Pueblo County farmers fight marijuana company for water rights
Outcome could impact all water rights holders in Colorado
March 15, 2017
A David and Goliath situation is heating up in Pueblo County that could impact water rights throughout the state of Colorado.
In eastern Pueblo County, farmers and ranchers have been managing the land and water for generations, raising diversified crops and livestock, in their small, rural community along the Arkansas Valley.
These farmers are among the 34 shareholders of the Welton Land & Water Co. (Welton Water), a Colorado mutual ditch company that has senior direct flow water rights dating back to 1861.
For generations, this community under the Welton Ditch has been growing hay, winter wheat, barley, oats, vegetables and livestock, but all of that could soon come to a crashing halt if a publicly traded company, whose focus is providing infrastructure and properties for marijuana cultivation, has its way.
Two Rivers Water & Farming Co. (Two Rivers) is suing Welton Water and its shareholders for what they are calling "wasteful and inefficient water use practices."
In 2014, Two Rivers founded a subsidiary called GrowCo, Inc., which builds greenhouses and leases them to marijuana growers. Two Rivers has also obtained ownership of, or a controlling interest, in entities which own junior water storage rights decreed to two reservoirs located on the Cucharas and Huerfano Rivers south of Pueblo.
In accordance with Welton Water's senior rights, water is allocated from the Huerfano River in priority; however, satisfaction of those senior water rights, in accordance with Colorado law, means Two Rivers is sometimes precluded from filling its storage reservoirs while Welton Water's senior rights are unsatisfied. If Two Rivers wins the suit, Welton Water, and its shareholders, will lose its right to divert and use water in accordance with their water rights in certain months of the year and a new precedent will be set for future water rights of Colorado farming and ranching families.
"Two Rivers is suing each of the shareholders individually, and we believe that their game plan is to get us tied up in a legal battle that none of these farmers and ranchers can afford," said Larry Morgan, Welton Land & Water Co. president. "If we can't defend ourselves and we lose our water rights, we will all be in serious trouble."
Welton Water's senior rights are still junior to the water rights of appropriators who live higher up in the mountains, meaning that very little summer water is available to satisfy the water rights decreed to the Welton Ditch and therefore the shareholders receive very little summer water. Without the winter water, it could prove difficult for Welton Water's shareholders to run livestock on this land, raise winter wheat or get the ground wet in the springtime for planting.
"We don't know when we'll go to court on this; I suppose, it depends on how much paperwork they throw at our attorneys," Morgan said. "We think they are going to deep-pocket us to death, and without water, we won't be able to water our cattle or crops, and our land becomes basically worthless."
John Justus, legal counsel for Welton Water, says he questions the validity of Two Rivers' claims.
"The litigation was initially triggered by a Colorado State Engineer's enforcement action seeking enforcement of an unappealed administrative order requiring Two Rivers to cut down the dam associated with Cucharas Reservoir, one of Two Rivers two junior reservoirs," Justus said. "That order was based on public safety concerns as a result of the condition of the dam at Cucharas Reservoir. Two Rivers, in its defense against the engineer's enforcement action alleged that it was unreasonable to demand that the Two Rivers comply with the dam cut-down order, and the associated costs, unless the engineers addressed what Two Rivers characterized as 'wasteful and unreasonable water practices' by Welton Water and its shareholders. Consistent with that allegation Two Rivers brought a separate set of claims against Welton. Although Two Rivers ultimately entered into a consent decree with the state and division engineers, which requires it to cut down the dam and complete certain other tasks, it continues its litigation against Welton Water and its shareholders."
According to Justus, Two Rivers has several "creative claims" against Welton Water.
The first is "Two Rivers claim that certain traditional winter irrigation practices of the Welton shareholders fail to constitute beneficial use of water under Colorado law," Justus said. "Because of the nature of this claim and its impact on their individual water rights, the court required that Two Rivers join Welton Water's shareholders to this action. However, many ditch companies and their shareholders utilize the same types of irrigation practices that Welton Water's shareholders do, so this should be of great interest for other people with winter water rights across the state of Colorado."
Justus further explained, "Prevention of the form of winter irrigation practiced under the Welton would mean irrigation practices that are necessary for maintaining viability of certain lands for agricultural production would no longer be permitted. Importantly, the Winter Water Storage Program in Pueblo Reservoir, and the decree confirming the change of water rights necessary for the operation of that program would have been improper if Two Rivers' theories are correct."
