Authors note: The four-year, five-month-old civil Case filed by the owners of Paradise Canyon (DBA the Wolf Creek Golf Course of Mesquite, NV. vs. the local Virgin Valley Water District Board (VVWDB) may go to trial on October 31, 2022, in a Las Vegas District Court. I say it may since the Judge holds a settlement conference before trial.
The Plaintiffs want a jury to decide if the Water Board complied with the Covenant, good faith, and fair dealing provisions in contract law by raising their irrigation water rate from $250 per share to $1,115 per share. That narrow construction belies the significance of the issue.
The appropriateness of the rate set by the Water Board remains the narrow legal issue under consideration. But in the background, it is about profiteering. Expressly, holders of irrigation water shares granted for irrigation use in the Virgin River Valley under the 1927 Virgin River Decree want the VVWDB and the Southern Nevada Water Authority (SNWA) to give them public funds for leasing irrigation water in stock shares to Southern Nevada Water Authority (SNWA). The $1,115 is the stock share price.
It’s all about making money with paper water stocks and mathematical calculations. The River isn’t a tangible market product like real estate. SNWA does not use the Water for Irrigation. Instead, they receive a “credit” as part of a Department of the Interior-Bureau of Reclamation drought plan for Water acquired from the Virgin River shareholders. That credit allows SNWA to take a mathematically calculated amount of Water from Lake Mead to offsets losses attributed to the drought and deliver it to their domestic users.
Water shares, in this Case, are paper stocks. They were appropriated under the 1927 Virgin River Decree but managed as stocks by the Mesquite Irrigation Company (MIC) and acquired by both the VVWDB and SNWA. In simpler terms, MIC, VVWDB, and SNWA are stockholders, stock brokers, and price manipulators for those holding stocks under the decree.
The framers of the Nevada constitution took notice of such issues when they framed the state’s constitution in 1864. They knew that eastern state failures, waste, and corruption from subsidizing private businesses primarily to promote railroads and canals. So they included in the State’s Constitution Article 8, Section 9, the “gift clause.” That article states: “The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.” [i]
And in 1996 and again in 2000, voters rejected attempts to amend the constitutional prohibition against “gifting” and loaning public funds to the private sector. [ii] The public does not want pubic funds used to enrich the few at the expense of the many.
Nevada’s 1864 constitution had another interesting twist regarding water management. When Nevada became a state, it bound itself to the Public Trust Doctrine, [iii] like all states created after the original thirteen states.
And on September 17, 2021, a three-member majority of the Nevada Supreme Court ruled after oral arguments in the Mineral County Case that the public trust doctrine embedded in current water law disallows the relocation of adjudicated water rights for anything other than its intended purpose. [iv]
In the Mineral County Case, The Justices recognized that Nevada’s Walker Basin could not meet Mineral county’s needs without reallocating adjudicated water rights. They say, “Our State’s water rights statutes forbid reallocation adjudicated water rights.”
“We cannot use the public trust doctrine as a tool to uproot an entire water system, particularly where finality is firmly rooted in our statutes,” the Justices said. Then the three-member majority added, “To allow the state to allocate waters without due regard for the public trust would permit the state to evade its fiduciary duties, which we cannot sanction.”
They referred to the Nevada Consitution as forbidding the Legislatures’ ability to dispose of the public’s resources, at the core of which lays the principle that the State [VVWDB, SNWA] acts only as a fiduciary for the public when disposing of the public’s valuable property.” [v]
In pure government accounting, fiduciaries (government officials) account for assets held in trust for others. In other words, they are public trustees of funds not used to fund the government’s expenses. Pension and employee benefit trust funds are an example.
It isn’t likely that the Supreme Court meant fiduciary in its purest government accounting sense. More likely, they indicated that government officials, elected or appointed, must act in a way that will benefit the public.
Under those terms, the 1927 Virgin River Decree and the 1993 legislation that created the Virgin Valley Water District set specific boundaries for using allocated public Water.
Disregarding the Supreme Court ruling, MIC, the VVWDB, and SNWA all sanction, in this Case, the relocation of adjudicated water from its intended use in the Virgin Valley to Lake Mead for use in the Las Vegas Metropolitan area. They disregard the economic hardship placed upon ratepayers in setting their rates to ensure profits for prior appropriators.
The Virgin Valley Water District Board is not interested in complying with mundane issues like the public trust, Nevada water law, or Supreme Court Rulings. For them, it is about ensuring profits for those holding prior appropriations under the Virgin River decree.
