum” from Jvanhoe and City of Fresno,” it cannot be

said that the California v. United States Court overturned

the Arizona v. California decision regarding the suprem-

acy of Section 5 of the 1928 Act over Section 8 of the

Reclamation Act with respect to Colorado River water

delivery rights.

The California v. United States Court itself acknowl]-

edged the independent basis for the Court’s holding in

Arizona v. California:

In Arizona v. California, the States had

asked the Court to rule that state law would con-

trol in the distribution of water from the Boulder

Canyon Project, a massive multistate Reclama-

tion project on the Colorado River. After review-

ing the legislative history of the Boulder Canyon

Project Act, 43 U.S.C. § 617 et seg., the Court

concluded that because of the unique size and

multistate scope of the Project, Congress did not

intend the States to interfere with the Secre-

tarys power to determine with whom and on

what terms water contracts would be made.

* Ivanhoe Irr. Dist. v. McCracken, 357 U.S. 275 (1958); City of

Fresno v. California, 372 U.S. 627 (1963).

While the Court in rejecting the States’

claim repeated the language from Ivanhoe

and City of Fresno as to the scope of § 8,

there was no need for it to reaffirm such

language except as it related to the singular

legislative history of the Boulder Canyon

Project Act.

438 U.S. at 674 (emphasis added, citations omitted). Thus,

the California v. United States Court acknowledged that,

as to the allocation and use of Colorado River water, the

specific provisions of Section 5 of the 1928 Act controlled

over the general provisions in Section 8 of the Reclamation

Act.

Courts since California v. United States have agreed

that any criticism or limitation of Arizona v. California in

that opinion related to the scope of Section 8 in a general

sense and not to the interaction between Section 5 and

Section 8. For example, in 1980, this Court was faced with

the 160-acre limitation issue with respect to the Imperial

Valley farmers in California. Bryant v. Yellen, 447 USS.

352, reh’g denied, 448 U.S. 911 (1980). Noting the discus-

sion of Arizona v. California in California v. United States,

the Bryant court stated:

In Arizona v. California, we held that the

[1928 Act] vested in the Secretary the power to

contract for project water deliveries independent

of the direction of § 8 of the Reclamation Act to

proceed in accordance with state law and of the

admonition in § 18 of the [1928 Act] not to inter-

fere with state law. ... In terms of Reclamation

law generally, the import of the Court’s opinion

in this respect was considerably narrowed in

California v. United States, 438 U.S. 645, 98

S. Ct. 2985, 57 L.Ed.2d 1018 (1978), but the

latter case did not question the description

of the Secretary’s power under the [1928

Act] itself.

447 US. at 370-71 & n.21 (emphasis added).

The Ninth Circuit came to the same conclusion in an

appeal of a subsequent Arizona case. Long v. Salt River

Valley Water Users’ Ass’n, 820 F.2d 284 (9th Cir. 1987). In

that opinion, the court stated:

Neither section 8 of the 1902 [Reclamation]

Act nor the [1928 Act’s] general statement of in-

tent not to interfere with the states’ rights to

regulate water use within their borders, 43

U.S.C. §617q, requires the Secretary to follow

state law in allocating water among users within

a particular state. Arizona v. California, 373 U.S.

at 585-86, 83 S.Ct. at 1490. The Supreme Court

in California v. United States, 438 U.S. at 674-

75, 83 S.Ct. at 3000-01, disavowed dictum in Ari-

zona v. California, 373 U.S. at 586-87, 83 S.Ct. at

1490-91, that 1902 [Reclamation] Act § 8 did not

require the Secretary to comply with state law in

distributing project water, even when that state

law was not inconsistent with specific federal

statutory requirements. However, the California

v. United States decision “did not question the

description of the Secretary’s powers under [1928

Act] itself.” Bryant v. Yellen, 447 U.S. 352, 370 n.

21, 100 S. Ct. 2232, 2242 n. 21, 65 L.Ed.2d 184

(1980).

820 F.2d at 287 n.4 (emphasis added).

The Arizona v. California decision that Section 5 of

the 1928 Act supersedes Section 8 of the 1902 Reclamation

Act with respect to Colorado River water remains the law.

California v. United States did not address and does not

apply to Colorado River Water delivered through the

Central Arizona Project.

b. Ickes v. Fox, Nebraska v. Wyoming,

and Nevada v. United States

Ickes v. Fox established in 1937 that landowners in

the Yakima Project who put Reclamation project water to

beneficial use on their lands acquired an appurtenant

water right under state law. The decision was based on

Section 8 of the 1902 Reclamation Act. In 1945, this Court

cited Ickes with approval-in Nebraska v. Wyoming and

again held that, pursuant to Section 8 of the 1902 Recla-

mation Act, individual landowners who appropriate

Reclamation project water and put it to beneficial use

acquire an appurtenant water right. Neither Ickes nor

Nebraska was held in Arizona v. California in 1963 to be

applicable to the Colorado River.

Again in Nevada v. United States, this Court cited

Ickes and Nebraska in holding that landowners in the

Newlands Reclamation Project held appurtenant benefi-

cial interests in the water rights when the water was put

by them to beneficial use on the land. Section 8 of the 1902

Reclamation Act clearly applied te the Newlands Reclama-

tion Project. That project deals with the Truckee River and

the Carson River. It does not involve any Colorado River

water. The Nevada decision also has no application to the

delivery of Colorado River water.

B. The Allen Orchards Case

The Orff Petitioners cite Allen Orchards as the semi-

nal federal decision establishing the principle that owner-

ship of the water rights in a Reclamation project gives the

landowners third-party beneficiary status under the

project’s water service and repayment contracts. In Allen

Orchards, the Federal Circuit Court of Appeals, after

holding that the plaintiff irrigators had failed to state a

claim for relief, stated that the landowner farmers as

“owners” of the water were “intended beneficiaries of the

1945 Consent Decree.” 749 F.2d at 1576. The basis for this

statement that the farmers were owners of the water was

the decision in Fox v. Ickes, 137 F.2d 30 (D.C. Cir. 1943).

There, the court held that irrigators in the Yakima Project

in Washington owned a property right acquired by the

beneficial use of water and went on to state that “the

water-rights here are not based upon the construction or

enforcement of contracts with the government.” Jd. at 35.

The project in Allen Orchards was also the Yakima Project

in Washington - a traditional Reclamation project of the

type described on pages 1-4 of the Petitioner’s Brief on the

Merits where the provisions of Section 8 of the Reclama-

tion Act apply.

The Reclamation project at issue in the Federal Case

and the State Case, in which three of these amici are

involved, is the Central Arizona Project. The CAP is not a

traditional Reclamation project like the Yakima Project.

Because of Section 5 of the 1928 Act, Section 8 does not

apply to Colorado River water. The predicate used by the

Federal Circuit in Allen Orchards for stating that irriga-

tors are intended beneficiaries of Reclamation project

contracts does not exist with regard to Central Arizona

Project water.

C. Contractual Provisions

The Orff Petitioners cite a number of provisions in the

contracts between the Bureau and the Westlands Water

District to support their assertion of third-party benefici-

ary status. There are, however, significant differences

between the Westlands contracts and the CAP Agricul-

tural Subcontracts.

¢ The Orff Petitioners rely on Article 15 of the 1963

Westlands contract, which refers to the “right to

any water” furnished thereunder possessed by

any “tract of land or water user” in the district.

Petitioners’ Brief on the Merits, at 28. There is no

such language in the CAP Agricultural Subcon-

tracts. See Subcontract Subarticles 4.1, 4.3, 4.13,

App. 164, 179.

¢ The Orff Petitioners also point to the reference in

Article 9(c) of the Westlands contract to “those”

claiming by, “through or under” the district. Peti-

tioners’ Brief on the Merits, at 30. There is no

such reference in the CAP Agricultural Subcon-

tracts. See Subcontract Subarticle 6.7, App. 189.

¢ The Orff Petitioners assert that references in the

contracts to California law establish that the land-

owners equitably own appurtenant water rights

under the California state law doctrine of prior ap-

propriation and were, as a result, intended benefi-

ciaries under the contracts. Petitioners’ Brief on

the Merits, at 35-36. In contrast, Smiths do not eq-

uitably own appurtenant water rights under the

Arizona doctrine of prior appropriation. That doc-

trine does not apply to the Colorado River after

1928. Only through a contract with the United

States can any right to use Colorado River water

be established. Smiths have no such contract. Nor

have they ever put any Colorado River water

received by the Irrigation Districts under their

Subcontracts to any use. The only Colorado River

water the Irrigation Districts have received has

been “excess” CAP water made available under

Excess Water Contracts at a low price, not higher-

priced Subcontract water. See Exhibit A to CAIDD

Statement of Facts, Affidavit of Paul Orme, J 9,

App. 205.

IV. CONCLUSION -

In sum, the arguments presented in the Orff Petition-

ers’ Brief on the Merits are, for the most part, predicated

on their asserted ownership of appurtenant water rights

under Section 8 of the 1902 Act which makes California

law applicable. These arguments do not apply to landown-

ers receiving Colorado River water pursuant to CAP sub-

contracts. Section 8 does not apply, nor does Arizona prior

appropriation law. Whether the Orff Petitioners are or are

not third-party beneficiaries of the Westlands contracts or

the 1963 stipulated judgment, there can be no uniform rule

that landowners in all federal Reclamation projects are

always third-party beneficiaries of contracts between

irrigation districts and the United States. A separate

determination must be made in each case based on the

facts and law applicable to each individual situation.

Amici respectfully request that this Court affirm the

lower court’s decision. If, however, this Court should

decide to reverse the lower court’s decision in the Orff

case, amici request that the opinion specifically acknowl-

edge that its conclusions do not apply to the Central

Arizona Project or to Reclamation projects in which the

underlying facts and law differ from those present in Orff.

Respectfully submitted,

MARVIN S. COHEN No. 03-1566

Counsel of Record

SACKS TIERNEY P.A.

4250 North Drinkwater Blvd. In The ;

recite Supreme Court of the United States

Scottsdale, AZ 85251

(480) 425-2633 ,

Attorneys for Amici Curiae FRANCIS A. ORFF, et al.,

January 6, 2005 Petitioners,

Vv.

UNITED STATES OF AMERICA, et al.,

Respondents.

_ On Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

— APPENDIX TO AMICI CURIAE BRIEF OF

— CENTRAL ARIZONA WATER CONSERVATION

DISTRICT, MARICOPA-STANFIELD IRRIGATION

& DRAINAGE DISTRICT, CENTRAL ARIZONA

IRRIGATION AND DRAINAGE DISTRICT AND

ARIZONA DEPARTMENT OF WATER RESOURCES

IN SUPPORT OF RESPONDENTS

TABLE OF CONTENTS

Page

September 12, 2003 Opinion of Judge Carroll,

in Smith et al., v. Central Arizona Water Con-

servation District, United States District Court

for the District of Arizona, Case No. CIV-03-

Minute Entry Action, Ruling on Motions for

Summary Judgment, Smith, et al. v. Maricopa-

Stanfield Irrigation & Drainage District, et al.,

Pinal County Superior Court No. CV 2001-

00924 (November 16, 2004) 0.0.00... eeeeeeeees App. 14

. Petition for Special Action, Maricopa-Stanfield

Irrigation & District, et al., v. Robertson, in the

Supreme Court of Arizona No. CV-04-0385-5A.....,App. 21

Arizona Water Settlement Agreement (without

ee eciieanincnntecirstnccinnensceinnipiniinninnéesisinniiasiniainiiiiinns App. 60

Joint Statement of Facts, Smith, et al. v. Mari-

copa-Stanfield Irrigation & Drainage District, et

al., Pinal County Superior Court No. CV 2001-

00924 (January 2, 2002) (relevant excerpts)

ee Ge iticiictnsticinstcdeinccsiennasinenennicimecrns App. 87

Contract No. 14-06-W-245, Contract Between

the United States and the Central Arizona Wa-

ter Conservation District for Delivery of Water

and Repayment of Costs of the Central Arizona

Project, dated December 1, 1988, Exhibit 2 to

Joint Statement of Facts (Amendment No. 1 ta__

Contract No. 14-06-W-245 dated December 15,

TABLE OF CONTENTS - Continued

Page

Subcontract Among the United States, the

Central Arizona Water Conservation District,

and the Central Arizona Irrigation and Drain-

age District dated November 21, 1983, Exhibit

3 to Joint Statement of Facts................:ccceeeeeees App. 159

Central Arizona Irrigation and Drainage

District’s Statement of Facts, Smith, et al. v.

Maricopa-Stanfield Irrigation & Drainage Dis-

trict, et al., Pinal County Superior Court No. CV

2001-00924 filed December 31, 2003 (relevant

excerpts) (with Exhibit A Affidavit of Paul

I vcscnccessnaneccstenennepinicapnetibaninnnsinsinpansunidibuaiini App. 196

App. 1

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

John E. Smith and Mary Lou

Smith, husband and wife;

John E. Smith, as Trustee of

the Smith Family Trust;

Pretzer Land and Cattle

, No.

Company, an Arizona corpo-

ration, CIV 03-0505 -PHX-EHC

Plaintiffs,

Vs. (Filed Sep. 12, 2003)

Central Arizona Water

Conservation District,

)

) ORDER

)

Defendant. )

Pending before the Court are (1) Defendant’s Motion

to Dismiss [Dkt. 6]; (2) Plaintiffs’ Petition to Abstain and

Remand to State Court [Dkt. 10]; (3) Plaintiffs’ Motion to

Stay Motion to Dismiss [Dkt. 13]; (4) Plaintiffs’ Motion for

Two-Day Extension for Their Supplemental Memorandum

in Support of Their Motion to Abstain’ and Remand and

Their Supplemental Memorandum in Support of Their

Response to Motion to Dismiss by Defendant [Dkt. 34].

