Understanding "Fee Lands" and Vested Water Rights

On January 29, 2002, the United States Court of Federal Claims (Court) issued its Final Opinion and Finding of Fact in the property phase of Hage v U.S. This litigation was initiated by the government's argument that Plaintiff could not access the forage and water on lands then administered by the United States Forest Service (USFS) and the Bureau of Land Management (BLM) without a grazing permit. The government's argument was premised on its claim that the grazing lands in question were "public lands"; that the government owned these lands, and therefore, the waters arising on those lands. According to the government, Plaintiff's ability to use the water and forage on the lands in question, was a conditional privilege. The canceling of a grazing permit by the BLM or USFS, according to the government, cancelled any claim Plaintiff had to the forage or water.

Plaintiff argued that the stockwater rights in question were vested rights, and that the beneficial use of that water was livestock grazing, giving him a property interest in lands of the United States, which is recognized by the Internal Revenue Service (IRS) in estate inheritance tax assessments.

In the January 2002 Final Opinion and Finding of Fact, the Court held that Plaintiff had not been granted a surface estate right to the grazing lands through any of the federal land disposal laws passed by Congress. The Court explained, in a footnote, that "property rights ... are usually defined by state law." The land disposal laws granted access to the land. Once the lands were accessed by settlers and the water put to beneficial use, property had been created under state law.

In a footnote, the Court set forth reference to the exact boundaries of the fee lands it was referencing. These boundaries include the Meadow Canyon, Monitor, and Table Mountain allotments.

In dealing with the vested water rights on the southern portion of the ranch, the Court used the same language about vested water rights and title to the fee lands within the boundaries of the Ralston and McKinney allotments.

The purpose of this paper is to explore the meaning of the Court's use of the term "fee lands" for the purpose of setting the stage for inquiries as to the policy implications of that term as it relates to land and water use in the prior appropriation states.

It is important to note that the Court used the phrase "title to fee lands" where the adjective "fee" is used to describe the lands. The Court did not use the phrase "fee title to the land" where the adjective "fee" is used to describe "title" to land. The courts have held that the phrase "fee title to land" is used where patent has issued. It relates to the subject of property (the rock and mineral) as well as the property (invisible rights and claims). Obviously, grazing allotments themselves are not patented, and the U.S. retains the right to dispose of the mineral in the land through the mining laws.

Thomas Sowell probably articulated the underlying concept expressed here as well as anyone, when he wrote:

The courts have also addressed the distinction between property and the subject of property as in the Northwestern Trust Company v Kelly, 48 NC 1267, 189 citing RCL when it states:

It is instructive to precisely define two key terms used by the Court in its Findings; "vested" and "fee."

A "vested right" is property which the law protects. Hoeft v Supreme Lodge Knights of Honor, 45P. 185, 186 133 Cal 91, 33 LRA 174

A "vested right" is absolute, complete and unconditional in itself. State ex rel Wayne County v Hackman, 199 SW 990, 991, 272 Mo. 600

A "vested right" is a right which is fixed, unalterable and irrevocable. Miller v Johnstown Traction Co., 74A 2d 508, 511, 167 PA super 22.

The grant of a "fee" in land conveys to the grantee complete ownership, immediately and forever with the right of possession from boundary to boundary . . . S.H.A.Ill. ch 30, 12, Magnolia Petroleum Co. v Thompson, CCA Mo., 106 F2d 217, 224, 227, 228.

The word "fee" is used interchangeably with "fee simple" and "fee simple absolute." It implies an unlimited estate of inheritance when used without any qualifying adjective. Blevins v Smith, 16 S.W. 213, 218, 104 Mo. 583, 13 LRA 441.

