City of Thornton v. Bijou Irrigation Co.: The Thornton Northern Project Decision

In 1985, the City of Thornton, a major Denver suburb, began to look for a Thornton-only water project to meet its increasing needs. The City eventually focused on the Cache la Poudre River and began what is today known as the Thornton Northern Project. This article summarizes the October 15, 1996, Colorado Supreme Court opinion in City of Thornton v. Bijou Irrigation Co., which addressed numerous important legal issues that arose from the water court decree approving the Northern Project water rights.

In the words of the Colorado Supreme Court:

This case involves the City of Thornton's Northern Project, one of the largest municipal water projects to come before this court in recent memory. Thornton appeals, and various objectors who oppose the Northern Project cross-appeal, from portions of a decree entered by the District Court for Water Division No. 1 in four consolidated cases, case nos. 86CW401, 86CW402, 86CW403, and 87CW332. The trial court approved, subject to numerous terms and conditions, Thornton's applications for adjudication of new conditional water rights (including exchanges) and for changes in use of existing water rights. Together, the rights so decreed provide the foundation for the Northern Project, which is expected to yield in excess of 50,000 acre feet of water to Thornton per year. We affirm the trial court's entry of the decree granting Thornton's applications for adjudication of the conditional rights and the changes of use. We also affirm the majority of the terms and conditions imposed by the trial court. However, we conclude that certain of the terms and conditions imposed in the decree are invalid or unwarranted. Thus, we reverse the trial court with respect to those terms and conditions and remand to that court for proceedings consistent with this opinion. [City of Thornton v. Bijou Irrigation Co ., 926 P. 2d 1 (1996)]

Background of Thornton Northern Project

Thornton's objective was simple: find more water of better quality for its customers. Thornton's existing supplies came from the South Platte River and from Clear Creek. Large blocks of additional water were simply unavailable on either stream. Furthermore, both were becoming increasingly polluted. On the relatively pristine Poudre, however, there were large blocks of water rights available, not to mention substantial amounts of unappropriated water.

There, Thornton acquired existing water rights and initiated new ones. Initially, during 1985-86, Thornton purchased more than 100 farms served by Water Supply and Storage Company (WSSC), a large mutual ditch company. Those purchases included roughly half of WSSC's shares. In late 1986, Thornton initiated and filed water court applications for three types of new water rights: diversions from the Poudre for direct use and storage, river exchanges on the Poudre, and ditch exchanges within the WSSC system. A year later, Thornton applied to change its portion of WSSC's water rights to municipal use.

The four applications were consolidated and, after substantial discovery, went to trial for seventeen weeks before Judge Robert A. Behrman in 1991 and 1992. The water court entered its Memorandum of Decision in August 1993, and its Judgment and Decree in February, 1994. Generally, the Decree was favorable to Thornton; however, a variety of terms and conditions were not, the most significant of which was the denial of Thornton's reuse of imported, transmountain water derived from WSSC water rights. All active litigants including the Northern Colorado Water Conservancy District, the City of Fort Collins, the Cache la Poudre Water Users Association, the Platte River Power Association, Eastman Kodak Co., and the State Engineer appealed.

The Supreme Court's decision in Thornton v. Bijou Irrigation Co ., affirmed most aspects of the water court's ruling and decree. Remanded for further proceedings in the water court were the issues of transmountain reuse, ground water recharge for non-tributary wells, volumetric limitations on Thornton's conditional rights, and payment of the cost of administration. No petitions for rehearing having been filed, mandate issued on November 15, 1996, and jurisdiction returned to the Division 1 water court.

Conditional Water Rights

Thornton sought, and the water court awarded, a number of junior conditional water rights, for direct flow and storage as well as for a river exchange and for a ditch exchange. All parties appealed the result. The following noteworthy issues were addressed by the Supreme Court.

Adequacy of Notice

The objectors contended that Thornton failed to provide adequate resume notice:

• of its claim for water storage;
• of its claim to refill that storage; and
• of the identity of the replacement water rights to be used for operation of Thornton's claimed exchanges.

The water court rejected each of these contentions and the Supreme Court affirmed on appeal. The Supreme Court relied on the now-familiar standard in water matters that the purpose of resume notice is to put interested parties on inquiry of the nature, scope, and impact of the proposed diversion.

