April 19, 2011 – Charles F. Headen v. John Dantonio, Jr., P.C., State Engineer and the Office of the State Engineer of New Mexico, No. 28,695

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number:

Filing Date: April 19, 2011

NO. 28,695

CHARLES F. HEADEN,
Petitioner Appellant,
V.

JOHND ANTONIO, JR., P.C.,
STATE ENGINEER and THE
OFFICE OF THE STATE
ENGINEER OF NEW MEXICO,

Respondents-A ppellees.

APPEAL FROM THE DISTRICT COURT OF SOCORRO COUNTY
Matthew G. Reynolds, District Judge

Fitch & Tausch, LLC
Thomas G. Fitch
Socorro, NM

Jones & Smith, LLC
J. Bnan Smith
Albuquerque, NM

for Appellant

New Mexico Office of the State Engineer
DL Sanders, Chief Counsel
Jonathan E. Sperber, Special Assistant Attorney General
Santa Fe, NM
for Appellees

OPINION
KENNEDY, Judge.
{1} 	Appellant Charles Headen (Headen) filed an application with Appellees Office
of the State Engineer and State Engineer John D’Antonio (collectively OSE) to
change the point of diversion and place and purpose of use of water rights he claims
to possess in Socorro County, New Mexico. 	Prior to the administrative hearing,
Headen filed a declaratory judgment action in district court to establish the validity
of his water rights, and the court dismissed his claim. Citing Smith v. City of Santa
Fe, 2007-NMSC-055, ¶ 10, 142 N.M. 786, 171 P.3d 300, the court concluded that
Headen failed to exhaust his administrative remedies and that an action for declaratory
judgment was premature. 	We hold that Lion’s Gate Water v. D’Antonio, 2009-
NMSC-057, 147 N.M. 523, 226 P.3d 622, together with Smith, require us to affirm the
district court.
BACKGROUND
{2} 	Headen owns two tracts of land in Socorro County and claims to possess
corresponding appurtenant water rights in the amount of 82.83 acre feet. On February
7, 2006, he filed with OSE an “[a]pplication to change the point of diversion and place
and purpose of use” of his water rights. OSE denied Headen’s application in a letter
dated October 13, 2006, which informed Headen he possessed no valid water rights

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to transfer. OSE stated that Headen was free to appeal the determination within thirty
days to an administrative hearing officer, which he did.
{3} 	Headen requested an administrative hearing. Prior to the administrative hearing,
Headen filed a petition in district court seeking a declaratory judgment to establish
“the existence and validity” of his water rights. 	He also filed a motion to stay the
administrative proceedings before OSE. The court held a hearing on the motion and,
on December 21, 2006, the parties stipulated that administrative proceedings should
be stayed pending the outcome of the declaratory judgment action. That stipulation
provides, “[OSE] shall take no further action in the foregoing administrative
proceeding until the [p]etition herein filed has been heard and determined by the
[c]ourt.” Throughout the proceedings in the district court, Headen argued the validity
of his water rights and provided a variety of factual evidence to support his claim.
{4} 	OSE filed a motion to dismiss Headen’s declaratory judgment action on the
basis that he failed to exhaust his administrative remedies pursuant to NMSA 1978,
Section 72-2-16 (1973). The district court initially denied OSE’s motion to dismiss.
OSE asked for reconsideration of the court’s order based on its belief that the court
ruled the Declaratory Judgment Act does not prohibit a court from hearing a claim
“simply because a petitioner who initially chose to follow an administrative process
later decides to proceed in district court.” 	The district court changed its position.
Citing Smith, the court dismissed Headen’s declaratory judgment claim and allowed

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him to “proceed with his appeal before [OSE].” Under Smith, the court noted that
when a party invokes an administrative remedy before an agency, the party must
“follow that path all the way through.” Only then may the party appeal to the district
court.
{5} 	Headen contends that the district court improperly dismissed his declaratory
judgment claim for the following reasons: 	first, because under the Declaratory
Judgment Act, NMSA 1978, §§ 44-6-1 to -15 (1975), the court possessed jurisdiction
to determine the validity of his water rights; second, because under Smith, he was not
required to exhaust his administrative remedies; and third, because OSE waived the
exhaustion requirement when it stipulated to a stay of administrative proceedings. We
consider each contention in turn.
DISCUSSION
A. 	Standard of Review
{6} 	The district court is “vested with broad discretion to grant or refuse claims for
declaratory relief.” State ex rel. Stratton v. Roswell Indep. Schs., 111 N.M. 495, 508,
806 P.2d 1085, 1098 (Ct. App. 1991) (internal quotation marks and citation omitted).
We analyze a district court’s dismissal of a declaratory judgment action for abuse of
discretion. “An abuse of discretion occurs when the district court’s ruling is clearly
against logic and effect of the facts and circumstances” before it. Id. “We cannot say
the trial court abused its discretion by its ruling unless we can characterize it as clearly

