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Concerning Application of Busk-Ivanhoe, Inc. v. Busk-Ivanhoe, Inc.

Supreme Court of Colorado, En Banc

December 5, 2016

Concerning the Application of Busk-Ivanhoe, Inc., a Colorado corporation in Adams, Arapahoe, Chaffee, Douglas, Jefferson, Lake, Pitkin, and Weld Counties, Colorado, Opposers-Appellants
v.
Busk-Ivanhoe, Inc., a Colorado corporation. Applicant-Appellee Grand Valley Water Users Association; Orchard Mesa Irrigation District; Ute Water Conservancy District acting by and through the Ute Water Activity Enterprise; Colorado River Water Conservation District; Basalt Water Conservancy District; Board of County Commissioners of Eagle County; Board of County Commissioners of Pitkin County; Dick Wolfe, P.E., State Engineer; David L. Nettles, P.E., Division Engineer for Water Division 1; Steve Witte, P.E., Division Engineer for Water Division 2; and Alan Martellaro, P.E., Division Engineer for Water Division 5, and High Line Canal Company; Southeastern Colorado Water Conservancy District; and The City and County of Denver, acting by and through its Board of Water Commissioners, Opposers-Appellees and Board of Water Works of Pueblo, Colorado, and Opposer-Appellant/Opposer-Appellee Centennial Water and Sanitation District, Opposer

         Appeal from the District Court Pueblo County District Court, Water Division 2, Case Nos. 09CW142, Water Division 1, 09CW272, Water Division 5, 09CW186, Honorable Larry C. Schwartz, Water Judge

         Judgment Reversed.

          Attorneys for Opposers-Appellants Grand Valley Water Users Association, Orchard Mesa Irrigation District, and Ute Water Conservancy District acting by and through the Ute Water Activity Enterprise: Williams, Turner & Holmes, P.C. Kirsten M. Kurath Mark A. Hermundstad Grand Junction, Colorado

          Attorneys for Opposers-Appellants Colorado River Water Conservation District, Basalt Water Conservancy District, and Board of County Commissioners of Eagle County: Balcomb & Green, P.C. David C. Hallford Christopher L. Geiger Scott Grosscup, Glenwood Springs, Colorado

          Attorneys for Opposer-Appellant Board of County Commissioners of Pitkin County: Moses, Wittemyer, Harrison and Woodruff, P.C. Timothy J. Beaton Jennifer M. DiLalla Boulder, Colorado

          Attorneys for Opposers-Appellants Dick Wolfe, P.E., State Engineer, David L. Nettles, P.E., Division Engineer for Water Division 1, Steve Witte, P.E., Division Engineer for Water Division 2, and Alan Martellaro, P.E., Division Engineer for Water Division 5: Cynthia H. Coffman, Attorney General Paul L. Benington, First Assistant Attorney General Denver, Colorado

          Attorneys for Opposer-Appellant/ Opposer-Appellee Board of Water Works of Pueblo, Colorado: Carlson, Hammond & Paddock, LLC William A. Paddock Mary Mead Hammond Karl D. Ohlsen Denver, Colorado

          Attorneys for Opposer-Appellee Southeastern Colorado Water Conservancy District: Burns, Figa & Will, P.C. Stephen H. Leonhardt Sarah M. Shechter, Greenwood Village, Colorado

          Attorneys for Opposer-Appellee City and County of Denver, acting by and through its Board of Water Commissioners: Patricia L. Wells, General Counsel Casey S. Funk Mary J. Brennan Daniel J. Arnold James M. Wittler Denver, Colorado

          Attorneys for Applicant-Appellee Busk-Ivanhoe, Inc.: Hamre, Rodriguez, Ostrander & Dingess, P.C. John M. Dingess Austin Hamre Denver, Colorado

          Attorneys for Amicus Curiae Cache La Poudre Water Users Association and for Amicus Curiae City of Northglenn: Fischer, Brown, Bartlett & Gunn, P.C. William R. Fischer Donald E. Frick Fort Collins, Colorado

          Attorneys for Amici Curiae City of Colorado Springs and Twin Lakes Reservoir and Canal Company: Michael Gustafson, City Attorney Colorado Springs, Colorado Hill & Robbins, P.C. David W. Robbins Denver, Colorado Carlson, Hammond & Paddock, LLC William A. Paddock Mary Mead Hammond Karl D. Ohlsen Denver, Colorado

          Attorneys for Amicus Curiae Board of County Commissioners for the County of Grand: White & Jankowski, LLP David C. Taussig Mitra M. Pemberton Denver, Colorado