On Tuesday, September 18, 2018, four months after the owners of Paradise Canyon filed their civil action against the Water Board; Nephi Julien, President, Ben Davis, Vice-President, and Board Members Richard Bowler, Travis Anderson, and Randy Laub considered joining the Mineral County case. But not on behalf of the Public Trust Doctrine. [vi] The VVWDB agreed with their attorney Jedidiah (Bo) Bingham of Bingham, Snow, and Caldwell, when he said, “prior appropriations should supersede the public trust doctrine.”[vii]
The Paradise Canyon case and, for that matter, Nevada water law, in general, ensure profiteering by assuming that Water is a market commodity. It is not. Water is essential to life and the economic well-being of a community. Water is not an economic good that follows supply and demand, like other products where people have choices. You cannot substitute gasoline, a market-driven commodity, for nature’s limited Water supply.
Typically public water rates would incorporate the cost of the services provided by the utility but should not reflect a monetary value placed on the Water itself. Therefore, the actual “market” value for publically owned Water is simply the costs of delivering the Water to meet their needs and maintaining the infrastructure to the place of use, plus an interest rate tied to certificates of deposits for future public benefits. And in this Case, the VVWD does not deliver Water; it simply markets paper stock shares.
Unfortunately, this Case, by design, is limited to compliance with the Covenant, good faith, and fair dealing provisions in contract law by raising the local irrigation water rate. A Jury will potentially decide if the VVWDB complied with this provision or not in setting the Wolf Creek rate. But that does not mean they will determine the rate, nor will they deal with the legality of compliance with the” Gift Clause” or the relocation of appropriated Water as denied, as a public trust issue, by the Nevada Supreme court.
The narrow construction of legal issues, compounded by conflicting water laws, is a fundamental problem with having a court decide on water issues. Ignoring Nevada’s Constitutional “Gifting” provisions and the recent Supreme Court ruling on the Public Trust Doctrine ensures profiteering.
Between 2015 and 2019, individuals holding MIC and Bunkerville IrrigationCompany (BIC) stock shares on the Virgin River received $59,339,238 from SNWA. Then between 1998 and 2002, SNWA paid Coyote Spring Investments $29,500,000 for Coyote Spring water. And between 1997, and 2019, SNWA paid Muddy Valley Irrigation Company (under the 1920 Muddy River Decree) shareholders $67,602,776.92. Further, between 1993 and 2010, the VVWDB “gifted” an additional $12,159,670.86 to BIC and MIC Virgin River shareholders.
As of 2019, [viii]SNWA and the VVWD used $168,601,685.78 in public funds to pay holders of public Water unused for its original purposes when the price should have been no more than the price to deliver and maintain that natural resource. SNWA continues to pay for both Virgin and Muddy River water appropriations. And SNWA continues to pay for water shares.
Corporations or public utility companies deliver public Water in a non-competitive market with few sellers and captive buyers. When the SNWA, VVWB, MIC, Bunkerville Irrigation Company (BIC), or Muddy Valley Irrigation Company (MVIC) set prices based on self-serving market rates, the prices rise to the level of potential illegality and outright moral and ethical indignation.
The Paradise Canyon case is an essential beginning in questioning the marketing and profiteering of public Water. But not the end. The remaining water issue requires resolution through future litigation and much-needed legislative action driven by public anger and condemnation of that profiteering from Nevada’s scarce water resource.
Below is an update on the Paradise Canyon lawsuit.
News Release
On May 15, 2018, the owners of Paradise Canyon (DBA The Wolf Creek Golf Course) filed a civil action against the Virgin Valley Water District Board (VVWDB).
The issue is simple enough. The owners of Paradise Canyon want a Jury to decide if the Water Board complied with the Covenant, good faith, and fair dealing provisions in contract law by raising their irrigation water rate from $250 per share to $1,115 per share. [ix]
The $1,115 is the amount the Southern Nevada Water Authority (SNWA) of Las Vegas pays the Water Board for Virgin River irrigation Water they acquired from individuals holding appropriations of publicly owned [x] Water granted under the 1927 Virgin River Decree for local Irrigation.
SNWA does not use that Water for Irrigation. Instead, they receive a “credit” as part of a Department of the Interior-Bureau of Reclamation drought plan for Water acquired from the Virgin River shareholders. That credit allows SNWA to take a mathematically calculated amount of Water from Lake Mead to offsets losses attributed to the drought and deliver it to their domestic users.
The Water Board used public funds to acquire the 1927 River water from shareholders between 1993 and 2010. They paid Mesquite Irrigation Company (MIC) individuals $6,613,152.57 for 403 MIC stock-shares (average $17,895.41; median $8,171.00 per share). They paid Bunkerville Irrigation Company (BIC) shareholders in the same time frame $5,546,518.29 (Average $22,068.37; median $8,287.30 per share). That brought the total payments of public funds to $12,159,670.86 (total average $22,526.38; median $8,171.00 per share).
