A-1-CA-37258 | Omnilex

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Court of Appeals of New Mexico
Filed 9/17/2021 1:59 PM

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Corrections to this opinion/decision not affecting the outcome, at the Court's discretion, can occur up to the time of publication
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in Odyssey.

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number:

Filing Date: September 17, 2021

No. A-1-CA-37258

STATE OF NEW MEXICO ex rel.
OFFICE OF THE STATE ENGINEER,

Plaintiff-Appellee,
v.

ELEPHANT BUTTE IRRIGATION
DISTRICT et al.,

Defendants,

and

CHARLES P. BARRETT; MELODY K.
SEARS; R. WM. and NOLAN WINKLER;
ROBIN TUTTLE; ROBERT SHIPLEY;

JIM GOTON; JOHN and AGNES
MCGARVIE; JOHN and CINDY CORNELL;
STANLEY and JOYCE BRODSKY; ARLENE
LYNCH; TURNER RANCH PROPERTIES,
LP; and HILLSBORO MUTUAL DOMESTIC
WATER CONSUMERS ASSOCIATION,

Defendants-Appellees/Cross-Appellants,

and

Court of Appeals of New Mexico
Filed 9/17/2021 1:59 PM

ME. |
Mark Reynolds

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HARRIS GRAY, WILLIAM FROST, and

2| NEW MEXICO COPPER CORPORATION,

Defendants-Appellants/Cross-Appellees.

APPEAL FROM THE DISTRICT COURT OF DONA ANA COUNTY
James J. Wechsler, Presiding Judge

Gregory C. Ridgley, Acting General Counsel
Richard A. Allen, Special Assistant Attorney General
Santa Fe, NM

for Appellee State of New Mexico ex rel. Office of the State Engineer

Davidson Law Firm, LLC
Tessa T. Davidson
Corrales, NM

for Appellee Turner Ranch Properties, L.P.

New Mexico Environmental Law Center
Jonathan M. Block

Eric D. Jantz

Douglas Meiklejohn

Jaimie Park

Charles de Saillan

Santa Fe, NM

Martin, Dugan & Martin
Kenneth D. Dugan
Carlsbad, NM

for Appellee Hillsboro Mutual Domestic Water Consumers Association
Law & Resource Planning Associates, A Professional Corporation
Charles T. DuMars

Tanya L. Scott

Albuquerque, NM

for Appellants

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TAN

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L. Michael Messina PA
L. Michael Messina
Buena Vista, NM

for Amicus Curiae GCM, Inc.

Gallagher & Kennedy, P.A.

Dalva L. Moellenberg

Santa Fe, NM

for Amicus Curiae New Mexico Mining Association
Espinosa & Associates, P.C.

Richard D. Barish

Albuquerque, NM

for Amicus Curiae The Sierra Club

Barncastle Law Firm, LLC

Samantha R. Barncastle

Las Cruces, NM

for Amicus Curiae Elephant Butte Irrigation District
Somach Simmons & Dunn, PC

Sarah A. Klahn

Denver, CO

for Amicus Curiae State of Texas

Navajo Nation Department of Justice

Daniel G. Moquin, Principal Attorney

Window Rock, Navajo Nation, AZ

for Amicus Curiae Navajo Nation

OPINION

BUSTAMANTE, Judge Pro Tempore.

3 Weare presented with thorny issues involving the doctrine of relation and the
concept of abandonment in our water jurisprudence. As a matter of first impression
in New Mexico, we address how the doctrine of relation and its “diligence”
requirement should be applied to large, complex projects—in this case an off-and-
on, fifty-plus year effort to develop a copper mine. We also examine whether the
adjudication court appropriately considered economic, financial, logistical, and legal
challenges as factors when it analyzed whether vested water rights had been
abandoned.

93 Harris Gray, William Frost, and New Mexico Copper Corporation (NMCC)
(collectively, Appellants) ask us to overturn the adjudication court’s refusal to
recognize their so-called Mendenhall rights in water declared but as yet not put to
beneficial use. Appellants also argue that the adjudication court’s conclusion that
they abandoned their rights in some of the wells must be reversed. The Cross-
Appellants ask us to reverse the adjudication court’s refusal to conclude that
Appellants abandoned all of their vested rights through non-use. We affirm in part

and reverse in part.

1. Procedural Posture and Parties

3} This case arose as an inter se proceeding within the Lower Rio Grande general
stream adjudication the State initiated in 1996. Rule 1-071.2(B) NMRA describes a
proceeding known as an “expedited inter se” that allows a final determination of
water rights to be made prior to the general inter se phase of the general adjudication.
In January 2014, Turner Ranch Properties, L.P. (Turner)—owner of the neighboring
Ladder Ranch—and a number of members of the nearby community of Hillsboro,
New Mexico, and Hillsboro Mutual Domestic Water Consumers Association
(collectively, Hillsboro cadre) asked the adjudication court to establish an expedited
inter se proceeding to address the water rights claimed by Appellants at the Copper
Flat Mine (the Mine). Appellants initially resisted the request, but later agreed and
stipulated to entry of an order establishing an expedited inter se proceeding.

(4, After the expedited inter se proceeding was established, Appellants filed their
statement of claims asserting that their predecessors in interest had placed 1,019
acre-feet of water to beneficial use before the Mine became operational and an
additional 1,267 acre-feet of water during the time the Mine was in operation. They
thus requested entry of an order recognizing a vested interest in 2,286 acre-feet with
priority dates starting in 1975. And, alleging that New Mexico Copper intended to
recommence operations at the Mine as soon as all permit and regulatory

requirements were met, Appellants also asked the adjudication court to declare that

they were entitled to “a reasonable amount of time to develop an additional 5,195
acre-feet of water rights” in accordance with the mining plan created by their
predecessors in interest.

{5} The matter was tried over a ten-day period, split between sessions in March
and June 2016. Participating at trial were the Appellee State Engineer, Appellants
(individually, “Frost & Gray” and “New Mexico Copper”), Turner, and the Hillsboro
cadre. The trial focused on two primary issues: (1) the amount put to beneficial use
before the Mine shut down, and (2) whether Appellants and their predecessors
exercised reasonable diligence in following the plan to extract copper from the Mine
and put water to beneficial use. The parties submitted requested findings of fact and
conclusions of law in January 2017. In December 2017, the adjudication court filed
detailed annotated findings of fact and conclusions of law. The adjudication court
entered its subfile order and judgment as a final judgment on February 28, 2018,
recognizing a vested right in Frost & Gray to use 861.84 acre-feet per year of water
for mining-related purposes and 3 acre-feet per year for livestock purposes
representing water put to use while the Mine was operational. The adjudication court
denied all other relief to Frost & Gray. The adjudication court granted New Mexico
Copper 34.45 acre-feet per year from the so-called open-pit for dust control. The

parties timely appealed and cross-appealed. The State did not join in the cross-

appeal.

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II. Factual Background

{6} The adjudication court’s unchallenged findings of fact, together with the
exhibits and testimony adduced at trial, paint an interesting history of the Mine and
the efforts made over a fifty-odd-year-period to pull copper from the Copper Flat ore
body near Hillsboro, New Mexico. We will retell the tale in some detail in order to
provide context for the parties’ arguments and for our ruling. Given that we are
applying State ex rel. Reynolds v. Mendenhall, 1961-NMSC-083, 68 N.M. 467, 362
P.2d 998—and the doctrine of relation generally—to a new factual scenario, a full
explication is called for.

(7; Copper Flat was used primarily for placer mining from the late 1800’s to the
1960s. Late in the 1950’s and early 1960’s, a few exploratory geologic cores were
drilled as a first step in determining whether commercial mining was feasible. The
record does not reveal who initiated these early efforts, but they apparently resulted
in a report “that identified the potential of thirty million tons of copper-bearing
rock.” According to Turner’s expert James Kuipers, the 1964 report did not indicate
that any water had been developed as of that date and that no mine development plan
was in place. In fact, the 1964 report suggested that the only possible method of
mining the “very low-grade [ore] deposits . . . is large-scale leaching in place.” There

is no indication in the record that any such plan was ever created or followed; nor is

there any indication that any other exploration occurred on the property until the
1970s.

§8} Inspiration Development acquired Copper Flat in 1967 and began further
exploration, including drilling twenty-eight to thirty more holes by 1973. The results
of the additional drilling warranted a preliminary feasibility study and the beginnings
of a plan for an open pit mine. In mid-1974, Quintana Minerals Corporation
(Quintana) leased the Copper Flat property from Inspiration and began its own, more
extensive exploration program involving approximately 146 diamond drill holes.
The results were promising enough that Quintana expanded the project to 12,000
acres and contracts were let for engineering and construction. In addition, Quintana
drilled and tested three production wells designed to provide water sufficient to
supply the design capacity of the mill. But all activity was halted in late 1976 due to
depressed prices for copper.

(93 Quintana resumed work at Copper Flat in 1979 as copper prices improved.
Quintana reevaluated the project in light of changed economic conditions, including
a new engineering study. In September 1979, Quintana and Phibro, Inc., signed a
letter of intent to form a partnership (Copper Flat Partnership or CFP) to develop the
mining operation at Copper Flat with Quintana acting as operator and managing
agent of the Mine. CFP executed a new lease of CFP with Inspiration consisting of

three patented mining claims, 294 unpatented mining claims, and 160 unpatented

mill sites. CFP obtained financing in the amount of $75 million from Canadian
Imperial Bank of Commerce (the Bank) based in Toronto. The loan was secured by
a deed of trust that conveyed title to the entire project to the trustee. In the event of
a default, the deed of trust was to be conveyed to the Bank.

10; Construction activities began in July 1980, including, (1) construction of a
7-mile, 20-inch pipeline from the production well field to the mill site; (2) drilling
of an additional production well; (3) installation of water storage tanks; (4)
installation of temporary, and then permanent, power. The mill construction was
complete by the end of 1981, and by early 1982, the facility was operational.

ai} The mill started processing ore in March 1982. Ore processing basically met
the designed and desired parameter of 15,000 tons per day throughput. The Mine
stopped processing ore at the end of June 1982, as a result of a drop in copper prices.
When CFP started construction the global copper price was $0.953 per pound. CFP
calculated that the Mine would break even at $0.90 per pound. On June 30, 1982,
the price of copper was $0.642 per pound. The Mine was never put into operation
again.

123} The adjudication court found that as of June 1982, CFP “hoped and expected
that the mine would reopen if (1) an investor could be identified that would fund a
potential resumption of operations[;] and (2) the global price of copper would

increase such that a resumption of operations was feasible.” Between July 1982 and

the end of 1983, CFP hosted three or four potential investors or buyers at the Mine
site. These efforts were not successful. By March 1984 CFP had defaulted on its loan
with the Bank.

13} On September 17, 1982, the State Engineer declared the Lower Rio Grande
Underground Water Basin (the LRG basin). In response to the declaration of the
LRG basin, and on advice of counsel, by the end of 1982 CFP began gathering the
information necessary to file a declaration of underground water rights for each of
the eighteen wells and the open pit located on the Mine grounds. CFP filed its
original declarations on February 17, 1984, in the total amount of 6,462 acre-feet per
year, representing water it had actually used and water it intended to use.

4} By March 1984, CFP had defaulted on its loan obligations to the Bank. At the
same time, Quintana relinquished its management responsibilities for the Mine

effective April 1, 1984. As a result of the default, the Bank began exerting more

control over the Mine leading to the “eventual closure and liquidation of Copper
Flat.”
as} As early as December 1983, CFP and the Bank were “aware of its legal

counsel’s belief that the water rights, if perfected, could possibly be worth millions
of dollars.” In the spring of 1984, CFP and the Bank were already exploring the
possibility of transferring the water rights—vested and inchoate—to a new location

for use by a new owner. As time progressed, prospects for resuming operations at

the Mine dimmed. In the spring of 1985, CFP and the Bank began considering
options for shutting the Mine entirely, aware that the potential water rights “could
be the most valuable of the assets if they can be severed from the property.” In April
1985, the Bank asked for a legal opinion concerning the practical and legal
considerations it faced if it decided to pursue a sale of the water rights connected to
the Mine. Counsel’s bird’s eye view of the legal problems likely to arise feature
many of the issues being argued before us.