I. Background

Plaintiffs John E. Smith, Mary Lou Smith, and the

Smith Family Trust are landowners in Maricopa-Stanfield

Irrigation and Drainage District (“MSIDD”). Plaintiff

Pretzer Land and Cattle Company is a landowner in

Central Arizona Irrigation and Drainage District

(“CAIDD”). MSIDD and CAIDD are collectively referred to

as the “Irrigation Districts.”

App. 2

The Arizona legislature created Defendant Central

Arizona Water Conservation District (“CAWCD”) in 1971.

CAWCD was formed in relevant part to contract with the

United States to finance reimbursement of construction

and operation of Central Arizona Project (“CAP”) to the

federal government. In connection with that responsibility,

CAWCD was authorized to subcontract with the Irrigation

Districts who in turn could levy property taxes on land-

owners in their districts to subsidize its operating ex-

penses and assist CAWCD in meeting its repayment

obligations to the United States. See A.R.S. §§ 48-3701 et

seq.

In 1968, Congress passed the Colorado River Basin

Project Act (“Project Act.”) The Project Act authorized

construction of the CAP to store and deliver 2.8 million

acre-feet of Colorado River water to Arizona and western

New Mexico for irrigation as well as Municipal and Indus-

trial (“M&I”) use. See 43 U.S.C. §§ 1501, 1521.

On December 15, 1972, the United States and

CAWCD entered into a contract. (“Master Contract”),

under which the United States agreed to build CAP, and

CAWCD agreed to repay its allocable costs.’ On November

21, 1983, the Irrigation Districts executed subcontracts

(“Subcontracts”) with CAWCD and the United States.

CAWCD agreed to deliver non-Indian Agriculture (“NIA”)

priority CAP water to the Irrigation Districts in return for

payment of the Operation, Maintenance and Replacement

' The first action before this Court dealt with the repayment costs

under the Master Contract. Cent. Ariz. Water Conservation Dist. v.

United States, 32 F. Supp. 2d 117 (D. Ariz. 1998). (“Repayment litiga-

tion.”) :

App. 3

costs (“OM &R”) for the water delivered.’ Plaintiffs there-

after executed a Memorandum of Understanding (“MOU”)

with the Irrigation District they were members of The

United States and CAWCD were not parties to the MOU

and never approved the MOU.

Under the MOU, signatory landowners agreed to

execute agricultural water service contracts provided that

“the right to receive Project Water ... will form a part of

the appurtenances to the Lands; such water is a direct

benefit to the Lands and the covenants of Landowner to

pay for said water and other obligations under the Con-

tract shall run and bind said Land.” [Plaintiffs’ Response

to Motion to Dismiss, Dkt. 11, p.8]. Each MOU also pro-

vided that each signatory landowner would grant immedi-

ate possession and convey to the irrigation districts the

landowners’ wells, pumping equipment, appurtenances,

rights and privileges under the Arizona Groundwater

Management Act. ~

By 1990, CAIDD and MSIDD were unable to pay the

entire debt or pay full cost for CAP water. CAIDD filed

bankruptcy, and MSIDD restructured its debt with its

bondholders and the United States. In order to restructure

the CAP repayment scheme, CAWCD entered into a letter

agreement with Irrigation District subcontractors (includ-

ing CAIDD and MSIDD) for the water years 1994-2003.

* CAWCD asserts that under the original Subcontracts MSIDD

and CAIDD are obligated to pay the fixed OM&R costs for all CAP

water to which the districts are entitled, whether the water is ordered

or not. The Subcontracts also contained provisions regarding converting

from agricultural to M&I water use and provided contingencies for the

re-allotment of water should CAWCD be unable to deliver the Irrigation

Districts contracted allotment.

App. 4

Following the policy, the Irrigation District waived its

rights to receive agricultural water pursuant to the Sub-

contract, and its right to convert (from agricultural) to

M&I use. In exchange, CAWCD waived its right to receive

fixed OM&R payments and penalties, and sold excess CAP

water to the districts at essentially energy only cost* The

practical result of the letter agreement was to make CAP

water affordable to landowners within the districts.

The Repayment litigation was a complex dispute,

between the United States and CAWCD over the repay-

ment of the cost of constructing the CAP canal. The parties

entered into a stipulation terminating the_litigation upon

the occurrence of a number of conditions.* One of the

conditions is the relinquishment and the transfer of NIA

CAP water to the Gila River Indian Community and to the

Tohono O’odham Nation. The inducement for NIA districts

(like CAIDD and MSIDD) to permanently relinquish their

water rights under the Subcontract for some or all of the

land in their district is 9(d) debt relief; Reclamation

Reform Act exemption, and excess CAP water delivered to

them by CAWCD at essentially energy only rates through

the year 2030 (for the land which the Subcontract rights

are relinquished). As to the land for which there is no

relinquishment, the Subcontract rights and obligations

would remain in effect.

* The United States was not a party to the letter agreements and

challenged the validity of them in the Repayment litigation.

* Defendants and Interveners allege that if Plaintiffs are successful

in preventing MSIDD from relinquishing the Subcontracts, the

settlement package of the Repayment litigation will fail because one of

the conditions of the settlement package (that 197,500 acre feet of CAP

water be available to the United States to deliver to Indian tribes) will

not be possible.

App. 5

Plaintiffs filed suit in Pinal County Superior Court in

March 2003 seeking declaratory relief under Arizona’s

Uniform Declaratory Judgments Act’ See A.R.S. §§ 12-

1831 et seq. Plaintiffs’ claim relied upon alleged vested

property rights to Reclamation water based on the Federal

Reclamation Act of 1902, the Boulder Canyon Project Act,

(“Boulder Canyon Project”), and all amendatory and

supplementary Acts. See. e.g, 43 U.S.C. § 372 et seq., 43

U.S.C. §617 et seg. Defendant asserts this Court has

original jurisdiction pursuant to 28 U.S.C. § 1331 and

removed pursuant to 28 U.S.C. § 1441.

Plaintiffs contend a justiciable controversy exists

because Plaintiffs have vested property rights in Arizona’s

Colorado River entitlement by reason of the CAP Subcon-

tracts. Plaintiffs further assert CAWCD cannot interfere

with Plaintiffs’ rights to receive CAP water, and that

CAWCD is obligated to deliver CAP water to MSIDD or

CAIDD for the Plaintiffs’ benefit. Plaintiffs allege they are

third-party beneficiaries to the Subcontract and thus have

standing. Defendant asserts Plaintiffs fail to state a claim

upon which relief can be granted because there is neither

a direct contractual relationship between Defendant and

Plaintiffs, nor are Plaintiffs intended beneficiaries to

either the Subcontracts or the Master Contract. Fed. R.

Civ. Pro. 12(b)(6). Alternatively, Defendant moves to

dismiss because Plaintiffs failed to join the United States,

an indispensable party. Fed. R. Civ. Pro. I 2(b)(7), 19.

* In March of 2003 Plaintiffs filed a separate suit in Pinal County,

Superior Court against CAIDD and MSIDD seeking to prevent the

districts from relinquishing the Subcontracts, which they allege created

legally and equitably vested appurtenant rights of Plaintiffs to receive

NIA priority CAP water. The case is currently pending.

App. 6

II. Analysis

Plaintiffs fail to cite any controlling authority for the

proposition that the court should stay the Motion to

Dismiss pending the resolution of the Motion to Abstain or

Remand. Thus, the Court will address both the Motion to

Dismiss and the Motion to Remand.

A. Remand 7

“An action filed in state court may be removed only if the

district court could have exercised jurisdiction over the

action if originally filed there,” Duncan v. Stuetzle, 76 F.3d

1480, 1485 (9th Cir. 1996) (citing Caterpillar Inc. v. Wil-

liams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429 (1987)).

“The district courts shall have original jurisdiction of all

civil actions arising under the Constitution, laws, or

treaties of the United States.” 28 U.S.C. § 1331. Plaintiffs

base their claims of vested property rights to Colorado

River reclamation water on § 8 of the Reclamation Act of

1902° and support this claim with references to Congres-

sional intent from the Boulder Canyon Project Act, 43

U.S.C. § 617 et. seg., and the Colorado River Basin Project

Act, 43 U.S.C. § 1501 et seg. The only question of state law

Plaintiffs assert is their entitlement to a declaratory

judgment of their rights under contracts to which they are

not parties. The contracts in question (the Master Con-

tract and the Subcontracts) are based on federal Reclama-

tion law and the United States is a party to both contracts.

* “The right to the use of water acquired under the provisions of

this Act shall be appurtenant to the land irrigated, and beneficial use

shall be the basis, the measure, and the limit of the right.” 43 U.S.C.

§ 372.

App. 7

A declaration of Plaintiff’s rights under these contracts

involves interpretation of a contract “arising under”

federal Reclamation law, and thus is a federal question.

Additionally, Plaintiffs argue this case should be

remanded because “the legislative history of the heclama-

tion Act of 1902 makes it abundantly clear that Congress

intended to defer to the substance, as well as the form, of

state water law.” California v. United States, 438 U.S, 645,

675, 98 S.Ct. 2985, 3001 (1978). The legislative history of

the Reclamation reiterates this sentiment but also con-

templates that only the Federal government can build the

“reservoirs and main line canals” necessary to reclaim the

arid desert tands for settlement and that “the cost of

constructions so far as possible (should) be repaid by the

land reclaimed.” Jd. (citing HR., Doc, No. 1 (1901)). The

federal government has not been fully repaid for the cost

of construction of the CAP canal by the Irrigation Districts

or the benefitted landowners. The subcontracts entered

into by CAIDD and MSIDD attempt to repay the cost of

construction, and Plaintiffs’ suit undermines their efforts

to do so. Nothing within the text of the Reclamation Act of

1902, subsequent Reclamation acts, or any Arizona or

federal case law decisions supports the idea that Plaintiffs

should be entitled to reclamation water without paying the

cost of the project that made the water attainable. Because

Plaintiffs seek a declaration of their rights under a con-

tract to which the United States was a party, state law is

not controlling. Plaintiffs fail to cite any exceptional

circumstances that would make remand appropriate.

App. 8

B. Abstention

In the alternative to remanding; Plaintiffs ask this

Court to stay this action pending resolution of proceedings

in state court. Plaintiffs argue “wise judicial administra-

tion ... counsels that decision of the federal question be

deferred until the potentially controlling state-law issue is

authoritatively put to rest.” United Gas Pipe Line Co. v.

Ideal Cement Co., 369 U.S. 134, 135-36, 82 S.Ct 676, 677

(1962) (citing Leitner Minerals Inc. v. United States, 352

U.S. 220, 228-29, 77 S.Ct 287, 292 (1957)). United Gas

involved the interpretation of an Alabama state License

Code and the intent of the Alabama State legislature in

enacting the Code. Leitner involved the interpretation of a

Louisiana statute. As the present case involves neither

interpretation of a state statute, nor a federal constitu-

tional issue which can be deferred pending a state court

decision, abstention under United Gas or Leitner is not

warranted.

Plaintiffs also call for an abstention under the Colo-

rado River doctrine, when “federal review of the question

in a case and in similar cases would be disruptive of state™

efforts to establish a coherent policy with respect to a

matter of substantial policy concern.” Kern-Tulare Water

Dist. v. City of Bakersfield, 828 F.2d 514, 516 (9th Cir.

1987). “The circumstances permitting the dismissal of a

federal suit due to the presence of a concurrent state

proceeding for reasons of wise judicial administration are

considerably more limited that the circumstances appro-

priate for abstention.” Colorado River Water Conservation

Dist v. United States, 424 U.S.-800, 818, 96 S.Ct. 1236,

1246 (1976). Plaintiffs urge an “inquiry into the scope of

the pending state court proceeding” maybe necessary

before a district court removes a case from state court.

_ App. 9

Brillhardt v. Excess Ins. Co. of America, 316 U.S. 491, 495,

62 S.Ct. 1173, 1176 (1942). The proceedings in state court

involve a contractual dispute between Plaintiffs and the

respective irrigation districts, MSIDD or CAIDD, in which

they are members. Plaintiffs filed separate lawsuits

against the irrigations districts and CAWCD in Pinal

County Superior Court.

In this case, Plaintiffs seek a declaration of their property

rights under the Master Contact, based on federal Recla-

mation laws between the United States and CAWCD, and

the Subcontracts, also based on federal Reclamation law,

between the United States, CAWCD and either MSIDD or

CAIDD. “Federal law governs the interpretation of con-

tracts entered into pursuant to federal law where the

government is a party.” O’Neill v. United States, 50 F.3d

677, 682 (9th Cir. 1995) (citing Kennewick Irrigation Dist.

v. United States, 880 F.2d 1018, 1032 (9th Cir. 1989)).

“Federal courts have a ‘virtually unflagging obligation’ to

exercise the jurisdiction conferred on them ... a district

could nonetheless abstain from the assumption of jurisdic-

tion over a suit in ‘exceptional’ circumstances.” Wilton v.

Seven Falls Co., 515 U.S. 277, 284 115 S.Ct 2137, 2141

(1995) (citing Colorado River, 424, U.S. at 813, 818-820, 96

S.Ct. 1236, 1246-1248 (1976)).’