The second is "Two Rivers claim that Welton's diversion structure from the Huerfano River must be a permanent concrete structure in order to be a reasonable means of diversion under Colorado law," Justus said. "If that was to become the new standard, it would mean that hundreds and possibly thousands of structures in the state no longer constitute reasonable diversion methods. Although the court has declined to dismiss this claim at this point in the litigation, Welton Water is confident that the law paired with the facts to be demonstrated at trial will show Two Rivers' allegations to ultimately be groundless."
Third is "Two Rivers claim that stream losses which occur in the division engineer's administration of the waters of the Huerfano River in response to a 'call' petition by Welton Water pursuant to its senior water rights constitute unreasonable and actionable waste by Welton Water."
In a briefing to the court, which has yet to be decided, Justus said, "Both Welton Water and the state and division engineers have argued that no such claim is cognizable under Colorado law. The court has yet to issue an order on the matter."
The concept is simple according to Justus, "an appropriator like Welton Water and its shareholders cannot legally waste water over which it has no control, until water is diverted by Welton Water, the water remains within the exclusive administrative control and authority of the state and division engineers."
Not only is Two Rivers seeking year-round water rights for its cannabis business, but it appears development projects might be in the works.
"In an investor update to its shareholders dated December 2016, Two Rivers says they are a vegetable company, but that document suggests that the entity is pivoting its near term focus to utilizing its water to grow hemp and for the development of infrastructure for the cannabis industry," Justus said. With respect to its long-term focus, "that document suggests Two Rivers wants to take its existing water rights and use it in a development fashion, generating revenue through selling taps for development. Interestingly, Two Rivers water rights are not decreed for nonagricultural uses like domestic or municipal purposes. Nonetheless that document suggests Two Rivers plans to invest approximately $42 million in Cucharas Reservoir over the next two years."
Justus noted that "eliminating the effect of Welton Water's downstream senior rights will however potentially increase the yield of Two Rivers more junior rights associated with its reservoirs and therefore its return on its investments." The case is ongoing, and as Two Rivers is suing each shareholder individually, Justus said it's unclear when this will go to trial; however, he anticipates a July setting conference with the court, with a trial following 6 to 9 months after.
Meanwhile, Welton Water has a counter-claim against Two Rivers arguing that out-of-priority depletions to the Cucharas and Huerfano Rivers by Two Rivers' Cucharas Reservoir, in amounts approaching 3,000-acre-feet per year, are injuring the water rights of Welton and others. Welton anticipates that the unabated depletions will continue again this irrigation season.
For shareholder Su Knight, the emotional and financial burdens of this battle are taking its toll. Su and her husband Bill are in their mid-70s and have raised cattle at the end of the Welton ditch for the last 50 years. Before that, Bill's parents lived there, and the tradition of ranching in this quiet neighborhood is one they take great pride in.
"This lifestyle is not always easy, but we love it," Su Knight said. "This fight with Two Rivers has been a real struggle. When the judge determined that Two Rivers couldn't sue the entire ditch company, they sued each of us individually, and we all had to get our own attorneys. We haven't even gone to court yet, but it's already been a living nightmare."
The Knights are thankful the local bank was willing to grant them a loan to assist in their legal battles, but with their water rights as collateral, the future of the ranch is at stake.
"Win or lose, we'll still have to pay the loan back, and if we can't the bank will get our water shares," Knight said. "The bank will then turn around and sell it for cheap, and who do you think will be around to buy it? We are so tired of fighting. We have so much anxiety about this whole thing, and we don't know where to go for help."
Su says the shareholders are starting to wonder how far they can fight before they run out of resources.
"The company knows if they keep pushing and pushing, we'll be forced to give up," Knight said. "My hope in telling our story is that other landowners will pay attention and realize this could happen to them, too. All I can say to them is get ready for battle."
"I've written to President Trump to share our story, and I hope someone will listen and help," Knight said. "We just don't know what to do. If we lose this battle, this entire agricultural community will be destroyed."
"The whole state will be impacted by what the court decides here in Pueblo County," Morgan said. "This is a unique case and the first of its kind. Two Rivers picked a small ditch company clear out of the way of anyone, and they are going to put us all out of business. We have hundreds of years of proof that we are managing the water properly, but I'm afraid we don't have the resources to keep up the fight."
At press time, representatives of Two Rivers or GrowCo were unable to be reached.