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The concept of taking as a compensable claim theory has limited application to the relative rights of party litigants when those rights have been voluntarily created by contract. In such instances, interference with such contractual rights generally gives rise to a breach claim not a taking claim. Taking claims rarely arise under government contracts because the government acts in its commercial or proprietary capacity in entering contracts, rather than in its sovereign capacity. Accordingly, remedies arise from the contracts themselves, rather than from the constitutional protection of private property rights.
Plaintiffs - 13 agricultural landowners and 14 water, drainage or irrigation districts in the Klamath River Basin area of Oregon and northern California - all receive, directly or indirectly, water from irrigation works constructed or operated by the Bureau. They trace their alleged interests in that water to a variety of sources, including federal reclamation law, general state water law principles, water-delivery contracts between the irrigation districts and the United States, deeds to real property purporting to convey a right to receive water, and a federal-state water law compact. The landowning plaintiffs seek just compensation both as beneficiaries of the district plaintiffs' contracts with the United States and as owners of what they describe as "Klamath Project water rights" that exist independently of the district contracts. The districts, in turn, seek breach of contract damages, as well as just compensation on behalf of their members, who are the beneficiaries of the district contracts and the persons ultimately harmed by the Bureau's reduction in water deliveries in 2001.
Did plaintiffs' various interests in the use of Klamath River Basin water constitute cognizable property interests for purposes of the Takings Clause?
The court held that federal law, specifically § 8 of Reclamation Act of 1902, 32 Stat. 388, 390 (1902) (codified at 43 U.S.C.S. §§ 372, 383), made it clear that state law controlled the definition of property rights to the water. The U.S. obtained rights to the water under relevant Oregon law in 1905. The proper remedy for plaintiffs whose claims were based on contracts with the U.S. was in contracts, not takings, because the U.S. acted in its proprietary capacity in entering into the water contracts, and the affected plaintiffs retained the full range of remedies to vindicate their contract rights. This analysis applied to the water districts and the ditch company, and the individual farmers, to the extent that they were the contracts' third-party beneficiaries. Plaintiffs whose claims were based on patent deeds and state permits did not have viable takings claims because, under the prior appropriation doctrine, any water rights provided through their deeds and permits were subservient to all prior interests. Nothing in the Klamath River Basin Compact, Pub. L. No. 85-222, 71 Stat. 497 (1957), advanced plaintiffs' rights.