Maricopa-Stanfield Irrigation & Drainage District v. Robertson

SUPREME COURT OF ARIZONA
En Banc

MARICOPA-STANFIELD IRRIGATION ) Arizona Supreme Court
& DRAINAGE DISTRICT, an Arizona ) No. CV-04-0385-SA
municipal corporation; CENTRAL )
ARIZONA IRRIGATION AND DRAINAGE )
DISTRICT, an Arizona municipal )
corporation; and approximately )
two hundred landowners, )
) Pinal County
Petitioners, ) Superior Court
) No. CV 2001-00924
v. )
)
THE HONORABLE KELLY MARIE )
ROBERTSON, JUDGE OF THE SUPERIOR )
COURT OF THE STATE OF ARIZONA, in )
and for the County of Pinal, )
) O P I N I O N
Respondent, )
and )
)
JOHN E. SMITH, et al., )
)
Respondents-Real )
Parties in Interest. )
__________________________________)

Special Action from Superior Court of Pinal County
No. CV 2001-00924
The Honorable Kelly Marie Robertson

JURISDICTION ACCEPTED; RELIEF GRANTED; ORDER VACATED; REMANDED

MILLER, LaSOTA & PETERS, P.L.C. Phoenix
By Donald M. Peters
Susan A. Cannata
Attorneys for Maricopa-Stanfield Irrigation & Drainage District

SALMON, LEWIS & WELDON, P.L.C. Phoenix
By Mark A. McGinnis
M. Byron Lewis
Richard N. Morrison
Attorneys for Central Arizona Irrigation & Drainage District
SACKS TIERNEY, P.A. Scottsdale
By Marvin S. Cohen
Attorneys for Approximately Two Hundred Landowners

RENAUD, COOK, DRURY, MESAROS, P.A. Phoenix
By J. Gordon Cook
Denise J. Henslee
Attorneys for John E. Smith, et al.

W. Patrick Schiffer, Chief Counsel Phoenix
Ryan A. Smith, Deputy Counsel
Maxine M. Becker, Deputy Counsel
Attorneys for Amicus Curiae Arizona Department of Water
Resources

ENGELMAN BERGER, P.C. Phoenix
By William H. Anger
Attorneys for Amici Curiae Cities of Chandler, Glendale,
Goodyear, Mesa, Peoria and Scottsdale

Jane D. Alfano Phoenix
Frederic L. Beeson
Attorneys for Amici Curiae Salt River Valley Water
Users’ Association and Salt River Project Agricultural
Improvement and Power District

CURTIS, GOODWIN, SULLIVAN, UDALL & SCHWAB, P.L.C. Phoenix
By Larry K. Udall
Attorneys for Amici Curiae Hohokam Irrigation & Drainage
District and San Carlos Irrigation & Drainage District

SOMACH, SIMMONS & DUNN Sacramento, CA
By Robert B. Hoffman
Attorneys for Amicus Curiae Central Arizona Water
Conservation District

Rodney B. Lewis, General Counsel Chandler
Attorney for Amicus Curiae Gila River Indian Community

Michael G. Rankin, City Attorney Tucson
Christopher E. Avery, Principal Assistant City Attorney
Attorneys for Amicus Curiae City of Tucson

David P. Frank, Attorney General Sells
Tohono O’Odham Nation

And

2
QUIGLEY & WHITEHILL, P.L.C. Tucson
By Daniel J. Quigley
Attorneys for Amicus Curiae Tohono O’Odham Nation

B A L E S, Justice
I.

¶1 The issue presented is whether agricultural landowners

have vested rights to certain irrigation water from the Central

Arizona Project (“CAP”). The water is the subject of a master

contract between the United States and the Central Arizona Water

Conservation District (“CAWCD”) and related subcontracts between

these entities and the two petitioner irrigation districts. The

landowners are not parties to these agreements. Because we hold

that the landowners do not have vested rights to the CAP water

in question, we vacate the trial court’s contrary ruling and

remand this case for entry of judgment in favor of the

districts.

II.

