If you were not at the 2016 Texas & Southwestern Cattle Raisers Convention, it looks like you missed a great presentation by San Antonio attorney and third-generation rancher, Joseph Fitzsimons. \u00a0Fortunately, Colleen Schreiber published a great article recapping the presentation for Livestock Weekly magazine. \u00a0With their permission, I am republishing Colleen’s article here.<\/p>\n
Landowner Attorney Discusses Water Rights At TSCRA Meeting<\/strong><\/p>\n By Colleen Schreiber<\/strong><\/p>\n FORT WORTH \u2014 Landowners have won some important legislative and court battles in the property rights arena of late. Third-generation rancher and attorney Joseph Fitzsimons, however, told those attending the recent Texas and Southwestern Cattle Raisers annual convention here that those who do not view property rights and ownership of natural resources in the same manner continue to work overtime on these issues.<\/p>\n In a perfect world, Fitzsimons said, the property owner would hold all the rights of the surface estate, all the water rights, and all the mineral rights with exclusive control over the development of that property, but that is the rare exception today in Texas.<\/p>\n \u201cJust about everyone has some sort of severance, be it a mineral severance or maybe a groundwater severance or a groundwater conservation district that makes the landowner subject to state and federal regulation.\u201d<\/p>\n Severability, Fitzsimons explained, creates separate ownership interest in the same parcel of land, and just about any real property right can be severed, be it timber, oil and gas, or groundwater. One notable exception to severability with respect to groundwater, he noted, lies with the Edwards Aquifer Authority. The EAA is governed by its own legislation and its own set of rules.<\/p>\n \u201cTo get them to play by the rules, however, you have to sue them,\u201d opined Fitzsimons. \u201cThat\u2019s just the way they operate. The good news is we usually win.\u201d<\/p>\n Other severable property interests include wind rights, and now there is even a push to sever the sunlight. Fitzsimons\u2019 firm, Uhl, Fitzsimons, Jewell & Burton, of San Antonio, is just now beginning to work on some of the solar projects.<\/p>\n \u201cThat\u2019s a whole new world, and I\u2019m not really sure where it\u2019s going to take us,\u201d he admitted.<\/p>\n He reminded listeners of some of the critically important groundwater cases, one being Day<\/em>, which essentially \u201censhrined\u201d in the Texas Water Code the private ownership of groundwater by the surface owner. TSCRA, the Texas Wildlife Association and Texas Farm Bureau fought this battle on several fronts.<\/p>\n \u201cWe had to clear this up, because some groundwater districts were insistent that groundwater was not a real property right, that the surface owner only owned the water after it was pumped,\u201d said Fitzsimons.<\/p>\n \u201cOur biggest argument was that if the landowner doesn\u2019t own the water in place, the resource can\u2019t be conserved. If the court had agreed with the EAA\u2019s theory that the only way to own it was to reduce it to possession, that would have created an incentive for waste and overproduction of groundwater. Thankfully, that argument did not win the day.\u201d<\/p>\n An exception to ownership in place with regard to groundwater, Fitzsimons pointed out, is if the surface estate is governed by an old oil and gas lease. The mineral estate is the dominant estate in Texas. Thus, if the surface owner has severed minerals that are unleased, unless the water was specifically reserved in the original severance or in the lease from the mineral owner to the mineral lessee, the right to use all of the water on that property necessary for the development of the mineral estate passes to the mineral owner.<\/p>\n \u201cIt doesn\u2019t apply to adjudicated surface water,\u201d Fitzsimons added, \u201cbut it does apply to exempt surface water and groundwater. Landowners need to find out if this applies to them.\u201d<\/p>\n This right stems from 44 year-old case law, Sun Oil Co. v. Whitaker<\/em>.<\/p>\n \u201cIt\u2019s just stunning to me that this is still the law in Texas,\u201d said Fitzsimons. \u201cAnd it\u2019s the law in Texas because, unlike other producing states \u2014 Oklahoma, New Mexico, Colorado, and North Dakota \u2014 Texas does not have a surface damage act that would limit implied easement.\u201d<\/p>\n The implied easement does not allow for water to be taken off-lease, but water can be used on pooled acreage or surface acreage that is under the same base lease.