416} In February 1986, CFP filed an application for a permit to change location of
wells and place and purpose of use of underground waters. In the application CFP
asserted that it had entered into “an agreement with the State of New Mexico Office
of the Commissioner of Public Lands” to transfer 6,462 acre-feet per year to wells
located in the general vicinity of Las Cruces for a variety of uses, including utilities,
recreational, aesthetic, industrial, manufacturing, residential—and other—uses. The
area indicated was some sixty miles south of the Mine. In support of its application,
CFP asserted that the water rights could not be economically used at the Mine
currently or in the near future. The application drew protests from a number of other
users and was eventually withdrawn by Gray after CFP and the Bank sold the water
rights to him in 1987.

a7; At the same time that CFP and the Bank were exploring options for sale or

transfer of the water rights, they began considering options for disposal of the Mine’s

physical assets and the type of reclamation programs that might be required by the
Bureau of Land Management (BLM). In April 1985, Milton W. Hood, a mining
consultant advising CFP and the Bank, suggested two options for reclamation: (1)
total stripping and sale of the assets and return of the leases to Inspiration; or (2) sale
of the buildings and equipment, capping the wells and leaving water lines, tanks,
foundations, and tunnels in place for “ ‘possible’ future rebuilding.” In May 1985,
following a site visit by BLM personnel, Hood expanded on the two options,
describing the prior “total stripping” option as “complete abandonmentt,]” and
noting that this option would require compliance with the BLM standards. He
suggested preparing budget estimates for both options for presentation to the Bank.
The budget estimates received were starkly different, with “Proposal A-total
stripping” costing $50,000 and “Proposal B-complete abandonment” costing
$548,832. The work eventually done comports with Proposal B.

as; As of April 1986, the Bank had sold all removable physical assets of the Mine
to a company headquartered in Papua, New Guinea. The Bank retained all “land
holdings, permits, rights-of-way, roads, and water rights.” In accordance with the
agreement, the buyer removed all buildings and equipment at the Mine down to the
concrete foundations by December 31, 1986.

{19} In January 1986, the Bank informed Inspiration of its plans to remove all

structures from the Mine and perform reclamation as required by the “governing

agencies involved.” The Bank offered to leave the office/lab building on the site for
Inspiration’s use, but Inspiration declined. CFP and the Bank cancelled its lease
interests in the Mine property effective December 31, 1986, and the property—
including mining permits—reverted to Inspiration. The four production and six
monitoring wells drilled by Quintana did not revert because they were located on
land acquired entirely by Quintana.

20} In late 1986, CFP and the Bank considered an offer to salvage the Mine’s
water pipeline, subject to BLM approval of the sale. BLM did not approve the sale
on the grounds that digging up the line would cause “undue and unnecessary
degradation” of the BLM lands within the Mine property. “It is typical industry
practice to leave underground pipelines and electrical power lines in place as part of
the reclamation process . . . [because] removal would only serve to further disturb
the area.” By February 5, 1987, reclamation efforts on BLM land were complete
and, in a letter to the State of New Mexico Environmental Improvement Division,
CFP and the Bank “restated that the Copper Flat Property is []permanently [c]losed
and will not be restarted.”

a1; It is a common practice in the copper mining industry to cease operations
when copper prices drop sufficiently to make operations economically not feasible.
The degree to which operations cease varies, ranging from a temporary cessation

that leaves a mine’s infrastructure in place, maintained and ready to resume— |

colloquially termed “mothballing”—to permanent abandonment of a mine with no

intent to resume. The adjudication court found that the Mine was not “mothballed.”

Rather, it found that the Mine was closed and operations terminated. It also found

that CFP abandoned its operations at the Mine and thus “abandoned its plans to

develop a mine at Copper Flat.” And, finally, it found as a fact that “[u]pon
liquidation of the [Ml]ine’s assets, CFP and [the Bank] did not intend for the water
rights to be used exclusively for mining.”

23 As of February 1987, CFP and the Bank had completed liquidating the Mine’s

physical assets and had given up their lease covering the mining claims and permits

but had not been able to locate a buyer for their claimed water rights. Sometime in
1985 or 1986, Frost became aware that the Mine’s assets were being liquidated. Frost
was then a real estate agent who had been involved in the transfer of water rights in
his practice and thus had developed an understanding of the value of water rights in
New Mexico. Frost suggested to his friend Gray that Gray consider buying the

Mine’s water rights as an investment. Gray, at that time was a practicing certified
public accountant in Silver City, New Mexico. Gray’s clients included farmers and
ranchers, who owned water rights and, as such, Gray was also familiar with the

monetary value of the owner’s water rights. Frost informed Gray that the amount of
water available was significant, and there was a possibility they could be purchased

for $20,000. Reasoning that Gray might be able to lease the rights to other copper

mining operations at Copper Flat, Gray decided to pursue the purchase and asked
Frost to make inquiries. At some point Frost and Gray became partners in the venture
to buy the water rights.

93; Frost made a verbal offer to purchase and received a verbal acceptance. On
March 26, 1987, Gray sent a letter to CFP and the Bank offering to “purchase all the
water right assets of [CFP] for $20,000.” The offer was accepted and, Gray received
a quitclaim deed and a bill of sale from CFP. The quitclaim deed and bill of sale
transferred “title, and interest, if any, in and to inchoate and beneficially used water
rights of approximately 6,462 acre-feet” associated with the four production wells
and six monitoring wells Quintana had drilled. Even though the deed and bill of sale
were not executed by CFP until April 7, 1987, Gray executed a change of ownership
of water right document—through his attorney at the time, Clifford K. Atkinson—
on March 31, 1987. The form was filed with the State Engineer on April 2, 1987.
Upon being put on notice, that the same water rights were subject to CFP’s 1986
transfer application, Gray requested that the State Engineer withdraw that
application. |

24; “Frost & Gray bought the water rights for investment purposes. Neither [of
them had] ever worked in the mining industry in any capacity.” Frost & Gray did
essentially nothing to market or find potential mining company lessees for the water

rights for almost two years. At some point, concerned that they could lose the water

rights for nonuse, Frost & Gray approached Gerald Lyda, the then-owner of the
Ladder Ranch about his interest in the water. As part of those discussions, Gray filed
an application to change point of diversion and place and/or purpose of use from
ground water to surface water in September 1988. The application asked that 6,462
acre-feet of water be transferred to the Ladder Ranch for recreation and irrigation
purposes. It listed a new point of diversion as Seco Creek behind an earthen dam.
The application also noted that Gray intended to plug the wells following the
transfer. Frost & Gray executed an agreement describing their arrangement with
Lyda in February 1989. While Frost & Gray hoped that filing of the transfer
application might attract the attention of mining interests, they fully intended to
follow through on their obligations under the agreement with Lyda.

253} The application to transfer the water rights drew an immediate protest from a
company called Hydro Resources Corporation (Hydro Resources) that—apparently
unbeknownst to Frost & Gray—had in 1987, purchased an option from Inspiration
to buy the mining claims at Copper Flat. In July 1989, Frost & Gray filed an
objection to Hydro Resources’ protest asserting that Hydro Resources had no
standing to protest because it had made no showing that it owned or claimed a
“relevant” water right. On July 25, 1989—following some internal corporate
machinations not relevant to this case—another entity called Cobb Resources

entered into an agreement to sell the Copper Flat mining claims to a company called

Copper Flat Mining Company, Ltd. (CFMC). The agreement was finalized using a
special warranty deed executed November 16, 1989,

6} On January 5, 1990, CFMC filed an application for change of ownership of
water right to it from CFP—the entity that had created, operated, and then abandoned
the Mine earlier. This action set up a conflict with Gray’s application for change of
ownership filed in April 1987. The conflict never came to a head. In April 1990,
CFMC sold the mining claims to Gold Express Corporation (Gold Express). In
January 1991, Gold Express entered into an agreement with Frost & Gray to lease
the water rights in exchange for shares of stock and annual cash payments.

27; Gold Express prepared and submitted a plan of operation for the property to
the BLM proposing to “rebuild the entire Copper Flat mining facility as it existed in
1986.” Interestingly, its plan for reclamation “at end of mine life” was to return the
area to “today’s 1991 condition.” Despite its plan, Gold Express apparently did not
do anything on the property and “did not put [any] water to beneficial use at Copper
Flat.”

gs} Alta Gold Corporation acquired an option to purchase Copper Flat from Gold
Express in the fall of 1993. It exercised the option in mid-1994. In May 1994, Frost
& Gray entered into an agreement with Alta Gold stipulating that Alta Gold would

succeed to Gold Express’s rights and obligations under their 1991 contract with Gold

Express. “From 1991 to 1999, Gold Express and Alta Gold paid Frost & Gray a total
of $400,000 for [their] consent to use the water rights.”

a9; Alta Gold’s plan of operation at Copper Flat was very similar to CFP’s,
including recovery and reuse of the salvageable infrastructure left after CFP and the
Bank abandoned the Mine. Alta Gold made efforts to purchase a mill and to lease
trucks in order to begin operations. However, Alta Gold was never able to begin
construction or other activity on the ground. As it waited for issuance of a final
Environmental Impact Statement (EIS)—a federal regulatory prerequisite to any
operations on the ground—Alta Gold in 1999 filed for bankruptcy. Alta Gold did
not put water to beneficial use at Copper Flat.

30} In January 2001, Hydro Resources appeared on the scene again. This time it
filed suit seeking a declaratory judgment to quiet title to the water rights and claims
at issue in this case. See Hydro Res. Corp. v. Gray, 2007-NMSC-061, § 10, 143 N.M.
142, 173 P.3d 749. Hydro Resources alleged that the water rights were appurtenant
to the mining claims developed for Copper Flat. Jd. 11. The matter proceeded
through the courts for almost seven years until our Supreme Court issued its opinion
resolving the issue in favor of Frost & Gray. See id. ¥ 48.

1; After the case ended, Frost & Gray’s sole effort to find a mining company
willing to take on the project consisted of one letter to a company mentioned to Frost

by a friend. Nothing came of the effort. In July 2009, a new mining venture—New

Mexico Copper—agreed to an option and purchase agreement with Hydro Resources
and others to buy the real property and mining claims still extant at Copper Flat.
Eleven months later New Mexico Copper entered into an option and purchase
agreement to acquire Frost & Gray’s water rights. New Mexico Copper has been
more active on the ground than its predecessors. As of the time of the trial, for
example, it had uncovered the foundation.structures buried by CFP when it
abandoned the Mine. And, in February 2012, it filed an application for permit to
repair and/or deepen well for the four production wells and the six monitoring wells.
The request was approved by the State Engineer with the limitation that diversion
would be limited to 888.783 acre-feet per year—the amount of water used while the
Mine was in operation. To the extent New Mexico Copper attempted to have the
prebasin claim of 6,462 acre-feet per year approved, the State Engineer denied the
request “as ‘entirely inchoate’ and ‘at no time been put to beneficial use.’ ” As of
the time of trial, New Mexico Copper had not completed the regulatory requirements
needed to start operations and production. The adjudication court found that no
mining company has operated a copper mine at Copper Flat since July 1982, and
that no water from the production wells has been put to beneficial use for mining
since the acquisition of water rights by Frost & Gray.

323 Before we proceed to the legal analysis, it is worth emphasizing again the

uniqueness of the factual circumstance we are presented. We are asked to apply the

doctrine of relation to what is now a fifty-year-old copper mining effort involving a
series of parties in the role of owner, lender, developer, and miner. That long-time
span and shifting actors would present a difficult problem by itself. The difficulty is
compounded by the fact that when Frost & Gray purchased CFP’s water right, the
mining project did not in any real sense exist. CFP and the Bank had sold all of the
above-ground infrastructure. The site was reclaimed and bare of facilities and
equipment. In addition, CFP had returned the land lease and mining claims to
Inspiration, their owner. CFP had neither the intent nor the ability to return and start
mining again. And Inspiration had decided it had no interest in mining in the area.
Thus, Mendenhall rights claimed by Appellants arise from a scenario in which the
water claims, the Mine infrastructure, and the mining permits were legally and
physically separated from each other.

