Alice in Groundwater Land: Court Defines State Board ‘Subterranean Stream’ Jurisdiction

October 1, 2006

California Water Law & Policy Reporter

There will always be great difficulty in fixing a line, beyond which the water in the sand and gravels over which a stream flows and which supply or behold the stream, ceases to be part thereof and becomes what is called percolating water. (Hudson v. Dailey, 156 Cal. 617, 627-28 (1909).)

In a decision that may have far-reaching implications for water users throughout California, the California Court of Appeal, First Appellate District, has upheld the State Water Resources Control Board’s (SWRCB) assertion that a water company must obtain an appropriative water right permit in order to pump groundwater from two production wells located near a stream. (North Gualala Water Company v. State Water Resources Control Board, 139 Cal.App.4th 1577 (1st Dist. 2006); petition for review denied August 30, 2006). North Gualala is the first published decision interpreting the statutory phrase “subterranean streams flowing through known and definite channels,” which has defined the SWRCB’s permitting jurisdiction over groundwater since 1914. This article examines the Court of Appeal’s decision and its implications for the future.

Physical Setting and Procedural Background

The North Gualala Water Company (Company) provides municipal water service in and around the Town of Gualala in Mendocino County. The Company developed two production wells in an area (Elk Prairie) adjacent to the North Fork of the Gualala River. Both wells were located approximately 200 feet from the River. The wells draw groundwater from depths of approximately 50 and 140 feet below the ground surface.

The Company’s engineering consultant submitted a technical report regarding the groundwater pumped from the two wells. The report concluded that the groundwater produced from the alluvial deposits under Elk Prairie is not recharged from the river and is not flowing in a subterranean stream. Contrary to the opinions of other experts, the Company’s consultant found that the groundwater under Elk Prairie is maintained by a combination of deep percolation of surface precipitation during the rainy season and subsurface flow from the underlying bedrock formations into the alluvium during the dry season. The Company’s consultant also concluded that the underlying bedrock beneath Elk Prairie was not relatively impermeable, and that the groundwater beneath Elk Prairie is not flowing “in the channel” but in a direction perpendicular to it.

The chief of the Division of Water Rights (Division) responded to the Company that, after reviewing the consultant’s report, the Division still believed that the groundwater pumped from the two wells was flowing in a known and definite channel, and thus was subject to the SWRCB’s jurisdiction. Citing other studies of the area, the Division rejected the critical finding that the bedrock was permeable to water relative to the overlying alluvium. It opined instead, that “it appears that the bedrock is sufficiently impervious relative to the alluvial aquifer material to form the bed and banks of a subterranean stream.” ( Id . at 1583).

The Company continued to process previously-filed petitions to change the point of diversion of an existing water right permit to include the two wells, while reserving the issue of groundwater classification for any future hearing to be held on its change petitions. In August 1999, the SWRCB adopted Order WR-99-09-DWR, which granted the Company’s petitions to substitute the two wells for the previous points of diversion. However, the California Department of Fish and Game and other fishing interests protested the change sought by the Company, expressing concern that the Company was not meeting the bypass flow requirements set forth in the permit.

The chief of the Division of Water Rights subsequently informed the Company that its plans for use of the wells under the permit were not approved. The Company petitioned the SWRCB for reconsideration of the chief’s decision and asked the SWRCB to hold a hearing on the legal classification of the groundwater pumped from the two wells. In Order WR 2001-14, issued in June 2001, the SWRCB upheld the chief’s decision, ruling in relevant part that groundwater classification was not properly part of the reconsideration proceeding.

