Title: Fort Vannoy Irrigation v. Water Resources Comm.

State: oregon

Issuer: Oregon Supreme Court

Document:

FILED: July 10, 2008
IN THE SUPREME COURT OF THE STATE OF OREGON
FORT VANNOY IRRIGATION DISTRICT
and HERMAN BAERTSCHIGER, JR.,
Respondents
on Review,
v.
WATER RESOURCES COMMISSION
and KEN-WAL FARMS, INC.,
aka Fort Vannoy Farms, Inc.,
Petitioners on Review.
(Agency No. T8366; CA A130508; SC S055361, S055356)
En Banc
On review from the
Court of Appeals.*
Argued and submitted May
13, 2008.
Ross Day, Oregonians
in Action Legal Center, Tigard, argued the cause and filed the briefs for
petitioner on review Ken-Wal Farms, Inc.
Denise G. Fjordbeck,
Assistant Attorney General, Salem, argued the cause for petitioner on review Water
Resources Commission.  With her on the briefs were Hardy Myers, Attorney
General, and Mary H. Williams, Solicitor General.
Emil R. Berg, Greener
Burke Shoemaker PA, Boise, Idaho, argued the cause for respondents on review
Fort Vannoy Irrigation District and Herman Baertschiger, Jr.  With him on the
brief was Ronald S. Yockim, Roseburg.
Joseph H. Hobson, Jr.,
Ritter Hosbon LLC, Salem, filed a brief on behalf of amicus curiae
Oregon Farm Bureau Federation.
Michael W. Peterkin,
Peterkin & Associates, Bend, filed a brief on behalf of amicus curiae
Water for Life, Inc.
Douglas W. MacDougal,
Schwabe Williamson & Wyatt PC, Portland, and Steven L. Shropshire, Jordan
Schrader Ramis PC, Portland, filed a brief on behalf of amicus curiae
Oregon Water Resources Congress.
David E. Filippi and
Heath A. Curtiss, Stoel Rives LLP, Portland, filed a brief on behalf of amici
curiae Arnold Irrigation District, Central Oregon Irrigation District,
Swalley Irrigation District, and Tumalo Irrigation District.
DE MUNIZ, C. J.
The decision of the
Court of Appeals is affirmed.  The order of the Water Resources Commission is
reversed, and the case is remanded to the commission for further proceedings
consistent with this opinion.
*Appeal from Final
Order of the Oregon Water Resources Commission. 214 Or App 88, 162 P3d 1066
(2007).
DE MUNIZ, C. J.
This case arises from a dispute over
an application filed by petitioner Ken-Wal Farms, Inc. (Ken-Wal) to change the
points of diversion associated with water rights set forth in two water right
certificates (8942 and 8943) that were issued in 1930 to the Fort Vannoy Irrigation
District (district), of which Ken-Wal is a member.  The issue on review is
whether Ken-Wal is the "holder of any water use subject to transfer,"
as that phrase is used in ORS 540.510(1), such that Ken-Wal has authority under
that statute to change the points of diversion associated with the water rights
established in those certificates.  ORS 540.510(1) provides, in part:
"Except as provided in subsections (2) to
(8) of this section, all water used in this state for any purpose shall remain
appurtenant to the premises upon which it is used and no change in use or place
of use of any water for any purpose may be made without compliance with the
provisions of ORS 540.520 and 540.530.  However, the holder of any water use
subject to transfer may, upon compliance with the provisions of ORS 540.520
and 540.530, change the use and place of use, the point of diversion or the
use theretofore made of the water in all cases without losing priority of the
right theretofore established. A district may change the place of use in
the manner provided in ORS 540.572 to 540.580 in lieu of the method provided in
ORS 540.520 and 540.530."
(Emphases added.)
For the reasons expressed below, we
conclude that the district is the "holder of [a] water use subject to
transfer" with respect to certificates 8942 and 8943, and that Ken-Wal is
not authorized under ORS 540.510(1) to change the points of diversion
associated with the water rights established in those certificates without the
district's consent.  We therefore affirm the decision of the Court of Appeals.
Our analysis of the issue presented
is divided into three sections.  First, we describe the factual and procedural
background of the proceeding.  Second, we place the issue in its historical
context, tracing the origins and development of the Water Rights Act and the Irrigation
District Law in Oregon. (1) 
And finally, after identifying the parties' arguments on review, we determine
the legislature's intent regarding the meaning of the phrase "holder of any
water use subject to transfer" by employing a three-part analysis framed
by the statutory text and context.  We turn first to the facts and procedural
posture of the case.
I.  FACTUAL AND
PROCEDURAL BACKGROUND
Ken-Wal is a landowner within, and a
member of, the district.  It obtains water to raise its crops under five water
right certificates, including certificates 8942 and 8943, which the State
Engineer issued to the district in 1930. (2) 
The issue on review concerns those two certificates. (3) 
Diverting water from points along the Rogue River and its tributaries, the
district delivers the water provided under those two certificates to Ken-Wal's
land -- as well as to the lands of other members -- through the district's
irrigation system.  That is, Ken-Wal owns a portion of the land to which the
district supplies the water provided under certificates 8942 and 8943 (i.e.,
the appurtenant land). (4)

In November 1999, Ken-Wal applied to
the Water Resources Department (department) to change the points of diversion
associated with the water rights set forth in all five of the water right
certificates.  In doing so, Ken-Wal sought to (1) consolidate the points of
diversion to two locations within the boundaries of its farm; and (2) deliver
the water provided under all five certificates through a new irrigation system
that it would construct and maintain. (5) 
The district would not exercise control over Ken-Wal's new irrigation system,
notwithstanding the fact that Ken-Wal would obtain a portion of the water
flowing through that system under the two certificates issued to the district. 
The district and one of its members, Baertschiger, (6)
protested the proposed changes, asserting, in part, that the district was the
"certificated owner of record" of certificates 8942 and 8943 and that
its consent therefore was required to change the points of diversion associated
with the water rights established in those certificates. (7) 
The district refused to give its consent.  
The department rejected the
district's challenge, issuing a proposed order that approved Ken-Wal's
application and that concluded that the district's consent was not required to change
the disputed points of diversion.  The proposed order incorporated a Ruling on
Legal Issues and Order that had been issued earlier in the administrative
proceedings and that contained the following conclusion relevant to the issue
on review:
"As water rights are, in the West, essentially
defeasible usufructuary rights attached to specifically identified land rather
than personal rights which may be exercised at any location and only by the
individual whose name is on the certificate evidencing that right, it is logical
to conclude that the 'holder' of the right referred to in [ORS 540.510(1)] is
the owner of the land to which the right is appurtenant."
The district filed exceptions to the proposed order.  See OAR
137-003-0650(1) (authorizing filing of such exceptions).  
The Water Resources Commission
(commission) considered the district's exceptions but ultimately issued a final
order that conformed to the proposed order.  Acknowledging that "the issue
of ownership of a water right within an irrigation district is a recurring
question," the commission determined that the ownership of the water
rights established in certificates 8942 and 8943 did not control whether
Ken-Wal was required to obtain the district's consent to change the associated
points of diversion.  Rather, focusing its analysis on whether the transfer
provisions in ORS chapter 540 require the district's consent, the commission apparently
considered Ken-Wal the "holder of [a] water use subject to transfer"
under ORS 540.510(1) on the ground that the water rights established in the
certificates are appurtenant to land owned by Ken-Wal. (8) 
In accordance with the commission's final order, the department later issued a
final order approving Ken-Wal's proposed changes to the points of diversion. (9)
The district subsequently sought
judicial review of the commission's order, and the Court of Appeals reversed. 
That court identified the relevant inquiry as whether Ken-Wal or the district was
the "holder of [a] water use subject to transfer," within the meaning
of ORS 540.510(1), with respect to the water rights established in certificates
8942 and 8943.  The court examined the statutory text and context, ultimately
concluding that the phrase "holder of any water use subject to transfer"
refers to the party to which a water right certificate is issued.  Fort
Vannoy Irrigation v. Water Resources Comm., 214 Or App 88, 95-99, 162 P3d
1066 (2007).  That is, the court construed "holder" as referring to
the party that owns the "right to use of the water" provided under a
water right certificate, which the court determined to be the party to which
the certificate is issued.  See id. at 96 ("[A]n entity in whose
name a water right certificate is issued is the owner of the right to use of
the water.").  For certificates 8942 and 8943, that party is the district.
We allowed the petitions for review
filed by Ken-Wal and the commission to interpret the phrase "holder of any
water use subject to transfer" in ORS 540.510(1).  To do so, we initially
place the parties' controversy in its historical context by examining the evolution
of the Water Rights Act and the Irrigation District Law.