(333 The facts are new to New Mexico’s water jurisprudence. But New Mexico is
not an outlier in this regard. The parties have not cited any cases with a remotely
similar fact pattern and our independent research has not borne fruit either. As we
proceed, we are mindful of the old adage that hard facts can make for bad law. |
Ill. The Frost & Gray/NMCC Appeal

(343 As noted above, Frost & Gray and New Mexico Copper argue that the
adjudication court erred in not recognizing their Mendenhall rights and in

concluding that they had forfeited or abandoned all rights attached to the thirteen

miscellaneous wells on the site. The parties appear to disagree as to the standard of
review applicable to the Mendenhall issue. We thus address that issue first.

A. Standard of Review

35} Appellants do not challenge the adjudication court’s findings of fact.
Appellants acknowledge that they “are the facts upon which the case rests on appeal
and are binding on this [C]ourt.” Gallegos v. Kennedy, 1968-NMSC-170, { 6, 79
N.M. 590, 446 P.2d 642. Appellants assert that it is the legal effect of those facts that
is at issue and thus review should be de novo. The State Engineer asserts that we
should apply a substantial evidence standard of review and consider only whether
there is relevant legal evidence in the record supporting the adjudication court’s
findings. The State Engineer also faults the Appellants for failing to set out in their
arguments all of the evidence that bears on the contested issues in the appeal.

36; Appellants’ position is closer to the mark. See Jones v. Schoellkopf, 2005-
NMCA-124, § 8, 138 N.M. 477, 122 P.3d 844 (“When the facts are not in dispute,
but the parties disagree on the legal conclusion to be drawn from those facts, we
review the issues de novo.”). Having accepted the findings of fact entered by the
adjudication court, Appellants have conceded that there is sufficient evidence in the
record to support them. We will indulge all reasonable inferences to be drawn from
the evidence in favor of the adjudication court’s findings. See id. The question then

becomes whether the findings and the reasonable inferences drawn from them

support the adjudication court’s conclusions of law. In arguing their position,
Appellants cannot pick and choose which facts they think are most favorable to
them. They must accept the findings in their entirety and make their arguments in
light of all the findings. To the extent they may have failed to do so, as suggested by
the State, it is not fatal to Appellants’ efforts, however. Appellants’ argument that
the adjudication court failed to properly take some facts and factors into account and
over-emphasized others because it misunderstood, and thus, misapplied the doctrine
of relation presents a legal question.

B. The Doctrine of Relation

37; | Mendenhall has become emblematic of the doctrine in New Mexico, but the
doctrine has much deeper roots—intertwined with the roots of prior appropriation—
that should not be ignored or forgotten. The earliest recognition of prior
appropriation as a means of gaining rights in water—rather than the old common
law rule of riparian rights—is probably to be found in Irwin v. Phillips, 5 Cal. 140
(1855). Irwin involved a dispute between two miners operating on public lands over
access to and control of waters running in a stream. Jd. at 146-47. One miner had
previously diverted water from the stream and put it to use by way of a canal. Id.
The second miner later staked a claim on the banks of the stream and claimed control
of its water as a tenant on the land. Jd. The California court resolved the case by

recognizing and applying the firmly established custom among miners in the area

that the first person in time to divert and “appropriate” waters for use had the superior
claim. Id.

38} Immediately, the California courts were faced with the problem of how to
decide who was “first in time” as among competing claimants when water had not
been put to use by the party first on the scene before later claimants to the same
source were able to complete their appropriation by putting the water to use. The
issue was not present in Jrwin because the first miner had completed his
appropriation. In the first case addressing the issue—Kelly v. Natoma Water Co., 6
Cal. 105 (1856)—the defendant Natoma Water Co. erected canals in 1852 designed
to carry water to miners down the mountain. Natoma purchased a dam in September
1853 and erected another to capture the water and convey it some twenty miles away.
Id. at 105-06. One of the dams leaked water into an arroyo on the route to the miners.
Id. at 106. Natoma did nothing to fix the leak or recapture the waters. /d. The plaintiff
Kelly built a dam in October 1853, captured the leaked water and started selling to
other miners. Jd. In 1854 Natoma built a dam about one hundred yards above Kelly’s
dam cutting off Kelly’s supply. Jd. Kelly sued and the trial court found in favor of
Kelly. Id. The court affirmed holding that “[pJossession, or actual appropriation,
must be the test of priority in all claims to the use of water[.]” Jd. at 108. The court
decided that a mere plan to possess the leaked water was not sufficient because

appropriation is not complete until there is an actual diversion or use of water. Id.

20 '

But, citing Stark v. Barnes, 4 Cal. a (1853), the Kelly court indicated that if
Natoma had started to build the offending dam in good faith before Kelly completed
its appropriation, the old common law property doctrine of relation would have
applied and Natoma would have prevailed. 6 Cal. at 108.

39} The California Supreme Court next relied on the doctrine of relation—though
not by name—in Conger v. Weaver, 6 Cal. 548 (1856). In Conger, a canal company
providing water for gold mining built a flume across a saw-mill yard thereby
preventing the mill owner from getting his lumber to the mill. Jd. at 548-49. “The
mill was completed in July[] 1855.” Id. at 549. The flume was built in November
1855, though work on it, including surveying and staking, started in 1853. Id. A jury
found in favor of the flume owner, and the California Supreme Court affirmed. Id.
Noting that works of this kind require time to complete, the court held that the initial
work done was sufficient to require that the effort once completed should be
recognized, enforced, and protected as of the time it began. Jd. at 558. The court did
not analyze in any detail why the initial work was enough to give the flume owner a
superior right. But it did explain that it was appropriate to apply the doctrine of
relation to water claims in order to protect the work done by prior appropriators
against later acts perhaps “actuated by malice or self-interest.” Id.

(40; Thirteen years later the California Supreme Court explicitly added the

requirement that would-be appropriators had to proceed diligently with their work

OmrADAN RW

in order to enjoy the benefit of relation. Nevada Cnty. v. Kidd, 37 Cal. 282, 310-14
(1869). The court summarized the rule as follows:
As has already been remarked, even the preliminary, inchoate right to
acquire in the future a right to water, which, when it becomes perfected
and fully vested, will date, by relation to the first act, for purposes of
priority, may be lost by want of diligence in pursuing the work and
perfecting the right, so that another party, more diligent, although
commencing subsequently, may obtain the first right by actual
appropriation and possession of the water.
Id. at 314. Recognizing the possibility for abuse of the benefits of the doctrine of
relation, the court warned against “dog in the manger” tactics of “claiming water by
certain preliminary acts, and from that moment prevent others from enjoying that
which he is himself unable or unwilling to enjoy, and thereby prevent the
development of the resources of the country by others.” Jd.
{41} The best early explanation of what might constitute “diligence” in this context
was provided by the Nevada Supreme Court in Ophir Silver Mining Co. v.
Carpenter, 4 Nev. 534 (1869). Ophir involved competing claims to water from the
same river by two ditch or canal owners. Jd. at 541-42. The first started his project
in 1858, completed some portion of it and conveyed some water. Id. at 542. He then
let it lay essentially fallow for at least two years before changing the plan for the
ditch and enlarging it. Jd. at 544. The new ditch was completed in 1865 and carried

ten times as much water as the first iteration of the ditch. Jd. at 542-43. The second

claimant started construction on a ditch in July 1859 and completed it in the fall of

1860. Id. at 543. This latter ditch had been used to its capacity from the time of its
completion for “motive power.” Jd. The second claimant conceded that the first ditch
owner had a superior priority to the amount of water its first ditch could first carry,
but no more. Jd. The court agreed with the second claimant, concluding that the first
had not completed its works with diligence. Id. at 548. Its discussion of diligence is
as relevant today as it was in 1869.

Diligence is defined to be the ‘steady application to business of any

kind, constant effort to accomplish any undertaking.’ The law does not

require any unusual or extraordinary efforts, but only that which is

usual, ordinary, and reasonable. The diligence required in cases of this

kind is that constancy or steadiness of purpose or labor which is usual

with men engaged in like enterprises, and who desire a speedy

accomplishment of their designs. Such assiduity in the prosecution of

the enterprise as will manifest to the world a bona fide intention to

complete it within a reasonable time. It is the doing of an act, or series

of acts, with all practical expedition, with no delay, except such as may

be incident to the work itself.
Id. at 546.
{42} Thus, the contours of the doctrine of relation as it applied to claims to water
under the western concept of prior appropriation were well known within twenty
years after the concept first arose. Relation in this context embodied two features:
(1) embarking in good faith on a project to appropriate water; and (2) consummating
the project without unnecessary delay by exercising reasonable diligence in

constructing facilities, diverting water, and completing the appropriation by

applying the water to beneficial use. If the would-be appropriator met the

requirements, it would attain a vested right to use the water with a priority date
measured as of the time the project commenced. Prior to application of the water to
use, however, there was no present water right in any sense; only the right to
diligently pursue a future right to the possession of the water. Kidd, 37 Cal. at 310,
see Keeney v. Carrillo, 2 N.M. 480, 493 (1883).

43} The rule requiring diligence in pursuing the work initially grew out of the
custom among the miners working their claims, but quickly became associated with
the property concept of relation as a doctrinal matter. The doctrine of relation
provided a theoretical basis for protecting the interests of persons undertaking a
potentially long and expensive process from frustration at its end. The equitable
features of the doctrine of relation thus have their roots in a common law rule of
property law. See 2 Clesson S. Kinney, A Treatise on the Law of Irrigation and
Water Rights §§ 743-44, 1284-88 (2d ed. 1912). The protection afforded by relation
obviously provided incentives for developers, which helped spur development of
water resources in the arid west. Conger, 6 Cal. at 557-58. Relation also worked on
a practical level, helping to set and sort expectations among conflicting claims. As
the court in In re Hood River, 227 P. 1065, 1075 (Or. 1924) (in banc), noted: “Except
for its application the doctrine of appropriation would have resolved itself into a

scrambling rush for the possession of the water right, and the question would always

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be decided in favor of the one who either had the most money or the one who had
the least to do to effect a diversion of water.”
(445 The doctrine of relation was first applied in New Mexico in Keeney, cited
above. But the doctrine was most fully explored in Millheiser v. Long, 1900-NMSC-
012, 10 N.M. 99, 61 P. 111. In Millheiser, two would-be appropriators both claimed
to have a right in the waters of the Rio Hondo in southern New Mexico. Id. 2. One
claimant built a ditch in 1885 and claimed control and ownership of the entire flow
of the river. Id. The second built his ditch in 1888 and claimed ownership only of
the amounts he had actually used on his lands. Jd. The trial court ruled in favor of
the first appropriator. Jd. Our Supreme Court reversed, holding that the trial court
had erred by granting priority based on time of diversion rather than on appropriation
to a beneficial use. Id. § 3. The Court quoted Kinney’s treatise on water rights to
clarify that to constitute a valid appropriation of water, there must be:
(1) A bona fide intention to apply the water to some beneficial purpose;
(2) notice of such intent; (3) diversion of the water from its natural
channel by construction of works within a reasonable time; (4) actual
application of the water to the land for some beneficial use, with due
diligence and without unnecessary delay.
Id. § 8 (internal quotation marks and citation omitted). Our Supreme Court noted
that the first ditch diversion did manage to take all of the natural flow of the river,

but the owners of the ditch had never watered more than 200 acres of land with the

water. Id. § 12. The remainder had been returned to the river channel. Id. The Court

concluded that the first diverter only had a water right to the extent it had actually
used the water. Id. {{] 30-34. As a corollary to that ruling, the Court also held that
the first diverter’s sales of water rights to others in excess of its own usage was
improper and invalid: they could not sell what they did not own. Id. { 32.