The Company then filed a complaint for declaratory relief and petition for writ of mandate challenging the sufficiency of the evidence to support Order 2001-14. The trial court stayed the case to allow the Company to formally petition the SWRCB for a groundwater classification hearing and to permit the SWRCB to resolve that issue before the case proceeded. A hearing before the SWRCB was held in June 2002. The SWRCB found in Order WRO 2003-0004 that the water pumped from the Company’s wells required a permit. In response to an ensuing petition for reconsideration the SWRCB rejected the Company’s argument that the water in a subterranean stream must always be flowing in a direction parallel to the sides of the subsurface channel. The SWRCB found that water is in fact flowing generally downstream within the channel under Elk Prairie, following a hydraulic gradient and following the path of least resistance.

In May 2003 the Company filed a new petition for writ of mandate challenging Order WRO 2003-0004, which was eventually consolidated with the earlier action. The trial court upheld the SWRCB’s determination, ruling that substantial evidence existed to support the SWRCB’s findings.

The Court of Appeal’s Decision

Water Code § 1200 provides that the SWRCB’s water right permitting authority extends to surface water and to “subterranean streams flowing through known and definite channels.” The central issue in North Gualala was whether the Company’s two production wells produce groundwater that is properly classified as subterranean stream flow.

In a 1999 decision the SWRCB established a four-part test for determining whether groundwater falls within its permitting authority: (1) a subsurface channel must be present; (2) the channel must have a relatively impermeable bed and banks; (3) the course of the channel must be known or capable of being determined by reasonable inference; and (4) groundwater must be flowing in the channel. (In re Garrapata Water Co., SWRCB Dec. No. 1639 (June 17, 1999).) The SWRCB based the Garrapata test on its reading of an 1899 California Supreme Court case, City of Los Angeles v. Pomeroy, 124 Cal. 597 (1899). The SWRCB utilized the test again in 2002 in a case involving the Pauma Valley Water Company. (In re Determination of Legal Classification of Groundwater in the Pauma and Pala Basins etc., SWRCB Dec. No. 1645, October 17, 2002).

In the appellate proceedings in North Gualala, the Company accepted the four-part Garrapata test with certain qualifications but argued that groundwater produced from the two wells did not satisfy the test because (1) the only subsurface channel present did not narrow or contract in the direction of the flow as required under a correct application of the four-part test; (2) the second element of the test was not satisfied because there was no actual flow boundary at the interface between the bedrock forming the bed and banks of the alluvial channel and the alluvium; and (3) the groundwater produced by the wells was not flowing “in the channel” but in a direction perpendicular to it.

In the alternative, the Company proposed that the four-part Garrapata test be scrapped altogether in favor of a classification of groundwater found in a 1911 treatise authored by Samuel C. Wiel, “Water Rights in the Western States.” According to the Company, three classes of underground water are recognized in the case law: (1) percolating water, (2) the underflow of surface streams, and (3) “definite known underground streams.” The Company asserted that Pomeroy and other cases involving water flowing in alluvial channels are underflow cases. On the other hand, groundwater flowing in “definite and known underground streams,” according to the Company, is limited exclusively to water flowing through open spaces-fissures, voids and tunnels in bedrock formations. Wiel states that “definite known underground streams” are “of rare occurrence, and the presumption is against their presence in any given case.” (2 Wiel, “Water Rights in the Western States” (3d ed. 1911) Ch. 43 § 1077, pp. 1011-1012.) Under this theory, water flowing in the alluvium underneath Elk Prairie could not be subject to the SWRCB’s jurisdiction under § 1200 unless it was part of the underflow of the North Fork Gualala River. Since the SWRCB made no finding that the two wells are drawing on river underflow, the Company argued that it erred in asserting jurisdiction.