II.  HISTORICAL
BACKGROUND
The premium placed on irrigated
agriculture in the American West during the preceding 150 years of United
States history cannot be overstated, (10)
particularly the role that irrigation played in the settlement of the western
states.  That role is described, among other places, in the observations of
Justice Sutherland, writing for the United States Supreme Court in Power Co.
v. Cement Co., 295 US 142, 55 S Ct 725, 79 L Ed 1357 (1935): 
"These states and territories comprised the western
third of the United States -- a vast empire in extent, but still sparsely
settled.  From a line east of the Rocky Mountains almost to the Pacific Ocean,
and from the Canadian border to the boundary of Mexico -- an area greater than
that of the original thirteen states -- the lands capable of redemption, in the
main, constituted a desert, impossible of agricultural use without artificial
irrigation.
"In the beginning, the task of reclaiming
this area was left to the unaided efforts of the people who found their way by
painful effort to its inhospitable solitudes.  These western pioneers,
emulating the spirit of so many others who had gone before them in similar
ventures, faced the difficult problem of wresting a living and creating homes
from the raw elements about them, and threw down the gage of battle to the
forces of nature.  With imperfect tools, they built dams, excavated canals,
constructed ditches, plowed and cultivated the soil, and transformed dry and desolate
lands into green fields and leafy orchards.  In the success of that effort, the
general government itself was greatly concerned -- not only because, as owner,
it was charged through Congress with the duty of disposing of the lands, but
because the settlement and development of the country in which the lands lay
was highly desirable."    
Id. at 156-57.  As part of that historical phenomenon,
the Water Rights Act and the Irrigation District Law share an intertwined
history, in that both laws served to establish irrigated agriculture on the
lands of this state.  A proper entry point into that common background is the
advent of the prior appropriation doctrine in Oregon. 
Over the preceding century and a
half, Oregon water law has known two doctrines applicable to the use of surface
water (i.e., water from streams and lakes) -- the riparian doctrine and
the prior appropriation doctrine.  Janet C. Neuman, Oregon, 6 Waters and
Water Rights 941 (Robert E. Beck ed. 1991); Chapin D. Clark, Survey of
Oregon's Water Laws 93-95 (1983); Wells A. Hutchins, The Common-Law
Riparian Doctrine in Oregon:  Legislative and Judicial Modification, 36 Or
L Rev 193, 193 (1957).  Those doctrines are distinct in terms of the bases on
which water rights are founded.  Riparian rights are based on a party's
ownership of land adjacent to a water source (i.e., riparian land); in
contrast, appropriative rights derive from a party's beneficial use of the
water appropriated from the source, irrespective of the ownership of the
riparian land.  See Sax, Legal Control of Water Resources at 20-21,
98-99 (describing riparian and appropriative rights).
Although the riparian and appropriation
doctrines were once both recognized in this state, the enactment of the Water
Rights Act in 1909 (Or Laws 1909, ch 216) marks the ascendancy of the appropriation
doctrine as the prevailing water law of Oregon.  The event to which the arrival
of that doctrine is attributable throughout the American West is the California
gold rush of the late 1840s and early 1850s.  See Sax, Legal Control
of Water Resources at 281-86 (discussing evolution of appropriation doctrine). 
The development of the appropriation doctrine in that context -- including the historical
reasons for the central tenets of temporal priority and beneficial use -- has
been described as follows:
"The discovery of gold in the tailrace of Sutter's mill
triggered an avalanche of gold seekers.  Arriving by land and by sea, they
established mining camps in an area that only recently had been acquired from
Mexico by the Treaty of Guadalupe Hidalgo.  As yet there were no land offices
and little local government; the miners were trespassers on the public domain. 
Nonetheless, they had need of government, of some form of association, to
protect their mining claims.  So in camp after camp they met and organized
mining districts, adopting rules for the definition of their property rights in
the gulches.  * * *  To retain their claims, miners had to work them with
diligence; otherwise they were forfeited.  When questions of right arose, they
were settled by reference to priority.  Since the miners were squatters on the
public domain, they applied the law of the public domain, first in time, first
in right.
"After the days of the pan and shovel gave
way to ditches and sluiceboxes, questions of right to use the streams arose. 
When they did, the miners applied the same rules to water as they had to the
land -- first in time, first in right.  He who diverted water first had the
prior right to it to the extent of his diversion for use on both riparian and
nonriparian lands.  To perfect the right, ditches had to be dug with diligence
and the water applied to beneficial use.  It was not to be wasted.  As with the
claims, when the use ceased, the right ceased.  Here was the genesis of a new
property right."
Robert Dunbar, Forging New Rights in Western Waters 61
(1983).  This court previously has described the origin of the appropriation
doctrine in similar terms.  See Brown v. Baker, 39 Or 66, 72-73, 65 P 799
(1901) (identifying origin of appropriation doctrine as local mining customs throughout
the "Pacific Coast" during and subsequent to California gold rush).  Relatedly,
as early as 1864, the Oregon Legislative Assembly recognized the right of
miners to obtain vested water rights in accordance with local custom.  General
Laws of Oregon, Mines, ch XXXIV, § 6, p 814 (Deady 1845-1864) ("Miners
shall be empowered to make local laws in relation to the possession of water
rights * * *, subject to the laws of the United States.").
Notwithstanding its roots in the
mining context, the appropriation doctrine was extended to water usage in other
economic sectors, including irrigated agriculture, both in Oregon and elsewhere
in the West during the late-nineteenth and early-twentieth centuries.  See,
e.g., Power Co., 295 US at 154 (stating that rule generally
recognized throughout western states and territories was that acquisition of water
by prior appropriation for beneficial use was entitled to protection, and that rule
applied whether water was diverted for manufacturing, irrigation, or mining
purposes); Parkersville District v. Wattier, 48 Or 332, 340, 86 P 775
(1906) (explaining that discovery of gold in California gave rise to custom,
established by miners, of using water of streams flowing through public lands
to separate precious metal from baser material, and that use of water from such
streams was extended to agriculture, manufacturing, and other purposes).  Among
other sources, the legislative acts that preceded the Water Rights Act  -- the
1891 Act (Or Laws 1891, p 52); the 1899 Act (Or Laws 1899, p 172); and the 1905
Act (Or Laws 1905, ch 228) -- expressly recognized and extended the
appropriation doctrine in the foregoing manner.  See, e.g., Or Laws
1891, p 53 (authorizing appropriation for irrigation purposes).
Although the appropriation doctrine
enabled irrigators to divert and use water to raise crops on nonriparian lands,
the scope of resources required to accomplish such appropriations sometimes
proved prohibitive.  As one scholar has written:
"From the earliest times, the application
of water for irrigation has required contributions of labor resources, and
capital beyond the means of individuals.  Some sort of organizational structure
has been necessary.  Agricultural irrigation on a large scale has existed from
ancient times and has been pursued regularly in the United States since the
opening of the West."
John H. Davidson, Distribution and Storage Organizations,
3 Waters and Water Rights 25-1 (Robert E. Beck ed. 1991).  To similar effect,
this court has stated:
"The general purpose of an appropriation is
to utilize the water in the arid regions, where the supply is limited, for the
development and advancement of beneficial industries.  In many localities where
the water is difficult of diversion, and the expense considerable in conducting
it to the place of use, if individual landholders, or even an aggregation of
them, were required to make the appropriation for use upon their own
possession, these general purposes would be entirely defeated simply for the
reason that such holders could not bear the burden of making the appropriation."
Nevada Ditch Co. v. Bennett, 30 Or 59, 96, 45 P 472
(1896).  
In response to the resource burden, the
irrigation district is one of several water development and distribution
organizations that emerged to facilitate irrigated agriculture throughout the
West during the late-nineteenth century.  See Sax, Legal Control of
Water Resources at 597-601 (discussing carrier ditch companies, mutual
water companies, and irrigation districts); see also Or Laws 1891, p 53
(authorizing appropriation by "[a] corporation organized for the
construction and maintenance of a ditch or canal or flume for general
irrigation purposes").  In that regard, California enacted the seminal irrigation
district legislation, the Wright Act, in 1887.  1887 Cal Stat  ch 34.  Over the
next 30 years, the other western states followed suit, so that, "[b]y
1917, all seventeen conterminous western states had adopted variations on the
Wright Act."  Sax, Legal Control of Water Resources at 600.             
In 1895, the Irrigation District Law
was enacted in Oregon as a copy of the Wright Act.  Or Laws 1895, p 13; Twohy
Bros. Co. v. Ochoco Irr. Dist. et al., 108 Or 1, 13-14, 210 P 873 (1922).  This
court has described the purpose of the Irrigation District Law with respect to irrigated
agriculture as follows:
"The purpose of the law is to make bodies of arid land,
susceptible of irrigation from a common source and through the same system of
works, productive by distributing water over them through canals, etc., belonging
to and the property of the irrigation district.
