IN THE OFFICE OF ADMINISTRATIVE HEARINGS

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1 Lee A. Storey (011989) lee@storeylawyers.com THE STOREY LAWYERS, PLC 6515 N. 1 th Street, Suite C Phoenix, Arizona Telephone: (60) Attorneys for Young s Farm, Inc. IN THE OFFICE OF ADMINISTRATIVE HEARINGS In the Matter of the Department of Water Resources Denial of Yavapai Land Holdings, LLC s Application for Analysis of Assured Water Supply, Application No Docket No. 16A-AWS001-DWR MOTION TO INTERVENE Honorable Tammy Eigenheer Administrative Law Judge Young s Farm, Inc. ( YFI ), by and through undersigned legal counsel, hereby moves to intervene in this action pursuant to Arizona Rule of Civil Procedure 4. This case concerns an appeal of the Arizona Department of Water Resources ( ADWR ) Denial of an Application for Analysis of Assured Water Supply, ADWR No ( Application ), that was issued on December, 015. The Application was filed by Yavapai Land Holdings, L.L.C. ( Yavapai ) on August, 006 pursuant to A.A.C. R for the proposed development of a master-planned community on property formerly known Young s Farm and referred to herein as the Property. Pursuant to Rule 4(a), YFI may intervene as of right. YFI has an economic interest in the water rights sold with the Property and that economic interest is impaired by ADWR s Denial of the Application. Further, the interests of YFI are not adequately represented by Yavapai. In the alternative, the court may permit YFI to intervene pursuant to Rule 4(b). The Court should allow permissive intervention in this case because YFI s interests are directly linked to the interests of Yavapai through a Conditional Decision and Order No. ST Granting the Joint Application of Yavapai Land Holdings and Young Acres to

2 Sever and Transfer Certain Water Rights Evidenced by Statement of Claim of Right Nos and ( Decision and Order ). BACKGROUND On June, 006, Young Acres, Inc. ( Young Acres ), YFI, a separate but related entity to Young Acres, and members of the Young family sold to Yavapai certain property known as Young s Farm by special warranty deed ( Special Warranty Deed ). ADWR Decision and Order, Findings of Fact, p. 1 (April 1, 014). Young s Farm is a farm located in Dewey-Humboldt, Arizona, in Sections,,10, 11 and 14, Township 1 North (T1N), Range 1 East (R1E) of the Gila and Salt River Base and Meridian. Id. The Grantors under the Special Warranty Deed are Young Acres, YFI, Jeannine A. Young, Sarah E. Teskey (aka Sarah E. Young), Aaron D. Young, and Gary D. Young and Jeannine A. Young, as co-trustees of the Gary D. Young and Jeannine A. Young living trust. Id. at 1-. In the Special Warranty Deed, the Grantors conveyed to Yavapai the surface water rights that are appurtenant to Young s Farm, with the exception of 60. acre-feet of water per year. Id. at. On November 0, 009, Yavapai and Young Acres filed a joint application with ADWR to sever and transfer certain water rights pursuant to A.R.S. Sec , and on April 1, 014, ADWR issued the Decision and Order conditionally approving the joint severance and transfer application. Indeed, ADWR s Decision and Order expressly acknowledges the economic interest of YFI, and in a cover letter to Yavapai and Gary Young of YFI, ADWR stated, The Department has determined that the amount of surface water historically used under Statement of Claim of Right Nos and is acre-feet per annum for irrigation uses and will be available for municipal uses after the conditions in Conditional Decision and Order No. ST have been satisfied. One condition of the Decision and Order is that, The Director issues a certificate of assured water supply to Yavapai for the proposed development or Yavapai obtains a

