MARICOPA-STANFIELD v HON ROBERTSON/SMITH

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SUPREME COURT OF ARIZONA En Banc MARICOPA-STANFIELD IRRIGATION & DRAINAGE DISTRICT, an Arizona municipal corporation; CENTRAL ARIZONA IRRIGATION AND DRAINAGE DISTRICT, an Arizona municipal corporation; and approximately two hundred landowners, ) ) ) ) ) ) ) ) Petitioners, ) ) v. ) ) THE HONORABLE KELLY MARIE ) ROBERTSON, JUDGE OF THE SUPERIOR ) COURT OF THE STATE OF ARIZONA, in ) and for the County of Pinal, ) ) Respondent, ) and ) ) JOHN E. SMITH, et al., ) ) Respondents-Real ) Parties in Interest. ) __________________________________) Arizona Supreme Court No. CV-04-0385-SA Pinal County Superior Court No. CV 2001-00924 O P I N I O N Special Action from Superior Court of Pinal County No. CV 2001-00924 The Honorable Kelly Marie Robertson JURISDICTION ACCEPTED; RELIEF GRANTED; ORDER VACATED; REMANDED MILLER, LaSOTA & PETERS, P.L.C. Phoenix By Donald M. Peters Susan A. Cannata Attorneys for Maricopa-Stanfield Irrigation & Drainage District SALMON, LEWIS & WELDON, P.L.C. Phoenix By Mark A. McGinnis M. Byron Lewis Richard N. Morrison Attorneys for Central Arizona Irrigation & Drainage District SACKS TIERNEY, P.A. By Marvin S. Cohen Attorneys for Approximately Two Hundred Landowners Scottsdale RENAUD, COOK, DRURY, MESAROS, P.A. By J. Gordon Cook Denise J. Henslee Attorneys for John E. Smith, et al. Phoenix W. Patrick Schiffer, Chief Counsel Ryan A. Smith, Deputy Counsel Maxine M. Becker, Deputy Counsel Attorneys for Amicus Curiae Arizona Department of Water Resources Phoenix ENGELMAN BERGER, P.C. By William H. Anger Attorneys for Amici Curiae Cities of Chandler, Glendale, Goodyear, Mesa, Peoria and Scottsdale Phoenix Jane D. Alfano Frederic L. Beeson Attorneys for Amici Curiae Salt River Valley Water Users Association and Salt River Project Agricultural Improvement and Power District Phoenix CURTIS, GOODWIN, SULLIVAN, UDALL & SCHWAB, P.L.C. By Larry K. Udall Attorneys for Amici Curiae Hohokam Irrigation & Drainage District and San Carlos Irrigation & Drainage District Phoenix SOMACH, SIMMONS & DUNN By Robert B. Hoffman Attorneys for Amicus Curiae Central Arizona Water Conservation District Sacramento, CA Rodney B. Lewis, General Counsel Attorney for Amicus Curiae Gila River Indian Community Michael G. Rankin, City Attorney Christopher E. Avery, Principal Assistant City Attorney Attorneys for Amicus Curiae City of Tucson David P. Frank, Attorney General Tohono O Odham Nation Chandler Tucson Sells And 2 QUIGLEY & WHITEHILL, P.L.C. By Daniel J. Quigley Attorneys for Amicus Curiae Tohono O Odham Nation Tucson B A L E S, Justice I. ¶1 The issue presented is whether agricultural landowners have vested rights to certain irrigation water from the Central Arizona Project ( CAP ). The water is the subject of a master contract between the United States and the Central Arizona Water Conservation District ( CAWCD ) and related subcontracts between these entities and the two petitioner irrigation districts. landowners are not parties to these agreements. The Because we hold that the landowners do not have vested rights to the CAP water in question, we vacate the trial court s contrary ruling and remand this case for entry of judgment in favor of the districts. II. ¶2 This litigation arose because the irrigation districts contemplate entering into a water rights settlement that would relinquish their rights to CAP water under their subcontracts with the United States and the CAWCD. ¶3 The governed by districts boards of are Arizona directors who municipal in turn landowners within a district s boundaries. ( A.R.S. ) §§ 48-2901, -2922, -2978 are corporations elected by Ariz. Rev. Stat. (2005). Irrigation districts are specifically authorized to enter into contracts 3 with the United States for the delivery, distribution, apportionment of water for the lands of the district. or A.R.S. § 48-3092. ¶4 The districts have faced more than a decade of financial turmoil stemming from the high cost of repaying the United States for constructing the CAP to distribute irrigation water from the Colorado River. The proposed settlement would allow debt the districts to obtain relief in exchange for relinquishing their rights to CAP water under the subcontracts; they also would be able to purchase CAP water through 2030 under new agreements. ¶5 By a majority vote, landowners within each district approved the under the proposed relinquishment subcontracts. Some of rights to dissenting CAP water landowners ( landowners ) filed two lawsuits, one against the districts and one against the CAWCD, alleging that they had vested rights to CAP water that could not be abrogated without their consent. ¶6 The suit against the CAWCD was removed to the United States District Court, which later dismissed it for failure to state a claim. ruling. The Ninth Circuit Court of Appeals affirmed this Smith v. Cent. Ariz. Water Conservation Dist., 418 F.3d 1028 (9th Cir. 2005). ¶7 The suit superior court. against The the trial districts