The Ninth Circuit reversed the district court's dismissal without prejudice of claims filed under Montana law against the Atlantic Richfield Company (ARCO) by a group of water users along the Clark ForkRiver in Montana. The court ordered the district court to remand the case to state court.

The water users' claims stemmed from a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) cleanup ordered by the Environmental Protection Agency (EPA). For years, ARCO discharged mining wastes into the Clark ForkRiver. To remedy the pollution, EPA ordered ARCO to divert water from the river into tailing ponds. Cleaner water would then flow back into the river. The order mandated that in undertaking the cleanup ARCO was not to cause any injury to vested water rights. This order meant that to implement the cleanup, ARCO might have to pay for any water used.

The plaintiffs, water users with "senior" water rights, claimed that the diversion was decreasing the amount of water available to downstream users, and they filed suit in state court. They were seeking compensatory damages, lost profits, and property devaluation. One plaintiff, West Side Ditch, also brought a claim for injunctive relief. ARCO removed the case to federal court. The district court dismissed the case but offered to move it to the Court of Federal Claims because the court held the plaintiffs were alleging a takings claim.

The Ninth Circuit found that the district court erred in finding that the plaintiffs alleged a takings claim. Even though the facts may give rise to a takings claim, the plaintiffs did not elect to use this remedy. Instead, their claims were brought under state law.

Next, the court examined the district court's conclusion that the plaintiffs' claims were a "challenge" to the CERCLA cleanup and thus were barred by 42 U.S.C. § 9613(h), CERCLA's timing of review provision. The claims would be a challenge if they interfered with the implementation of the CERCLA cleanup. The court found that the remedy available to the plaintiffs if they won, financial compensation, would not involve changing the EPA order, and thus did not challenge the order. However, the court held that West Side Ditch's injunctive relief claim did constitute a challenge to the cleanup because it would enjoin the diversions ordered by EPA.

Nonetheless, the court concluded that the district court lacked jurisdiction because the plaintiffs asserted state law claims and that federal courts did not have jurisdiction over the claim for injunctive relief because it constituted a challenge to the CERCLA cleanup. Thus, there was no federal jurisdiction, and the appropriate court to hear this case was a state court.