"The basal principle is the division of the
arid area of the State, upon invitation of the settlers thereon, into
communities or districts, which are determined by their irrigability from a
common source and through the same system of works, and to invest such
communities with power to raise revenue by taxation and the issuing of bonds
for the purpose of acquiring water rights and constructing the necessary
canals, reservoirs, and works for the distribution of the water over the lands
within the district."
Little W. W. Irr. Dist. v. Preston, 46 Or 5, 7, 78 P
982 (1904); see also Fallbrook Irrigation District v. Bradley,
164 US 112, 153, 17 S Ct 56, 41 L Ed 369 (1896) (upholding constitutionality of
Wright Act; "The future prosperity of [several western] States, it was
claimed, depended upon the validity of this act as furnishing the only means
practicable for obtaining artificial irrigation, without the aid of which
millions and millions of acres would be condemned to lie idle and worthless,
which otherwise would furnish enormous quantities of agricultural products and
increase the material wealth and prosperity of that whole section of the
country.").
The current version of the Irrigation
District Law retains the original purpose and structure, enabling owners of
irrigable land to petition for the formation of an irrigation district.  See
ORS 545.025(1)  ("When owners of land that is irrigated or susceptible
to irrigation desire to provide for the construction of works for irrigation of
their land [or] to provide for the reconstruction, betterment, extension,
purchase, operation or maintenance of works already constructed, * * * they may
propose the organization of an irrigation district under the Irrigation
District Law * * *.").  Once formed, the district is governed by an elected
board of directors.  ORS 545.041; ORS 545.135.  Among other duties, the board must
"[e]stablish equitable bylaws, rules and regulations * * * for the
distribution and use of water among the landowners."  ORS 545.221(1)(c).  To
fulfill its duties, the board has "the right to acquire by lease,
purchase, condemnation, or other legal means, all lands, water, water rights,
rights of way, easements and other property * * * necessary for the construction,
use, supply, maintenance, repair and improvement of any canals or works
proposed to be constructed by the board."  ORS 545.239(1).  Relatedly,
"[t]he board also has the right to so acquire lands * * * for reservoirs,
and the right to store water in constructed reservoirs, for the storage of
needful waters, or for any other purpose reasonably necessary for the purposes
of the district."  The legal title to all such property "vest[s] in
the irrigation district and [is] held by it in trust for and * * * is dedicated
and set apart to the uses and purposes set forth in the Irrigation District Law[,]"
and "[t]he board is authorized and empowered to hold, use, acquire,
manage, occupy, possess and dispose of the property as provided in the
Irrigation District Law."  ORS 545.243.
When considered against the
historical backdrop described in this section, the preceding provisions of the
Irrigation District Law are fundamental to our analysis of the issue presented. 
Viewed broadly, that issue is a recurring one in the western states, namely,
whether the ownership of water rights resides with a water organization or its
members.  This court previously has addressed the issue in two cases involving
entities other than irrigation districts.  See In re Waters of Walla Walla
River, 141 Or 492, 498, 16 P2d 939 (1932) (concluding private irrigation
company owned water rights); Eldredge v. Mill Ditch Co., 90 Or 590, 596-97,
177 P 939 (1919) (concluding stockholders of mutual water company owned water
rights).  Likewise, the highest courts of other western states have encountered
the issue in diverse contexts and arrived at differing conclusions. (11)
Ultimately, our resolution of the
issue in this case -- i.e., our interpretation of the phrase
"holder of any water use subject to transfer" in ORS 540.510(1) -- is
controlled by the intent of our legislature as expressed in the Water Rights
Act and the Irrigation District Law. (12) We turn to that inquiry.
III.  DISCUSSION
We approach our interpretive task
under our now familiar methodology, examining the statutory text in its
context.  PGE v. Bureau of Labor and Industries, 317 Or 606, 610, 859
P2d 1143 (1993).  Terms of common usage within the text are given their plain,
natural, and ordinary meaning, id. at 611, and our analysis of context
encompasses "provisions of the same statute and related statutes * * * as
well as the preexisting common law and the statutory framework within which the
law was enacted."  Denton and Denton, 326 Or 236, 241, 951 P2d 693
(1998).
As noted, ORS 540.510(1) provides, in
part: 
"Except as provided in subsections (2) to
(8) of this section, all water used in this state for any purpose shall remain
appurtenant to the premises upon which it is used and no change in use or place
of use of any water for any purpose may be made without compliance with the
provisions of ORS 540.520 and 540.530.  However, the holder of any water use
subject to transfer may, upon compliance with the provisions of ORS 540.520
and 540.530, change the use and place of use, the point of diversion or the
use theretofore made of the water in all cases without losing priority of the
right theretofore established.  A district may change the place of use in
the manner provided in ORS 540.572 to 540.580 in lieu of the method provided in
ORS 540.520 and 540.530."
(Emphases added.)  The parties' arguments on review concern
whether Ken-Wal or the district is the "holder of [a] water use subject to
transfer" within the meaning of that provision.  We initially discuss those
arguments before engaging in our own independent analysis of the statute.  See
Stull v. Hoke, 326 Or 72, 77, 948 P2d 722 (1997) ("In construing a
statute, this court is responsible for identifying the correct interpretation,
whether or not asserted by the parties.").
A.  The Parties' Arguments
The parties' arguments generally proceed
from the premise that the "holder of [a] water use subject to
transfer" in this case is the party with an ownership interest in the
water rights established in certificates 8942 and 8943. (13)
Ken-Wal and the commission contend
that the "holder of [a] water use subject to transfer" is the party
that puts the water provided under certificates 8942 and 8943 to beneficial use
on the land to which the water rights are appurtenant.  That is, they assert
that, despite the fact that the certificates were issued to the district, Ken-Wal
holds the ownership interest in the water rights established in those
certificates -- and thus is the "holder" for purposes of ORS 540.510(1)
-- because (1) Ken-Wal alone beneficially uses the water provided under the
certificates; and (2) Ken-Wal owns the land on which that certificated water is
used (i.e., a portion of the appurtenant land).  According to Ken-Wal
and the commission, the district cannot be considered the "holder of [a]
water use subject to transfer," because it neither beneficially uses the
water provided under the certificates nor owns any of the appurtenant land. (14)
In contrast, the district founds its
claim to the ownership interests in the water rights established in
certificates 8942 and 8943 on (1) the fact that the certificates were issued to
it; and (2) the implications of the trust relationship that exists between it and
its members like Ken-Wal.  The district rejects the proposition that Ken-Wal
can be considered the "holder of [a] water use subject to transfer"
on the grounds of beneficial use or the ownership of a portion of the
appurtenant land.  
B.  Analysis
We engage in a three-part analysis to
determine whether Ken-Wal or the district is the "holder of [a] water use
subject to transfer" with respect to certificates 8942 and 8943.  Our
analysis is successive.  Each part addresses a specific aspect of that phrase
that, once examined, sheds light on the meaning of the phrase as a whole.  We
first briefly analyze the interest that the "holder" has in the
"water use subject to transfer."  Next, we consider the statutory
definition of "water use subject to transfer" in ORS 540.505(4).  And,
finally, we determine which party is the "holder of [a] water use subject
to transfer" by measuring the parties' arguments against the statutory
text and context.
1.  The Interest of the
"Holder"
As described above, the Court of
Appeals concluded that the phrase "holder of any water use subject to
transfer," as used in ORS 540.510(1), refers to a party that has a
possessory or ownership interest in the right to use of the water provided under
a water right certificate.  On review, the parties do not appear to dispute
that the holder's interest in the "water use subject to transfer" is possessory
in nature.  The dictionary bears out that interpretation, defining
"holder," in part, as "one that holds something:  as a (1): 
POSSESSOR, OWNER * * *."  Webster's Third New Int'l Dictionary 1079
(unabridged ed 2002).  Similarly, Webster's defines "hold," in
part, as "to retain in one's keeping: maintain possession of * * *
POSSESS, HAVE * * *."  Id. at 1078.  In short, both definitions
favor an interpretation of the phrase "holder of any water use subject to
transfer" under which the "holder" has an ownership interest in
the "water use subject to transfer."
The more challenging question is
which party is the "holder of [a] water use subject to transfer" relevant
to certificates 8942 and 8943.  As to that question, we first examine the
statutory definition of the phrase "water use subject to transfer."
2.  The "Water Use Subject to
Transfer"
ORS 540.505(4) provides the following
four-part definition:
"'Water use subject to transfer' means a
water use established by:
"(a) An adjudication under ORS chapter 539
as evidenced by a court decree;
"(b) A water right certificate;
"(c) A water use permit for which a request
for issuance of a water right certificate under ORS 537.250 has been received
and approved by the Water    Resources Commission under ORS 537.250; or
"(d) A transfer application for which an
order approving the change has been issued under ORS 540.530 and for which proper
proof of completion of the change has been filed with the Water Resources
Commission."
