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Teton Cooperative Reservoir Co. v. Farmers Cooperative Canal Co.

Supreme Court of Montana

April 3, 2018

TETON COOPERATIVE RESERVOIR COMPANY, Claimant and Appellant,
v.
FARMERS COOPERATIVE CANAL CO. and TETON COOPERATIVE CANAL COMPANY, Objectors, Appellees, and Cross-Appellants. LOWER TETON JOINT OBJECTORS, Objector and Appellee,

          Submitted on Briefs: January 17, 2018

          APPEAL FROM: Montana Water Court, Case No. 41O-84 Honorable Douglas Ritter, Water Judge.

          For Appellant: Holly Jo Franz, Ryan McLane, Franz & Driscoll, PLLP, Helena, Montana.

          For Appellee Farmers Cooperative Canal Co.: Michael J.L. Cusick, Moore, O'Connell & Refling, PC, Bozeman, Montana.

          For Appellee Teton Cooperative Canal Company: John E. Bloomquist, Bloomquist Law Firm, P.C., Helena, Montana.

          OPINION

          Mike McGrath Chief Justice.

         ¶1 Teton Cooperative Reservoir Company (Teton Reservoir) appeals an April 27, 2016 order of the Montana Water Court in Case 41O-84, adjudicating Teton Reservoir's water rights. Teton Cooperative Canal Company (Teton Canal) and Farmers Cooperative Canal Company (Farmers) cross-appeal. We affirm.

         ¶2 We restate the issues on appeal as follows:

Issue One: Whether the Water Court erred in determining that Teton Reservoir's 1902 Notice of Appropriation was valid.
Issue Two: Whether the Water Court erred by applying the equitable doctrine of laches to Teton Reservoir's 1902 Notice of Appropriation.
Issue Three: Whether the Water Court erred in decreeing Teton Reservoir an annual volume totaling 60, 000 acre feet for storage in the Bynum Reservoir.
Issue Four: Whether the Water Court erred in refusing to limit Teton Reservoir's wintertime diversions to one-half of the available water in the Teton River.

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶3 Teton Reservoir is one of four irrigation companies located on the Teton River. Teton Reservoir was incorporated in May 1906, for the purposes of acquiring, developing, and improving the Bynum Reservoir and to complete one or more diversion canals to take water from the Teton River to the reservoir. Teton Reservoir has acquired four water rights. Teton Reservoir filed a Statement of Claim for each of its four water rights in the current water right adjudication process for the Teton River Basin. However, the only water right claim contested from the Water Court's Order is the claim based on the 1902 Notice of Appropriation (1902 Notice) filed by Donald Bradford (Bradford).

         ¶4 Bradford filed a Notice of Appropriation claiming 3, 000 cfs from the Teton River on July 3, 1902. The stated purpose of the 1902 Notice was "for the purpose of irrigating and reclaiming lands lying in said Teton County." The 1902 Notice did not identify a reservoir. Shortly thereafter, Bradford commissioned a survey of the project. Engineer Walter Mathews (Mathews) performed the survey and on November 29, 1902, Mathews filed his survey report. Mathews identified a point of diversion, a reservoir with a 69, 500 acre feet capacity, and surveyed over twenty-nine miles of distribution canals. Once Mathews's survey was approved by the Government Land Office (GLO), Bradford acquired the rights of way and tried to obtain funding for the project to develop a canal and reservoir system.

         ¶5 By 1906, Bradford was unable to obtain funding to develop the reservoir and canal system and conveyed the 1902 Notice and the rights of way to the Wagnild group. The Wagnild group incorporated Teton Reservoir in May 1906. Teton Reservoir obtained the funding to develop the Bynum reservoir and canal system (Bynum System). Between 1906 and 1909 construction on the Bynum System progressed. In 1907, the original diversion point was completed. In 1909, Teton Reservoir began to pursue a potential Carey Act project to acquire more land for irrigation.[1] Pursuing the Carey Act project led to internal conflict among Teton Reservoir's shareholders. Teton Reservoir's shareholders were in direct conflict with one another until 1914. Despite the internal conflicts, Teton Reservoir continued to make progress on the Bynum System. In 1910 and 1911, several engineers discovered problems with the design and construction of the dam that required resolving before Teton Reservoir could divert any water. By 1915, Teton Reservoir had relocated the diversion point because the original diversion point was in a poor location on the river, and it had resolved the dam's design problems. The 1962 Teton County Water Resource survey indicated that Strabane Gage Station started diverting floodwaters to the Bynum Reservoir in 1918.