445} For purposes of this opinion, Millheiser is important for two reasons. First, its
citation of the Kinney treatise presages the definition of water rights found in our
constitution and statutes. See N.M. Const. art. XVI, §§ 2- 3; NMSA 1978, § 72-1-2
(1907). Second, it illustrates how closely the elements of prior appropriation and the
doctrine of relation had become intertwined by 1900, both here in New Mexico and
across the arid west. See In re Hood River, 114 Ore. 112.

{46} But, as the authors of the treatise in Jason Anthony Robison & Anthony Dan
Tarlock, Law of Water Rights and Resources, § 5:64, at 344-46 (2020 ed.), the
authors have noted: “Relation back was designed for an era of small ditches. It gave
the appropriator time to finance his diversion works, but was relatively unforgiving
of excuses. Long delays in putting water to beneficial use suggested speculation and
could result in a loss of early priority.” The treatise suggests that courts have adjusted
the doctrine to accommodate more complex projects. Colorado offers the most
instances of a court searching to provide broader guidelines for the evaluation of
large projects. See Dallas Creek Water Co. v. Huey, 933 P.2d 27, 36 (Colo. 1997)

(en banc) (articulating a six-factor test for modern nonspeculative projects); see also

In re Gen. Adjudication of All Rights to Use Water in Big Horn River Sys., 48 P.3d
1040 (Wyo. 2002). New Mexico has similarly made room in its relation doctrine to
accommodate questions of future use by industry and municipalities. See In re Plains
Elec. Generation, 1988-NMCA-011, § 2, 106 N.M. 775, 750 P.2d 475 (affirming a
decision approving a transfer of water rights even though the user could not put the
water to use immediately but could put it to use within a reasonable time); State ex
rel. State Eng’r v. Crider, 1967-NMSC-133, § 30, 78 N.M. 312, 431 P.2d 45
(recognizing that cities had a right to appropriate water for future uses so long as the
water was applied to beneficial use within a reasonable time).

47} But these iterations of relation have not changed the bedrock requirement of
diligently applying water to beneficial use within a reasonable time given the
circumstances at hand. The cases from the beginning, understood that each case
would have to stand and be decided on its facts. For example, Colorado denied the
City of Denver the benefit of relation with regard to one of its projects because the
city and its predecessors had not proven due diligence in bringing the project to
beneficial use in a reasonable time. See City & Cnty. of Denver v. N. Colo. Water
Conservancy Dist., 276 P.2d 992 (Colo. 1954) (en banc); see also Colo. River Water
Conservation Dist. v. City & Cnty. of Denver, 640 P.2d 1139, 1143 (Colo. 1982) (en
banc) (holding that non-project related efforts to protect or promote future

development were not enough by themselves to support a finding of diligence). In

the latter case, the court made clear that the river district was not exempt from the
same development efforts required of other developers simply because it had been
created by the general assembly. Colo. River Water Conservation Dist., 640 P.2d at
1143.

(48) | Mendenhall for the first time applied the doctrine of relation to underground
water sources through a court decision. That development should not have been a
surprise to anyone. New Mexico extended the authority of the state engineer to
administer the state’s underground waters by statute in 1927. See 1927 N.M. Laws,
ch. 182, § 2. Our Supreme Court held in Yeo v. Tweedy, 1929-NMSC-033, 34 N.M.
611, 286 P. 970, that the statute did not unconstitutionally deprive private land
owners of any vested rights in the waters beneath their land. See id. (38. The Court
reasoned that the statute was merely declaratory of the common law of prior
appropriation as declared in the “ ‘Colorado doctrine’—the most far-reaching” of
the various flavors of prior appropriation—and prevalent in New Mexico from the
time it came within the jurisdiction of the United States. Jd. J 11-14. Asserting that
the law of riparian rights had never held sway in New Mexico, the Court held that
as a matter of logic the doctrine of prior appropriation had always applied to
underground waters. Id. §f 11-14, 19. Our Supreme Court affirmed this reading of
Tweedy in Pecos Valley Artesian Conservancy District v. Peters, 1945-NMSC-029,

{{ 42-44, 50 N.M. 165, 173 P.2d 490. Given this history, it was but a short hop for

Mendenhall to find that the doctrine of relation applied to underground waters as
well.

449} The second aspect of Mendenhall is more interesting. The reported cases
discussing relation prior to Mendenhall involved disagreements between directly
competing claimants to the same water source. See Hagerman Irrigation Co. v.
McMurry, 1911-NMSC-021, 16 N.M. 172, 113 P. 823 (involving claims to the
waters of the Rio Hondo); Rio Puerco Irrigation Co. v. Jastro, 1914-NMSC-041, 19
N.M. 149, 141 P. 874 (involving directly competing claims to the waters of the Rio
Puerco); Farmers Dev. Co. v. Rayado Land & Irrigation Co., 1923-NMSC-004, 28
N.M. 357, 213 P. 202 (involving competing claims, one based on the general, pre-
statutory law of appropriation, and one based on a permit filed with the state engineer
pursuant to the Appropriation Act of 1907).

450} Mendenhall did not involve competing claimants. The issue in Mendenhall
was whether the claimant could “acquire a water right with a priority date as of the
beginning of his work, notwithstanding the fact that the lands involved were put into
a declared artesian basin before work was completed and the water put to beneficial
use on the ground[.]” 1961-NMSC-083, § 1. The “competing claim” in Mendenhall
was not another water user; rather it was the right and power of the state engineer to

impose its permitting system on a project whose development overlapped his

declaration of the basin. The effect of applying the doctrine of relation was to
insulate the Mendenhalls from past or potential future rivals under the permit system.
{51} The flexibility exhibited by the Court in doing so did not change the basic
requirements of appropriation or relation, however. In framing the issue presented
to it, the Court presumed completion of the project with reasonable diligence and
concurrent application of the water to beneficial use.' Jd. That the normal
requirements of relation apply to similar cases was confirmed by our Supreme court
in State ex rel. Reynolds v. Rio Rancho Estates, Inc., 1981-NMSC-017, 95 N.M. 560,
624 P.2d 502, and by this Court in State ex rel. Martinez v. McDermett, 1995-
NMCA-060, ¢ 8, 120 N.M. 327, 901 P.2d 745 (holding that completion of wells and

ditches sufficient to irrigate eighty-four acres did constitute diligence with regard to

'The opinion in Mendenhall did not dwell on the factual and procedural
posture of the case. The briefs in the case reveal that the case arose from a basin
adjudication case filed in 1956 on relation of the State Engineer and the local
conservancy district. Defendants Mendenhall were not made parties until March
1959. In May 1959, the State Engineer made an offer of judgment acknowledging
the Mendenhall’s water right. The offer was accepted. Sometime in September 1959,
the State Engineer withdrew the original offer and submitted an amended offer of
judgment. The Mendenhalls refused the amended offer. Mendenhall, Brief in Chief,
at 1-2, Mendenhall v. State of N.M. ex rel. Reynolds, 1961-NMSC-083, 68 N.M. 467,
362 P.2d 998 (N.M. Sup. Ct., July 18, 1960) (No. 6768). The brief in chief also
reveals that after the basin was extended, the State Engineer actively engaged in
stopping wells being drilled in the newly covered acreage. However, the State
Engineer never attempted to stop the drilling of the Mendenhall’s well except to
require the driller to obtain an artesian well-driller’s permit. Mendenhall, Brief in |
Chief, supra, at 4-5.

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the entire tract for purposes of the doctrine of relation when the works were never
used to irrigate more than twenty acres).

‘523 In sum, the concept of relation has been applied to determine priority to water
since the earliest days of the development of the doctrine of prior appropriation. It
has been adapted flexibly to meet new circumstances as cases presenting new issues
arose. See 2 Kinney, supra, §§ 735-37, at 1269-72. But the core of relation—
requiring a lawful commencement of an appropriation with notice to the world of
intent, followed by diligence in bringing the planned appropriation to fruition by
application of water to a beneficial use in a reasonable time—has remained the same.
The question in each case is whether in a given circumstance the would-be
appropriator has been diligent. Our task is to determine whether the adjudication
court applied the doctrine correctly to the facts in this case. We now turn to that
analysis.

C. The Adjudication Court Did Not Err in Refusing to Recognize
Appellants’ Claimed Right Under Mendenhall

‘533 Appellants’ arguments group themselves into four assertions: (1) the
adjudication court should not have treated CFP’s cessation of mining as relevant to
the question of diligence; (2) the adjudication court should not have considered the
transfer applications filed by CFP and Frost & Gray as “establishing” lack of
diligence; (3) the adjudication court erred in refusing to find in their favor as a matter

of equity since doing so would not result in any injury to junior users; and (4) the
31

adjudication court did not take proper consideration of the “logistical, legal, and
economic challenges of the mining industry.” We discuss them in turn.

1. The Effect of Shutting the Mine

‘543 Appellants argue that the closing of the Mine is not relevant to diligence
because: (1) the subjective intent of a claimant is irrelevant; (2) the mining concept
of “abandonment” has nothing to do with the diligent pursuit of water rights; and (3)
the sale of the water rights after CFP left the scene is irrelevant.

{55} We disagree that subjective intent is an irrelevant inquiry. As we explained
above, the primary focus of relation and its diligence factor is on the claimant’s
steady application of effort to the task of planning and executing a plan for the
diversion and use of water. An appropriation must start with a bona fide intent to put
water to use in a reasonable time. The claimant’s attention to the tasks required
necessarily invokes subjective intent, in particular, as here, when the work is
completely interrupted. One can imagine a situation where a claimant did not care
whether her work bore fruit and yet continued to pursue the work to conclusion. But
it defies common sense and logic to attempt to ignore intent when the work is
deliberately stopped by the claimant and the facilities built to carry on the work are
not simply boarded up or put into “storage,” but completely stripped from the project
site and scattered around the world. Given that set of facts, the question must arise:

what does the claimants intend to do now—let the storm pass and try again or give

up the project entirely? A decision to pause and reassess followed by renewed efforts
is a different matter from deciding to stop, leave, and never return. The former might
be excused if the claimant returned and set to work again. But the latter can properly
be seen as a fatal disruption of the “plan” required by Mendenhall and all other cases
analyzing the doctrine of relation.

‘56; | We note that while Appellants argue that intent with regard to the shut down
and liquidation is not relevant, they simultaneously argue that Frost & Gray’s—and
others’—intent to revive the Mine is relevant. Appellants cannot have it both ways.
Intent is either relevant or it is not. We do not mean to imply that intent is generally
dispositive. It is not. And we see no indication that the adjudication court saw or
treated it as dispositive. It simply took it into account as part of its decisional process.
We see no difficulty with using a totality of the circumstances approach to evaluating
a case such as this.

67 Next, Appellants quibble about the meaning of the term “abandonment” as
used by the adjudication court in its findings of fact and conclusions of law. The
adjudication court found as a matter of fact that “CFP abandoned its mining
operation at Copper Flat” and that when CFP did so, “it abandoned its plans to
develop the mine at Copper Flat.” Appellants argue that the adjudication court
erroneously adopted the mining term of art—“abandonment”—and applied it

wholesale to the Mendenhall water rights context. We see no indication of that in

the ruling below. The court did note that the Mine was labelled “Abandoned” in the
Mine data retrieval system. But there is no indication that this fact was determinative
to the adjudication court. The adjudication court also drew a distinction between the
concept of “mothballing” a mining operation and “abandoning” one. Comparing the
two terms, the court found that mothballing allowed a quick return to operation once
favorable conditions for mining returned. The court decided that the Mine was not
mothballed; it was abandoned and closed.

{58} Considering the findings and conclusions of law as a whole, it is clear that the
court used the term “abandonment” in the ordinary sense of giving up control of and
interest in property coupled with a decision never to claim an interest again. Viewed
in that light, the use of the term is appropriate and even compelled by the evidence.
CFP and the Bank had no intent or desire to re-engage with the Mine project after
they left. That circumstance cannot be ignored in evaluating the status of the
unvested or inchoate water rights left “on the table” when they exited the scene.

