This is a follow-up to a previous post regarding a recent legal case in Arizona that considered whether rights to groundwater associated with a parcel of land can be held separately from ownership of the land.
The Arizona Supreme Court obviously felt it was an important case because they accepted it for review near the end of 2008, then scheduled it for oral argument in early Jan. 2009, and published their opinion late last week.
If you read my earlier post you will notice that I half-heartedly endorsed the Court of Appeals decision and thought the Supreme Court would affirm. On further consideration I changed my mind because the property rights to groundwater created by the Appeals court reading of the cases would be incomplete and do nothing to encourage efficient use of groundwater. I also began to see the illogic in their reading of the cases on which the decision hinged. It turns out I was right the second time. The Supreme Court went with what I would call a much more straightforward reading of the law (and the nature of property rights in groundwater) and held that, because there can be no future right to groundwater in Arizona (outside of an AMA), a property owner cannot reserve the right to pump groundwater from property after conveyance of the property.
The ruling appeared to hinge on the way the appeals court interpreted a few earlier cases they thought meant that a real property interest in future groundwater use could exist. But the Supreme Court differed in their interpretation of those cases and relied primarily on the Arizona case Town of Chino Valley v. City of Prescott and the U.S. District Court case Cherry v. Steiner to support the notion that rights to groundwater are perfected only by pumping the water to the surface (usufructory rights), therefore land ownership vests no rights to groundwater prior to pumping, so the previous owners who tried to reserve rights to groundwater had no actual property rights to reserve.
This reading of the law is in agreement with traditional economic notions of property rights to fugitive resources - something not all courts seem to grasp. In Texas, by contrast, their courts have interpreted the rule of absolute ownership as creating actual property rights in groundwater in situ (also the original common law view in Arizona until changed by the courts), permitting the reservation of rights to groundwater when property is conveyed. I looked at a couple of cases decided by their appellate courts recently affirming this view. One thing I found very interesting in the Texas cases was the statement that the rule of absolute ownership is distinct from the rule of capture. They claimed the rule of capture is simply a rule of tort liability (non-liability really) but the rule of absolute ownership is a property rights rule. That is a legal interpretation so it does not have to relate in any way to economic realities - but I think they would be better off if it did.