         ¶6 In 1919, GLO Commissioner Tillman inspected the reservoir site and questioned the proposed Carey Act project. The Water Court found that the inspection marked a shift by Teton Reservoir to return to the original plan to develop the Bynum System and abandon the Carey Act project. Teton Reservoir's board officially abandoned the Carey Act project in 1925 by resolution. Due to Tillman's inspection, local irrigators began to promote formation of the Bynum Irrigation District (BID). In 1920, BID was established. The BID commissioned an engineer to evaluate the status of the Bynum System. Engineer S.B. Robbins issued his report on November 10, 1920, providing recommendations to improve the Bynum System so that it could divert and store water to its fullest capacity. However, BID could not finish the Bynum System until it received approval to sell bonds. Between 1920 and 1925, Teton Reservoir maintained the Bynum System. In 1925, BID received approval to sell bonds, bought eighty percent of Teton Reservoir's stock, and began implementing Engineer Robbin's recommendations. By 1927, Teton Reservoir's current point of diversion, intake canal, reservoir, and distribution canals were in place. When completed, the Teton Reservoir's diversion canal capacity was 1, 000 cfs and the Bynum Reservoir had a capacity between 85, 000 and 90, 000 acre feet.[2]

         ¶7 During that period, Teton Canal developed limited water storage in the Glendora Reservoir under its 1890 Notice of Appropriation. Teton Coop. Canal Co. v. Teton Coop. Reservoir Co., 2015 MT 344, 382 Mont. 1, 365 P.3d 442 (hereinafter Teton Canal I). In 1936, Teton Canal expanded its water storage capacity with the development of the Eureka Reservoir. Teton Canal again expanded the Eureka Reservoir in 1947 and 1957. Teton Canal I, ¶ 14. In 2015, this Court determined that the Eureka Reservoir use could not relate back to Teton Canal's 1890 Notice and must be given a separate priority date. Teton Canal I, ¶¶ 55, 57. We affirmed the Water Court's determination that the priority date for the Eureka Reservoir is December 7, 1936. Teton Coop. Canal Co. v. Teton Coop. Reservoir Co., 2018 MT 20, ¶ 17, 390 Mont. 210, __P.3d__.

         ¶8 In 1908, the District Court issued a decree adjudicating water rights on the upper Teton River. Perry v. Beattie, Case No. 371 (Mont. 11th Judicial Dist., March 28, 1908) (hereinafter Perry decree). The Perry decree adjudicated Teton Canal's predecessors' and Farmers' predecessors' water rights. Teton Reservoir was not a party to the Perry decree.[3] Significantly, Teton Reservoir never sought to reopen the Perry decree to establish its water rights in relation to other appropriators.

         ¶9 Historically, Teton Reservoir's water rights have been administered by the water commissioner appointed by the District Court to distribute water under the Perry decree. In 1946, the water commissioner refused to turn water into Teton Reservoir's ditch, and Teton Reservoir passed a resolution instructing the directors to take steps to clarify Teton Reservoir's water rights. However, the Water Court found no evidence indicating that effort had been undertaken. In 1952, the water commissioner again shut off Teton Reservoir's water diversion to provide water to Farmers. Teton Reservoir objected but did not file a formal dissatisfied water user complaint. Teton Reservoir, Farmers, and the water commissioner met with the District Court to discuss the administration of water. In 1953, the District Court directed the water commissioner to continue delivering the total decreed right to Farmers before Teton Reservoir. Teton Reservoir did not dispute the District Court's direction.

         ¶10 In 2006, for the first time, Teton Reservoir filed formal objections to Teton Canal's water right claims. The objection asserted that the Eureka Reservoir use could not relate back to Teton Canal's 1890 Notice. In 2009, Teton Reservoir filed a Dissatisfied Water User Complaint in District Court because Water Commissioner Leonard Blixrud reduced Teton Reservoir's flow to half the available flow in the Teton River. Teton Reservoir alleged that the water commissioner did not have the authority to administer Teton Reservoir's water rights as they were not part of the Perry decree. Teton Reservoir sought injunctive relief to restrain the water commissioner from interfering with its diversions. On September 21, 2009, the District Court resolved Teton Reservoir's Dissatisfied User Complaint, finding that Teton Reservoir had voluntarily participated in the administration of the Perry decree for nearly forty-seven years and it was judicially estopped from asserting otherwise.

         ¶11 Specifically, the District Court determined:

[Teton Reservoir] has known since the first appointment of a water commissioner over 47 years ago, that is was not a decreed water user under the Perry v. Beattie decree. [Teton Reservoir] has maintained its position of participating with the decree's administration for the past 47 years. Water reports of [Teton Reservoir's] water usage since 1964 have been filed in these legal proceedings; [Teton Reservoir] has paid the water commissioner since 1964 for its water; and [Teton Reservoir] has benefited from consistent management by a water commissioner of [Teton Reservoir's] water for the past 47 years. . . . Lastly, to allow [Teton Reservoir] to change its position would disrupt the orderliness and consistency of water distribution along the Teton River. [Teton Reservoir] is the largest off stream reservoir on the Teton. [Teton Reservoir's] reservoir, Bynum, has a holding capacity of 90, 000 acre feet of water. [Teton Reservoir] seeks annually to fill Bynum to capacity. Other storage appropriators such as Farmers' and [Teton Canal] store water and rely on distribution of water during the non-irrigation season as well. To allow an unregulated upstream diversion to [Teton Reservoir's] reservoir would be injurious to these other storage rights and decreed users downstream who have come to rely on the water commissioner's control and regulation of [Teton Reservoir's] water usage.

         However, the District Court recognized that "the significance of prior history and usage set forth in the depositions of Judge McPhillips and Commissioner Bud Olson will be for the Montana Water Court and not this Court to decide" and "this Court has no authority to decrease a ...


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