Once the applicant gives such notice, the objector bears the responsibility of reasonably diligent inquiry and is charged with all notice that such an inquiry would produce. Thus, given the size and complexity of the water rights described in Thornton's applications, Thornton's identification of "storage" among its proposed uses of water gave adequate inquiry notice not only of a storage claim but also that storage refill rights were included in Thornton's claim. Finally, Thornton's claim to use "sources lawfully available for such use" was sufficient to alert objectors to the possibility that water rights other than those specified would be used for replacement purposes.

Priority Date

Thornton appealed the selection of a December 31, 1986, priority date for its new water rights, asserting that the date should be December 24. The Supreme Court affirmed the water court's finding that, until the applications were filed on December 31st, Thornton's activities were insufficient "to constitute notice to interested parties of the nature and extent of [Thornton's] proposed demand upon the [Poudre and South Platte rivers]." The Supreme Court pointed out that signs posted by Thornton "provided no basis for even a general estimate by interested parties of either the potential uses or potential quantities of water to be diverted." Furthermore, said the court, Thornton's formal actions gave no notice. For example, the initial resolution of appropriation by Thornton's Utilities Board, while a public record, was not published or otherwise publicly circulated.

Speculation

Both Fort Collins and Northern Colorado Water Conservancy District ("NCWCD") argued that Thornton's intent to appropriate water for use within its future boundaries was speculative. The water court found no speculation, first concluding as matter of law that a city may appropriate water for use within its future boundaries, then finding that the water appropriated by Thornton would be "needed for use and will be used within [Thornton's] municipal boundaries, within [Thornton's] designated service area, or by persons or entities with which has either agency relationships or firm contractual commitments." After reviewing Thornton's evidence on its anticipated future water requirements, the Supreme Court affirmed both the water court's legal conclusion and its factual findings.

"Can and Will"

Although the water court found that Thornton met the requirements of the "can and will" test, Fort Collins appealed that finding based on the assertion "that substantial gaps remain in the project rendering Thornton's ability to complete the project unacceptably uncertain." More specifically, Fort Collins argued that the planned diversion facilities could not accommodate the rate of flow decreed and that project completion was dependent on a variety of contingencies, including acquisition of additional replacement supplies, more storage capacity, the execution of first use contracts with WSSC shareholders, and the acquisition of additional decrees. The Supreme Court found that the water court's findings were supported by the evidence.

Regarding the contingencies, having made a detailed review of what Thornton had done in furtherance of the Northern Project, the Supreme Court brushed them aside, concluding that "the presence of future contingencies is ... a non-dispositive factor to be considered in combination with other relevant factors." The Supreme Court was particularly persuaded by Thornton's "substantial investment," $73,000,000 and 35,000 hours of consultant work prior to trial, and the fact that Fort Collins' concerns related to later phases of the project.

With respect to Fort Collins' contention that the flow rates impermissibly exceeded the capacity of the pipelines delivering water to Thornton, the court pointed out that this argument failed to appreciate the operation of Thornton's "entire water system," and that Thornton's "storage capacity and other applications will allow the diversions to take place at the decreed rates without the need to build or improve upon diversion facilities beyond the plans encompassed in the project proposal."

Volumetric Limits

Primarily to preserve water for future diversion on the Poudre, that is, to keep Thornton from taking too much -- and perhaps because it considered Thornton's storage claims to be tenuous, the water court imposed "volumetric limitations" on Thornton's diversions and storage, both individually and cumulatively. Thornton appealed the imposition of those limitations, arguing that they were related neither to the amount of unappropriated water available nor to Thornton's needs.

Indeed, the water court found that more water remained unappropriated than was awarded to Thornton. In addition, Thornton requested a total project yield of about 67,000 a.f. and established a need for roughly 80,000 a.f. of water in addition to the high-quality yield of its current system, yet the water court limited total project yield to roughly 57,000 a.f. Consequently, said Thornton, the volumetric limits were unjustified and should be stricken entirely.

The Supreme Court, however, gave Thornton only partial relief. The court found such limitations to be appropriate if they "limit the yield of the rights to the amount for which water is available and for which the applicant has established a need and a future intent and ability to use." Furthermore, conditions could be imposed to prevent injury to other water rights. In Thornton's case, however, the Supreme Court concluded that the amount of the volumetric limitations was not supported by the evidence. Consequently, the Supreme Court remanded volumetric limitations to the water court with instructions either "to conform the total project volumetric yield to [the water court's] findings of fact regarding water availability and Thornton's water requirements or, if the limitation was intended to protect against potential injury to existing water rights, to make specific findings identifying the injury" to be ameliorated.