3 written commitment of water service for the proposed development from a water provider that has been designated by the Director of ADWR as having an assured water supply. ADWR Decision and Order, p. 1 (April 1, 014). On December, 015, ADWR denied Yavapai s Application because it determined that Yavapai failed to demonstrate that AFY of surface water is physically, continuously and legally available for 100 years as required by ADWR s rules. See A.A.C. R (E). ADWR letter to Yavapai, regarding denial of the Application (Dec., 015). LEGAL ARGUMENT Under Arizona Rule of Civil Procedure 4, individuals and entities may intervene in an action either as of right or with permission of the court. Although the two intervention provisions impose different standards, Arizona courts have long recognized that Rule 4 as a whole is remedial and should be construed liberally in order to assist parties seeking to obtain justice in protecting their rights. Planned Parenthood Ariz., Inc. v. Am. Ass n of Pro-Life Obstetricians & Gynecologists, 7 Ariz. 6, 79, 57 P.d 181, 198 (App. 011), Bechtel v. Rose In and For Maricopa County, 150 Ariz. 68, 7 P.d 6 (1986). I. Intervention as of Right Pursuant to Rule 4, an applicant may intervene as of right when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant s ability to protect that interest, unless the applicant s interest is adequately represented by existing parties. Ariz. R. Civ. P. 4(a). In this case, YFI has a clear interest relating to the property and the water rights appurtenant thereto, and ADWR s denial of Yavapai s Application, is the transaction which is the subject of this action. In addition, the disposition of this action may impair YFI s ability to protect its interest. Furthermore, YFI s interest is not adequately represented by Yavapai in this matter. / / /

4 It is well established that an applicant may intervene as of right in litigation bearing on its economic interests. See Mountain States Telephone and Telegraph Company v. Arizona Corporation Commission, 160 Ariz. 50, 5, 77 P.d 455, 458 (1989) (holding that telephone service providers had interest sufficient to support intervention in a lawsuit challenging the constitutionality of Arizona Corporation Commission order regulating their services); Saunders v. Superior Court In & For Maricopa Cnty., 109 Ariz. 44, 45-6, 510 P.d 740, (197) (holding that public employee organizations had interests sufficient to support intervention in lawsuit challenging constitutionality of the public pension system). YFI s sale of the Property s surface water rights to Yavapai is conditioned upon ADWR s approval of the Application based on a determination that the water for the planned development is physically, continuously and legally available for 100 years. Young Special Warranty Deed: Decision and Order Findings of Fact #1- (014). ADWR s denial of the Application impairs Yavapai s ability to use the claimed surface water rights for its planned development and thereby impairs YFI s economic interests. YFI s sale of the Property s surface water rights to Yavapai will execute upon ADWR s approval of the Application and execution of the Decision and Order. Id. Because of ADWR s denial of the Application, YFI s economic interest in the surface water rights will be impaired. Id. Finally, YFI s interests are not adequately represented by Yavapai in this matter. If Yavapai decides to forgo the purchase of YFI s rights in favor of other water sources because of ADWR s denial of the Application, it negatively impacts YFI. In which case, YFI must seek out a new buyer for the Young s Farm water and obtain approval from ADWR of another severance and transfer. Id. YFI and Yavapai, as seller and buyer respectively, have distinct interests in this matter. II. Permissive Intervention In the alternative, YFI should be permitted to intervene pursuant to Rule 4(b). An applicant may be permitted to intervene when an applicant s claim or defense and 4