——

"In Wilton, the Court stated several circumstances that would

support a*finding of exceptional circumstances, including “the absence

of any proceedings in the District Court...and the prior participation of

the Federal Government in related state proceedings.” Jd. at 284, 115

S.Ct at 2141. The interpretation of the Master Contract and Subcon-

tracts, where CAWCD, the irrigation districts and the United States

were parties or interveners, has already been the subject of a lengthy

proceeding in this Court.

App. 10

“Several factors must be considered in deciding whether

the exceptional circumstances are present that make it

proper to apply Colorado River abstention. These factors

are: (1) which court first assumed jurisdiction over the

property in dispute; (2) the inconvenience of the federal

forum; (3) the desirability of avoiding piecemeal litigation;

and (4) the order in which jurisdiction was obtained.”

American Intern. Underwriters (Philippines), Inc. v.

Continental Ins. Co., 843 F.2d 1253, 1257 (9th Cir. 1988)

(citing Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246-

47), While the state court first assumed jurisdiction, the

federal forum is not inconvenient because counsel for both

Plaintiffs and Defendant reside in Maricopa county.

Moreover, no danger of piecemeal litigation exists as

Plaintiffs themselves filed two separate lawsuits. An

abstention under Colorado River would be inappropriate.

C. Motion to Dismiss

CAWCD seeks dismissal of this action for failure to

state a claim and failure to join an indispensable party.

CAWCD argues Plaintiffs fail to state a claim for declara-

tory relief because they are neither parties nor third party

beneficiaries to the federal contracts at issues. Alterna-

tively, CAWCD seeks dismissal because Plaintiff’s have

failed to join the United States an indispensable party.

Because this Court concludes Plaintiffs have failed to state

a claim, it need not reach the alternative basis for dis-

missal.

Plaintiffs argue that under Arizona law they are

entitled to seek a declaratory judgment, even if they are

not parties to the contract in question, A.R.S. §§ 12-1831 et

seq.; See Foster v. Thunderbird Irrigation Water Delivery

App. 11

District of Pinal County, 125 Ariz. 324, 609 P.2d 594 (App.

1980), Trico Electric Cooperative Inc. v. Ralson, 67 Ariz.

358, 196 P.2d 470 (1948). “A plaintiff, however, in order to

be entitled to relief; must have a legal, protectible interest

... his pleading must present a state of facts showing he

has a present legal right against the defendant” Riley v.

Cochise County, 455 P.2d 1005, 1009 (Ariz. App. 1969).

“When the defendant has no power to affect the plaintiff’s

right, no controversy is present.” Jd. at 1010. In Foster, the

defendant was in violation of a specific statute regarding

the installation of water meters, which the defendant had

the ability to control. In Trico, the court held that users of

water and electric energy supplied by a public utility may

question the validity of a contract affecting such utility

service under the Arizona Declaratory Judgment Act.*

Here, Defendant is not disturbing the delivery of water;

Plaintiffs are seeking a declaration of their vested prop-

erty rights under a contact to which Defendant is merely a

party. Defendant has no power to affect Plaintiffs’ alleged

rights.

In order to entitle Plaintiffs to a declaration of their

rights under the Arizona Declaratory Judgment Act,

A.R.S. §§ 12-1831 et seg., a legal relationship in which

Plaintiffs have a definite interest must exist. Morris v.

Fleming, 625 P.2d 334, 336, 128 Ariz. 271, 273 (Ariz. App.

1980). Plaintiffs argue they are intended beneficiaries of

the Master Contract and Subcontract because they have

the equivalent interest of present perfected rights (PPR’s)

* In Trico, Plaintiffs alleged, and the court agreed, that Defendant

Trico Elec. Corp. had entered into an option agreement (which affected

utility service) that was outside the powers conferred on the corporation

by its charter.

App. 12

to Colorado River water. “The Supreme Court has defined

PPR’s as those rights to water from the Colorado River

system existing as of June 25, 1929.” Mohave Valley

Irrigation & Drainage Dist. v. Norton, 244 F.3d 1164, 1165

(9th Cir. 2001); see also Arizona v. California 373 U.S. 340,

341, 83 S.Ct. 755, 756 (1964). Plaintiffs proffer no argu-

ment as to why their rights are legally analogous to PPR’s.

The CAP canal, which enables water to be delivered to

Plaintiffs, was not authorized until 1968.

“To sue as a third-party beneficiary of a contract, the

third party must show that the contract reflects the

express or implied intention of the parties to the contract

to benefit the third party.” Klamath Water Users Protective

Ass’n v. Patterson, 204 F.3d 1206, 1211 (9th Cir. 2001).

“Parties that benefit from a government contract are

generally assumed to be incidental beneficiaries, and may

not enforce the contract absent a clear intent to the con-

trary.” Id. (citing Restatement (Second) of Contracts § 313

(2)). “Government contracts often benefit the public, but

individual members of the public are treated as incidental

beneficiaries unless a different intention is manifested.”

Restatement § 313 cmt. a. “An incidental beneficiary

acquires ... no right against the promisor or the promise.”

Id. § 315.

Plaintiffs have failed to show they are more than

incidental beneficiaries of either the Master Contract or

the Subcontracts.

Accordingly,

IT IS ORDERED that Plaintiffs’ Motion to Stay

Defendant’s Motion to Dismiss [Dkt. 13] is DENIED.

App. 13

IT IS FURTHER ORDERED that Plaintiffs’ Motion

to Abstain and Remand [Dkt 10-1, 10-2] is DENIED.

IT IS FURTHER ORDERED that Defendant’s

motion to Dismiss [Dkt. 6] is GRANTED, and this action

is hereby dismissed.

IT IS FURTHER ORDERED that Plaintiffs’ Motion

for Two-Day Extension for Their Supplemental Memoran-

dum in Support of Their Motion to Abstain and Remand

and Their Supplemental Memorandum in Support of Their

Response to Motion to Dismiss by Defendant [Dkt. 34] is

GRANTED.

IT IS FURTHER ORDERED that the Motion of

Marathon Farming Investments L.L.C. and Maricopa

Stanfield Landowners Association Members to Intervene

is DENIED as moot. [Dkt. 20].

IT IS FURTHER ORDERED that the Clerk enter

judgment in favor of Defendants and that Plaintiffs take

nothing by this action.

DATED this 11th day of September, 2003,

/s/ Earl H. Carroll

Earl H. Carroll

United States District Judge

App. 14

IN THE SUPERIOR COURT

PINAL COUNTY, STATE OF ARIZONA

DATE: 11/08/2004

Filed in Court

Record

Date Filed: 11/16/2004

Time Filed: 10:21 AM

HON KRISTI YOUTSEY RUIZ,

KELLY MARIE ROBERTSON CLERK

Division: 3 By

Court Reporter: NONE BARBARA J. NICLOY

Deputy Clerk.

JOHN E SMITH, et al., )CV200100924

Plaintiff(s), MINUTE ENTRY

ACTION:

pe ) RULING ON

-STANFIELD

aes SM MIN AGE ) MOTION(S)/ISSUE(S)

DISTRICT, et al., ‘

Defendant(s). )

PRESENT:

The Court having considered the arguments and the

motions of the parties as well as the differing views of the

law clerks, does FIND for the plaintiffs on the requests

made prior to oral argument in early August of 2004. The

Court notes there are new pending matters and this

finding does not address those concerns. While the issue is

complex and plaintiffs’ counsel will be allowed to submit

proposed findings of facts and conclusions of law not

inconsistent with this minute entry, the Court makes the

App. 15

following simplified observations in holding for the plain-

tiff:

PLAINTIFFS’ MOTION FOR SUMMARY JUDGEMENT

The Plaintiffs move for Summary Judgment on two

counts. Count One is a complaint for Special Action. The

Plaintiff landowners ask the Superior Court of the State of

Arizona (the Court) to issue an order prohibiting Mari-

copa-Stanfield Irrigation and Drainage District (MSIDD)

and Central Arizona Irrigation and Drainage District

(CAIDD) from entering into negotiations for a new con-

tract with the Central Arizona Water Conservation Dis-

trict (CAWCD). Count Two is a request for Declaratory

Judgment. The landowners also ask the Court to issue an

order enforcing the existing contracts between the

CAWCD, MSIDD and CAIDD, as well as the contracts

between the individual landowners and MSIDD and

CAIDD (the Districts).

STATEMENT OF FACTS

There are five contracts that relate to the parties of this

case. First, the master contracts are repayment contracts

between the United States and the CAWCD for the costs

of diverting water through the Central Arizona Project

(CAP) canals and its features. Second, in the subcontracts,

CAWCD and the United States entered into individual

contracts with various Arizona entities for the delivery of

CAP water. The districts, MSIDD and CAIDD, were

organized to deliver water, including CAP water, to

individual landowners. Third, the Districts entered into

memoranda of understanding (MOUs) with the individual

landowners. Fourth, following the MOUs, the individual

App. 16

landowners, including the plaintiffs, entered into service

contracts with the Districts. Prior to the service contracts,

the plaintiffs’ lands were certified by the State of Arizona

as land qualifying for Irrigation Grandfathered Rights.

Finally, interim contracts were created on ten year terms

when the Districts and the landowners realized the costs

of the service contracts were too expensive.

FINDINGS AND AUTHORITIES

PLAINTIFFS ARE ENTITLED TO RELIEF, BECAUSE

THEY ARE AFFECTED BY THE VALIDATED SUB-

CONTRACTS

A. CAP Water is Acquired Under the Provisions of

The Reclamation Act of 1902.

If CAP water is “water acquired under the provi-

sions of this Act,” then the right to CAP water

runs appurtenant to the land. 43 U.S.C. § 8, The

Court in Arizona v. California, 573 U.S. 546

(1963), interpreted the Boulder Canyon Project

Act, which allocates 2.8 million acre-feet of Colo-

rado River water to Arizona, as a supplement to

the Reclamation Act. The Boulder Canyon Project

Act authorizes the Secretary of the Interior to al-

locate and store Colorado River water subject to

the provisions of the reclamation law. Id. at 584.

The Boulder Canyon Project Act does not provide

alternatives to the appurtenant rights

at issue. 43 U.S.C. §617. The Colorado River

Basin Project Act followed in 1968. 43 U.S.C.

§ 1524(b\(1). This act authorized CAP construc-

tion, authorized the Secretary of the Interior to al-

locate water to central Arizona, and authorized

subcontracts. Id. The preamble to the subcon-

tracts refers to the Reclamation Act. Therefore,

App. 17

the CAP water that reaches the plaintiffs is “water

acquired under the provisions” of the Reclamation

Act and the rights run appurtenant to the land.

B. Application

The service contracts, that are secondary to the

subcontracts, were created between the districts

and the plaintiffs. The contracts allow the dis-

tricts to use water from the landowners’ grand-

fathered groundwater and irrigation wells. The

service contracts also specify that the landowners

are entitled to receive CAP water as well as

ground water. Because the CAP water is ac-

quired under the provisions of the Reclamation

Act and the plaintiffs entered into these service

contracts, they are contractually vested with the

right to convert one acre-foot of NIA CAP water

for M & I purposes if the water is not required

for irrigation. As stated above, the rights vested

in the individual landowners are attached to the

land. 43 U.S.C. § 8. If the districts enter into new

subcontracts, modify the existing subcontracts,

or relinquish the existing subcontracts, the Dis-

tricts will infringe upon the plaintiffs’ rights to

convert CAP water for M & I purposes, as well as

making the land unsuitable for commercial agri-

culture, thus decreasing the value of the land.

SINCE CAP WATER IS ATTACHED TO THE LAND,

THEN CAWCD, MSIDD, AND CAIDD CANNOT

CHANGE THE VESTED CONTRACTURAL RIGHTS OF

THE PLAINTIFFS WITHOUT THEIR CONSENT.

C. Arizona Law Applies to the Validation Proceed-

ings and the Subcontracts.

State law applies to the design, construction

and completion of the Reclamation projects. The

App. 18

Reclamation Act creates property rights in the

landowners who receive the project water; there-

fore, because property law is vested in state

courts, the water rights laws of the state apply.

California v. United States, 438 U.S. 645, 677

(1978). The landowners made payments and

complied with obligations of the service con-

tracts, so they are vested with a right to perpet-

ual use of the CAP water that is appurtenant to

their land. Ickes v. Fox, 300 U.S. 82, 94 (1937).

The United States Supreme Court in Ickes also

found that state law applies. Jd. The Supreme

Court held that “the appropriations under state

law were made to the individual landowners

pursuant to the procedure which Congress pro-

vided in the Reclamation Act ... [and] we are

dealing here only with an allocation, through the

States, of water rights among appropriators.”

Nebraska v. Wyoming, 325 U.S. 589, 615 (1975).

a. Arizona Declaratory Statutes are Liberally

Construed

“Under the declaratory judgment act a justi-

ciable controversy exists if there is ‘an asser-

tion of a right, status or legal relation

in which the plaintiff has a definite interest

and a denial of it by the opposing party.”

McMann v. City of Tucson, 202 Ariz. 468,

474, 47 P.3d 672, 678 (2002). Arizona’s De-

claratory Judgment Act is to be liberally con-

strued and administered. Podol v. Jacobs, 65

Ariz. 50, 54, 173 P.2d 758, 761 (1946). In

Trico Electric Cooperative, Inc. v. Ralston, 67

Ariz. 358, 366, 196 P.2d 470, 474 (1948), the

plaintiffs were granted the right to “question

... the validity of the contract (to which they

were not a party) affecting such utility ser-

vice, determined by a declaration of the

App. 19

rights, status and legal relations there-

under.” The Trico case was determined by a

declaration of rights under the subcontracts

affecting the plaintiffs water service. Jd.