(Emphases added.)  There is no dispute among the parties that
this case solely concerns paragraph (b):  "a water use established by * *
* [a] water right certificate."  That is, the "water use subject to
transfer" at issue consists of the water use established by each of the
certificates issued to the district.  ORS 540.510(1) exclusively authorizes the
"holder" of the water use established by each certificate to change
the associated point of diversion.
As we understand their arguments, a potential
disagreement between the parties concerns the term "use" in the
phrase "a water use established by * * * [a] water right certificate." 
A "water use established by * * * [a] water right certificate" arguably
could refer to either (1) the right to use water established by a water right
certificate (i.e., the certificated water right); or (2) the use
of water provided under a water right certificate.  The first interpretation contemplates
that the "holder" has an ownership interest in the certificated water
right.  Under the second interpretation, the "holder" has only an
ownership interest in the use of the certificated water, regardless of the ownership
of the water right itself.  In part, Ken-Wal and the commission appear to advocate
the latter interpretation, contending that Ken-Wal is the "holder" on
the ground that it has an ownership interest in the use of the water provided
under certificates 8942 and 8943. (15)
We begin our analysis of the
legislature's intended meaning by examining the historical development of the
current statutory phrase "holder of any water use subject to
transfer" in ORS 540.510(1).  See Krieger v. Just, 319 Or 328, 336,
876 P2d 754 (1994) ("[W]ording changes adopted from session to session are
a part of context of the present version of the statute being
construed.").
The first version of the transfer
provision now codified at ORS 540.510(1) was enacted in 1909 as part of the
original Water Rights Act, providing, in part:
"[I]f for any reason it should at any time become
impracticable to beneficially or economically use water for the irrigation of
any land to which the water is appurtenant, said right may be severed
from said land, and simultaneously transferred, and become appurtenant to other
land, without losing priority of right theretofore established, * * * on the
approval of an application of the owner to the Board of Control."
Or Laws 1909, ch 216, § 65 (emphases added).  The first
version of the transfer provision thus used the term "owner" in
association with the term "right," authorizing the owner of a water
right to pursue a transfer by filing an application with the Board of Control.
The transfer provision began to
resemble its current form in the 1927 version, which provided, in part:
"[T]he owner of any water right may, upon
compliance with the provisions of this act, change the use and place of use,
the point of diversion or the use theretofore made of the water in all cases
without losing priority of the right theretofore established."
Or Laws 1927, ch 219, § 1 (emphasis added).  Notwithstanding
the fact that its phrasing differed from the first version, the 1927 version
retained the term "owner" in association with the term "right"
(i.e., "water right"), authorizing the "owner of any
water right" to pursue the changes currently provided for in ORS
540.510(1).
With only a minor modification, the
third version of the transfer provision was enacted in 1991 and codified in ORS
540.510(1), providing, in part:
"[T]he owner of any certificated water right may,
upon compliance with the provisions of ORS 540.520 and 540.530, change the use
and place of use, the point of diversion or the use theretofore made of the
water in all cases without losing priority of the right theretofore
established."
Or Laws 1991, ch 957, § 7(1) (emphasis added).  While retaining
the terms "owner" and "right" in the phrase "owner of
any certificated water right," the 1991 version of the transfer provision
was distinct in its exclusive focus on "certificated" water rights. 
That transfer provision authorized only the "owner of [a] certificated
water right" to change the associated use, place of use, and point of
diversion.
The legislature enacted the current
version of the transfer provision in 1995.  Or Laws 1995, ch 274, § 2.  The
same act that amended ORS 540.510(1) to include the phrase "holder of any
water use subject to transfer" also amended ORS 540.505 to include the
four-part definition of the phrase "water use subject to transfer"
that, notwithstanding a minor amendment in 1997 (Or Laws 1997, ch 42, § 2), exists
at present.  Or Laws 1995, ch 274, § 1.  Thus, the legislature abandoned the
exclusive focus on certificated water rights in the 1991 version of ORS
540.510(1) by deleting the phrase "owner of any certificated water right,"
substituting the phrase "holder of any water use subject to
transfer," and enacting a four-part definition of the phrase "water
use subject to transfer" that extended beyond certificated water rights.
The definitions of the phrase "water
use subject to transfer" in ORS 540.505(4)(a) to (d) shed light on the
inclusion of terms "holder" and "use" in the phrase
"holder of any water use subject to transfer" in ORS 540.510(1).  As
explained in detail below, the procedures in ORS chapter 537 that govern the
acquisition of an appropriative right provide that the issuance of a water
right certificate is the act that vests a certificated water right in a party. 
See, e.g., ORS 537.250(3) (describing significance of issuance of water
right certificate).  Before the issuance of a certificate, the prospective
appropriator holds only an inchoate right that, although it may allow for water
use, does not constitute a vested water right.  See, e.g., Green v.
Wheeler, 254 Or 424, 430-31, 458 P2d 938 (1969), cert den, 397
US 990 (1970) (explaining appropriative right does not vest prior to issuance
of certificate).  The appearance of the terms "holder" and
"use" in ORS 540.510(1) must be considered in light of the fact that
the definitions of the phrase "water use subject to transfer" in ORS
540.505(4)(c) and (d) both involve water "rights" that are inchoate
in nature.
ORS 540.505(4)(c) involves a
"water use permit for which a request for issuance of a water right
certificate * * * has been received and approved by the Water Resources
Commission * * *."  A party in the precise position identified in paragraph
(c) has completed every step in the application process that precedes the
issuance of a water right certificate.  ORS 537.130; ORS 537.140(1); ORS
537.230(1); ORS 537.230(4).  However, until the department issues the
certificate, the party's water use permit establishes an inchoate, rather than
a vested, water right.
ORS 540.505(4)(d) presents the same
situation with regard to a transfer application.  That provision contemplates
that the commission has issued an order approving the application, ORS
540.530(1)(a), and that the applicant has filed a proper proof of completion,
ORS 540.530(2)(a).  Nonetheless, the commission has not yet issued the
certificate that incorporates the changes effected by the transfer, see id.,
and thus the application falls short of establishing a vested water right. (16)

Ultimately, the usage of the terms
"holder" and "use" in the phrase "holder of any water
use subject to transfer" tracks the extension of the transfer provision to
the inchoate rights identified in ORS 540.505(4)(c) and (d).  The appearances of
the terms "owner," "right," "water right," and "certificated
water right" in the earlier versions of the transfer provision make sense
given that those provisions did not extend to water rights that were inchoate
in nature.  Conversely, however, the usage of those terms in reference to a party's
possession of the "rights" established by the water use permit and
transfer application in ORS 540.505(4)(c) and (d) would disregard the inchoate
nature of those "rights."  The inclusion of the terms
"holder" and "use" in the phrase "holder of any water
use subject to transfer" accounts for the foregoing consideration, rather
than favoring an interpretation of the phrase "a water use established by
* * * [a] water right certificate" that contemplates a "user"
("holder") of water provided under a water right certificate having
authority to alter the associated water right.
The appearance of the phrase "water
use subject to transfer" throughout ORS chapter 540 also sheds light on
the meaning of the phrase "a water use established by * * * [a] water
right certificate" in ORS 540.505(4).  For example, ORS 540.520, which
governs applications for changes of use, place of use, and point of diversion, provides,
in part:
"(8) An application for a change of use
under this section is not required if the beneficial use authorized by the
water use subject to transfer is irrigation and [additional conditions are met]."
(Emphasis added.)  That provision treats "beneficial
use" and the "water use [established by a water right certificate]"
as distinct from one another; the former is authorized by the latter.  Similarly,
ORS 540.523(3), which governs temporary transfers in the place of use and
associated points of diversion, provides:
"All uses of water for which a
temporary transfer is allowed under this section shall revert automatically to
the terms and conditions of the water use subject to transfer upon expiration
of the temporary transfer period."
(Emphases added.)  Again, the "use[] of water" is
identified distinctly from the "water use [established by a water right
certificate]."  The terms and conditions of the latter dictate the use of
the water.  ORS 540.531, which authorizes the transfer of a surface water point
of diversion to allow the appropriation of ground water, provides additional context,
stating, in part:
"(2) The Water Resources Department may
allow a transfer of the point of diversion under subsection (1) of this section
if:
"* * * * *
"(a)(C) The use of the new point of
diversion will affect the surface water source similarly to the
authorized point of diversion specified in the water use subject to transfer
* * *." (17)
The authorized point of diversion is "specified in the
water use [established by a water right certificate]," which, again,
describes the authorized point of diversion as a term of the certificated water
right.  Finally, ORS 540.570(1)(b), which authorizes districts to temporarily change
the place of use associated with water provided under certificated water
rights, states, in part, that such a transfer may occur if:
"The type of use authorized under
the water use subject to transfer remains the same * * *." (18)
Again, the "water use [established by a water right
certificate]" authorizes the "type of use" and thus is distinct
from it.  
