Appeals Court Decides Crucial Case On State Fish And Wildlife’s Extension Of Streambed Alteration Limits To Existing Water Diversions

June 6, 2015

On June 4th, 2015, the Third District Court of Appeal reversed the Siskiyou County Superior Court’s injunction against the California Department of Fish and Wildlife (“CDFW”), holding for the first time that the State’s streambed alteration program extends to existing water right diversions even if they do not physically alter streambeds. The Superior Court last year had stopped CDFW from bringing enforcement actions against longtime agricultural water users for continuing to divert surface waters from within the County without first obtaining a streambed alteration agreement pursuant to Section 1602 of the Fish and Game Code. Siskiyou County Farm Bureau v. California CDFW of Fish and Game, Case No. SCSCCV11-00418. In a setback for water rights holders, the Court concluded that Section 1602—ostensibly enacted to counteract mining-related streambed alterations—unambiguously embraces ordinary and long-time water diversions held under existing rights.

Factual And Regulatory Background

In response to concerns that industrial and other activities were causing adverse effects on anadromous fish and other wildlife dependent on instream resources, the California Legislature first enacted Fish and Game Code section 1600 in 1961. Under Section 1602, any person contemplating activity that substantially diverts or obstructs the natural flow of—or substantially changes or uses material from the bed, channel, or bank of—a water course is required to give prior notice to CDFW. CDFW must then determine whether the planned activity could adversely affect the fish and wildlife that depend on that water course. If so, CDFW and the property owner enter into a streambed alteration agreement (SAA) that includes terms to mitigate the planned activity’s potentially adverse consequences on fish and wildlife. If the property owner does not agree, the matter can be submitted to arbitration.

Following the coho salmon’s listing under the California Endangered Species Act (CESA) in 2005, CDFW developed enforcement criteria that presumed that any diversion of water pursuant to a water right was “substantial” and therefore subject to notification requirements under Fish and Game Code section 1602. This policy represented a significant departure from CDFW’s historical approach to enforcement, which until then had primarily targeted new or modified diversions that physically altered the bed or bank of the water course. In 2005, CDFW sent letters to diverters within Siskiyou County—including diverters taking water under 100-year old water rights—informing them of the new notice obligations under section 1602. In addition, the letters stated that:

• CDFW considered agricultural diversions to be subject to Section 1602;
• Recipients had two options for compliance: participate in a watershed-wide agreement through Siskiyou Resource Conservation District or obtain an SAA individually;
• Either compliance option required compliance with all applicable code provisions, including CESA and the California Environmental Quality Act (CEQA); and
• The recipient would be required to obtain an incidental take permit if the diversion, either individually or in conjunction with other diversions, could “take” (i.e., capture or kill) coho salmon.

Not surprisingly, this effort to extend the 1602 program to long-held water rights diversions was met with substantial opposition.

Siskiyou County Farm Bureau Files Suit

Shortly after the CDFW issued its enforcement program notices, the Siskiyou County Farm Bureau (the Farm Bureau) filed a declaratory relief action on behalf of agricultural water users, challenging CDFW’s expansive interpretation of Fish and Game Code section 1602. The suit alleged that the Legislature never intended Section 1602—which was enacted long after some of the plaintiffs’ water rights were established—to apply to the mere act of exercising a water right; rather, the provision was enacted to address activities that physically altered the water course. Plaintiffs alleged further that CDFW’s broad interpretation would fundamentally alter the administration of water rights in California, imposing significant new burdens and uncertainties on longtime water users. (By the time the Farm Bureau filed suit, two previous cases involving this same program had already been litigated. Klamath Riverkeeper v. California CDFW of Fish and Game, Case No. CPF-09-509915; California Farm Bureau Federation v. California CDFW of Fish and Game, Case No. SCCVCV 10-0671. Both resolved without ever reaching the issue raised here—whether CDFW could regulate existing water rights under Fish and Game Code section 1602.)

The trial court agreed with the Farm Bureau that the purpose of Section 1602 was to require notice to CDFW for activities that physically alter the water course, not for the mere continuing exercise of a water right. Section 1602’s legislative history showed that concern over the statute’s economic impacts was limited to the mining and aggregate industries. Had the Legislature intended Section 1602 to apply to all existing agricultural diversions, the court reasoned, surely there also would have been ample concern for the impacts to that industry. This is particularly true since CDFW has liberally applied the term “substantial” to encompass almost any change in the watercourse. Additionally, the court noted that the statute contemplates case-by-case determinations by CDFW as to whether a particular activity may harm fish and wildlife dependent on the stream. Here, in contrast, CDFW had determined as a matter of policy that all diversions pursuant to water rights were categorically “substantial,” requiring notice. Accordingly, the court found that CDFW’s interpretation of Section 1602 was contrary to the purposes of the statute.

More significantly, the court reasoned that CDFW’s interpretation would upend the State’s administration of water rights. It is the State Water Resources Control Board—not CDFW—that exercises the State’s administrative authority over water rights in California. In deciding between competing beneficial uses, the State Board has the unique responsibility to balance economic factors against public trust values such as fish and wildlife. In contrast, the court noted that CDFW’s sole regulatory focus under Section 1602 is the effect of a diversion on the fish and wildlife in the subject stream. CDFW’s role in the State Board’s consideration of public trust values, on the other hand, is already codified. Under Public Resources Code sections 10001 and 10002, the State Board is required to consider minimum streamflow requirements for fish and wildlife purposes developed by CDFW. But CDFW’s proposed interpretation of Fish and Game Code section 1602 could lead to a situation in which, after the State Board considered all factors, a water right granted by the State Board could be nullified by the later regulation of the CDFW. The court found that the Legislature could not possibly have intended such a result.

