Crookston Cattle Co. v. Minnesota Department of Natural Resources

300 N.W.2d 769, 1980 Minn. LEXIS 1645

• Court: Supreme Court of Minnesota
• Decided: December 12, 1980
• Docket: 50134
• Status: Published

Opinions

WAHL, Justice.

This case involves the proper allocation of groundwater between competing users. Petitioners, Crookston Cattle Company (hereinafter, the Company) and its sole owner, Ray G. Mair, appeal from an order of the Ramsey County District Court which affirmed the final order of the Acting Commissioner of the Minnesota Department of Natural Resources (hereinafter Commissioner’s order). In the challenged order, the Department of Natural Resources (hereinafter DNR) granted the City of Crookston permission to construct two wells which would tap the same groundwater aquifers¹ sought to be utilized by the Company. Petitioners challenge this final order of the DNR as effecting an unconstitutional taking of private property without just compensation, as violative of certain statutory mandates, and as arbitrary and capricious. We affirm.

The City of Crookston (hereinafter City), an “agricultural service community” of 8,500 population, seeks to change the source of its municipal water supply from the Red Lake River to wells which tap groundwater. This change was recommended by the Minnesota Department of Health and is necessary, according to evidence in the record, because the present water plant is old and does not meet water quality standards, because groundwater is a safer, healthier and more reliable source than river water, and because maintenance costs for a groundwater supply are considerably lower than for a surface water system. For this purpose, the City acquired title to land 12 miles east of the City for use as a well site and made application to the DNR for permits for well construction pursuant to Minn.Stat. § 105.-41 (1978).

Six months after the City made its application, the Company and its sole owner, Ray G. Mair, filed partial applications with the DNR for permits to construct 12 wells for irrigation purposes on Company land lying adjacent to the City’s proposed well sites. The wells proposed by the Company would tap the same water source which the City seeks to utilize. Hearings on two of these applications which had been substantially completed, those concerning Wells A and H, were consolidated over the objections of the City and the DNR with a hearing on the City’s applications. The consolidated hearing was held on December 14-15, 1977, and January 23-25, 1978.

The City’s water supply system serves domestic and commercial users. Water consumption records reveal that, for the years 1975, 1976, and 1977, approximately thirty percent of the City’s water use over the course of a year was for commercial or industrial concerns, with the remaining seventy percent used domestically. During the months from May to August, however, when irrigation could be expected to take place, domestic use accounted for ninety percent of the City’s consumption. The City seeks to construct four wells, two of which would tap the aquifer which is close to the surface, and two of which would tap the deeper aquifer, and desires to pump 700 gallons per minute in order to meet the present demand for 440 million gallons per year and a demand for 700 million gallons per year within 25 years.

As an alternative to use of groundwater, the City considered building a new surface (river) water treatment plant but determined that maintenance costs for such a plant would be considerably higher than for a groundwater plant and that groundwater would be of higher quality. The City’s consulting engineer testified that a system which utilized both groundwater and surface water sources would be prohibitively costly and that the City had given no genuine consideration to a plan in which industrial water users were not provided with City water.

The City performed pumping tests using standard hydrologic procedures on its property in order to determine the characteristics of the upper or more shallow aquifer at its proposed well site. The tests were performed under the supervision of the City’s hydrologist, Bruce Liesch, who had 28 years of experience working with the U.S. Geological Survey Water Resources Division, Ground Water Branch of the State of Washington, State of Minnesota Conservation Department, Division of Waters, and as a private consultant in groundwater hydrology engineering. With regard to the availability of water in the upper aquifer, Mr. Liesch concluded as follows:

On the basis of the results of the testing program and other available geologic and hydrologic data, it appears that a system of properly designed and constructed wells in the water table aquifer would provide an adequate water supply for the City of Crookston if the presupposition is made that other large capacity wells are not constructed in the vicinity and protracted droughts do not occur. During a protracted drought, additional wells in the water table aquifer and possibly in the deep artesian aquifer would be required to utilize the large storage characteristics of the aquifers.

Mr. Liesch’s expert opinions were based not only on the pumping tests but on personal field investigation, electrical resistivity testing, aquifer testing, and other hydrologic and geologic information.

The Company seeks permits for 12 wells to be used for irrigation purposes on 1,600 of the 10,200 acres it owns east of the City. The proposed wells would pump at a capacity of 800 gallons per minute. The land which the Company proposes to irrigate is currently leased for gravel mining. However, Ray Mair testified that for several years he had planned to reclaim the mined areas and that he had retained an irrigation expert to set up an irrigation program.