Reality Checks

In response to the water court's apparent skepticism during trial over the amount of water being claimed, Thornton proposed a term and condition prohibiting the sale to others of water produced by the Thornton Northern Project. As decreed, however, a provision referred to as "reality checks" went far beyond what Thornton proposed. The final decree included, as part of diligence proceedings on the conditional rights to divert and to exchange on the Poudre, two provisions which Thornton appealed:

1. the required showing during diligence that the "volumetric yield of the conditional water rights has been or will be needed by Thornton's projected growth," and
2. the consideration of "Thornton's use or disposition of the portfolio of water rights Thornton now owns, including whether Thornton has made reasonable efforts to protect the quality of, and to treat, its existing supply at a reasonable cost, and the reasons for Thornton's manner of use or disposition of such supply."

As a result, Thornton appealed. Fort Collins appealed, as well, based on the water court's refusal to subject to reality check review the appropriative right for the ditch exchange.

Thornton argued that these provisions were unlawful. It argued that meeting "volumetric limitations" had never been a part of diligence and was impractical, if not impossible, under the circumstances. Thornton also argued that based on a previous decision of the Supreme Court, City & County of Denver v. Sheriff, 105 Colo. 193, 96 P.2d 836 (1939), control over Thornton's portfolio of water rights was an impermissible intrusion by the judiciary into a municipalities' legislative and executive prerogative. Fort Collins argued that the potential of Thornton's speculation was just as applicable to the ditch exchange as to the other appropriative rights.

The Supreme Court was not persuaded by either city's arguments, affirming the water court's reality checks on all counts. For starters, the court pointed out that its earlier "invalidation of restrictive conditions" had been when absolute rights were involved. Since Thornton had received only conditional rights, the validity of the reality checks was an open question. After restating that the volumetric limitations must be re-quantified, the court endorsed their use in reality checks as a "logical extension" of the water court's authority to impose them in the first place.

Because municipalities enjoy "some freedom from anti-speculation limitations," resort to volumetric limitations during diligence is an appropriate way to insure that cities have not been awarded more water cvthan they actually need and falls within the statutorily defined contents of diligence proceedings. The court was decidedly unsympathetic to Thornton's concern that it would take a long time to make its conditional rights absolute, that is, to demonstrate that it had diverted the project's maximum yield, estimated at trial to be in approximately the year 2040.

Regarding Thornton's protection and disposition of its existing portfolio of water rights, the Supreme Court posited "that the receipt by Thornton of vast amounts of Northern Project water will reduce its incentive to preserve and maximize the use of its present water supply." The lawful inclusion of this provision in the reality checks, according to the court, was "simple: the conduct of Thornton with regard to its existing water rights may be indicative of the reality of its need for the newly decreed rights." Nevertheless, the provision could not be used to "impede" Thornton's sale or disposition of its existing rights. "The trial court must be sensitive in its application of the relevant provision to avoid the situation that arose in Sheriff ." Regarding Fort Collins' argument that the ditch exchange should also be subject to "reality checks," the court reasoned that water once in a ditch (where it would be exchanged upon) was no longer available for appropriation by others and that there was no need to guard against speculation.

Change of Water Rights

As described in the following subsections, the Supreme Court addressed a number of issues related to the change of Thornton's pro rata interest in WSSC's water rights.

At trial, Thornton proposed to use the Colorado-Big Thompson Project (CBT) water in three ways:

1. Thornton's share of CBT allocated to WSSC would be left in the Larimer County Canal (LCC) to meet Thornton's obligations to replace seepage losses;
2. CBT water allotted to other shareholders would be exchanged upon as part of Thornton's ditch exchange; and
3. CBT water seeping into the LCC would be treated as part of the Canal's diversion of native water pursuant to adjudicated seepage decrees.

The water court disapproved all three proposals.

The Supreme Court, while not reaching the water court's denial of indirect CBT use on policy grounds, affirmed the water court's legal conclusions on all counts. It held:

1. the derivation of extra-district benefits from use of CBT water, while not per se impermissible, is discouraged and strictly limited by the provisions of the NCWCD Repayment Contract and the Water Conservancy Act.
2. the prohibition on accruing indirect, extra-district benefits from CBT water that was implicit in the Repayment Contract and WCA was made explicit in the WSSC Allotment Contract and the NCWCD Rules; and
3. Article 19 of the Repayment Contract reserved the use of return flows from CBT water seeping into the Canal for the use of the District.

