Idaho Irrigation Company v. Gooding/Opinion of the Court

These are separate appeals by the respective parties from the same decree (285 Fed. 453), in part affirming and in part reversing the federal District Court for Idaho.

The Idaho Irrigation Company, Limited, is a corporation organized as a construction company for the purpose of reclaiming lands under Carey Act, c. 301, § 4, 28 Stat. 422 (Comp. St. § 4685). The other appellants in No. 324 (appellees in No. 336) are trustees for bondholders of the Irrigation Company and certain intervening individual owners of land, who had purchased water rights after this suit was brought and a lis pendens filed. Appellees (appellants in No. 336) are individual owners of water rights, purchased from the Irrigation Company under the Carey Act, and the state of Idaho, which intervened as a party plaintiff.

The water rights are represented by shares of stock in the Big Wood River Reservoir & Canal Company, organized as an operating company by the Irrigation Company in pursuance of contracts with the state of Idaho.

The suit, brought in a state court and removed to the federal District Court, was to enjoin the Irrigation Company and the trustees from selling, disposing of, or transferring upon the books of the company any shares of the Reservoir & Canal Company held as assets of the Irrigation Company or as trustees for the benefit of bondholders, and to enjoin the Irrigation Company from making further contracts for the sale of water rights, or selling, disposing of, or transferring any shares of the Reservoir & Canal Company which the Irrigation Company owned or controlled.

By the Carey Act the United States binds itself to donate, grant, and patent to a state, complying with stated conditions, desert lands, which the state may cause to be irrigated, reclaimed, and occupied. The state is required to file a map of the land proposed to be irrigated, showing the plan of irrigation, etc., and is authorized to make contracts, to cause the lands to be reclaimed, and to induce their settlement and cultivation. Upon satisfactory proof the Secretary of the Interior is directed to issue patents to the state or its assigns. In pursuance of the Carey Act and of its own statutes to carry that act into effect, Comp. Stats. Idaho 1919, p. 848, c. 136, the state of Idaho entered into contracts with the Irrigation Company for the reclamation of approximately 167,000 acres of land, and the company entered into contracts with appellees and other settlers to furnish water for lands to be acquired by them in the project, to be represented by shares of stock in the Reservoir & Canal Company.

By these contracts, made on January 2, 1909 and prior dates the Irrigation Company, understood to be the owner of the right to divert 6,000 cubic feet per second of time of water, agreed that it would furnish and deliver to the owners of such shares all of the appropriated waters to the extent of one-eightieth of a cubic foot per second of time per acre, and that water rights or shares should not be sold beyond the carrying capacity of the canal system or in excess of the waters appropriated. Shares of stock of the Reservoir & Canal Company were to be issued in the proportion of one share for each one-eightieth of a cubic foot per second of time. It was further agreed that the irrigation works should be completed within five years from the date of the contracts, at which time the obligation to furnish the full one-eightieth of a cubic foot per second of time per acre should be in force and effect.

Upon application of the state of Idaho and evidence to the effect that an ample supply of water was actually furnished and in sufficient quantity to reclaim the lands as contemplated by the Carey Act, the Secretary of the Interior fixed the area of the project at 117,677.24 acres and caused a patent of the United States therefor to be issued and delivered to the state.

The injunction was sought upon the ground that the water, appropriated and available, was wholly insufficient to irrigate the entire area, and was no more than sufficient to irrigate 40,939 acres, and that water rights had been sold for lands largely in excess of this area. A lis pendens was filed for record in the various counties where the property was situated, which had the effect of imparting constructive notice to all of the pendency of the suit. Comp. Stats. 1919, § 6674. The answer of the Irrigation Company alleges that water right shares had been sold for more than 87,000 acres; that the supply of water appropriated and available was sufficient for the lands represented by these shares and over 25,000 acres in addition. The answer avers as a further defense that the action of the state and of the Secretary of the Interior and the issuance of the patent thereon constituted a determination by the state of Idaho and the Secretary of the Interior that the water supply and the capacity of the irrigation works were sufficient, and that this was binding and conclusive in the case.

It was stipulated at the trial that the total outstanding shares of the Reservoir & Canal Company were 88,135.71. Of these 12,722.64 shares, originally sold to individuals, had been purchased by the trustees at foreclosure sale, out of which 3,143.61 shares were sold to the interveners after the commencement of the suit and the filing of the lis pendens.

