The United States and the Pyramid Lake Paiute Tribe (Tribe) challenged the Nevada State Engineer's decision to approve landowners' applications to change the place of use of water rights on their farms. The appeals of three landowners, whose applications for change of place of use of water rights had been denied, were consolidated in this appeal.
The Ninth Circuit affirmed the portions of the district court's decision upholding the State Engineer's denials of applications to change the place of use of water rights and upholding the State Engineer's determination of the date of contract for the water rights. The Ninth Circuit reversed the portion of the district court ruling accepting dirt-lined ditches as beneficial uses of water and remanded all applications for which transfers had been approved.
This case continues litigation on the intrafarm transfer of place of use of water rights begun in the 1980s. Farmers within the Newlands Reclamation Project (Project) claim the right to transfer the use of water rights from one place on their farms to another. The United States and the Tribe believe the farmers are illegally trying to transfer water rights they have forfeited or abandoned. All the water rights at issue take water from the Truckee River, the only source of water for Pyramid Lake, a central feature of the Paiute Indian Reservation. Over the years, the withdrawal of water from the Truckee River lowered the level of Pyramid Lake, thereby endangering indigenous fish.
Farmers within the Project obtain water rights by entering into written contracts with the United States Reclamation Service. These rights, which attach to the land on which the water is used, allow a farmer to use water on a designated number of "irrigable acres" on a farm. A farmer may transfer the place of use of perfected water rights by applying with the State Engineer. To perfect a water right, the farmer must put the water to beneficial use. Unperfected water rights are subject to Nevada's laws of abandonment and forfeiture. Abandonment occurs when the holder of a water right demonstrates an intent to abandon the right. Intent to abandon is a question of fact that must be determined from all the surrounding circumstances including, among other things, non-use, improvement inconsistent with irrigation, and failure to pay taxes or assessments. Forfeiture comes into play when water rights have not been used for five consecutive years. Water rights obtained prior to enactment of the forfeiture act in 1913, however, are exempt from the forfeiture law.
In a prior case, United States v. Alpine Land & Reservoir Co. (Alpine IV), the district court affirmed the Nevada State Engineer's ruling that for equitable reasons, applications for intrafarm transfers were exempt from Nevada's abandonment and forfeiture laws. The Ninth Circuit reversed on appeal in United States v. Alpine Land & Reservoir Co. (Alpine V). However, in accordance with Alpine IV and before Alpine V, the State Engineer approved thirty intrafarm transfers. A number of those approvals are included in this appeal, and most of the determinations in this case apply the rulings made originally in Alpine V.
First, the Ninth Circuit affirmed the State Engineer's determinations of the contract dates on which landowners acquired water rights. The court found that the State Engineer, following the dictates of Alpine V, set the contract dates as the date on which each landowner "took affirmative steps to appropriate water," rather than 1902 when the Project began. The Ninth Circuit then ruled that here, as in Alpine V, decisions on whether or not intrafarm transfers of water rights are eligible for equitable relief from Nevada's forfeiture laws must be made on a case-by-case basis. Finding that there was insufficient information in the record to allow the court to make the case-by-case determinations, it remanded the cases to either the State Engineer or the district court. The court further pointed out that, in each case, "any equitable considerations must be balanced against the negative consequences to the Tribe resulting from any increased diversions of water."
Again following its ruling in Alpine V, the court found that abandonment of water rights must be determined on a case-by-case basis. Because the information necessary to make the case-by-case determinations was not in the record, the court remanded the cases for further consideration of abandonment. The court reiterated Nevada law that nonuse does not set up a presumption of intent to abandon, and that intent to abandon is a question of fact that must be determined from all the surrounding circumstances including nonuse, improvements inconsistent with irrigation, and failure to pay taxes or assessments. After acknowledging the tension between the standards for intent to abandon set in United States v. Orr Water Ditch Co. and Alpine V, the Court decided that if there is no other proof of lack of intent to abandon a water right, there must be proof of continuous use. If other proof does exist, "then proof of continuous use is not necessarily compelled."
Next the court addressed the 1973-1984 Department of the Interior moratorium on transfers of place of use of water rights. During that period, the government continued to accept and process applications but did not approve them. Farmers, asserting that in some cases they were unable to use their water rights because they were unable to transfer the place of use as a result of this moratorium, asked for a blanket equitable exemption for nonuse. As in Alpine V, the Ninth Circuit rejected this argument because, in many cases, the period of nonuse did not coincide with the time of the moratorium. The court required that in order to qualify for an equitable exemption for nonuse during the moratorium period, each landowner must show he applied for a transfer or inquired about a transfer during that time.
Finally, the Ninth Circuit found that, because the right to use water attaches to the land where the water is used and not the land through which the water passes, the flow of water through a dirt-lined ditch does not constitute a beneficial use unless the water is used for lateral root irrigation.
The Ninth Circuit's ruling thus affirmed the denials of applications for intrafarm changes in the place of use of water rights and upheld the State Engineer's determinations of the dates of contracts of water rights. In conformance with its determinations in Alpine V, the Ninth Circuit then remanded all applications for which transfers had been granted for case-by-case determinations of whether the water rights in question had been perfected and, if not, whether they had been forfeited or abandoned. Finally, the Ninth Circuit, reversing the district court, found that dirt-lined ditches are generally not beneficial uses of water attaching to the land through which the ditches pass.
On remand, the State Engineer must follow the ruling in Alpine V that intrafarm transfers are not per se exempted from forfeiture and abandonment laws. In determining abandonment, the State Engineer must look at all the surrounding circumstances. In determining forfeiture, the State Engineer must balance the interests of the applicants against the interest of the Tribe in minimizing diversions from Pyramid Lake. In determining non-use during the moratorium period (1973-1984), the State Engineer must look at whether the farmer applied to transfer place of use or inquired about a transfer. The State Engineer must not generally consider water flowing through a dirt-lined ditch to have been put to a beneficial use with respect to the land through which the ditch runs.
 256 F.3d 935 (9th Cir. 2001). In Orr Water Ditch Co., the court held that nonuse of water combined with payment of taxes or assessments does not provide clear and convincing evidence of abandonment. Id. at 945.