While there was no need to purchase those shares then, the water board claims they will pay to clean that polluted source and deliver it sometime in the future for domestic use. In a legal deposition of Wesley Smith, VVWD Chief Financial Officer (CFO) revealed that the acquisition of Virgin River water stock shares by the VVWB contributed to an increase of the public’s debt to 35 % in 2010 and a 94 % increase in 2015 for the water customers served by the water board.
Those acquisitions allowed the water board to establish a “market” rate for shares. And when the Water Board began dealing with SNWA, they further highlighted the issue of setting a rate by using public funds to pay for the historical appropriations of public Water no longer used for its original purpose.
Jedidiah (Bo) Bingham of Bingham, Snow, and Caldwell, on behalf of VVWDB, makes two fundamental arguments in the Case before Las Vegas District Judge Timothy Williams. One that the VVWDB has sole and absolute discretion to set water rates as they did, for example between 1993 and 2010. And two, the contract under question that he wrote is:
- Unenforceable and;
- It is in default because of alleged violations by the owners of Paradise Canyon, and
- Judge Williams lacks authority to rule on any of his motions.
Early in the Case, Judge Williams reminded Bingham that the water district is a political subdivision of the State of Nevada and told him they had to act in good faith and without being arbitrary and capricious. “They do not have a right to do whatever they want,” the Judge has said. The Case is for the Jury to decide, Judge Williams told Bingham.
Nonetheless, Bingham, at public expense, has extended the Case for four years and five months, arguing and rearguing that the owners of Paradise Canyon violated contract provisions over several years, including not using effluent before using VVWDB irrigation water.
Not so Judge Williams said. The owners of Paradise Canyon did not breach the terms and conditions of their Lease with VVWD by not using effluent. In reaching its decision on the effluent issue, the Judge relied on the following uncontroverted facts:
- VVWDB waived enforcement of the effluent water use provision by renewing the Lease for eight consecutive years;
- VVWDB board members’ knowledge in 2011 that although effluent Water was available, Wolf Creek wasn’t using it;
- Estoppel Certificates were executed in favor of Wolf Creek’s owners in 2011 and 2012, affirming no default had occurred.
OK, Bingham says the owners must prove that they put the Water to beneficial use. Bingham talked for about 9 hours during two hearing days rambling over 496 PowerPoint slides during the beneficial use motion.
Not so, Judge Williams says. According to the Judge, his Lease neither addresses nor prohibits Irrigation Shares’ sub-leasing. The Judge pointed to “uncontroverted evidence” that the Virgin Valley Water District (VVWD) had noticed, was aware of, and accepted the water use arrangements in 2011, 2012, and 2014. Judge Williams noted that the VVWD inaction resulted in a waiver, even if the water usage prohibition had been a material term in the Lease.
That failed, so Bingham argued that by holding public meetings, the water board complied with the Covenant of good faith and fair dealings. That is an issue for the Jury to decide, the Judge said.
Bingham did get a small victory when he asked the Judge to exclude the deposition testimony of Karl Gustaveson, a former board member now deceased. Instead of sticking to the issue of Gustaveson’s competency at the time of the declaration, Bingham went off into what Jeff Sylvester, attorney for Paradise Canyon, called “Alice in Wonderland” territory. Eventually, the Judge agreed to remove Gustaveson’s testimony. No problem, Jeffrey Sylvester, the attorney for Paradise Canyon, said; The deposition is not in any of our motions.
Such diversions from the issue caused Judge Williams, during one motion hearing no less than 21 times to interrupt Bingham telling him to stay on point or clarify his comments. Several of the interruptions came after Bingham, as he had done in prior hearings, contested the appropriateness of the Judge’s past rulings.
Bingham did not like the Judge’s decision not to exclude the plaintiff’s rate-setting appraiser. Judge Williams said the Court would permit Paradise Canyon attorneys to directly examine him at trial and lay the foundation for the appraiser’s expert opinions and valuations.
Then Bingham wanted do-overs on all the Judge’s rulings. But after listening to Bingham’s tales of discontent, the Judge denied his motions to rehear the effluent (wastewater), beneficial use, and sub-leasing.
To put another voice into the Case, on Monday, September 13, 2021, Bingham brought, at public expense, Nevada’s former Lieutenant Governor State Senator, Mark Hutchison, before the Judge.
Mark Hutchison’s job was to take Bingham’s arguments to the Nevada Supreme Court. Hutchison asked a three-member Supreme Court panel to rule that Judge Williams lacked the power to veto Bingham. As expected, the Supreme Court was not about to jump over the entire lower court process to satisfy Bingham’s grievances. They denied the appeal.
