Is the cancellation of a water permit subject to judicial review?

Water Permit

Benson v. State Engineer (Nev. Supreme Ct. – Sep. 24, 2015)

The issue is whether a party aggrieved by the cancellation of her water permit must exhaust administrative remedies with the State Engineer when the State Engineer is not statutorily authorized to provide the party’s preferred remedy.

Joseph Rand purchased property in Eureka County, which he used for farming. A water permit with an appropriation date of 1960 benefited the property. Rand died on October 17, 2008, survived by his wife, Ellen. That same month, the Joseph L. and Ellen M. Rand Revocable Living Trust was created, and the trust managed the farming property. An agent, presumably acting on behalf of the trust, applied for a water right permit at a new well head location with the State Engineer on December 10, 2008. According to the application, the agent intended to divert water from an underground source via a newly drilled well. The new water rights were necessary because the previous well did not produce sufficient water. The State Engineer conditionally authorized the new permit to appropriate 632 acre-feet annually for irrigation and domestic use from the Diamond Valley Hydrographic Basin. The permit required proof of completion of the new well, proof of beneficial use of the water, and a supporting map to be filed with the State Engineer within one year. The permit reflected the original appropriation date of 1960.

Due to financial constraints, the trust was unable to finish drilling the well by 2010. Consequently, Ellen, on behalf of the trust, sought an extension to complete the work and file the requisite proof with the State Engineer. The State Engineer granted the trust’s request and extended the time for completion by one year. The State Engineer granted the same request again in 2011 and 2012.

Ellen died on March 31, 2013. Following her death, Patti Benson, Joseph and Ellen’s daughter, inherited the farming property and water rights. On July 11, 2013, the State Engineer sent a final notice to the trust reminding it and the Rands that they were required to file proof of completion, proof of beneficial use, and a map. The notice stated that if they did not file the required documents or request an extension within 30 days, the permit would be canceled.

Benson recorded the quitclaim deed with the Eureka County recorder’s office on July 24, 2013. The record did not reflect that Benson ever filed a report of conveyance with the State Engineer, as required by NRS 533.384. On September 11, 2013, the State Engineer canceled the water permit for failure to comply with its terms and sent notice to the Rands. The notice also advised that, within 60 days, the cancellation could be appealed by filing a written request for a review at a public hearing before the State Engineer.

Instead of requesting administrative review, Benson filed a petition for judicial review in the district court. Her petition sought an order vacating the State Engineer’s decision to cancel the permit. In her petition, Benson argued that the State Engineer did not allow her enough time to file a report of conveyance under NRS 533.384. Because notice of the potential cancellation of the water permit was not provided to her as the owner of the water rights, Benson alleged, the State Engineer’s cancellation of the permit was erroneous. Further, Benson claimed that the record evidence, which she was barred from presenting to the State Engineer in a contested hearing prior to cancellation, proved that the State Engineer’s decision was clearly erroneous.

The State filed a motion to dismiss Benson’s petition, arguing that NRS 533.395(4) required the district court to dismiss Benson’s petition for failure to exhaust administrative remedies and seek review of the permit cancellation at a public hearing before the State Engineer. In response, Benson claimed that she properly petitioned for judicial review under NRS 533.450 and was not required to pursue administrative review as it would have been in vain and futile. Benson contended that even if she had petitioned the State Engineer for administrative review of the cancellation decision and the State Engineer issued a decision rescinding the cancellation, that decision would not provide her with an adequate remedy. Benson argued that pursuant to NRS 533.395(3), the State Engineer would be required to modify the permit’s original 1960 appropriation date with an appropriation date reflecting the date of her 2013 administrative review. Benson claimed the modified appropriation date would thus affect her substantive rights in terms of priority to the water. She asserted that because she would lose her 1960 appropriation date and be required to seek judicial review regardless of the results from an administrative hearing, administrative review would have been futile.

The district court granted the State Engineer’s motion to dismiss Benson’s petition. In its order, the district court said that the Supreme Court of Nevada had not defined futile in the context of exhausting administrative remedies and that it was persuaded by caselaw from the California Court of Appeal. The district court adopted the California Court of Appeal’s rule from Doyle v. City of Chino, 172 Cal. Rptr. 844 (Ct. App. 1981) which requires exhaustion of administrative procedures unless the petitioner can positively state that the commission has declared what its ruling will be in a particular case. Accordingly, the court decided that Benson had not proven that administrative review would have been futile because she did not positively state what the State Engineer’s ruling would have been had she sought administrative review.

The district court further noted that Benson could have received some relief through reinstatement of her permit with a 2013 appropriation date following administrative review but acknowledged that the State Engineer is not statutorily authorized to reinstate the permit with the original appropriation date. The court also noted that by seeking judicial review before exhausting available administrative remedies, Benson undermined policy considerations, including the following: (1) having the matter heard by the State Engineer, who possesses expertise in water rights; (2) allowing development of a factual record necessary for meaningful judicial review; (3) providing an efficient process for the State Engineer to correct its own mistake; (4) encouraging adherence to administrative procedures before resort to the courts; and (5) preventing premature interruption of the administrative process. Benson appealed.