Plaintiffs are Third Party Beneficiaries to

the Validated Subcontracts.

Sole beneficiary status is not necessary for

the plaintiff landowners to be determined

third party beneficiaries. Nahom v. Blue

Cross & Blue Shield of Arizona, Inc., 180

Ariz. 548, 552, 885 P.2d 1113, 1117 (1994).

The plaintiffs are the intended beneficiaries

of the subcontracts between the Districts

and CAWCD, because the subcontracts were

created to provide means for distribution of

CAP water to agricultural landowners, a

class in which the plaintiffs fit. “Irrigation

districts are organized for the direct private

benefit of their landowners and taxpayers.

As such, they [the landowners] are required

to help pay for the irrigation system and are

entitled to a proportionate share of the wa-

ter for irrigation of their lands ....” Post v.

Wright, 37 Ariz. 105, 117, 289 P. 979, 983

(1930). The court in Estate of Jennifer A.

Bell v. American Motorist Insurance Co., 181

Ariz. 124, 126, 888 P.2d 1311, 1313 (1995),

determined that the plaintiffs’ situations

cannot be changed without their consent.

The court in Estate of Bell looked to the Re-

statement (Second) of Contracts § 311 (1979)

and ruled that two parties cannot modify

the agreement at the expense of a third be-

cause the plaintiffs have materially changed

their position and relied on the subcon-

tracts. Id. The plaintiffs have materially

changed their position by paying taxes

App. 20

toward CAP’s expenses as well as giving up

their grandfathered water usage rights.

Therefore, the plaintiffs are entitled to a

declaration of rights under the subcontracts.

CONCLUSION

The rights vested in the plaintiffs run appurtenant to their

land; therefore, the Districts have no authority to modify

or create new contracts that will affect those rights with-

out the plaintiffs’ consent. The Court grants Summary

Judgment in favor of the Plaintiffs.

Mailed/distributed copy: 11/17/2004

cc:

J GORDON COOK

ROBERT R BERK

MARVIN S COHEN

M BYRON LEWIS

DONALD M PETERS

DANIEL L MUCHOW

GRAHAM M CLARK

MARK S BOSWELL

STEPHEN P SHADLE

DAVID A FITZGIBBONS

DAVID L DECKER

ROGER C DECKER

PAUL A RELICH

DANIEL P STRUCK

LOUIS W BARASSI

GARY A WOLF

LAW OFFICES OF GARY WOLF

504 S STONE AVENUE

TUCSON AZ 85701

App. 21

IN THE SUPREME COURT OF

THE STATE OF ARIZONA

MARICOPA-STANFIELD

IRRIGATION & DRAINAGE

DISTRICT, an Arizona municipal

corporation; CENTRAL ARIZONA

IRRIGATION AND DRAINAGE

DISTRICT, an Arizona municipal

corporation; and approximately

two hundred landowners,

Petitioners,

Vv.

THE HONORABLE KELLY

MARIE ROBERTSON, Judge

of the Pinal County Superior

Court, Respondent,

and

JOHN E. SMITH, et al.,

Respondents-Real Parties

in Interest.

No.

Pinal County Superior

Court

No. CV 2001-00924

PETITION FOR SPECIAL ACTION

Donald M. Peters, 005929

Susan A. Cannata, 013787

MILLER LaSOTA & PETERS, PLC

5225 North Central, Suite 235

Phoenix, AZ 85012

Telephone: (602) 248-2900

Attorneys for Maricopa-Stanfield

Irrigation & Drainage District

App. 22

Richard N. Morrison, 005269

M. Byron Lewis, 002047

Mark A. McGinnis, 013958

SALMON, LEWIS & WELDON, PLL.C.

2850 East Camelback Road, Suite 200

Phoenix, Arizona 85016

Telephone: (602) 801-9060

Attorneys for Central Arizona

Irrigation and Drainage District

Marvin S. Cohen, 000923

SACKS TIERNEY P.A.

4250 North Drinkwater Blvd.

Suite 400

Scottsdale, Arizona 85251

Telephone: (480) 425-2633

Attorneys for Approximately

Two Hundred Landowners

TABLE OF CONTENTS

Re ee

SSE NE FAL ITD TAO

Ny OE IE eicecncremiseesscissssncasnnestaseninnmsencen

Argument

This Court Should Accept Jurisdiction of This

Special Action — Petitioners Do Not Have An

Adequate Remedy By Appeal.....................:06+.

The Trial Court Erred in Ruling That Plain-

tiffs Are Intended Beneficiaries of the Sub-

SII «100 sisins aden esaeemeeasaaimaianinenicaaenenth

A. The Trial Court Should Not Have

Reached the Merits of Plaintiffs’ Third-

Party Beneficiary Claim .....................00068

IIT.

App. 23

1. Plaintiffs Are Collaterally Estopped

From Making a Third-Party Benefici-

Se cnacisicdeui ceceniesdinstnetentiiit tle ing

2. Indispensable Parties Were Not

Joined in the Trial Court ....................

B. Federal Law Establishes that Plaintiffs

Are Not Intended Third-Party Benefici-

C. Even if Arizona Law Applied to the Is-

sue, Plaintiffs Would Not Be Intended

Third-Party Beneficiaries ........................

EERE R ARR NIe Ai RuMewit me MEO leer

The Trial Court Erred in Finding that the

Rights to Water Under the Districts’ CAP

Subcontracts Were Appurtenant to Plaintiffs’

Land and that Plaintiffs Had Individualized

Rights Under those Subcontracts...................

A. Post-1928 Rights to Water from Reclama-

tion Projects on the Lower Colorado River

Can Only Be Acquired by Contract............

B. Section 8 of the 1902 Reclamation Act

Does Not Apply to This Case....................

C. Plaintiffs Have No Individual Rights to

I i

i eee

EBERLE LAIN TEETER LN A RAOL OLE EOE ARTE

App. 24

TABLE OF AUTHORITIES

Cases

Page(s)

Arizona v. California, 373 U.S. 546 (1963)..............0. 35-38

Basurto v. Utah Construction & Mining Co., 15

Ariz.App. 35, 485 P.2d 859 (App. 1971)..........:.csceeeeees 31

Berberich v. United States, 5 Cl. Ct. 652 (1984),

aff'd, 770 F.2d 179 (Fed. Cir. 1985)..........:cccceseeeeereeeees 31

Bledsoe v. Goodfarb, 170 Ariz. 256, 823 P.2d 1264

(1991), appeal after remand, 179 Ariz. 469, 880

P.2d 689 (1994), review denied, (Sept. 20, 1994)............. 7

Bryant v. Yellen, 447 U.S. 352, reh’g denied, 448

EE, GRE CIID cctenteccsnceccccsmnesccncsncsatiscnsnsenanesncncenssecnsinntn 38

California v. United States, 438 U.S. 645 (1987)......... 37-

City of Phoenix v. Superior Court (Kleven Constr.),

184 Ariz. 435, 909 P.2d 502 (App. 1995), corrected

Clough v. Wing, 2 Ariz. 371, 17 P. 453 (1888) ..............00

Coburn v. City of Dyersburg, 774 S.W.2d 610 (Tenn.

App. 1989)............ccccccccscsrsccoscsrcrsscscrssssrscssseesssssssssossooes

Green v. Superior Court, 132 Ariz. 468, 647 P.2d

I, CD ecsesicccsneteninssschontasnsnsninennianiemnemnnintansiannncumainn

Hawkins v. Risley, 984 F.2d 321 (9th Cir. 1993)...............

Kennewick Irr. Dist v. United States, 880 F.2d 1018

Ee: TI... siichianncsintiienmiigeinenibamniininetaiinniniebonis

Klan th Water Users Protective Ass’n v. Patterson,

2( 1 F.3d 1206 (9th Cir. 1999), cert. denied, 531

Sirens STITT... snidepeesieminateiibateneiannadecntianedentiie

Long v. Salt River Water Users’ Ass’n, 820 F.2d 284

Cs Cie FIG Picccecceccncccececastcntencesetassinanntiininisnsetnansensenssans

App. 25

Orff v. United States, 358 F.3d 1137 (9th Cir.), cert

granted, 125 S. Ct. 309, 73 USLW 3228, 73

EF ERIN netre emer eRe IEE 28

Post v. Wright, 37 Ariz. 105, 117, 289 P. 979 (1930).......... 30

Robi v. Five Platters, Inc., 838 F.2d 318 (9th Cir.

FEISS TEATS We RON DOO OTT TI aD DUT 25

San Carlos Apache Tribe v. Superior Court, 193

Ariz. 195, 972 P.2d 179 (1999)...............cccccccccocoscecssscceee 39

Siler v. Superior Court, 83 Ariz. 49, 316 P2d 296

Re RST eee een OT ee ae 26

State ex rel. Dept. of Economic Sec. v. Powers, 184

Ariz. 235 908 P.2d 49 (App. 1995) uo. .cccccccccceeeeeceeeeeee 24

Travelers Indemnity Co. v. Household Int'l Inc., 775

A Ca, ics rnstccseccccnesnccenaccnnceconees 27

Western Water Service Sys. v. Superior Court, 120

Ariz. 90, 584 P.2d 554 (1978)................ccccccccssssccssssssscevees 8

Federal Statutes

Arizona Water Settlements Act, P. L. 108-451......... 1 et seq.

Te a a Le ey 34

LEA A eR 35, 38

State Statutes and Constitutional Provisions

Arizona Constitution, Article 6, § 5(4) .....ccccccccccsceeseeeeeees 1

gt |S SS io a ae ee 40

InN an TUITE olinrhilacincicaricdathuiticsnieiiestsinterhceiheiiinismememniiitiidiessliataies 39

I 4

LS TESTER ena ae IC TT 10

Eo ec ee a eae 10

App. 26

Other Authorities

Beli: DR BD... ciisssconssvliteninanintsdsininnnereatensiieennenaniins 26

Federal Practice and Procedure § 4433 (1981) .............06+ 25

Restatement (Second) of Contracts, § 313 ............:.sseeeeeeees 31

Restatement (Second) of Contracts, §§ 304 and 311,

JURISDICTIONAL STATEMENT

This is a petition for special action arising out of a

grant by the Pinal County Superior Court of a motion for

partial summary judgment in a civil action. This Court

has jurisdiction over this matter pursuant to Article 6,

§ 5(4) of the Arizona Constitution. The decision vi Respon-

dent Judge Robertson would enjoin two irrigation districts

from relinquishing Central Arizona Project (“CAP”) sub-

contract water without the consent of every landowner.

Unless the decision is overturned, it will not be possible to

implement the important and historic water settlements

embodied in the Arizona Water Settlements Act. That Act

was passed by Congress on November 17, 2004, and signed

by the President on December 10, 2004. [App. 1.]

The Arizona Water Settlements Act

The benefits to Arizona of these settlements include,

among others:

The two irrigation districts directly at issue in this special action

are Petitioners Maricopa-Stanfield Irrigation & Drainage District

(“MSIDD”) and the Central Arizona Irrigation and Drainage District

(“CAIDD”). MSIDD and CAIDD are referred to herein collectively as

“the Districts.”

App. 27

¢ Settlement of claims of the Gila River Indian

Community filed in the Gila Adjudication to more

than two million acre-feet of water that have for

more than twenty years been a cloud on the water

rights of users in and residents of the Salt and

Gila River valleys and on the groundwater use

rights of the Districts [App. 1, Title IT];’

* Settlement of claims of the Tohono O’odham Na-

tion filed in 1976 in federal court, which sought to

enjoin the pumping of groundwater in the entire

Tucson area [App. 1, Title III];

¢ Settlement of a long-standing dispute over Ari-

zona’s obligation to repay costs of the construction

of the CAP and a reduction of Arizona’s obliga-

tions by $650 million [App. 1, Title I];

¢ Allocation to CAP Municipal and Industrial sub-

contractors of an additional 65,000 acre-feet of

CAP water and extension of the term of their sub-

contracts from 50 years to 100 years [App. I, Title

I);

¢ Decrease in the cost of CAP water for farmers in

the Districts from $76 per acre-foot to $28 per

acre-foot for a cumulative thirty-year benefit of

over $80 million for each District [App. 14, J 28];

¢ Forgiveness of approximately $130 million of Dis-

trict debt to the United States, and relief to the

farmers from restrictive limitations on CAP water

* See In re General Adjudication of All Rights to Use Water in the

Gila River System and Source, Maricopa County Superior Court, Nos.

W-1 through W-4 (“Gila Adjudication”). An acre-foot equals 325,851

gallons of water. The two million acre-feet claimed by the Gila River

Indian Community is more than the entire normal flow of the Gila and

Salt Rivers. [App. 53]

App. 28

use under various federal statutes. [App. 14, 7 29;

App. 2, Exhibit 7.2]

The settlement package embodied in the Arizona Water

Settlements Act will be referred to herein as “the Settlement.”

The Settlement has been characterized by Senator John

McCain as being “of vital importance to Arizona’s produc-

tive future.” [App. 4, at 1.] Senator Jon Kyl has stated that

the Settlement “could ultimately be nearly as important to

Arizona’s futvre as was the authorization of the Central

Arizona Projec itself.” [App. 5, at A18.] See also App. 6-8.

The Importance of Agricultural CAP Water to the

Settlement

The cornerstone of the Settlement is the voluntary

relinquishment by agricultural CAP subcontractors of

subcontract allocations of CAP water that will be used by

the United States to settle Indian water claims. Since

completion of the CAP in 1993, none of the irrigation

districts with CAP subcontracts has been able to purchase

Agricultural subcontract water because it was prohibi-

tively expensive. [App. 14, {7 16-18.]