(593 Appellants’ argument that sale of the water rights after CFP left is irrelevant
simply ignores the reality of the factual and legal scenario in place when CFP and
the Bank completed their exit. As noted above, there was in a real, everyday sense,
no proj ect in existence after CFP and the Bank liquidated the assets of the Mine and
departed in 1987. The physical assets were gone or buried. The legal assets—water

rights and mining permits—were held by different entities. The owner of the mining

permits had no interest in operating the Mine or apparently even in marketing the
property. Frost & Gray as the new owners of the water rights had no mining
experience, or assets, or contacts sufficient to get the Mine operational again. Frost
& Gray had dreams of turning a bargain purchase into a valuable right, but they did
not have the means to accomplish that by themselves. This state of affairs supports
the adjudication court’s legal conclusion that the sale of the water rights to Frost &
Gray severed the water from the Mine, and thus, in Mendenhall parlance, from the
“plan.” Severance of the water and the mining permits from the Mine supports the
adjudication court’s legal conclusion that “CFP’s and CIBC’s [the Bank’s] actions
extinguished any inchoate water rights under Mendenhall.”

460} It is true, as Appellants argue, that the process of perfecting water rights does
not have to be completed by the original appropriator. Rights in projects and plans
can be assigned to others and, in an appropriate circumstance, the assignee can in
effect make the efforts of their assignor their own. Appellants point to Mendenhall
as an example. We have no quarrel with the assertion in the abstract, but neither can
we ignore the factual circumstance in'this case. To repeat, the facts here are unique;
so unique that run-of-the-mill assignment cases such as Mendenhall offer little or no
guidance. For example, the briefs in Mendenhall reveal that the Mendenhall
defendants were partners in the entity that initiated the project involved there. They

were successors in title only because the spouse of one of the partners passed away

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and the Mendenhalls had purchased the surviving spouses’ and another partner’s
interest in the partnership. Mendenhall, Brief in Chief, supra, at 5. As such, the
Mendenhalls were fully capable of completing the prebasin plan on their own. This
is a far cry from the facts in this case. Under our facts, the ability of Frost & Gray to
take on the mantle of CFP is, as a factual matter, exceedingly slight. |

{61} In sum, the adjudication court did not err in taking the circumstances
surrounding the closing and abandonment of the Mine by CFP and the Bank into
consideration as part of its decision-making process.

2. The Transfer Applications

{623 Asnoted above, prior to selling the water rights to Frost & Gray, CFP explored
other avenues for marketing the water rights associated with the Mine. Having failed
to sell the project as a working mine, and having been advised that the water rights
might be worth millions of dollars, CFP and the Bank apparently began exploring
sale of the water rights separate from the Mine as early as the spring of 1985. Counsel
advised CFP and the Bank of the many potential issues involved in achieving a sale
of the water rights, including the difficulties involved in and the potential effects of
transferring the rights from the Mine to another location. With this information in
hand, CFP and the Bank forged ahead and purportedly entered into an agreement
with the New Mexico Office of the Commissioner of Public Lands to transfer the

water rights to wells located near Las Cruces. The application for permission to

transfer the rights was filed with the State’ Engineer on March 6, 1986. Apparently,
nothing came of the purported sale to the Commissioner of Public Lands and no
hearing on the transfer request was ever held. The request remained pending until
Gray requested its withdrawal after Frost & Gray purchased the water rights in April
1987.

(63) Appellants argue that it was improper for the adjudication court to take the
transfer application into consideration given that it was never acted upon and was
voluntarily withdrawn. As such, Appellants argue, it was a legal and practical nullity.
We agree that the application became a legal nullity within the sphere of the State
Engineer’s administrative world. But that does not make it irrelevant to the question
of whether CFP and the Bank intended to and did abandon the Mine, and thus, the
project. The transfer application is another piece of evidence the adjudication court
could take into account as part of the totality of circumstances it could draw on as it
considered its decision. There is no indication that the court treated it as
determinative. But it undeniably supports the court’s legal conclusion that the
transfer application was “inconsistent with [CFP’s] pre[]basin plan and inconsistent
with a diligent effort to pursue the pre[]basin plan under Mendenhall.” We perceive

no error in the adjudication court’s consideration or use of CFP’s transfer

application.

(64 Appellants similarly argue that the transfer application filed by Frost & Gray
in September 1988 was a legal nullity because it was never acted upon and was
voluntarily withdrawn. This transfer application was filed as result of Frost & Gray’s
agreement to put the waters to recreation and irrigation purposes on the Ladder
Ranch. Frost testified that he and Gray “fully intended to follow through on their
obligations under this agreement.” The transaction with the Ladder Ranch ‘was
presumably derailed when Hydro Resources asserted in its protest to the transfer
application that the water rights actually belonged to Inspiration—the company that
owned the mining permits and claims at Copper Flat. The conflict over title to
whatever water rights existed was settled when Frost & Gray entered into their
agreement with Gold Express to allow use of the water in exchange for shares in the
company and cash payments.

65} Given this set of facts, we agree that Frost & Gray’s transfer application was
of less evidentiary value than that of CFP and the Bank. But it was not irrelevant to
the issue of whether Frost & Gray themselves exercised diligence in pursuing the
prebasin plan to mine copper. It is relevant to know that as early as 1989 they were
prepared to abandon their intent to find a partner to pursue the prebasin plan to restart
mining operations. The transfer application was “inconsistent with CFP’s pre[]basin

plan.” And, again, there is no indication that this evidence was determinative in the

adjudication court’s decision. It was part of the totality of circumstances the court
considered. As such, we see no error in its use.

3. The Role of Equity in Evaluating Mendenhall Claims

(66; | Appellants emphasize that the doctrine of relation is at bottom an equitable
construct. As such they argue that courts should apply the doctrine in the usual
manner, weighing the equities of the disputants in the controversy by determining
the competing benefits and detriments likely to be felt by the parties as a result of
their decision. Appellants assert that the objectors have not—perhaps cannot—show
any detriment to their water interests if Appellants’ Mendenhall rights are
recognized. On the other hand, Appellants point out, they and the public would
benefit greatly by allowing them to continue to develop their Mendenhall rights so
they can get back to the business of mining copper. Appellants go so far as to assert
that “if use of the doctrine would not injure any other water user, there is no legal
basis for denying its application.” While we agree that relation has equitable aspects,
we conclude that this last assertion goes too far.

67) As we noted above, the early courts borrowed from the common law of
property when they applied the doctrine of relation to the question of priority as they
constructed the concept of prior appropriation. Kinney in his treatise provides as
thorough a treatment of the history of relation and its application to the question of

water rights as can be found. See 2 Kinney, supra, §§ 743-56, at 1284-1310. The

effect of the doctrine is to protect the first person who in good faith undertakes to
divert and use a source of water. But application of the doctrine is entirely dependent
on the first appropriator’s exercise of due diligence to finish the project and put the
water to beneficial use within a reasonable time. See 2 Kinney, supra, § 750, at 1297-
98; Millheiser, 1900-NMSC-012, 4{ 8, 30.

468} Thus, relation in this context is an equitable concept cabined by the
requirements of prior appropriation. Meeting those requirements is paramount in the
assessment of whether relation should be applied in favor of a claimant. Applying
relation as suggested by Appellants would result in excusing a claimant’s failure to
exercise due diligence as so long as it could be argued that the delay was not harming
any other water users. And the risk would be heightened in cases such as the one
before us where there are no specific competing claimants. If, as Appellants assert,
the objectors cannot prove any impairment to their water interests, they can be
ignored without requiring Appellants to prove due diligence. That outcome would
bend prior appropriation beyond recognition.

(69; In addition, Appellants do not explain how or whether the idea of “no harm”
applies to the State Engineer in his role as the plaintiff in stream and groundwater
adjudication cases such as this. The State Engineer ostensibly represents the interests
of the general public. The public—or the State Engineer—owns all waters within its

borders. We doubt that an argument can be persuasively made that in the context of

a groundwater adjudication, a Mendenhall rights claim cannot be denied unless
specific claimants can prove harm to their water interests. Would proof of a potential
effect on all users in the basin because the basin is demonstrably over appropriated
be relevant? Would such proof be sufficient in and of itself? Would the adjudication
court be required to accept evidence of specific impairments? Would the court be
required to accept evidence of the economic benefits of the unfinished project in
order to weigh the equities?

470; We do not decide these issues. Rather, we point them out to illustrate the
difficulties posed by Appellants’ broad invocation of equity principles in this
context. It is enough to say that the equities in cases involving the doctrine of relation
are entirely dependent on the exercise of diligence under the circumstances of each
case. We turn to that issue now.

4. The Diligence Requirement

(a) CFP and the Bank

mi; In its Conclusions of Law, the adjudication court decided that CFP and the
Bank did not meet the Mendenhall requirements to diligently develop and put water
to beneficial use in accordance with CFP’s prebasin plan because they (1) stopped
mining, (2) sold and moved all of the mining equipment from the site, and (3)
attempted to sell—and finally did sell—the water rights in a manner that severed

them from the mining operation. To that list, we would add that they returned the

land leases and mining permits to Inspiration and gave notice to BLM and the State
Engineer that the “Copper Flat Property is permanently closed and will not be
restarted.”? The adjudication court concluded that CFP’s and the Bank’s actions
“extinguished any inchoate water rights under Mendenhall.”

(723 Appellants argue that the adjudication court failed to properly take into
account the logistical and economic factors which led to the closure, including the
world-wide, persistent drop in copper prices. Appellants assert that the periods when
the Mine was out of operation for economic reasons should not count against the
exercise of diligence. We agree that the “unique character of extractive industries”
and the environment they operate in are part of the calculus courts should take into
account when assessing diligence. As we noted above, the doctrine of relation has
always recognized that each case should be judged based on its own circumstances.
473} Reviewing the record below, we see no indication that the adjudication court
failed or refused to consider the effects of copper prices on CFP’s and the Bank’s
ability to operate the Mine. The adjudication court noted the drop in prices in 1982
and CFP’s attempts to keep the Mine afloat and attract new investors and buyers.

The adjudication court specifically found that when “CFP ceased operations .. . in

2Appellants assert that these actions were not volitional on CFP’s part, but
were rather forced on it by the Bank. This argument is beside the point. As the lender
on the project, the Bank had the right to step in upon CFP’s default and “take over”
the project. Its acts at that point were the acts of the project and CFP.

June 1982, [it] hoped and expected that the [M]ine would reopen if (1) an investor
could be identified . . . and (2) the global price of copper would increase[.]” There
is no indication that the adjudication court penalized CFP and the Bank for the delay
from 1982 to early 1986. But, recognition of difficult economic circumstances does
not compel a finding in favor of Appellants. CFP and the Bank demonstrably lost all
hope and expectations when they divested themselves of all interest in the project.
The adjudication court could appropriately conclude—as it did—that their prebasin
plan was at an end when they ceded the field and left.

474; Nonetheless, Appellants argue that the sale of the water rights to Frost & Gray
should be viewed as simply a continuation of the plan. Under different circumstances
that argument might be persuasive. But under the facts presented in this case the
assertion is not plausible. The “facts on the ground” after CFP and the Bank left the
scene are described above. Those facts belie any reasonable interpretation other than
that CFP’s and the Bank’s prebasin plan to mine copper was simply a ruin. The
elements of their plan—land leases, mining permits, equipment, and water—were
scattered to the winds. CFP and the Bank did not purport to be selling a mining
project to Frost & Gray. All CFP quitclaimed was “inchoate and beneficially used
water rights... with respect to which rights [CFP] has applied for a permit to change
the location of the wells and permit to change the place and purpose of use of [the]

water rights.” The sale of the water to Frost & Gray was not an attempt by CFP and

the Bank to continue with or salvage the project. It was the last step in exiting a
failed venture.