In order that City testing data could be used in analyzing the Company applications, the Company chose two of the 12 well sites, those proposed for Wells A and H, which are located closest to the City’s test well, and substantially completed those applications. Hearings on those two applications were consolidated with the hearing on the City’s well applications, but it was not clear that the DNR considered these two Company applications complete. Minn.Stat. § 105.416, subd. 2 (1978) requires that the Company’s applications be accompanied by records of pumping tests and by “logs of test holes”-that is, records made when test holes are drilled to locate water. The statute further provides, however, that in any specific application, the Commissioner may “waive any of the requirements * * * when the necessary data is already available.” Id. The Company has performed no independent drilling or testing at any of its proposed well sites. Sarah Tufford, an administrative hydrologist with the DNR, indicated that the two Company applications were not complete to the satisfaction of the DNR.

Experts called by the City, by the DNR, and by the Company were in substantial agreement that the groundwater supply is not adequate for both the City and the Company to pump water at the rates they propose. The Company’s experts, two private consulting engineers, testified as to their doubt that the proposed water supply was adequate to meet the City’s needs alone, apart from proposed uses by the Company. These experts had merely reviewed the reports and data collected by the City’s expert hydrologist and did no independent field investigation. Their testimony that the groundwater supply might be insufficient for even the City’s use alone was based on their belief that the available surface land area which could collect precipitation, some of which would eventually replenish the tapped aquifer (called the “recharge area”), was much smaller than would be necessary for adequate “recharge.”

The Acting Commissioner of the Department of Natural Resources made independent fact findings and issued his order on September 7, 1978, granting the City of Crookston permission to develop two wells in the upper aquifer and to pump from each up to 700 gallons per minute to supply current needs and to develop one “exploratory” well into the deeper aquifer. He denied the Company’s applications “until such time as Crookston Cattle Company can show no adverse impact on higher priority users.” He ordered further that the City be responsible to assure domestic water supplies at “vicinity households” so that such domestic needs are met, this apparently in response to testimony introduced by the Town of Lake Pleasant which indicated that farmers on land up to several miles away from the pump site had experienced water shortages during the test pumping period.

The Company sought review of the Commissioner’s order. The Ramsey County District Court affirmed, and petitioners appeal. In one of the major cases to come before the court, these issues are raised:

(1) Does the Commissioner’s final order work an unconstitutional taking of private property without compensation?

(2) Does the Commissioner’s final order violate Minnesota Water Appropriation Law, Minn.Stat. § 105.41 (1978), or Minnesota Environmental Policy Law, Minn.Stat. §§ 116D.04 and 105.405, subd. 1 (1978)?

(3) Is the Commissioner’s final order arbitrary and capricious and unsupported by substantial evidence?

1. Current Minnesota water resources law provides for state control of use of “underground waters of the state”:

105.38. DECLARATION OF POLICY. In order to conserve and utilize the water resources of the state in the best interests of the people of the state, and for the purpose of promoting the public health, safety and welfare, it is hereby declared to be the policy of the state:

(1) Subject to existing rights all public waters and wetlands are subject to the control of the state.

(2) The state, to the extent provided by law from time to time, shall control the appropriation and use of surface and underground waters of the state.

Minn.Stat. § 105.38 (1979). The Company argues that, by granting the City’s application for permits for the construction of two wells and denying the Company’s application, the DNR has deprived the Company of its property rights to a reasonable use of the underground water without compensation. Citing a number of cases on which the Company relies, the district court concluded that “[t]he owner of land beneath which are percolating waters thereby has a property right in such waters and is entitled to their beneficial use as limited by the reasonable use rule.” We have recognized that, under the riparian doctrine of water rights, any property owner whose property touches on water has a right to reasonable use of the water, his right to such reasonable use limiting the use of that water by other riparian owners. Petraborg v. Zontelli, 217 Minn. 536,15 N.W.2d 174 (1944). We have also recognized, however, that riparian rights are subordinate to the rights of the public and are subject to state regulation. State v. Kuluvar, 266 Minn. 408, 418, 123 N.W.2d 699, 706 (1963); Reeves v. Backus-Brooks Co., 83 Minn. 339, 86 N.W. 337 (1901). As the trial court noted, Minn.Stat. § 105.38(1) (1978) (amended 1979) declares that: “Subject to existing rights all waters of the state which serve a material beneficial public purpose are public waters subject to the control of the state.” The state has exercised that control by enacting a water priority statute, Minn.Stat. § 105.41 (1978). That statute, which is a valid exercise of the state’s police power, requires potential major water users to apply to the Commissioner of Natural Resources for a permit to appropriate water and identifies priorities for water use of limited water resources.²