¶2 This litigation arose because the irrigation districts

contemplate entering into a water rights settlement that would

relinquish their rights to CAP water under their subcontracts

with the United States and the CAWCD.

¶3 The districts are Arizona municipal corporations

governed by boards of directors who in turn are elected by

landowners within a district’s boundaries. Ariz. Rev. Stat.

(“A.R.S.”) §§ 48-2901, -2922, -2978 (2005). Irrigation

districts are specifically authorized to enter into contracts

3
with the United States for the delivery, distribution, or

apportionment of water for the lands of the district. A.R.S. §

48-3092.

¶4 The districts have faced more than a decade of

financial turmoil stemming from the high cost of repaying the

United States for constructing the CAP to distribute irrigation

water from the Colorado River. The proposed settlement would

allow the districts to obtain debt relief in exchange for

relinquishing their rights to CAP water under the subcontracts;

they also would be able to purchase CAP water through 2030 under

new agreements.

¶5 By a majority vote, landowners within each district

approved the proposed relinquishment of rights to CAP water

under the subcontracts. Some dissenting landowners

(“landowners”) filed two lawsuits, one against the districts and

one against the CAWCD, alleging that they had vested rights to

CAP water that could not be abrogated without their consent.

¶6 The suit against the CAWCD was removed to the United

States District Court, which later dismissed it for failure to

state a claim. The Ninth Circuit Court of Appeals affirmed this

ruling. Smith v. Cent. Ariz. Water Conservation Dist., 418 F.3d

1028 (9th Cir. 2005).

¶7 The suit against the districts proceeded in the

superior court. The trial court granted partial summary

4
judgment in favor of the landowners, holding that they have

vested rights to the CAP water governed by the subcontracts and

that the districts may not alter those rights without the

landowners’ consent. This petition for special action followed.1

¶8 Because the trial court’s decision is of statewide

importance and the districts have no “equally plain, speedy, and

adequate remedy by appeal,” this Court accepted jurisdiction.

Ariz. R.P. Spec. Act. 1(a), 4(a); see also Bledsoe v. Goodfarb, 170 Ariz. 256, 257, 823 P.2d 1264, 1266 (1991) (granting special

action relief when legal issue affected water organizations

statewide). We have jurisdiction pursuant to Article 6, Section

5(3), of the Arizona Constitution.

III.

¶9 Three federal reclamation laws provide the statutory

backdrop to this case. In 1902, Congress passed the Reclamation

Act, 32 Stat. 388, to establish water reclamation projects in

the western United States. In 1928, Congress passed the Boulder

Canyon Project Act, 45 Stat. 1057, which provided for the

construction of Hoover Dam and authorized the Secretary of the

Interior (“Secretary”) to contract for the storage and delivery

of Colorado River water. Finally, in 1968, Congress passed the

1
In 2003, the trial court ordered the plaintiff landowners to
serve all other landowners in each district. About 200 of these
other landowners supported the districts in opposing the
plaintiffs’ claims and joined in the petition for special
action.

5
Colorado River Basin Project Act, 82 Stat. 885, which provided

for the construction and operation of the CAP. As a result,

states and water users operate under a somewhat complicated

system of intertwining federal statutes.

¶10 Critical to our analysis is the relationship between

section 8 of the Reclamation Act and section 5 of the Boulder

Canyon Project Act.2 Under section 8 of the Reclamation Act, the

Secretary generally must comply with state law in “the control,

appropriation, use, or distribution of water” through a federal

reclamation project. 43 U.S.C. § 383 (2000). Rights to water

acquired under the Reclamation Act are appurtenant to the land

irrigated and are measured by beneficial use. 43 U.S.C. § 372.

¶11 Section 5 of the Boulder Canyon Project Act (“BCPA”),

in contrast, authorizes the Secretary to contract for the

storage and delivery of water from its projects for irrigation

and domestic uses. 43 U.S.C. § 617d. The statute expressly

declares that “[n]o person shall have or be entitled to have the

use” of such water except by a contract with the Secretary. Id.

