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Hillis v. State

March 6, 1997

LARRY HILLIS AND VERALENE HILLIS, HUSBAND AND WIFE, RESPONDENTS,
v.
STATE OF WASHINGTON, DEPARTMENT OF ECOLOGY; MARY RIVELAND, DIRECTOR OF THE DEPARTMENT OF ECOLOGY; AND PAT SPURGIN, CENTRAL REGIONAL DIRECTOR OF THE DEPARTMENT OF ECOLOGY, APPELLANTS.



Appeal from Superior Court of Kittitas County. Docket No: 94-2-00289-1. Date filed: 08/28/95. Judge signing: Hon. Michael E. Cooper.

Authored by Richard P. Guy. Concurring: James M. Dolliver, Charles Z. Smith, Charles W. Johnson, Philip A. Talmadge. Dissenting: Richard B. Sanders, Barbara A. Madsen, Gerry L. Alexander, Barbara Durham.

The opinion of the court was delivered by: Guy

EN BANC

GUY, J. The Washington State Department of Ecology asks this Court to reverse a trial court order which orders it to immediately investigate the plaintiffs' applications to appropriate public groundwater. Ecology also challenges the order because it effectively forbids Ecology from conducting assessments of the state's watersheds and because it invalidates certain policy and priority decisions made by that agency. We reverse the order in part and affirm it in part. Facts Larry and Veralene Hillis (Hillis) plan to build a residential development on 97 acres of land in Kittitas County. The initial subdivision application was approved by the county on the condition that Hillis install a "Group A" water system which requires a groundwater withdrawal permit from the Department of Ecology (Ecology). In 1992, Hillis filed nine applications for water rights. Because of Ecology's delay in processing the applications, the Kittitas County Board of Commissioners allowed Hillis to use two "Group B" *fn1 community water systems for the first phase of the development until the water right for a Group A system could be obtained. A water right permit is not required for withdrawal of public water in an amount not exceeding 5,000 gallons per day for single or group domestic uses or other specific purposes. RCW 90.44.050. However, the record reflects that the Hillis applications for water seek far in excess of that amount. Hillis still wishes to provide water to the entire development using a Group A water permit.

In October 1994, Hillis sought a writ of mandamus from the superior court asking the court to order Ecology to conduct an investigation and decide whether to issue the water permits. Hillis argued that Ecology had a statutory duty under the water code, RCW 90.03, to conduct investigations on applications for the appropriation of public waters and that it had failed to fulfill that duty in a timely manner.

Ecology replied that the central regional office of the Water Resources Program of the Department of Ecology had over 2,000 pending applications for water rights in that region and that 1,178 of those applications had been filed before the Hillis applications. Statewide, there are about 5,000 applications filed asking for the appropriation of public water. Ecology showed that the 1993 Legislature had cut the budget of the water permitting program by 63 percent and that Ecology had therefore been forced to drastically reduce the number of water permitting staff. Ecology submitted evidence about the complex geohydrologic conditions which exist in the Kittitas Valley and the high degree of prior appropriation of the surface and groundwater in the Yakima River drainage basin. Ecology also presented evidence that many protests had been filed opposing the Hillis applications on the grounds that the Hillis's proposed use of water could have negative impacts on local wells used for domestic water.

The trial court found that, historically, Ecology had processed groundwater right applications generally in the order in which they were received. (This finding of fact is challenged on appeal.) The court found that in the last several years Ecology has faced problems of an increased volume of water right applications, insufficient staff to process the applications, and other factors which caused a tremendous backlog. These factors include a growing recognition of the connection between groundwater and surface water, 10 years of drought conditions, and population growth accentuating the demand for services. The court found that in response to increased demands, Ecology started processing groundwater applications in "batches" grouped together in geographic areas to allow it to conduct one investigation, make one determination of water availability, and then to make a series of permit decisions based on that investigation.

