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Prokop v. Lower Loup Natural Resources District

Supreme Court of Nebraska

January 11, 2019

Robert J. Prokop, appellant and cross-appellee.
Lower Loup Natural Resources District et al., appellees and cross-appellants.

         1. Administrative Law: Judgments: Appeal and Error. A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified by an appellate court for errors appearing on the record.

         2.__:__:__ . When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

         3. Judgments: Appeal and Error. Whether a decision conforms to law is by definition a question of law, in connection with which an appellate court reaches a conclusion independent of that reached by the lower court.

         4. __:__. An appellate court, in reviewing a district court judgment for errors appearing on the record, will not substitute its factual findings for those of the district court where competent evidence supports those findings.

         5. Natural Resources Districts: Political Subdivisions: Legislature. A natural resources district, as a political subdivision, has only that power delegated to it by the Legislature, and an appellate court strictly construes a grant of power to a political subdivision.

         6. Natural Resources Districts. A natural resources district possesses and can exercise the following powers and no others: first, those granted in express words; second, those implied in or incident to the powers expressly granted; and third, those essential to the declared objects and purposes of the district-not simply convenient, but indispensable.

         [302 Neb. 11] 7. Administrative Law. Generally, for purposes of construction, a rule or order of an administrative agency or political subdivision is treated like a statute.

         8. __. Absent a statutory or regulatory indication to the contrary, language contained in a rule or regulation is to be given its plain and ordinary meaning.

         9.__ .A rule is open for construction only when the language used requires interpretation or may reasonably be considered ambiguous.

         10. Administrative Law: Political Subdivisions: Appeal and Error. An appellate court accords deference to an agency or political subdivision's interpretation of its own rules unless plainly erroneous or inconsistent.

         11. Statutes. A court must attempt to give effect to all parts of a statute, and if it can be avoided, no word, clause, or sentence will be rejected as superfluous or meaningless.

         12. Statutes: Words and Phrases. In statutory interpretation, "shall," as a general rule, is considered mandatory and inconsistent with the idea of discretion.

         13. Due Process. Due process principles protect individuals from arbitrary deprivation of life, liberty, or property without due process of law.

         14.__ . Procedural due process claims require a two-step analysis: (1) whether the plaintiff has asserted a life, liberty, or property interest that is protected by the Due Process Clause and (2) whether the plaintiff was deprived of that interest without sufficient process.

         15. Administrative Law: Due Process. A party appearing in an adjudication hearing before an agency or tribunal is entitled to due process protections similar to those given to litigants in a judicial proceeding.

         16. Due Process: Notice. Due process does not guarantee an individual any particular form of state procedure. Instead, the requirements of due process are satisfied if a person has reasonable notice and an opportunity to be heard appropriate to the nature of the proceeding and the character of the rights which might be affected by it.

         17. Administrative Law: Due Process: Notice: Evidence. In proceedings before an administrative agency or tribunal, procedural due process requires notice, identification of the accuser, factual basis for the accusation, reasonable time and opportunity to present evidence concerning the accusation, and a hearing before an impartial board.

         18. Due Process: Notice. Due process requires notice reasonably calculated to inform the party to the action of the subject and issues involved in the proceeding.

         19. Administrative Law. While similar to a judicial proceeding, an adjudication hearing before an agency does not guarantee an individual any particular form of state procedure.

         [302 Neb. 12] 20.__ . Administrative bodies have the authority to provide discovery which must be exercised judicially and not arbitrarily.

         21. Due Process: Property: Notice. Due process involving deprivation of a significant property interest requires notice and an opportunity to be heard that is appropriate to the nature of the case.

         22. Due Process: Notice: Time. Due process depends on, in part, whether the notice was sufficient to provide the party a reasonable opportunity to confront and cross-examine adverse witnesses and present evidence.

         23. Administrative Law: Due Process: Natural Resources Districts: Notice. Due process does not require that a natural resources district provide notice of its specific evidence to a party prior to a hearing.

         24. Property. A takings analysis begins with an examination of the nature of the owner's property interest.

         25. Waters. Ground water, as defined by Neb. Rev. Stat. § 46-706 (Reissue 2010), is owned by the public, and the only right held by an overlying landowner is in the use of the ground water.

         26. Constitutional Law: Waters: Appurtenances: Property. The right of an owner of overlying land to use ground water is an appurtenance constituting property protected by Neb. Const, art. I, § 21.

         27. Waters: Public Policy. Through its police power, the State has the power to determine public policy with regard to ground water and can alter the common law governing the use of ground water.

         28. Property: Constitutional Law. The appropriate exercise of police power occurs where an owner is denied the unrestricted use or enjoyment of his property, or his property is taken from him, because his use or enjoyment of such property is injurious to the public welfare.

         29. Waters. Appropriate use of police power includes that the State place limitations on the withdrawals of ground water in times of shortage.

         30. Administrative Law: Appeal and Error. In a de novo review on the record of an administrative order, the district court is required to make independent factual determinations based upon the record, and the court reaches its own independent conclusions with respect to the matters at issue.

          Appeal from the District Court for Valley County: Karin L. Noakes, Judge.

          Brian C. Buescher and Dwyer Arce, of Kutak Rock, L.L.P., for appellant.