Section 5 of the BCPA does not mention state law and thus is in

tension with the directive in section 8 of the Reclamation Act

that state law shall control the recognition of water rights.

_______________
2
The Reclamation Act and the Boulder Canyon Project Act are
codified, respectively, at 43 U.S.C. §§ 372, 383 and 43 U.S.C. §
617d.

6
¶12 The United States Supreme Court addressed the

relationship between these two statutes in Arizona v.

California, 373 U.S. 546 (1963). Arizona had sued in 1952 to

resolve the allocation of Colorado River water among the states

in the river’s lower basin. The Court held that Congress, in

enacting the BCPA, “create[d] its own comprehensive scheme for

the apportionment among California, Arizona, and Nevada of the

Lower Basin’s share of the mainstream waters of the Colorado

River . . . .” Id. at 565.

¶13 The Court also clarified the respective roles of state

and federal law in controlling rights to water from the lower

Colorado. For federal reclamation projects in general, section 8

of the Reclamation Act requires the Secretary to follow state law

regarding the control, use, or appropriation of water. The

Court, however, expressly rejected the argument that state law

controlled the distribution of water subject to the BCPA. Id. at

580-81, 584-86. Instead, the BCPA vests the Secretary with the

power, “through his § 5 contracts, both to carry out the

allocation of the waters of the main Colorado River among the

Lower Basin States and to decide which users within each State

would get water.” Id. at 580.

¶14 In its subsequent decree, the Court reaffirmed the

distinctive nature of Colorado River distribution and the need

for secretarial contracts. Arizona v. California, 376 U.S. 340

(1964). The decree noted that, unless used for a federal

reservation:

7
 [M]ainstream water shall be released or delivered to
water users . . . in Arizona, California, and Nevada
only pursuant to valid contracts therefor made with
such users by the Secretary of the Interior, pursuant
to Section 5 of the Boulder Canyon Project Act or any
other applicable federal statute[.]

Id. at 343.

¶15 Against this legal background, Congress in 1968 passed

the Colorado River Basin Project Act (“CAP Act”), which, among

other things, created the CAP. In so doing, Congress carefully

avoided unsettling the BCPA, stating that, unless otherwise

provided, nothing in the CAP Act was to “be construed to alter,

amend, repeal, modify, or be in conflict with the provisions of

the” former. 43 U.S.C. § 1551(a). The CAP Act also vests the

Secretary with broad authority to administer the CAP. See

Maricopa-Stanfield Irrigation & Drainage Dist. v. United States,

158 F.3d 428, 438 n.18 (9th Cir. 1998) (“The Secretary’s generous

measure of discretion survived the Colorado River Basin Project

Act . . . .”); Cent. Ariz. Irrigation & Drainage Dist. v. Lujan,

764 F. Supp. 582, 589 (D. Ariz. 1991) (noting the Secretary’s

administrative power over the CAP).

¶16 Congress further specified how water users would

contract with the Secretary. 43 U.S.C. § 1524(b)(1). The CAP

Act outlines a step-by-step process under which the Secretary

could contract with a state political subdivision for the

repayment of CAP construction costs and the distribution of

water. Id. The state subdivision would, in turn, make CAP water

8
available to “users” within its boundaries through subcontracts.

Id. The terms and conditions of the subcontracts were to be

subject to the Secretary’s approval and the United States could

insist that it be included as a party. Id.

¶17 With the CAP on its way to realization, the Secretary

in 1972 entered into the “master contract” with the CAWCD.3

Under this contract, as amended in 1988, the United States

agreed to construct and operate the CAP water delivery system in

exchange for repayment of part of the attendant costs. Delivery

of CAP water was not guaranteed, but instead was subject to

availability and the Secretary’s determination of the amount of

Colorado River water to release for the CAP.