court 4 proceeded granted partial in the summary judgment in favor of the landowners, holding that they have vested rights to the CAP water governed by the subcontracts and that the districts may Because alter those rights without the This petition for special action followed.1 landowners consent. ¶8 not the trial court s decision is of statewide importance and the districts have no equally plain, speedy, and adequate remedy by appeal, this Court accepted jurisdiction. Ariz. R.P. Spec. Act. 1(a), 4(a); see also Bledsoe v. Goodfarb, 170 Ariz. 256, 257, 823 P.2d 1264, 1266 (1991) (granting special action relief statewide). when legal issue affected water organizations We have jurisdiction pursuant to Article 6, Section 5(3), of the Arizona Constitution. III. ¶9 Three federal reclamation laws provide the statutory backdrop to this case. In 1902, Congress passed the Reclamation Act, 32 Stat. 388, to establish water reclamation projects in the western United States. Canyon Project Act, 45 In 1928, Congress passed the Boulder Stat. 1057, which provided for the construction of Hoover Dam and authorized the Secretary of the Interior ( Secretary ) to contract for the storage and delivery of Colorado River water. Finally, in 1968, Congress passed the 1 In 2003, the trial court ordered the plaintiff landowners to serve all other landowners in each district. About 200 of these other landowners supported the districts in opposing the plaintiffs claims and joined in the petition for special action. 5 Colorado River Basin Project Act, 82 Stat. 885, which provided for the construction and operation of the CAP. states and water users operate under a As a result, somewhat complicated system of intertwining federal statutes. ¶10 Critical to our analysis is the relationship between section 8 of the Reclamation Act and section 5 of the Boulder Canyon Project Act.2 Under section 8 of the Reclamation Act, the Secretary generally must comply with state law in the control, appropriation, use, or distribution of water through a federal reclamation project. 43 U.S.C. § 383 (2000). Rights to water acquired under the Reclamation Act are appurtenant to the land irrigated and are measured by beneficial use. ¶11 in 43 U.S.C. § 372. Section 5 of the Boulder Canyon Project Act ( BCPA ), contrast, authorizes the Secretary to contract for the storage and delivery of water from its projects for irrigation and domestic uses. 43 U.S.C. § 617d. The statute expressly declares that [n]o person shall have or be entitled to have the use of such water except by a contract with the Secretary. Id. Section 5 of the BCPA does not mention state law and thus is in tension with the directive in section 8 of the Reclamation Act that state law shall control the recognition of water rights. _______________ 2 The Reclamation Act and the Boulder Canyon Project Act are codified, respectively, at 43 U.S.C. §§ 372, 383 and 43 U.S.C. § 617d. 6 ¶12 The United between relationship States these Supreme two California, 373 U.S. 546 (1963). Court statutes addressed in Arizona the v. Arizona had sued in 1952 to resolve the allocation of Colorado River water among the states in the river s lower basin. The Court held that Congress, in enacting the BCPA, create[d] its own comprehensive scheme for the apportionment among California, Arizona, and Nevada of the Lower Basin s share of the mainstream waters of the Colorado River . . . . ¶13 Id. at 565. The Court also clarified the respective roles of state and federal law in controlling rights to water from the lower Colorado. For federal reclamation projects in general, section 8 of the Reclamation Act requires the Secretary to follow state law regarding the control, use, or appropriation of water. The Court, however, expressly rejected the argument that state law controlled the distribution of water subject to the BCPA. Id. at 580-81, 584-86. Instead, the BCPA vests the Secretary with the power, his through § 5 contracts, both to carry out the allocation of the waters of the main Colorado River among the Lower Basin States and to decide which users within each State would get water. ¶14 In its Id. at 580. subsequent decree, the Court reaffirmed the distinctive nature of Colorado River distribution and the need for secretarial contracts. (1964). The decree noted Arizona v. California, 376 U.S. 340 that, reservation: 7 unless used for a federal [M]ainstream water shall be released or delivered to water users . . . in Arizona, California, and Nevada only pursuant to valid contracts therefor made with such users by the Secretary of the Interior, pursuant to Section 5 of the Boulder Canyon Project Act or any other applicable federal statute[.] Id. at 343. ¶15 Against this legal background, Congress in 1968 passed the Colorado River Basin Project Act ( CAP Act ), which, among other things, created the CAP. avoided unsettling the In so doing, Congress carefully BCPA, stating that, unless otherwise provided, nothing in the CAP Act was to be construed to alter, amend, repeal, modify, or be in conflict with the provisions of the former. Secretary 43 U.S.C. § 1551(a). with broad authority to The CAP Act also vests the administer the CAP. See Maricopa-Stanfield Irrigation & Drainage Dist. v. United States, 158 F.3d 428, 438 n.18 (9th Cir. 1998) ( The Secretary s generous measure of discretion survived the Colorado River Basin Project Act . . . . ); Cent. Ariz. Irrigation & Drainage Dist. v. Lujan, 764 F. Supp. 582, 589 (D. Ariz. 1991) (noting the Secretary s administrative power over the CAP). ¶16 Congress further specified how water users contract with the Secretary. 