5 the main action have a question of law or fact in common. Ariz. R. Civ. P. 4(b). In exercising its discretion, the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties. Id. To determine whether a party should be permitted to intervene under Rule 4(b)(), courts consider whether intervention would unduly delay or prejudice the adjudication of the rights of the original parties. Bechtel, 150 Ariz. at 7, 7 P.d at 40, quoting Spangler v. Pasadena Bd. of Educ., 55 F.d 16, 19 (9th Cir.1977). In addition, courts consider a number of factors such as the nature and extent of the intervenor's interest, his or her standing to raise relevant issues, legal positions the proposed intervenor seeks to raise, and those positions' probable relation to the merits of the case. Id., Dowling v. Stapley, 1 Ariz. 51, 7, 11 P.d 15, 156 (App. 009). In this case, permitting YFI to intervene would facilitate rather than delay the adjudication of the rights of Yavapai because YFI s interests are contractually and economically linked to Yavapai s interests in this matter. YFI s participation in this case is directly relevant to the merits of the determination of physical, continuous and legal availability of surface water on Young s Farm for 100 years. YFI and Yavapai have been engaged in efforts to execute the sale of the Property and its water rights since the original Agreement for Purchase and Sale was entered into in August, 005, over ten years ago. Indeed, ADWR has included YFI and coordinated with YFI concerning the joint application for severance and transfer of the surface water rights, concessions made in that application for the benefit of the planned development at the Property, as well as Yavapai s Application of Analysis of Assured Water Supply which is the subject of this matter. So it was a surprise to YFI that ADWR would deny YFI s joinder in Yavapai s Notice of Appeal and Detailed Statement and YFI s request for participation in a settlement conference. See YFI Notice of Appeal and ADWR s Denial of YFI Notice of Appeal attached hereto. Finally, Yavapai has no objection to the intervention of YFI and even requested that ADWR include YFI in all communications, as it would likely be prejudiced if YFI is not permitted to intervene. 5

6 CONCLUSION For the reasons cited above, YFI is entitled to intervene in this action as of right, pursuant to Arizona Rule of Civil Procedure 4(a). Alternatively, the Court should in its discretion permit intervention pursuant to Arizona Rule of Civil Procedure 4(b). DATED this 11th day of February, 016. COPY of the foregoing electronically filed with the Office of Administrative Hearings this 11th day of February, 016 COPY of the foregoing ed this 11th day of February, 016 to: THE STOREY LAWYERS, PLC /s/ Lee A. Storey Lee A. Storey 6515 N. 1 th Street, Suite C Phoenix, Arizona Attorneys for Young s Farm, Inc. Janet L. Miller Nicole D. Klobas Jennifer Heim ARIZONA DEPARTMENT OF WATER RESOURCES 550 North Central Avenue Phoenix, Arizona 8501 jlmiller@azwater.gov ndklobas@azwater.gov jheim@azwater.gov Attorneys for Arizona Department of Water Resources Carla A. Consoli LEWIS ROCA ROTHGERBER CHRISTIE LLP 01 East Washington Street, Suite 100 Phoenix, Arizona CConsoli@lrrc.com Attorneys for Yavapai Land Holdings, LLC /s/ Tanya M. Ferreira 6

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8 DOUGLAS A. DUCEY Governor THOMAS BUSCHATZKE Director ARIZONA DEPARTMENT of WATER RESOURCES 550 North Central Avenue, Second Floor Phoenix, Arizona azwater.gov December, 015 Via Certified Mail Yavapai Land Holdings, LLC Attn: Michael J. Pearce Maguire Pearce & Storey, PLLC 999 N. 44th St., Ste. 650 Phoenix, AZ RE: Application for Analysis of Assured Water Supply Yavapai Land Holdings, LLC; DWR No Denial of Application Dear Mr. Pearce: On August, 006, the Arizona Department of Water Resources ( ADWR ) received an application from Yavapai Land Holdings, LLC, ( Yavapai ) for an Analysis of Assured Water Supply pursuant to A.A.C. R for the proposed development of a master-planned community on property in the Prescott Active Management Area formerly known and referred to herein as Young s Farm. Yavapai amended its application on December 0, 010 and June 19, 014. The initial application and subsequent amendments are referred to as the Application. The Application seeks a determination from ADWR that Yavapai s proposed surface water supplies in the amount of acre feet per year ( AFY ) are physically, continuously and legally available for 100 years. For physical and continuous availability, Yavapai primarily relied on model simulations and a 014 Hydrologic Report prepared by Southwest Ground-water Consultants, Inc. ( SWGC 014 Report ). SWGC modified its simulations on October 0, 014 and July 7, 015 at ADWR s request. For legal availability, Yavapai relied on a Conditional Decision and Order issued by ADWR on April 1, 014. This Conditional Decision and Order authorizes Yavapai to sever and transfer certain water rights for its master planned community at Young s Farm only if Yavapai satisfies certain conditions. After reviewing the Application and supporting materials submitted by Yavapai, ADWR determined that Yavapai failed to demonstrate that AFY of surface water is physically, continuously and legally available for 100 years as required by ADWR s rules. See A.A.C. R (E). Therefore, Yavapai s Application is hereby denied. ADWR s primary areas of concern are described below. 1