The trial court found that in 1994, when the Legislature's mandated budget cuts became effective, Ecology's water right application backlog worsened to 2,000 applications in the central region with the Hillis applications in the approximate middle of that backlog. The court found that Ecology reassessed its ability to deliver services to fulfill its duties after the budget cuts and directed the water resource program to process water right applications by water basin under set priority criteria. Ecology ranked the state's 62 watersheds *fn2 in order of priority for conducting the watershed assessments. The court found that Ecology will not process or investigate any nonemergency applications in any watershed until a basin assessment is completed, or unless it believes there is sufficient groundwater in an area or there are a number of applications pending within the same hydrogeologic area.

Ecology also set criteria to determine priorities for processing of applications. The Kittitas County Commissioners (at the urging of Hillis) declared a groundwater emergency and requested Ecology to process all applications in that county. Ecology has not acted on that request. The court found that, based on existing funding levels and the priorities for basin assessments, the Hillis applications will not be investigated for another five years, which will be eight years from the date of application. The trial court also found that Ecology had not followed the rule-making process of the Administrative Procedure Act as it pertains to Ecology's duty to investigate pursuant to RCW 90.03.290.

The trial court issued a "writ of mandamus." *fn3 The writ (1) orders Ecology to "immediately investigate" all of the Hillis's pending water applications and approve or deny them, (2) orders Ecology to consider hydrogeologic information supplied by Hillis, (3) orders Ecology not to undertake any watershed or basin assessments in advance of the investigation and timely processing of all pending groundwater applications, and (4) invalidates all of Ecology's priorities regarding pending applications, the decision to conduct watershed assessments, and the order of conducting those assessments. The writ also denies the Hillis's request for attorney fees.

We granted direct review. Ecology argues that the trial court's order violates the rights of senior water right applicants, intrudes on the funding decisions of the Legislature, and interferes with the administrative discretion of Ecology to implement the water resource statutes. Ecology also assigns error to the trial court's finding of fact 1.4 that Ecology historically processed groundwater applications based on the application date. Ecology also assigns error to the trial court's ruling that certain of its administrative actions constituted "rules" which should have been enacted by rule making in accord with the Administrative Procedure Act, RCW 34.05. Hillis cross appeals, arguing the trial court should have awarded attorney fees. Issues 1. Did the trial court err in ordering Ecology to immediately decide the Hillis applications?

2. Did the trial court err in ordering Ecology not to conduct watershed assessments until all pending water permit applications were decided?

3. Does the record support the trial court's finding that Ecology historically processed applications generally in the order in which they were filed?

4. Did the trial court err in invalidating certain of Ecology's decisions because the agency did not engage in rule-making procedures?

5. Did the trial court err in refusing to award attorney fees to Hillis?

Standard of Review

With some limited exceptions not relevant here, the Administrative Procedure Act (APA) provides the exclusive means of judicial review of agency action. RCW 34.05.510; Neah Bay Chamber of Commerce v. Department of Fisheries, 119 Wash. 2d 464, 468, 832 P.2d 1310 (1992). The standard of review used to decide if an agency action or inaction is valid is prescribed by the act. RCW 34.05.570(1)(b); Neah Bay, 119 Wash. 2d at 468. The burden of demonstrating the invalidity of agency action is on the party asserting invalidity. RCW 34.05.570(1)(a). Hillis, therefore, bears this burden.

The APA sets out somewhat different standards for judicial review depending on whether the agency action being reviewed pertains to (1) rules, (2) adjudicative proceeding, or (3) other agency action, including inaction. Agency inaction (such as Ecology's failure to act on the Hillis applications) is judicially reviewed by a petition filed pursuant to RCW 34.05.570(4)(b). Judicial review of rules (such as Hillis's contention that the directives of Ecology amount to rules which must comply with rule-making procedures) is governed by RCW 34.05.570(2). The relevant standards of review are discussed below in the relevant Discussions regarding each part of the trial court's order.

Analysis

Issue One: Did the trial court err in ordering Ecology to immediately decide the Hillis applications?

