Thursday, March 1, 2012

The Texas Supreme Court and "Owned in Place"

Landmark Texas Groundwater Ruling

On February 24, two years after oral argument, the Texas Supreme Court in Edwards Aquifer Authority v. Day, held that property owners own their groundwater in place and that a denial of the right to use groundwater could be considered a taking under the Texas Constitution.  After being denied a permit to drill a well by the local water authority, two Texas landowners sued claiming that the denial of access to their groundwater constituted a compensable taking.  The Supreme Court, in a lengthy opinion, analogized groundwater rights to the rights of oil and gas in Texas.  Under Texas law, the rights to oil and gas (and now groundwater) are owned “in place,” meaning that the landowner does not have to first capture the substances before claiming a right to them.

The Court remanded the case to determine whether a regulatory taking had occurred under the Penn Central factors established by the U.S. Supreme Court in 1978. Under this fact-intensive test, a court looks to the economic impact of the regulation, the interference with investment-backed expectations, and the character of the government action.  The Texas Supreme Court acknowledged some of the difficulties in applying the Penn Central test to groundwater.  Unlike oil and gas, groundwater can be replenished, and many beneficial uses of groundwater do not involve sales.  The Court’s holding will inevitably lead to a spate of litigation in Texas over which government actions regarding groundwater constitute a compensable regulatory taking and how much to compensate the landowner.  There is a fear that the threat of litigation will lead resource-strapped water authorities to less vigorously regulate the use of groundwater.

Will this ruling have any impact outside of Texas?  Texas is one of the few states that maintains the absolute capture rule for groundwater.  Basically, a landowner is entitled to all the water that she can pump out of the ground, regardless of the effect on her neighbor’s groundwater supply. (There is a narrow exception for malicious or willfully wasteful pumping).  Most states have a reasonable use rule, a permitting rule, or a mixture of the two.  Thus, a landowner in those jurisdictions may only pump out water to a reasonable extent. 

There seems to be a logical relationship between an absolute capture rule and in place ownership rule.  If a property owner is entitled to all the water that she can capture, then it makes sense to say that she has a potential interest in any uncaptured water.  But if there are already restrictions on how much water she can pump, then she arguably has much less of an interest in the uncaptured groundwater.  Thus, it seems reasonable to think that a jurisdiction that does not maintain an absolute capture will be less likely to implement an owned in place rule for groundwater.

On the other hand, the contrary argument can be made, i.e., the absolute capture and owned in place rules are fundamentally in tension.  If property owner has no action against her neighbor for depleting the groundwater supply, how can it be said that the owner has an enforceable property right to the uncaptured water under her own land? For a further exposition of this argument, see Susana Elena Canseco, Landowners' Rights in Texas Groundwater: How and Why Texas Courts Should Determine Landowners Do Not Own Groundwater in Place, 60 Baylor L. Rev. 491, 517--19 (2008).

Regardless of the impact outside of Texas, the case, at the very least, will keep Texas courts and water authorities occupied for years for to come.

Susan Kraham

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