                                                                                October 7 2014


                                     DA 13-0709

        IN THE SUPREME COURT OF THE STATE OF MONTANA
                                     2014 MT 272



ELDORADO CO-OP CANAL CO.,

         Claimant and Appellee,

LOWER TETON JOINT OBJECTORS,

         Objectors and Appellants,

NOIA: TETON COOP RESERVOIR CO.,

FARMERS COOPERATIVE CANAL CO.,

         Objector, Appellee and Cross-Appellant,

  and

PATRICK SAYLOR,

         Intervenor and Cross Appellant.


APPEAL FROM:     Montana Water Court, Cause No. 41O-129A
                 Honorable Russ McElyea, Presiding Judge

COUNSEL OF RECORD:

          For Appellants:

                 Stephen R. Brown, Garlington, Lohn & Robinson, PLLP,
                 Missoula, Montana

          For Appellee Eldorado Coop Canal Company:

                 John E. Bloomquist, Bloomquist Law Firm, PC, Helena, Montana

          For Farmers Coop Canal Company and Patrick Saylor:

                 Michael J. L. Cusick, Abigail R. Brown, Moore, O’Connell
                 & Refling, P.C, Bozeman, Montana
         For Amicus:

               Peter G. Scott, Gough, Shanahan, Johnson & Waterman, PLLP,
               Bozeman, Montana


                                           Submitted on Briefs: July 30, 2014
                                                      Decided: October 7, 2014


Filed:




                                   Clerk




                                      2
Chief Justice Mike McGrath delivered the Opinion of the Court.


¶1    Monte Giese, Steven Kelly and William Reichelt, often referred to as the Lower

Teton Joint Objectors, and Patrick Saylor, intervenor, all appeal from the Water Court’s

“Order Amending Master’s Report and Adopting as Amended,” in Water Court Case

41O-129.

¶2    We restate the Issues as follows:

¶3    Issue One: Did the Water Court err in amending the Water Master’s Report

finding that Saylor was a party to an historical water exchange or substitution plan under

which he provided the source of carriage water used to deliver water to Choteau Cattle

Company through the Bateman Ditch?

¶4    Issue Two: Did the Water Court err by including Choteau Cattle on the tabulation

of water rights authorized to divert water from the Teton River into the Bateman Ditch

under a water rights exchange or substitution plan not claimed by any person?

¶5    Issue on Cross-Appeal: Whether water rights in addition to Choteau Cattle can be

diverted down the Bateman Ditch.

¶6    We affirm in part and reverse in part.

                                   BACKGROUND

¶7    Monte Giese, Steven Kelly and William Reichelt are water users who hold

appropriation rights from the lower Teton River in Chouteau County, Montana. In 2011

they commenced an action in the Montana Ninth Judicial District Court against the Water

Commissioners appointed by the District Court to administer certain water rights diverted


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from the Teton River pursuant to the 1908 water rights decree in Perry v. Beattie, Cause

371, Ninth Judicial District Court. The water rights claimed by Giese, Kelly and Reichelt

were not included in the Perry decree, which involved only rights diverted upstream near

Choteau, Montana. Giese, Kelly and Reichelt claimed that the Water Commissioners’

practice of diverting water out of the natural channel of the Teton River and into the

Bateman Ditch harmed their appropriation rights by depriving the Teton River aquifer of

recharge water. They ultimately sought relief under § 85-2-406(2)(b), MCA, which

allows a district court to certify a dispute to the Chief Water Judge (the Water Court) for

a determination of rights when the dispute involves water rights not all of which have

been conclusively determined in prior court decrees.

¶8     The District Court dismissed the petition and Giese, Kelly and Reichelt appealed.

This Court reversed and remanded to the District Court with instructions to certify all

appropriate issues to the Chief Water Judge as provided in § 85-2-406(2)(b), MCA.

Giese v. Blixrud, 2012 MT 170, 365 Mont. 548, 285 P.3d 458. In December 2012 the

District Court issued a certification notice requesting that the Water Court “make a

determination of all existing rights to divert water to the ditch commonly known as the

Bateman Ditch.”

¶9     The Water Court, with the agreement of the parties, determined to resolve the

certified issues in the context of Water Court Case 41O-129, which involved certain

Teton River water right claims by the Eldorado Coop Canal Company, along with the

objections to those claims. The parties to Case 41O-129 had conducted an evidentiary

hearing in June 2012 just prior to this Court’s decision in Giese. The parties agreed that

                                            4
the record of that hearing could serve as the evidentiary basis for resolving the certified

question from the District Court involving the Bateman Ditch, while reserving resolution

of any other issues relating to the Eldorado claims.