(753 Frost & Gray may have had a preference for marketing the water to other
miners, but when they purchased CFP’s interests in the water at Copper Flat they
did not have the means to make their preference a reality. In the abstract, we have
no quarrel with the assertion that Frost & Gray could do the work of putting the
water to use through agents. But the prospects of that were vanishingly thin in 1987.
Thus, we agree with the adjudication court that sale of the water rights to Frost &
Gray severed the water from the prebasin plan.

(76; Given the reality of the situation in early 1987, it was within the adjudication
court’s reasonable range of decision-making to hold that CFP’s Mendenhall rights
were extinguished. We agree with its conclusion.

77; The adjudication court could have stopped its analysis there. After deciding
that the Mendenhall right was extinguished, the adjudication court could have
concluded that Frost & Gray’s efforts were simply irrelevant to any Mendenhall
analysis. But the adjudication court did not choose that path. It considered
Appellants’ argument that they had been diligent in pursuing CFP’s prebasin plan
on the merits and ruled against them. The adjudication court concluded that Frost &
Gray “did not meet the Mendenhall requirements because they did not diligently

develop water in accordance with CFP’s pre[]basin plan.” Separately, the

adjudication court concluded that “[e]fforts by subsequent entities seeking to restart
mining operations at Copper Flat did not constitute diligence for purposes of the
Mendenhall rule.” We consider those rulings now.

(b) Frost & Gray and Their Contractors

78} The adjudication court did not elaborate on the basis for its decision to address
Appellants’ arguments after it concluded that CFP’s and the Bank’s action
“extinguished any inchoate water rights under Mendenhall.” Thus, we do not know
if the adjudication court considered Appellants’ efforts somehow a continuation of
CFP’s work, or if it viewed their efforts as a specie of resurrection—a kind of
phoenix rising from the ashes. We conclude that it is not necessary to resolve the
conundrum. Frost & Gray have little or no basis to take credit for any effort and
expense CFP and its predecessors put into the Mine. But, the case involves the same
water claims initiated to extract copper from the same ore body. We conclude that
the doctrine of relation as a legal fiction is broad and flexible enough to cover a
connection as tenuous as that between CFP and those who came after it pursuing the
same goal. Given the facts on the ground, however, the analysis at this point should
focus on Frost & Gray’s and their partners’ efforts.

79; | We provided a detailed timeline of events in the factual summary above. We
will summarize it rather than repeat it in detail. After buying CFP’s water rights in

April 1987, Frost & Gray did essentially nothing to market the water to potential

mining companies. Concerned that they might lose the rights for lack of use, in
September 1988, they entered into an agreement with the neighboring Ladder Ranch
to use the water for agricultural and recreational purposes. As part of the agreement
with the Ladder Ranch they filed an application with the State Engineer to change
the point of diversion and place and purpose of use for the water. Though they hoped
to engender some interest from mining companies, they were ready to complete the
transaction with the Ladder Ranch if none was forthcoming.

{80} The application prompted an objection from Hydro Resources based on
grounds not relevant here. The legal process before the State Engineer revealed a
competing claim to ownership of the CFP water rights. The ownership dispute
simmered in the background of the application process for a period of two years until
Frost & Gray entered into an agreement with Gold Express settling the matter and
allowing Gold Express to use the water rights in exchange for stock and cash
payments to Frost & Gray.

‘81; Gold Express was in control of the mining permits at Copper Flat from April
1990 to sometime in 1994. In January 1991, Gold Express filed a plan of operation
for Copper Flat proposing to rebuild the facility as it existed in 1986. The record
does not reflect any activity by Gold Express on the ground at Copper Flat nor much

activity in any vein. Gold Express did not put any water to use on the property. Gold

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Express quitclaimed whatever interest it might have in the CFP water right to Alta
Gold in November 1993.

(823 Alta Gold took over from Gold Express in May 1994. Alta Gold’s plan of
operation was similar to CFP’s, and it intended to recover and reuse the salvageable
infrastructure left by CRP. Most of Alta Gold’s efforts centered on permitting
requirements, including an EIS and the mine operating permit. It did make some
efforts to acquire a mill and began leasing haul trucks in 1999 in anticipation of |
issuance of the final EIS. The record does not reflect the status of the mine operating
permit at that point.

4333 All of Alta Gold’s efforts came to a halt when it was forced into bankruptcy
as a result of the failure of other gold mining ventures. Alta Gold claimed ownership
of the water rights in the bankruptcy proceeding. The bankruptcy court recognized
Frost & Gray’s ownership of the water rights in December 2000. Alta Gold never
returned to Copper Flat. Alta Gold never did any material work on the ground at
Copper Flat and never put any water to beneficial use.

‘84, Thus, Frost & Gray’s first two mining contractors were simply not successful
in furthering the prebasin plan over a period of ten years. By the time they left the
scene, no activity had occurred on the site and no new water had been put to

beneficial use for eighteen years.

§s5} In January 2001, Hydro Resources filed suit in the district court seeking to
quiet title to the water in itself as a successor to Inspiration. The suit wended its way
through the courts for seven years, ending when our Supreme Court decided the case
in Frost & Gray’s favor. Hydro Res. Corp., 2007-NMSC-061, { 47-48. A quiet title
decree was entered in favor of Frost & Gray in January 2008. Unlike their previous
dealings with entities claiming an ownership interest in the water, the record shows
that Frost & Gray did not attempt to settle or otherwise make an arrangement for use
of the water with Hydro Resources.

(86; After the suit with Hydro Resources, Frost & Gray unsuccessfully offered the
water to one mining company and unsuccessfully responded to an inquiry from
another. In September 2010, “Frost & Gray entered into an option agreement with
NMCC for the sale of the declared water rights. At the time of trial, there remained
conditions precedent to the transfer of ownership of the rights to NMCC.”

*87) NMCC entered into an option agreement with Hydro Resources to purchase
Copper Flat and the associated mineral claims in July 2009. Since its entry onto the
site, NMCC has done some actual work on the ground, including inspection of the
water lines and exposing CFP’s plant foundations. Both appear to be in good
condition and usable. NMCC plans to recreate the CFP process. NMCC had started
the permit application process as of the time of the trial. The record does not reveal

that NMCC put any new water to beneficial use on the site.

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488; In February 2012, NMCC filed an Application for Permit to Repair and/or
Deepen Well for the four production wells and five supplemental wells. The State
Engineer partially approved and partially denied the application, allowing deepening
and repair but limiting usage to the 888.783 acre-feet per year put to use when the
Mine was operated. The State Engineer denied the prebasin claim of 6,462 acre-feet
per year intended but never put to use. NMCC aggrieved the partial approval, and
the matter is pending but currently stayed.

(893 The adjudication court concluded that these collective activities did not
constitute diligence as required by Mendenhall. We agree. We address Frost &
Gray’s efforts first.

{90} Frost & Gray’s personal efforts to get the Mine back on track were minimal.
This is not surprising given their lack of resources and total lack of mining
experience or contacts within the mining community. And there is nothing in the
record to indicate that they sought help from others who might be able to market the
water to potential mining partners. Their first venture in arranging to use the water
was to separate it from its original use and from its original source point. If the sale
to the Ladder Ranch did not elicit interest from mining companies, they were fully
prepared to fulfill their obligations to the Ladder Ranch and entirely forgo the notion
of using the water for mining. They did not actively seek partners except for the one

letter sent in 2009. Rather, they passively waited for mining companies to approach

them. Again, this is not surprising given their lack of contacts with the mining
community. Frost & Gray did less than CFP and the Bank did to get the project going
as envisioned in the prebasin plan. Frost & Gray’s activity cannot reasonably be
deemed to be “that constancy or steadiness of purpose or labor which is usual with
men engaged in like enterprises, and who desire a speedy accomplishment of their
designs[.]” Ophir Silver Mining Co., 4 Nev. at 546.

913 Relying on Rio Rancho Estates, Inc., 1981-NMSC-017, { 13, Appellants
assert that the requirement of diligence and application to beneficial use may be held
in abeyance or tolled where litigation interrupts development. Appellants read the
case too broadly. In Rio Rancho Estates, Inc., the state engineer refused to allow the
city to enlarge its wells and increase the amount of water it could pump. As such,
the state engineer’s order prevented the city from developing its water in accordance
with its prebasin plan. That is the context in which the Court noted that diligence
and application to use “may be held in abeyance . . . in cases such as the present one
where litigation over a Mendenhall right interrupts development.” Jd. The suit
between Frost & Gray and Hydro Resources was not “litigation over a Mendenhall
right.” Jd. The state engineer’s order in Rio Rancho Estates, Inc. stopped work on
the wells. The litigation with Hydro Resources did not in and of itself stop any work

on the project.

492} Frost & Gray were entirely dependent on others to do the actual work of
restarting the Mine, and we turn to examine their efforts now. Gold Express was the
first contractor that purported to have mining experience. The record is sparse with
regard to its activities. So far as we can tell, its only activity was to file a plan of
action with BLM. Beyond that there is no evidence that it did anything to help get
the Mine back in business. Even Appellants’ requested findings of fact do not reveal
any other relevant activity by Gold Express.

93} Alta Gold was Frost & Gray’s second contractor. As noted above, it focused
its attention on permitting and regulatory issues. It also started work on finding a
mill and other equipment as issuance of the final EIS neared. Nothing came of its
efforts however because it was forced into bankruptcy before anything occurred on
the ground at the Mine site.

(943 These two contractors were in control of the site for about ten years. One
accomplished nothing of note. The second showed more useful effort, but all for
naught. We note that for the better part of the 1990s the price of copper was up
sufficiently to make mining operations viable. We acknowledge that mining could
not occur until the regulatory hurdles were cleared. Had Alta Gold not gone into
bankruptcy, had the final EIS been issued as expected, and had the mining activity
been undertaken soon thereafter, we would be more likely to conclude that the time

lapse was reasonable under the circumstances. At that point, eighteen years would

have elapsed from the last time water had been put to use at the Mine. But the price
of copper had been depressed for perhaps forty percent of the period and regulatory
requirements progressed slowly.

495 The bankruptcy destroyed all progress to that point. How should the
bankruptcy be taken into account? We conclude that it must be weighed against a
finding of diligence. The bankruptcy was not caused by conditions at the Mine or in
the copper market. It was caused by other ventures Alta Gold was involved with.
There is no reason from a policy standpoint to hold that a claimant’s lack of fiscal
capability is simply irrelevant to the question of diligence. Claimants who want to
pursue projects as expensive as copper mining should be expected to have sufficient
resources available to them to at least weather downturns not connected directly to
the copper mining venture. This is particularly apropos here where the parties who
own the water sought to be developed cannot themselves provide any resources to
the project. We need not rely on the specific holding in Rio Puerco Irrigation Co.,
1914-NMSC-041, to place the onus of the bankruptcy on Appellants. In this unique
factual setting, it simply makes sense. Otherwise, the interests of other potential
claimants and—most importantly—the interests of the State Engineer in controlling
waters in over appropriated basins could be inappropriately frustrated by

impecunious claimants.

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96} Alta Gold’s bankruptcy was followed by twelve more years of no progress.
By the time Frost & Gray were approached by NMCC, thirty years had elapsed since
water had last been put to use at the Mine and forty years had elapsed since the
project had begun by the almost forgotten Quintana Minerals entity. In that time the
price of copper had been high enough to support mining for more time than it had
been depressed.

97} Under the doctrine of relation, it was Appellants’ obligation to put water to
beneficial use within a reasonable time, all circumstances considered. Appellants
simply failed to do so. We agree with the adjudication court’s conclusion that this
failure “extinguished under Mendenhall any inchoate rights they may have owned.”
We further conclude that Appellants’ Mendenhall rights were extinguished before
NMCC appeared on the scene.

998; In so holding we have taken full account of the economic, regulatory, and
legal obstacles faced by Frost & Gray and their contractors. We have no quarrel with
Appellants’ assertion that they are relevant to the diligence analysis under the
doctrine of relation. But under the facts of this case, they are not sufficient to excuse
the delay in putting the claimed water to beneficial use.

