The issue of what it means to own groundwater has been at the forefront of water issues at the Texas Legislature and the Texas Supreme Court for the past few years. In 2011, the Texas Legislature passed legislation recognizing that a landowner owns the groundwater below the surface of the landowner's land, subject to regulation by groundwater conservation districts (GCDs).
The following year, the Texas Supreme Court elaborated further when it issued its long-awaited decision in Edwards Aquifer Authority v. Day. At issue in that case was whether a groundwater regulation scheme could be so restrictive so as to constitute a taking of private property for public use. In its holding, the Court reiterated the 2011 legislation and held that a landowner has absolute title to groundwater in place beneath the landowner’s land, subject to the rule of capture and regulation by a GCD.
The Day Court further held that restricting a landowner’s ability to produce groundwater could amount to a taking, but failed to delineate a specific regulatory threshold (except to say that not all groundwater regulation would rise to that level). Because the facts of the case were not adequate to determine whether a taking occurred, the Court remanded the case back to the district court. Shortly thereafter, the EAA and the Day plaintiffs reached a settlement, thus precluding the courts from determining whether a taking occurred under the Day facts and leaving many unanswered questions for groundwater owners and managers.
In August, the San Antonio Court of Appeals issued a decision in Edwards Aquifer Authority v. Bragg, the first major case since Day to address groundwater ownership (The court of Appeals withdrew its August opinion and issued a new one with minor changes in November 2013). In addition, because the Bragg court found the EAA’s actions to constitute a taking, the decision also addresses groundwater valuation. Though it is likely that the case will be appealed to the Texas Supreme Court and is therefore not yet settled law, it presents important issues for those interested in Texas groundwater law, particularly as to how groundwater may be valued in future takings lawsuits.
In Bragg, the plaintiffs applied for groundwater permits for their two pecan orchards. The EAA applied its historical use formula, as mandated by state law, and granted a permit for less water than the Braggs requested for one orchard and denied a permit outright for the other. The Braggs sued the EAA, alleging the EAA’s actions constituted a taking. The trial court agreed, and entered a judgment in favor of the plaintiffs. On appeal, the following three issues were presented:
Assignment of Liability
The Court of Appeals first considered the issue of whether the State of Texas, rather than the EAA, is the proper defendant because the EAA merely acted in accordance with state-mandated requirements adopted by the Legislature. The court acknowledged that “there is no dispute the Authority’s actions were dictated by the Act,” but it ultimately failed to decide whether the State, the EAA, or both would be liable.
The court ultimately agreed that the EAA’s partial denial and outright denial of the Bragg’s permit applications amounted to a taking. To arrive at this decision, the court applied the Penn Central analysis, an imprecise test first delineated by the U.S. Supreme Court. Under the test, the Bragg Court considered (1) the economic impact of the regulation on the Braggs; (2) the extent to which the regulation interfered with investment-backed expectations; (3) the character of the governmental action; and (4) other relevant factors. The court then balanced the factors to determine whether the action amounted to a taking.
On the economic impact factor, the court held in favor of the Braggs. The court reasoned that prior to the EAA’s regulation the Braggs had an unrestricted right to produce water and that the regulation now forces the Braggs to purchase or lease that water. The court found this to be a significant and negative economic impact.
On the investment-backed expectations factor, the court again held in favor of the Braggs. Though the court found that the Braggs should have anticipated future regulation of their groundwater, the court nonetheless found the Braggs’ contrary expectation reasonable.
On the character of the governmental action factor, the court held in favor of the EAA. The court cited to the State’s unquestionable authority to regulate groundwater production and the importance of protecting plant and animal life, domestic and municipal water supplies, industry, and economic development.
On other relevant factors, the court again held for the Braggs. The court cited to the nature of the Braggs’ business, which is agricultural, which necessitates water. Balancing the factors together, the court held that the regulatory action was a taking requiring just compensation.
Finally, the court laid out the formula for calculating compensation, holding that compensation must be based on the value of the orchards immediately before and after the EAA’s permitting decision. The court then sent the case back to the trial court for application of the rule.
Due to the unique facts of the case, the distinction between the EAA and all other Texas GCDs, and pending appeals, Bragg leaves unanswered questions, just as Day did before it. Regardless of the outcome, GCDs will continue working to balance private property interests with management and long-term conservation of groundwater. By their own language, SB 332, Day, and Bragg do not change the continued important, authorized role of groundwater management by GCDs, as endorsed by the Legislature and the Texas Supreme Court. The alternative – no management – affords no landowner protection and reinstates the Rule of Capture, where the biggest pump prevails.