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United States Court of Federal Claims Will Apply “Physical” Takings Framework in Klamath Project Litigation

On December 21, 2016, Judge Marian Blank Horn of the United States Court of Federal Claims issued a favorable ruling for Klamath Project water users on pre-trial motions in the ongoing Klamath Project takings litigation.  Klamath Irrigation v. United States, No. 1-591L, 2016 U.S. Claims LEXIS 1933 (Fed. Cl. Dec. 21, 2016).  Judge Horn’s pre-trial ruling declares that she will utilize a “physical” takings analysis rather than a “regulatory” takings analysis to examine the irrigators’ claims for just compensation for taking of water rights based on the Endangered Species Act (ESA).  The ruling is significant because, in general, physical takings constitute per se takings of private property with a “categorical duty” on the government to compensate the owner, while a regulatory takings analysis typically involves complex balancing of private and government interests before liability can be found.  A copy of the ruling can be found here.

In the pair of consolidated cases, irrigators who rely on water made available through the Klamath Project (a federal reclamation project) allege that the United States’ actions to deprive them of water for irrigation in 2001, because of the United States’ asserted obligations under the ESA, constitutes a taking of their water rights for which the irrigators are entitled to compensation under the Fifth Amendment of the United States Constitution.  The cases have had a long and involved procedural history and are set for trial beginning late January 2017 in the Court of Federal Claims in Washington, D.C., more than 15 years after the first case was filed in 2001.

The Takings Clause is the final clause of the Fifth Amendment of the United States Constitution:  “nor shall private property be taken for public use, without just compensation.”  The Takings Clause requires federal, state, and local government to compensate owners of private property where that property is taken by the government for a public use.  Claims for “just compensation” must be brought in the United States Federal Court of Claims in Washington, D.C.  To establish a taking, (1) a plaintiff must possess a “cognizable property interest” and (2) the court must determine whether the government action at issue is a “compensable taking” of that property interest.  A body of case law distinguishes between physical and regulatory takings, summarized only very generally here.  A physical taking includes physical occupation or destruction of private property whereas a regulatory taking imposes a limit on the use of private property.  Physical takings are per se takings requiring compensation.  Regulatory takings require complex balancing of facts specific to the taking (i.e., the restriction on use of the property) in order to determine whether there is an entitlement to just compensation.

In the consolidated cases, plaintiffs argue that they were deprived of water in 2001 based on restrictions to protect fish species listed as threatened or endangered under the ESA, and that they are due compensation for the taking of their water rights.  Based on a prior decision of the United States Court of Appeals for Federal Circuit in Casitas Municipal Water District v. United States, 543 F.3d 1276 (Fed. Cir. 2008), Judge Horn ruled that “the government’s retention of water in Upper Klamath Lake and the Klamath River did amount to a physical diversion of water” and the requirement to apply a physical takings analysis.  The ruling notes that Casitas indicated that the appropriate reference point to determine whether the government causes a “physical diversion” of water is the status quo prior to the challenged action.  Prior to 2001, Klamath irrigators had been able to use Klamath Project water more or less fully.  In 2001, the United States used Klamath Project works to prevent water from travelling out of Upper Klamath Lake and the Klamath River into project canals.  Like in Casitas, the purpose for the United States’ action was to preserve habitat for endangered species, which serves a public purpose.  In sum, Judge Horn found that “the government has taken an action that has the effect of preventing plaintiffs from enjoying the right to use water provided by an irrigation project, to the extent they held such rights.”

Although the decision to apply the physical takings framework is significant, the nature of the irrigators’ claimed property interest, and the amount of compensation due, remain in dispute.  With respect to the property interest, the Oregon Supreme Court provided guidance in 2010 relevant to whether there is a compensable property interest.  See Klamath Irrigation District et al. v. United States, 348 Or. 15 (2010).  Briefing will conclude shortly on the application of that guidance.  The United States has argued that the irrigators’ water rights are derivative of federal law, and subject to conditions of federal law itself, including the ESA, and that as a result, the irrigators have no individual cognizable property interest.  The irrigators counter that the United States has failed to produce any contract that clarified, modified, or altered the irrigators’ state law water rights and property interests arising under Oregon law, as the Oregon Supreme Court has directed is necessary in order for the United States to defeat any claim of a property interest.  A decision on the cross-motions will be central to determination of liability in these cases.  If liability is established, the amount of liability will be determined at the trial scheduled to begin in late January.  For now, Judge Horn’s recent decision is a significant step to achieving compensation for the 2001 Klamath shutoff and also may be important to other western water users who argue for the application of the physical takings framework to ESA-based water rights curtailment.

For more information on this case, please contact Richard S. Deitchman at 916-446-7979 or by email at rdeitchman@somachlaw.com.

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