¶10    In February 2013 the Water Master issued the “Master’s Report Regarding the

Bateman Ditch Case 41O-129,” including findings of fact and conclusions of law

regarding use of the Bateman Ditch. Parties filed objections to the Master’s Report, and

in June 2013 the Water Judge issued the “Order Amending Master’s Report and

Adopting as Amended.” In summary, the Water Court found that two of the Water

Master’s findings of fact were not supported by substantial evidence in the record and

should be modified. The Water Court also found that Saylor had a protectable right to

divert Teton River water through the Bateman Ditch to the downstream diversion point of

the Choteau Cattle Company as a water conservation measure, while exercising his own

appropriation rights from the Teton. Both Saylor and the Lower Teton Joint Objectors1

appeal.

¶11    The Teton River rises in the Rocky Mountain Front in west central Montana and

flows eastward for almost two hundred miles before joining the Marias River and soon

thereafter the Missouri River. Giese, Kelly and Reichelt use water from the lower or

downstream portion of the Teton near Fort Benton, Montana. They claim generally that

they are damaged by diversion of water into the Bateman Ditch on the upstream portion


1
  The “Lower Teton Joint Objectors” is not an actual organization, but only a reference to Giese,
Kelly and Reichelt, who have water rights on the Lower Teton and who object to some
diversions through the Bateman Ditch.

                                               5
of the Teton near Choteau, Montana, and that their “calls” on upstream appropriators to

release water for their downstream use have been ignored.

¶12      The dispute arises at least in part from the 1908 decree in Perry.2 That case

determined the priority date and flow rate of about 40 water right claims in the upper

Teton River west of Choteau and far upstream from Giese, Kelly and Reichelt. The

District Court appointed Water Commissioners to administer the water rights decreed in

Perry, as provided in § 85-5-101, MCA. The majority of water users on the Teton (and

their successors in interest, including downstream users Giese, Kelly and Reichelt) were

not parties to the Perry case. Giese, Kelly and Reichelt claim water rights from the Teton

with priority dates that are senior to or contemporary with the upstream rights decreed in

Perry. Water right claimants on the Teton are participating in the Water Court’s on-

going adjudication of water rights under Title 85, chapter 2 of the Montana Code. The

Water Court issued its Temporary Preliminary Decree of water rights from the Teton in

December 2005 but has not issued a final decree.

¶13      About 1950 (the exact date has not been established), the Water Commissioner

appointed by the District Court to administer the Perry decree began from time to time

diverting most or all of the flow of the Teton River out of its natural channel and into the

Bateman Ditch. That ditch runs roughly parallel to the natural channel of the Teton River

and bypasses a stretch of the river channel several miles long that is sometimes referred

to as the Springhill Reach. The Reach is an area of natural gravel riverbed west of

Choteau, and a significant amount of the water flowing through it will seep into the

2
    Teton County is now part of the Ninth Judicial District.
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ground. The Bateman Ditch diversion eliminates the seepage of water in the Reach and

the water can be used from the ditch or returned to the natural channel. This diversion

practice was not established pursuant to any written agreement among appropriators or

any express order of the District Court.

¶14    Intervenor Saylor has Perry decree rights to use up to 1500 miner’s inches3 of

water from the Teton River. Saylor uses the Bateman Ditch as the point of diversion for

his decreed rights, and the Ditch crosses his land. Eldorado diverts water from the Teton

River above the Bateman Ditch pursuant to its Perry decree rights. Eldorado distributes

water through canals to its members.

¶15    The right to 300 miner’s inches of water from the Teton now held by the Choteau

Cattle Company is the most senior right in the Perry decree, with a priority date in 1876.

Choteau Cattle’s point of diversion is the Burd Ditch, the headgate for which is located

just downstream from both the Springhill Reach and the point where water diverted into

the Bateman Ditch re-enters the Teton River channel. While Choteau Cattle can often

divert its water right out of the natural flow of the Teton River via the Burd Ditch, that is

not possible during times of low flow because the water seeps into the ground in the

Springhill Reach. While Choteau Cattle’s Perry right is for 300 miner’s inches of water,

a significant multiple of that amount has to flow through the Reach for Choteau Cattle to

be able to divert its right from the natural river flow.




