WATER: One Shudders to Think of the Fallout if Schutter Decision Stands

Schutter v. the Montana Board of Land Commissioners is about to make waves

By Denise Rivette

Debra and Sidney Schutter, potato farmers in Gallatin County near Manhattan, have taken their fight with the State to retain their water right, held for generations, to the Supreme Court. The State Department of Natural Resources and Conservation (DNRC) acting on behalf of the Montana Board of Land Commissioners (collectively “the State”) is fighting them for co-ownership.

The State maintains that a 1985 court decision (Pettibone) mandates that it assert ownership over private water rights developed on private land that are used to temporarily provide water to leased State land. This despite the Pettibone ruling referring specifically to a situation where the point of diversion and point of use were both on State land. In addition, the State maintains its ownership interest in the Schutters’ water right is “premised on the fundamentals of Montana water law, as applied to the special constitutional and statutory protections that apply to state trust lands” despite a 2019 codification of the legislature’s intent as expressed in House Bill 286, which clearly states:

THEREFORE, the Legislature of the State of Montana finds that the use of water from a well or developed springs that is diverted from a privately owned diversion works located on private land and utilized on state land does not create an ownership interest in the water right in the state of Montana.

Supporters of the Schutters and Montana private water rights have asked the Montana Supreme Court to rule in favor of the Schutters. Attorney General Austin Knudsen, a member of the Montana Board of Land Commissioners has written an amicus, or friend of the court, brief to the Supreme Court justices, in support of the Schutters position and against his own Board.

How Did We Get Here

John Schutter, in 1960, developed a well on his private land and obtained the sole rights for that water. At that time, he also had a lease with the State for land adjoining his private property. Since that time, water from the Schutter well has been used to irrigate the Schutter property and the leased State land.

The current acrimonious situation began when, after no previous objections had ever been filed against this claim, on February 5, 2019, the State filed a late objection that sought to add the State of Montana as a co-owner to the Schutters’ private well located on the Schutters’ private property. The State’s claim is based on the fact that the adjoining State land on which the Schutters grow crops, and which is leased from the State, is a place of use for the water right.

The Water Court ruled in favor of the State, diluting the Schutters’ water right. The Schutters filed an appeal that is now before Montana’s Supreme Court. In the Schutters’ opening brief, they state they “disagree based on law and logic”. They claim the Water Court was in error by basing its decision on Pettibone when the Water Court ruled that:

Based on the Pettibone analysis, it does not matter whether the Schutters own the point of diversion and part of the place of use. The undisputed facts indicate the Schutters put water to beneficial use on State school trust land without separately compensating the State. Putting the water to beneficial use on the State parcel and claiming the land as part of the place of use makes the water right appurtenant to State school trust land. A water right appurtenant to school trust land, even in part, triggers State ownership under Pettibone. Were that not the case, the Schutters would be using a portion of the corpus of the school trust without compensating the State, a result Pettibone forbids.

This ruling ignores the fact that the State’s compensation is increased by “virtue of Schutters’ water right increasing crop production - in other words, the state receives an increased lease rate and crop payments due to Schutters’ irrigation during the term of the lease.”

Instead of the 1985 Pettibone decision, the Schutters claim the Water Court should apply its own ruling in a case from June 2000 commonly referred to as Kunneman. In that judgement, the Water Court rejected DNRC’s attempt to use Pettibone as justification to take possession of the Kunneman water right, stating:

Just as it would make no sense to allow each succeeding tenant to appropriate and "walk off' with one water right after another diverted and developed on and for, and appurtenant to, school trust land, it would make no sense to allow the State to "take" one vested right after another from unsuspecting lessees who merely intend to apply their vested water rights for temporary use on school trust land. While school trust land may temporarily benefit from a lessee's private water right, [the State] is not entitled therefore to convert that fortuitous effect into a permanent asset of the trust estate. While the State's fiduciary role as charitable trustee clearly prohibits it from surrendering interests of the trust estate without receiving full market value, a private existing water right such as this right was never an "interest" of the trust estate to begin with and should not be considered part of its value.

In court documents, the State asserted that the Schutters’ attempts “to reframe the dispute over ownership of [the water right] as a matter of agency overreach, rather than undisputed facts and law, should be rejected.” It further stated that the motion is improper due to technicalities and that there is no new evidence. The State claims evidence provided by the Schutters, including the Kunneman decision, should have been produced at the time of appeal.

Where Do We Go From Here

Rocky Mountain Stockgrowers Association, Senior Ag Water Rights Alliance (SAWRA), and Greenfields Irrigation District are joining together to ask the Board of Land Commissioners to take back full control or modify DNRC’s authority to appropriate private water rights, settle the Supreme Court case and “stop the madness”.