D. The Adjudication Court Erred in Finding Abandonment With Regard to
Wells Used for the Mine

999} Appellants challenge the adjudication court’s conclusion that they abandoned

their interests in the so-called Miscellaneous wells. We agree and reverse and

remand for further consideration with regard to whatever vested interests Appellants
may have in water put to use from the Miscellaneous wells prior to declaration of |
the basin. Our conclusion concerning Mendenhall rights apply in full force to
whatever inchoate rights Appellants claimed for the Miscellaneous wells.

4100} We decide this issue on two bases: (1) the adjudication court did not enter any
findings concerning Appellants’ intent to abandon rights in the Miscellaneous wells;
and (2) its ruling is incompatible with its decision that Appellants did not abandon
their rights in the production wells. A failure to address intent to abandon would be
excusable if the evidence at trial was such that the adjudication court could rely
solely on the presumption that arises based on long periods of nonuse. See State ex
rel. Reynolds v. S. Springs Co., 1969-NMSC-023, {ff 7, 18-19, 80 N.M. 144, 452
P.2d 478. But that is not the case here. Appellants did offer evidence concerning the
conditions that prevented them from using the water for so many years, and they
offered evidence that they did not intend to abandon any of their water rights. The
adjudication court accepted that same evidence to conclude that “[t]he economic,
financial, and logistical difficulties of CFP and the legal challenges of Frost and Gray
excuse the long period of nonuse of the vested water rights.” Appellants are correct
that there is no distinction to be made between the vested rights associated with the

production wells and the vested rights associated with the Miscellaneous wells.

{101} We note that the adjudication court did not make any findings concerning
vested versus inchoate rights in connection with the Miscellaneous wells. On
remand, the adjudication court should determine the extent of Appellants’ vested
rights—if any—tied to the Miscellaneous wells.

IV. The Cross Appeal

A. Abandonment

1023} Turner and Hillsboro cadre assert that the adjudication court erred in
concluding that Frost & Gray and CFP did not abandon their vested rights in the
water attributable to the production wells and the open pit. Neither Turner nor
Hillsboro cadre challenge the facts found by the adjudication court. But they offer
interpretations of the law of abandonment which, if accepted, would narrow the kind
of evidence adjudication courts could take into account in making their decisions.
Ultimately, we reject their arguments, but it would be useful to review the concept
of abandonment of vested water rights before we explain why.

4103} The possibility of losing a vested interest in water flows from the theory of
prior appropriation. Under the doctrine of prior appropriation all waters belong to
the public. The right of an appropriator to take water is based on the actual diversion
of water and its application to a beneficial use. A water right is a usufructuary right
to use the water, and not a fee interest such as one can have in real estate. The right

to continue using water depends on the continued use of the water. A vested right to

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water can be lost by “abandonment or nonuser.” See generally, Joseph R. Long, A
Treatise on the Law of Irrigation, § 180, at 326-28 (2d ed. 1916). Long drew a sharp
distinction between “abandonment” and “nonuser.” He saw abandonment as a
conscious deliberative act. In the case of an “actual” abandonment, time lapse was
immaterial and the right was extinguished as soon as the abandonment was
complete. In the case of a “mere nonuser,” time lapse is of prime—though not sole—
importance. Long, supra, § 181, at 328-29. The distinction is of little practical
importance from a litigation standpoint. Very few appropriators explicitly abandon
their rights; and, if they do, the act likely will not end up in the courts. The vast
majority of litigated cases involve “mere nonusers” with the predictable myriad of
factual scenarios.

4104} The hard question in each case is whether the evidence is enough to prove
abandonment. For Long, the difficulty was “one of proof merely, for the general
doctrine as to what constitutes abandonment is well settled.” Long, supra, § 183, at
330. Abandonment requires the confluence of both intention and act. “Mere nonuser
is not in itself an abandonment{.]... The intention of the party is always a controlling
consideration[.]” Long, supra, at 330-31; see also 1 Samuel C. Wiel, Water Rights
in the Western States, §§ 567-69, at 604-11 (3d ed. 1911). Nonuse is competent
evidence on the question of abandonment and if continued for an unreasonable

period of time may create a presumption of intention to abandon, though this

presumption is not conclusive. See Long, supra, § 183, at 330; 1 Wiel, supra, § 569,
at 608. Moreover, because the matter involves questions of subjective intent, the
question is “peculiarly within the province of a trial court to determine from all the
facts and circumstances of each particular case whether abandonment has or has not
taken place.” Cooper v. Shannon, 85 P. 175, 103 (Colo. 1906); see 1 Wiel, supra,
§ 567, at 604. Finally, because involuntary losses of vested rights are not favored,
the burden is placed on the party asserting abandonment to provide proof by clear
and convincing evidence. Long, supra, § 185, at 335.

405} Though ancient in some senses, the treatment of the subject in these
treatises—and the many cases they cite—accurately states the gist of the concept of
forfeitures as it is applied today. Robison & Tarlock’s treatise also notes that “[n]on-
use alone is insufficient for abandonment.” See Robison & Tarlock, supra, § 5:91,
at 396-97; see also Klamert v. Iverson, 2019 MT 110, § 14, 395 Mont. 420, 443 P.3d
379 (“A finding of abandonment requires both nonuse and intent to abandon.”);
Gilbert v. Smith, 552 P.2d 1220, 1223 (Idaho 1976) (holding that fifty-three years of

nonuse did not constitute abandonment per se).°

3We note that the term “abandonment” in this context is a term of art with its
own distinctive features and requirements. It should not be mistaken for or
intermingled with the term as used in the discussion concerning diligence and
relation above.

1106} New Mexico came later to the consideration of abandonment in this area, and
its jurisprudence is not different from the general ideas discussed above. For
example, in Chavez v. Gutierrez, 1950-NMSC-004, { 8, 54 N.M. 76, 213 P.2d 597,
the Court agreed that abandonment would not lie if the failure to use the water was
due to conditions beyond the user’s control. In that case, prolonged drought
produced a shortage of water. See N.M. Prods. Co. v. N.M. Power Co., 193 7-NMSC-
048, 9] 22, 42 N.M. 311, 77 P.2d 634 (holding that the user could not be held to have
intended to not use water when it did not reach its ditch because all of the water had
been diverted upstream).

07; The Court provided its first detailed treatment of abandonment in South
Springs Co., 1969-NMSC-023, even though the case actually turned on the
application of a forfeiture statute. The statute—NMSA 1978, § 72-5-28(A) (2002)—
provided that failure to use water for a period of four years would result in reversion
of the water to the public, unless the nonuse was caused by “circumstances beyond
the control of the owner.” S. Springs Co., 1969-NMSC-023, {J 3, 18 (internal
quotation marks and citation omitted). In South Springs Co., the water user had a
decreed right to irrigate 317 acres from the South Springs River “so long as it was
available in quantities sufficient for irrigation purposes.” Jd. {| 2. The river began to

fail, and by 1933 there was not enough water to irrigate. The owners had not used

water on the land since 1933—a period of thirty-six years by the time of the opinion.

Neither had they done any maintenance on the ditches or canals during that time. In
fact, roads and houses had been built over some of the ditches. See id. J 8.

108} The district court ruled that the owner had “abandoned or forfeited their water
rights by nonuse by reason of their failure to undertake any diligent efforts to obtain
the use of underground water for the subject lands since 1933.” Id. | 4. Our Supreme
Court affirmed using a bifurcated analysis. It ruled that the four-year forfeiture
provision of the statute applied, and, thus, the users had forfeited their water rights.
See id. J 11. To analyze the forgiveness proviso in the statute, the Court relied on
abandonment case law, citing Kinney’s work for the outlines of the analysis. See id.
{{ 7, 9. In doing so the Court was careful to recognize the distinction between
forfeiture and abandonment, noting that the latter required proof of intent. See id.
q 10. Relying on Colorado cases, the Court also recognized and applied the concept
that long periods of nonuse could give rise to a presumption of abandonment, which
then required the user to offer evidence of “some fact or condition excusing such
nonuse.” Id, § 22 (quoting Commonwealth Irrigation Co. v. Rio Grande Canal Water
Users’ Ass’n, 45 P.2d 622, 623 (Colo. 1935)). The “fact or condition” could not be
“merely expressions of desire or hope or intent[.]” Jd. | 21 (quoting Mason v. Hills
Land & Cattle Co., 204 P.2d 153, 155). Applying these threads of analysis in light

of the statutory provision, the Court ultimately ruled that the user’s failure to take

any action to move their diversion point from the disappeared surface to its

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underground source was not excusable. See id. { 23; accord State ex rel. Office of
State Eng’r v. Elephant Butte Irrigation Dist., 2012-NMCA-090, 287 P.3d 324.
4109} New Mexico has not had occasion to consider what type of evidence is
sufficient to meet the presumption of abandonment in the absence of a statutory
influence. Turner and Hillsboro cadre offer different perspectives on this issue, and
we now turn to their arguments.

4110} Turner argues that Appellants were required to offer evidence of excuses for
nonuse that were beyond the control of Frost & Gray, their contract partners, and
Hydro Resources. Turner relies on South Springs Co. to some degree and on the
general idea that financial inability is | not a sufficient excuse to overcome a
presumption of abandonment (citing Rio Puerco Irrigation Co., 1914-NMSC-041,
and In re CF & I Steel Corp. in Las Animas Cnty., 515 P.2d 456 (Colo. 1973) (en
banc)). These cases do not support Turner’s position. We have already discussed the
procedural and legal posture of South Springs Co. It was decided under a forfeiture
statute that required a finding of circumstances beyond the control of the owner to
escape forfeiture. 1969-NMSC-023, 4 3. South Springs Co. did not lay down a
general rule of abandonment. Rio Puerco Irrigation Co. also involved a statute that
required a finding of causes beyond the control of the applicant. See 1914-NMSC-
041, § 4. In addition, Rio Puerco Irrigation Co. involved issues of initial

appropriation and the doctrine of relation, not abandonment of vested rights.

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11143. More importantly, the case law in the other western states does not support
Turner’s position. Appellants cite a representative case from Montana, Heavirland
v. State, 2013 MT 313, 372 Mont. 300, 311 P.3d 313. A fuller spectrum of factual
situations is found in the Colorado cases. As catalogued in East Twin Lakes Ditches
& Water Works, Inc. v. Board of County Commissioners of Lake County, 76 P.3d
918 (Colo. 2003), the factors the Colorado courts have considered as indicative of
an intent not to abandon a water right include: “(1) repair and maintenance of
structures; (2) attempts to put the water to beneficial use; (3) active diversion records
and non-appearance of the water right on the [s]tate [e]Jngineer’s abandonment list;
(4) diligent efforts to sell the water right[s]; (5) filing documents to protect, change,
or preserve the right; (6) leasing the water right; and (7) economic or legal obstacles
to exercising the water right.” Jd. at 922 (citations omitted). None of the factors is
deemed conclusive but they may be enough to rebut the presumption of
abandonment. “On the other hand, if these factors are insufficient or nonexistent,
only then is the failure to put the water to a beneficial use enough by itself to sustain
a finding of abandonment.” Jd.

112} The pattern that emerges from Colorado’s cases is that abandonment will be
found if the user can be said to have done nothing to use water or protect facilities
over extended periods of time. In CF & I Steel Corp., the user shut down a well in

1918, and by the time of trial had done nothing to maintain the well or make

arrangements for alternate uses for the water for fifty-four years. 515 P.2d at 458. In
that regard, the court in CF & I Steel Corp. drew a sharp distinction with the facts in
Hallenbeck v. Granby Ditch & Reservoir Co., 420 P.2d 419 (Colo. 1966) (en banc),
where, because the user made continuous efforts to maintain facilities and continue
using water, the court found that “reasonable justification for non-use may very well
exist where it can be shown that economic, financial, or legal difficulties ..
prevented the storing of all the water that was originally decreed.” Jd. at 426; see
also Se. Colo. Water Conservatory Dist. v. Twin Lakes Assocs., Inc., 770 P.2d 1231,
1243 (Colo. 1989) (en banc) (holding that abandonment was proven where users had
done nothing to preserve facilities or redeem its land from tax sales for a period of
seventy-four years).