¶18 The United States and the CAWCD, in turn, entered into

subcontracts with the districts, the “users” under the statutory

scheme. Consistent with the master contract, the districts

agreed that CAP water could be made available for irrigation

only on lands with a “recent irrigation history,” and

groundwater pumping within each district’s service area would be

reduced by the amount of CAP water received under the

3
The CAWCD is a multi-county district created pursuant to state
law for the purpose of contracting with the Secretary for CAP
water. A.R.S. § 48-3703. Its boundaries are coextensive with
Maricopa, Pima, and Pinal counties, exclusive of Indian lands
within these counties. See Cent. Ariz. Water Conservation
Dist. v. United States, 32 F. Supp. 2d 1117, 1121 (D. Ariz.
1998).

9
subcontract. The master contract and the subcontracts were

validated in state court proceedings intended to confirm that

the agreements were properly entered into and binding on the

CAWCD and the districts. Each district also entered into a

“9(d) contract” to repay the United States the costs of

constructing irrigation distribution systems within the

district’s service area.

¶19 Both the master contract and the subcontracts

contemplated that CAP water would be delivered by the districts

to agricultural landowners for irrigation. After the validation

proceedings, each district entered into two agreements with its

respective landowners. These agreements, a memorandum of

understanding followed by a water service agreement, provide for

the distribution of water through canals and other works

constructed by and financed through the districts. The

landowners, in turn, agreed to pay taxes and service fees and

also agreed to convey to the districts their rights to use

certain irrigation wells that were subject to grandfathered

groundwater rights under state law.

¶20 The memoranda and the water service agreements did not

guarantee the landowners access to CAP water; they instead

allowed the districts to deliver irrigation water without

specifying its source. The parties, however, expected that the

districts would deliver, and the landowners would pay for, CAP

10
water under the water service agreements.

¶21 After the CAP was completed, the districts were unable

to meet their financial obligations to the CAWCD under the

subcontracts. Facing financial collapse, the districts entered

into ten-year interim agreements with the CAWCD to obtain water

at steeply reduced prices. This water is called “excess”

because it is water left unused by other CAP users. See Robert

Jerome Glennon, Coattails of the Past: Using and Financing the

Central Arizona Project, 27 Ariz. St. L.J. 677, 682-88 (1995)

(discussing problems of CAP financing and underutilization).

¶22 The financial pressure remained, and, in 2002, the

districts agreed to a proposal under which they would relinquish

their rights to CAP water under the subcontracts. In return,

the districts would obtain debt relief and could enter new

interim agreements to purchase water through 2030. These

provisions are part of a comprehensive water settlement

authorized by the Arizona Water Settlements Act, Pub. L. No.

108-451, 118 Stat. 3478 (2004).

¶23 Each district’s board of directors approved the

proposed settlement. By a majority vote, the landowners in each

district approved the proposed relinquishment of subcontract

rights to CAP water. Landowners dissenting from this result

pursued litigation in state and federal court.

IV.

11
¶24 In granting partial summary judgment, the trial court

held that the landowners have vested rights to receive CAP water

(1) pursuant to the Reclamation Act of 1902 or (2) because they

are third-party beneficiaries of the subcontracts between the

districts, the CAWCD, and the United States. Neither

determination can be sustained.

A.

¶25 The trial court read Arizona v. California to hold

that the BCPA supplements existing reclamation law. Section 8

of the Reclamation Act, as noted above, provides that water

rights obtained under the act “shall be appurtenant to the land

irrigated . . . .” 43 U.S.C. § 372. The trial court concluded

that, under the water service agreements, the landowners are

“contractually vested” with rights to CAP water appurtenant to

their land and these rights would be infringed if the districts

modified or relinquished the subcontracts.

¶26 This reasoning misapprehends the relationship between

section 5 of the BCPA and section 8 of the Reclamation Act.

Under the BCPA and Arizona v. California, entitlement to CAP

water depends on a contract with the Secretary. As the Supreme

Court has explained:

In Arizona v. California, we held that the [BCPA]
vested in the Secretary the power to contract for
project water deliveries independent of the direction
of § 8 of the Reclamation Act to proceed in accordance
with state law and of the admonition of § 18 of the
[BCPA] not to interfere with state law.

