IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (San Joaquin)
June 28, 2011
CENTRAL SAN JOAQUIN WATER CONSERVATION DISTRICT, PLAINTIFF AND RESPONDENT,
STOCKTON EAST WATER DISTRICT, DEFENDANT AND APPELLANT.
Super. Ct. No. 39201000234681CUMCSTK
The opinion of the court was delivered by: Raye , P. J.
Central San Joaquin Water Conserv. Dist. v. Stockton East Water Dist.
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
In this long-simmering dispute between Central San Joaquin Water Conservation District (Central), which supplies surface water to agricultural customers, and Stockton East Water District (Stockton East), which operates the conveyance system through which the water flows, the trial court granted Central a preliminary injunction limiting the amount Stockton East could charge for transporting (wheeling) Central's water. At issue in the underlying declaratory relief action brought by Central is the question of what "fair compensation" is due Stockton East under the provisions of Water Code section 1811, subdivision (c). In its appeal, Stockton East urges us to decide issues that had not been decided by the trial court when it granted a preliminary injunction to maintain the status quo pending trial. The thrust of Stockton East's appeal is that the court erred by ruling as a matter of law that it could only recover incremental costs associated with wheeling Central's water rather than a pro rata share of the capital, operation, and maintenance costs of the project. Because we conclude the trial court has not determined what fair compensation is, did not rule that Stockton East could only recover incremental costs as a matter of law, and did not abuse its discretion by issuing a preliminary injunction, we affirm the judgment.
Few facts are relevant to the narrow scope of the issues properly before us. As an owner of a water conveyance system, Stockton East must transport water for others for fair compensation if it has unused capacity. (Wat. Code, § 1811, subd. (c).) Central, a neighboring water district, delivers surface water it purchases from the federal government to agricultural customers to irrigate crops and water stock in lieu of pumping groundwater.
In 1990 and 1991 the two districts entered into two wheeling contracts that have been the subject of much controversy and protracted litigation. For many reasons irrelevant to our appeal, the parties agreed to a wheeling rate of $21.15 per acre-foot of water, an amount Central was unable to pay in full. The disputes arising from the 1990 and 1991 wheeling contracts are the subject of entirely different lawsuits.
Apparently Stockton East never stopped wheeling Central's surface water supplies despite the ongoing dispute over past-due payments. In 2008, however, Stockton East gave notice it would terminate the contracts effective January 1, 2009, and proposed that the two districts consolidate. While consolidation negotiations were pending, the parties agreed to a one-year contract providing that Central would pay Stockton East the wheeling rate of $5.00 per acre-foot. By the fall of 2009 consolidation discussions had broken down.
In November 2009 Stockton East informed Central it would not wheel water for Central in 2010. Central reminded Stockton East of its statutory obligation to wheel water. In response, Stockton East calculated fair compensation to be $41.50 per acre-foot by apportioning a pro rata share of Stockton East's costs to Central, anticipating that Central's surface water would consist of 37.97 percent of all water moving through Stockton East's facilities in 2010. Yet Stockton East was willing to wheel water for the discounted rate of $21.15 per acre-foot, the wheeling rate the parties had negotiated in the 1990 and 1991 contracts.
In February 2010 Central filed a complaint for declaratory relief, challenging the $21.15 wheeling rate, and for injunctive relief to enjoin Stockton East from withholding wheeling services from Central during 2010. A more detailed description of the hearing on the motion for a preliminary injunction follows. Suffice it to say, the trial court granted a preliminary injunction with a wheeling rate of $5.00 per acre-foot to preserve the status quo. The court explained its practical dilemma this way: "Now, the $5 a foot apparently was too little but I'm kind of stuck with a choice between the $5 per acre foot figure, which the parties did agree to, perhaps with consideration given on both sides, but it was agreed to versus the 21 and change charge that Stockton East is now looking for." Stockton East appeals the order granting the preliminary injunction. There has been no trial.
We agree with Central that Stockton East's appeal is based on faulty premises about what occurred in the trial court proceedings. We must examine those proceedings to determine what was decided and what was not.
First, we point out that Stockton East does not rely on the order granting the preliminary injunction but on remarks the trial court made during the hearing. The order itself quite clearly reflects that there has been no final ruling on compensation. The order expressly states, "Until such time as the Court finally determines an amount that constitutes 'fair compensation' for the 2010 water year pursuant to the Wheeling Statutes (Water Code §1810 et seq.) Central shall pay [Stockton East] $5.00 per acre-foot ('af') of surface water wheeled through [Stockton East's] conveyance facilities during the 2010 water year."