3
  A miner’s inch is a method of measuring the flow of water, and 100 inches is equivalent to 2.5
cubic feet of water per second. Section 85-2-103, MCA.
                                               7
¶16    Diversion of water through the Bateman ditch and returning it to the natural

channel just above the Burd Ditch is a way in which Choteau Cattle has exercised its

water right. The proponents of diverting Choteau Cattle’s right through the Bateman

Ditch are holders of junior Perry decree rights. When Choteau Cattle’s water is delivered

through the Bateman ditch, the effect is to leave water in the natural channel above the

Springhill Reach that can be used by Perry right holders junior to Choteau Cattle. If the

Bateman Ditch were not used to deliver water to Choteau Cattle during times of low

flow, upstream junior right holders (including Saylor and Eldorado) would have to forego

or greatly curtail their water use.

¶17    There are no apparent records of how often the Bateman Ditch diversion is used

each irrigation season to deliver water to Choteau Cattle. The diversion is not required in

times of higher water flows in the Teton River, and the frequency of its use has been

described as occasional or sporadic.

¶18    Earlier in the water rights adjudication process both Eldorado and Choteau Cattle

claimed the Bateman Ditch as a point of diversion of their water rights from the Teton

River. Both of those entities for their own reasons have now specifically disclaimed the

Bateman Ditch as a point of diversion. Choteau Cattle disclaimed the Bateman Ditch as a

point of diversion for its decreed right out of a concern that it would have less water

available at its headgate at the Burd Ditch because of ditch losses in the Bateman Ditch.

Saylor is now the only claimant in this matter who specifically designates the Bateman

Ditch as its point of diversion from the Teton River.



                                             8
¶19    Giese, Kelly and Reichelt challenge the Water Commissioner’s practice of

diverting the flow of the Teton River into the Bateman Ditch to avoid the Springhill

Reach. They contend that their water rights are senior to the rights of many upstream

Perry decree rights and that their rights predate the Water Commissioners’ diversion of

the Teton through the Bateman Ditch. They contend that since the Bateman Ditch was

not used to divert the entire river at the time of the Perry decree, the Water

Commissioner lacked the authority to make the decision to do so. They contend that they

are entitled to have the river flow in the natural channel in the condition it was in at the

time their appropriations were perfected and that the natural channel flow cannot be

altered if it adversely affects their rights. They contend that allowing the natural water

seepage through the Springhill Reach is a key element in the hydrology of the Teton

River; that it is essential to stable groundwater and springs; and that it is essential to their

access to the Teton River water and to the exercise of their water rights.

¶20    Giese, Kelly and Reichelt acknowledge that it is proper to divert Teton River

water into the Bateman Ditch as needed to fulfill the Saylor right. But they contend that

diversion of any water in addition to that needed for the Saylor right is not a beneficial

use of water and is unlawful.

                                STANDARD OF REVIEW

¶21    This Court recently set out the standards of review in an appeal from the Water

Court’s review of a Water Master’s report. Heavirland v. State, 2013 MT 313, ¶¶ 13-16,

372 Mont. 300, 311 P.3d 813; Skelton Ranch, Inc. v. Pondera County Canal & Reservoir

Co, 2014 MT 167, ¶¶ 25-27, 375 Mont. 327, 328 P.3d 644. In summary, the Water Court

                                               9
reviews the Water Master’s findings of fact to determine whether they are clearly

erroneous. The Water Court reviews the Water Master’s conclusions of law to determine

whether they are correct.

¶22   This Court reviews a Water Court decision under the same standards applied to

District Court decisions. The Water Court’s review of the Water Master’s report is

reviewed de novo as an issue of law, to determine whether its application of the standards

of review is correct. Skelton Ranch, ¶ 26.

                                     DISCUSSION

¶23   Issue One: Did the Water Court err in amending the Water Master’s Report
      finding that Saylor was a party to an historical water exchange or substitution
      plan under which he provided the source of carriage water used to deliver water
      to Choteau Cattle Company through the Bateman Ditch?

