Texas Supreme Court Recognizes Property Interest In Groundwater In Place

The Texas Supreme Court issued a long-awaited, landmark decision on groundwater rights, ruling that land ownership includes an interest in groundwater in place, and accordingly, under the Texas Constitution, that interest "cannot be taken for public use without adequate compensation." Edwards Aquifer Authority v. Day, No. 08-0964, slip op. p. 1, 2012 Tex. LEXIS 161, at *1 (Tex. February 24, 2012). The court, embracing a middle ground presented by Vinson & Elkins in amicus briefing, expressly recognized that regulation of groundwater production is not only permissible, but truly necessary, and may be accomplished without triggering a "taking." But the court also noted that the potential to trigger a taking "ensures that the problems of a limited public resource — the water supply — are shared by the public, not foisted onto a few." In practical terms, the stage is now set for allegations of "regulatory takings" claims if groundwater production permits are denied outright or unreasonably restricted as evaluated by a judge in a "fact-sensitive test of reasonableness."1 There will be implications for existing permit holders, whose authorized production volumes cannot be viewed as sacrosanct, not only in the Edwards Aquifer Authority's jurisdiction, but throughout the state's groundwater conservation districts. For now, the Days remain empty-handed, with the case remanded back to the district court for further proceedings, despite finally getting a decision of this underlying issue in this case that has been pending before the supreme court since 2008 (after making its way through an administrative hearing, district court and the court of appeals).2

Groundwater, like oil and gas, has long been subject to the "rule of capture," commonly understood to mean that, "absent malice or willful waste, landowners have the right to take all the water they can capture under their land and do with it what they please, and they will not be liable to neighbors even if in so doing they deprive their neighbors of the water's use."3 Attendant to the rule of capture was recognition of private ownership of groundwater at least when produced at the surface — but the question of ownership of groundwater in place has not previously been decided under common law or foreclosed by clear legislation, unlike oil and gas, which was "long ago" held to be owned in place under common law.4

The issue was finally squarely presented to the courts when the Edwards Aquifer Authority (the "Authority") issued production authorizations based solely on historic use during a defined period and up to the full amount it...