Legal advisors to both environmental organizations and land developers must never lose sight of the principle that when dealing with administrative agencies, their client’s run the risk of the regulatory agency’s decision not being the final say.  The risk often arises from the differing ways the application of statutory construction can occur.  Statutory construction is the process of determining what a particular statute means for the purpose of accurately applying the statute to a given situation.  Montana’s long-simmering exempt well dispute is an instructive example that winning an administrative battle over statutory construction does not mean you ultimately win the judicial or legislative battle over those branches ’ construction of the same statute.

Ten years ago, on August 10, 2010, the New York Times ran an article titled Mont. Homebuilders Win Battle in Long-Running Well War.  The land developer’s win arose from Montana’s Department of Natural Resources and Conservation (“DNRC”) declining to close a 1993 administrative rule loophole.  The loophole arose from a statutory exemption to the permitting process revolving around the term “combined appropriation.”  By 2010, land developers were increasingly using the loophole to develop subdivisions without obtaining a DNRC water permit.  Land developers took the position that that single-use wells dug for each new home were not a part of a “combined appropriation.”  As a result, such wells were statutorily exempt from the permitting process; if such single-use wells were deemed part of a combined appropriation, then the statutory exemption would not apply.  The use of the loophole allowed developers to avoid incurring the significant additional infrastructure expenses that followed if single-use exempted wells were not used.  However, the homebuilders 2010 win at the administrative agency level was relatively short-lived; the Montana Supreme Court rejected the land developers’ position in a definitive decision in The Clark Fork Coalition v. Tubbs, 384 Mont. 503, 380 P.3d 771 (Mont. 2016).

Tension Across Multiple Stakeholder Groups: The Origin of Competing Statutory Constructions

Two of the primary constituency groups involved in the exempt well dispute include stakeholders that I frequently contend are more often than not best served by working together to find collaborative, long-term solutions – land developers and environmental advocacy organizations.  However, Montana’s exempt well dispute also involves ranchers and farmers who have experienced lower waterway flows that are believed to be compounded by exempt wells.  Laura Ziemer, then and still the head of Trout Unlimited’s Montana Water Project, aptly characterized the legal source of the battle: “tension between new development and protection of senior water rights.”  The ecological implications of the dispute were plainly illustrated by one Montana state legislator, who operates the same water rights that his great-grandfather claimed in 1865: “a few [of the exempt wells] isn’t that bad, but all of a sudden its death by a thousand straws.”

Regulatory Background of Homebuilders’ Use (i.e., Construction) of the Exempt Well Loophole

Beginning in the late 1990s, land developers discovered that the 1993 rule’s language created a loophole.  This loophole allowed land developers to claim that if each new home in a subdivision had a single groundwater well, then the entire development project was exempt from obtaining a new water use permit from the DNRC permit.  As a result, land developers across Montana began bypassing the water permitting process by drilling up to hundreds of alleged exempt wells in new subdivision projects rather than applying to the DNRC for a new water use permit for such subdivisions.

Statutory Construction:  The Root of the Short-Lived Nature of Land Developer’s 2010 Administrative Win and 2016 Judicial Defeat

The undoing of land developer’s 2010 administrative agency win was the six-justice majority’s application of statutory construction over the single dissenting justice’s application of statutory construction in The Clark Fork Coalition v. Tubbs.  The court’s opinion, its analysis of the DNRC’s 1993 rule, and its discussion of the various stakeholders’ legal argument was a full display of the “art of statutory construction.”

The term “combined appropriation” is not defined in Montana’s statutory system by which water rights are acquired, administered, and adjudicated: the Montana Water Use Act, § 85-1-101, MCA, et seq.  The Montana Water Use Act requires a permit for new appropriations of water.  Section 85-2-301, MCA.  Such a permit is obtained through the permitting process administered by the DNRC.  Section 85-2-301, MCA.  The act also includes an “exempt well” provision authorizing landowners to drill a small groundwater well and obtain water without obtaining a permit from the DNRC.  Montana farmers and ranchers long relied on the “exempt well” provision.

Whether a landowner, be it a homeowner in a new subdivision, a rancher, or a farmer, can utilize a groundwater well in lieu of obtaining a DNRC permit has long revolved around the DNRC’s definition of a “combined appropriation.”  The 1993 administrative rule adopted by the DNRC stated that “combined appropriation” meant “groundwater developments, that are physically manifold into the same system.”  Very few – if any — subdivision developments utilizing groundwater wells were ever connected in that manner.  Therefore, by altering the definition of “combined appropriation,” the narrow exemption to the Montana Water Use Act’s permitting process that had previously existed under a 1987 DNRC rule was expanded.  As a result, only groundwater wells physically plumbed together on a new subdivision – which single-use wells were not — would be deemed a “combined appropriation” under the 1993 rule that required a DNRC permit.

Before the Montana Supreme Court, land developers put forth a statutory construction of the Montana Water Use Act that fit within the wording of the 1993 rule, arguing “‘combined appropriation’ plainly denotes a ‘physical connection’ between two or more groundwater developments.”  The Clark Fork Coalition v. Tubbs, 384 Mont. at 521.  However, the Montana Supreme Court rejected the land developer’s construction.  Utilizing various canons of statutory construction, the Montana Supreme Court determined that 1993 rule’s construction of “combined appropriation” was inconsistent the “plain language” and the stated statutory purpose of the Montana Water Use Act.  Id. at 515.  Central to the Montana Supreme Court’s ruling was its determination that the 1993 rule directly contradicts the Montana Water Use Act’s statutory language “by adding a connectivity requirement to the wells or developed springs, effectively swallowing up the underlying exception that the Legislature created.”  Id.  Ultimately, the Montana Supreme Court’s ruling was a recognition of what the then-in-place statutory regime intended to do: provide a “permit based system [for] the protection of senior water rights from encroachment by prospective junior appropriators adversely affecting those rights.”  Id. at 507.

The Current Status of Single-Use Wells in New Subdivisions

The Clark Fork Coalition decision did not end the battle.  The Montana Supreme Court ordered that the 1987 rule be reinstated.  That reinstatement effectively closed the loophole that land developers had been relying on to bypass the water permitting process for new subdivisions.  Montana’s legislature responded to the Clark Fork Coalition by doing what the Montana Supreme Court stated the legislature had the power to do: amend the statutory language at issue, thereby requiring a new statutory construction consistent with such new language.  During the 2017 legislative session, Montana’s legislature passed HB 339.  HB 339 added a statutory definition of “combined appropriation” to the Montana Water Use Act, defining “combined appropriation” as “an appropriation of water from the same source aquifer by two or more groundwater developments that are physically manifold into the same system.”  Such statutory language essentially mirrored the 1993 rules definition of “combined appropriation”: “groundwater developments, that are physically manifold into the same system.”  However, Montana’s governor vetoed HB 339.  As a result, the exempt well issue remains open and unresolved.  However, the issue’s lessons in the role of statutory construction in land development matters are worth remembering.