An estate in fee simple absolute means a perfect title. It is the entire and absolute interest in property, or land, from which it follows that no one can have a greater estate. Fink v Darst, 14 Ill. (4 Peck) 304, 308, 58 Am. Dec. 575, quoting Cruise, Dig. Tit. "estate in fee simple"

The words "vested" and "fee" convey precepts of property law which are as old as the history of law. The word "fee," in particular, has an interesting development from medieval times to the present. In medieval times, it was customary for the king to own the land. Any use of the king's land was a conditional privilege, extended to those who did service to the King. Service could come in the form of participating in the King's wars, or battles, or in some economic, political or religious sense. These privileges were usually proffered for a limited period of time, such as the life of the tenant or as long as the tenant retained his "good standing" with the King. This arrangement allowed for the King to keep his lands producing economically while rewarding those faithful to him. The limited, or temporary, use of the King's lands was referred to as "beneficial use," to use the modern English phrase, or to use the old English phrase, a use limited by time, or circumstance, was called a usufruct. This general concept of land use was predominant in England in the period immediately after the Norman Conquest.

There were problems with the concept of beneficial use or usufruct. The person holding the usufruct knew that his time on the land was limited. This created an incentive on the holder of the usufruct to take as much out of the land as possible and to invest as little as possible in the lands. The end result of this method of land utilization was a general deterioration of the land resource itself, and a less than efficient economic return to the King.

To enhance both efficiency of land use and efficiency of economic return, incentives were sought which would encourage both. One of the most negative incentives controlling the tenant's actions was the effort to acquire as great a monetary accumulation as possible, during his tenure on the King's land, so he would have something to pass on to his heirs. Kings realized that the most effective way to reduce inefficiencies in the use of their lands was to make the use of their lands inheritable, thereby creating an incentive, in the tenant's self-interest, to maximize efficiency in land use and economy to the realm.

If the use of the King's lands was made permanent, the tenant could provide for his heirs by passing the use of the King's land, lawfully, to his posterity. When the beneficial use of the King's land, the usufruct, was made permanent, the beneficial use, or usufruct, became known as the fee.

The semantic origin of the word fee as set forth in Webster's Dictionary is enlightening in itself, in its relationship to commodity production from the land, particularly livestock grazing. Webster's Dictionary of 1828 gives a contemporary meaning to the word "fee" as it was understood at the time western water law was developing.

From the use of cattle in transferring property, or for barter, or payments in cattle ... this word fee, in land, ... originated among the descendents of the northern conquerors of Italy ... all the land in England, except the crown land, is of this kind ... and absolute fee or fee simple is land which a man holds to himself and his heirs forever ... hence, in modern times, the term fee or fee simple denotes an estate of inheritance; and in America, where lands are not generally held of a superior, a fee or fee simple is an estate in which the owner has the whole property, without any condition annexed to the tenure ... In the United States, an estate in fee or fee simple is what is called, in English law, an allodial estate, an estate held by a person in his own right, and descendible to the heirs in general.

The United States argued that Plaintiff was grazing on public lands, however, the Ninth Circuit Court in United States v Blendar, 128F 910, 913, 63 C.C.A. 636 held: "The words "public lands" are not always used in the same sense. Their true meaning and effect are to be determined by the context in which they are used, and it is the duty of the court not to give such a meaning to the words as would destroy the object and the law, or lead to absurd results." The United States Supreme Court in Bardon v Northern Pacific Ry Co. 12 S. Ct. 856, 145 US 535, 538, 36 L.Ed. 806 held: "It is well settled that all land to which claims or rights of others have attached does not fall within the designation of public land."

If one is to use the United States Supreme Court definition of public lands, it becomes clear that lands of the United States, to which vested water rights and the use of those water rights have become inheritable, are lands to which rights and claims of others have attached. By this definition, lawfully adjudicated grazing allotments, which are appurtenant to a rancher's base property, are not, and cannot be, public lands. Going back to the comparison in the English law, as stated in Webster, referring to fee lands, "all the land in England, except the crown land is of this kind." The United States courts have held in Myers v United States, 140 F 648, 649, "Lands owned by the province of Quebec and known as "Crown lands" correspond to what is known in this country as public lands." Crown lands do not have rights and claims of others attached. Public lands, in the true sense, do not have rights and claims of another attached. Grazing allotments, with their rights and claims attached in the form of water rights, and the beneficial use or fee associated with those rights, cannot be public lands.