The CAP is administered by a three-county entity

known as the Central Arizona Water Conservation

District (““CAWCD”). See A.R.S. §§ 48-3701 to -3783.

CAWCD responded to the irrigation districts’ inability to

afford water at the subcontract rate by making excess

CAP water available to the districts at affordable prices

for ten years. [App. 14, 4 19-21.) In 2002, in order to

obtain CAP water for the Secretary of the Interior (“Sec-

retary”) to implement the Settlement, CAWCD offered a

package of benefits to each district in exchange for

relinquishment of its subcontract water rights. [App. 14,

App. 29

{1 24-30.) Both of the Districts held elections to deter-

mine whether landowners favored relinquishing the

Districts’ rights to subcontract water in return for the

various benefits that were offered. A majority of votes in

both Districts favored the proposed relinquishment. [App.

14, J 32; App. 17, J 5.)

This CAWCD proposal and the program for implemen-

tation of the Settlement are contained in the Arizona

Water Settlement Agreement (“Settlement Agreement”)’

among CAWCD, the Arizona Department of Water Re-

sources, and the United States, acting through the Secre-

tary. [App. 2.] The Arizona Water Settlements Act

authorized and directed the Secretary to execute the

Settlement Agreement on behalf of the United States. The

Settlement Agreement provides for the Secretary to use

197,500 acre-feet of Agricultural Subcontract water for

reallocation to the Gila River Indian Community, the

Tohono O’odham Nation, and other Indian tribes in set-

tlement of pending water rights claims. [App. 1,

§ 104(a)(1)(A); App. 2, 199.2, 13.2.] If Agricultural subcon-

tractors do not relinquish sufficient CAP water to enable

the Secretary to make such reallocations, the Settlement

Agreement and all of the settlements embodied in the

Arizona Water Settlements Act will fail. [App. 1, 2.]

The Civil Action in the Trial Court

The civil action which is the subject of this petition

was filed in 2001 in the Final, County Superior Court

by some dissident landowners (cullectively, “Plaintiffs”).

. The Arizona Water Settlement Agreement is defined in § 2(32) of

the Arizona Water Settlements Act as the “Master Agreement.”

App. 30

Plaintiffs sought to prevent the Districts from relinquish-

ing any of the CAP Subcontract water in which Plaintiffs

claimed appurtenant ownership interests. [App. 10.) Of

the 293,795 acre-feet of Agricultural CAP water poten-

tially available to the Secretary for the Settlement, up to

180,000 acre-feet were to be relinquished by the Districts.

[App. 2, 15.1.4.] If the two Districts are not able to relin-

quish this water, the Secretary will not receive the 197,500

acre-feet required to implement the settlement. [Jd.]

In December, 2003, Plaintiffs moved for partial

summary judgment. [App. 11.] The Districts and defen-

dant landowners filed cross-motions for summary judg-

ment. [App. 13, 15, 16.] After extensive briefing, the court

heard argument on August 6, 2004. [App. 11-48.) On

November 16, 2004, the trial court issued its minute entry

ruling granting summary judgment to Plaintiffs. A copy of

that minute entry is attached to this Petition as Exhibit A.

The court held that the rights to Colorado River water

under the CAP subcontracts are appurtenant to Plaintiffs’

land and that rights under each of the CAP Subcontracts

are contractually vested in the landowners and enforce-

able by them. The trial court also held that the landown-

ers are intended third-party beneficiaries of the CAP

subcontracts and that a District cannot modify the subcon-

tract in any way that will affect a landowner’s appurte-

nant rights without that landowner’s consent.

This Petition for Special Action

Petitioners seek a special action in the Supreme Court

- of Arizona because the trial court’s ruling is an urgent

matter of state-wide importance and great public interest.

There are no factual issues; an appeal would not provide

App. 31

an adequate remedy; the trial court’s ruling contradicts a

ruling by the United States District Court for the District

of Arizona in a case involving the same Subcontracts and

some of the same parties; and final resolution in a prompt

manner is required.

If the lower court’s decision is not overturned soon,

Arizona and CAWCD will not be able to implement and

complete the Settlement before the time limits set in the

Act. See Section I of the Argument, infra.

Petitioners seek relief in this Court rather than the

Court of Appeals because of the urgent need for speedy

and final resolution of this matter of state-wide impor-

tance. Petitioners recognize that the acceptance of special

action jurisdiction is highly discretionary. In a number of

cases involving matters of state-wide significance where

an appeal would not provide adequate or speedy relief, this

Court has accepted jurisdiction.

In Bledsoe v. Goodfarb, 170 Ariz. 256, 823 P2d 1264

(1991), appeal after remand, 179 Ariz. 469, 880 P.2d 689

(1994), review denied (Sept. 20, 1994), this Court accepted

special action jurisdiction to review a grant of partial

summary judgment that concerned the doctrine protecting

owners and operators of irrigation canals from liability

because it raised issues of state-wide significance. The

issues raised in the present case concerning the historic

settlements embodied in the Act are at least as important

as the protection of owners and operators of irrigation

canals from liability.

In accepting special action jurisdiction in Western

Water Service Sys. v. Superior Court, 120 Ariz. 90, 91, 584

P.2d 554, 555 (1978), to review a superior court grant of

App. 32

partial summary judgment that declared a statutory triple

damage provision unconstitutional, this Court stated:

This Court has the power to issue writs of review

pursuant to the Constitution, Article 6, § 5, sub-

sec. 4. It will accept jurisdiction and grant relief

by way of special action if the issues raised are of

sufficient importance to justify the review re-

quested. ... Jurisdiction was accepted here be-

cause we concluded that the trial court’s granting

of a motion for partial summary judgment is

without precedent or support in the law and can-

not be justified.

Here, the trial court’s granting of the motion for partial

summary judgment was without precedent or support in

law and cannot be justified. In addition, if the ruling is not

promptly overturned, water settlements of historic impor-

tance to the State of Arizona will fail.

This Court, rather than the Court of Appeals, is the

appropriate forum for the resolution of the issues raised by

this Petition. The decision of Respondent Judge Robertson

would enjoin the Districts from relinquishing their CAP

subcontracts without the consent of every landowner in

each District. A decision by Division Two of the Court of

Appeals in a special action challenging Judge Robertson's

ruling, although of precedential value, might not have

binding effect in Division One. Many of the other irriga-

tion districts that have already relinquished their CAP

subcontracts as part of the Settlement are in Maricopa

County, to-wit: Chandler Heights Citrus Irrigation Dis-

trict, Queen Creek Irrigation District, San Tan Irrigation

District, and Tonopah Irrigation District [App. 2, { 5.1.4.]

Having learned of Judge Robertson’s ruling in this litiga-

tion, a landowner in any of these districts could assert in

App. 33

the Maricopa County Superior Court the same claims

made by Plaintiffs here. On review of the decision in that

case, Division One of the Court of Appeals would not be

bound by the decision of Division Two.

Furthermore, this Court has previously recognized the

need for direct interlocutory review to this Court in important

water matters. In 1989, this Court adopted a Special

Procedural Order for Interlocutory Appeals and Certifica-

tions from the Gila Adjudication. [App. 51.] In that order,

the Court noted that “[elarly appellate review may avoid

wasteful trial court proceedings, may result in substantial

savings of time or expense, or may for other reasons be in

the interests of justice.” Id. at 7. In 1991, the Court

adopted a subsequent Special Procedural Order for Ap-

proval of Federal Water Rights Settlements, Including

Those of Indian Tribes. [App. 52.] That order provides that

decisions on approval of Indian water rights settlements

are subject to immediate interlocutory review by this

Court. Id. § D(7), at 8. Although those orders are not

strictly applicable to this Petition because it does not arise

directly from the Gila Adjudication, the considerations

supporting those orders weigh heavily in favor of this

Court accepting this Petition, particularly in light of the

fact that the trial court ruling at issue in this Petition

effectively obliterates water rights settlements for two

major Indian tribes that took decades to achieve.

The Arizona Legislature has also recognized the

importance of finality in matters involving CAP contracts.

A.R.S. § 48-3734 provides that review of an action to

validate a CAP contract shall be by special action directly

to this Court. In essence, Plaintiffs’ lawsuit was a pre-

emption of the contract validation process established

in A.R.S. § 48-3731 et seg. With the completion and

App. 34

implementation of the Settlement at stake, it is of the

utmost importance that the issues raised in this Petition

be resolved speedily and finally.

STATEMENT OF THE ISSUES

The central issue in this case is whether irrigation

districts must obtain the express individual consent of

each landowner in the district to modify agreements that

specify the terms by which the districts receive water from

the Central Arizona Project. The resolution of that issue

turns on two subsidiary issues: (1) whether individual

landowners are intended third-party beneficiaries of the

Subcontracts pursuant to which irrigation districts receive

water from the Central Arizona Project; and (2) whether,

by virtue of applicable water law, individual landowners

have acyuired vested rights, appurtenant to the land, to

receive water pursuant to those Subcontracts.

SUMMARY OF ARGUMENT

The trial court rendered summary judgment that

individual landowners within the Districts have legal and

contractual rights to receive water from the CAP under a

CAP Agricultural subcontract. The trial court ruled that

the Districts cannot, without the express individual

consent of each landowner, modify the terms of the sub-

contracts pursuant to which the Districts are entitled to

receive CAP water.

The trial court’s ruling that each landowner is an

intended third-party beneficiary of subcontracts among

the Districts, the Secretary, and CAWCD was barred by

collateral estoppel and the absence of indispensable

App. 35

parties. That ruling is also demonstrably incorrect as a

matter of law. The trial court’s ruling that the right to CAP

water is vested in the landowners by operation of law rests

on a fundamental misunderstanding as to the law that has

governed the allocation of water from the Lower Colorado

River for decades.

STATEMENT OF FACTS

The Parties

Two of the Petitioners in this matter, MSIDD and

CAIDD, are irrigation districts in Pinal County. The

remaining Petitioners consist of approximately two hun-

dred landowners (“Landowners”) within those Districts

who were parties defendant in the trial court proceedings.

The Landowners supported the positions taken by the

Districts in the trial court. The Landowners are more

specifically identified in Exhibit B.

The Respondents-Real Parties in Interest consist of

landowners within the Districts who were plaintiffs in the

trial court (“Plaintiffs”). The Respondents-Real Parties in

Interest are more specifically identified in Exhibit C.

* Soon after oral argument on the motions, each of the Plaintiffs

with CAP-eligible land within CAIDD sold its land. [App. 49.E.] Thus,

as of this time, there are no Plaintiffs who own land within CAIDD that

is eligible to receive CAP irrigation water, regardless of the outcome of

this dispute. In MSIDD, a number of the Plaintiffs have also sold their

land but some Plaintiffs from that District still have standing to assert

the claims that have been raised in this matter. [App. 50.]

App. 36

Background

In 1972, CAWCD and the Secretary entered into a

Master Repayment Contract for the delivery of Colorado

River water through the CAP and for the repayment of the

allocable costs of the Project. [App. 9, Exhibits 1, 2.] In

1983, pursuant to the Master Repayment Contract, the

Districts each entered into a long-term subcontract regard-

ing CAP water with the Secretary and CAWCD. [App. 9,

Exhibits 3, 4.] The agreements that allocate the water to

the Districts and that govern the terms of its purchase are

generally referred to as the Subcontracts. The landowners

within the Districts were not parties to the Subcontracts.

The central fact about the Subcontracts, which have a

term until 2043, is that the farmers in the Districts have

never been able to afford to buy water at the price set by

those agreements. In 1994, CAP infrastructure and water

costs caused CAIDD to file for municipal bankruptcy

protection. [App. 14, 7 18.] Because Subcontract water has

never been affordable, neither District has ever received a

drop of CAP water pursuant to its Subcontract. [App. 14,

{ 28; App. 29, at 2.]

The Subcontracts contain a formula for determining

the price that the Districts must pay for CAP water

delivered under the Subcontracts. [App. 9, Exhibits 3, 4.]

In 1993, when construction of the CAP was completed, the

Districts advised CAWCD that they could not afford to pay

the price dictated by the contractual formula for the water.

[App. 14, 44 16-18.] The Districts and CAWCD dealt with

the problem by entering into ten-year letter agreements

that allowed the Districts to purchase “excess” water at

affordable rates. [App. 14, {9 19-23.] Those agreements

have now expired.

App. 37

The Settlement Agreement provides the opportunity

for the Districts to relinquish the Subcontract rights that

they have never been able to afford to exercise in return

for substantial benefits. The Settlement Agreement

contemplates that the United States will acquire the

agricultural Subcontract allocation that MSIDD, CAIDD,

and other irrigation districts have agreed to relinquish.

[App. 2, 4 9.2.) The first 197,500 acre-feet of water avail-

able for reallocation will be reallocated as follows:

¢ 102,000 acre-feet to the Gila River Indian Commu-

nity

e 28,200 acre-feet to the Tohono O’odham Nation

¢ 67,300 acre-feet to be retained by the Secretary to

be reallocated in future Arizona Indian water set-

tlements.

(Id.] The remaining 96,295 acre-feet of relinquished water

will be allocated to the Arizona Department of Water

Resources in trust for future reallocation to Arizona non-

Indian municipal and industrial water users.

In return for agreeing to relinquish their Subcontract

rights, the Districts would obtain a number of significant

concessions and benefits, MSIDD would be relieved from

approximately $70 million in debt related to the construc-

tion of its facilities. [App. 2, Exhibit 7.2.] CAIDD would be

relieved from approximately $60 million of similar debt.