9 A. Hydrology Young s Farm is located in the Upper Agua Fria groundwater sub-basin within the Prescott Active Management Area ( PrAMA ) in Yavapai County in the vicinity of Dewey, Arizona. Yavapai proposes to use certain wells located in Young s Farm to withdraw water from the Agua Fria River, which is located along the eastern boundary of the property. The Agua Fria River is ephemeral along the northern two-thirds of Young s Farm. Along the southern one-third of Young s Farm, intermittent to perennial surface flow (baseflow) has been historically observed and reported. Groundwater discharge provides baseflow to the channel of the Agua Fria River. In the vicinity of Young s Farm, the majority of groundwater outflow from the sub-basin s aquifer system occurs through well pumpage, groundwater discharge to the channel of the Agua Fria River, and evapotranspiration from riparian areas. Groundwater outflow increases downstream from Young s Farm, at least to the location where the river channel leaves the alluvial basin and enters a narrow bedrock canyon in the vicinity of Humboldt, which is located south of Young s Farm. Groundwater flows in a converging southerly pattern toward the Humboldt area where the regional aquifer thins and narrows against bedrock outcrops and some groundwater outflow (underflow) is believed to occur in fractured bedrock. The water in the floodplain aquifer underneath and immediately adjacent to the Agua Fria River as well as the deeper aquifer comes from a variety of sources in the area of Young s Farm. Some of the water discharged from the aquifer to the channel of the Agua Fria River in the vicinity of Young s farm has flowed through the regional aquifer from recharge areas located along mountain fronts, ephemeral streams, or other areas. Some groundwater discharge may also come from water that was originally recharged during surface flow events (runoff) along the channel of the Agua Fria River in the immediate vicinity of Young s farm. B. Physical and Continuous Availability In support of its claims of physical and continuous availability of surface water, due to a lack of regular streamflow measurements taken closer to Yavapai s wells, Yavapai submitted flow measurements of the Aqua Fria River taken at the Humboldt gage, a streamflow gage which is located approximately 1.5 to miles downstream from the southern boundary of the Young s Farm. Due to the fact that Yavapai proposed to divert surface water from shallow wells; rather than diversion works that actually divert surface flows from the river channel, it was determined that these surface water flow measurements would not provide reliable estimates of the future annual volume of water that is physically and continuously available from the shallow aquifer to supply Yavapai s wells. Additionally, since water in the shallow aquifer is derived from a variety of sources it was determined that the yield available to the applicant would be most appropriately determined using a hydrologic model.