¶24   Both the Water Master and the Water Court determined that the practice of

diverting the Teton River flow into Bateman Ditch in times of low water flow to deliver

water to Choteau Cattle was a historic water conservation measure that should be

recognized and allowed. The Water Master determined that the Bateman Ditch diversion

was a practice or tool that the District Court and its Water Commissioners could use to

manage the water rights on the Teton River. The Water Master concluded that the

practice conserved water in the sense of making it available to junior right holders

upstream from the Bateman Ditch who would otherwise have to allow water to flow

down the River to get to the Choteau Cattle point of diversion at the Burd Ditch. The

Water Court concluded that the Bateman Ditch diversion was more than just a water

management tool but was a recognizable and protectable right held by Saylor.


                                             10
¶25    The parties disagree about how to classify the Bateman Ditch diversion under

Montana law. While water exchanges are recognized by statute, §§ 85-2-411 and -413,

MCA, the Lower Users say that it was error for the Water Court to characterize the

Bateman Ditch practice as an exchange agreement because there is no secondary source

of water being introduced into the Teton River.        The Water Master referred to the

Bateman Ditch diversion as a “conservation measure” or water-saving measure in the

sense that its effect is to make water available to upstream junior appropriators that might

otherwise have to be allowed to pass down the channel to Choteau Cattle.

¶26    Both Saylor and Eldorado argue that the historical practice of using the Bateman

Ditch to deliver water to Choteau Cattle should be recognized and confirmed. The Lower

Users counter that the Water Court created a right not recognized in water law by

establishing Saylor’s ownership of the diversion practice. The Lower Users argue that

because both Choteau Cattle and Eldorado abandoned the Bateman Ditch as a point of

diversion, there is no longer any basis for recognizing a right to divert water through the

Ditch to deliver water to Choteau Cattle. They note that Saylor alone now claims the

right to divert water through the Bateman Ditch and Saylor’s claim is limited to diverting

his rights decreed in the Perry case. The Lower Users claim that using the Bateman

Ditch diversion to deliver water to Choteau Cattle lacks any basis in law and should not

be mentioned in any decree.

¶27    It is clear that Saylor has agreed with and supported diversion of water down the

Bateman Ditch during times of low flow in order to deliver water to Choteau Cattle. The

Bateman Ditch crosses his property and he uses it to exercise his water rights from the

                                            11
Teton River. In addition, like other upstream users with rights junior to Choteau Cattle,

he has gotten benefit of water availability that he would not otherwise enjoy.

¶28    The Water Master concluded that while there is evidence of 60 or more years use

of the Bateman Ditch to deliver water to Choteau Cattle, the future use of the practice

depends not upon its historical use but upon the authority of the District Court to

administer water decrees for the benefit of all users. The Water Master determined that

the “nature and extent of that authority is a question for the District Court” and that the

District Court can decide whether it has authority to use the practice and if it is

appropriate to use it “given the factual situation presented at that time.” The Water

Master correctly concluded that the district courts retain the authority to supervise the

distribution of water among all appropriators.        Sections 85-2-406(1) and 85-5-101,

MCA. That includes enforcement of Temporary Preliminary and Preliminary Decrees of

the Water Court. Section 85-5-101(1), MCA.

¶29    The Water Court, in its review of the Water Master’s report, determined that use

of a diversion ditch to avoid a “losing reach of a natural stream” can “rise to the level of a

protectable interest.” The Water Court determined that the use of the Bateman Ditch to

deliver water to Choteau Cattle is similar to substituting a water source, using storage

water, or changing the method of water delivery. The Water Court noted that Montana

recognizes “exchange agreements” under which water stored in a reservoir can be

discharged into a stream so that the water may be diverted from that stream by a water

user who does not otherwise have rights in that stream. Section 85-2-413, MCA. See

also § 85-2-411, MCA, allowing water to be turned into a natural stream channel and

                                             12
diverted downstream. The Water Court concluded that “[r]ecognition of exchange plans,

conservation measures and other innovations to maximize beneficial use of a limited

resource is consistent with Montana’s stated policy regarding water use,” citing

§§ 85-2-101(3) and 85-1-101(1), MCA.

¶30   The Water Court further determined that the Lower Teton Users’ objections to the

Bateman Ditch diversion based upon their claim that it harms their rights should not

preclude recognition of the Bateman Ditch diversion. Those users can still go to court

and seek relief if they can prove harm. See e.g. Bostwick v. DNRC, 2013 MT 48, ¶ 30,

369 Mont. 150, 296 P.3d 1154. The Water Court concluded that even though use of the

Bateman Ditch to deliver water to Choteau Cattle is no longer part of any claim in the

water adjudication process, that fact should not preclude recognition of the practice

because water law recognizes “historic patterns of water usage.” And the Water Court

concluded that while the Bateman Ditch diversion is not an exchange plan, “it is typical

of historic arrangements made throughout Montana and elsewhere in the western states to

obtain maximum benefit from a limited resource. Such arrangements deserve recognition

because they are consistent with Montana’s state goal of conserving water resources.”