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untenable or not justified by reason.” State v. Rojo, 1999-NMSC-001, ¶ 41, 126 N.M.
438, 971 P.2d 829 (internal quotation marks and citation omitted).
B. 	Lion’s Gate
{7} 	Lion’s Gate was decided after the briefs in the present appeal were filed. It is
directly applicable to the administrative proceeding issues in the present case. Lion’s
Gate involved a state engineer’s threshold determination as to water availability and
indicated that a state engineer can “efficiently dispose of applications without a
hearing whenever he or she determines [as a threshold matter] that water is
unavailable to appropriate.” Id. ¶ 25. It held that a state engineer is required to reject
an application without reaching the merits of the application if there is a “pre-hearing
. . . determination that water is unavailable to appropriate.” 	Id. ¶¶ 26-27. 	The
“‘aggrieved’ applicant may request a post-decision hearing” on the issue of whether
water is unavailable to appropriate. 	Id. ¶ 25. 	The State Engineer must hold the
hearing if requested by the aggrieved party, since Lion’s Gate indicates that no appeal
can be made to the district court “until the [S]tate [E]ngineer has held a hearing and
entered his decision in the hearing. Id. (internal quotation marks and citation omitted).
Lion’s Gate refused “to equate a de novo review scope of appellate review with a
district court’s original jurisdiction” and, thereby, “create a short circuit in the
administrative process[.]” Id. ¶¶ 28, 30.

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{8} 	Lion’s Gate’s “approach conforms with [its] recent holding in Smith, [2007-
NMSC-055, ¶ 15] in which [the Supreme Court] cautioned against actions that would
foreclose any necessary fact-finding by the administrative entity, discourage reliance
on any special expertise that may exist at the administrative level, or disregard an
exclusive statutory scheme for the review of administrative decisions.” 	Id. ¶ 34
(alterations omitted) (internal quotation marks omitted).
{9} 	In regard to the necessity for an applicant to exhaust the administrative process,
we see no significant difference between the subject of the threshold issue of water
availability in Lion’s Gate and the issue of forfeiting a water right in the present case.
Applying Lion’s Gate, Headen had to proceed with an administrative hearing if he
wanted to pursue appellate review. He in fact requested the hearing, which makes the
requirement that he proceed with the appeal even more compelling, even though that
fact is not essential to our determination in this case. Thus, for Headen to overcome
the pre-hearing determination of forfeiture based on the Supreme Court’s holding in
Lion’s Gate, Headen had to continue with the administrative process and then force
the State Engineer in a statutory de novo hearing in the district court to prove the
forfeiture and persuade the court to extinguish the water right.
{10} 	We reject Headen’s contention that either the State Engineer must immediately
go into court to extinguish the water right based on forfeiture after the pre-hearing
determination, or Headen had the right to seek relief in a declaratory judgment action.

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As to the first alternative, Headen is mistaken. The State Engineer was not required
to seek court relief extinguishing the water rights before an administrative hearing
occurred and Headen thereafter sought judicial relief. As to the second alternative,
although Lion’s Gate controls our determination in this case, Smith, which involves
a declaratory judgment action, provides added support for our determination.
C. 	Smith
{11} 	The conflict between declaratory judgment actions and administrative remedies
was analyzed in Smith. 	Smith is a municipal water code case and not a water code
case. It involves Rule 1-075, not a water code statutory or Article XVI, Section 5
appeal, and it involves a procedural history different than that in the present case with
different facts and issues than those in the present case. Nevertheless, it is instructive
in determining when a party may pursue a declaratory judgment instead of first
exhausting remedies before an administrative body.
{12} 	In Smith, two separate plaintiffs, the Smiths and the Stillmans, challenged the
City of Santa Fe’s authority to deny permits under a city ordinance concerning the
drilling of private water wells within city limits. 	2007-NMSC-055, ¶¶ 1,5. 	The
Smiths’ permit application was denied because their proposed well did not conform
to the ordinance’s requirements. Id. ¶ 4. They appealed in accordance with the city’s
established administrative process, to the city manager, the public utilities committee,
and finally the city council without success. 	Id. Under the administrative appeals