In sum, the manner in which the
phrase "water use subject to transfer" is used in the foregoing
provisions does not support a construction of the phrase "a water use established
by * * * [a] water right certificate" in ORS 540.505(4) that equates the
term "a water use" with the use of water provided under a certificate,
rather than the certificated water right itself.
Finally, the meaning of the phrase
"a water use established by * * * [a] water right certificate" in ORS
540.505(4) must be considered in relation to the changes that ORS 540.510(1)
authorizes the "holder" to make, namely, changes to "the use and
place of use, the point of diversion or the use theretofore made of the
water" provided under a "water use subject to transfer."  This
court's case law recognizes those features as elements of an appropriative
right.
"The elements of an appropriation of water
* * * are:  '(a) Quantity of water appropriated; (b) time, period, or season
when the right to the use exists; (c) the place upon the stream at which the
right of diversion attaches; (d) the nature of the use or the purpose to which
the right of use applies, such as irrigation, domestic use, culinary use,
commercial use, or otherwise; (e) the place where the right of use may be
applied; [and] (f) the priority date of appropriation or right as related to
other rights and priorities.'"
Tudor v. Jaca et al., 178 Or 126, 142-43, 164 P2d 680
(1945) (quoting Rocky Ford Canal Co. v. Cox, 59 P2d 935, 939
(Utah 1936).  ORS 537.140 likewise reflects those features as elements,
requiring that an application for an appropriative right -- i.e., an
"application for a permit to appropriate water" -- identify, inter
alia, "the nature and amount of the proposed use; * * * the location
and description of the proposed ditch, canal, or other work * * *; [and,] [i]f
for agricultural purposes, * * * the legal subdivisions of the land and acreage
to be irrigated * * *."  ORS 537.140(1)(a)(C), (D), (I)(b).  
Applied in situations like the
present one, where the "water use subject to transfer" is "a water
use established by * * * [a] water right certificate," ORS 540.510(1) thus
authorizes the "holder" to change the elements of the certificated
water right under which water is provided.  In light of that fact, it is
apparent that the interpretation asserted by Ken-Wal and the commission -- i.e.,
that the phrase "a water use established by * * * [a] water right certificate"
refers only to the use of water provided under a certificate -- assumes that
the "holder" has authority to change the elements of a certificated
water right in which the "holder" does not have an ownership
interest.  We cannot accept that interpretation.  The more well-founded construction
is that the phrase "a water use established by * * * [a] water right
certificate" refers to the certificated water right itself, such that the
"holder" is authorized to change the elements of a certificated water
right in which the "holder" has an ownership interest.
To summarize, the "water use
subject to transfer" involved in this case is the water use established by
each certificate issued to the district.  In turn, the statutory context
supports the conclusion that the corresponding definition of the phrase
"water use subject to transfer" in ORS 540.505(b) -- "a water
use established by * * * [a] water right certificate" -- refers to the
certificated water right itself, not merely the use of the water provided under
the certificate.  That is, the context indicates that the "holder" must
have an ownership interest in the right to use water established by a
water right certificate, not merely an ownership interest in the use of the
water provided under the certificate while the ownership of the water right
resides with another party.
3. The "Holder"
Having determined that the phrase
"holder of any water use subject to transfer" in this case refers to
a party with an ownership interest in the water rights established by
certificates 8942 and 8943, we must now address the pivotal question of which party
is the "holder."  To provide an answer, we examine the four grounds
on which the parties rely in their competing claims to ownership:  (1) the issuance
of the water right certificates; (2) the trust relationship that exists between
the district and Ken-Wal; (3) the beneficial use of the water provided under
the certificates; and (4) the ownership of the appurtenant land.
a.   Issuance of the Water
Right Certificates
Numerous statutory provisions bear on
the district's argument that it is the "holder of [a] water use subject to
transfer" -- i.e., the party with an ownership interest in the
water rights established by certificates 8942 and 8943 -- based on the issuance
of those certificates.  
As noted above, irrigation districts
are authorized to own water rights:
"The board [of directors] also has the
right to acquire by lease, purchase, condemnation or other legal
means, all lands, water, water rights, rights of way,
easements and other property * * * necessary for the construction, use, supply,
maintenance, repair and improvement of any canals and works proposed to be
constructed by the board."
ORS 545.239(1) (emphases added).  See also ORS 545.367
(authorizing board of directors to sell property "owned by the district
and not required for district purposes," including "water or water
rights"); ORS 537.099 (requiring annual water use reports from
"any governmental entity that holds a water right," including "irrigation
district[s] formed under ORS chapter 545 * * *").  Likewise, irrigation
districts can obtain water right certificates in accordance with the procedures
set forth in ORS chapter 537.  See, e.g., ORS 537.250(2) (describing
issuance of water right certificates to irrigation districts); ORS 537.252(1)
(same); ORS 540.510(4) (providing for application of "water used under a
permit or certificate issued to a district" on nonappurtenant lands).  The
ORS chapter 537 procedures identify the relationship between the ownership of a
certificated water right and the issuance of a water right certificate.
Since enactment of the Water Rights
Act in 1909, the ORS chapter 537 procedures constitute the exclusive means
by which an irrigation district (or any other prospective appropriator) can
acquire a "new" appropriative right, notwithstanding the ability of
districts to obtain existing appropriative rights by lease, purchase, or
condemnation.  See ORS 537.120 ("[A]ll waters within the state may
be appropriated for beneficial use, as provided in the Water Rights Act and
not otherwise * * *."  (emphasis added)); ORS 537.130(1) ("[A]ny
person intending to acquire the right to the beneficial use of any of the
surface waters of this state shall * * * make an application to the [department]
for a permit to make the appropriation."); ORS 537.130(2) ("[A]
person may not use, store or divert any waters until after the department
issues a permit to appropriate the waters.").  
This court has described the
exclusive nature of the ORS chapter 537 procedures, and the relationship
between those procedures and the method of acquiring appropriative rights that
existed prior to their enactment, as follows:
"Prior to the water code of 1909[,] the appropriation
of water in Oregon was recognized as a method of creating a vested interest in
the waters of a stream.  But the adoption of the water code introduced a new
concept of establishing one's right to water.  All waters in Oregon were
declared to belong to the public subject to existing rights (ORS 537.110) and
although such waters were declared to be subject to appropriation, they were appropriable
only 'as provided in the Water Rights Act and not otherwise * * *.' (ORS
537.120.)  Appropriation alone was no longer enough to establish a vested right
in the waters of the state; the water code required, and still requires, the
fulfillment of other conditions before a water right will vest in the
appropriator.  Various sections of the water code make this clear.  The plan of
the statute is to recognize vested rights in water not simply where there is an
appropriation but when the 'appropriation has been perfected.'  Thus ORS 537.250
provides that a water right certificate shall be issued upon it appearing to
the satisfaction of the State Engineer 'that an appropriation has been
perfected in accordance with the provisions of the Water Rights Act.'"
Green, 254 Or at 430-31 (emphasis omitted).  The
process of obtaining a water right for irrigation purposes proceeds in stages,
and, as described in Green, that process culminates in the department's
issuance of a certificate to the applicant/permittee.
Initially, a party applies to the
department for a permit to appropriate water, identifying, in part, the
elements of the water right described above (amount, type, and place of use,
and point of diversion).  ORS 537.140(1).  If the department approves the application,
it issues a permit authorizing the permittee to construct irrigation works and
to "take all action required to apply the water to the designated
beneficial use and to perfect the proposed appropriation."  ORS
537.211(1).  As described above, the permit itself does not represent a
perfected and vested water right, even when the permitted water is put to
beneficial use.  See Teel Irrigation Dist. v. Water Resources Dept., 323
Or 663, 667, 919 P2d 1172 (1996) ("The permit itself does not represent a perfected
and vested water right."); Green, 254 Or at 430 ("It seems
clear to us that the legislative assembly intended the water right certificate,
not the permit, even when followed by a beneficial use, to mark the point at
which the water right becomes vested.").   
After the issuance of a water right
permit, the "holder" of the permit is required to construct irrigation
works with reasonable diligence, generally not to exceed five years.  ORS
537.230(1), (3).  Once construction is completed, ORS 537.230(4) provides that,
(1) "upon completion of beneficial use * * *, the permittee shall hire a
water right examiner * * * to survey the appropriation"; and (2)
"[w]ithin one year after application of water to a beneficial use or the
beneficial use date allowed in the permit, the permittee shall submit a map of
the survey * * *, which shall accompany the request for a water right
certificate * * *."  If the permittee fails to complete the construction
work or apply the permitted water to beneficial use in a timely manner, the
permit may be canceled.  ORS 537.410(1).  If the department determines that
"an appropriation has been perfected in accordance with the provisions of
the Water Rights Act," however, the  department issues a certificate to the
applicant/permittee.  ORS 537.250(1). 