43 U.S.C. § 1524(b)(1). would The CAP Act outlines a step-by-step process under which the Secretary could contract repayment water. Id. of with CAP a state construction political subdivision costs the and for distribution the of The state subdivision would, in turn, make CAP water 8 available to users within its boundaries through subcontracts. Id. The terms and conditions of the subcontracts were to be subject to the Secretary s approval and the United States could insist that it be included as a party. Id. ¶17 in With the CAP on its way to realization, the Secretary 1972 Under entered this into the contract, as master amended contract in 1988, with the CAWCD.3 the United States agreed to construct and operate the CAP water delivery system in exchange for repayment of part of the attendant costs. Delivery of CAP water was not guaranteed, but instead was subject to availability and the Secretary s determination of the amount of Colorado River water to release for the CAP. ¶18 The United States and the CAWCD, in turn, entered into subcontracts with the districts, the users under the statutory scheme. Consistent with the master contract, the districts agreed that CAP water could be made available for irrigation only on lands with a recent irrigation history, and groundwater pumping within each district s service area would be reduced by the amount of CAP 3 water received under the The CAWCD is a multi-county district created pursuant to state law for the purpose of contracting with the Secretary for CAP water. A.R.S. § 48-3703. Its boundaries are coextensive with Maricopa, Pima, and Pinal counties, exclusive of Indian lands within these counties. See Cent. Ariz. Water Conservation Dist. v. United States, 32 F. Supp. 2d 1117, 1121 (D. Ariz. 1998). 9 subcontract. The master contract and the subcontracts were validated in state court proceedings intended to confirm that the agreements were properly entered into and binding on the CAWCD and the districts. Each district also entered into a 9(d) the contract constructing to repay irrigation United States distribution the systems costs within of the district s service area. ¶19 Both the master contract and the subcontracts contemplated that CAP water would be delivered by the districts to agricultural landowners for irrigation. After the validation proceedings, each district entered into two agreements with its respective landowners. These agreements, a memorandum of understanding followed by a water service agreement, provide for the distribution constructed by of and water through financed canals through the and other works districts. The landowners, in turn, agreed to pay taxes and service fees and also agreed certain to convey irrigation to wells the districts that were their subject to rights to use grandfathered groundwater rights under state law. ¶20 guarantee allowed The memoranda and the water service agreements did not the the landowners districts specifying its source. to access to deliver CAP water; irrigation they instead water without The parties, however, expected that the districts would deliver, and the landowners would pay for, CAP 10 water under the water service agreements. ¶21 to After the CAP was completed, the districts were unable meet their financial obligations to the CAWCD under the subcontracts. Facing financial collapse, the districts entered into ten-year interim agreements with the CAWCD to obtain water at steeply reduced prices. This water is called because it is water left unused by other CAP users. excess See Robert Jerome Glennon, Coattails of the Past: Using and Financing the Central Arizona Project, 27 Ariz. St. L.J. 677, 682-88 (1995) (discussing problems of CAP financing and underutilization). ¶22 The financial pressure remained, and, in 2002, the districts agreed to a proposal under which they would relinquish their rights to CAP water under the subcontracts. the districts interim would agreements provisions are obtain to part debt purchase of a relief water and could through comprehensive In return, enter 2030. water new These settlement authorized by the Arizona Water Settlements Act, Pub. L. No. 108-451, 118 Stat. 3478 (2004). ¶23 Each district s proposed settlement. district approved of directors approved the By a majority vote, the landowners in each the rights to CAP water. board proposed relinquishment of subcontract Landowners dissenting from this result pursued litigation in state and federal court. IV. 11 ¶24 In granting partial summary judgment, the trial court held that the landowners have vested rights to receive CAP water (1) pursuant to the Reclamation Act of 1902 or (2) because they are third-party beneficiaries of the subcontracts between the districts, the CAWCD, and the United States. Neither determination can be sustained. A. ¶25 The trial court read Arizona v. California to hold that the BCPA supplements existing reclamation law. Section 8 of the Reclamation Act, as noted above, provides that water rights obtained under the act shall be appurtenant to the land irrigated . . . . 