Court of Appeals leaves many questions unanswered in its decision reversing Hage’s takings award

July 31, 2012 | By BRIAN HODGES

Last week, the Federal Circuit Court of Appeals issued its decision in United States v. Hage, reversing Senior Judge Loren Smith’s 2008 decision concluding that the government had taken Hage’s property.  As most of you probably know, this 21-year old case arose from the federal government’s heavy-handed efforts to strip away the water rights of Nevada rancher, E. Wayne Hage, and other ranchers who ranged their cattle on public lands.  Well, as the saying goes, “whiskey is for drinking; water is for fighting over.”  And fight they did, sparking the so-called Sagebrush Rebellion.

Historically, the United States encouraged, and even lauded, western settlers for the industry and courage that it took to eke out a living in such hostile conditions as those present in Nevada.  The ability to do so, however, hinged on the government’s fidelity to the settlers’ water rights because the soil in Nevada is arid, and unfit for cultivation unless irrigated by waters of running streams.  Because of this, our courts recognized that water rights in the western United States are different from those on the east and subject to more protection.  The importance of these rights was so well recognized that early courts ruled that it was a duty of the national and state governments to protect appropriated water rights which are among the most valuable property rights known to the law.  In fact, when rendering his decision in favor of Hage, Senior Judge Loren Smith correctly observed, in Nevada, “water means the difference between farm and desert, ranch and wilderness, and even life and death.”  Hage v. United States, 35 Fed. Cl. 147 (1996).

Over time, however, the federal government shifted its public lands priorities away from agriculture, ranching, and other natural resource industries and toward public recreation and enhancement of the environment.  Thereafter, the federal government began a campaign designed to drive ranchers out of business by increasing the regulatory burdens on ranchers; denying access over federal lands; raising fees, cancelling or placing onerous restrictions on grazing permits; and blocking access to water.

The Hage case arose from the federal government’s attempts to interfere with Hage’s historical right to water his livestock, irrigate his ranch, and use water for domestic purposes.  After a full trial, the Court of Federal Claims concluded that U.S. Forest Service policies and actions effected physical and regulatory takings of Hage’s water rights.  First, the Forest Service physically took Hage’s stock water rights when it erected fences to block Hage’s cattle from accessing and putting to beneficial use Hage’s vested water rights at times when Hage had valid grazing permits allowing cattle to move upon the federal lands.  Second, the Forest Service physically took Hage’s water rights when it used threats, intimidation, and harassment to bar Hage from accessing his ditch rights-of-way to maintain the flow of water to his patented lands.  And third, the Forest Service effected a regulatory taking when it determined that any permit allowing Hage to access and maintain his ditch rights-of-way would require that the work be done only with hand tools—an impossibility.

The Federal Circuit Court of Appeals, however, reversed every finding and conclusion on which a taking was found.  In regard to the regulatory taking, the Federal Circuit found that the claim was unripe because Hage gave up on the permitting process and took matters into his own hands.  Even though the federal government had previously thrown Hage in jail for clearing out his ditches (the charges were dismissed when the government could prove no crime), the Court held that he was required to apply for a permit.  The Federal Circuit found that threats of jail time and extreme hostility (Judge Smith was shocked at the government’s hostile and threatening behavior) was not sufficient to establish futility.

Frustratingly, the Court of Appeals acknowledged that Hage had raised an argument that, under the 1866 Ditch Act, prior appropriated water rights are not subject to permitting.  PLF’s amicus brief went into great detail on this issue, explaining that, for over a century, the highest courts of the western states have recognized that the holder of a water right has an absolute right to cross over the land of another person to clear obstructions from the flow of water.  This raises the difficult, and inconvenient, question whether Hage’s right to maintain his water flow was superior to the federal government’s policy of promoting the growth of riparian vegetation in ditch rights-of-way.  The Court of Appeals, however, never answered the question.

The Federal Circuit’s conclusion regarding the physical taking is even more frustrating.  On the one hand, the Court agreed with PLF’s amicus brief, which focused primarily on establishing that the right of access to water is a fundamental property right.  The Court held that:

the government could not prevent them from accessing water to which they owned rights without just compensation. The government, for example, could not entirely fence off a water source, such as a lake, and prevent a water rights holder from accessing such water.

But, what the court giveth, the court taketh away.  The federal government’s fences were in place for approximately 3 years.  At some point, elk broke the fences and Hage’s cattle were able to exploit the breach and slake their thirst.  Based on this, the Federal Circuit held that Hage’s right to access was not interfered with.  This conclusion is at odds with the U.S. Supreme Court’s seminal physical takings case, Loretto v. Teleprompter Manhattan CATV Corp., where the Court held that any physical invasion of private property—no matter how small (Loretto concerned a small cable box affixed to an apartment building)—will effect a taking.  The fact that elk eventually breached the government’s fences should only goes to how much compensation is due.

While the Federal Circuit’s decision is disappointing, this case is not over, and we will be monitoring the next steps.