Like zoning legislation, legislation which limits or regulates the right to use underlying water is permissible. In McShane v. City of Faribault, 292 N.W.2d 253 (Minn.1980), where plaintiff property owners argued that an airport approach zoning ordinance resulted in a “taking,” we noted a distinction between interference with private property by regulation of property use, as through zoning, and interference by the government’s physical intrusion. In the former category, we held that regulation which operated for the sole benefit of a governmental enterprise, a municipal airport, disproportionately burdened a few landowners, who were entitled to compensation. Where regulation operates to arbitrate between competing public and private land uses, however, as does the water priority statute in this case, such regulation is upheld even where the value of the property declines significantly as a result.

Plaintiffs here raise “taking” claims in the latter category, interference by physical governmental activity. The permit takes nothing, however. It is permissive only. Until it is clear that the City’s water use, permitted by the DNR deprives the Company of water it needs, such a claim is premature.³ No pumping or depletion of the groundwater supply has yet occurred, and any damages to be awarded are therefore speculative. The permit issued by the DNR to the City in this case provides that before doing anything which involves the “taking, using, or damaging of any property, rights or interests of' any other person or persons,” the City will have to obtain such owner’s written consent “and shall acquire all property, rights and interests necessary therefor.” This provision, as the trial court recognized, “adequately protects petitioner’s property rights in water underlying their land in accordance with Article 1, Section 13 of the Minnesota Constitution.” Furthermore, the Company’s own permit applications have not been unconditionally denied. The Company is free to submit an application when it has available the data necessary to establish that its proposed use of the underground water source will have no adverse impact on higher priority users protected by the permitting statute.

We conclude, as did the trial court, that the Commissioner’s order does not work an unconstitutional taking of private property without compensation.

2. Next, we must consider plaintiff’s claims that the Commissioner’s order violates Minnesota Water Appropriation Law, Minn.Stat. § 105.41 (1978), and Minnesota Environmental Policy Law, Minn.Stat. §§ 116D.04 and 105.405, subd. 1 (1978).

(a) Section 105.401. As noted above, Minn.Stat. § 105.41, subd. la, establishes certain priority levels for appropriation of surface and underground waters. Priority levels which are the subject of argument in this case are the first and third:

First priority. Domestic water supply, excluding industrial and commercial uses of municipal water supply.

* * * * * *

Third priority. Agricultural irrigation, involving consumption in excess of 10,000 gallons per day, and processing of agricultural products.

The statute’s first priority level codifies a common-law principle which grants a municipality paramount priority in the use of water for a public purpose. See Mitchell v. City of St. Paul, 225 Minn. 390, 31 N.W.2d 46 (1948); Aspects of Water Resources Law in Minnesota, 16 (University of Minnesota Water Resources Research Center, Bulletin 11, 1969). There seems little question that the City of Crookston is entitled to first priority in allocating possibly scarce water for providing water to Crookston homes.

However, evidence in this case indicated that the City of Crookston supplies certain commercial plants with water from the municipal water source and that these plants-Simplot, a processor of french fried potatoes; the American Crystal Sugar Company; and Coca-Cola Bottlers-account for thirty percent of the City’s water consumption. Because the Department of Natural Resources has not yet promulgated standards for application of the priority levels,⁴ it is not clear whether these consumers constitute “industrial and commercial users of municipal water supply,” which properly must be excluded from the first priority level, or “processors of agricultural products,” which fall into a priority level equal with that for the Company’s proposed water use, agricultural irrigation. The Company argues that thirty percent of the City’s proposed water consumption will be provided for consumers that, at best, rank only on an equal priority level with its own proposed use, and that granting the City’s well permit application allows these users to “bootstrap” their water allocation into the “domestic user” category. The testimony of the City’s consulting engineer indicated that the City had given no genuine consideration to an alternative water plan in which these plants were not provided with municipal water, because he had “trouble separating industrial and commercial users from people.”

In light of the fact that thirty percent of the City’s water provides users whose priority levels are equal to or less than the Company’s proposed use, we conclude that the Company’s showing of “no adverse impact on higher priority users,” required by the Commissioner’s order, need only be a showing of no adverse impact on the domestic use of the city.