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process, the Smiths would next have appealed for judicial review pursuant to Rule 1-
075 NMRA (governing district court review of administrative decisions), but they
chose instead to file a declaratory judgment action almost four months later in which
they argued that the city was without authority to deny their permit. 	Smith, 2007-
NMSC-055, ¶ ¶ 5, 11. 	The Stillmans never applied for a permit, fearing their
application would be denied if they did so, but joined the declaratory judgment action.
Id. ¶ 4. The district court concluded it had jurisdiction to hear the matter, that neither
plaintiff was required to exhaust administrative remedies, and that the city was
without authority to prohibit the drilling of wells within the city’s limits. Id. ¶ 5. This
Court reversed on other grounds and refused to consider the jurisdictional question.
Id. ¶ 6.
{13} 	Our Supreme Court took up the jurisdictional question and held that the Smiths,
having sought administrative review, were required to exhaust administrative
remedies and to comply with applicable time frames prior to proceeding to the district
court, while the Stillmans remained free to pursue a declaratory judgment action. Id.
¶¶ 17, 23-25, 27. In reaching that conclusion, the Court compared the Declaratory
Judgment Act with the doctrine of exhaustion of remedies. 	Id. ¶ 26. As the Court
observed, the New Mexico Constitution empowers district courts with “original
jurisdiction in all matters and causes not excepted in [the] Constitution, . . . such
jurisdiction of special cases and proceedings as may be conferred by law, and

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appellate jurisdiction of all cases originating in inferior courts and tribunals in their
respective districts.” 	Id. ¶ 12 (alteration in original) (internal quotation marks and
citation omitted). 	As such, “[t]he Declaratory Judgment Act [is] intended to be
liberally construed and administered as a remedial measure.” Id. ¶ 13 (alteration in
original) (internal quotation marks and citation omitted). It “is a special proceeding
that grants the district courts the power to declare rights, status and other legal
relations whether or not further relief . . . could be claimed.” Id. (internal quotation
marks and citation omitted). It does not, however, increase district courts’ jurisdiction
“over subject matter and parties.” Id. In contrast, under the doctrine of exhaustion of
remedies, “where relief is available from an administrative agency, the plaintiff is
ordinarily required to pursue that avenue of redress before proceeding to the courts;
and until that recourse is exhausted, suit is premature and must be dismissed.” Id. ¶
26 (alteration omitted) (internal quotation marks and citation omitted). The doctrine
rests upon the principle that “the interests of justice are best served by permitting the
agency to resolve factual issues within its peculiar expertise” prior to allowing the
party to proceed to the courts. Id. (internal quotation marks and citation omitted). As
the Court observed,
the exhaustion doctrine applies where an administrative agency alone has
authority to pass on every question raised by the one resorting to judicial
relief, but does not apply in relation to a question which, even if properly
determinable by an administrative tribunal, involves a question of law,
rather than one of fact.

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Id. ¶ 27 (internal quotation marks and citation omitted).
{14} 	In Smith, the Court held that “a declaratory judgment action [may] provide an
alternative means of challenging an administrative entity’s authority,” as long as such
action is not used to “circumvent established procedures for seeking judicial review
of a municipality’s administrative decisions.” 2007-NMSC-055, ¶¶ 1, 11-15. In this
context, declaratory judgment actions “should be limited to purely legal issues that do
not require fact-finding by the administrative entity.” 	Id. ¶ 16. Furthermore, even
when a case involves a purely legal question, if the party has invoked the
administrative process, he must “comply with the applicable time frames that would
otherwise govern judicial review of the administrative decision . . . . 	To hold
otherwise would invite chaos and preclude certainty in the finality of administrative
decisions that might otherwise be subject to multiple avenues of judicial review at
unpredictable times.” Id. ¶ 23; see Baca, 2008-NMSC-047, ¶ 22. The Supreme Court
caution[ed] against using a declaratory judgment action to challenge or
review administrative actions if such an approach would foreclose any
necessary fact-finding by the administrative entity, discourage reliance
on any special expertise that may exist at the administrative level,
disregard an exclusive statutory scheme for the review of administrative
decisions, or circumvent procedural or substantive limitations that would
otherwise limit review through means other than a declaratory judgment
action.
Smith, 2007-NMSC-055, ¶ 15; see also State of N.M. ex rel. Hanosh v. N.M. Envtl.
Improvement Bd., 2008-NMCA-156, ¶ 6, 145 N.M. 269, 196 P.3d 970 (stating that a

