Front Range Res., LLC v. Colo. Ground Water Comm'n
Docket: Supreme Court Case No. 16SA243
Court: Supreme Court of Colorado; April 9, 2018; Colorado; State Supreme Court
Front Range Resources, LLC applied for a replacement plan to withdraw designated ground water from the Lost Creek Designated Ground Water Basin by recharging it with water from its existing rights, including those in the South Platte River. The plan involved increasing the use of existing wells and constructing new ones. However, objections from other parties led the Ground Water Commission to dismiss Front Range's application with prejudice, allowing for an appeal to the district court. Concurrently, Front Range entered into an option contract with the City of Aurora for potential future water sales contingent on the plan's approval.
On appeal, the district court ruled against the use of South Platte water rights in the replacement plan, determining that the plan constituted new appropriations and changes to existing water rights, which fell under the anti-speculation doctrine. This doctrine prohibits speculative sales or changes where there is insufficient evidence of a specific beneficial use plan. The court granted summary judgment for the Defendants, concluding that Front Range failed to demonstrate a concrete plan for beneficial use of the replacement water, including its contract with Aurora. The Defendants pursued attorney fees, but their motion was denied by the district court.
The appellate court upheld the district court's decisions, affirming the application of the anti-speculation doctrine to replacement plans and validating the denial of attorney fees to the Defendants. The court found no error in the district court's conclusions or in its discretionary rulings.
Defendants sought summary judgment to dismiss Front Range's replacement plan, claiming it violated the anti-speculation doctrine. Front Range contended this doctrine was not applicable as its plan did not involve new appropriations or changes to water rights. However, if applicable, Front Range argued it demonstrated a specific intent to beneficially use the replacement water through an option contract with Aurora and for a planned unit development, Pioneer Development. The district court determined the replacement plan did involve new appropriations and changes to water rights, thus the anti-speculation doctrine applied. It found that the plan did not satisfy the beneficial use requirement of the doctrine because Aurora had sole discretion over purchasing the water, indicating no actual commitment to its beneficial use. The court also ruled that Front Range's evidence for water needs in the Pioneer Development did not meet the requirements, leading to a summary judgment in favor of Defendants. Front Range's motion for reconsideration was denied. Some Defendants sought attorney fees, asserting the application lacked substantial justification, but the district court denied this request, citing the case's complexity. Front Range appealed the district court's findings on the anti-speculation doctrine and the denial of attorney fees, while some Defendants cross-appealed regarding the attorney fees issue. The court reviewed the legal questions de novo, affirmed the applicability and violation of the anti-speculation doctrine by the replacement plan, and upheld the denial of attorney fees as not constituting an abuse of discretion.
The Anti-Speculation Doctrine is relevant to Front Range's Replacement Plan, as the district court found it applies to the plan, which Front Range disputes. Front Range contends that the plan does not involve new appropriations or changes to water rights, asserting it will simply divert water from existing rights, recharge it, and then withdraw the same amount, suggesting that water's ultimate balance negates any issues. However, defendants argue that the plan constitutes new appropriations and changes of water rights, activating the anti-speculation doctrine.
The doctrine, articulated in Colorado Water Conservation District v. Vidler Tunnel Water Co. (1979), establishes that appropriations are for actual use, not for speculative profit. In Vidler, a company’s proposal to divert and store water for future sale was deemed speculative due to a lack of firm sales arrangements. The General Assembly later codified this doctrine, stating that an appropriation is not valid if based on speculative sales and if the appropriator lacks a specific plan for beneficial use of the water.
The doctrine initially applied to surface water but has since been extended to designated ground water, as seen in Jaeger v. Colorado Ground Water Commission (1987), where it was noted that the doctrine encourages the effective use of water resources. Additionally, in High Plains A&M, LLC v. Southeastern Colorado Water Conservancy District (2005), the court applied the doctrine to changes in water rights, ruling against a company that failed to demonstrate beneficial use agreements at the time of its application. Overall, the anti-speculation doctrine serves to ensure that water resources are allocated for genuine use rather than speculative purposes.