10 Because of the inherent limitations of Humboldt gage measurements, ADWR requested that Yavapai use ADWR s Prescott Active Management Area Groundwater Flow Model ( PrAMA Model ) to establish whether AFY of surface water would be available from Yavapai s wells for 100 years. SWGC s model simulations based on the PrAMA Model, as explained below, do not establish physical and continuous availability. Furthermore, Yavapai s arguments to the contrary are not well founded. 1. Streamflow Simulations On June 19, 014, Yavapai submitted initial model simulations run by SWGC for the period 01 through 11 that were subsequently modified on October 0, 014, and July 7, 015. At ADWR s request, SWGC s model runs simulated two different scenarios, one in which future pumping from Yavapai s wells was simulated and one in which such pumping was excluded. Both model runs projected a period of several continuous years in which no baseflow occurs in the Agua Fria River channel along Young s Farm. After additional review of SWGC s two model simulations, ADWR conducted another model run that incorporated certain adjustments. First, ADWR modified the stream flow routing package incorporated in the PrAMA model to allow any remaining surface flow from simulated flood events on the Agua Fria River and Lynx Creek, a tributary of the Agua Fria River, upstream of Young s Farm to enter the reach of the Agua Fria River along Young s Farm where intermittent or perennial baseflow has been observed and reported. Second, ADWR removed agricultural recharge for the years 11 and 11 that was improperly included in SWGC s recharge package. Third, ADWR corrected SWGC s model run that simulated 76 AFY instead of AFY of pumping. After these adjustments were made, ADWR conducted a new model run on November 0, 015. ADWR s new model run projects that, even if future pumping at Young s Farm were excluded, there would be no baseflow in the Agua Fria River at any point along Young s Farm in 09, followed by sporadic baseflow from 094 to 098, a period of no baseflow from 099 to 111, minor baseflow in 111 due to a flood event, and no baseflow in 11 or 11. ADWR s new model run also projects that with future pumping at Young s Farm included, there would be no baseflow in 074, followed by sporadic baseflow from 075 to 087, and no baseflow from 088 through 01.. Well Drawdown Simulations For the model run simulating future pumping from Yavapai s wells, SWGC allocated all of its pumping to the four southern-most wells on Young s Farm. SWGC stated that it did so based upon an optimization model designed to ensure that water level drawdowns in all wells remain above 0 percent of the well saturated thickness throughout the 100-year projected model period. (SWGC Report, 7) SWGC provided no evidence of saturated thickness or why 0 percent was an important standard.

11 Moreover, these model simulations raise concerns about the capability and capacity of the four southern-most wells to produce AFY without going dry. These wells are shallow with reported depths of 104 feet (Center well), 65 feet (Bagby well), 0 feet (Hand Pump well), and 100 feet (Steve s well) below land surface. For example, in ADWR s November 0, 015 model run, ADWR found the projected depth-to-water would be deeper than the reported depths of the Hand Pump and Bagby wells during some of the later stress periods in the simulation period. This result is also confirmed by the SWGC model runs by plotting the reported well depths on the Model Output Hydrographs submitted by Yavapai by letter dated July 7, 015. Additionally, the model s simulation of future drawdown caused by projected pumping of the four southern-most wells is likely underestimated. ADWR s model represents the regional aquifer using only one model layer in that area and, therefore, all wells, regardless of their actual depths are simulated by the model as penetrating the entire saturated thickness of the aquifer. Because the wells are shallow and only penetrate a small portion of the total thickness of the regional aquifer system, the transmissivities calculated by the model to formulate flow equations are likely greater than the actual transmissivity of the four wells. Therefore, the calculated drawdowns for the four wells are likely underestimated. The model s simulation also does not account for well inefficiency issues, which would make pumping a sufficient quantity of water from the four wells more difficult.. Yavapai s Arguments Yavapai alleges that subflow from the floodplain Holocene alluvium will be physically and continuously available for the duration of the 100-year period required by ADWR s rules, and/or that water retrieved from the floodplain Holocene alluvium is water from a definite underground channel pursuant to A.R.S (A). Yavapai failed to establish that subflow or water in a definite underground channel, to the extent that such water exists, will be physically and continuously available for 100 years. Under Arizona law, underground water is presumed to be non-appropriable percolating groundwater. 1 A person seeking to demonstrate that underground water is subflow or otherwise appropriable surface water must prove that fact by clear and convincing evidence. Yavapai has not met its burden to show that its wells will be continuously pumping subflow for the duration of the required 100-year period, nor has it met its burden to show that its wells will be pumping water from a definite underground channel. 1 See In re the General Adjudication of all Rights to use Water in the Gila River System and Source, 175 Ariz. 8, 857 P. d 16 (199) (Gila II); Maricopa County Municipal Water Conservation District No. One v. Southwest Cotton, Co., 9 Ariz. 65, 4 P.d 69 (191). Id. 4