The Court of Appeal began its analysis with the observation that California is the only Western state that still treats surface water and groundwater under separate legal regimes and that classification disputes in this field quickly take on an “Alice-in-Wonderland quality” because the legal categories “are drawn from antiquated case law and bear little or no relationship to hydrological realities.” (139 Cal.App.4th at 1590). While ruling that the SWRCB’s interpretation of §1200 is entitled to only “limited deference,” the court concluded that the record contained substantial evidence supporting the SWRCB determination that the four-part Garrapata test had been satisfied. In reaching this conclusion the court rejected the Company’s arguments that (1) for a channel to be “defined” its width must be narrowing as the groundwater flows through it; (2) the bed and banks of a subterranean channel must be a “significant boundary” rather than “relatively impermeable”; and (3) the groundwater flow direction must more closely follow the course of the channel than was the case in North Gualala. The court also rejected the Company’s alternative theory, stating:

We find no indication in Wiel’s discussion of ‘definite known underground streams” that he considered these to occur exclusively in bedrock formations.

(North Gualala, 139 Cal.App.4th at 1605). The Court of Appeal did purport to place certain limits on SWRCB jurisdiction over groundwater.

It explicitly rejected the notion that water moving within a wide alluvial valley such as the San Fernando Valley is part of a single subterranean stream. (139 Cal.App.4th at 1606). It also rejected the trial court’s passing suggestion that once the operation of the Company’s wells is shown to have an impact on surface flows, the SWRCB’s jurisdiction follows automatically. (As discussed below, the latter “impacts” test was recommended by Professor Joseph Sax in a 2002 report to the SWRCB but this recommendation was never adopted.)

Implications for the Future

The North Gualala decision has already generated much debate within the California water bar. Some believe that the decision places important limits on SWRCB jurisdiction over groundwater while others believe that the case will enable the SWRCB to assert jurisdiction over groundwater in virtually all cases in which groundwater is produced from an alluvial aquifer that has any “channel like” characteristics. To assess the implications of the decision, it is first necessary to consider the historical context in which it arose.

In recent years the SWRCB has grappled repeatedly with the issue of how to interpret and apply the statutory phrase “subterranean streams flowing through known and definite channels.” Following an initial round of proceedings in an administrative proceeding involving the Pauma and Pala basins in Southern California (In re Determination of Legal Classification of Groundwater in the Pauma and Pala Basins etc., SCWRCB Decision No. 1645, October 17, 2002), the SWRCB contracted with Professor Joseph Sax of the University of California Berkeley, who rendered a final report in January 2002 entitled “Review of the Laws Establishing the SWRCB’S Permitting Authority Over Appropriations of Groundwater Classified as Subterranean Streams and the SWRCB’s Implementation of those Laws.” This report, which is referred to in this article as the “Sax Report,” embraced two principal positions. First, it advocated that Water Code § 1200 be read to grant the SWRCB authority over groundwater when the extraction of that groundwater would have an “appreciable and direct impact” on a surface stream. Second, the Sax Report suggested that the SWRCB possesses and should exercise authority over groundwater, either under the public trust doctrine or under the waste and unreasonable use doctrine, when the extraction of groundwater may have an adverse impact on environmental resources.

The Sax Report represented a serious and thoughtful attempt to reconcile the language of Water Code § 1200 with current scientific understanding of the interrelationships between groundwater and surface water systems. The central problem with this aspect of California groundwater law is that groundwater systems rarely, if ever, fit within the rubric of “subterranean streams flowing through known and definite channels,” yet pumping from groundwater wells can, in some situations, have a direct and material impact on stream flow. Professor Sax attempted to address this problem through a new interpretation of Water Code § 1200 that yielded the proposed “impacts” test. The Sax Report was criticized, however, on the ground that the legal analysis supporting the proposed “impacts” test does not survive close scrutiny. (See, Aladjem, “Groundwater Management in California: The Sax Report and Beyond,” Cal. Water. L. & Pol’y Rptr, July 2002, p. 253).

Whatever the merits of the Sax Report, the SWRCB ultimately took no action regarding its recommendations. Instead the SWRCB chose to maintain reliance on the four-part Garrapata test. The central issues in North Gualala were whether (1) the Garrapata test, as applied by the SWRCB, is consistent with Water Code § 1200; and (2) substantial evidence was present in the record in North Gualala to support the SWRCB’s findings.