(Id.; App. 14, { 29.] Both Districts wov'd enter into new

agreements with CAWCD that would enable them to

purchase low-cost excess CAP water until 2030. [App. 14,

{ 27.) The present value of this reduction in the cost of

CAP water is approximately $80 million for each District.

Potential and pending claims against the Districts by Indian

tribes for groundwater depletion would be resolved. [App. 14,

App. 38

q 30.) The Districts would also be relieved of obligations

under the Reclamation Reform Act. [App. 14, { 30.)

The Subcontract rights that the Districts have agreed

to relinquish are essentia! to the Settlement. The Settle-

ment Agreement provides that the United States may

terminate the Settlement if the water available for reallo-

cation is less than 197,500 acre-feet. [App. 2, J 13.2.] If the

trial court’s order stands and MSIDD and CAIDD cannot

relinquish their allocations, the water available for reallo-

cation will constitute less than the required 197,500 acre-

feet. [App. 2, at table 5.1.4; id., subparagraph 5.2.3.)

As they did in entering into the Subcontracts in 1983,

both Districts held landowner elections regarding the

proposed relinquishment of Agricultural CAP Subcontract

allocations pursuant to A.R.S. §§ 48-2977 and -2978. [App.

14, J 32; App. 17, 9 5.] The vote in both Districts showed

that the owners of a majority of the land voting favored

the relinquishment. [App. 14, 9 32; App. 17, 75.) The

elected board of each District approved the proposed

relinquishment agreements. [App. 14, | 35; App. 17, J 7.]

This lawsuit had already been filed. The relinquishment

agreements signed by both Districts were conditioned on

the final outcome of this case. [App. 14, J 26; App. 17, J 7.]

A few landowners in each District opposed the Settle-

ment. With the consent of the Secretary and CAWCD, both

Districts gave landowners the option of acquiring by

assignment an individual right to purchase water accord-

ing to the terms of the Subcontracts. [App. 29, at 2.) This

otion required the assignee landowner to pay the full

Subcontract price for the assigned Subcontract water. [Jd.]

Only one of the Plaintiffs in CAIDD made a request for

such an assignment. That request was untimely. [/d.] Only

App. 39

two landowners in MSIDD, neither of which is a Plaintiff,

chose to accept the offer of an assignment. [/d.] To date, no

Subcontract has as yet been executed by either putative

assignee.

The Legal Proceedings

Approximately 41 of the dissident landowners brought

the legal action in 2001 in Pinal County Superior Court.

[App. 10.] Plaintiffs requested special-action and declara-

tory relief to prohibit the Districts from relinquishing the

Districts’ Subcontract rights. [Jd.]. They argued that the

proposed relinquishment of rights under the Subcontracts

would infringe on their individual water rights. [Jd.]

This case was initially stayed because of uncertainty

as to whether the Gila River Indian Community water

settlement would go forward. [App. 55.] The stay was

lifted in early 2003. [App. 56.] At that time, the trial court

ruled that the landowners within the Districts were

indispensable parties to this action and ordered them

joined. [App. 56.] Most were. The majority of the landown-

ers who were joined took no active role in the action. About

two hundred twenty landowners, most of whom are

Petitioners here, took an active role, opposing the claims

by Plaintiffs and supporting the position of the Districts.

[App. 15, 26, 33, 35.]

Subsequently in March 2003, Plaintiffs sued CAWCD

in state court. CAWCD removed the action to federal

district court. [App. 29, Exhibit 1.] As in their case against

the Districts, Plaintiffs alleged in the federal case that the

proposed relinquishment of rights under the Subcontracts

by the Districts would infringe on rights to that water

which they enjoyed individually. [Jd.] In November 2003,

App. 40

Judge Earl Carroll dismissed Plaintiffs’ action for-failure

to state a claim upon which relief could be granted. [/d.]

Judge Carroll held that, because Plaintiffs were not

parties to the Subcontracts and were not intended third-

party beneficiaries of those agreements, they could not

obtain relief against CAWCD concerning the proposed

modification of the Subcontracts. (Jd. at 4, 9-10.]

In late 2003, Plaintiffs filed a motion for partial

summary judgment in the present case. [App. 11.] Shortly

thereafter, the Districts and Landowners filed cross-

motions for summary judgment. [App. 13, 15, 16.] After

extensive briefing and oral argument, Judge Robertson

granted Plaintiffs summary judgment on November 16,

2004. [Ex. A.] Judge Robertson held, contrary to long-

established law relating to the Colorado River, that Plain-

tiffs had acquired vested rights to Subcontract water by

operation of law. [/d.] In addition, contrary to what Judge

Carroll had ruled, the trial court held that Plaintiffs were

intended third-party beneficiaries of the Subcontracts and

that their consent was required before those agreements

could be modified. [/d.]

ARGUMENT

I. THIS COURT SHOULD ACCEPT JURISDIC-

TION OF THIS SPECIAL ACTION - PETI-

TIONERS DO NOT HAVE AN ADEQUATE

REMEDY BY APPEAL. 7

This case involves issues of law that are of state-wide

importance. The importance of these issues was fully

explained in the Jurisdictional Statement and will not be

repeated here. The inadequacy of the remedy by appeal

App. 41

was not explained in the Jurisdictional Statement and is

the subject of this portion of the Argument.

There is a serious risk that an appeal would not

provide relief from the trial court’s ruling in time to

salvage the Settlement. The stakes are too high for that

risk to be taken.

Petitioners cannot appeal until there is a final judg-

ment in the trial court. That may be two to three months

away. An appeal to Division Two of the Court of Appeals

might consume an additional twelve to eighteen months. A

petition for review by either party might mean that the

appeal from the trial court’s order would not be completed

for over two and a half years.

At that point, this case might or might not be over.

Both sides to this dispute appear to believe that this case

is suitable for resolution by summary judgment. If an

appellate court were to disagree and decide that a trial as

to some issue is necessary, a complete resolution might be

years away.

The Arizona Water Settlements Act establishes a firm

deadline of December 31, 2007, for satisfaction of a num-

ber of prerequisites to implementation of the Settlement.

[App. 1, § 207(c)(2).] If that deadline is not met, federal

authorization for the Settlement will expire. The allotted

time might appear to be ample. It will not be if the neces-

sary steps are delayed by the appeal of this case. The

prerequisites to completion of the Settlement are numer-

ous, complicated, interrelated and fragile. _

(1) The Arizona Legislature must pass legislation to

establish certain programs for protecting groundwater

under the Gila River Indian Reservation and under the

App. 42

Tohono O’odham Reservation. [App. 1, § 207(c)(1)(I).] The

Legislature must also enact legislation to implement a

groundwater protection program in the Upper Gila River

basin. [/d.]

The Legislature has many demands on its attention.

It must establish priorities. The trial court in this case has

declared that a necessary component of the Settlement —

i.e., the relinquishment of the Districts’ CAP Subcontracts

— is illegal. As long as the cloud of the lower court’s ruling

remains, it could be difficult to get the Legislature to enact

legislation to implement a settlement that a Pinal County

Superior Court Judge has pronounced dead.

(2) After the Legislature passes the required legisla-

tion, whenever that might be, the final dismissal of several

court cases pending in federal district court in Tucson

must be ordered. [App. 1, § 302(b).] Those eases cannot be

dismissed until notification to class members has been

provided. The federal court in Tucson cannot proceed with

class notification of the proposed dismissal of those actions

while the trial court’s ruling stands and the viability of the

Settlement remains in question. ;

(3) The settlement of claims by the Gila River Indian

Community and the Tohono O’odham Nation must be

submitted to the Gila Adjudication Court and approved.

[App. 1, § 207(c)(1)(G).] It is estimated that it may take as

much as a year to obtain approval after the applications

are filed. Unforeseen complications or disputes could delay

the completion of that step even further. If application for

approval of the settlements was made while the trial

court’s ruling remains in effect, the existence of that ruling

would become an issue in the Adjudication proceeding and

App. 43

inhibit the Adjudication Court’s review of the two Indian

water claims settlements.

(4) Each District must initiate and complete valida-

tion proceedings in Pinal County Superior Court, in which

all interested parties will have an opportunity to challenge

the legality of the agreements to relinquish water. See

generally A.R.S. §§ 48-3731 to 48-3734. As long as Judge

Robertson’s ruling stands, such proceedings cannot be

meaningfully conducted. Plaintiffs would presumably

contend that the illegality of the proposed agreements is

res judicata by virtue of Judge Robertson’s ruling. The

Districts therefore would not be able to address any other

legal objections that interested parties might have until

the issues raised in this case are resolved. In addition,

pursuant to section 29.5.2 of the Gila River Indian Com-

munity’s Water Rights Settlement Agreement, this specific

case must be resolved in the Districts’ favor before their

obligations under the Settlement are enforceable. [App. 3,

§ 29.5.2.]

An appeal might resv't in a final ruling in 2006, 2007

or even later. That ruling might or might not fully resolve

the controversy. Several complicated steps must be taken

between the time this controversy is fully resolved and the

end of 2007. Arizona cannot afford to run the risk that the

Settlement will fail because of court delays.

An appeal would not provide the timely relief required

here. Petitioners have no “equally plain, speedy and

adequate remedy by appeal.” ARPSA 1. City of Phoenix v.

Superior Court (Kleven Constr.), 184 Ariz. 435, 436, 909

P.2d 502, 503 (App. 1995), corrected (1996); Green v.

Superior Court, 132 Ariz. 468, 470, 647 P2d 166, 168

(1982).

App. 44

II. THE TRIAL COURT ERRED IN RULING THAT

THE PLAINTIFF LANDOWNERS WERE IN-

TENDED BENEFICIARIES OF THE SUBCON-

TRACTS.

The trial court concluded on the basis of Arizona law

that Plaintiffs were intended third-party beneficiaries of

the Subcontracts. [Ex. A at 4.] The trial court further held

that, because Plaintiffs were third-party beneficiaries, the

Districts could not modify the Subcontracts without

Plaintiffs’ consent. |Jd.] This decision was erroneous.

A. The Trial Court Should Not Have Reached the

Merits of Plaintiffs’ Third-Party Beneficiary Claim

For two reasons, the trial court should not have

reached the merits of the third-party beneficiary issue.

One reason is that Plaintiffs were collaterally estopped

from making that argument. The second reason is that all

of the parties to the Subcontracts were indispensable with

regard to that claim. Two of the parties to the Subcon-

tracts had not been joined.

1. Plaintiffs Are Collaterally Estopped From

Making a Third-Party Beneficiary Claim.

Plaintiffs had previously sued CAWCD over the same

issues that Plaintiffs raised in this case. Judge Carroll of

the United States District Court held in September 2003

that Plaintiffs were not third-party beneficiaries of the

Subcontracts and dismissed their complaint. [App. 29,

Exhibit 1.]

Collateral estoppel or issue préclusion is applicable

when (1) the issue or fact to be litigated was actually

litigated in a previous suit; (2) final judgment was entered;

App. 45

(3) the party against whom the doctrine is to be invoked

had a full opportunity to litigate the matter and actually

did litigate it; and (4) the resolution of the issue was

essential to the prior judgment. State ex rel. Dept. of

Economic Sec. v. Powers, 184 Ariz. 235, 237, 908 P.2d 49,

51 (App. 1995). Judge Carroll’s opinion itself establishes

that all of these requirements were satisfied in this in-

stance. [App. 29, Exhibit 1.]

Plaintiffs contended that collateral estoppel did not

apply because they were appealing Judge Carroll’s deci-

sion to the Ninth Circuit. The pendency of Plaintiffs’

appeal, however, did not suspend the collateral estoppel

effect of Judge Carroll’s ruling. Federal law controls when

the preclusive effects of a federal judgment are asserted in

a state proceeding. See C. Wright, A. Miller & E. Cooper,

Federal Practice and Procedure § 4433, at 310 (1981).

Under federal law, the pendency of an appeal does not

suspend the issue-preclusion effect of a judgment. Robi v.

Five Platters, Inc., 838 F.2d 318, 327 (9th Cir. 1988);

Hawkins v. Risley, 984 F.2d 321, 324 (9th Cir. 1993).

Although the issue of collateral estoppel was briefed

and argued, the trial court made no mention of it when

issuing a ruling that was directly at odds with the prior

ruling of the federal district court. [Ex. A at 4.]

2. indispensable Parties Were Not Joined in

the Trial Court.

All of the parties to the Subcontract were indispensa-

ble parties with regard to Plaintiffs’ third-party benefici-

ary claim. Two of the three parties to each Subcontract —

i.e., the United States and CAWCD - were not joined in

the trial court.

App. 46

A motion that raised this defect in parties was pend-

ing when the trial court granted summary judgment. That

motion has still not been formally decided by the trial

court. The court’s decision to rule on the merits without

addressing the defect in parties, however, constituted an

implicit denial of the motion. The fact that there has been

no formal ruling on this issue by the trial court does not

preclude this Court from addressing the issue. The ab-

sence of indispensable parties may be raised for the first

time on appeal. Siler v. Superior Court, 83 Ariz. 49, 54, 316

P.2d 296, 300 (1957).

Third-party beneficiary rights are contract rights. See

9 Corbin on Contracts § 779J (Interim ed. 2002). The trial

court’s conclusion that Plaintiffs are intended beneficiaries

of the Subcontracts means that individual landowners can

enforce the Subcontracts directly against the United

States and CAWCD. See Restatement (Second) of Con-

tracts § 304. It means that individual landowners can veto

changes to the Subcontracts under certain circumstances.