43 U.S.C. § 372. The trial court concluded that, under the water service agreements, the landowners are contractually vested with rights to CAP water appurtenant to their land and these rights would be infringed if the districts modified or relinquished the subcontracts. ¶26 This reasoning misapprehends the relationship between section 5 of the BCPA and section 8 of the Reclamation Act. Under the BCPA and Arizona v. California, entitlement to CAP water depends on a contract with the Secretary. As the Supreme Court has explained: In Arizona v. California, we held that the [BCPA] vested in the Secretary the power to contract for project water deliveries independent of the direction of § 8 of the Reclamation Act to proceed in accordance with state law and of the admonition of § 18 of the [BCPA] not to interfere with state law. 12 Bryant v. Yellen, 447 U.S. 352, 370 (1980).4 ¶27 In holding that the landowners could obtain a vested right to CAP water under section 8 of the Reclamation Act absent a contract with the Secretary, the trial court misread Arizona v. California and its resulting decree. A contract with the Secretary is required to establish a right to water from the Lower Colorado River. ¶28 The landowners lack such a contract. The landowners also argue that, once they received CAP water distributed by the districts under the interim agreements, section 8 of the Reclamation Act entitled them to continue to receive such water from the districts. This argument cannot succeed. Neither the landowners nor the United States was a party the to interim agreements, so those agreements cannot provide the contract necessary for the landowners to establish a right to CAP water.5 ¶29 The landowners also cite Supreme Court cases dealing with rights to reclamation project water in settings other than 4 Bryant held that a 1926 amendment to the Reclamation Act limiting irrigation deliveries to 160 acres under single ownership could not apply to present perfected rights recognized in the BCPA. 447 U.S. at 355-56. Like Arizona v. California, Bryant refused to apply the general Reclamation Act to limit specific provisions of the BCPA. Id. at 368-69. 5 The districts also argue that they have never purchased CAP water under the subcontracts because it is too expensive, so the landowners could not have acquired any rights to such water as a result of having applied it for beneficial use. We need not address this issue, given our holding that a contract with the Secretary is necessary to establish an entitlement to CAP water. 13 the Lower Colorado River Basin. See, e.g., Ickes v. Fox, 300 U.S. 82, 94-95 (1937) (dealing with the Yakima River Project). The landowners argue that, despite Arizona v. California, state water law should apply to create vested rights to CAP irrigation water once a reclamation project is built, a contract is issued, and the water is beneficially applied. ¶30 On California this v. point, United the landowners States, 438 U.S. principally 645 rely (1978), on which concerned a reclamation project in California s Central Valley. There the Court held that, under section 8 of the Reclamation Act, state law governs the control, use, and distribution of water through a federal reclamation project unless state law conflicts with a clear congressional directive. Id. at 674-75. ¶31 reaffirmed In different so rules specifically ruling, apply noted however, to that the in the Court Colorado Arizona v. River. The California, that Court it had concluded that because of the unique size and multistate scope of the [Boulder Canyon] Project, Congress did not intend the States to interfere with the Secretary s power to determine with whom and on what terms water contracts would be made. Id. at 674. ¶32 vested The trial court s ruling that the landowners have a right to perpetual use of the CAP water that is appurtenant to their land conflicts with section 5 of the BCPA and Arizona v. California. Neither section 8 of the Reclamation 14 Act nor the landowners water service agreements with the districts can substitute for a contract with the Secretary to create a vested right to CAP water. B. ¶33 The landowners attempt to overcome the fact that they are not parties to a contract with the Secretary by arguing that they are third-party beneficiaries of the subcontracts between the Secretary, the CAWCD, and the districts. A third-party beneficiary to contract. ¶34 is a non-party who has the right enforce a Restatement (Second) of Contracts § 304 (1979). The trial court should not have entertained the third- party beneficiary argument at all because the landowners had already litigated and lost the same issue in federal court. Principles of issue preclusion bar the relitigation in state court of the landowners status as third-party beneficiaries to the subcontracts. ¶35 After the landowners filed this suit against the districts in the Pinal County Superior Court in 2001, they filed a separate suit in the same court against the CAWCD in 2003. The CAWCD removed the second suit to the district court. In September 2003, the district court dismissed the suit against the CAWCD on the grounds that the landowners were not thirdparty beneficiaries subcontracts. of either the master contract or the While an appeal was pending in the Ninth Circuit 15 in the CAWCD case, the landowners argued in their state court suit against the districts that they beneficiaries of the subcontracts. were third-party The trial court accepted this argument in its November 2004 ruling without addressing the effect of the district court s prior ruling to the contrary. ¶36 The against the district CAWCD court s was a ruling judgment dismissing for appeal Inc., does judgment). 838 F.2d 318, 327 not alter preclusive The trial court, (9th Cir. effect before suit of purposes preclusion, even though an appeal was pending. Platters, the issue Robi v. Five 1988) (pending of district reaching the court merits, therefore should have considered whether the district court s judgment barred the landowners from relitigating their status as third-party beneficiaries. ¶37 Federal law determines the preclusive federal court judgment in state court. effect of a Semtek Int l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 507 (2001) ( [W]e have long held that States cannot give [federal] judgments merely whatever effect they would give their own judgments, but must accord them the effect that this Court prescribes. ); Restatement (Second) of Judgments ( Restatement ) § 87 (1982) ( Federal law determines the effects under the rules of res judicata of a judgment of a federal court. ). ¶38 Applying federal law to determine the preclusive effect of federal judgments helps maintain the integrity of 16 federal judicial power judicial system. and the coherence of the federalist Watkins v. Resorts Int l Hotel & Casino, 591 A.2d 592, 598 (N.J. 1991); see also Restatement § 87 cmt. a (noting that principle of finality of judgments is implicit in authority given federal courts under Articles I and III of the Constitution). from the Employing premise that federal law preclusion is procedures of the issuing court. also a follows logically consequence of the Watkins, 591 A.2d at 598. This approach parallels the rule, expressed in the Full Faith and Credit Act, 28 U.S.C. § 1738, that federal courts will refer to state law in determining the preclusive effect of a state court judgment. See Marrese v. Am. Acad. of Ortho. Surgeons, 470 U.S. 373, 380-81 (1985). ¶39 The Supreme Court has long recognized the defensive use of issue preclusion. U.S. 322 (1979). Under Parklane Hosiery Co. v. Shore, 439 this doctrine, a plaintiff and its privies are barred from relitigating issues already settled in one case against a defendant party in another case. Id. at 329. The party asserting the bar must show that (1) the issue was litigated to a conclusion in a prior action, (2) the issue of fact or law was necessary to the prior judgment, and (3) the party against whom preclusion is raised was a party or privy to a party to the first case. (1980). ¶40 Allen v. McCurry, 449 U.S. 90, 94-95 Each of these requirements is met here. The landowners litigated their third-party beneficiary 17 status to a conclusion in the federal litigation against the CAWCD. They argued before the district court that they were third-party beneficiaries of the master contract and the subcontracts, and the district court s dismissal of their case for failure merits. to state a claim constituted a judgment on the See Federated Dep t Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3 (1981). ¶41 Determining the landowners third essential to the federal court judgment. party status was The district court held that the landowners had failed to state a claim because they were review, not the third-party Ninth Circuit beneficiaries. agreed, noting Applying that the de novo master contract and the subcontracts did not reflect any clear intent to recognize the landowners as intended beneficiaries entitled to enforce the agreements as third parties. Smith, 418 F.3d at 6 1038. ¶42 Finally, the landowners in this state court litigation were parties or privy to parties in the federal litigation. 