The Supreme Court also found Thornton's arguments that its use of CBT water did not injure other water users to be irrelevant. The court determined that when the scope of a water right is defined by contract, the general provisions of Colorado water law are not necessarily inapplicable, but the application of those provisions is subject to the terms of the contract. It also held that the NCWCD Rules prohibiting extra-district benefits were reasonable limitations on use of CBT water that supersedes Colorado law governing exchanges, which would normally require approval of an exchange in the absence of injury.

Reuse of Transmountain Water

Transmountain water, that is, water which is imported into the Poudre basin from the Colorado and North Platte drainages, constitutes almost half the water diverted by Water Supply and Storage Company and distributed through the LCC. Pursuant to statute and case law, the importer may use such water more than once. Indeed, it may be used to extinction. See C.R.S. § 37-82-106; Public Service Co. v. Willows Water Dist.) Thornton sought to do so, itself, as part of the Northern Project.

At trial, the objectors' practical concern was that, for almost ninety years, the return flows from transmountain water had augmented the native Poudre water -- in much the same way as had CBT. As a result, junior water users had diverted the return flows and asserted reliance on their continuation. If such return flows were no longer available, the junior rights would be adversely impacted. In denying Thornton the ability to reuse transmountain water, the water court's rationale was:

1. that WSSC had no intent to reuse the transmountain water at the time of its appropriation;and
2. in any event, WSSC had abandoned the right to reuse.

The Supreme Court reversed and, adopting what Thornton called the "molecule doctrine," generally concluded that the right of reuse arises for each molecule of water as it is imported into the receiving basin. Under that approach, the original appropriator's intent is irrelevant and the failure to reuse molecules imported in the past could not result in the abandonment of molecules imported in the future.

The opposers also cross-appealed the water court's failure to decide against Thornton on other bases including:

1. in general, the no-injury rule applies to the change of use of transmountain water rights, a concept rejected by the Supreme Court because there were no "vested" rights in the return flow to be protected from injury; and
2. under the facts of this case, Thornton's transmountain water reuse was precluded by:
3. • laches (unconscionable delay relied on by others) and
   • equitable estoppel (others' reliance on statements made by WSSC's attorney).

The Supreme Court rejected the cross-appeals.

The matter was remanded to the water court "for proceedings consistent with our decision, including the elimination of the condition in the decree requiring Thornton to replicate return flows associated with its transmountain water."

No Dry-Up Required for "Floating Shares"

Of the WSSC shares purchased by Thornton, roughly 11 percent were not historically used on the specific farms Thornton acquired. Those so-called "floating shares" were used throughout the WSSC system and were gradually being transferred to Thornton farms at the time of trial.

At trial, NCWCD asserted that, before using the floating shares for municipal use, Thornton must dry up additional lands, that is, non-Thornton farms. The issue was resolved by the water court in favor of Thornton on the ground, inter alia, that WSSC was a water-short system. For Thornton farms, the water court imposed several pages of dry-up conditions, finding them to be adequate to prevent injury, but concluded that dry-up of other farms was not a legal requirement. NCWCD appealed and the Supreme Court affirmed. It held that complete dry-up, as a matter of law, is not a required condition of a change involving irrigation water rights and that the validity of a dry-up condition turns on the circumstances of each particular change case. Finding sufficient competent evidence to support the water court's determination, the Supreme Court declined to require any additional dry-up.

Groundwater Recharge of Return Flows May Be Required

The conversion of Thornton's WSSC shares to municipal use will remove thousands of acres from irrigated agriculture, at least for a time. Historically, the irrigation of these lands has resulted in a significant volume of delayed return flows to the Poudre and South Platte rivers. Thornton acknowledged that water would need to be replaced to the river, mimicking the historical pattern of return flows, because the water was diverted from the river. Thornton asserted, however, that the aquifer created artificially by those return flows several miles from the river need not be maintained. The water court required, however, that most of the return flows must be replaced by recharging the aquifer in the vicinity of the historic irrigation, rather than by replacement to the river.