(b) Sections 116D.04 and 105.405. The Minnesota Legislature has established an environmental policy which requires that, in making permit decisions, the Commissioner consider long-range goals of conservation and preservation of natural resources. Minn.Stat. § 116D.04, subd. 6, (1978) provides:

No state action significantly affecting the quality of the environment shall be allowed, nor shall any permit or natural resources management and development be granted, where such action or permit has caused or is likely to cause pollution, impairment, or destruction of the air, water, land or other natural resources located within the state, so long as there is a feasible and prudent alternative consistent with the reasonable requirements of the public health, safety, and welfare and the state’s paramount concern for the protection of its air, water, land and other natural resources from pollution, impairment, or destruction. Economic considerations alone shall not justify such conduct.

Specifically in the area of water supply, Minn.Stat. § 105.405 (1978) makes the following requirement:

WATER SUPPLY MANAGEMENT. Subdivision 1. The commissioner shall develop and manage water resources to assure a supply adequate to meet long range seasonal requirements for domestic, municipal, industrial, agricultural, fish and wildlife, recreational, power, navigation, and quality control purposes from surface or ground water sources, or from a combination of these.

The district court found that Minn.Stat. § 116D.04, subd. 6, was not applicable to this case because there was no showing that the City’s proposed action would result in “pollution, impairment, or destruction” of water resources. There was evidence to support the City’s contention that groundwater in the aquifer would be naturally replenished by precipitation. The Commissioner could justifiably conclude that a showing that alternatives had been considered was not required where the destruction of natural resources had not been established.

The Company argues that, in addition to his duty to prevent destruction of natural resources, the Commissioner is subject to a duty to manage water resources so as to assure an adequate supply to meet domestic, agricultural, and industrial purposes, among others, and that the Commissioner’s order fails to meet that responsibility. The DNR responds that the statute does not mandate that the Commissioner provide water supplies for any purpose in every instance but that he manage the waters of the state in the best manner possible in the long term so as to make the best possible use statewide of the available resource. Using its agency expertise, the DNR has reviewed the future water management problems of the whole Crookston region and has made a policy judgment that the City’s application for two of the wells requested to supply present City need, and one new well for testing in the lower aquifer, be granted. The domestic water supplies of the residents of the Town of Lake Pleasant and other vicinity households are assured by the conditions attached to the permit granted to the City. The permit may be terminated without notice at any time the Commissioner deems it necessary for the conservation of water resources, or in the interests of public health or welfare or for the violation of any of the provisions of the permit, including the required acquisition by the City of any property, rights, and interests of other persons which may be taken, used, or damaged. In light of these provisions, and giving the agency judgment the weight to which it is entitled, see Reserve Mining Co. v. Herbst, 256 N.W.2d 808 (Minn.1977), we conclude that the DNR has met its burden under § 105.405, subd. 1, and uphold its decision.

3. Finally, we turn to petitioner’s claim that the Commissioner’s order is arbitrary and capricious and unsupported by substantial evidence. Agency decisions are presumed correct by the court, out of deference to agency skill and technical expertise, and will be reversed only when they reflect an error of law or when the findings are arbitrary and capricious or are unsupported by substantial evidence. Reserve Mining Co. v. Herbst, 256 N.W.2d 808, 824, 827 (Minn.1977). We find the Commissioner’s decision granting the City’s permit application with conditions and denying the Company’s application to be supported by substantial evidence and, for the reasons set out above, not arbitrary or capricious.

Affirmed.

1 . An “aquifer” is a water-bearing underground layer of sand or gravel; such a layer is a source of groundwater tapped when a well is dug.

2 . Minnesota Statutes § 105.41 (1978) reads in pertinent part:

Subd. la. The Commissioner shall submit to the legislature by January 1, 1975, for its approval, proposed rules governing the allocation of waters among potential water users. These rules shall be based on the following priorities for appropriation and use of water:

First priority. Domestic water supply, excluding industrial and commercial uses of municipal water supply.

Second priority. Any use of water that involves consumption of less than 10,000 gallons of water per day. For purposes of this section “consumption” shall mean water withdrawn from a supply which is lost for immediate further use in the area.

Third priority. Agricultural irrigation, involving consumption in excess of 10,000 gallons per day, and processing of agricultural products.

Fourth priority. Power production, involving consumption in excess of 10,000 gallons per day.

Fifth priority. Other uses, involving consumption in excess of 10,000 gallons per day.

(Emphasis supplied.)

3 . Assuming that a property owner may have a property right to the reasonable use of percolating waters beneath his land, subject to reasonable use by others, where an adjoining landowner, such as the City here, removes water from its 160-acre tract and transports it 12 miles away, for public use, a taking may occur. The remedy for such a taking would be a proceeding against the City for inverse condemnation.

4 .’ Section 105.41 requires that the DNR Commissioner develop rules for water allocation by January 1, 1975. Such rules were not prepared and are not available to date.