          Attorneys for Amicus Curiae Lower Arkansas Valley Water Conservancy District: Berg Hill Greenleaf & Ruscitti LLP Peter D. Nichols Leah K. Martinsson Boulder, Colorado Mendenhall & Malouff H. Barton Mendenhall, II Rocky Ford, Colorado

          Attorneys for Amici Curiae Northern Colorado Water Conservancy District, Municipal Subdistrict, and the City of Greely, acting by and through its Water and Sewer Board: Trout, Raley, Montaño, Witwer & Freeman, P.C. Bennett W. Raley Douglas M. Sinor Lisa M. Thompson Denver, Colorado, Greeley City Attorney's Office Andrew B. Nicewicz Greeley, Colorado Vranesh and Raisch, LLP Paul J. Zilis Boulder, Colorado Riley Carlock & Applewhite Brian M. Nazarenus Susan M. Ryan Denver, Colorado City of Lafayette David C. Lindholm Lafayette, Colorado Starr & Westbrook, P.C. Randolph W. Starr Michael A. Westbrook Loveland, Colorado Petrock & Fendel, P.C. Frederick A. Fendel, III Denver, Colorado

          Attorneys for Amicus Curiae The Consolidated Mutual Water Company: Collins Crockrel & Cole, P.C. Evan D. Ela Joseph W. Norris Denver, Colorado

          OPINION

          MÁRQUEZ JUSTICE

          ¶1 This appeal from the water court in Water Division 2 challenges certain rulings relevant to the historic consumptive use quantification of transmountain water rights that are the subject of a change application.

         ¶2 The City of Aurora, Colorado ("Aurora"), is the sole owner of the capital stock of Busk-Ivanhoe, Inc. ("Busk-Ivanhoe"). Busk-Ivanhoe owns a one-half interest in water rights decreed in 1928 to the Busk-Ivanhoe System for supplemental irrigation in the Arkansas River Basin by Garfield County District Court in Civil Action No. 2621 (the "2621 Decree"). The Busk-Ivanhoe System is a transmountain diversion from the Colorado River Basin on the western slope in Water Division 5, through the Ivanhoe Tunnel at the Continental Divide, to the Arkansas River Basin on the eastern slope in Water Division 2.

         ¶3 The 2621 Decree confirmed absolute and conditional appropriations to divert water from tributaries of the Roaring Fork River, and includes a priority for storage of 1, 200 acre-feet of the diverted water in the Ivanhoe Reservoir on the western slope. Under the terms of the decree, the diverted water is exported through the Ivanhoe Tunnel to the eastern slope-some amounts on an immediate basis and some after storage in the Ivanhoe Reservoir (on the western slope). The decree, however, contains no reference at all to storage of the exported water on the eastern slope prior to its decreed use for supplemental irrigation in the Arkansas River Basin. Nevertheless, transmountain water decreed to the Busk-Ivanhoe System has been stored in reservoirs on the eastern slope before being put to beneficial use.

         ¶4 In 1987, at Aurora's direction, Busk-Ivanhoe began to put its water rights to municipal use in Aurora in Water Division 1. However, Busk-Ivanhoe did not file an application to change the type and place of use of these rights until 2009. That change application is the subject of this appeal.

         ¶5 In its May 27, 2014, Findings of Fact, Conclusions of Law, and Order ("May 2014 Order "), the water court for Water Division 2 approved Busk-Ivanhoe's change application to allow use of the subject water rights within Aurora's municipal system. It confirmed these rulings in its August 15, 2014, Judgment and Decree ("August 2014 Judgment and Decree") approving the change application.

         ¶6 The issues raised in this appeal concern the water court's quantification of the water rights to be changed under the application. Relevant here, the water court concluded that: (1) storage of the water rights on the eastern slope prior to use was lawful despite the 2621 Decree's silence on the issue, and, therefore, the quantification of the historic consumptive use of those rights should include water used for its decreed purpose after release from storage on the eastern slope; (2) volumes of exported water paid to rent storage on the eastern slope should also be included in the historic consumptive use quantification of the water rights; and (3) the twenty-two-year period of undecreed use of the water rights for municipal purposes must be excluded from the representative study period when calculating the historic consumptive use of the decreed rights. Opposers-Appellants-who include the State Engineer and Division Engineers for Water Divisions 1, 2, and 5 (collectively, the "Engineer Opposers"), as well as several entities located in the Colorado River Basin (collectively, the "Western Slope Opposers")[1]-challenge the water court's conclusions.