<\/p>\n The only protection the surface owner has comes with the accommodation doctrine. The accommodation doctrine applies \u201cwhen there is an existing use by the surface owner which would otherwise be precluded or impaired, and where under established practices in the industry, there are alternatives available to the lessee whereby minerals can be recovered.\u201d<\/p>\n To say that protection that comes with the accommodation doctrine is narrow is an understatement. Fitzsimons likened it to a very \u201cskinny tree\u201d or a \u201cfig leaf\u201d, both of which are difficult to hide behind. Not only doesn\u2019t it really protect the surface owner, but the worst part is that the surface owner has the burden of proof.<\/p>\n \u201cThe surface owner has to prove that the current use is precluded by the dominant estate, and he has to prove that there\u2019s no reasonable alternative.\u201d<\/p>\n He also noted that the accommodation doctrine has never been applied to groundwater severances. Landowners are hoping this will be rectified in Lubbock v. Coyote Lake<\/em>, which the Texas Supreme Court has agreed to hear.<\/p>\n In 1953, the Purtell family conveyed groundwater to the City of Lubbock. The surface was later acquired by Coyote Lake Ranch LLC. In 2012 the City of Lubbock proposed a \u201cwell field plan\u201d and began operations on the property. Coyote Lake sought an injunction on the grounds that the City of Lubbock had to accommodate the surface owner when implementing their wellfield drilling plan. The trial court granted the injunction on the basis that the city had failed to comply with the accommodation doctrine. The appellate court reversed and remanded, and now the case is at the Supreme Court.<\/p>\n Cattle Raisers submitted an amicus brief supporting Coyote Lake on the grounds that the accommodation doctrine should also be applied to surface owners who are subject to a severed groundwater right.<\/p>\n \u201cIf we don\u2019t win, we need to be ready with legislation to fix this problem,\u201d Fitzsimons told listeners. \u201cWe need to be ready to fix it because if this happens, no one is going to want to do a groundwater deal. That\u2019s because the value of that remaining surface estate is going to be very low because subsequent owners won\u2019t be able to do much with it because there won\u2019t be any accommodation of that future use.\u201d<\/p>\n To protect rights when reserving or purchasing severed groundwater rights in real property, Fitzsimons reminded listeners of the need to reserve or obtain a surface easement across the property as well as the right to drill water wells. Additionally, in a surface agreement, he suggested requiring that the oil and gas company purchase water for use in operations and at the same time prohibit the use of water from outside the property.<\/p>\n \u201cIf they\u2019re not prohibited from bringing in water from off-lease, then you are in competition with all your neighbors, and someone next door may be willing to sell for less.\u201d<\/p>\n Fitzsimons also suggested prices should be flexible, not fixed.<\/p>\n \u201cUse a Consumer Price Index or a real term so that you\u2019re negotiating to a price at or above the market on a periodic basis \u2014 perhaps every three to five years.\u201d<\/p>\n Even in a groundwater conservation district the mineral lessee has the right to take groundwater as part of their easement. Another important point that few landowners are aware of is that if the oil company drills a water well to service the oil and gas development on the property and they drill under an oil and gas exemption, the ownership of that well can\u2019t be transferred to the surface owner because that permit exemption is solely for drilling.<\/p>\n \u201cBe really careful about that,\u201d said Fitzsimons. \u201cI know a lot of ranchers think they have a free water well, and they did get a free water well; it\u2019s just a free illegal water well.\u201d<\/p>\n To get around this Fitzsimons suggested that the surface owner have the oil company get a beneficial use permit in the surface owner\u2019s name. That way, when the oil company is finished with its operation, the well legally belongs to the surface owner.<\/p>\n A most recent conundrum is whether or not hydraulic fracturing counts as drilling and exploration. This issue has come to the forefront because now numerous wells have been drilled that are not being fracked because of the price of oil. This raises the question of whether the use of that water is still part of the drilling operation.<\/p>\n \u201cIt\u2019s an unsettled question, but two GCDs, one in the Panhandle and one in South Texas, have taken the position that fracking is not drilling and exploration, thus they\u2019ve required the oil company to get a permit.