Second, Stockton East mischaracterizes the remarks the trial court made during the hearing. According to Stockton East, the trial court ruled that it could only recover incremental costs associated with wheeling water. In truth, the court stated that Stockton East had not considered incremental costs when calculating fair compensation. The court remarked, "I think that there's -- the problem I have chiefly is that there is no consideration given for what truly ought to be incremental costs. The facilities, administration, overhead, even profit, I don't have a problem with any of these things being factors. But what is missing from Stockton East's analysis is consideration of what its actual incremental costs are occasioned by the requirement that it wheeled." Thus, far from a final determination as a matter of law that fair compensation is limited to a conveyance system owner's incremental costs of providing wheeling services, the court's musings at the hearing reflect a flexible and comprehensive approach to assessing fair compensation. Most importantly, a finding of fair compensation, including all the components as defined by statute, is yet to be done following a trial on the merits.
Similarly, the trial court did not, as Stockton East suggests, define fair compensation as $5.00 per acre-foot or order it "to wheel water in the absence of fair compensation." (Italics omitted.) Rather, the court attempted to preserve the status quo pending trial and resolution of the fair compensation question on the merits. Indeed, the order provides: "If, after a trial on the merits, the Court determines that fair compensation constitutes more than $5 per [acre-foot], Central shall pay any amounts owing for wheeling services provided by [Stockton East] for the 2010 water year."
The trial court also acknowledged that no bond was required pursuant to section 995.220 of the Code of Civil Procedure. Central voluntarily agreed, however, to put $150,000 into an escrow account to cover the anticipated costs of wheeling water for 2010. Yet Stockton East complains vociferously that the trial court's ruling leaves it financially exposed and vulnerable. It reminds us that Central has failed to pay its bills in the past, and it has no reason to believe it will be able to pay a fair compensation. There are several reasons to reject these arguments.
First and foremost, the Legislature has decided, as a matter of public policy, that a public agency, such as Central, does not have to post a bond. Embodied in that policy is a necessary trade-off -- the agency's adversary in injunction proceedings must assume the financial risk of an improvidently granted injunction.
Second, we cannot accept Stockton East's premise that Central will not pay as evidenced by the history of the disputes between the parties. Those disputes remain languishing in other lawsuits. Since those cases are yet to be decided, we will not draw any inferences about Central's ability or willingness to pay what the court ultimately determines is fair compensation for the 2010 wheeled water. We also reject Stockton East's characterization of the issue as a matter of law. The determination of fair compensation is inherently factual. Indeed, the court pointed out it would need to consider historical rates, incremental costs, profits, capital improvements, and maintenance overhead. The court's comments further reflect the fact-intensive nature of determining whether the $21.15 rate offered by Stockton East constitutes fair compensation pursuant to section 1811, subdivision (c) of the Water Code.
The court explained: "There's also not enough information for me here, but I would be interested to see how Stockton East calculated the rates in the past. It had the same legal mandate in the past and clearly the rates charged in the past are significantly different than what they are imposing now. Maybe the answer is Stockton East just woke up. They realized they had been getting a raw deal on this. They had been getting heat from their rate-payers. I don't know what it is, but something has to -- there has to be some consideration of how they calculated their rates in the past.
"They're not required to stick to a bad formula. You're not required to continue a perfect fit for the state, if that's what it is, from the past, but I would be interested to know how that worked.
"Now, Central's ability to pay is not a factor. Certainly agree with that. It's also not Stockton East's obligation to prop up a losing proposition. They don't have to provide a subsidy. But it comes back to -- on the other hand, they don't get to shift the subsidies so they -- that requires Central to effectively subsidize their operation, which is what I see is happening here.
"Now, the issue of unpaid charges or under-payments in the past, that needs addressing and perhaps that's -- [Central's counsel] indicates that that's what the underlying litigation is all about."
In essence, Stockton East has taken a handful of statements the court made during the hearing on the preliminary injunction and presented those isolated statements as findings of law. We understand, as Stockton East reiterates throughout its briefing, that section 1811, subdivision (c) of the Water Code sets forth specific factors to be included in the calculation of fair compensation. But here there has been no final determination whether Stockton East's rate of $21.15 represents a fair compensation based on evidence that will be presented at trial. We will not presume the court will misread or misapply the statute once all the evidence is presented.