12 Subflow is subterranean water that is under or immediately adjacent to a stream. Yavapai alleges that its four wells will pump subflow from floodplain Holocene alluvium beneath and adjacent to the Agua Fria River. Yavapai s reliance on the floodplain Holocene alluvium is misplaced. Floodplain Holocene alluvium is a legal term used in the Gila River adjudication for the San Pedro River watershed to delineate a hydro-geologic area known as the subflow zone for the limited purpose of defining the adjudication court s jurisdiction. There is no mapped subflow zone along the Agua Fria River. In addition, even if the existence of the floodplain Holocene alluvium were relevant, its extent is unclear, and its saturated thickness has not been determined in the vicinity of the four wells relied upon by Yavapai or anywhere else in the vicinity of Young s Farm. For instance, while SWGC alleges that floodplain Holocene alluvium extends 10 feet below land surface, drill logs for the Bert Ady and Steve s wells show the presence of conglomerates and cemented sediments that may be older than Holocene at shallower depths. Finally, Yavapai argues that water withdrawn from the floodplain Holocene alluvium underlying the Agua Fria stream channel from its wells should be considered water in storage pursuant to A.A.C. R (C)(). (Response Letter, October 1, 015). ADWR disagrees. First, a suggestion that specific volumes of water that were once part of the stream s surface flow will remain contained within the floodplain alluvium ignores the fact that water will move in and out of the floodplain alluvium beneath the stream, even during prolonged dry periods. Second, the language of A.A.C. R (C)() does not support Yavapai s argument. This rule provides that the Director is to consider whether adequate storage facilities will be available to an applicant to store water for use when a volume of surface water is not available at the point of diversion to satisfy the applicant s water needs. This language contemplates that an applicant has taken affirmative steps to store water in a storage facility, such as an above-ground reservoir. It does not permit an applicant to claim that water present naturally beneath a stream bed is stored surface water for purposes of an assured water supply analysis. See In re the General Adjudication of all Rights to use Water in the Gila River System and Source, 198 Ariz. 0, 9 P. d 1069 (000) (Gila IV). 5

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14 Concise Statement of Reason(s) for Appeal Denial of Application for Analysis of Assured Water Supply ADWR No Young Acres, Inc. ( Young Acres ), a party in interest, hereby appeals ADWR s denial of Yavapai Land Holdings, LLC ( Yavapai ) application for Analysis of Assured Water Supply (ADWR No ), and ADWR s construal of a condition in its Decision and Order on Severance and Transfer dated April 1, 014 (the S&T Order ) (ADWR No. ST ). Young Acres joins in the appeal of Yavapai for all the reasons set forth in Yavapai s Notice of Appeal dated January 4, 016, and incorporates Yavapai s Concise Statement herein. Jointly with Yavapai, Young Acres, a predecessor in interest to Yavapai land, filed the application for severance and transfer that resulted in ADWR s S&T Order approving and confirming the continuous and beneficial use of vested senior surface water rights at Young s Farm (now Yavapai land). The S&T Order confirms the entitlement and priority of acrefeet per year of vested surface water rights, dating from the late 1800s, and that such surface water rights are available for municipal and industrial use at Yavapai land. The S&T Order also identifies diversion wells located in the floodplain Holocene alluvium as points of diversion for the water supply. Young Acres interest continues in this matter, as provided in the S&T Order, and ADWR s denial of Yavapai s application for an Analysis of Assured Water Supply has a direct negative impact on Young Acres. As a result of ADWR s denial, if not reversed, Yavapai and Young Acres, Inc. will suffer significant damages to be proven at trial. ADWR erred in its analysis of this application, and in its application of existing State law and policy. The denial should be reversed with direction to issue the Analysis of Assured Supply to Yavapai for the requested quantity of a minimum of acre-feet per year of surface water for municipal and industrial use.

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