\u201d<\/p>\n If the surface owner doesn\u2019t make the oil and gas company permit the well in their name, he said, the surface owner must understand that the GCD is not required to grant the surface owner a new permit for that well once exploration is done. Furthermore, he suggested that at one point in time landowners might have thought they could get away with not worrying about this, that the GCD would never know.<\/p>\n \u201cA lot of us think we\u2019re way out in the middle of nowhere and no one knows what we\u2019re doing, but we also all know the status of satellite and GIS technologies, and all these taxing districts are using these technologies. The days of hiding in the brush are over.\u201d<\/p>\n A groundwater conservation district, Fitzsimons opined, is one more entity that is \u201cchipping away\u201d at absolute ownership and control.<\/p>\n \u201cThe surface owner has a real property interest in the groundwater, but that groundwater is subject to the police power of the state, and that police power gives GCDs the right to manage that resource,\u201d he reminded.<\/p>\n One of the issues with GCD management, and there are many, is that these groundwater districts are established on political boundaries rather than on aquifer boundaries. In some cases two or three different districts govern the same aquifer, and all have different rules.<\/p>\n \u201cThere is one in South Texas where the down-dip of the aquifer, where the pressure is, is completely unregulated because it\u2019s outside the district, and the up-dip is regulated,\u201d Fitzsimons said. \u201cThe water doesn\u2019t know where the lines are, so you get overproduction on one side and an unmanaged resource on the other side.\u201d<\/p>\n Fitzsimons touched on the issue of a \u201ctaking\u201d with respect to groundwater. One of the lynchpins in Day<\/em>, he reminded, was that the Texas Supreme Court said GCDs can\u2019t discriminate against landowners who do not have historic use. Another major win for landowners came just recently in the Bragg<\/em> decision, and now for the first time, property owners have \u201csome real guidance\u201d on the takings issue.<\/p>\n “The Braggs, pecan farmers in Medina County, were mistreated by the Edwards Aquifer Authority in that the EAA only gave them a fraction of the water needed to operate their pecan farm and a fraction of what they had historically used. God bless them, the Braggs didn\u2019t take it.\u201d<\/p>\n The court looked at the economic impact of the regulation on the user, the highest and best use of the user\u2019s property, the user\u2019s reasonable investment-backed expectations, and the nature and overall importance of the regulation. It took more than 10 years of litigation with a \u201cgreat lawyer\u201d before the Braggs prevailed. The court said EAA\u2019s action resulted in a regulatory taking.<\/p>\n \u201cThat\u2019s big, because many in the water world have been saying for a long time that a GCD that decided to reduce or deny a groundwater use permit is not a taking,\u201d said Fitzsimons.<\/p>\n The court also said the taking constituted an inverse condemnation and therefore valuation was to be based on the time at which the taking occurred. On remand, the jury awarded the Braggs $2.5 million in compensation.<\/p>\n Given the Day<\/em> and Bragg<\/em> rulings, does this mean that GCDs will have to proportionately reduce historic use permits to accommodate those who were originally denied a permit or who only got a portion of what they asked for?<\/p>\n \u201cWe don\u2019t know,\u201d Fitzsimons admitted, but he opined that most likely it will ultimately be decided only through more litigation. That\u2019s because even though the court clearly said in Day<\/em> that a permit cannot be denied based solely upon the level of use during the historic period, the majority of GCDs continue to ignore this language.<\/p>\n \u201cNot only do they ignore it, they structure their DFCs and their available groundwater to reverse engineer the number to meet what\u2019s already been permitted to the historic users.\u201d<\/p>\n Regardless of the recent developments in case law, Fitzsimons encouraged all landowners to keep records of their use, and when applying for a new permit, he said, landowners should be ready to demonstrate that the water will be immediately put to a productive use. Furthermore, those applying for permits should clearly show investment-backed expectations. Finally, landowners can best protect their groundwater rights by being involved in the process, particularly at the local level.<\/p>\n \u201cYou\u2019ve got to go to the GCD board meetings. You\u2019ve got to be involved. Alan Simpson said it best: \u2018You\u2019re either at the table or you\u2019re on the menu.\u2019 That\u2019s never truer than in the water world. You\u2019ve got to show up and know the rules, and it\u2019s important for those GCDs to know you.