The Court of Appeals Takes on the Relinquishment Exemption for Municipal Water Rights

David Stearns*

Originally Submitted Fall 2019

In Crown West Realty v. Department of Ecology,[1] a case watched closely by municipal water rights holders looking for certainty in their water rights portfolios, Division 3 of the Court of Appeals engaged for the first time with the definition of “municipal water supply purposes” in the statutory relinquishment exemption for rights claimed for such uses. The Court held that water used for a hotel did not qualify for the exemption. While the decision answers one set of questions, it raises a host of new ones that will give the courts, Ecology, and municipal water rights holders plenty to grapple with in the years to come. Unfortunately, the Washington State Supreme Court passed up an opportunity to iron out some of the wrinkles in Washington water law that Crown West is sure to leave for others to sort out.

As is typical in western states, a water right is relinquished under Washington law if it goes unused for five years, unless an enumerated statutory exemption applies. Water rights “claimed for municipal water supply purposes” have been exempt from Washington’s use-it-or-lose-it relinquishment statute since it was enacted in 1967.[2] But until the passage of the Municipal Water Law in 2003, what counted as a “municipal supply purpose” was left undefined. Municipal Water Law defines “municipal water supply purposes” in relevant part as including those “for providing residential use of water for a nonresidential population that is, on average, at least twenty-five people for at least sixty days a year.”[3] As the Crown West court found out, applying this deceptively simple phrase in the real world can be a vexing task.

The dispute in Crown West arose from Crown West Realty, LLC’s (Crown West) application to transfer 5,874 acre-feet per year of its water rights portfolio into the state trust water rights program in order to mitigate new uses of water from the Columbia River. Crown West had a total of 9,274 acre-feet per year in water rights on paper, but claimed a peak historical use of only 5,874 acre-feet per year, and at the time of its change application was using only 3,400 acre-feet per year. Ecology and Crown West agreed that the rights met the definition of municipal supply purposes when they were initially established in the 1940s in connection with a World War II Navy depot near Spokane. But Ecology concluded that the rights had ceased to qualify for the municipal exemption in the intervening years and had, in fact, been partially relinquished during extended periods of reduced use. Ecology therefore denied Crown West’s application to transfer the unused portion of its water rights to the trust program.[4]

In order to resolve the case, the Crown West court had to answer two questions: First, what does it take for a water right to qualify as a “municipal water supply purpose”? Second, when should the municipal status of a water right be determined?

The Meaning of “Residential”

On the first question, Crown West advocated for an all-embracing view of “residential uses” of water, arguing that the use of water for “a hotel, restaurants, mini marts, as well as bathroom and kitchen facilities for the tenant’s thousands of employees” qualified its water rights as being for residential purposes.[5] Essentially, if a water use is typically done in a residence, Crown West argued that the water right was for a “residential use.” The Court rejected this expansive definition. Instead, it looked to case law from other jurisdictions and came to the common sense conclusion that for a use of water to be a “residential use,” it has to take place in a residential setting.[6] While it did not draw a bright line around the term, the Court reasoned that “[a] ‘residential use’ should include facilities for an overnight stay, but for more than an overnight stay. A ‘residential use’ should allow for independent living for weeks, if not months.”[7] By way of example, the Court noted that a college dormitory would qualify, but a hotel designed for “one or two overnight stays” would not.[8] Because Crown West’s water rights were used for businesses and a non-extended stay hotel, the Court concluded that its water rights were not protected from relinquishment under the municipal exemption.[9]

Questions of Timing

Things get considerably more complicated as we turn our attention to the Court’s answer to the second question regarding the time at which the municipal nature of a water right is determined. Crown West argued that if a water right is municipal at its inception, it remains a municipal water right going forward, regardless of whether the actual use of water meets the definitions in RCW 90.03.015. Ecology, leaning heavily on its policy, POL-2030,[10] argued that a water right is protected from relinquishment only during the periods in which it actively complies with the definition of a municipal right.[11] This would mean that if a water right ceases to be used for a purpose that meets the definition of “municipal water supply purposes,” the right is subject to relinquishment during that period. The Court rejected both positions, holding instead that the use of the present tense in RCW 90.03.015, which defines “municipal water supplier” and “municipal water supply purposes,” means that “the law requires the assessment of a municipal water supplier status as of the date that the water right holder applies for a change in use or a transfer.”[12] This holding lies in serious tension with western water law and is bound to create confusion in the future.