Statutory procedures applicable to the cancellation of water permits

NRS 533.410 requires the Division of Water Resources, through the State Engineer, to cancel a landowner’s water permit when the landowner fails to comply with its terms. If a permit is canceled, the permit holder may, within 60 days of the cancellation, file a written request for review at a public hearing before the State Engineer. The State Engineer, after considering evidence at the hearing, may affirm, modify or rescind the cancellation. When the State Engineer modifies or rescinds a canceled permit, the original appropriation date vacated and replaced by the date of the filing of the written petition with the State Engineer. Thus, the Supreme Court of Nevada explained that Nevada law does not authorize the State Engineer to modify or reinstate a canceled permit with its original appropriation date. Further, the cancellation of a permit may not be reviewed or be the subject of any judicial proceedings unless a written petition for review has been filed and the cancellation has been affirmed, modified or rescinded by the State Engineer.

Is exhaustion of administrative remedies required before seeking judicial review of a State Engineer’s decision?

The Court explained that ordinarily, before availing oneself of district court relief from an agency decision, one must first exhaust available administrative remedies. The Court has previously held that exhaustion is not required when administrative proceedings are vain and futile or when the agency clearly lacks jurisdiction. Thus, a party may proceed directly to judicial review when the administrative proceedings would be futile.

In this case, Benson argued that, pursuant to NRS 533.395(3), petitioning for review with the State Engineer would be futile because even if the cancellation of her permit was rescinded, the State Engineer would be required to reinstate the water permit with a priority date of 2013, instead of its original priority date of 1960. Because the Diamond Valley Hydrographic Basin has been depleted, the State Engineer has denied all applications to appropriate groundwater for irrigation purposes since 1979. Accordingly, Benson asserted administrative review was futile because she could only receive a permit with a 2013 priority date, which would still not allow her to appropriate any water and would thus amount to nothing more than a piece of paper.

Benson relied upon the court’s holding in Englemann v. Westergard, 98 Nev. 348, 647 P.2d 385 (1982), to support her contention that she was not required to seek administrative review. The Court explained that the facts of this case are distinguishable from Englemann, and thus its holding did not apply here. In Englemann, the State Engineer canceled Englemann’s water permit due to his failure to comply with the permit’s terms, but Englemann was unaware of the cancellation for over two years because he did not receive the State Engineer’s notice that his permits were in poor standing and subject to cancellation. A month after learning of the cancellation, and approximately two years and two months after his permits were canceled, Englemann filed a petition for judicial review, which the district court dismissed. On appeal, the court concluded that the district court erred when it failed to exercise subject matter jurisdiction:

We have held that where an aggrieved party had no actual knowledge that his permits were cancelled until after the expiration of the 30-day period within which to comply with the statute, it was not the intent of the Legislature to preclude judicial review of such an order or decision.

The court concluded that Englemann was not required to exhaust the administrative remedies because his request for administrative review would have been untimely and futile.

The Court noted that unlike the petitioners in Englemann, Benson conceded that she received actual notice of the pending cancellation before the expiration of the 30-day period in which to request an extension to file the requisite documents with the State Engineer. She also conceded that she received actual notice of the cancellation before the expiration of the 60-day period to request review. Therefore, unlike in Engelmann, the limitations period did not prevent Benson from seeking administrative review. And although Benson argued that administrative review would not have offered her any relief, the Court disagreed. The Court was not persuaded by Benson’s claim that a water permit with an appropriation date of 2013 would afford her no remedy at all. The Court explained that under NRS 533.395(2), following a public hearing, the State Engineer could have modified or rescinded the cancellation and issued Benson a water permit with an effective date of 2013. Although a water permit with a 2013 appropriation date effectively placed Benson near the end of the line to appropriate water, this is a form of relief. The Court recognized that it was not the remedy that Benson preferred, but it did not consider administrative proceedings to be futile solely because the statute prevented the petitioner from receiving his or her ideal remedy through administrative proceedings. If a permit with a 2013 priority date did not allow her to appropriate sufficient water, seeking judicial review would have then been permissible. The Court therefore held that when NRS 533.395 authorizes the State Engineer to provide a party with a remedy, even when that remedy is not the remedy the party prefers, the doctrine of futility does not apply and excuse the party from complying with NRS 533.395(4)’s exhaustion requirement, and the party must exhaust all available administrative remedies before seeking judicial review.

The Court recognized that by requiring a petitioner to prove that the administrative review process would provide no relief at all, its holding defined Nevada’s futility more narrowly than the federal courts’ definitions, which focus on the adequacy of the remedy. The Court explained that such a strict standard is necessary in cases under NRS Chapter 533 because of the unique nature of water rights. The Court believed the strict standard was also warranted because the administrative review process requires a public hearing. The Court explained that the scarcity of water resources in our desert climate demands public scrutiny in water rights cases.

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