An application for a decree to change the type and place of water use must demonstrate actual beneficial use at specified locations. The district court ruled that the anti-speculation doctrine applies to Front Range's proposed decree, which seeks to increase usage of existing wells and construct thirty-one new large-capacity wells in the overappropriated Lost Creek Basin. Front Range had notified the Commission of plans involving new appropriations and acknowledged the applicability of the anti-speculation doctrine in its proposal. It requested a priority date and included a section addressing the anti-speculation doctrine. Despite this, Front Range argues that its request does not constitute new appropriations since it intends to withdraw recharged water previously diverted under existing rights, and it abandoned its priority date claim.
However, the court disagreed, determining that the replacement plan constitutes a new appropriation triggering the anti-speculation doctrine due to the request for increased use of existing wells and construction of new ones. Under Colorado regulations, new appropriations in overappropriated aquifers require an approved replacement plan. The court noted that the need for such a plan indicates new appropriations are indeed involved, as Front Range's proposal to increase water extraction aligns with the definition of a change of water right, which includes alterations in use, volume, and well location. Front Range's assertion that it modified existing water rights for the replacement plan does not negate the changes involved.
The replacement plan proposes significant changes, including the construction of thirty-one new wells and amendments to existing well permits to allow for the withdrawal of recharged water. These modifications invoke the anti-speculation doctrine due to new appropriations or changes in water rights associated with designated groundwater. The district court concluded that the replacement plan violates this doctrine, placing the burden on Front Range to demonstrate compliance. Front Range claims it has established a specific intent to beneficially use the replacement water through an option contract with Aurora and plans for its Pioneer Development land. However, the court finds these arguments unconvincing.
The option contract with Aurora, similar to a previous case (Vidler), lacks a firm commitment for water use. While Front Range cites the contract's specificity, Aurora's needs, and its cooperation during the application process, the court notes that Aurora is not obligated to exercise the option, making the plan speculative. The precedent emphasizes the necessity of firm contracts or agency relationships to prevent speculation in water appropriation. Ultimately, the district court's findings are affirmed, reinforcing the requirement for concrete commitments from end-users to validate appropriation plans.
The district court deemed Front Range's option contract speculative, concluding it does not meet the anti-speculation doctrine. While option contracts can potentially satisfy this doctrine, relevant precedents cited by Front Range are distinguishable since they were either decided prior to the court's ruling on the doctrine's applicability to water rights changes in High Plains or involved a governmental entity exception not applicable here. Although certain circumstances may allow for non-speculative option contracts, Front Range's contract resembles the speculative one invalidated in Vidler, thus Vidler's ruling prevails. Front Range argued that evidence regarding the Pioneer Development created a genuine issue of material fact concerning its intent to beneficially use the water, but the court disagreed, emphasizing that plans must adhere to the anti-speculation doctrine regardless of ownership. The court referenced Vermillion Ranch, where mere future plans without concrete evidence of intent were deemed insufficient. Front Range's evidence, including zoning approvals and funding agreements, failed to establish a genuine issue of material fact regarding the actual use of replacement-plan water in the Pioneer Development. Consequently, Front Range's replacement plan is found to violate the anti-speculation doctrine.
The district court dismissed Front Range's replacement plan for violating the anti-speculation doctrine, which was deemed properly applied to replacement plans involving new appropriations or changes of water rights. Consequently, the issue of including South Platte Water Rights as a source of replacement water was not addressed. Defendants, who prevailed on summary judgment, sought attorney fees, but the district court denied the motion, determining that Front Range's claims were not substantially frivolous or groundless given the complexity of the legal issues involved. The court's decision aligned with statutory provisions that require a finding of lack of substantial justification to award fees. The appellate court found no abuse of discretion in the district court's denial of fees, affirming that Front Range's arguments did not lack justification. The issues on appeal included the district court's legal determinations regarding the application of the anti-speculation doctrine, the use of an option agreement with the City of Aurora, and the interpretation of Commission Rule 5.6.1.A. The court clarified that not all replacement plans invoke new appropriations or changes of water rights, thus not all trigger the anti-speculation doctrine, and did not address the concept of storage as a beneficial use since it was not part of the district court’s orders.