¶31   We agree with the analysis of the Bateman Ditch diversion to deliver water to

Choteau Cattle by the Water Master and the Water Court up to this point. However, the

Water Court took the further step of apparently establishing the Bateman Ditch diversion

as a right belonging to Saylor, stating: “Accordingly, this Court recognizes Patrick

Saylor’s right to use the Bateman Ditch in lieu of the natural channel of the Teton River

to deliver water to CCC’s head gate at the Burd Ditch.”

                                           13
¶32    By concluding that the Bateman Ditch diversion to supply water to Choteau Cattle

is a private right held by Saylor, the Water Court reached a conclusion that is contrary to

the statutory roles of the district courts and the water commissioners in administering and

overseeing water rights. Section 85-5-101. MCA. Whereas the Water Court invested

“Saylor with the option of delivering [the Choteau Cattle] claim . . . through the Bateman

ditch, [but] he is not obliged to do so,” that power rests in the District Court and its

appointed Water Commissioner. It is not Saylor’s right or duty to administer the water

rights of others any more than it is the right or duty of Eldorado or any other upstream

junior right holder.4 That is a management tool available to the District Court and its

Water Commissioner, as it has been for many decades on the Teton River.

¶33    We therefore remand to the Water Court to modify the decision to the extent that

the District Court’s Water Commissioner, under the supervision of the District Court,

may determine whether and when to use the Bateman Ditch to deliver water to Choteau

Cattle. If Giese, Kelly and Reichelt or any other downstream user claim adverse effects,

they can seek relief in the District Court.

¶34    Issue Two: Did the Water Court err by including Choteau Cattle on the tabulation
       of water rights authorized to divert water from the Teton River into the Bateman
       Ditch under a water rights exchange or substitution plan not claimed by any
       person?

¶35    The Water Court’s Order Amending Master’s Report included a listing of water

rights that “may be diverted into the Bateman Ditch.” That list included the three Saylor

rights totaling 1500 miner’s inches or 37.5 cubic feet per second, as well as the Choteau

4
   The Bateman Ditch crosses Saylor’s land, and the Water Master found that Saylor is the
“acknowledged owner” of the Ditch.
                                              14
Cattle right to 300 miner’s inches or 7.5 c.f.s., as decreed in the Perry case. The order

contains this list because the District Court’s certification to the Water Court requested a

“tabulation or list of the existing rights to use this [Bateman] ditch and their relative

priorities.”   Therefore, it was entirely proper and responsive to the District Court’s

certification for the Water Court to provide a listing of water rights that can be diverted

through the Bateman Ditch.

¶36    The Lower Users argue that it was improper to list Choteau Cattle’s right because

Choteau Cattle had specifically removed the Bateman Ditch as a point of diversion for its

right, and the Water Court had accepted that removal. In addition, they argue that neither

Saylor nor any other party claimed the right in the water adjudication process to use the

Bateman Ditch to supply Choteau Cattle’s right. But, since use of the Bateman Ditch to

deliver water to Choteau Cattle is a management tool and not a right personal to Saylor, it

does not matter whether he claimed the right to do so in the water right adjudication

process. We conclude that the Water Court acted properly in listing the water rights that

can be diverted through the Bateman Ditch.

¶37    Issue on Cross-Appeal: Whether water rights in addition to Choteau Cattle can
       be diverted down the Bateman Ditch.

¶38    This involves two other water right claims, and Saylor asserts that they should also

be listed in the tabulation of rights that can be diverted through the Bateman Ditch. The

Water Court declined to list these rights after finding that they had only rarely been

diverted down the Bateman Ditch.        In addition, the owners of those rights are not




                                             15
involved in this appeal. We agree with the Water Court’s conclusions and decline to

consider this issue further.

¶39    The decision of the Water Court is affirmed in part, reversed in part and remanded

to the Water Court for further proceedings.


                                                   /S/ MIKE McGRATH

We Concur:

/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT
/S/ BETH BAKER
/S/ JIM RICE




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