To reiterate, ORS 537.250(3)
describes the significance of the department's issuance of a water right
certificate as follows:
"Rights to the use of water acquired
under the provisions of the Water Rights Act, as set forth in a certificate
issued under subsection (1) of this section, shall continue in the owner
thereof so long as the water shall be applied to beneficial use under and
in accordance with the terms of the certificate * * *."
(Emphases added.)  Likewise, citing ORS 537.250(3), this
court previously has stated that "[t]he certificate represents a vested,
perfected water right that continues so long as the water is applied to a beneficial
use in accordance with the terms of the certificate * * *."  Teel
Irrigation Dist., 323 Or at 668.
The foregoing context supports the conclusion
that the party that holds an ownership interest in a certificated water
right -- i.e., the "holder" -- is the party that undertook the
procedures in ORS chapter 537 that culminated in the issuance of the
certificate.  Stated differently, the department's issuance of a certificate
appears to be the act that vests the ownership interest associated with a
certificated water right in the party to which the certificate is issued.  The
contested certificates in this case reflect as much.
Certificates 8942 and 8943, and the
documents leading up to the issuance of those certificates (the water right
permit applications, water right permits, and proofs of appropriation), demonstrate
that the district, not Ken-Wal, undertook the ORS chapter 537 procedures to
acquire the associated water rights. (19)
Both certificates state:
"This is to Certify, That FORT VANNOY
IRRIGATION DISTRICT * * * has made proof to the satisfaction of the STATE
ENGINEER of Oregon, of a right to the use of the waters of [Rogue River/Dutcher
Creek] * * * for the purpose of [Irrigation] under [Permit No. 9692/9693] * *
*, and that said right to the use of waters has been perfected in accordance
with the laws of Oregon * * *."
The certificates then describe the elements of the
certificated water rights, including the amount, type, and place of use, and
the point of diversion.
In sum, the fact that the district
engaged in the statutory procedures that are the exclusive means for acquiring
certificated water rights -- which is unambiguously reflected in the
certificates and the preceding documents -- supports the conclusion that the
district is the "holder" of the water rights established in
certificates 8942 and 8943. (20) 
Notwithstanding that conclusion, Ken-Wal's beneficial use of the water provided
under those certificates -- as well as the permits that preceded those
certificates -- is an essential act in the creation and maintenance of the
water rights, which is an important point that we consider below.  Before
turning to it, however, we analyze in more detail the district's ownership
interests in the certificated water rights by examining the trust relationship between
the parties and the implications of that relationship on the ownership
interests.
b.         Trust Relationship
The fact that certificates 8942 and
8943 were issued to the district subjects the ownership interest in each certificated
water right to the parties' trust relationship.  As noted above, that
relationship is established in ORS 545.253, which provides that water rights
acquired by an irrigation district pursuant to ORS 545.239 are trust property:
"The legal title to all property acquired
under ORS 545.239 * * * shall immediately vest in the irrigation district and shall
be held by it in trust for and hereby is dedicated and set apart to the uses
and purposes set forth in the Irrigation District Law.  The board [of
directors] is authorized and empowered to hold, use, acquire, manage,
occupy, possess and dispose of the property as provided in the
Irrigation District Law."
ORS 545.253 (emphases added).  Similarly, this court has held
that "[t]he relationship between an irrigation district and its
constituent landowners as to the water rights and other property of such
district is that of trustee and cestuis que trustent." (21) 
Smith v. Enterprise Irrigation Dist., 160 Or 372, 378-79, 85 P2d 1021
(1939).  
The existence of the trust
relationship bifurcates the ownership interest in each certificated water
right.  See Allen v. Hendrick, 104 Or 202, 223-24, 206 P 733 (1922)
("A trust implies two estates;-- one legal, and the other equitable; it
also implies that the legal title is held by one person, the trustee, while
another person, the cestui que trust, has the beneficial interest * * *."). 
The district holds legal title to the water right as trustee, and the members
hold equitable title as the beneficiaries.  Acting in a fiduciary capacity, the
district's duties as trustee include management of the water right and the
water that it provides, and the members enjoy the use of that water as their
beneficial interest.  See ORS 545.221(1)(c) ("The board [of
directors] shall * * * [e]stablish equitable bylaws, rules and regulations * *
* for the distribution and use of water among the landowners."); ORS 545.253
(authorizing board of directors to "hold, use, [and] manage * * * property
as provided in the Irrigation District Law," including water and water
rights acquired pursuant to ORS 545.239); ORS 540.570(1) (authorizing
district-initiated temporary transfers in place of use for one irrigation
season); ORS 540.572(1), (2) (authorizing district-initiated permanent
transfers in place of use due to nonirrigability of appurtenant land or lack of
beneficial use).
The parties' roles and ownership
interests under the trust relationship inform our interpretation of the phrase "holder
of any water use subject to transfer" as applied in this case.  Those
aspects of the trust relationship must be considered in light of the fact that
ORS 540.510(1) authorizes the "holder" to make fundamental changes --
i.e., "change the use and place of use, the point of diversion or
the use theretofore made of the water" -- to the certificated water rights
as trust property.  Given that authority, notwithstanding Ken-Wal's equitable
ownership interest, the phrase "holder of any water use subject to
transfer" cannot be construed as referring to Ken-Wal, because such a
construction would run afoul of the trust relationship by permitting a beneficiary
to manage the trust property.  In contrast, construing that phrase to refer to the
district is consistent with the parties' trust relationship, because the
changes that ORS 540.510(1) authorizes implicate the trustee's duty to manage
the trust property for the sake of all of the beneficiaries.
c.         Beneficial Use
Ken-Wal's and the commission's
arguments regarding beneficial use -- i.e., that Ken-Wal is the "holder"
of the water rights established in certificates 8942 and 8943 on the ground
that it is the sole beneficial user of the water provided under those
certificates -- stand in sharp contrast to the conclusion supported by the
analyses above.  Beneficial use indeed is the foundation of an appropriative
right.  See ORS 540.610(1) ("Beneficial use shall be the basis, the
measure and the limit of all rights to the use of water in this state."). 
Relatedly, beneficial use is essential to the acquisition and maintenance of
certificated water rights.  See ORS 537.230(4) (conditioning issuance of
certificate on beneficial use of water under water right permit); ORS 537.250(3)
(conditioning maintenance of certificated water rights on beneficial use under
terms of certificate).  Nonetheless, in the particular circumstances of this
case, two aspects of the statutory context must be considered when evaluating the
contentions of Ken-Wal and the commission that Ken-Wal is the
"holder" on the ground of beneficial use.  
First, as previously explained, the
ORS chapter 537 procedures require more than beneficial use to acquire a
certificated water right.  See, e.g., ORS 537.130(1) (requiring
submission of water right permit application to the department prior to actions
effecting proposed appropriation); ORS 537.230(1) (requiring water right permit
holder to construct irrigation works with reasonable diligence); ORS 537.230(4)
(requiring survey of appropriation and submission of survey map and request for
water right certificate); Green, 254 Or at 430-31 (describing vesting of
water right under Water Rights Act requires fulfillment of conditions beyond
appropriation itself).  Those procedures demonstrate that the beneficial use of
the water provided under permits 9692 and 9693 was a necessary, but not
sufficient, condition for the acquisition of the water rights later established
in certificates 8942 and 8943. (22)
For its part, the district was responsible for constructing the irrigation
works that channel water to Ken-Wal's land, as well as tending to the permit
applications, the appropriation survey and survey map, and the requests for the
water right certificates.  Thus, beneficial use of the permitted water was only
one action within the joint effort required to bring the certificated water
rights into existence.
Second, relevant to both the
acquisition and the subsequent maintenance of the certificated water rights,
Ken-Wal's beneficial use of the water can be considered part of an agency
relationship between it and the district.  This court's case law and the
provisions of the Water Rights Act and Irrigation District Law favor the
existence of an agency relationship in these circumstances.  
In a line of cases originating before
the enactment of the Water Rights Act in 1909, this court has held that
beneficial use may be accomplished through an agency relationship.  The court
stated early on in Nevada Ditch Co.:
"We take it, therefore, that the bona fide intention
which is required of the appropriator to apply the water to some useful purpose
may comprehend a use to be made by or through another person * * *.  Thus
the appropriator is enabled to complete and finally establish his appropriation
through the agency of the user."
30 Or at 97 (emphasis added).  The court has
reiterated that view in several subsequent cases, most recently in Wilber v.
Wheeler, 273 Or 855, 861-62, 543 P2d 1052 (1975):
"'It was the plan of the water law of 1891,
and runs all through the cases, that an appropriation may be made by one
person for the future use of another * * *."
