Idaho Irrigation Co. v. Gooding

Background

The dispute involves an Idaho construction company formed to reclaim desert land under the Carey Act, trustees for the company’s bondholders, individual buyers of water rights, and the State of Idaho. The company sold water rights as shares in a reservoir and canal operating company and contracted to deliver a fixed amount of water per acre. The State applied for and received a federal land patent for about 117,677.24 acres after officials found an ample water supply. Buyers later sued, claiming the company had oversold water; a notice of the lawsuit (a lis pendens) was recorded, and some shares were bought at foreclosure and resold after the suit began.

Reasoning

The core question was whether the company could keep selling or transferring water-share contracts beyond the water actually available and whether the State’s application and the federal patent bound individual buyers. The District Court found a reasonable water duty of 2% acre-feet per acre and that the available supply would fall far short of fulfilling all outstanding contracts. The Supreme Court agreed that individual owners’ rights are measured by their contracts, that the patent and State action did not override those private rights, and that the company may not continue to sell or transfer shares that exceed the supply.

Real world impact

The Court upheld an injunction preventing the company from selling or transferring water shares in excess of the available supply and ordered excess shares, including those held after foreclosure when owned by the company, to be extinguished. That outcome protects existing buyers’ vested water entitlements and stops further reductions of their shares. The Supreme Court affirmed the District Court’s decree and reversed the Court of Appeals on the limited point discussed.