Stockwater law in the prior appropriation states is a classic illustration of the concept set forth above. When a rancher applies to the state water engineer for the right to acquire a watering source, the state water engineer issues a permit upon evidence that the applicant can, and intends to put the water to beneficial use.

Both the terms "permit" and "beneficial" use have a temporary connotation. Both terms imply conditions to be met. A rancher, to perfect a permitted water right must meet the terms and conditions of the permit. He must do this in the allotted time period set forth in the permit. Above all, he must demonstrate that he can put the water to beneficial use. The beneficial use of a stockwater is livestock grazing. Proof of beneficial use of a stockwater is proof that sufficient water is available to the livestock grazing in the service area of the water.

If we re-read the Court's Findings in Hage v U.S. in light of the above discussion:

"This court finds that Plaintiffs presented evidence at trial that showed by the preponderance of evidence that the plaintiffs and their predecessors appropriated and maintained a vested water right in the following bodies of water on the Ralston and McKinney allotments. In addition to certificates of appropriation that were entered into evidence, the plaintiffs also submitted an exhaustive chain of title which showed that the plaintiffs and their predecessors-in-interest had title to the fee lands where the following springs and creeks are located:" Pg. 10 ,12 of the Finding of Fact Hage v U.S. It becomes clear that when a rancher's stockwater rights have vested and he can prove the same through chain of title, his use of lands of the United States has converted to a fee. The range adjudications, which were based on water rights, and which took place primarily between 1905 and 1968, established the exterior boundaries of the fee lands upon which his water rights are located.

In a February 5th, 2003 Order, responding to a government Motion for Summary Judgment, the Court in Hage v U.S. held; "As Plaintiff established at trial, the stockwater rights... were possessed by Plaintiff's predecessors in interest long before the grazing permit system was established by the government... the Court is not of the Opinion that the lack of a grazing permit that prevents access to federal lands can eliminate Plaintiff's vested water rights... that pre-date the creation of the permit system."

When a water right vests, it becomes permanent in ownership and inheritable. The conditions required under the permit, having already been satisfied, no longer apply.

When a water right vests, it loses its temporary and conditional status, and now becomes permanent and inheritable. When the beneficial use of the lands for livestock grazing, (the usufruct) loses its temporary and conditional status, the beneficial use becomes a fee.

Under the prior appropriation water doctrine, the states were given lawful (ownership) control of the non-navigable waters within their exterior boundaries and complete control of the disposition of those waters into private ownership. Prior appropriation water law embodies the concept that a person applying for water can claim the use of all land necessary to put the water to beneficial use.

Under the riparian water doctrine, which applies almost exclusively to those states east of the 100th meridian, the states were given lawful control of the disposal of land into private ownership. The person applying for land rights in those states, had the right to condemn (use) all the water upon those lands necessary to put the land to beneficial use. Under the riparian water doctrine, ownership of subject matter in the way of land extends to a fee in the water, necessary to effect beneficial use of the land.

In the prior appropriation states, the status of the medieval King as underlying naked title holder of the subject matter in land is replaced by the United States exercising the underlying naked title to the land. As with the kings in medieval times, who authorized the creation of a fee interest in their lands to enhance the economic well-being of the realm by making use of the King's land inheritable, the United States has acknowledged the power of the prior appropriation states to recognize the creation of a fee interest in lands of the United States to enhance the efficiency of resource use and the nation's economic well-being. "... the Court is not of the Opinion that the lack of a grazing permit that prevents access to federal lands can eliminate Plaintiff's vested water rights ... that pre-date the creation of the permit system."

Tutorial...

Understanding surface estate v. fee

By Wayne Hage

In my lectures on property rights, given to audiences throughout the United States and Canada over the past twenty years, it has become clear that the greatest deterrent to the protection of property rights is that people, in general, do not understand what property is.

This failure to understand the true nature of property, has been noted by the courts. For example, the court in Northwest Trust Co., v Kelly. 48 NC 1267, 189 NW 487, citing RLC states: "The word property is not always used in its strict legal sense. It is frequently used to signify or to describe the subject of property, such as a chattel or tract of land ... these things, although the subject of property are, when coupled with possession, but the indicia or visible manifestations of invisible rights. Much uncertainty and confusion in the decisions have arisen from overlooking this distinction."