6 The The Ninth Circuit has recognized that its case law regarding the status of irrigators as third-party beneficiaries may be at odds with H.F. Allen Orchards v. United States, 749 F.2d 1571, 1576 (Fed. Cir. 1984), which stated that members of an irrigation district could sue as third-party beneficiaries to enforce a consent decree entered by the district on their behalf. See Orff v. United States, 358 F.3d 1137, 1147 n.5 (9th Cir. 2004). The Supreme Court affirmed the Ninth Circuit s ruling in Orff without reaching the third-party beneficiary issue. Orff v. United States, 125 S. Ct. 2606 (2005). H.F. Allen is not persuasive here, because it did not involve Colorado River water governed by the BCPA and its remarks on third-party beneficiary status were 18 lead plaintiffs and counsel for all plaintiffs are the same in each action. Although the record reflects that some landowner plaintiffs were added to this action who were not also parties to the suit against the CAWCD in federal court, this fact does not alter our conclusion that issue preclusion should apply. See Petit v. City of Chicago, 766 F. Supp. 607, 613 (N.D. Ill. 1991) (applying issue preclusion where plaintiffs added parties in subsequent action in attempt to avoid preclusion). ¶43 The interests of any new landowner plaintiffs regarding the third party issue were identical to those of the overlapping plaintiffs in the two actions. There is no question that the new landowner plaintiffs had notice of the ongoing federal litigation represented. and that their interests were adequately Moreover, the landowners have not argued a lack of privity among the plaintiffs, and accordingly any argument of that nature is deemed waived. See Thorton v. City of St. Helens, 425 F.3d 1158, 1166 (9th Cir. 2005) (applying Oregon law of issue preclusion). ¶44 In attempting to avoid issue preclusion, the landowners instead rely on section 29 of the Restatement, which identifies relitigate courts various a have circumstances previously looked to determined the _______________ unnecessary to its decision. that allow issue. Restatement in party Because to federal determining See 749 F.2d at 1576. 19 a the preclusive effect of federal judgments, we will consider the landowners arguments that section 29 apply here. 147, 162-64 determining (1979) whether exceptions identified in See Montana v. United States, 440 U.S. (citing to certain drafts apply of exceptions the to Restatement the rule in of preclusion). ¶45 The landowners first assert that treating the third party issue as conclusively determined would be incompatible with an applicable scheme of administering the remedies in the actions involved, Restatement § 29(1), because it would frustrate the state legislature s purpose in creating Arizona irrigation districts to benefit their landowner members. ¶46 This argument is unconvincing. Section 29(1) of the Restatement applies when a remedial scheme limits the effect to be given to a prior determination of an issue. Id. cmt. c. An example would be a statute provid[ing] that a determination is limited to the action in which it is made or . . . [is] only prima facie evidence of the facts involved . . . . Id. The landowners do not identify any remedial scheme that would limit the preclusive effect of the federal court judgment. ¶47 We also do not believe that according preclusive effect to the prior federal judgment would somehow frustrate the purpose of Arizona s legislation creating irrigation districts. Nothing in the state legislation suggests any intent to make individual landowners the third-party beneficiaries of an irrigation district s contracts, either in general or with the Secretary concerning CAP water. 20 ¶48 The landowners next argue that preclusion should not apply under section 29(5) of the Restatement because the prior determination may have been affected by relationships among the parties to the first subsequent action. action that are not present in the This exception applies when circumstances distinctive to the first proceeding might have influenced the outcome and the issue could reasonably have otherwise if those circumstances were absent. been resolved Id. cmt. g. The landowners have not identified anything regarding the federal court proceedings that would invoke this exception. ¶49 Citing section 29(6) of the Restatement, the landowners also argue that they should be allowed to relitigate their third-party status because the federal court did not base its ruling on state law. Section 29(6) is inapposite because it applies when treating an issue as conclusively determined would either complicate the determination of issues in the subsequent action or prejudice the interests of another party who has not yet had his day in court. ¶50 Id. cmt. h. Moreover, the landowners are mistaken in arguing that state law should determine if they are third-party beneficiaries. Federal, not state law, controls the construction of contracts entered by the United States pursuant to a federal statute. United States v. Seckinger, 397 U.S. 203, 209-10 (1970); Klamath Water Users Protective Ass n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 2000). ¶51 The landowners finally argue that they should be allowed to relitigate their status as third-party beneficiaries 21 so that their opportunity to obtain[] reconsideration of the legal rule upon which it was based is not inappropriately foreclose[d], Restatement § 29(7), or because [o]ther compelling circumstances make it appropriate . . . . 