12
Bryant v. Yellen, 447 U.S. 352, 370 (1980).4

¶27 In holding that the landowners could obtain a vested

right to CAP water under section 8 of the Reclamation Act absent

a contract with the Secretary, the trial court misread Arizona

v. California and its resulting decree. A contract with the

Secretary is required to establish a right to water from the

Lower Colorado River. The landowners lack such a contract.

¶28 The landowners also argue that, once they received CAP

water distributed by the districts under the interim agreements,

section 8 of the Reclamation Act entitled them to continue to

receive such water from the districts. This argument cannot

succeed. Neither the landowners nor the United States was a

party to the interim agreements, so those agreements cannot

provide the contract necessary for the landowners to establish a

right to CAP water.5

¶29 The landowners also cite Supreme Court cases dealing

with rights to reclamation project water in settings other than

4
Bryant held that a 1926 amendment to the Reclamation Act
limiting irrigation deliveries to 160 acres under single
ownership could not apply to present perfected rights recognized
in the BCPA. 447 U.S. at 355-56. Like Arizona v. California,
Bryant refused to apply the general Reclamation Act to limit
specific provisions of the BCPA. Id. at 368-69.
5
The districts also argue that they have never purchased CAP
water under the subcontracts because it is too expensive, so the
landowners could not have acquired any rights to such water as a
result of having applied it for beneficial use. We need not
address this issue, given our holding that a contract with the
Secretary is necessary to establish an entitlement to CAP water.

13
the Lower Colorado River Basin. See, e.g., Ickes v. Fox, 300

U.S. 82, 94-95 (1937) (dealing with the Yakima River Project).

The landowners argue that, despite Arizona v. California, state

water law should apply to create vested rights to CAP irrigation

water once a reclamation project is built, a contract is issued,

and the water is beneficially applied.

¶30 On this point, the landowners principally rely on

California v. United States, 438 U.S. 645 (1978), which

concerned a reclamation project in California’s Central Valley.

There the Court held that, under section 8 of the Reclamation

Act, state law governs the control, use, and distribution of

water through a federal reclamation project unless state law

conflicts with a clear congressional directive. Id. at 674-75.

¶31 In so ruling, however, the Court reaffirmed that

different rules apply to the Colorado River. The Court

specifically noted that in Arizona v. California, it had

“concluded that because of the unique size and multistate scope

of the [Boulder Canyon] Project, Congress did not intend the

States to interfere with the Secretary’s power to determine with

whom and on what terms water contracts would be made.” Id. at

674.

¶32 The trial court’s ruling that the landowners have a

vested “right to perpetual use of the CAP water that is

appurtenant to their land” conflicts with section 5 of the BCPA

and Arizona v. California. Neither section 8 of the Reclamation
14
Act nor the landowners’ water service agreements with the

districts can substitute for a contract with the Secretary to

create a vested right to CAP water.

B.

¶33 The landowners attempt to overcome the fact that they

are not parties to a contract with the Secretary by arguing that

they are third-party beneficiaries of the subcontracts between

the Secretary, the CAWCD, and the districts. A third-party

beneficiary is a non-party who has the right to enforce a

contract. Restatement (Second) of Contracts § 304 (1979).

¶34 The trial court should not have entertained the third-

party beneficiary argument at all because the landowners had

already litigated and lost the same issue in federal court.

Principles of issue preclusion bar the relitigation in state

court of the landowners’ status as third-party beneficiaries to

the subcontracts.

¶35 After the landowners filed this suit against the

districts in the Pinal County Superior Court in 2001, they filed

a separate suit in the same court against the CAWCD in 2003.

The CAWCD removed the second suit to the district court. In

September 2003, the district court dismissed the suit against

the CAWCD on the grounds that the landowners were not third-

party beneficiaries of either the master contract or the

subcontracts. While an appeal was pending in the Ninth Circuit

15
in the CAWCD case, the landowners argued in their state court

suit against the districts that they were third-party

beneficiaries of the subcontracts. The trial court accepted

this argument in its November 2004 ruling without addressing the

effect of the district court’s prior ruling to the contrary.