Id. at 861-62 (quoting In re Waters of Deschutes
River, 134 Or 623, 655, 286 P 563 (1929); citing Re Water Rights of Hood
River, 114 Or 112, 137, 227 P 1065 (1924), and Nevada Ditch Co., 30
Or at 89) (emphasis in original; internal quotation marks omitted).                                Specifically,
in prior cases involving disputes between water organizations (other than
irrigation districts) and their patrons over the ownership of water rights,
this court has held that beneficial use may be accomplished through an agency
relationship.  See In re Waters of Walla Walla River, 141 Or at 497-98 (concluding
patrons acted as agents when applying water to beneficial use and irrigation
company owned water rights); Eldredge v. Mill Ditch Co., 90 Or at 596-97
(concluding mutual water company acted as agent of shareholders who put water
to beneficial use and owned water rights).     
The provisions of the Water Rights
Act and the Irrigation District Law support the existence of an agency
relationship between the district and Ken-Wal in this case.  Three aspects of
those provisions are relevant.  First, as described above, both laws contain
provisions demonstrating that districts can acquire and hold certificated water
rights.  ORS 537.250(2), (3); ORS 545.239(1); ORS 545.253.  Second, the Water
Rights Act hinges the acquisition and maintenance of certificated water rights
on beneficial use.  ORS 537.230(4); ORS 537.250(3).  And, third, although the
Irrigation District Law provides that districts may own land for the purposes
of supplying and distributing certificated water, numerous provisions within
that law demonstrate that it is the members (like Ken-Wal) that own the land on
which such water is beneficially used. (23) 
See, e.g., ORS 545.025(1) (identifying that purpose of an irrigation
district is to enable owners of irrigable lands within proposed district's
boundaries to provide for works necessary to irrigate their lands); ORS 545.221(1)(c)
(requiring board of directors to "[e]stablish equitable bylaws, rules and
regulations for the * * * distribution and use of water among the landowners"
(emphasis added)); ORS 545.239(1) (authorizing board of directors to acquire
(1) lands "necessary for the construction, use, supply,
maintenance, repair and improvement of any canals and works proposed to be
constructed by the board"; and (2) lands for reservoirs "for the
storage of needful waters, or for any other purpose reasonably necessary for
the purposes of the district" (emphases added)); ORS 545.253
(providing property acquired by district under ORS 545.239 "is dedicated
and set apart to the uses and purposes set forth in the Irrigation District
Law"). (24)

Taken together, the foregoing
provisions support the conclusion that an agency relationship exists between
the district and Ken-Wal with respect to the water rights established in
certificates 8942 and 8943.  The district is authorized to acquire and hold
those certificated water rights.  Notwithstanding that authority, however, it
is Ken-Wal, not the district, that owns the land on which the certificated
water is beneficially used.  Accordingly, if the statutory provisions
authorizing the district to acquire and hold the certificated water rights are
to be given effect, it is inherent in the parties' relationship that the
district has maintained ownership of the certificated water rights through
Ken-Wal's beneficial use of the certificated water.  Put differently, because
the district's ownership of the certificated water rights is dependent on the
certificated water being put to beneficial use on Ken-Wal's land, it is
inherent in the district's ownership of the certificated water rights that
Ken-Wal acts as its agent.  To hold that Ken-Wal is the "holder of [a]
water use subject to transfer" on the ground of beneficial use in this
case would be to eviscerate the district's statutory authority to own certificated
water rights.
In our view, Ken-Wal's beneficial use
of the water provided under certificates 8942 and 8943 does not undermine the
conclusion that the district is the "holder of [a] water use subject to
transfer" relevant to the water rights established in those certificates. 
Beneficial use of the permitted water was insufficient alone to bring the water
rights into existence under ORS chapter 537.  Moreover, the court's longstanding
case law and the statutory provisions discussed above demonstrate that the
parties participate in an agency relationship whereby the district has maintained
ownership of the certificated water rights through Ken-Wal's beneficial use of the
certificated water.  We now turn to Ken-Wal's and the commission's final
argument regarding the ownership of the appurtenant land.
d.         Ownership of the
Appurtenant Land
Like their contentions regarding
beneficial use, the arguments of Ken-Wal and the commission regarding the
ownership of the appurtenant land -- i.e., that Ken-Wal is the
"holder" of the water rights established in certificates 8942 and
8943 because it owns a portion of the land to which those water rights are
appurtenant -- also run contrary to the conclusion that the district is the
"holder" based on the issuance of the certificates and the parties'
trust relationship.  The certificated water rights are appurtenant to the land
on which the certificated water is applied to beneficial use.  See ORS
540.510(1) ("[A]ll water used in this state for any purpose shall remain
appurtenant to the premises upon which it is used * * *.").  That said,
the argument that the ownership of a certificated water right is controlled by
the ownership of the appurtenant land must be considered in light of the
statutory context.
For over a century, this court's
cases interpreting the Water Rights Act and its predecessors repeatedly have rejected
the proposition that the ownership of the appurtenant land is coextensive with
the ownership of the appropriative rights under which water is provided thereto. 
As referred to earlier in relation to beneficial use, Wilber provides a
thorough recitation of that legal principle.
"There is nothing in ORS ch 537 which would
prevent someone from applying for water rights to land which they do not own
but do intend to irrigate.  As this court stated in In re Waters of
Deschutes River, 134 Or 623, 655, 286 P 563 (1929), reh denied and
opinion modified, 249 P 1049 (1930):
"'It was the plan of the water law of 1891, and runs all             through the cases, that an appropriation may be made by one person
for the future use of another; and for the future use upon lands
which the appropriator does not then own, or which he does
not contemplate owning and which he never does own. It
is sufficient for the validity of the appropriation if the original intention
is, that the water filed upon is for use upon certain lands then
definitely had in mind, and it is reasonably anticipated that when
the diversion is ultimately completed and the water ready for
application to that land, or other land or uses which have been    substituted
for the originally considered and intended land, such land
will be then, or with reasonable diligence thereafter ready to
receive it:  [Nevada Ditch Co., 30 Or at 89; Re Water Rights of Hood River, 114 Or at 137-38].'  (Emphasis added.)
"Under
our statute, it is clear that water rights are appurtenant to the land, and not
to ownership of the land which changes hands frequently.  See ORS
540.510."
Wilber, 273 Or at 861-62 (additional emphasis added).
Wilber illustrates that, relevant
to ORS chapter 537 and the appropriation procedures that preceded its enactment,
the longstanding rule in Oregon is that the ownership of an appropriative right
(e.g., a certificated water right) may reside with a party that does not
own the appurtenant land.  Put differently, a party's ownership of the
appurtenant land does not necessarily entail its ownership of the associated
certificated water right.  In at least some situations, the ownership of a
certificated water right will reside with one party while the ownership of the
appurtenant land resides with another.  Such is the circumstance in this case. 
Although Ken-Wal enjoys the use of the water provided under certificates 8942
and 8943 by virtue of its ownership of a portion of the appurtenant land, that
ownership does not dictate that Ken-Wal also owns the certificated water rights. 
Rather, for the reasons described above, the statutory context compels the
conclusion that the district acquired the legal ownership interest in the
certificated water rights when undertaking the ORS chapter 537 procedures, and
Ken-Wal enjoys the use of the certificated water on its lands as a beneficiary
in the parties' trust relationship.
IV.  CONCLUSION
Because
the text of ORS 540.510(1) and the statutory context render the meaning of the
phrase "holder of any water use subject to transfer" unambiguous, our
analysis need not proceed further.  The phrase "holder of [a] water use
subject to transfer" connotes a party with an ownership interest.  Construing
the term "water use subject to transfer" in this case as the right to
use water established by certificates 8942 and 8943, we hold that the district
is the "holder" of those certificated water rights.  The requisite ownership
interest in those rights vested in the district as trustee upon issuance of the
certificates.  Ken-Wal's beneficial use has enabled the district's ownership of
the water rights through an agency relationship.  Ken-Wal's ownership of a
portion of the appurtenant land does not equate with ownership of the
certificated water rights.  Ultimately, because we conclude that Ken-Wal is not
the "holder" of the water rights established in certificates 8942 and
8943, Ken-Wal is not authorized under ORS 540.510(1) to change the associated points
of diversion without the district's consent.
The decision of the Court of Appeals
is affirmed.  The order of the Water Resources Commission is reversed, and the
case is remanded to the commission for further proceedings consistent with this
opinion.
1. As
provided in ORS 537.010, the "Water Rights Act" includes "ORS
536.050, 537.120, 537.130, 537.140 to 537.252, 537.390 to 537.400, 538.420,
540.010 to 540.120, 540.210 to 540.230, 540.310 to 540.430, 540.505 to 540.585
and 540.710 to 540.750." The "Irrigation District Law" is set
forth in ORS chapter 545.  ORS 545.001.
2. Before
the creation of the Water Resources Department, the State Engineer was charged
with administering water right transfers.  See, e.g., Or Laws
1927, ch 219, § 1 (identifying State Engineer as official previously charged
with administration of water rights transfer provision).  Although the State
Engineer issued both certificates in 1930, the priority date associated with
certificate 8942 is June 21, 1930, and the priority date associated with
certificate 8943 is April 6, 1922.