Perhaps the most succinct statement, regarding this issue, was expressed by Thomas Sowell, when he wrote:

"Neither property, nor the value of property, is a physical thing. Property is a set of defined options... It is that set of options which has economic value... It is the options, and not the physical things, which are the "property" - economically as well as legally ... but because the public tends to think of property as tangible, physical things, this opens the way, politically, for government confiscation of property by forcibly taking away options, while leaving the physical objects untouched."

Body

I often begin my lectures by asking the audience a question. I point to the lectern I am standing behind, and ask: "If this lectern just appeared here, out of thin air; no one has any rights, claims, or options to use attached to it; would it be property?"

Usually, the audience will ponder this for a moment, and then begin to indicate "no" by shaking their heads accordingly. I then ask the question: "If someone does have rights or claims, the option to use attached to this lectern, would it be property?" The audience usually responds by nodding their heads in affirmation.

I then explain to them that the lectern, with the rights and claims attached, is still not property. The lectern is the physical manifestation of property, or the subject of property. The property consists of those invisible rights and claims which attach to the lectern, not the lectern itself.

When discussing land or water, the concept is the same. The physical land itself is the subject of property. The property consists of those invisible rights and claims which allows someone to use the subject of property, the land. In a water right situation, the same can be said. The water, itself, is the subject of property. The option to use that water, those invisible rights and claims to the water's use, constitutes the property. Property is not substance, and property exists only when there is a force of law and justice which protects the individual's rights to use the subject of, or visible manifestation of, property.

Property comes in many forms. James Madison said in the James Madison letters 478 (March 27, 1792, quoted in Seigan's, Economic Liberties and the Constitution 58 (1980):

"... The term "property" ... in its particular application, means "that dominion which one man claims and exercises over the external things of the world in exclusion of every other individual." In its larger and juster meaning, it embraces everything to which a man may attach a value and have a right; and to which leaves to everyone else the like advantage. In the former sense, a man's land, merchandise, or money is called his property. In the latter sense, a man has a property, in his opinions, and the free communication of them. He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them. He has property very dear to him in the safety and liberty of his person. He has an equal property in the free use of his faculties, and free choice of the objects on which to employ them. In a word, as a man is said to have a right to his property, he may equally be said to have a property in his rights."

In the free society, envisioned by the Constitution for the United States of America, a Citizen's right to free speech, choice of religion, to keep and bear arms, the freedom to contract, the right to own land, were all forms of property protected from government intrusion by that Constitution. The physical subject spoken of, the physical church, the firearm, the contract, the land was the subject of property. The right to use those physical manifestations of property was, in fact, the property, which was protected by a force of law and justice. Property, then, lies in the right to use the physical object, not the physical object itself.

"The substantial value of property lies in its use; if the right of use is denied, the value of the property is annihilated and ownership is rendered a barren right." City of Akron v Chapman, 160 Ohio St. 382, 52 Ohio Op. 242, 116 NE 2nd 697, 42 ALR 2d 1140 (1953).

Property, in the form of the use of land and water in private hands, was central to the American free society. The central government was strictly limited in its use of property, even though the central government retained control of vast amounts of the subject of property, in both land and water. In the riparian states (primarily those east of the 100th meridian), the central government conveyed the use of the land, as well as the subject of that use, the physical land, by patent, to the citizen. The physical water on the land was not conveyed, but the use of the water, while it remained on the physical land, was conveyed. The government maintained ultimate control of the water, while recognizing the landowner had an inheritable right to use the water, while it was on his land.

In the prior appropriation states - primarily those west of the 100th meridian - approximately fifty percent of the subject matter in the form of land was conveyed, by patent, along with the use of the land. In the west, the central government conveyed the water to the states, and by the citizen putting the water to beneficial use, the citizen could then acquire the use of the land. In the more arid areas of the west, the government did not convey the subject matter in land, but only the use of the land. Most of the land disposal, by use only, was for livestock grazing, where the subject matter in land was retained by the central government, to allow for separate development of the mineral potential through the mining laws.

