On Feb. 24, 2012 the Supreme Court of Texas issued a watershed decision supporting the property rights of landowners to groundwater beneath their land. In doing so, the Court may have opened the door to litigation by owners seeking compensation for the taking of their groundwater property rights based upon permitting regulations which unfairly and severely limit the pumping of groundwater. "The Court found that a limited class of property owners may have a compensable right when there is a taking of groundwater in place," said José Berlanga, Gardere attorney and former Special Counsel to the General Manager of Edwards Aquifer Authority. "This decision certainly raises more questions than it answers."
Writing for a unanimous Court, Judge Nathan Hecht relied upon a recent statute and the common law that "land ownership includes an interest in groundwater in place that cannot be taken for public use without adequate compensation." Edwards Aquifer Authority and the State of Texas v. Day and McDaniel, No. 08-0964, slip opinion at 1 (Tex. Feb. 24, 2012). While it is clear that the EAA Act may regulate the extraction of groundwater (such as limiting well spacing to a specific minimum acreage, requiring metering and restricting pumping rights to a regulated maximum gallons per day) as a "valid exercise of the police power necessary to safeguard the public safety and welfare," the Court viewed the Takings Clause of the Texas Constitution as a means to ensure "that the problems of a limited public resource – the water supply – are shared by the public, not foisted onto a few." Id. at 35 and 46.
The Day Court concluded for the most part that groundwater should be treated no differently than oil and gas. Id. at 11. According to the Court, Texas common law holds that oil and gas are owned in place with the only qualification that such ownership is subject to the law of capture and police power of the state. Elliff v. Texas Drilling Co., 210 S.W.2d 558, 561 (Tex. 1948). The Court now holds under Texas common law that landowners have a protectable right of ownership in the groundwater beneath their land. Id. at 26. The Court recognized important differences between oil and gas and groundwater, but found no sufficient basis to "conclude that the common law allows ownership of oil and gas in place but not groundwater." Id. We strongly suspect that EAA or the State may seek reconsideration of the Court's opinion.
The Day opinion clarification of groundwater "ownership" rights raises additional legal questions:
- Under what specific or measurable criteria do restrictions of the right to extract groundwater rise to the level of an unconstitutional "taking" of groundwater rights?
- What threshold of withdrawal rights above the level of "completely depriv[ing] the owner of all economically beneficial uses of [his] property" are unreasonable enough to qualify the landowner to recover for an unconstitutional taking of groundwater?
- Is meaningful insurance available to insure the landowner's vested property right in groundwater and if so, where can it be obtained, under what specific policy language, affording what specific remedies, and subject to what specific exclusions?
- What level of negative economic impact must the landowner show to entitle the owner to sue for damages?
- If the factual sufficiency of a regulatory taking depends upon a "fact sensitive test of reasonableness" are all such issues decided by the Court as a matter of law?
- What are specific additional factors that a groundwater management district should weigh in its permitting decisions in addition to mere surface acreage ownership to determine whether the overall regulations "afford a landowner their fair share of groundwater beneath their property"?
- Must GMD rules consider the correlative rights of applicants for permits?
- Since the Court frowns upon the "use it or lose it" test for renewal of groundwater permitting rights, what rights do prior permit applicants and holders have to recover for prior denials or restrictions imposed in the permitting process?
- What administrative remedies must be exhausted as a prerequisite for litigation to recover previously denied groundwater rights?
- Must groundwater be "condemned" before being taken for public use by a municipality, GMD or other governmental body?
- Which court or entity has jurisdiction to adjudicate and award damages or other relief for an unconstitutional taking of groundwater rights caused by regulatory permitting?
- Are landowner declaratory judgment actions a permitted or useful vehicle to enforce a landowner's constitutional rights to pump groundwater in specific quantities?
- Is it financially worthwhile to sue a GMD over prior denial?
- May the Water Code employ a cost shifting mechanism to discourage land owners from protecting their constitutional property interests?
- May a tribunal limit recovery for prior denial of a permit to issuance, revision, or expansion of the original permit?
- Is the State of Texas a proper or necessary party to ensure any judgment for an unconstitutional taking can be satisfied?
Oil and Gas
- Since a landowner has a right to exclude others from groundwater beneath his property [though this right does not prevent "ordinary drainage"] when does the drainage become "extraordinary" to the point injunctive relief may be appropriate and/or recovery of damages may be allowed?
- May oil and gas operators now obtain meaningful, quantifiable rights from landowners in groundwater leases?
- Assuming so, in negotiating mineral leases for groundwater rights, what specific rights, representations and warranties should a landowner give or convey (or not give and/or not convey) to a lessee, facing the risk that the EAA or a GMD might reallocate permitted rights later on?
- What constitutional constraints may the governing district (EAA or GMDs) place upon assignments, withdrawals, and use of such groundwater?
- May a landowner assign his constitutional claim for a GMD's failure to issue a permit with specific parameters for volumes of groundwater requested to a lessee for lessee's prosecution of any claims against the GMD?
- Does a lessee have any standing or right to damages against the EAA or GMD for restricting his rights to extract and use groundwater.
The Supreme Court remanded the case for further proceedings. For that reason, we may have to wait for further factual and legal development to better appreciate the impact of this decision on groundwater issues throughout the state.