Texas Supreme Court issues landmark decision addressing landowners’ right to underlying groundwater resources

On February 24, 2012, the Texas Supreme Court issued its long-awaited decision in The Edwards Aquifer Authority v. Day, No. 08-0964 (Tex. 2012).¹ The case involved the state’s groundwater “Rule of Capture” and pitted landowners’ rights to groundwater resources underlying their property against the Edwards Aquifer Authority’s right to regulate the use and withdrawal of those groundwater resources. Ultimately, the Court held that ownership of land includes a property interest in the underlying groundwater “in place” and that such a right cannot be taken through state action without adequate compensation. This decision will certainly affect private and public water rights in Texas and can be seen as yet another decision in a growing line of case jurisprudence favoring such a property interest.

“RULE OF CAPTURE”

The Rule of Capture for groundwater resources has been Texas law for more than one hundred years. It effectively entitles landowners to withdraw groundwater from beneath their land regardless of any impacts pumping may have on neighboring landowners or other hydraulically related waters.² Liability may only lie where extraction (1) is intended to harm a neighboring landowner, (2) results in the waste of water, or (3) negligently causes subsidence of neighboring properties.³ Texas courts have interpreted the Rule of Capture quite liberally and have rarely found a violation.

BACKGROUND AND CASE PROCEDURE

In 1994, R. Burrell Day and Joel McDaniel (collectively, “Day”) purchased more than 380 acres overlying the Edwards Aquifer in Central Texas. Their intent was to use the property for farming and cattle ranching. Coincidentally, the year prior the Texas legislature created the Edwards Aquifer Authority (“EAA”), a governmental agency, to manage the Edwards Aquifer. The EAA was created in response to a lawsuit to protect endangered species living in springs emanating from the aquifer, and within the karst aquifer’s matrix.⁴ Thus, the EAA was authorized to establish permitting requirements and other restrictions for withdrawals of groundwater from the aquifer.

Soon after purchasing the property, Day filed an application with the EAA for a permit to pump 700 acre-feet of groundwater annually for irrigation. Basing its decision on historical use, the EAA denied Day’s application. Following a series of protests, discussions, and hearings, an administrative law judge concluded that Day was entitled only to pump 14 acre-feet of groundwater per year. Day appealed that decision to the Texas District Court. Day argued, in part, that in denying his permit, the EAA had taken his property without compensation in violation of the Texas Constitution. While it denied his constitutional claims, the District Court determined that the EAA’s assessment of Day’s water entitlement was flawed and remanded the case for a new calculation.

Both Day and the EAA appealed the decision. The Texas Court of Appeals affirmed the EAA’s assessment and ruled that Day was only entitled to pump 14 acre-feet of groundwater per year. However, it also found that landowners have a property right in underlying groundwater resources that is constitutionally protected against “takings” by the state and that Day’s takings claim could proceed. Upon appeal to the Texas Supreme Court, the chief issue presented was whether an overlying landowner owns the underlying groundwater “in place,” or whether ownership of the groundwater vests only when the groundwater has been captured through pumping.

HOLDING

In its landmark decision, the Texas Supreme Court held that under the Texas Constitution, ownership of land includes a property interest in the underlying groundwater “in place” and that such a right cannot be taken through state action without adequate compensation. In reaching its conclusion, the Court drew on the law of oil and gas whereby property rights in underlying hydrocarbons in situ have long been the accepted rule. The Court asserted:

To differentiate between groundwater and oil and gas in terms of importance to modern life would be difficult. Drinking water is essential for life, but fuel for heat and power, at least in this society, is also indispensable. Again, the issue is not whether there are important differences between groundwater and hydrocarbons; there certainly are. But we see no basis in these differences to conclude that the common law allows ownership of oil and gas in place but not groundwater.⁵

While the Court found that groundwater in Texas was subject to constitutional protection against governmental takings, it ruled that the record was inadequate to show that Day had actually suffered such a taking requiring compensation. Hence, it remanded the case to the District Court for a trial on the takings claim.

ANALYSIS

This decision has profound implications for water policy and management in Texas. On the one hand, it strengthens private property rights in groundwater resources originating in the state and could allow for less fettered marketing of those resources. On the other hand, it weakens both the state’s and local governments’ ability to manage groundwater resources within their overall water management schemes.⁶

While this decision’s impact is limited to Texas, it appears to follow a developing line of case jurisprudence. Courts across the United States have found that certain governmental limitations restricting water rights holders’ ability to implement their full rights rises to the level of a taking of private property without just compensation.⁷ In these jurisdictions, groundwater rights are no longer mere usufructuary rights (right to use), but rather property rights protected under those states’ constitutions and, possibly, under the United States Constitution.