Property comes in many forms. Property in land or water can be a right to use in the form of a lease; it can be a right to use, subject to other terms and conditions, such as for years, or for life; or it can be permanent and inheritable. The same can be said about property in water. Water also can be leased, or in other ways, subject to terms and conditions, or the right to use water can be permanent and inheritable.

When the property in land or water is subject to terms and conditions, it is often described as a beneficial use or usufruct, signifying its temporary status. When the property, the right to use land or water, is permanent and inheritable and is not subject to conditions, it is called the fee.

Discussion

In Hage v U.S. (USCC 91-1470L) 51 Fed. Cl.Ct. 570 (2002), plaintiff made basically two arguments in support of his property rights on the federal lands. Plaintiff was not asserting that he owned the subject matter in the form of the federal land, the physical manifestation of property. Plaintiff was asserting that he had an inheritable right to use those federal lands, which stemmed from one or both of two sources.

1. An inheritable right to use the federal land for livestock grazing, stemmed from his ownership of the subject matter in water - the use of which, was permanently established for grazing livestock on the federal lands where those water arose, or

2. The various land disposal laws passed by Congress resulted either collectively, or singularly, in the grant of a surface estate right in the federal lands for livestock grazing.

The term "surface estate right" can have a variety of meanings. It can mean ownership of the subject matter in land to a certain depth from the surface. It can mean only the use of the surface. It can mean the use of the surface, without any title to the subject of property - the land itself. A surface estate right can be for a day, or a year, or a lifetime, in which it amounts to a beneficial use or usufruct. A surface estate right can be permanent and inheritable, in which case, it amounts to the fee, even though the physical land, itself, is owned by another. In Roberts v. Wentworth, 59 Mass. (5 Cush.) 192, 193; the court held: "A party may have title to property, though he is not the absolute owner, if he has the actual or constructive possession of title thereto, though another person may be the owner."

And in Shingleton v. State, 133 S.E. 2d 183, 189, 260 N.C. 451, the court likewise held:

"Every right to land is a title, and if a person has actual or constructive possession of property or right of possession, he has title thereto though another person may be owner."

In other words, the phrase "surface estate right" is vague and ambiguous, and can conceivably have as many different meanings as there are people who use it. The use of the term "surface estate" can be, and often is, used in a variety of ways, meaning different things. The use of the word "surface" has at times, been used to describe what more accurately could be referred to as the fee. In Kansas Nat. Gas Co. v. Board of Comm'rs of Neosho County, 89 P 750, 751, 75 Ks. 335, the court opined in referring to the fee:

"In common speech, the non mineral portion of the land ... the proprietor of land who divests himself of title to the minerals which it contains is still spoken as the owner of the "fee" or of the "surface" or of the "land.""

In Warner v. Beers, NY 23 Wend. 103, 141, in expressing a principle of law states:

"Definitions differ in character according to the nature of the thing to be defined ... the word is made intelligible by a description... Strict and essential definitions can generally be given of the terms of positive jurisprudence... This is remarkably the case, for instance, in regards to our common-law terms of real estate, as in "fee," "lease," "warranty"..."

The word fee always means inheritable. Fee means there are no terms or conditions attached to the use. Black's Law Dictionary, 6th Edition, defines fee:

"Fee signifies an estate of inheritance, being the highest and most extensive interest which a man can have in a feud; and when the term, used simply, without any adjunct, or in the form of "fee simple," it imports an absolute inheritance, clear of any condition, limitation or restriction to particular heirs."

The court in Hage v. U.S. correctly denied the surface estate argument. The court held that the United States cannot create property in land or water. The recognition of property in land or water is within the jurisdiction of the state, not the federal government. As the court, in Hage v. U.S., January 29, 2003 Final Opinion and Finding of Facts, in a footnote citing Bd. Of Regents v. Roth, 408 U.S. 564 (1972):

"As a matter of property rights law, this conclusion should not be surprising in light of the U.S. Supreme Court's long-standing definition that these rights are usually defined by state law and other sources, independent of federal protections for private property."