4113} We agree with Colorado’s approach to the issue. We also agree with
Appellants that the facts in Public Utility District v. State Department of Ecology,
51 P.3d 744 (Wash. 2002) (en banc), with regard to the efforts by the user there to
put water back to beneficial use, are closely analogous and support their position.
4114} Hillsboro cadre’s argument is of a different order. Hillsboro cadre seeks to
remake the law in New Mexico by melding our forfeiture statute with the concept of
abandonment. It argues that the adjudicative court “erroneously dismissed forfeiture

as not pertinent to the case through a narrow reading of the statute.” Somehow

incorporating the forfeiture statute into the analysis, Hillsboro cadre argues that Frost

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& Gray’s water rights were “presumptively forfeited in 1991 following four years
of nonuse of the water.” Hillsboro cadre’s argument ignores the settled historical
view of the difference between forfeiture and abandonment. We have already
detailed the policy and doctrinal roots of the distinction. Our Supreme Court went
so far as to “regret that forfeiture and abandonment had been used interchangeably”
in its prior opinions. S. Springs Co., 1969-NMSC-023, | 10.
4115} More importantly, Hillsboro cadre’s argument ignores the plain language of
our forfeiture statute. The statute provides in pertinent part:

When for a period of four years the owner of a water right . . . has failed

to apply them to the use for which .. . the right has vested, . . . the water

rights shall be, if the failure to beneficially use the water persists one

year after notice and declaration of nonuser given by the state engineer,

forfeited .. . ; provided that the condition of notice and declaration of

nonuser shall not apply to water that has reverted to the public by

operation of law prior to June 1, 1965.
NMSA 1978, § 72-12-8(A) (2002). As is the norm, New Mexico adheres to the
interpretive canon that the text of a statute is the primary source of its meaning. Ifa
statute contains language that is “clear and unambiguous, we must give effect to that
language and refrain from further interpretation.” See Truong v. Allstate Ins. Co.,
2010-NMSC-009, § 37, 147 N.M. 583, 227 P.3d 73 (internal quotation marks and
citation omitted). The language of the forfeiture statute is clear. Forfeiture of a water

right under the statute can only happen if the State Engineer has given notice of

“nonuser” and the water has not been put to use for a period of one year after such

notice. Notice was never issued to Appellants by the State Engineer, thus the statute
does not apply to this case.

16 To accept Hillsboro cadre’s argument, we would have to find an unspoken
intent on the part of the Legislature to overturn 150 years of accepted common law.
To pose such a result is to refute it. Not only would it do violence to the clear
mandate of the statute, it would—as Appellants note—defeat the statute’s purpose
to fix a time certain for loss of water after notice.

17} Having rejected Turner’s and Hillsboro cadre’s legal arguments, we are left
with determining whether the adjudication court’s conclusions of law that
Appellants’ failure to use their vested rights was excused by the circumstances they
faced and that Turner and Hillsboro cadre did not prove abandonment by clear and
convincing evidence are supported by the facts. Turner and Hillsboro cadre did not
challenge any of the adjudication court’s findings of fact. In reviewing a record,
“Twle indulge every presumption in favor of the correctness of the findings,
conclusions, and judgment of the district court.” See Sanchez v. Saylor, 2000-
NMCA-099, §] 12, 129 N.M. 742, 13 P.3d 960. At this point in this opinion, there is
no need to survey the record and evidence again. The record is clear about what
Appellants did and what they did not do. However haltingly, Frost & Gray sought to

revive the Mine and protect the vested rights they purchased from CFP. Their efforts

and those of their mining contractors fit within the board contours of the seven

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factors recognized by in East Twin Lakes cited above. To the extent Turner and
Hillsboro cadre argue the facts at all, their arguments are simply requests for us to
reweigh the evidence. In particular, most of Turner’s factual arguments are based on
the assertion that Frost & Gray were “speculators.” The difficulty is that the
adjudication court refused to find that they were. We are in no position to disagree.
B. The Open Pit

1s} The adjudication court found that the open pit—LRG-4652-S-17—
evaporated at the rate of 34.45 acre-feet per year and awarded NMCC the same
amount of water to be used for dust control with a priority date of December 10,
1975. Turner argues that there is no evidence to support the conclusion that the
evaporative loss is equal to the amount of water used for dust control given that the
adjudication court did not determine the amount water used for dust control. Turner
also questions whether evaporative loss can be reclassified as dust control when
determining the purpose of use. In addition, Turner challenges the December 1975
priority date, noting that water from the pit that did not exist could not have been
used until 1982 when mining activity occurred. Hillsboro cadre also notes that there
is no evidence in the record indicating how much water was actually used for dust
control.

4119} New Mexico Copper counters that there is support in the record for the amount

of water used for dust control from the pit. It relies on a general narrative -NMCC

Exhibit 35—describing how water usage was calculated in 1982 by CFP personnel.
Performing its calculations in its answer brief, NMCC arrives at a usage rate of 32.26
acre-feet per year for dust control water derived from the open pit. The difficulty is
that there is no indication that any of this evidence was presented to the adjudication
court in this format. So far as the record reveals, New Mexico Copper relied on the
declaration filed with the State Engineer for its claim for the open pit. The
adjudication court noted that the declaration provided no information as to how the
claimed usage or total water claim was calculated. And, Appellants did not request
a specific finding of fact detailing the amount of water actually put to use for dust
control from the pit.

4120} As such, we agree that there is no substantial evidence supporting the finding
of 34.45 acre-feet per year for dust control as measured by evaporative loss. We
reverse this portion of the judgment in favor of New Mexico Copper. Because we
are not certain about the basis for the adjudication court’s decision, we remand to
allow the adjudication court to clarify its ruling on this point.

121} We find no error in the ruling that the priority date for the vested water right—
if the court in the end determines there is one—should be December 10, 1975. Use
of the water at whatever rate for dust control is clearly part of the mining process.
As such, any water developed and used for the project is appropriately given a

priority date equal to the start of the project under the doctrine of relation.

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Vv. Conclusion

122} We affirm the adjudication court’s ruling in favor of Frost & Gray granting
them 861.84 acre-feet per year from the production wells with a priority date of}
December 10, 1975. We reverse the adjudication court’s ruling refusing to recognize
any vested rights in the Miscellaneous wells and remand for reconsideration in light
of our ruling. We affirm the adjudication court’s decision that the Appellants have
no Mendenhall rights. We affirm the adjudication court’s decision that Appellants
have not abandoned their vested rights. We reverse the adjudication court’s ruling
granting New Mexico Copper 34.45 acre-feet per year from the open pit for dust

control and remand for reconsideration in light of our ruling. The parties will bear

Pilea amaeal

MICHAEL D. BUSTAMANTE,
Judge Pro Tempore

their own costs.

23} IT IS SO ORDERED.

WE CONCUR: ,_ . .
2 Lh

J. MILES HANISEE, Chief Judge

V 22 _Q C fe -——_—.

RICHARD C. BOSSON, Judge Pro Tempore

NOR

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APPENDIX
FINDINGS OF FACT

The Four Production Wells

172.

LRG-4652, LRG-4652-S; LRG-4652-S-2; and LRG-4652-S-3:

a. LRG-4652 and LRG-4652-S were drilled in December 1975, LRG-
4652-S-2 was drilled in January 1976, and LRG-4652-S-3 was drilled in 1980.

The Miscellaneous Wells

173.

174.

175.

176.

LRG-4652-S-4:

a. LRG-4652-S-4 was drilled in 1931 for placer mining and used for that
purpose until 1943. The well was used only for watering livestock from 1943
to 1980.

LRG-4652-S-5:

a. LRG-4652-S-5 was drilled in 1931 for placer mining and used for that
purpose until 1943. The well was not used from 1943 to 1982. For about seven
months, the well was again used for placer mining from September 1, 1982 to
April 20, 1983.

LRG-4652-S-6
a. LRG-4652-S-6 was drilled in 1931 for placer mining and used for that
purpose until 1943. The well was not used from 1943 to 1963. The well was

used for placer mining again from 1963 to 1964, was not in use from 1964 to
1975, and was again used for placer mining from 1975 to 1984.

LRG-4652-S-7
a. LRG-4652-S-7 was drilled in 1932 for placer mining and used for that

purpose until 1943. The well was next used to water stock from 1943 to 1975
and was used for domestic purposes from 1975 to 1980.

>) On B&B WN

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178.

179.

LRG-4652-S-8

a. LRG-4652-S-8 was drilled in 1932 for placer mining and used for that
purpose until 1943. The well was next used to water stock and for domestic
purposes from 1943 to 1984 and has a perfected prebasin water right of 3
[acre-feet per annum] for domestic and stock watering purposes.

LRG-4652-S-9

a. LRG-4652-S-9 was drilled in 1971 to explore for adequate water for
Copper Flat, and it cannot be determined if the well was used between 1972
and 1974. From 1974 to 1978, the well was in use for unknown purposes.
From 1978 to 1980, there was little or no use of the well. The well pumped
approximately 22,922,500 gallons of water (70.35 [acre-feet per annum |) for
a construction project from October 1980 to March 1982.

LRG-4652-S-10

a. LRG-4652-S-10 was drilled in 1972 to explore for adequate water for
Copper Flat, and it cannot be determined if the well was used between 1972

- and 1974. From 1974 to 1978, the well was used for placer mining. From 1978

to 1980, there was little or no use of the well. The well pumped approximately
18,000,000 gallons of water (55.24 [acre-feet per annum]) for a construction
project from October 1980 to March 1982.

The Monitoring Wells

180.

181.

LRG-4652-S-11

a. LRG-4652-S-1 | was drilled in December 1974, with a capacity of 20
gpm, with 32 [acre-feet per annum] available for “standby use for mining,
milling, and reclamation purposes, to supplement supply” from the production
wells.

LRG-4652-S-12
a. LRG-4652-S-12 was drilled in April 1975, with a capacity of 106 gpm,

equipped with a cylinder pump powered by a windmill. The 1984 declaration
claimed 171 [acre-feet per annum] available for “standby use for mining,

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183.

184.

185.

milling, and reclamation purposes, to supplement supply” from the production
wells, and 3 [acre-feet per year] “since 1982 for stock watering.”

LRG-4652-S-13

a. LRG-4652-S-13 was drilled on May 12, 1975, with a capacity of 97
gpm. The 1984 declaration claimed 156 [acre-feet per year] available for
“standby use for mining, milling, and reclamation purposes, to supplement
supply” from the production wells.

LRG-4652-S-14

a. LRG-4652-S-14 was drilled on August 22, 1975, with a capacity of 262
gpm. The 1984 declaration claimed 423 [acre-feet per year] available for
“standby use for mining, milling, and reclamation purposes, to supplement
supply" from the production wells.

LRG-4652-S-15

a LRG-4652-S-15 was drilled on September 22, 1975, with a capacity of

208 gpm. The 1984 declaration claimed 336 [acre-feet per year] 59 available
for “standby use for mining, milling, and reclamation purposes, to supplement
supply” from the production wells.

LRG-4652-S-16

a. LRG-4652-S-16 was drilled on October 31, 1975, with a capacity of
110 gpm. The 1984 declaration claimed 177 available for “standby use for
mining, milling, and reclamation purposes, to supplement supply” from the
production wells.

The Open Pit and the Dolores Well

186.

LRG-4652-S-17, the open pit

a. LRG-4652-S-17 was declared separately as a point of diversion, not as
a well, and with no associated drill rig or well casing. The1984 declaration
estimated that 75 gpm could be removed, but no pump was installed. 120 [acre-
feet per year] was declared available for “dust control” and “reclamation,” but
no information was included concerning the calculation of this amount.

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187. LRG-4654, the Dolores well

a. LRG-4654 was drilled in 1932 for mining purposes and was used in
that capacity from 1932 to 1934. The well was used intermittently for mining

between 1932 and 1981.

September 17, 2021- Office of the State Engineer v. Harris Gray, No. A-1-CA-37258

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