Churchill County, Nevada (County) and the City of Fallon, Nevada (City) brought this action against the State Engineer of Nevada, claiming that he violated Nevada state law when he approved eight applications to transfer the place of use of water rights acquired by the United States Fish and Wildlife Service (FWS).[1] The district court, finding that the State Engineer's conclusions were supported by substantial evidence, upheld the State Engineer's approval of the water rights transfers. The Ninth Circuit affirmed the district court's decision.

For at least 4,000 years, the Carson River created wetlands where it flowed out of the mountains into the Lahontan Valley. The Reclamation Act,[2] passed by Congress in 1902, required that water from the Carson and Truckee Rivers be held in reservoirs behind dams to provide water for irrigation of 200,000 acres--now known as the Newlands Reclamation Project--located in Churchill County near Fallon, Nevada. Over the past 100 years, these authorized diversions of water from the Carson River have substantially dried up the Lahontan Valley wetlands. In 1990, to address this as well as other water allocation problems in the area, Congress passed the Fallon Paiute Shoshone Indian Tribal Water Rights Settlement Act of 1990 (Settlement Act).[3] Section 206(a) of Title II of this Act requires the Secretary of the Interior to acquire and manage sufficient water and water rights to support 25,000 acres of wetlands in the Lahontan Valley.[4] Acquired water must be applied directly to wetlands, and transfers of water rights must be made in accordance with state law. The entire program is expected to take 20 years and involve 75,000 acre-feet of water rights. The water rights in question in this case were acquired by the FWS from willing sellers pursuant to the Settlement Act[5] for the purpose of supporting wetlands in the Lahontan Valley. The City and the County asserted that transferring the place of use of the water rights would reduce the recharge to the water table, endangering the municipal water supply and causing domestic wells to dry up.

After acquiring the necessary water rights, FWS submitted applications to the State Engineer to transfer the place of use of the first eight of those rights. Concerned that the acquisition and transfer program would endanger local water supplies, the City and the County filed suit against the Secretary of the Interior, alleging the Secretary violated the National Environmental Policy Act (NEPA)[6] by failing to prepare a programmatic environmental impact statement assessing the cumulative impacts of the acquisition and transfer program.[7] After losing that case in the Ninth Circuit, and while a petition for certiorari was pending with the United States Supreme Court, the County and the City filed this suit, claiming the Nevada State Engineer violated Nevada state law by approving the transfers without requiring an assessment of the cumulative impacts of the Settlement Act program. In addition, the City and the County asserted that the State Engineer should have withheld action on the transfer applications pending the Supreme Court's decision on this issue.

Nevada state law required the Ninth Circuit to uphold the State Engineer's factual determinations if they were supported by substantial evidence and to uphold his legal conclusions unless they were contrary to law.

The court first addressed the petitioners' claim that the State Engineer's actions interfered with existing water rights. The City and County provided no evidence regarding the effects of the eight transfers contested in this suit. Instead, they relied on evidence that pertained to the effects of the entire acquisition and transfer program. The Ninth Circuit first determined the focus should be solely on the effects of the eight transfers. The Ninth Circuit then decided that because none of the existing places of use of the water rights contributed to recharging the aquifer, transferring use to the wetlands area would not affect local ground water levels,[8] and thus would not conflict with existing water rights.

Next, the court examined petitioners' claim that the water rights transfers were detrimental to the public interest. Relying on guidelines provided by the Nevada Supreme Court in Pyramid Lake Paiute Tribe of Indians v. Washoe County (Pyramid Lake),[9] the Ninth Circuit decided the eight transfers of water rights did not adversely affect the public interest.[10] Again, the City and the County centered their arguments around the entire program and presented no evidence that the eight transfers in particular would adversely affect the public interest. In contrast, the United States presented substantial evidence refuting claims that transferring the eight specific water rights would have adverse effects on air pollution and dust hazards.[11] The Ninth Circuit determined that the City and County's view was more expansive than Nevada's interpretation of "public interest," and the Nevada Supreme Court had made it clear that any expansion of the definition of public interest beyond the interpretation in Pyramid Lake would have to come from the state legislature.[12] The Ninth Circuit also determined that concerns for the public interest did not require the State Engineer to study the cumulative impacts of the acquisition and transfer program prior to approving a transfer. Nevada state law leaves the State Engineer with discretion in deciding whether to require studies should be done before water rights are transferred.[13]

The Ninth Circuit next examined petitioners' claim that the State Engineer abused his discretion by not requiring further study of the cumulative impacts of the acquisition and transfer program. The court determined that the five studies and the final environmental impact statement (EIS) addressing the ground water situation in the Lahontan Valley (prepared by FWS in compliance with the Settlement Act) which were considered by the State Engineer as well as the ten witnesses presented by the State Engineer provided substantial evidence that he had adequately reviewed the situation and found that no new studies were needed. Furthermore, the court determined that Nevada state law does not require a comprehensive assessment of the potential effects of future water transfer applications. Nevada law requires the State Engineer to evaluate the need for a study in relation only to each individual transfer application.[14] In Pyramid Lake, the Nevada Supreme Court confirmed that the State Engineer is obligated only to address each transfer application as it comes up, "and is not in a position to interfere with the decisions and responsibilities of [others]."[15] Cumulative impact analysis under NEPA is the duty of the Secretary of the Interior, and not the State Engineer.[16]

Finally, the court addressed the argument that the State Engineer should have stayed his approval of the transfers pending the outcome of the County's case against the Secretary of the Interior. The Ninth Circuit found that, under section 533.370(2)(b) of the Nevada Revised Statutes, the State Engineer has discretion to determine whether to withhold action pending the outcome of related litigation. The court found that the State Engineer did not abuse his discretion when he approved the transfers before the County's case against the Secretary of the Interior was final. This question is now moot, as the Supreme Court's October 7, 2002 denial of certiorari rendered the Ninth Circuit's decision in that case final.

The Ninth Circuit affirmed the district court's decision to approve the Nevada State Engineer's authorization of eight transfers of place of use of water rights, finding it to be supported by substantial evidence and not contrary to law.