Dissatisfied, Hutchison for Bingham went back to the Supreme court for a full court rule. Again, as expected, they rejected the request, saying, “Considering the petition on file herein, we have concluded that en banc reconsideration is not warranted. Accordingly, we “ORDER the petition DENIED.” Stiglich, J., dissenting. (SC).
Fast back to August 2 of this year, and Joseph C. Reynolds, a partner in Hutchison and Steffen, goes before Judge Williams. Reynolds alleges that the Judges’ prior ruling that the golf course owners had a perpetual right to renew the contract between the water board and the owners of Paradise Canyon that Bingham wrote was wrong. Formerly Bingham and now Reynolds told the Judge that his agreement was unenforceable since it included the words “in perpetuity.”
Judge Williams told Reynolds that he remembered the perpetuity issue and read relevant transcripts. He said the Case is a question of the application of good faith and fair dealing by the VVWDB in their contact with the owners of Paradise Canyon, which included a right to renew in perpetuity clause at a questionable rate.
“This case can be tried in one week,” Judge Williams has repeatedly said. It is that simple. It is about applying the covenant of good faith and fair dealing doctrine when setting the rate. He said there is no ambiguity about the right to continue the Lease of irrigation shares. “
Judge Williams denied the Motion for reconsideration of the perpetuity issue. “I have made my decision. We have a fully developed record, he said.
The discussion between the Judge and Reynolds took approximately an hour during the half-day motion hearing. But then, the Judge allowed Bingham to speak. Bingham spent the remaining 2 hours on August 2 and another three hours on August 22 arguing that the Judge’s previous rulings against him were wrong.
As hard as the Judge tried to convince Bingham that the Case was simple, Bingham argued against him racking up billable hours by repeating and debating the same issues heard in previous motion hearings over the four-plus years and five months of litigation.
Bingham wanted more redoes on all motions. Finally, Judge reminded Bingham during the August 22 hearing that “we have been together for 4.5 hours”. The Judge said we would find out if my rulings were fatal or not during the trial. “We can’t stay here all day,” the Judge said, adding, “I have other things to do.”
The Judge told Bingham, “I have dealt with more complex issues than in this Case, and lawyers can argue in less than 2 hours and forty-five minutes on such issues. “Why is it taking so long, the Judge asks”?
Judge Williams reminded Bingham that he has been on the bench for seventeen years. He added that at some point, “assuming that we go to trial, if the Nevada supreme court rules that I was out to lunch, they can say, whatever, are you going to appeal”?
“We will appeal on our issues,” Bingham told the Judge.
“OK, that is your right. I guess it depends on the findings of facts,” Judge Williams said.
Currently, a jury will hear the Case on October 31. However, before trial, at 10:30 a.m. On October 27, Judge Willims will listen to another motion from Bingham, again attempting to partially dismiss the Judge’s previous rulings claiming he lacks subject matter jurisdiction.
During the same hearing, the Judge will listen to other motions concerning the inclusion or exclusion of various claims before trial.
[i] “In principle, the State acts only as a fiduciary for the public when disposing of the public’s valuable property.” the public trust doctrine, like the gift clause, requires the State to serve as trustee for public resources,” Nevada Supreme Court Justices, September 17, 2020.
[ii] In 1996, 64.8 opposed, and in 2000, 59.3 percent voted in opposition to a constitutional change.
[iii] The public trust doctrine is a legal principle establishing that certain natural and cultural resources are preserved for public use. Trustful natural resources can include navigable waters, wildlife, or land. The public is considered the owner of the resources, and the government protects and maintains these resources for the public’s use.
[iv] Before the Court En Banc. Author: Stiglich, J. Majority: Gibbons/Hardesty/Stiglich/Cadish. Concurring in part and dissenting in part: Pickering/Silver. fn1 [The Honorable Ron D. Parraguirre, Justice, voluntarily recused himself from participation in the decision of this matter.] 136 Nev. Adv. Opn. No. 58. En Banc. (SC).
[v] Lawrence, 127 Nev. at 399, 254 P.3d at 612.
[vi] Virgin Valley Water District Regular Board Meeting, Virgin Valley Water District Office, September 18, 2018, at: https://drive.google.com/file/d/1kzHmlURwkPLbldMSsLwnisRflKaVGM_6/view
[vii] In 1921, the Nevada legislature recognized the Colorado River, the Virgin River, and Winnemucca Lake as subject to public trust.
[viii] The date of a response to a public information request.
[ix] The Virgin Valley Water District Board reduced the rate from its original amount of 1,246 to $1,115 per share.
[x] “The water of all sources of water supply within the boundaries of the State whether above or beneath the surface of the ground belongs to the public.” Nevada Revised Statutes (N.R.S.) 533.025
Congratulations to you and Paradise Canyon for holding these water official accountable.