¶36 The district court’s ruling dismissing the suit

against the CAWCD was a judgment for purposes of issue

preclusion, even though an appeal was pending. Robi v. Five

Platters, Inc., 838 F.2d 318, 327 (9th Cir. 1988) (pending

appeal does not alter preclusive effect of district court

judgment). The trial court, before reaching the merits,

therefore should have considered whether the district court’s

judgment barred the landowners from relitigating their status as

third-party beneficiaries.

¶37 Federal law determines the preclusive effect of a

federal court judgment in state court. Semtek Int’l Inc. v.

Lockheed Martin Corp., 531 U.S. 497, 507 (2001) (“[W]e have long

held that States cannot give [federal] judgments merely whatever

effect they would give their own judgments, but must accord them

the effect that this Court prescribes.”); Restatement (Second) of

Judgments (“Restatement”) § 87 (1982) (“Federal law determines

the effects under the rules of res judicata of a judgment of a

federal court.”).

¶38 Applying federal law to determine the preclusive

effect of federal judgments helps maintain “the integrity of

16
federal judicial power and the coherence of the federalist

judicial system.” Watkins v. Resorts Int’l Hotel & Casino, 591

A.2d 592, 598 (N.J. 1991); see also Restatement § 87 cmt. a

(noting that principle of finality of judgments is implicit in

authority given federal courts under Articles I and III of the

Constitution). Employing federal law also follows logically

from the premise that preclusion is a “consequence of the

procedures of the issuing court.” Watkins, 591 A.2d at 598.

This approach parallels the rule, expressed in the Full Faith and

Credit Act, 28 U.S.C. § 1738, that federal courts will refer to

state law in determining the preclusive effect of a state court

judgment. See Marrese v. Am. Acad. of Ortho. Surgeons, 470 U.S.

373, 380-81 (1985).

¶39 The Supreme Court has long recognized the defensive

use of issue preclusion. Parklane Hosiery Co. v. Shore, 439

U.S. 322 (1979). Under this doctrine, a plaintiff and its

privies are barred from relitigating issues already settled in

one case against a defendant party in another case. Id. at 329.

The party asserting the bar must show that (1) the issue was

litigated to a conclusion in a prior action, (2) the issue of

fact or law was necessary to the prior judgment, and (3) the

party against whom preclusion is raised was a party or privy to

a party to the first case. Allen v. McCurry, 449 U.S. 90, 94-95

(1980). Each of these requirements is met here.

¶40 The landowners litigated their third-party beneficiary

17
status to a conclusion in the federal litigation against the

CAWCD. They argued before the district court that they were

third-party beneficiaries of the master contract and the

subcontracts, and the district court’s dismissal of their case

for failure to state a claim constituted a judgment on the

merits. See Federated Dep’t Stores, Inc. v. Moitie, 452 U.S.

394, 399 n.3 (1981).

¶41 Determining the landowners’ third party status was

essential to the federal court judgment. The district court

held that the landowners had failed to state a claim because

they were not third-party beneficiaries. Applying de novo

review, the Ninth Circuit agreed, noting that the master

contract and the subcontracts did not reflect any clear intent

to recognize the landowners as intended beneficiaries entitled

to enforce the agreements as third parties. Smith, 418 F.3d at
6
1038.

¶42 Finally, the landowners in this state court litigation

were parties or privy to parties in the federal litigation. The

6
The Ninth Circuit has recognized that its case law regarding
the status of irrigators as third-party beneficiaries may be at
odds with H.F. Allen Orchards v. United States, 749 F.2d 1571,
1576 (Fed. Cir. 1984), which stated that members of an irrigation
district could sue as third-party beneficiaries to enforce a
consent decree entered by the district on their behalf. See Orff
v. United States, 358 F.3d 1137, 1147 n.5 (9th Cir. 2004). The
Supreme Court affirmed the Ninth Circuit’s ruling in Orff without
reaching the third-party beneficiary issue. Orff v. United
States, 125 S. Ct. 2606 (2005). H.F. Allen is not persuasive
here, because it did not involve Colorado River water governed by
the BCPA and its remarks on third-party beneficiary status were

18
lead plaintiffs and counsel for all plaintiffs are the same in

each action. Although the record reflects that some landowner

plaintiffs were added to this action who were not also parties

to the suit against the CAWCD in federal court, this fact does

not alter our conclusion that issue preclusion should apply.

