Business Litigation Alert: "Victory for Texas Landowners: Supreme Court of Texas Rules that Land Ownership Includes an Interest in Groundwater"

On February 24, 2012 the Supreme Court of Texas issued a decision confirming a landowner’s right to groundwater beneath a landowner’s land (Edwards Aquifer Authority and the State of Texas v. Day and McDaniel, Cause No. 08-0964). In doing so, the Court held that land ownership includes an interest in groundwater in place and not just the right to extract it. It also held that groundwater cannot be taken (via a regulatory taking or otherwise) for public use without adequate compensation.

The case factually started with the application for a water well permit. The amount of water that was available to the applicants depended on the historical use. The applicants’ predecessor had produced groundwater from a natural artesian well and stored the water via an on-site lake. The Edwards Aquifer Authority (“EAA”) sought to regulate the removal of groundwater (via the permitting process) and made a claim that the stored lake water was state water.

On the stored water issue, the Court found that since there was no evidence that the water had ever been used for the applicants’ beneficial use (i.e. irrigation), the water was state water. This was due to the fact that surface water in Texas is subject to existing regulations.

On the more significant issue of who owns the groundwater, the Court ruled in favor of the landowner. In doing so, the Court held that the EAA can regulate groundwater to a limited extent (limiting well spacing, metering and maximum gallons per day) due to the police power of the EAA to safeguard public safety and welfare. But beyond that, the Court held that that groundwater can be owned in place by the landowner even though it may be lawfully drained by others (like oil & gas).

While the differences in groundwater and oil and gas were discussed, ultimately the differences did not result in a different rule of law when it came to the basic rule of capture. The Court then remanded the case for a determination of 1) if a taking had occurred and 2) to what extent a compensable taking had occurred.

This decision will have far reaching implications past regulatory taking cases. For example, in negotiating mineral leases, more attention should be paid to any provisions dealing with groundwater and who has the right to the groundwater (surface owner) and who may try to regulate its use. While there is not clear answer, feel free to contact us if you have such an issue that needs to be addressed.

Please find the full opinion here.

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