         ¶7 As set forth more fully below, we hold as follows. First, the water court erred when it concluded that storage of the Busk-Ivanhoe rights on the eastern slope prior to use was lawful. On remand, the water court must requantify the water rights subject to change; to the extent that unlawful storage of the water on the eastern slope prior to use expanded the decreed rights, such amounts cannot be included in the historic use quantification of those rights.

         ¶8 Second, because storage of the subject water rights in the basin of import was unlawful, the water court erred in including the volumes of exported water paid as rental fees for storage on the eastern slope in its historic consumptive use quantification of the water rights.

         ¶9 Finally, the water court erred in concluding that it was required to exclude the twenty-two years of undecreed use of the subject water rights from the representative study period. In this case, the period of undecreed use reflects twenty-two years of non-use of the decreed rights. Because unjustified non-use of a decreed right should be considered when quantifying historic consumptive use for purposes of a change application, we remand the case to the water court to determine whether the years of non-use of the Busk-Ivanhoe rights for their decreed purpose were unjustified. If so, the water court should consider including the years of unjustified non-use in the representative study period as "zero-use" years for purposes of its historic consumptive use analysis. Accordingly, we reverse the water court's May 2014 Order and August 2014 Judgment and Decree and remand to Water Division 2 for further proceedings consistent with this opinion.

         I. Facts and Procedural History

         ¶10 The water rights at issue in this case are an undivided one-half interest in the Busk-Ivanhoe System water rights. The Busk-Ivanhoe System water rights were originally adjudicated to A.E. and L.G. Carlton in Water District 38 on January 9, 1928, by the Garfield County District Court in Case No. 2621, and were decreed for supplemental irrigation on 80, 000 acres of land in the Arkansas River Basin. At the time of the appropriation, the Arkansas River Basin was over-appropriated and junior water rights did not provide sufficient water during the entire irrigation season. By contrast, the Colorado River Basin had water available for appropriation.

         ¶11 The Busk-Ivanhoe System is composed of three ditches (Lyle Ditch, Pan Ditch, and Hidden Lake Creek Ditch), the Ivanhoe Reservoir, and the Ivanhoe Tunnel. The ditches divert spring runoff from small tributaries to the Roaring Fork River in the Colorado River Basin. The ditches deliver this water to the Ivanhoe Reservoir, an on-channel reservoir that also captures the entire natural flow of Ivanhoe Creek. The 2621 Decree adjudicates absolute direct flow rights for waters from Ivanhoe Creek and Lyle Ditch, and conditional direct flow rights for waters from Pan Ditch and Hidden Lake Creek Ditch.[2] The 2621 Decree provides that these direct flow rights flow through the Ivanhoe Reservoir to the Ivanhoe Tunnel. The 2621 Decree also adjudicates an absolute right for storage of 1, 200 acre-feet of water from Ivanhoe Creek and the ditches in the Ivanhoe Reservoir on the western slope. The Ivanhoe Tunnel carries both the direct flow water and the water released from storage in the Ivanhoe Reservoir "onto the Eastern Slope of said Continental Divide where the same is discharged at the east portal of said tunnel into Lake Fork Creek, a tributary of the Arkansas River, and later diverted from said streams and used in the irrigation of lands within the State of Colorado lying along said streams and susceptible of irrigation therefrom." 2621 Decree, ¶ 5.

         ¶12 The 2621 Decree makes no reference to storage of the water on the eastern slope prior to being put to its decreed use for supplemental irrigation. Nevertheless, water diverted under the decree has been stored on the eastern slope since the Carltons began diverting in the mid-1920s. The Carltons did not own a reservoir in the Arkansas River Basin. Instead, they rented storage space in the Sugarloaf Reservoir, owned by CF&I Steel Company. The Carltons paid CF&I Steel a storage fee in volumes of water amounting to twenty percent of the water stored.

         ¶13 For many years, the Carltons leased the imported water to the High Line Canal Company, releasing water from storage as needed for supplemental irrigation. In 1950, the Carltons sold the Busk-Ivanhoe System water rights to the High Line Canal Company. The High Line Canal Company continued to store water in the Sugarloaf Reservoir. When the Sugarloaf Reservoir was later inundated and replaced by the Turquoise Reservoir during construction of the Fryingpan-Arkansas Project, the High Line Canal Company stored the imported water in the new reservoir through a contract with the Bureau of Reclamation. Like the Carltons, the High Line Canal Company paid for the storage in volumes of water.

         ¶14 In 1972, the High Line Canal Company sold an undivided one-half interest in the Busk-Ivanhoe System water rights to the Board of Water Works of Pueblo, Colorado ("Pueblo").[3] In 1984, Busk-Ivanhoe was incorporated and succeeded to the remaining one-half interest in the Busk-Ivanhoe System water rights. Between 1986 and 2001, Aurora purchased all of the capital stock of Busk-Ivanhoe, thereby acquiring the remaining one-half interest in the Busk-Ivanhoe System water rights.