The trial court ordered Ecology to "immediately investigate and completely process in a timely fashion all of [Hillis's] nine . . . applications and render a decision either approving or denying each such application." *fn4 The APA provides:

A person whose rights are violated by an agency's failure to perform a duty that is required by law to be performed may file a petition for review . . . seeking an order pursuant to this subsection requiring performance. RCW 34.05.570(4)(b). See also RCW 34.05.574. However, relief for a person aggrieved by an agency's failure to perform a duty required by law may be granted by a court only if the court determines that the inaction is:

(i) Unconstitutional;

(ii) Outside the statutory authority of the agency or the authority conferred by a provision of law;

(iii) Arbitrary or capricious; or (iv) Taken by persons who were not properly constituted as agency officials lawfully entitled to take such action. RCW 34.05.570(4)(c).

The argument here is that Ecology acted in an arbitrary or capricious manner in not acting on the Hillis applications or that it acted outside its statutory authority. Agency action is arbitrary and capricious if it is willful and unreasoning and taken without regard to the attending facts or circumstances. Where there is room for two opinions, an action taken after due consideration is not arbitrary and capricious even though a reviewing court may believe it to be erroneous. E.g., ITT Rayonier, Inc. v. Dalman, 122 Wash. 2d 801, 809, 863 P.2d 64 (1993); Kendall v. Douglas, Grant, Lincoln, & Okanogan Counties Pub. Hosp. Dist. 6, 118 Wash. 2d 1, 14, 820 P.2d 497 (1991).

To determine if Ecology acted outside of its authority or in an arbitrary or capricious manner, it is necessary to understand its responsibilities with regard to the public waters of the state. As a general matter, groundwater in Washington is publicly owned. Department of Ecology v. United States Bureau of Reclamation, 118 Wash. 2d 761, 766, 827 P.2d 275 (1992); Olds-Olympic, Inc. v. Commercial Union Ins. Co., 129 Wash. 2d 464, 476, 918 P.2d 923 (1996); RCW 90.44.040; see RCW 90.03.010. RCW 90.44.040 provides that "subject to existing rights, all natural ground waters of the state . . . are hereby declared to be public ground waters and to belong to the public and to be subject to appropriation for beneficial use under the terms of this chapter and not otherwise."

Private individuals may acquire a right to use these public waters by obtaining a water right (also known as a right of appropriation). United States Bureau of Reclamation, 118 Wash. 2d at 766. Ecology must investigate an application for a permit to withdraw public groundwater pursuant to the four-part test of RCW 90.03.290. RCW 90.44.060. RCW 90.03.290 provides in relevant part:

When an application . . . has been filed, the same shall be placed on record with the department [of Ecology], and it shall be its duty to investigate the application, and determine what water, if any, is available for appropriation, and find and determine to what beneficial use or uses it can be applied. . . . The department shall make and file as part of the record in the matter, written findings of fact concerning all things investigated, and if it shall find that there is water available for appropriation for a beneficial use, and the appropriation thereof as proposed in the application will not impair existing rights or be detrimental to the public welfare, it shall issue a permit stating the amount of water to which the applicant shall be entitled and the beneficial use or uses to which it may be applied . . . . But where there is no unappropriated water in the proposed source of supply, or where the proposed use conflicts with existing rights, or threatens to prove detrimental to the public interest, having due regard to the highest feasible development of the use of the waters belonging to the public, it shall be [the] duty of the department to reject such application and to refuse to issue the permit asked for. . . . In determining whether or not a permit shall issue upon any application, it shall be the duty of the department to investigate all facts relevant and material to the application. Therefore, RCW 90.03.290 requires Ecology to make essentially four determinations prior to the issuance of a water use permit:

(1) what water, if any, is available;

(2) to what beneficial uses the water is to be applied;

(3) will the appropriation impair existing rights; and (4) will the appropriation detrimentally affect the public welfare.

E.g., Peterson v. Department of Ecology, 92 Wash. 2d 306, 314, 596 P.2d 285 (1979). Under this statute, the "DOE must reject the application and refuse to issue a permit if there is no unappropriated water available, if withdrawal will conflict with existing rights, or if withdrawal will detrimentally affect public interest." Jensen v. Department of Ecology, 102 Wash. 2d 109, 112-13, 685 P.2d 1068 (1984); United States Bureau of Reclamation, 118 Wash. 2d at 767. Ecology's decision whether to grant a permit to withdraw public groundwater is within the exercise of its discretion. Jensen, 102 Wash. 2d at 113; Peterson, 92 Wash. 2d at 314. Once an applicant is granted a right to withdraw public groundwater, then the date of the right relates back to the date of application. Jensen, 102 Wash. 2d at 114; RCW 90.03.340.