Id. § 311, comment g. By allowing a non-party to the

Subcontract to prohibit contract modifications, the trial

court effectively impeded the ability of all three contract-

ing parties to modify their agreement by consent. The trial

court’s ruling therefore impaired the interests of the

absentees. See Ariz. R. Civ. P. 19(a).

Because the trial court rendered a ruling that was

contrary to the prior federal court ruling, the parties to the

Subcontracts are now subject to inconsistent adjudications

concerning the rights and obligations that arise under

their agreements. That fact provides a separate basis for

concluding that the United States and CAWCD are neces-

sary parties. Jd.

App. 47

“[A] contracting party is the paradigm of an indispen-

sable party.” Travelers Indemnity Co. v. Household Int'l,

Inc., 775 F. Supp. 518, 527 (D. Conn. 1991). The trial court

erred in deciding contractual rights and obligations when

two of the three parties to the contracts at issue were not

present to defend their interests.

B. Federal Law Establishes that Plaintiffs Are

Not Intended Third-Party Beneficiaries.

Yet another problem with the trial court’s ruling was

that the trial court applied the wrong body of substantive

law to the issue. The United States is a party to the

Subcontracts. Federal law determines whether someone is

a third-party beneficiary of a contract to which the United

States is a party, Klamath Water Users Protective Ass’n v.

Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999), cert. denied,

531 U.S. 812 (2000); see also Kennewick Irr. Dist. v. United

States, 880 F.2d 1018, 1032 (9th Cir. 1989) (federal law

controls the interpretation of a contract entered into

pursuant to federal law when United States is a party).

The federal district court had properly applied federal law

when it concluded that Plaintiffs were not intended

beneficiaries of the Subcontracts. [App. 29, Exhibit 1.] The

trial court, without addressing the choice-of-law issue,

applied Arizona law to the third-party beneficiary analy-

sis. [Ex. A at 4.]

Under the federal law that should have been applied,

Plaintiffs were not third-party beneficiaries of the Subcon-

tracts. Parties that benefit from a government contract are

generally assumed to be incidental beneficiaries unless the

contract evidences a clear intent to the contrary. Klamath,

204 F.3d at 1211 (holding that water users were not

intended beneficiaries of a reclamation contract); accord

App. 48

Orff v. United States, 358 F.3d 1137, 1145-47 (9th Cir.),

cert. granted, 125 S. Ct. 309, 73 USLW 3228, 73 USLW

3235 (2004).°

The thirty-six-page Subcontracts between the Dis-

tricts, the United States, and CAIDD are almost entirely

silent about the landowners. Nothing in the Subcontracts

expressly or implicitly indicates that the landowners

within the Districts were to have intended-beneficiary

status.

Plaintiffs argued that section 4.3(i) of the Subcontract,

commonly known as the “conversion” provision, shows that

landowners were intended to have enforceable rights.

[App. 11; App. 20; App. 29, at 19-21; App. 47.] Agricultural

CAP water is cheaper than municipal and industrial water

and, by law, agricultural water can only be provided to

eligible users. [See App. 9, Exhibit 3, § 4.3(i); App. 9,

Exhibit 4, § 4.3(i).] Section 4.3(i) provides that if the use of

particular land were to change from agricultural to mu-

nicipal and industrial (e.g., subdivisions), that land would

remain eligible to receive CAP water but a new agreement,

with higher water rates and involving other parties, would

be required. The conversion provision ensured that ineli-

gible lands would not receive agricultural water and that

* Certiorari was granted in Orff to resolve an apparent conflict

between Orff and the decision in H. F. Allen Orchards v. United States,

749 F.2d 1571 (Fed. Cir. 1984), cert. denied, 474 U.S. 818 (1985), which

held that certain landowners were third-party beneficiaries of a water

contract. H. F. Allen is distinguishable from the present case because it

was agreed in H.F. Allen that the landowners owned the water rights

governed by the contract. In any event, the test used in Orff to deter-

mine third-party beneficiary status accords with the Restatement view,

as discussed hereafter, and it is unlikely that the Supreme Court will

articulate a materially different test.

App. 49

the Districts would not pay low agricultural rates to serve

what were in fact municipal and industrial water users.

Section 4.3(i) never mentions landowners. The land-

owner is given no role in the conversion of water from

agricultural to municipal and industrial purposes. The fact

that landowners could, as a practical matter, trigger

certain consequences under the Subcontracts by retiring

their land from fanning does not mean that they had

rights under those agreements. The conversion provision

does not come close to reflecting a “clear intent” to “grant

[the landowners] enforceable rights” as required by federal

law. Klamath, 204 F.3d at 1211.

C. Even if Arizona Law Applied to the Issue,

Plaintiffs Would Not Be Intended Third-Party

Beneficiaries.

Incorrectly applying Arizona law, the trial court based

its third-party beneficiary holding on two premises. One

was that “the subcontracts were created to provide means

for distribution of CAP water to agricultural landowners, a

class in which the plaintiffs fit.” [Ex. A at 4.] Although the

purposes of the various parties to the Subcontract were

more varied and complex than such a statement indicates,

the statement was substantially correct.

The trial court then cited a decision by this Court that

observed that

irrigation districts are organized for the direct

private benefit of their landowners and taxpay-

ers. As such, they are required to help pay for the

irrigation system and are entitled to a propor-

tionate share of the water for irrigation of their

App. 50

lands, as also any profits accruing from the op-

eration of the system.

Post v. Wright, 37 Ariz. 105, 117, 289 P. 979, 983 (1930),

quoted in Ex. A at 4. Based on the overall purpose of the

Subcontracts and the language from Post v. Wright, the

trial court concluded that Plaintiffs were intended benefi-

ciaries and that the agreements could not be modified

without their consent.

Neither Post v. Wright nor any other Arizona decision

has established such an impractical test for third-party

beneficiary status. The statement in Post v. Wright that

landowners are entitled to a proportionate share of water

speaks to the relationship between an irrigation district

and its landowners. That case did not say or imply that

each individual landowner in an irrigation district has the

right to veto modifications of contracts between the irriga-

tion district and third parties.

Petitioners are not aware of any Arizona decisions

that address the test for determining whether someone is

a third-party beneficiary of a government contract. Cf.

Basurto v. Utah Construction & Mining Co., 15 Ariz.App.

35, 485 P.2d 859, 863 (App. 1971) (identifying general test

for third-party beneficiary status). The Restatement view

is that, although government contracts often benefit the

public, individual members of the public are treated as

incidental beneficiaries unless a different intention is

manifested. Restatement (Second) of Contracts § 313,

comment a; see also id., illustration B. Only when such a

contract manifests a clear intent to grant individual

citizens enforceable rights can a citizen claim to be an

intended third-party beneficiary. See Berberich v. United

States, 5 Cl. Ct. 652, 656 (1984), aff’d, 770 F.2d 179 (Fed.

App. 51

Cir. 1985); Coburn v. City of Dyersburg, 774 S.W.2d 610,

612 (Tenn. App. 1989).

The trial court’s contrary holding would apparently

give rise to a rule that, whenever a contract with a public

entity is ultimately for the sake of the public entity’s

constituents, those constituents are intended beneficiaries.

That rule would make the citizenry intended beneficiaries

of most governmental contracts. That would mean that

each citizen could sue to enforce such contracts and that,

at least in some cases, each citizen could block any pro-

posed changes to such contracts. See Restatement (Second)

of Contracts §§ 304 and 311, comment g. The patent

unworkability of such a rule explains why no court ap-

pears ever to have adopted it, except for the trial court in

this case.

D. Summary

In a case involving the very same Plaintiffs and the

very same issues, a federal court had already held that

Plaintiffs.were not intended beneficiaries of the Subcon-

tracts. The trial court nonetheless revisited and accepted

an argument that Plaintiffs were collaterally estopped

from making. The trial court ignored the absence of

indispensable parties. It applied the wrong substantive

law. It then reached the wrong result pursuant to a ra-

tionale which, if generally applied, would significantly

impair governmental operations. If the trial court’s ruling

stands, the parties to the Subcontracts will be subject to

flatly contradictory and irreconcilable adjudications

concerning the rights and obligations created by those

agreements. That ruling should not stand.

App. 52

Ill. THE TRIAL COURT ERRED IN FINDING THAT

RIGHTS TO WATER UNDER THE DISTRICTS’

CAP SUBCONTRACTS WERE APPURTENANT

TO PLAINTIFFS’ LAND AND THAT PLAIN-

TIFFS HAD INDIVIDUALIZED RIGHTS IN

THOSE SUBCONTRACTS.

As an alternate basis for granting summary judgment,

the trial court found that Plaintiffs had acquired individ-

ual rights to Subcontract water by operation of law. The

trial court held that the Districts’ CAP Subcontracts were

appurtenant to the land within the Districts and that

Plaintiffs therefore had individualized rights to a pro rata

portion of the Subcontract rights. [Ex. A at 1-3.] For these

reasons, the trial court concluded that the Districts could

not modify the Subcontracts without each landowner’s

consent [J/d.]

The trial court applied the wrong law to this issue and

reached an entirely incorrect result. The state law that

governs the acquisition of water rights in connection with

many Reclamation projects does not apply to post-1928

rights in projects involving water from the Lower Colorado

River, including the CAP. Federal law controls the acquisi-

tion of such rights. Such rights can be acquired only

through a contract with the Secretary. Plaintiffs have no

such contract, and they have no individual rights to the

water.

A. Post-1928 Rights to Wate; from Reclamation

Projects on the Lower Colorado River Can Only

Be Acquired by Contract.

Many Reclamation projects in the United States are

governed by rules that were established in the 1902

Federal Reclamation Act, 43 U.S.C. § 383. Section 8 of that

App. 53

Act, upon which the trial court incorrectly relied in its

ruling, provides that the Reclamcation Act is not to be

construed as affecting or interfering with state laws

“relating to the control, appropriation, use, or distribution

of water used in irrigation.” 43 U.S.C. § 383, cited in Ex. A

at 2. The acquisition of water rights in connection with

many Reclamation projects is therefore governed by state

law.

In 1928, however, Congress enacted legislation that

provided a different rule for the Lower Colorado River. The

Boulder Canyon Project Act of 1928 allocated rights to the

Colorado River among the three Lower Basin states

(California, Arizona, and Nevada). The same act gave the

Secretary of the Interior exclusive control over allocating

Lower Colorado River water among the individual states

and among various entities within those states. Section 5

of the act made it clear that rights to water from Reclama-

tion projects on the Colorado River could be acquired only

pursuant to a contract with the Secretary:

The Secretary of the Interior is hereby author-

ized, under such general regulations as he may

prescribe, to contract for the storage of water in

said reservoir and for the delivery thereof at such

points on the river and on said canal as may be

agreed upon, for irrigation and domestic uses. . . .

No person shall have or be entitled to have the use

for any purpose of the water stored as aforesaid

except by contract made as herein stated.

43 U.S.C. § 617d (emphasis added)

The United States Supreme Court acknowledged that

post-1928 rights to Lower Colorado River water could be

acquired only by a contract with the Secretary in Arizona

v. California, 373 U.S. 546 (1963). The Court discussed the

App. 54 App. 55

Id. at 580-81 (emphasis added). The Court also observed

that if Congress had intended that the Secretary’s power

to allocate water contractually would be subject to state-

law water rights, it would have said so. It did not.

Secretary's broad authority to allocate Colorado River

water between individual entities in the affected states by

entering into water delivery contracts with those entities.

The Court noted that Congress had intentionally main-

tained federal control over the allocation of such water:

Having undertaken this beneficial project, Con-

gress, in several provisions of the [1928] Act,

made it clear that no one should use mainstream

[Colorado River] waters save in strict compliance

with the scheme set up by the Act. Section 5 au-

thorized the Secretary [of the Interior] “under

such general regulations as he may prescribe, to

contract for the storage of water in said reservoir

and for the delivery thereof at such points on the

river * * * as may be agreed upon, for irrigation

and domestic uses * * * .” To emphasize that wa-

ter could be obtained from the Secretary alone,

§ 5 further declared, “No person shall have or be

entitled to have the use for any purpose of the

water stored as aforesaid except by contract

made as herein stated.”

Significantly, no phrase or provision indicating

that the Secretary's contract power was to be

controlled by the law of prior appropriation was

substituted either then or at any time before

passage of the Act, and we are persuaded that

had Congress intended so to fetter the Secre-

tary’s discretion, it would have done so in clear

and unequivocal terms, as it did in recognizing

“present perfected rights” [i.e., those rights ac-

quired prior to passage of the 1928 Act] in § 6.

Id.

B. Section 8 of the 1902 Reclamation Act Does Not

Apply to This Case.

The trial court’s ruling in this case was expressly

grounded on Section 8 of the 1902 Federal Reclamation

373 U.S. at 579-80. Act, 43 U.S.C. § 383, which makes state law generally

determinative of water rights in other Reclamation pro-

jects. [Ex. A at 2.] The court in Arizona v. California,

however, held that Section 8 did not apply to post-1928

contracts with the Secretary for Lower Colorado River

water:

The Court went on to state that, based upon Congress’

express statement in the 1928 Act, contracts with the

Secretary were the exclusive means to allocate post-1928

legal rights to the waters of the Lower Colorado River:

These several provisions, even without legisla-

tive history, are persuasive that Congress in-

tended the Secretary of the Interior, through his

§ 5 contracts, both to carry out the allocation of

the waters of the main Colorado River among the

Lower Basin States and to decide which users

within each State would get water. ...