The court properly held that the land disposal laws passed by Congress only created access to the federal lands for plaintiff's predecessors. In themselves, the land disposal laws did not, and, could not have, created property. Property was created when some person took advantage of the access Congress had allowed, went on the land, mixed his labor with the land, and had that property recognized, under state law.

The court did find favorably for Hage on the issue of water rights: "This court finds that plaintiffs presented evidence at trial that showed by the preponderance of evidence that the plaintiffs, and their predecessors, appropriated and maintained a vested water right in the following bodies of water on the Ralston and McKinney allotments. In addition to certificates of appropriation, that were entered into evidence, the plaintiffs also submitted an exhaustive chain of title, which showed that the plaintiffs and their predecessors, in interest, had title to the fee lands where the following springs and creeks are located." Hage v U.S., Final Opinion and Finding of Fact, January, 2002.

The Court repeated these findings relative to the southern Monitor Valley. The fee lands referred to here were clearly defined in the text of the opinion and a footnote, as the area encompassing what are commonly referred to as the Meadow Canyon, Monitor, and Table Mountain grazing allotments.

The court found that plaintiff and his predecessors owned the subject matter in water on the federal lands in question, the use of that water being for livestock watering and irrigation purposes, creating an inheritable right to use in the lands grazed or irrigated. The court also found that the water rights in question were vested.

The word vested has a very specific meaning. A vested right means that the right is permanent, and not subject to terms and conditions. In Hutton v. Autoridad Sobre Hogares De La Capitol, D.C. Puerto Rico 78 F. Supp. 988, 994, 999. held:

"A "vested right" is one which is absolute, complete and unconditional, the exercise of which no obstacle exists and which is immediate and perfect in itself, and not dependent upon a contingency."

It is inheritable. If title to the subject of property, the water, is permanent and inheritable, it follows that the property itself, the use of the water for livestock grazing and irrigation, is also permanent and inheritable. In other words, the use of the federal land for livestock grazing is in the nature of a fee; permanent, inheritable, and not subject to terms and conditions. The court emphasized this point in its February 5, 2003 Order finding that the U.S.F.S. or B.L.M. could not extinguish plaintiff's vested water rights by imposing terms and conditions on their use through a grazing permit, without inuring a claim for monetary compensation for the loss.

Conclusion

In summary, the court in Hage v. U.S. denied plaintiff's claim that the land disposal laws, passed by Congress, created any property rights, surface estate, or otherwise. The court did find that plaintiff had title to the fee lands where plaintiff's waters arose. These fee lands are exactly the same lands the court ruled Plaintiff had not been granted a surface estate right by virtue of the land disposal laws Plaintiff cited.

Fee lands are very common in the British Commonwealth nations. A land owner, in those nations, usually only owns the inheritable right to use the land. The subject matter, land, is retained by the crown, including all the minerals, unless separately disposed to another.

It follows, then, that ownership of the fee usually encompasses a surface estate right, or the right to use the surface of the land in perpetuity. This is true, whether the subject matter land is owned by the fee holder, such as is usually the case, on patented parcels, or whether the inheritable right to use the land is owned separately from the underlying subject matter, such as the fee lands of Britain, or the federal grazing lands of the western United States. However, a person may own a conditional surface estate right, which because of the conditions attached, would not be permanent and inheritable, and therefore not be a fee.

The Court found in Hage that plaintiff had title to the fee lands upon which his vested water rights arose. Thomas Sowell's quote clearly lays out the issues involved in Hage v U.S.:

"Neither property nor the value of property is a physical thing. Property is a set of defined options... It is that set of options which has economic value... It is the options, and not the physical things which are the "property" - economically as well as legally ... but, because the public tends to think of property as tangible, physical things, this opens the way, politically, for government confiscation of property, by forcibly taking away options, while leaving the physical objects untouched."

The U.S.F.S. and B.L.M. did not take the subject matter, the physical spring, creek, well, itself. Those water sources are still where they always were. What the U.S.F.S. and B.L.M. took from Hage was the fee, the inheritable right to use those waters, by attempting to impose terms and conditions on vested water rights through a grazing permit, and denying plaintiff's use of those waters.

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