29(8). court s Id. § The landowners sought reconsideration of the district legal determination of their third-party they appealed to the Ninth Circuit. disappointed with the outcome in status when That the landowners were the federal courts is not sufficient reason to allow them to relitigate the issue in state court under Restatement section 29(7). ¶52 Nor circumstances have the that would 29(8) of the Restatement. determination is evidence become has landowners justify identified relitigation compelling under section This exception applies when a prior discovered to have plainly that available been could likely wrong, lead new to a different result, or other compelling circumstances show good reason for allowing a party to relitigate an issue. Id. cmt. j & reporter s note. ¶53 The landowners assert that the irrigation districts were created for their benefit and that only the landowners have the right to use CAP water on district lands. The subcontracts do not, however, recognize any entitlement on the part of individual landowners to CAP water and they do not express any intent to afford enforceable rights to non-parties 22 who might ultimately apply the water for irrigation purposes.7 ¶54 The landowners did enter contracts with the districts for the delivery of irrigation water, namely, the memoranda of understanding and the subsequent water service agreements. These agreements, however, do not include the Secretary as a party and they subcontracts. do not modify the master contract or the They also do not purport to give the landowners any vested right to CAP water. The water service agreements, with slight variations among the districts, provide that the districts will deliver irrigation water without specifying its source as CAP water; the same agreements declare that the right to receive water from the districts will be appurtenant to the land, but this provision also does not identify CAP water. ¶55 With regard to landowner water rights, the water service agreements instead provide that the landowners retain the exclusive irrigation right rights to to convert certain grandfathered non-irrigation water groundwater rights and that, if they do so, they may regain the wells on their lands for use solely for municipal and industrial purposes. 7 This For this reason, if we were to reach the merits, we would agree with the Ninth Circuit that the landowners are not thirdparty beneficiaries entitled to enforce the master contract or the subcontracts. See Klamath, 204 F.3d at 1210-12 (holding that third-party beneficiary status does not result merely because a government contract operates to benefit identified non-parties; evidence of a clear intent to confer such status is required). 23 provision stands in marked contrast to the subcontracts, which are distinctly silent about any rights of individual landowners to acquire or use CAP water upon the conversion of their land from agricultural use. ¶56 In sum, the landowners have not identified compelling circumstances that would justify allowing them their status as third-party beneficiaries. determination that they are not to relitigate The federal court third-party beneficiaries of either the subcontracts or the master contract controls in this litigation. See Smith, 418 F.3d at 1036-38. V. ¶57 Because the landowners cannot establish an entitlement to CAP water absent a contract with the Secretary, and because they are not third-party beneficiaries to either the subcontracts or the master contract, the trial court erred in ruling that they have a vested right to CAP water. Our holding does not address what other rights, if any, the landowners may have under the agreements to which they are parties, such as any grandfathered irrigation rights or rights to use wells located on their lands for non-agricultural purposes. ¶58 This action for declaratory relief landowners alleged vested right to CAP water. turns on the Because the landowners have no vested right to CAP water, the districts are entitled to summary judgment dismissing 24 the second amended complaint. summary We vacate the trial court s order granting partial judgment in favor of the landowners, grant the districts request pursuant to A.R.S. § 12-341.01 for an award of attorneys fees incurred in this special action, and remand this case to the trial court for further proceedings consistent with this opinion, including the determination of any request for an award of fees incurred in the trial court. __________________________________ W. Scott Bales, Justice CONCURRING: _______________________________________ Ruth V. McGregor, Chief Justice _______________________________________ Rebecca White Berch, Vice Chief Justice _______________________________________ Michael D. Ryan, Justice _______________________________________ Andrew D. Hurwitz, Justice 25

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