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What does the recent Supreme Court Ruling in the Day Case mean in practical terms?

by | May 9, 2012

I recently attended the 22nd Annual Outlook for Texas Land Markets, and several of the sessions spent considerable time trying to make heads or tails out of the recent Texas Supreme Court decision regarding what is commonly called the “Day Case” regarding groundwater.

After first stating that I am not an attorney or an expert in water law, I will try to convey my assessment and opinion as to what the decision means to each of us today.  To start, it appears that all of the experts I heard are in agreement that we will not be able to answer what it all means for another decade or so.

That being said, there are some key outcomes that are meaningful to recognize:

1) Per the Supreme Court Decision in the “Day Case” (and the language in SB 332 passed in the most recent Texas Legislative Session), a landowner owns the groundwater under his or her property “in place”, just like oil & gas, subject to legal drainage and the local GCD (Groundwater Conservation District) rules based on relevant factors, including fair share and beneficial use.  It is plain to see that things can get complicated as fair share and beneficial use get defined, but at least the foundation of groundwater ownership is now firmly in place

2) Unreasonable regulations or rules imposed by a local GCD (or the EAA) may lead to a non-frivolous takings claim.  Of course, the courts will ultimately decide what is unreasonable and has resulted in an illegal taking.  Potential takings claims may arise in several ways including:

  • A new applicant is denied a permit,
  • An existing permittee’s allowable volume is reduced due to new permit being issued to another party,
  • A claim requesting water replacement after drainage takes place (districts commonly use well spacing and minimum acreages to avoid drainage issues),
  • Establishment of fair share rules,
  • Definition of beneficial uses.

3) The Day Case involved the Edwards Aquifer Authority that was created by the Texas Legislature by passage of the Edwards Aquifer Authority Act.  The Act, a landmark legislation adopted by Texas lawmakers in 1993 and put into effect in 1996, created the Authority as a special groundwater district with the purpose to manage and regulate the San Antonio segment of the Balcones Fault Zone Edwards Aquifer, more commonly referred to as the Edwards Aquifer. As a result, the Authority is responsible for a jurisdictional area that spans 8,800 square miles across eight counties in south-central Texas, including all of Uvalde, Medina, and Bexar counties, plus portions of Atascosa, Caldwell, Guadalupe, Comal, and Hays counties.  What this means is that GCD’s statewide don’t operate under exactly the same statutory laws as the EAA.

4) Any “Day Case” spillover to the local GCD’s is expected to be minimal until someone files a substantial lawsuit and a final outcomes are determined by the courts…years down road.

5) The ruling and referenced legislation has clarified the previous uncertainty, for some, surrounding one’s legal ability to buy and sell groundwater rights by providing more clarity; severing of those rights by a surface owner can now be done with certainty.

6) One interesting side note that there seems to be some confusion about is that the oil & gas exemption for water use is specifically for exploration, not production.  Not all oil & gas groundwater use is statutorily exempt.  The obvious question of whether “fracking” is an exploration or production activity has not yet been defined.

In summary, the Day Case confirmed groundwater ownership by the surface owner; however, it is important to recognize that permitting decisions and the definitions of fair share and beneficial use will still result in further court decisions and an estimated decade before we have profound clarity on these issues.

Disclaimer:

The information contained herein represents the understanding, opinions and assessments of the author and should not be considered legally conclusive or expert opinion. Republic Ranches, LLC and its principals, members, officers, associates, agents and employees cannot guarantee the accuracy of such information.

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