As a general rule, the validity of a water right can in principle be known at any point in time by looking at the present use of the water right and its history. In cases like Okanogan Wilderness League v. Twisp [13]and R. D. Merrill,[14] the Supreme Court has fashioned tests that can be used to determine whether a water right has been abandoned or relinquished at any given moment in time, without respect to the time the analysis is performed. The Crown West decision appropriately nods to this principle, stating, “The law determines relinquishment at the time of the expiration of the five years of nonuse. Events occurring after the five-year statutory period of a water right’s nonuse matter none because relinquishment has already occurred.”[15] But if the municipal nature of a water right is assessed, as Crown West seems to hold is necessary, at the time of a water right change application, then the validity of a water right may very well hinge entirely on “events occurring after the five-year statutory period.” For example, if Crown West had waited to apply for the change until it had constructed an extended-stay hotel that qualified as a “residential use of water,” then it would seem under the reasoning of Crown West that the right would at that time be deemed exempt from relinquishment and the application could be approved.

The rule announced by the court gets even more puzzling when one considers that applications for changes or transfers are not the only context in which a relinquishment analysis is necessary. RCW 90.14.130 authorizes Ecology to issue relinquishment orders on its own initiative. It is difficult to see how to apply the holding of Crown West to a situation in which there is no application for a change or transfer. One could imagine an answer where the timing of the relinquishment order controls whether the right has relinquished. Giving Ecology that level of control over the rights that it is empowered to regulate is sure to sit uneasily with many.

Conclusion

The Crown West decision resolved the dispute between the parties and will provide useful guidance for understanding what qualifies as a “residential use” of water. But the decision leaves in its wake significant questions as to how Ecology and the courts will apply the municipal relinquishment exemption to water rights that lapse into and out of meeting the definition of “municipal water supply purposes” depending on when the water right holder chooses to submit its change application.

* David F. Stearns is an associate at Schwabe Williamson & Wyatt PC. He advises real estate developers, business owners, and individuals on complex environmental and natural resource issues throughout the Northwest, helping resolve disputes involving contaminated property, regulatory enforcement actions, and water rights.

[1]7 Wn. App. 2d 710, 435 P.3d 288 (2019) (“Crown West”), review denied, 137 Wn.2d 118, 969 P.2d 458 (2019); Crown W. Realty, LLC v. Pollution Control Hr’gs Bd., 193 Wn.2d 1030, 447 P.3d 165 (2019).

[2] RCW 90.14.140(2)(d).

[3] RCW 90.03.015(4)(a).

[4] A curious reader may want to consider whether Crown West’s proposed donation could have passed muster under RCW 90.42.080(11)—a question the Court did not reach.

[5] Crown West, 7 Wn. App. 2d. at 724.

[6]Id. at 747.

[7] Id.at 748.

[8] Id.at 748–49.

[9] Id.at 752.

[10] Water Resources Program, 2003 Municipal Water Law Interpretive and Policy Statement, Feb. 5, 2007 (effective), May 7, 2012 (revised), available at

https://appswr.ecology.wa.gov/docs/WaterRights/wrwebpdf/pol2030.pdf

[11] Crown West, 7 Wn. App 2d at 728.

[12] Id.at 737.

[13] 133 Wn.2d 769, 947 P.2d 732 (1997).

[14] 137 Wn.2d 118, 969 P.2d 458 (1999).

[15] Crown West, 7 Wn. App. at 734.

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