Ecology agrees that RCW 90.03.290 gives it a duty to process water rights applications. However, it argues that it can conduct only as many investigations as the Legislature is willing to fund and can act only as quickly as its budget allows.

The record indicates that the Legislature has drastically cut the budget of the water rights permit program. In spite of its knowledge of an existing backlog in water permit applications, it cut the budget for the water rights permit program by 63 percent. In 1993, the Legislature provided in the budget for the Department of Ecology that:

The appropriations in this section are subject to the following conditions and limitations:

(8) For fiscal year 1994, $3,750,000 of the general fund state appropriation is provided to administer the water rights permit program. For fiscal year 1995, not more than $1,375,000 of the general fund state appropriation may be expended for the program unless legislation to increase fees to fund fifty percent of the full cost of the water rights permit program, including data management, is enacted by June 30, 1994. Laws of 1993, 1st Spec. Sess., ch. 24, sec. 303.

The 1993 Legislature also made findings regarding water permits and fees (and created a task force on water rights permits), which provide:

The legislature finds that a water right confers significant economic benefits to the water right holder. The fees associated with acquiring a water right have not changed significantly since 1917. Water rights applicants pay less than two percent of the costs of the administration of the water rights program. The legislature finds that, since water rights are of significant value, water rights applicants should contribute more to the cost of administration of the water rights program.

The legislature also finds that an abrupt increase in water rights fees could be disruptive to water rights holders and applicants. The legislature further finds that water rights applicants have a right to know that the water rights program is being administered efficiently and that the fees charged for various services relate directly to the cost of providing those services.

Therefore, the legislature creates a task force to review the water rights program, to make recommendations for streamlining the application process and increasing the overall efficiency and accountability of the administration of the program, and to return to the legislature with a proposal for a fee schedule where the fee levels relate clearly to the cost of services provided.

Laws of 1993, ch. 495, sec. 1 (codified as a Finding to RCW 90.03.470).

The task force, comprised of legislators and representatives from agriculture, aquaculture, business, cities, counties, Ecology, environmentalists, water recreation interests, water utilities, and hydropower interests, was given duties which included: (1) conducting a comprehensive review of water rights fees, (2) identifying the costs associated with the various activities provided by the water rights program, (3) identifying appropriate accountability measures for Ecology to employ in administration of the program while recognizing Ecology's legal obligations under the doctrine of prior appropriation, (4) identifying the activities which should be eligible for cost recovery from fees, (5) reviewing the process of marine water users, (6) considering the fees for nonconsumptive water users, (7) reviewing the fees and accounting methods for dam safety programs, (8) identifying the appropriate distribution of responsibility between the applicant and Ecology for the provision of technical information and analysis, (9) establishing a reasonable time framework for completion of new and pending water rights applications, and (10) analyzing the staff and funding levels required to meet the framework. By the end of 1993, the task force was to provide recommendations to Ecology on ways to improve the efficiency of the program, propose recommendations to the Legislature on statutory changes, and propose a new fee schedule for the water rights program which funded, through fees, 50 percent of the cost of the activities and services provided by the program. Laws of 1993, ch. 495, sec. 3. We describe these tasks to emphasize the complexity of the problem facing the state in the water permitting program and the allocation of its costs.

The task force made recommendations to the Legislature, and in 1994 a complex water fee bill with the stated purpose of "catching up on the backlog of water right applications in as short a period as possible" passed the Senate. Reengrossed Second Substitute S. 6291, 53rd Legislature, 1st Spec. Sess. (1994). However, the bill failed to pass the House, and subsequent legislative sessions failed to pass any new fee schedule. The budget proviso quoted above, therefore, continued in effect and resulted in a 63 percent reduction in the budget of the water rights permit program. *fn5 The staff for water rights processing was cut from 54 ...


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