Additional consequences of CDFW’s expansive interpretation of Section 1602 would include allowing CDFW to prioritize public trust uses above domestic or agricultural uses and allowing CDFW to effectively appropriate water to maintain minimum in-stream flows. The court found that such results would be repugnant to well-established water right precedent and to legislative determinations that domestic and agricultural uses are the highest and second-highest beneficial uses, respectively.

Appellate District Extends 1602 Program To Existing Water Rights

The Third District Court of Appeal reversed the Superior Court’s decision in nearly every respect and ruled that Section 1602 applies to existing water rights diversions even if they do not physically alter the bed or channel of a stream. Although the Court agreed that the plain meaning of Section 1602 could embrace such diversions, it rejected the extrinsic evidence introduced by the Farm Bureau to show a latent ambiguity in the statute’s meaning, dismissed the idea that an expansive interpretation of the word “divert” could lead to absurd or unjust results, and held that the CDFW’s enforcement of Section 1602 in no way conflicts with State Board’s authority over appropriative water rights.

Citing Dr. Seuss, the Court declared that the Legislature “said what it meant and meant what it said” in spite of the Farm Bureau’s introduction of evidence showing that the legislature was concerned with the effects of gravel mining on streambeds when it enacted Section 1602. Indeed, the Court found that the extrinsic evidence before it actually undermined the Farm Bureau’s argument that the Legislature intended to exclude water rights diversions from the purview of section 1602. The Court noted that contemporaneous dictionary definitions of “divert” included the mere act of extracting water from a stream. The Court further relied on the use of the word in California water rights law to refer to water extraction regardless of physical alterations to a streambed, and noted that contemporaneously enacted statutes expressly limited the definition of “divert” where the Legislature intended to exclude pumping.

Most importantly, the Court rejected the Farm Bureau’s legislative history argument that the Legislature enacted Section 1602 to prevent only diversion from mining and other industrial activities that physically altered the bed of a stream. Specifically, the Court stated that even though such activities and physical alterations may have motivated the adoption of Section 1602, such motivations did not limit the meaning of “divert.” The Court reasoned that the Legislature could have properly considered that “the damage done by the Gold Rush required strong remedial measures” extending even to the mere extraction of water without a physical change to a streambed. Slip Op. at 28.

After determining that “divert” unambiguously embraces water rights diversions, it summarily dismissed the trial court’s use of the absurd results and constitutional doubts doctrines. First, the Court pointed out that the use of these doctrines is only permitted to resolve ambiguities in statutory language. Since the statute was facially unambiguous, the Court found that the trial court erred in considering these doctrines at all. Second, the Court reasoned that as a notification statute, Section 1602 has no effect on vested water rights. The Court therefore rejected the notion that an expansive definition of “divert’ would result in a taking of private property requiring compensation under the 5th Amendment of the U.S. Constitution. Finally, the Court showed clear disdain for the notion that interpreting “divert” to include mere extractions of water would necessarily lead to absurd results. Significantly, the court referenced the effects of “severe drought” on endangered fish as an example of why the results of an expansive definition of divert are actually eminently reasonable. Slip Op. at 37.

Perhaps most importantly, the Court held that no conflicts exist between the State Board’s regulation of water rights and the CDFW’s regulations of substantial diversions under Section 1602. In doing so, the Court relied heavily on an amicus brief in which State Board argued that it and CDFW have “always had the statutory authority and duty to work cooperatively on issues of common concern.” Slip Op. at 39. The Court further noted that the CDFW does not seek or establish appropriative rights in enforcing Section 1602, but only seeks to determine whether a diversion is substantial enough to harm fish. Accordingly, the Court ruled that in enforcing Section 1602, the CDFW acts consistently with its role of informing State Board of “piscatorial needs before new appropriations are made.” Slip Op. at 41. The Court therefore found that the CDFW’s plain meaning interpretation of Section 1602 does not impermissibly intrude on the State Board’s powers or duties.

Implications For The Exercise Of Existing Water Rights

The Third Appellate District’s ruling is the first to hold that Section 1602 applies to the diversion of water without a concurrent modification to the bed or bank of the water course. The Court’s ruling appears to ignore its practical consequences and the substantial burden it will place on existing water rights holders. Historically, absent some other physical activity altering the streambed, very few water rights diversions have been regulated in this manner. And with CDFW’s historically broad view of what constitutes a “substantial” diversion, small diversions will be forced to notify CDFW and obtain a streambed alteration agreement even for water rights that pre-dated Section 1602. Negotiating agreements often takes time and requires some technical acumen so as to avoid unreasonable conditions. What is more, streambed alteration agreements are subject to CEQA and generally must be renewed every two to five years. Consequently, even small diverters may be subject to endless rounds of regulatory review or face civil or criminal prosecution by CDFW or the local District Attorney. To make matters worse, CDFW does not have the staff or agency budget to process the thousands of notices and streambed agreements that are certain to flow from this ruling. The trial court had it right—the water rights system in California has just been upended.