Another significant water law ruling has been handed down from the Utah Supreme Court. The July 23, 1996 decision in the case of Badger v. Brooklyn Canal Company (295 Utah Advance Reports 31) contains several notable pronouncements that all water users should understand and bear in mind. The case arose out of a change application filed by the canal company in connection with a change from a flood irrigation system to a pressurized pipe irrigation system. Several of the canal company shareholders filed protests, as did several other persons holding their own private water rights.

The Supreme Court noted that "the State Engineer does not have the authority to adjudicate all the issues that may arise in the context of a change application." (295 Utah Adv. Rep. at 34). The Court stated that the State Engineer's jurisdiction and authority with respect to change applications is largely contained in § 73-3-8(1) of the Utah Code Annotated. Two of the factors that the State Engineer must consider under this statute are whether the change will impair "existing water rights" or will prove detrimental to the "public welfare."

Internal Corporate Disputes

The Supreme Court acknowledged that the rights of shareholders in a canal company are necessarily intertwined with the water rights held by the canal company for the shareholders' use. However, the Supreme Court refused to recognize individual shareholders as having "existing water rights" based on their rights as shareholders. The Court noted that to do so would allow a small group of dissenting shareholders or even a single shareholder to override the will of the majority of the shareholders who voted to move forward with the change application. It would also move what is actually a internal corporate dispute into the State Engineer's arena. The Court ruled that the State Engineer does not have jurisdiction to decide such corporate issues and that the dissenting shareholders have access to the courts directly to address such issues.

Public Welfare Issues

The protestants also claimed that the proposed changes in the change application would harm the public welfare in three different ways: (1) the change to pressurized irrigation would eliminate corn silage crops used to feed local livestock herds; (2) the changes would make water from warm artesian wells unavailable for resale by certain shareholders to others for winter stock watering uses; and (3) the abandonment of the canal systems would eliminate the flood management benefits of the canals.

The Supreme Court ruled that the first two issues are not public welfare issues but are internal corporate issues to be resolved in-house or in the courts. However, the Court appeared to recognize that flood management is a public welfare issue but held that the effect of the loss of the canal system on flood control is too speculative to consider. The Court also stated that accepting this type of argument would create a dangerous precedent for all canal system administrators by imposing upon them the duty to operate the canal system for the benefit of the public rather than for its shareholders. This would infringe on water deliveries and would discourage innovation and flexibility in "distributing the precious commodity of water in an arid state," which is clearly contrary to the public welfare.

Protestants must make a Record of All Objections

In a 1990 decision, the Utah Supreme Court ruled that a person who refused or neglected to participate in a proceeding before the State Engineer cannot bypass the State Engineer and call upon the courts to address issues which should have been addressed in the State Engineer's proceeding. (S&G, Inc, v. Morgan, 797 P.2d 1085.) The Supreme Court extended that holding to protestants who fail to make known the nature of their rights in the course of the proceeding before the State Engineer. The Court refused to allow issues to be raised for the first time during a court's review of a decision of the State Engineer.

This means that protestants must have all of the grounds for their protests on the record before the State Engineer makes his decision. Because proceedings before the State Engineer are almost always informal, the written protest is typically the only document from protestants that goes into the record. This is particularly true when no hearing is held on the matter. Therefore, protestants should carefully identify the nature of their rights and list the various grounds for their objections in the protest itself or in a written supplement filed at the hearing. The description can be general in nature as long as they are sufficient to give the State Engineer and the other parties notice of the existence of the claims.

This requirement reasonably applies to applicants as well. It will likely bar any claims raised for the first time by the applicant at the court review stage that should have been raised in the proceeding before the State Engineer. This means that written responses to protests which set forth on the record the applicant's position are also highly advisable.

Your comments and questions are welcome. The author can be reached at (801) 413-1600.

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