3. Three
of the water right certificates (2803, 3247, and 15340) were issued to
Ken-Wal's predecessors, rather than to the district, and are not at issue here.
4. Certificate
8942 designates the appurtenant land (i.e., the place of use for the
water provided under that certificate) as consisting of 817 acres, and
certificate 8943 consisting of 71 acres.  At oral argument before this court,
the parties agreed that Ken-Wal's land constitutes only a portion of the land
to which the district supplies the water provided under the certificates -- i.e.,
that Ken-Wal owns only a portion of the appurtenant land designated in the
certificates.
5. Ken-Wal's
application describes the new irrigation system as follows:
"The system will be a pressurized sprinkler
system with 4 big gun traveling sprinklers and a 125 HP electric pump.  The
mainline will be a buried plastic pipe starting at 12 inch diameter and ending
with 5 inch diameter pipe with 4 inch risers to connect the 4 traveling big gun
sprinklers.  The system has been engineered by Natural Resource Conservation
Service."
6. We refer to the district and Baertschiger collectively as the
"district."
7. The district also challenged Ken-Wal's proposed changes concerning
certificates 2803, 3247, and 15340, on the ground that Ken-Wal had not used the
water provided thereunder in accordance with the terms of the certificates
during the preceding five years.  That additional ground is not at issue on
review in this court.
8. The
commission found that Ken-Wal "owns all the land appurtenant to the water
rights proposed for transfer."  That finding reflects the fact that
Ken-Wal owns all the land to which water is provided to it under
certificates 8942 and 8943 -- i.e., that Ken-Wal's share of the
certificated water is supplied solely on land that it owns -- not that Ken-Wal
owns all the land to which water is provided under the certificates.   
9. The
department's final order also cancelled a portion of the water right established
in certificate 8942 and diminished a portion of that water right from primary
to supplemental irrigation.  On review, the district has not advanced any
separate argument regarding those specific changes.
10. Historically,
the Water Rights Act and the Irrigation District Law are relatively recent
measures in a cross-cultural pattern of organized irrigation that spans the
preceding 1,300 years in the American West.  See Joseph L. Sax, et
al., Legal Control of Water Resources 281-86 (3d ed 2000)
(discussing history of western water law).
11. Compare East Jordan Irr. Co. v. Morgan, 860 P2d 310, 313,
316 (Utah 1993) (concluding mutual water corporation owned water rights such
that shareholder not authorized to change point of diversion absent
corporation's consent); Madera Irr. Dist. v. All Persons, Etc., 47 Cal
2d  681, 692-93, 306 P2d 886 (1957) (concluding former landowners in irrigation
district organized under Wright Act did not have right to use water provided by
district on lands excluded from district); Consolidated People's Ditch Co.
v. Foothill Ditch Co., 205 Cal 54, 64, 269 P 915 (1928) (concluding
shareholder (irrigation district) in various mutual water corporations did not
have right to change points of diversion associated with water provided by
corporations); and Jenison v. Redfield, 149 Cal 500, 503-04, 87 P 62
(1906) (concluding landowner in irrigation district organized under Wright Act
did not have right to use water provided by district on land outside district);
with Wadsworth Ditch Co. v. Brown, 39 Colo 57, 61-62, 88 P 1060
(1907) (concluding shareholder of mutual ditch company authorized to change
point of diversion; "[t]he right to change [the point of diversion] is a
property right.  [It] belongs to the stockholder (consumer) in a mutual ditch
company as fully as to any other appropriator"); and Slosser v.
Salt River Val. Canal Co., 7 Ariz 376, 395-96, 65 P 332 (1901) (concluding
ownership of land essential to appropriative rights such that nonlandowning
private irrigation corporation did not own such rights). 
12. We
are mindful that some irrigation districts restrict their members' authority to
change a point of diversion through regulations or contractual provisions -- e.g.,
districts formed pursuant to the federal Carey Act, 43 USC § 641 (1894).  Our
holding in this case regarding Ken-Wal's authority to change the disputed
points of diversion -- which, as noted, rests on our interpretation of the
phrase "holder of any water use subject to transfer" in ORS
540.510(1) -- does not concern such restrictions.     
13. It
is possible that the arguments of Ken-Wal and the commission may be construed
as asserting that the "holder of [a] water use subject to transfer"
is the party with an ownership interest in the use of the water provided
under certificates 8942 and 8943, rather than the party with an ownership
interest in the water rights established in those certificates.  We address
that position below.
14. In
addition to its arguments concerning the ownership of the water rights
established in certificates 8942 and 8943, Ken-Wal contends that a district
cannot be a "holder of [a] water use subject to transfer" within the
meaning of ORS 540.510(1), because that provision assertedly treats "the
holder" and "a district" as distinct terms.  That is, Ken-Wal
draws attention to the fact that the second sentence of ORS 540.510(1)
addresses the authority of "the holder" to make various changes, and
the third sentence separately provides:  "A district may change the place
of use in the manner provided in ORS 540.572 to 540.580 in lieu of the method
provided in ORS 540.520 and 540.530."  We reject Ken-Wal's assertion that
the two terms are mutually exclusive.  Rather, ORS 540.510(1) contemplates that
a "district" is a type of "holder" authorized to change the
place of use "in the manner provided in ORS 540.572 to 540.580 [or by] the
method provided in ORS 540.520 and 540.530."  
Relatedly, we also reject without
further discussion any suggestion made by Ken-Wal that a district cannot be
considered the "holder of [a] water use subject to transfer" under
ORS 540.510(1) based on contextual provisions in ORS Chapter 540 governing
district participation in, and consent to, proposed water right transfers.  See,
e.g., ORS 540.570 (district-initiated temporary transfers of place of use);
ORS 540.572 (district-initiated permanent transfers of place of use due to lack
of beneficial use or nonirrigability of appurtenant land); ORS 540.580
(district-initiated permanent transfers of place of use). 
15. For
example, in its brief on the merits filed in this court, Ken-Wal argues, in
part, that the district cannot be considered a "holder of [a] water use
subject to transfer" because the district assertedly does not have "a
possessory or ownership interest in the use of the water" provided
under certificates 8942 and 8943.
16. For applicants other than irrigation districts, ORS 540.530(2) provides
that the commission "shall cancel [any] previous certificate * * * [and]
issue a new certificate" when a proper proof of completion of the
authorized changes has been filed.  For irrigation district applicants, ORS
540.530(2)(a) authorizes the commission to modify any previous certificate in
lieu of issuing a new certificate upon filing of a proper proof of completion.            
17. ORS 540.531(2)(a)(D) and (3)(c) also contain the phrase "specified
in the water use subject to transfer."  See also ORS 540.585(1)(b)
("The type of use specified in the original water use subject to transfer
is irrigation[.]").
18. See
also ORS 540.580(1)(a), (b) (permitting district-initiated petition for
permanent change in place of use if, among other requirements, "[t]he
rate, duty and total number of acres to which water is to be applied under
the water use subject to transfer are not exceeded," and "[t]he
use authorized under the water use subject to transfer remains the
same") (emphases added)).
19. Certificate 8943 and its preceding documents (the application for a
water right permit, the water right permit, and the proof of appropriation) are
not in the record.  The originals of those documents are contained in the
official files of the department.  Accordingly, we take judicial notice of
those documents, as they are not subject to reasonable dispute.  See OEC
201(b)(2) (so permitting).
20. See
East Jordan Irr. Co., 860 P2d at 313 (reasoning, in part, that
shareholder in mutual water corporation did not own water rights because
shareholder did not engage in statutory appropriation procedures).  
21. "Cestui que trust" and "cestuis que trustent" are
defined as, "[o]ne who possesses equitable rights in property * * *
BENEFICIARY."  Black's Law Dictionary 243 (8th ed 2004).
22. It
is unclear from the record whether the permitted water was beneficially used by
Ken-Wal or a predecessor or predecessors of Ken-Wal.  That fact, however, is
not essential to our conclusions that (1) the beneficial use of the permitted
water was insufficient for acquisition of the certificated water rights; and
(2) Ken-Wal's beneficial use of the certificated water is an inherent aspect of
the district's ownership of the certificated water rights. 
23. In
addition to providing water to the lands of their members, districts also may furnish
water to "lands not included within the district" and "lands
within the district [that are] not subject to assessment by the district,"
upon receiving proper compensation.  ORS 545.271.
24. See
also ORS 540.572(2) (authorizing district to seek permanent transfer of
water right under ORS 540.574 if a "water user of a district" has not
beneficially used water for five years); ORS 540.574(3) (requiring petition for
district-initiated permanent transfer of water right to include "names of
all users within the district" to and from whose land water rights are to
be transferred).