As noted above, the North Gualala court approved the Garrapata test and its application by the SWRCB. Although the Court of Appeal purported to give “limited deference” to the SWRCB’s interpretation of Water Code § 1200, the court noted (somewhat contradictorily) that translating the language of §1200 into a usable and practical legal test “necessarily draws upon areas of the Board’s technical expertise, experience, and familiarity with its own prior precedents.” (North Gualala, 139 Cal.App.4th at 1590). At the same time, the court noted that its analysis of the history, text and intent of the subterranean stream language “leads us to the conclusion that the Board’s jurisdiction over groundwater was intended to be the exception rather than the rule when the legislature adopted the language at issue.” (Id .)

In the author’s view the practical effect of North Gualala is to give substantial deference to SWRCB factual determinations in disputes involving the legal classification of subsurface water. While the court made passing reference to the well-established presumption that groundwater is percolating and the corollary burden of proof that courts have traditionally placed on the party asserting that subsurface water is subterranean stream flow (Id . at 1593), it appears that, in the context of North Gualala, the latter presumption and burden of proof were effectively trumped by the substantial evidence standard of review applied by the court.

The key question going forward is how North Gualala will be applied in other factual contexts. As Professor Sax has observed:

[t]he central controversy over the scope of ‘subterranean stream’ in the statute centers on whether the Board is likely to take jurisdiction over groundwater pumping in broad alluvial valleys where it has not ordinarily exercised its jurisdiction in the past, rather than taking jurisdiction only over pumping in the near vicinity of surface streams.

(Sax Report, p. 49).

Professor Sax further stated:

If the Board were to take the view that a channel must fit the definition of being ‘like a trench, furrow, or groove’ or ‘a tubular passage’ [the standard definition of the term from the American Heritage Dictionary]—that is, something essentially long and narrow—it would doubtless be drawn toward the more restricted view of its jurisdiction that some urge, sticking to the immediate confines of the channels of surface streams. On the other hand, if a channel can be quite broad and un-furrow like, so long as it is enclosed by relatively impermeable beds and banks, subterranean stream jurisdiction could be quite extensive.

(Sax Report, pp. 49-50)

Conclusion and Implications

“Quite extensive” indeed. In the author’s view, the SWRCB has implicitly made a policy determination through adoption of the Garrapata test and its application of that test in North Gualala to take an expansive view of its jurisdiction over groundwater. As already noted, the North Gualala court rejected the Company’s arguments that a proper interpretation of Water Code § 1200 requires that (1) for a channel to be “defined” its width must be narrowing as the groundwater flows through it; (2) the bed and banks of a subterranean channel must be a “significant boundary” rather than “relatively impermeable”; and (3) the groundwater flow direction must more closely follow the course of the channel than was the case in North Gualala. Although the Court of Appeal expressly disclaimed any intent to extend SWRCB jurisdiction to wide alluvial valleys such as the San Fernando Valley, the latter disclaimer appears to be at odds with the court’s warm embrace of the Garrapata four-part test and its deference to SWRCB factual determinations in applying the test. From this author’s viewpoint, the words of the court’s disclaimer regarding wide alluvial valleys ring rather hollow for it is difficult to conceive of the SWRCB reaching a conclusion different from that reached in North Gualala in a case where the essential hydrologic and geologic facts were the same but the setting is a wide alluvial valley. Looking to the future, a critical issue is whether the courts, in other factual contexts, will give meaning and effect to the Court of Appeal’s disclaimer of intent to expand SWRCB jurisdiction to wide alluvial valleys.

Perhaps the key question is how aggressively the SWRCB will assert its newly clarified authority to regulate groundwater. Historically, the SWRCB has been reluctant—presumably for political reasons—to assert broad jurisdiction in this area. But political winds may shift in response to climate change, drought or other external events. If this occurs, North Gualala could become a very important case for water users throughout California.