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party may not seek a declaratory judgment when additional fact-finding or agency
expertise is necessary). Thus, despite the fact that both the Smiths and the Stillmans
presented identical and purely legal questions, the Smiths were required to comply
with the administrative process they started, while the Stillmans remained free to seek
a declaratory judgment. 	Smith, 2007-NMSC-055, ¶¶ 17, 23-25, 27. 	In Smith, the
question of law was limited to whether the agency “had [the] right to even make a
decision.” 	Id. ¶ 17; see Baca, 2008-NMSC-047, ¶ 21 (stating that the validity of a
contract presents a purely legal question); Stennis v. City of Santa Fe, 2008-NMSC-
008, ¶ 14, 143 N.M. 320, 176 P.3d 309 (holding that whether a city has the authority
to enact a particular statutory scheme is a purely legal question). 	In declaratory
judgment actions, arguments that an agency made the wrong decision are improper.
Cf. Smith, 2007-NMSC-055, ¶ 17 (recognizing that the plaintiffs “[did] not argue that
the [c]ity made the wrong decision; they argue[d] that the [c]ity had no right to even
make a decision” and noting that “such a challenge is precisely the type of question
appropriately considered by a declaratory judgment action”).
{15} 	In sum, Lion’s Gate with Smith require a determination that the State Engineer
had authority to make the forfeiture determination and Headen was required to
proceed through the administrative process, including the statutory de novo appeal
procedure, to pursue relief from that forfeiture determination. We reject Headen’s

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arguments to the contrary. We are unpersuaded by Headen’s attempt to construct a
viable argument under Smith to allow his declaratory judgment action to proceed.
D. 	Effect of OSE’s Stipulation to Stay Administrative Proceedings
{16} 	Even presuming he was prohibited from seeking a declaratory judgment under
Smith, Headen argues that OSE waived the exhaustion requirement when it stipulated
to stay administrative proceedings pending the outcome of his claim in district court.
We disagree. Each of the authorities Headen cites is readily distinguishable from the
facts in this case, and the most reasonable interpretation of the stipulation’s plain
language demonstrates OSE’s intent to retain jurisdiction after a determination of the
declaratory judgment action.
{17} 	In Mathews v. Eldridge, 424 U.S. 319, 328 (1976), the Supreme Court
determined the availability of judicial review under a specific statutory scheme
requiring the exhaustion of remedies. 	In holding that the agency had waived the
exhaustion requirement, the Court relied on the agency’s statement that “no further
review [was] warranted.” Id. at 330. Similarly, in Mathews v. Diaz, 426 U.S. 67, 76
(1976), the Supreme Court concluded that the agency waived the exhaustion
requirement when it stipulated that no remaining facts were in dispute and that the
matter was “ripe for disposition by summary judgment.” Likewise, in Ahghazali v.
Sec’y of Health & Human Servs., 867 F.2d 921, 923 (6th Cir. 1989), the agency
stipulated that administrative proceedings were complete. 	In the instant case,

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however, the district court was not considering a specific statutory scheme requiring
the exhaustion of remedies, nor did OSE stipulate that administrative proceedings
were completed or unnecessary.
{18} 	The stipulated order provides, “the following administrative proceeding, which
is presently pending before [OSE], is hereby stayed . . . . [OSE] shall take no further
action in the foregoing administrative proceeding until the [p]etition herein filed has
been heard and determined by the [c]ourt.” This language does not preclude OSE’s
successful motion to dismiss the declaratory judgment, nor does it dismiss the matter
before the agency. It merely stays it pending resolution of the declaratory judgment
action, which was dismissed. We will not concern ourselves with what might have
happened had the district court declared Headen’s water rights to be valid, and we
therefore hold that the stipulated order did not constitute a waiver of exhaustion of
remedies. The district court dismissed Headen’s claim, and the matter now properly
returns to the agency for adjudication.
CONCLUSION
{19} 	For the foregoing reasons, we affirm the order of the district court dismissing
Headen’s declaratory judgment claim for failure to exhaust administrative remedies.
{20} 	IT IS SO ORDERED.
_______________________________

WE CONCUR:

JONATHANB. SUTIN, Judge

TIMOTHY L. GARCIA, Judge

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RODERICK T. KENNEDY, J udge