Colorado Supreme Court rules against holders of vested water rights inside and outside of an Indian reservation which challenged the authority of the Colorado State Engineer to designate certain groundwater formations in Colorado as nontributary, as part of the process of issuing permits for the extraction of groundwater by wells used for oil and gas operations. Pawnee Well Users, Inc. v. Wolfe, Case No. 12SA13, 2013 CO 67, 2013 Colo. LEXIS 865 (Nov. 25, 2013).

In 2010 a group of water rights holders in Colorado raised a constitutional challenge to certain rules promulgated by the Colorado State Engineer's Office regarding the designation of certain ground water resources as "nontributary." The particular groundwater resources were located, in part on an Indian reservation, and the State Engineer's determination was a part of an effort to promulgate rules regarding the permitting and regulation of oil and gas wells that extract groundwater in Colorado.**

The rule in dispute, referred to as the "Fruitland Rule," was part of a set of "Final Rules" promulgated by the State Engineer under its authority granted by HB 09-1303, codified at C.R.S. § § 37-90137, 37-90-138(2), and 37-92- 308(11) (C.R.S. 2009). The Fruitland Rule related to underground water in a geologic formation called the Fruitland Formation, which extends into the Southern Ute Indian Reservation. The Final Rules, which included the Fruitland Rule, contained a provision stating:

These rules and regulations shall not be construed to establish the jurisdiction of either the State of Colorado or the Southern Ute Indian Tribe over nontributary ground water within the boundaries of the Southern Ute Indian Reservation as recognized in Pub. L. No 98-290, § 3, 98 Stat. 201 (1984).

The Plaintiffs argued that the above-quoted provision in the Final Rules effectively divested the State Engineer from having jurisdiction to, among other things, designate water as nontributary in its rulemaking process. The trial court had agreed with this position, and stated that the State Engineer did not prove its authority. The Court of Appeals, however, reversed and held that the State Engineer's authority came from HB 09-1303, which "authorized the State Engineer to promulgate the Final Rules to delineate nontributory groundwater extracted in oil and gas production throughout the state" of Colorado.

The Court of Appeals held that nothing about the above- quoted statement in the Final Rules did or could divest the State Engineer of this authority.

The Court of Appeals noted that its decision would not prevent a constitutional challenge to the Fruitland Rule based upon discriminatory application, if facts warranted.