See Petit v. City of Chicago, 766 F. Supp. 607, 613 (N.D. Ill.

1991) (applying issue preclusion where plaintiffs added parties

in subsequent action in attempt to avoid preclusion).

¶43 The interests of any new landowner plaintiffs

regarding the third party issue were identical to those of the

overlapping plaintiffs in the two actions. There is no question

that the new landowner plaintiffs had notice of the ongoing

federal litigation and that their interests were adequately

represented. Moreover, the landowners have not argued a lack of

privity among the plaintiffs, and accordingly “any argument of

that nature is deemed waived.” See Thorton v. City of St.

Helens, 425 F.3d 1158, 1166 (9th Cir. 2005) (applying Oregon law

of issue preclusion).

¶44 In attempting to avoid issue preclusion, the

landowners instead rely on section 29 of the Restatement, which

identifies various circumstances that allow a party to

relitigate a previously determined issue. Because federal

courts have looked to the Restatement in determining the

_______________
unnecessary to its decision. See 749 F.2d at 1576.

19
preclusive effect of federal judgments, we will consider the

landowners’ arguments that certain exceptions identified in

section 29 apply here. See Montana v. United States, 440 U.S.

147, 162-64 (1979) (citing drafts of the Restatement in

determining whether to apply exceptions to the rule of

preclusion).

¶45 The landowners first assert that treating the third

party issue as conclusively determined would be “incompatible

with an applicable scheme of administering the remedies in the

actions involved,” Restatement § 29(1), because it would

frustrate the state legislature’s purpose in creating Arizona

irrigation districts to benefit their landowner members.

¶46 This argument is unconvincing. Section 29(1) of the

Restatement applies when a remedial scheme limits the effect to

be given to a prior determination of an issue. Id. cmt. c. An

example would be “a statute provid[ing] that a determination is

limited to the action in which it is made or . . . [is] only

prima facie evidence of the facts involved . . . .” Id. The

landowners do not identify any remedial scheme that would limit

the preclusive effect of the federal court judgment.

¶47 We also do not believe that according preclusive effect

to the prior federal judgment would somehow frustrate the purpose

of Arizona’s legislation creating irrigation districts. Nothing

in the state legislation suggests any intent to make individual

landowners the third-party beneficiaries of an irrigation

district’s contracts, either in general or with the Secretary

concerning CAP water.

20
¶48 The landowners next argue that preclusion should not

apply under section 29(5) of the Restatement because the prior

determination may have been affected by relationships among the

parties to the first action that are not present in the

subsequent action. This exception applies when circumstances

distinctive to the first proceeding might have influenced the

outcome and the issue “could reasonably have been resolved

otherwise if those circumstances were absent.” Id. cmt. g. The

landowners have not identified anything regarding the federal

court proceedings that would invoke this exception.

¶49 Citing section 29(6) of the Restatement, the

landowners also argue that they should be allowed to relitigate

their third-party status because the federal court did not base

its ruling on state law. Section 29(6) is inapposite because it

applies when treating an issue as conclusively determined would

either complicate the determination of issues in the subsequent

action or prejudice the interests of another party who has not

yet had his day in court. Id. cmt. h.

¶50 Moreover, the landowners are mistaken in arguing that

state law should determine if they are third-party beneficiaries.

Federal, not state law, controls the construction of contracts

entered by the United States pursuant to a federal statute.

United States v. Seckinger, 397 U.S. 203, 209-10 (1970); Klamath

Water Users Protective Ass’n v. Patterson, 204 F.3d 1206, 1210
(9th Cir. 2000).