\u201d<\/p>\n As for surface water, in Texas surface water is owned by the state, and the Texas Commission on Environmental Quality is the agency that administers these adjudicated rights. A surface permit grants the user a specified volume of that surface water at a specified point of designation with a designated priority date. Texas\u2019 prior appropriation system generally means that the permits with the oldest priority dates are superior regardless of the use. This was clarified in another recent landowner win in Texas Farm Bureau v. TCEQ<\/em>.<\/p>\n \u201cWhat TCEQ attempted to do was say that urban was more important than ag, and the Texas Farm Bureau, God bless them, took it all the way to the Supreme Court, saying that \u2018Our permit is for ag, and you can\u2019t trump our priority, and if you want it you have to buy it.\u2019\u201d<\/p>\n The Court of Appeals in Corpus Christi essentially agreed and the Supreme Court refused to hear the case, leaving the Court of Appeals opinion intact.<\/p>\n \u201cIt\u2019s a good decision, because if they can\u2019t just wave a magic wand and say urban is more important than ag, it means they have to enter the market and buy that water.\u201d<\/p>\n Groundwater that is used for domestic and livestock use is exempt from permitting, as is \u201cdiffused\u201d water, water impounded in a tank that has less than 200 acre-feet of capacity. On the latter, Fitzsimons pointed out that recently some oil companies in South Texas have been stirring things up, saying they\u2019re no longer going to pay for water taken from a tank because the surface owner does not own that water.<\/p>\n \u201cThe TCEQ grabbed on to that, and though no one has litigated this yet, it would not be a good result for most landowners,\u201d said Fitzsimons.<\/p>\n Furthermore, he reminded listeners that the issue of what\u2019s \u201cdiffused\u201d water that doesn\u2019t require permitting and what\u2019s not is now a huge mess, thanks to the new Waters of the U.S rule.<\/p>\n \u201cWOTUS is a blatant federal land grab,\u201d Fitzsimons told listeners. \u201cThe EPA is getting awfully close to federal ownership instead of federal regulation.\u201d<\/p>\n What the EPA did, he said, is take some concurring opinion language in Rapanos<\/em> that wasn\u2019t as good as the majority opinion, which clearly said that there had to be a real nexus to a water of the U.S. Now the EPA is essentially trying to say that ditches, ponds, any water essentially is a water of the U.S.<\/p>\n The Sixth Circuit court, in response to lawsuits filed by Texas and other states, has stayed the rule for the time being, but the battle is far from over. And it gets worse. There\u2019s the real potential that if WOTUS is not overturned, NRCS cost-share programs won\u2019t even be exempt.<\/p>\n \u201cThe Corps would come in and say that you\u2019ve violated the Clean Water Act, making you subject to a daily fine of $25,000 for every day you go without a permit. And the permit alone could cost $50,000 and could take a couple of years to get.\u201d<\/p>\n To protect surface water rights, Fitzsimons suggested that landowners considering some new impoundments should perhaps build those now before the 200-acre exemption rule is changed.<\/p>\n \u201cThe river authorities don\u2019t like the thousands of impoundments on these watersheds that they use, and each session of the legislature there\u2019s some rumbling that that\u2019s going to change. If you have some really perfect sites, it might be better to develop those sooner rather than later.\u201d<\/p>\n Additionally, as with groundwater permits, he encouraged landowners to maintain good records of usage and always comply with the express terms of the certificate of adjudication to avoid potential cancellation for abandonment.<\/p>\n \u201cAbandonment is not used in Texas currently, but if we get short enough on water, TCEQ could begin pushing abandonment claims.\u201d<\/p>\n Presumptive abandonment is defined as 10 years of consecutive nonuse.<\/p>\n \u201cThey use this aggressively in New Mexico, Colorado and Montana, and I would expect eventually the same will be true in Texas.\u201d<\/p>\n Finally, Fitzsimons told listeners that one of the best ways to ensure protection of property rights is to get involved in groups like Cattle Raisers that fight daily for property rights.<\/p>\n \u201cAs urbanization in Texas continues, we\u2019ve got to be engaged. Today 75 to 80 percent of the water is used in ag. Going forward it will mainly be municipal and industrial use. The only question is are we going to be paid for our resources, and a strong water market is the way to do that. We can\u2019t have a water market without secure property rights. That\u2019s the bottom line,\u201d he concluded.<\/p>\n","protected":false},"excerpt":{"rendered":"