         ¶15 In 1987, at Aurora's direction, Busk-Ivanhoe began putting its portion of the usk-Ivanhoe System water rights to undecreed municipal use in the South Platte River Basin. To accomplish this, Busk-Ivanhoe diverted its water rights through the Ivanhoe Tunnel to the Turquoise Reservoir, where the water was stored. From there, the water was delivered through the Mount Elbert Conduit down to Twin Lakes Reservoir, through the Otero Pipeline to the Otero Pump Station, and pumped out of Water Division 2 and into Aurora's storage facilities in Water Division 1. Busk-Ivanhoe continued to put the water to undecreed municipal use until 2009, and with the exception of one delivery during this twenty-two-year period, it did not apply the water to its decreed use for supplemental irrigation of lands in the Arkansas River Basin.

         ¶16 On December 30, 2009, at the request of the Division 2 Engineer, Busk-Ivanhoe filed an Application for Change of Water Rights with the clerk in Water Division 2 (the division where the water is imported) seeking to change the place of use of the water rights and to change the type of use from supplemental irrigation to municipal and domestic use.[4] Busk-Ivanhoe filed identical applications in Water Division 1 (the division where the water is being put to municipal use) and Water Division 5 (the division from which the water is exported). These cases were consolidated on May 7, 2010, in Water Division 2, and the water court held a five-day trial in July 2013.[5]

         ¶17 In its May 2014 Order, the water court quantified the historic consumptive use of the Busk-Ivanhoe water rights using a study period from 1928 through 1986, concluding that this was a representative period during which the rights were put to their decreed use. Notably, the water court excluded from the representative study period the twenty-two years of undecreed municipal and domestic use of the water rights from 1987 through 2009, reasoning that the study period must exclude undecreed uses.

         ¶18 The water court also concluded that, despite its silence regarding storage of the water on the eastern slope, the 2621 Decree included a component of lawful storage in the Arkansas River Basin. The court therefore included in its historic consumptive use quantification water stored on the eastern slope before being put to its decreed purpose. The court reasoned that the 2621 Decree's reference to "supplemental supply" evidenced an intent to use the water for supplemental irrigation when native flows in the Arkansas River Basin were insufficient to meet irrigation demands and concluded that storage was therefore necessary for the effective and beneficial use of the water rights. The court also surmised that certain references in the decree to "direct irrigation" that were stricken and replaced by handwritten references to "direct flow" suggested that exported water would not be used immediately for irrigation but instead might be stored. To support its conclusion that the intent of the original appropriation included storage on the eastern slope, the water court also relied on certain extrinsic evidence not before the court in the 2621 Decree proceedings, namely, a map and statement filed with the State Engineer's Office that described a reservoir on the eastern slope that the Carltons had proposed but never built, and certain meeting minutes marketing the water as "reservoir water." As an additional basis for its ruling regarding storage on the eastern slope, the water court reasoned that the legal distinction between direct flow and storage rights does not apply to transmountain water, and thus, transmountain water may be stored even absent specific authorization in a decree.

         ¶19 Finally, the court also included in its historic consumptive use quantification the volumes of water used to pay for storage in the Sugarloaf and Turquoise Reservoirs, accepting the testimony of Busk-Ivanhoe's expert witness that storage on the eastern slope was needed to beneficially use the water and that the fees paid in volumes of water were akin to evaporation or transit losses.

         ¶20 Based on these conclusions, the water court quantified the transferable yield of the Busk-Ivanhoe water rights as 2, 416 acre-feet per year. In its August 2014 Judgment and Decree, the court approved the change application with terms and conditions, and retained jurisdiction to reconsider any injury to vested water rights resulting from the change. This appeal followed.

         II. Standard of Review

         ¶21 We accept the water court's factual findings on appeal unless they are so clearly erroneous as to find no support in the record. Burlington Ditch Reservoir & Land Co. v. Metro Wastewater Reclamation Dist., 256 P.3d 645, 660 (Colo.), as modified on denial of reh'g (June 20, 2011); S. Ute Indian Tribe v. King Consol. Ditch Co., 250 P.3d 1226, 1232 (Colo. 2011). "We review de novo the water court's legal conclusions, including its interpretation of prior decrees." Burlington Ditch, 256 P.3d at 661; see Simpson v. Bijou Irrigation Co., 69 P.3d 50, 58 (Colo.), as modified on denial of reh'g (May 27, 2003).

         III. ...


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