¶51 The landowners finally argue that they should be

allowed to relitigate their status as third-party beneficiaries

21
so that their opportunity to “obtain[] reconsideration of the

legal rule upon which it was based” is not “inappropriately

foreclose[d],” Restatement § 29(7), or because “[o]ther

compelling circumstances make it appropriate . . . .” Id. §

29(8). The landowners sought reconsideration of the district

court’s legal determination of their third-party status when

they appealed to the Ninth Circuit. That the landowners were

disappointed with the outcome in the federal courts is not

sufficient reason to allow them to relitigate the issue in state

court under Restatement section 29(7).

¶52 Nor have the landowners identified “compelling

circumstances” that would justify relitigation under section

29(8) of the Restatement. This exception applies when a prior

determination is discovered to have been plainly wrong, new

evidence has become available that could likely lead to a

different result, or other compelling circumstances show good

reason for allowing a party to relitigate an issue. Id. cmt. j

& reporter’s note.

¶53 The landowners assert that the irrigation districts

were created for their benefit and that only the landowners have

the “right” to use CAP water on district lands. The

subcontracts do not, however, recognize any entitlement on the

part of individual landowners to CAP water and they do not

express any intent to afford enforceable rights to non-parties

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who might ultimately apply the water for irrigation purposes.7

¶54 The landowners did enter contracts with the districts

for the delivery of irrigation water, namely, the memoranda of

understanding and the subsequent water service agreements.

These agreements, however, do not include the Secretary as a

party and they do not modify the master contract or the

subcontracts. They also do not purport to give the landowners

any vested right to CAP water. The water service agreements,

with slight variations among the districts, provide that the

districts will deliver “irrigation water” without specifying its

source as CAP water; the same agreements declare that the right

to receive water from the districts will be appurtenant to the

land, but this provision also does not identify CAP water.

¶55 With regard to landowner water rights, the water

service agreements instead provide that the landowners retain

the “exclusive right” to convert grandfathered groundwater

irrigation rights to certain non-irrigation water rights and

that, if they do so, they may regain the wells on their lands

for use solely for municipal and industrial purposes. This

7
For this reason, if we were to reach the merits, we would
agree with the Ninth Circuit that the landowners are not third-
party beneficiaries entitled to enforce the master contract or
the subcontracts. See Klamath, 204 F.3d at 1210-12 (holding
that third-party beneficiary status does not result merely
because a government contract operates to benefit identified
non-parties; evidence of a clear intent to confer such status is
required).

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provision stands in marked contrast to the subcontracts, which

are distinctly silent about any “rights” of individual

landowners to acquire or use CAP water upon the conversion of

their land from agricultural use.

¶56 In sum, the landowners have not identified compelling

circumstances that would justify allowing them to relitigate

their status as third-party beneficiaries. The federal court

determination that they are not third-party beneficiaries of

either the subcontracts or the master contract controls in this

litigation. See Smith, 418 F.3d at 1036-38.

V.

¶57 Because the landowners cannot establish an entitlement

to CAP water absent a contract with the Secretary, and because

they are not third-party beneficiaries to either the

subcontracts or the master contract, the trial court erred in

ruling that they have a vested right to CAP water. Our holding

does not address what other rights, if any, the landowners may

have under the agreements to which they are parties, such as any

grandfathered irrigation rights or rights to use wells located

on their lands for non-agricultural purposes.

¶58 This action for declaratory relief turns on the

landowners’ alleged vested right to CAP water. Because the

landowners have no vested right to CAP water, the districts are

entitled to summary judgment dismissing the second amended

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complaint. We vacate the trial court’s order granting partial

summary judgment in favor of the landowners, grant the

districts’ request pursuant to A.R.S. § 12-341.01 for an award

of attorneys’ fees incurred in this special action, and remand

this case to the trial court for further proceedings consistent

with this opinion, including the determination of any request

for an award of fees incurred in the trial court.

__________________________________
W. Scott Bales, Justice
CONCURRING:

_______________________________________
Ruth V. McGregor, Chief Justice

_______________________________________
Rebecca White Berch, Vice Chief Justice

_______________________________________
Michael D. Ryan, Justice

_______________________________________
Andrew D. Hurwitz, Justice

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