Thornton appealed and the Supreme Court affirmed. It ruled that no water originating within one watershed (here the South Platte and all of its tributaries) can be analogized to foreign or developed water while remaining in that watershed. Stream conditions attributable to any native water, including those in an aquifer, must be maintained.38 As to whether downstream seniors were being shorted by the junior wells' diversions, the court ruled that Thornton need not concern itself with that controversy. The no-injury test was applied to those water users actually affected by Thornton's change of use.

The court also ruled, however, that "nontributary" wells were not entitled to maintenance of conditions. A decree entered in 1953 determined a few hundred alluvial wells to be "nontributary." The trial court, nevertheless, found that the "1953" wells had in fact appropriated tributary water and were entitled to maintenance of aquifer conditions at the time of their appropriation. The Supreme Court applied res judicata and collateral estoppel principles in its decision that the "1953" wells could not get the benefits of both a tributary and nontributary classification. The court said it would be logically inconsistent to require that tributary return flows be maintained for the benefit of nontributary wells and remanded the recharge requirement for their exclusion.

Revegetation Requirement Properly Imposed

The magnitude of the acreage being removed from irrigation prompted the water court to impose a revegetation requirement. Prior to permanently removing the water from the land, Thornton must establish to the satisfaction of a state-approved expert that:

1. dryland farming practices have been put in place; or
2. native grasses or similar self-sustaining ground cover is in place; or
3. a suitable non-agricultural use is being made of the land.

Thornton questioned the authority of the water court to impose such a condition prior to the enactment of C.R.S. § 37-92-305(4.5) but the court nevertheless held the provision was proper. The court noted that maximum utilization must be harmonized with protection of other valuable state resources and that "effects on other resources and preservation of the natural environment are proper considerations for the water court in implementing the beneficial use of water."

Water User Payment of Costs of Administration

Due to the complexity of the decree, the State Engineer obtained the inclusion of a decree provision under which Thornton could be required to pay the Division Engineer's costs of administration of the decree. The Supreme Court held that such a term was inappropriate, although this issue did prompt a dissent. The majority believed that no statutory authorization exists for such a provision, and that funding and resource allocation decisions are properly in the province of the legislative and executive branches.

Water Quality

Two interesting and novel issues related to water quality were addressed by the Supreme Court: whether an effluent discharger is entitled to dilution flows and at what point the quality of an exchange's substitute supply is measured.

Kodak's Effluent

Eastman Kodak Co.'s waste treatment plant's effluent discharge is located within the reach of Thornton's proposed river exchange -- between the point of Thornton's exchange diversion and the point where Thornton will introduce its substitute supply. Reduction of Poudre flows in the exchange reach, argued Kodak, would adversely tighten treatment requirements for its effluent, increase treatment cost, and constitute injury. Without deciding the factual issues, the water court concluded that, even if there was a reduction of dilution resulting in increased treatment cost, there was no unlawful injury. Kodak appealed.

The Supreme Court affirmed, agreeing with the water court's legal analysis; "the judiciary is without authority to decree an instream flow right to any private entity." In so doing, however, the court also observed that injury analyses traditionally focused only on the amount and quality of water received by a water right, while water quality regulations focus on the quality of effluent which is discharged.

Accordingly, "this dual system limits the ability of both the water court and the water quality control agencies to address certain water quality issues," such as the plight of Kodak: "Without an appropriative right or otherwise established beneficial use, Kodak is not entitled to protection of its incidental use of this water against lawful appropriations."

Unresolved Point of Measurement

Another important water quality issue involved Thornton's substitute supply for the ditch exchange. At trial, the most significant controversy was over the location at which the quality of the substitute supply would be measured. Objecting WSSC shareholders contended that because of poor quality inflows to the LCC along its course, the quality of any substitute supply would be severely degraded before it reached their farms. Consequently, they wanted the quality to be measured at their farm headgates.

Because that measuring point would make Thornton a guarantor of water quality without control over ditch inflows, Thornton argued that the water quality measurements should be made at the point where substitute supplies are actually introduced to the canal. The water court agreed, incorporating such a provision in its decree.

The dissident shareholders appealed. Although affirming the water court, the Supreme Court declined to establish a firm rule, leaving it up to the state engineer.

Conclusion

The Supreme Court characterized Thornton's Northern Project as "one of the largest municipal water projects to come before this court in recent memory." Its opinion addresses an extremely broad spectrum of issues which are of interest to all water users. The opinion substantially enlarged upon existing precedent and will likely influence water rights litigation for years to come.