Thus, we agree with Central that this appeal is asking for little other than an advisory opinion on issues yet to be decided by the trial court. Unlike the cases cited by Stockton East, there has been no ruling by the trial court on a legal issue, an issue clearly divorced from a fact-intensive examination. (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 409; Yes on Measure A v. City of Lake Forest (1997) 60 Cal.App.4th 620, 623; Pro-Family Advocates v. Gomez (1996) 46 Cal.App.4th 1674, 1681; City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297.) Rather, the court has yet to make any definitive factual or legal determination and we must await the results of the pending trial, at which time the court will have the opportunity to decide the facts and apply those facts to the law. Until then, the questions presented by Stockton East are simply not ripe for appellate review.
We are tempted to dismiss the appeal as requested by Central. Slithering through the briefs, however, is the hint of a challenge to the issuance of the preliminary injunction. In other words, we detect the possibility that Stockton East might also be suggesting the trial court abused its discretion by issuing the injunction pending trial. Thus, it asserts there is no substantial evidence to support the $5.00 acre-foot rate ordered by the court. Giving Stockton East the benefit of the doubt that its challenge is not merely a premature request for a legal ruling, we will dispel the alternative notion that the trial court abused its discretion by issuing the preliminary injunction at the $5.00 acre-foot rate.
Pursuant to section 526 of the Code of Civil Procedure, a trial court must consider two related factors to determine whether to order a preliminary injunction. The court must weigh 1) the relative harm to the parties from issuance or non-issuance of the injunction, and 2) the likelihood the moving party will prevail on the merits. (Butt v. State of California (1992) 4 Cal.4th 668, 677-678; Millennium Rock Mortgage, Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804, 808.) "[T]he greater the plaintiff's showing on one, the less must be shown on the other to support an injunction." (Butt, supra, 4 Cal.4th at p. 678.) We review the court's assessment of these two factors for an abuse of discretion. (Ibid.)
Central argued that its former clients would be forced to pump groundwater to irrigate crops and water stock if it could not provide them surface water and thus further deplete an already overdrafted groundwater basin. Stockton East does not challenge Central's allegations regarding the strain on the groundwater supplies. The trial court found that Central made a "great" showing of "real" irreparable injury that would occur in the absence of a preliminary injunction. Because the interim harm finding is so compelling, the relative significance of the likelihood of success diminishes.
Yet this factor is the sole focus of Stockton East's appeal. For all the reasons explained in part I, ante, we will not speculate on fair compensation. Suffice it to say, Central must demonstrate that $21.15 is not fair compensation under the Wheeling Statutes. (Wat. Code, § 1810-1814.) Section 1813 of the Water Code requires, in relevant part: "In making the determinations required by this article, the respective public agency shall act in a reasonable manner consistent with the requirements of law to facilitate the voluntary sale, lease, or exchange of water . . . . In any judicial action challenging any determination made under this article the court shall consider all relevant evidence, and the court shall give due consideration to the purposes and policies of this article. In any such case the court shall sustain the determination of the public agency if it finds that the determination is supported by substantial evidence."
The significance of incremental costs is yet to be determined at trial. Central, however, has made the requisite threshold showing that the incremental costs should be considered. Beyond that, Central will have the opportunity to discover and present evidence whether Stockton East's calculation of fair compensation is reasonable. (Wat. Code, §§ 1811, 1813.) The trial court did not abuse its discretion by concluding there was sufficient likelihood that Central could demonstrate the rate set was not fair compensation, was not reasonable, and would not facilitate the exchange of water. Moreover, given the gravity of the interim harm, the trial court did not abuse its discretion by preserving the status quo.
Finally, we reject Stockton East's contention there is no substantial evidence to support the interim rate. In fact, the court pointed out the parties had agreed to the $5.00 per acre-foot rate the previous year, which provided the requisite justification. The court acknowledged the probability that the rate was artificially low, but in the absence of any other evidence, it relied on the most recent agreement between the parties. Indeed, the ruling states that if the interim rate is not found to constitute fair compensation under the statutes, Central will be ordered to compensate Stockton East for the differential.
In sum, we can find no abuse of discretion precisely because the court has minimized the harm that would have occurred in the absence of an injunction pending trial. There have been no determinations of law or fact. There is no wrong to be remedied at this time. The case must proceed to trial.
Central's motion to dismiss is denied. The judgment is affirmed.
We concur: ROBIE , J. DUARTE, J.
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