The Arizona Supreme Court, in Arizona Department of Water Resources v. Hon Crane McClennen in and for the county of Maricopa, No. CV-15-0223-SA, reversed a ruling from Judge McClennen of the Superior Court of Maricopa County on November 12, 2015, vacating the Arizona Department of Water Recourses’ (ADWR) approval of Freeport Minerals Corporation’s (Freeport) application to sever water rights it owned which were appurtenant to Planet Ranch in Mohave County and to transfer such rights to other areas.  Judge McClennen had agreed with Mohave County’s arguments against approving Freeport’s application and found that ADWR’s actions to approve Freeport’s proposed severance and transfer of its water rights were “contrary to law, arbitrary and capricious and an abuse of discretion.” 

Freeport’s Proposed Severance and Transfer of Its Water Rights

Under Arizona law, a right to use surface water may be acquired by appropriation.  Once acquired, pursuant to A.R.S. §45-172 and subject to certain conditions, a surface water right may be severed from the land to which it is appurtenant and transferred to another water source without losing its priority.  In this instance, Freeport sought to sever water rights it had appropriated in Planet Ranch and transfer them to other areas of Planet Ranch and to a wellfield near Wikieup.  The water rights Freeport was to obtain from the wellfield were to be used in connection with the Bagdad Mining Complex in Yavapai County for mining and other uses. 

In accordance with the requirements of A.R.S. §45-172, Freeport had filed applications with ADWR to transfer its water rights in 2010.  ADWR published notice of the proposed transfer in accordance with its obligations under A.R.S. §45-172(A)(7).  Thereafter, Mohave County filed objections to the transfer with ADWR, contending, among other things, that the transfer would negatively affect the County’s already strained water supply.  However, ADWR rejected the County’s objections and approved Freeport’s proposed transfer.

Arizona Supreme Court’s Decision

The Arizona Supreme Court held that ADWR did not abuse its discretion in approving Freeport’s application for the Planet Ranch water rights’ severance and transfer, finding that, not only had ADWR not acted arbitrarily, capriciously or contrary to law, but that ADWR’s discretion to deny applications to transfer water rights under A.R.S. §45-172 was limited to the specific conditions listed in A.R.S §45-172(A). 

The conditions set forth in A.R.S. §45-172(A) include, among other things, that “vested or existing rights to the use of water” shall not be affected by a proposed transfer and that the water rights to be severed must have been properly perfected and not lapsed.  Mohave County did not contend that Freeport had not met these conditions.  Instead, the County argued that the right of “interested persons” to object to a proposed application to transfer water rights under A.R.S. §45-172  implied that ADWR should consider various factors in determining whether an application should be accepted or denied, such as whether a transfer is contrary to the public interest.  A.R.S. §45-172(A)(7), provides the following:

• Any application for such a water rights transfer is to be filed with the ADWR
• ADWR is to give notice of the application by publication once a week for three successive weeks in a “newspaper of general circulation in the county or counties in which” the water rights are located
• Such notice of the proposed transfer is to state that “any interested person may file written objection” with ADWR    

The Arizona Supreme Court dismissed the County’s arguments and found that ADWR’s review of applications under A.R.S. §45-172 are “licensing decisions.”  Pursuant to A.R.S. §41-1030(B), standards for approval or denial of licensing decisions, ADWR is prohibited from basing its decision on factors not specifically authorized by statute.  In its decision, the court noted that, while there is statutory language authorizing ADWR to consider the effects on the public welfare in ADWR’s review of applications for initial appropriations of water rights, water rights to be transferred under A.R.S. §45-172 have already been appropriated signifying only A.R.S. §45-172 applies in determining the standards for ADWR’s review.  The court found that since A.R.S. §45-172 does not include specific language regarding the public interest in its list of conditions to be met, and since there was not an argument that one of the listed conditions of A.R.S. §45-172 had not been met, ADWR did not abuse its discretion in approving Freeport’s application to transfer its water rights.

The  Arizona Supreme Court further held that Mohave County was not an “interested person” entitled to file an objection under A.R.S. §45-172(A)(7).  The court noted that the term “interested person” was not defined in the statute and that, since such term was subject to more than one reasonable meaning, it was ambiguous.  The court then looked to the context of the statute to determine the meaning and found that “any interested person” should reasonably be considered any person who has an interest that is protected by A.R.S. §45-172 and who may be affected by the proposed transfer.  The court found that the County’s argument that “any interested person” should mean someone who has an “interest in or concern about something” was too broad as that would mean that “any person” could file an objection if so inclined.  The court noted that an “interested person” would include, without limitation, someone who had a vested or right to use the water at issue.  In this case, the County did not allege that it held any such vested right with respect to the water rights to be transferred by Freeport.  The County also argued that it had a specific interest since it was obligated to plan for and protect water resources in Mohave County.  However, the court found that these planning obligations did not create any right on the part of the County that was specifically protected by A.R.S. §45-172. 

Implications for Future Water Rights Transfers

Based on the Arizona Supreme Court’s ruling, counties and other municipalities, water rights coalitions, developers and other groups, individuals or entities which may want to object to the transfer of water rights from one water source to another in a new location will not be able to object to the transfer based on A.R.S. §45-172 unless such individual, entity or group has an identifiable interest protected by A.R.S. §45-172 which may be harmed or affected by a proposed transfer.  This ruling significantly limits who can object to transfers under A.R.S. §45-172.  In addition, the ruling restricts ADWR’s discretion to deny or condition applications for transfer of water rights under A.R.S. §45-172.  ADWR is limited to denying or conditioning applications only based on the specific limitations and conditions set forth in A.R.S. §45-172(A) and cannot take into account broader policy-based factors, including changing water supplies, exchange programs or public policy demands. 

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