By Michael Howell
The Montana Supreme Court has upheld a lower court ruling by Lewis and Clark County District Court Judge Jeffrey Sherlock that basically closes a loophole in the state Department of Natural Resources and Conservation (DNRC) regulations that was allowing developers to get subdivision approval for proposals the size of a small town without going through the permitting process established to enforce the state’s Water Use Act. The Clark Fork Coalition and a few individual senior water right holders challenged the rule in September 2010, and got a decision in their favor. But this decision was appealed by intervenors including the Montana Well Drillers Association, Montana Association of Realtors, and the Montana Building Industry Association. In an opinion written by Justice Laurie McKinnon, the Montana Supreme Court affirmed the District Court ruling with a 6 to 1 vote on September 13.
State law provides an exemption when a groundwater appropriation does not exceed 35 gallons per minute and 10 acre-feet per year. However, the subsection also provides an “exception” to the exemption when a “combined appropriation” from the same source by two or more wells or developed springs exceeds 10 acre-feet per year, regardless of flow rate. But the term “combined appropriation” is not defined within the Water Use Act and DNRC has taken contradictory positions regarding the meaning of the term.
It is noted specifically in the Supreme Court’s Opinion that, within a period of six years, the DNRC promulgated consecutive rules with conflicting interpretations as to whether groundwater developments must be physically connected to constitute a “combined appropriation.” Initially, in 1987, three months after the Legislature adopted the “combined appropriation” language, the DNRC promulgated a rule which provided that “groundwater developments need not be physically connected nor have a common distribution system to be considered a ‘combined appropriation’.” However, in 1993, the DNRC reversed its position and adopted the current administrative rule, which states that the term “combined appropriation” means “groundwater developments that are physically manifold into the same system.”
A DNRC Hearings Examiner ordered the DNRC to initiate proposed rulemaking to repeal the 1993 rule and adopt a new administrative rule that would align more closely with legislative intent. The DNRC thereafter attempted to repeal and replace the 1993 rule, but, for reasons not made entirely clear by the record, failed to do so.
The Coalition sued and maintained that the DNRC’s definition of “combined appropriation” was inconsistent with the applicable statute arguing that the statute does not require physical connection and the District Court agreed. Now the Supreme Court has affirmed that decision.
In his Order, Sherlock invalidated the 1993 rule, reinstated the 1987 rule and directed the DNRC to formulate a new administrative rule consistent with the court’s order. The Supreme Court agreed with Sherlock’s order invalidating the 1993 rule and reinstating the 1987 rule, but did not recognize Sherlock’s authority to order the DNRC to make a new rule consistent with his order. Instead, the high court left it up to DNRC to decide whether it needed to make a new rule or not. The agency could decide simply to retain the 1987 rule.
The Supreme Court found that the current (1997) rule allows an appropriator to avoid the permitting process for “an infinite number of appropriations from the same source”—with each appropriation consuming up to 10 acre-feet per year—so long as the appropriator does not physically connect the groundwater developments.
The Court noted that, since the DNRC’s promulgation of the 1993 rule, exempt appropriations have grown steadily by approximately 3,000 each year. The DNRC estimates that there are now 113,000 exempt appropriations in Montana, consuming significant amounts of water and the agency anticipates that exempt appropriations will continue to grow rapidly. By the year 2020, the DNRC projects that there could be an additional 78,000 exempt appropriations in Montana.
Closed basins, like the Bitterroot River Basin, have not been immune from this trend. The DNRC estimates that 30,000 new exempt appropriations will be added in the next two decades in closed basins alone, resulting in an additional 20,000 acre-feet per year of water consumed in these already over-appropriated basins.
The Court also noted that no public hearing on this rule change adding a physical connectivity requirement was held and no public comments were received. The DNRC similarly did not provide a statement as to why the change from the 1987 rule was necessary as the DNRC was required to do by law.
Three reasons for its decision to invalidate the administrative rule were provided. First, after examining the 1987 legislative debate surrounding the incorporation of the term “combined appropriation” into the statute, the Court explained that “clearly, the legislature was under the impression that the reference to ‘combined’ did not require two wells to be physically connected.” Second, the Court noted that the DNRC promulgated the 1987 rule, which did not require physical connection, immediately after the incorporation of the term into the statute. Lastly, the Court noted that the 1993 rule fails to protect senior water users in accordance with the Act’s express purpose.
The Court explained through the use of a hypothetical that the administrative rule allows large consumptive water uses to be established, without going through the permitting process, at the expense of senior users.
“The current definition of ‘combined appropriation’ allows 1,000 new wells as part of a 1,000 lot subdivision to escape review under DNRC permitting. . . [and] allow[s] up to 10,000 acre feet a year of water to be potentially diverted from senior water rights holders neighboring or near the new 1,000 lot subdivision without any review,” it stated in the Opinion.
Based on the plain language of the statute, the Court concluded that “combined appropriation” refers to the total amount or maximum quantity of water that may be appropriated without a permit and not to the manner in which wells or developed springs may be physically connected. With no language anywhere in the Act which suggests that wells or developed springs must be physically manifold or connected, “We therefore conclude without any difficulty, that the 1993 rule engrafted an additional requirement on the statute and must be deemed invalid if it is contradictory or inconsistent with the statute, or adds a requirement not envisioned by the Legislature.” They found the 1993 rule both inconsistent with state law and adding a requirement not envisioned by the legislature.
The appellants also questioned Sherlock’s re-instatement of the 1987 rule. They argued that the District Court did not have the authority to re-instate the former rule. The Supreme Court noted that there was no precedent in Montana Courts addressing the question, but also noted that under federal case law, the “effect of invalidating an agency rule is to reinstate the rule previously in force.”
“Although the federal Administrative Procedure Act does not expressly state that the prior rule is reinstated, the ‘common rationale’ for doing so is ‘that the current rule being invalid from its inception, the prior regulation is reinstated until validly rescinded or replaced.’ We find this reasoning persuasive. Like the federal Administrative Procedure Act, the Montana Administrative Procedure Act is silent in regard to the effect of the invalidation of the current rule on the former administrative rule. It serves to reason, however, that when a court invalidates the current rule, the effect is to return to the previous status of the law, which necessarily means in most instances that the former rule is reinstated.”
It also found that, under Montana law, when an amended statute is invalidated, the statute is left in the same position that it was in before the amendment was introduced.
Whereas here, a court invalidates an administrative rule that has been invalid since its inception, the default remedy is to reinstate the former administrative rule. Accordingly, the District Court did not err by reinstating the 1987 rule, it states in the Opinion.
But the Court did disagree with a portion of Sherlock’s ruling, the final part ordering the DNRC to make a new rule consistent with his ruling.
The Supreme Court found, “Although, the District Court did not err by requiring that a rule promulgated by the DNRC must be consistent with its order, it is the responsibility of the administrative agency to ‘adopt rules necessary to implement and carry out the purposes of this chapter.’
“Such authority includes whether, in the judgment of the DNRC, a rule other than the reinstated 1987 rule should be implemented. Accordingly, we reverse and remand to the District Court for the limited purpose of removing its mandate to the DNRC to initiate rulemaking. It is up to the DNRC to determine whether initiating rulemaking to change the reinstated 1987 rule is appropriate.”