The District Court took evidence in open court under equity rule 46 and delivered an opinion in favor of appellees, upon which a decree was entered. It determined from the evidence that the reasonable duty of water was 2 3/4 acre feet per acre for the entire area, without deduction for roads or other nonirrigable tracts; and, without attempting to determine the exact quantity of available water, found that the supply was and would continue to be insufficient to meet the demands of the outstanding contracts, exclusive of those which the company had acquired through foreclosure proceedings. These findings have support in the evidence and the conclusion is justified that the available water will fall short of supplying as much as 50,000 acres of land. The allowance of 2 3/4 acre feet per acre is much less than the quantity stipulated in the contract, but the reduction by the court was properly made under the Idaho statute, which requires that the amount of water allowed shall never be in excess of the amount used for beneficial purposes. Comp. Stats. 1919, § 7033; and the statute which forbids the use by any water right owner of more water than good husbandry requires. Section 5640. These provisions are to be read into the contracts. State v. Twin Falls, etc., Water Co., 30 Idaho, 41, 77, 166 Pac. 220. By statute it was made unlawful for the Irrigation Company to contract to sell more water than it had. Section 5636; State v. Twin Falls, etc. Co., supra, 65 (166 Pac. 220); Gerber v. Nampa, etc., Irrigation District, 16 Idaho 1, 17, 100 Pac. 80.

We cannot accept the contention of appellants that the application of the state and the issuance thereon of a patent to the lands by the Secretary of the Interior constituted a determination binding on the individual water right owners that an ample supply of water was available for the entire 117,677.24 acres. Whatever may be the effect of this action as between the United States and the state of Idaho, it is perfectly clear that it can have no effect upon the rights of the individual land and water owners. Their rights are to be measured by the contracts, and by these contracts the Irrigation Company bound itself to furnish one-eightieth of a cubic foot per second of time per acre. We fully agree with the District Court that the individual appellees, not being parties to these proceedings, are not bound by them, and in saying:

'They hold contracts imposing upon them heavy obligations and     in turn conferring upon them valuable rights. It would be     shocking to hold that these rights could be taken away or      substantially impaired by a finding of fact or conclusion of      law (we are not advised which) made by an administrative      officer in an ex parte proceeding in which they did not have      an opportunity to be heard.'

See, also, Twin Falls Oakley Land & Water Co. v. Martens (C. C. A.) 271 Fed. 428, 433.

As among the individual owners the water rights conveyed by the Irrigation Company are vested and under the contracts must be shared proportionately; but the Irrigation Company is without right to continue to contract to sell and deliver water from a supply that has already been exhausted, thereby compelling these owners to still further diminish their proportionate rights. As said by the Supreme Court of Idaho in Sanderson v. Salmon River Canal Co., 34 Idaho 303, 310, 200 Pac. 341, 343 (26 A. L. R. 292):

'It is one thing to prevent any more rights vesting, in order     to avoid a hardship to those whose rights have already      vested, and it is another thing to wipe out rights which have      already vested through the issuance of contracts and the use      of the water.'

See State v. Twin Falls Land & Water Co. (Idaho), 217 Pac. 252, 256; Boley v. Twin Falls Canal Co. (Idaho), 217 Pac. 258, 262, 263; Caldwell v. Twin Falls, etc., Co. (D. C.) 225 Fed. 584, 592-595.

We think the District Court was also right in including in the injunction the 12,722.64 shares of stock purchased by the trustees at foreclosure sale. These shares were the property of the Irrigation Company, and, representing an excess of available water supply, should be extinguished and their resale enjoined. They are subject to the same principle that was applied to the issuance and sale of additional original shares in excess of such supply. The conclusion of the District Court was based upon the theory that the ownership and control of these shares were in the Irrigation Company and this is supported by the evidence. Indeed, it was so stipulated between counsel at the trial. See Childs v. Neitzel, 26 Idaho, 116, 127, 129-131, 141 Pac. 77.

The Court of Appeals, however, held that the decree of the District Court in this respect was erroneous to the extent of 5,322.26 shares, which were appurtenant to the lands owned by the Irrigation Company and its trustees when the suit was commenced and lis pendens filed; but we are unable to see that these shares occupy any different status from the others. The stipulation of ownership and control included all. If the injunction was bad as to the 5,322.26 shares, it was bad as to all. The Irrigation Company, having oversold the available water supply, exclusive of the shares purchased at foreclosure sale, cannot be permitted to sell additional shares, whether still unissued, or issued and sold, but reacquired, and whether acquired before the suit and lis pendens or afterwards. It may be conceded that the water rights represented by these shares were appurtenant to the lands for the irrigation of which they had been acquired, Comp. Stats. Idaho, § 3018; but they were not, under the Carey Act and the laws of Idaho, inseparably appurtenant to the lands, but constituted distinct and separably property rights. Bennett v. Twin Falls, etc., Co., 27 Idaho, 643, 653, 150 Pac. 336. To permit the use and enjoyment of these water rights by the Irrigation Company, with the consequent further reduction of individual rights purchased from the company, would be to ignore the distinction between the wrongdoer and the innocent, and is not to be suffered by a court of equity.

In so far as the decree of the Court of Appeals agrees with that of the District Court it is affirmed; but in respect of the matter last discussed it is reversed and the decree of the District Court affirmed in all particulars.

No. 324 affirmed.

No. 336, reversed.