... [Wle hold that the Secretary in choosing be-

tween users within each State and in settling the

terms of his contracts is not bound by these sec-

tions [e.g., Section 8 of the Reclamation Act] to

follow state law.... While the States were gen-

erally free to exercise some jurisdiction over

these waters before the Act was passed, this

App. 56

right was subject to the Federal Government's

right to regulate and develop the river....

[Wlhere the Secretary’s contracts, as here, carry

out a congressional plan for the complete distri-

bution of waters to users, state law has no place.

Id. at 586-88 (emphasis added).

In support of its conclusion, the trial court also cited

California v. United States, 438 U.S. 645 (1987). [Ex. A at

3.] California v. United States did not involve Colorado

River water or the distinct body of law that governs rights

to water from that river. At issue were rights to the Stanis-

laus River under the Central Valley Project in California.

438 U.S. at 645. In that case, Section 8 of the 1902 Recla-

mation Act applied and the landowners were required to

obtain an appropriative right under state law. California

vu. United States sheds no light on the acquisition of water

rights under the distinct rules that apply to the Colorado

River.

California v. United States arguably narrowed some of

the other holdings in Arizona v. California. The court in

California v. United States acknowledged, however, as to

the allocation and use of Colorado River water, the specific

provisions of Section 5 of the 1928 Act controlled over the

general provisions in Section 8 of the 1902 Reclamation

Act. See 438 U.S. at 674; see also Bryant v. Yellen, 447 U.S.

352, 370-71 & n.21, reh’g denied, 448 U.S. 911 (1980)

(California v. United States did not question the descrip-

tion of the Secretary's powers under the 1928 Act); Long v.

Salt River Valley Water Users’ Ass’n, 820 F.2d 284, 287 n.4

(9th Cir. 1987) (same).

App. 57

C. Plaintiffs Have No Individual Rights to Sub-

contract Water.

The Subcontracts give the Districts specified rights to

CAr water. Plaintiffs are not parties to those agreements.

They have no contracts with the Secretary. They therefore

have no individual rights to CAP water. 43 U.S.C. § 617d.

Even if the trial court had been correct in applying

state law to this issue, its ruling would still have been

erroneous. Arizona law provides that water users can

acquire rights to surface water only pursuant to the

doctrine of prior appropriation. See A.R.S. § 45-151; see

also Clough v. Wing, 2 Ariz. 371, 17 P. 453 (1888); San

Carlos Apache Tribe v. Superior Court, 193 Ariz. 195, 972

P.2d 179 (1999). Plaintiffs have never appropriated or

received any Subcontract water. [App. 14, J 37.] No land-

owners in either District have. [Jd.] Because Subcontract

water was priced too high for farmers to use, the Districts

have obtained all the CAP water they have received by

short-term excess water contracts. Plaintiffs would there-

fore have no individual rights to Subcontract water even if

state law were applicable.

D. Summary

Federal law determines how rights to CAP water are

acquired. That law provides that such rights can be

acquired only by contract with the Secretary Plaintiffs

have no such contract, and they have no rights to CAP

water.

App. 58

CONCLUSION

Only prompt relief by this Court can ensure that the

trial court’s erroneous rulings do not derail a major water

settlement. Petitioners request that this Court grant

special action relief directing the superior court to (1)

vacate the grant of summary judgment to Plaintiffs; and

(2) enter summary judgment that Plaintiffs are not in-

tended third-party beneficiaries of the Subcontracts

among the United States, CAWCD and the Districts, and

that Plaintiffs have not acquired individual rights to

receive water pursuant to those Subcontracts under the

law that governs the acquisition of rights to water from

the Lower Colorado River. Petitioners also request an

award of their attorneys’ fees pursuant to A.R.S. § 12-

341.01(A).

December 14, 2004.

/s/ Donald M. Peters

Donald M. Peters

Susan A. Cannata

MILLER LaSOTA & PETERS, PLC

5225 North Central, Suite 235

Phoenix, AZ 85012

Telephone: (602) 248-2900

Attorneys for Maricopa-Stanfield

Irrigation & Drainage District

App. 59

/s/ Mark A. McGinnis

/s/

Richard N. Morrison

M. Byron Lewis

Mark A. McGinnis

SALMON, LEWIS & WELDON, PL.C.

2850 East Camelback Road, Suite 200

Phoenix, Arizona 85016

Telephone: (602) 801-9060

Attorneys for Central Arizona

Irrigation and Drainage District

Marvin S. Cohen

SACKS TIERNEY P.A.

4250 North Drinkwater Blvd.

Suite 400

Scottsdale, Arizona 85251

Telephone: (480) 425-2633

Attorneys for Approximately Two

Hundred Landowners

App. 60

Arizona Water Settlement Agreement

This Agreement is among the United States of America,

acting through the Secretary of the Interior (Secretary)

and the United States Bureau of Reclamation, Lower

Colorado Regional Office; and the State of Arizona,

acting through the Arizona Department of Water Re-

sources (ADWR); and the Central Arizona Water

Conservation District (CAWCD), a political subdivision

of the State of Arizona.

1. Recitals of Authority

1.1

1.2

1.3

The United States, acting through the Depart-

ment of the Interior, is entering into this agree-

ment pursuant to the Act of June 17, 1902, 32

Stat. 388, and acts amendatory thereof and

supplementary thereto, including, but not lim-

ited to the Boulder Canyon Project Act of De-

cember 21, 1928 (45 Stat. 1057), as amended,

the Reclamation Project Act of August 4, 1939

(53 Stat. 1187), as amended, the Colorado River

Basin Project Act of September 30, 1968 (82

Stat. 885), as amended, all collectively referred

to as the “Federal Reclamation Laws.”

The State of Arizona, acting through the Ari-

zona Department of Water Resources, is enter-

ing into this agreement pursuant to Arizona

Revised Statutes, Title 45, Ch. 1.

The Central Arizona Water Conservation Dis-

trict is entering into this agreement pursuant

to Arizona Revised Statutes, Title 48, Ch. 22.

App. 61

2. Definitions

2.1

aa 2.2

2.3

2.4

2.5

2.6

2.7

“1983 ROD” shall mean the record of decision

published March 24, 1983, 48 Fed. Reg. 12446.

“Act” shall mean the Arizona Water Settlements

Act of 2002, introduced in the United States

Senate as S.2992 on September 24, 2002.

“CAIDD” shall mean the Central Arizona Irri-

gation and Drainage District, a political subdi-

vision of the State of Arizona.

“CAP” shall mean the Central Arizona Project,

as authorized and constructed pursuant to the

Colorado River Basin Project Act of 1968. For

purposes of this Agreement, CAP shall have the

Same meaning as described in the CAWCD Re-

payment Stipulation.

“CAP Repayment Stipulation” shall mean the

Stipulation Regarding a Stay of Litigation,

Resolution of Issues During the Stay and for

Ultimate Judgment Upon Satisfaction of Condi-

tions, filed pursuant to the order entered on

May 9, 2000 in Central Arizona Wace Conser-

vation District v. United States, et al. No. CIV-

95-625-TUC-WDB (EHC), No. CIV-95-1720-

PHX-EHC (Consolidated Action), United States

District Court for the District of Arizona, and

any amendment or revision thereof.

“Currently Uncontracted M&lI Priority water”

shall mean 65,647 acre-feet of CAP municipal

and industrial priority water that was allocated

in the 1983 ROD but for which a long-term con-

tract has not been entered.

“GRIC Settlement Agreement” shall mean the

Gila River Indian Community Water Rights

Settlement Agreement as defined in the Act.

2.8

2.9

2.10

2.11

2.12

App. 62

“HIDD” shall mean the Hohokam Irrigation

and Drainage District, a political subdivision of

the State of Arizona.

“Hohokam Agreement” shall mean the Agree-

ment Among the United States, the Central

Arizona Water Conservation District, the Ho-

hokam Irrigation and Drainage District, and

the Arizona Cities of Chandler, Mesa, Phoenix

and Scottsdale, dated December 21, 1993.

“Hohokam 9(d) Debt” shall mean that portion of

the debt to the United States incurred by HIDD

under section 9(d) of the Reclamation Project

Act of 1939 that is payable by HIDD under sec-

tion 4.2.2 of the Hohokam Agreement.

“MSIDD” shall mean the Maricopa-Stanfield Ir-

rigation & Drainage District, a political subdi-

vision of the State of Arizona.

“NIA Priority water” shall mean CAP water

having a non-Indian agricultural priority as de-

scribed in subparagraph 8.16 of the GRIC Set-

tlement Agreement.

3. Purpose of this Agreement

3.1

This agreement memorializes the parties’ in-

tended approach to settle all current CAP allo-

cation issues between the United States and

the State of Arizona by agreeing to make cer-

tain quantities of NIA priority water available

to the Secretary for allocation to Indian com-

munities, and certain quantities available to

ADWR to be held in trust for future allocation

by the Secretary to non-Indian users within

Arizona in a manner consistent with the Act.

3.2

App. 63

This agreement also requires a reallocation of

the Currently Uncontracted M&I Priority Wa-

ter, and an allocation of and contract for main-

stream Colorado River water under the Boulder

Canyon Project Act of 1928 to the Mohave

County Water Authority in exchange for the

voluntary relinquishment by Mohave County

Water Authority of certain contractual rights to

NIA Priority water.

4. Quantification of NIA Priority water available

for Contract.

4.1

The parties agree that, for the purpose of enter-

ing into long term contacts and subcontracts for

CAP water under the Colorado River Basin Pro-

ject Act of 1968 and the CAP Stipulation, the

quantity of CAP water available for long-term

contract or subcontract, and the quantity of

NIA priority water available for long term con-

tracts and subcontracts shall be calculated as

follows:

4.1.1 The normal year supply of Colorado River

water available for CAP is deemed to be

1,490,000 acre-feet per year for purposes of

long-term contracting. This supply in-

cludes the CAP Project Water delivered in

accordance with the Ak-Chin Indian Com-

munity Water Rights Settlement Act of

1984, Pub. L. 98-530 (the “Ak-Chin Act”),

and the Salt River Pima-Maricopa Indian

Community Water Rights Settlement Act

of 1988, Pub. L. 100-512 (the “SRPMIC

Act”). Nothing in this agreement shall pre-

clude CAWCD from diverting more than

1,490,000 acre-feet of Colorado River water

in any year, but such excess diversion shall

4.1.2

4.1.3

4.1.4

4.1.5

App. 64

not be available for long-term contract or

subcontract.

To determine the amount of CAP water

available for long-term contract and sub-

contract, canal losses and other operational

losses for the CAP system must be sub-

tracted. For purposes of this agreement,

such losses shall be deemed to be 75,000

acre-feet per year for a normal year supply.

The normal year supply of CAP water

available for long-term contract or subcon-

tract shall be 1,415,000 acre-feet

(1,490,000- acre-feet diverted from the

Colorado River less 75,000 acre-feet of sys-

tem loss).

Of the 1,415,000 acre-feet available for

long-term contract or subcontract, the Sec-

retary allocated 309,828 acre-feet to Indian

uses and 638,823 acre-feet to municipal

and industrial (““M&I”) uses in the 1983

ROD. That left 466,349 acre-feet available

for use by non-Indian agriculture in a

normal year (the “1983 NIA Supply”).

The 1983 NIA Supply was subsequently

reduced as follows:

4.1.5.1 Under the Ak-Chin Act, the Secre-

tary acquired 50,000 acre-feet of

Colorado River water from the

Yuma-Mesa Division of the Gila

Project. After deducting for CAP

system losses (deemed to be 5%),

this acquisition resulted in a de-

crease of 47,500 acre-feet in the

amount of CAP water available for

4.1.5.2

4.1.5.3

4.1.5.4

App. 65

use by non-Indian agriculture in a

normal year.

Under the SRPMIC Act, the Secre-

tary acquired 22,000 acre-feet of

Colorado River water from the

Wellton-Mohawk Irrigation Dis-

trict. After deducting for CAP sys-

tem losses (deemed to be 5%), this

acquisition resulted in a decrease of

20,900 acre-feet in the amount of

CAP water available for use by

non-Indian agriculture in a normal

year.

Under the Fort McDowell Indian

Community Water Rights Settle-

ment Act of 1990, Pub. L. 101-628,

the Secretary acquired the CAP en-

titlement of Harquahala Valley Ir-

rigation District and was

authorized to convert that water

from CAP non-Indian agricultural

priority to CAP Indian priority.

This acquisition resulted in a de-

crease of 33,251 acre-feet in the

amount of CAP water available for

use by non-Indian agriculture in a

normal year.

Under the SRPMIC Act, the Roose-

velt Water Conservation District

(“RWCD”) assigned 5,000 acre-feet

of its CAP entitlement to certain

Arizona cities. That assignment re-

sulted in a corresponding decrease

in the amount of CAP water avail-

able for use by non-Indian agricul-

ture in a normal year.

4.2

App. 66

4.1.5.5 Under an August 7, 1992 agree-

ment among RWCD, the Secretary

and the Gila River Indian Commu-

nity (““GRIC”), RWCD relinquished

the remainder of its CAP entitle-

ment for the use and benefit of

GRIC. That relinquishment re-

sulted in a decrease of 18,600 acre-

feet in the amount of CAP water

available for use by non-Indian ag-

riculture in a normal year.

4.1.5.6 Under the Hohokam Agreement,

the CAP entitlement of HIDD and

certain additional non-Indian agri-

cultural water was subcontracted

to the cities of Chandle

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