          Blake E. Johnson and Katherine J. Spohn, of Bruning Law Group, for appellees.

         [302 Neb. 13] Donald G. Blankenau and Kennon G. Meyer, of Blankenau, Wilmoth & Jarecke, L.L.P., for amicus curiae Nebraska Groundwater Coalition.

          Heavican, C.J., Cassel, Stacy, Funke, and Papik, JJ.

          Funke, J.

         Robert J. Prokop appeals from the district court's order affirming the findings and modifying a cease and desist order of the Lower Loup Natural Resources District (LLNRD) Board directing Prokop to suspend use of ground water wells for noncompliance with LLNRD's annual reporting requirements.

         Prokop challenges LLNRD's authority under the Nebraska Ground Water Management and Protection Act (GWMPA)[1] and LLNRD rules which require operators to provide actual crop yield data in their annual reports and to impose sanctions for noncompliance with LLNRD reporting requirements. Prokop further argues that LLNRD failed to provide him sufficient due process in its proceedings on whether he complied with LLNRD reporting requirements and that LLNRD's suspension of his ground water rights constituted a taking without just compensation. Prokop additionally challenges the district court's refusal to receive certain exhibits during his appeal to the district court and its failure to award him attorney fees. LLNRD and the board cross-appeal and argue the district court improperly reduced the duration of Prokop's suspension of ground water access. For the reasons set forth herein, we affirm.

         I. BACKGROUND

         LLNRD is a natural resources district (NRD) authorized by GWMPA to regulate certain activities which may contribute to ground water contamination due to nitrate nitrogen and other contaminants.[2] GWMPA enables NRD's to establish ground [302 Neb. 14] water management areas for the protection of ground water quality.[3] GWMPA requires NRD's to maintain a ground water management plan that, among other obligations and to the extent possible, identifies the levels and sources of ground water contamination within the district; ground water quality goals; long-term solutions necessary to prevent the levels of ground water contaminates from becoming too high and to reduce high levels sufficiently to eliminate health hazards; and practices recommended to stabilize, reduce, and prevent the occurrence, increase, or spread of ground water contamination.[4] GWMPA authorizes NRD's to adopt rules and regulations necessary to discharge the administrative duties assigned under GWMPA and to require such reports from ground water users as may be necessary.[5] GWMPA provides that a ground water user who violates any controls, rules, or regulations "shall be subject to the imposition of penalties imposed through the controls adopted by the district, including, but not limited to, having any allocation of water granted or irrigated acres certified by the district reduced in whole or in part."[6] Cease and desist orders may also be issued by NRD's against ground water users following 3 days' notice to the person affected stating the contemplated action and, in general, the grounds for the action and following a reasonable opportunity to be heard.[7]

         Pursuant to GWMPA directives, LLNRD established a ground water management area comprising a large portion of its geographical area, adopted water quality and pollution control as one of its goals, and enacted rules and regulations to implement its obligations under GWMPA. Rule 7 of LLNRD's "Groundwater Management Area Rules & Regulations" directs that LLNRD is divided into 28 ground water quality [302 Neb. 15] management subareas and provides that each subarea may be subject to water quality controls in three separate phases based upon median nitrate nitrogen levels. Under "Phase III," rule 7 directs that an operator-a person with direct control over day-to-day farming operations of the land-must, among other obligations, "[s]ubmit, on forms provided by [LLNRD], a report of yearly water tests, flow meter reading, water applied, soil tests, crops planted, yield goals, nitrogen applied, and other field operations required prior to January 31st .. . ." The forms which LLNRD provides to operators require specific information of farming operations, including number of acres, the crop planted, expected yield, nitrogen readings and application, water applied, irrigation date, and actual crop yield. Operators are also required to sign and date the forms. To enforce compliance with this obligation and other controls, rules, and regulations adopted by LLNRD, rule 2 provides:

[LLNRD] shall have the authority to enforce these rules and regulations for the . . . protection of groundwater quality ... by issuing cease and desist orders in accordance with the procedure hereinafter specified and by bringing appropriate actions in the District Court for the county in which any violations occur for enforcement of such orders.

         Since 1962, Prokop has operated a farm on property he owns within LLNRD's regulated area in which he irrigates a significant portion of his crops. Prokop's property is within a phase III subarea of the district, and he is required to submit yearly reports to LLNRD on its forms provided.

         In 2013, prior to the actions underlying the present case, Prokop was subject to an enforcement action by LLNRD in the district court for Nance County under case No. CI 13-01. LLNRD initiated that case against Prokop for illegal wells and failure to submit completed forms for 2010 and 2011 by not providing the actual crop yield data for those years. The district court found Prokop in violation of LLNRD's reporting requirements and ordered him to provide the required reports.

         [302 Neb. 16]1. Administrative Action

         The instant case involves Prokop's annual reports from 2015 and 2016 and arose from LLNRD concerns about missing information from those reports, including actual crop yield data, irrigation data, nitrogen application, and dates and signatures. Due to these concerns, LLNRD's board voted in April 2017 to file a complaint against Prokop and issued a "Notice of Intent to Issue Cease and Desist Order and Impose Penalties for Failing to Submit Annual Reporting" which was served on Prokop on May 2. In the notice, LLNRD alleged that Prokop "failed to submit timely and complete annual reports ... for the [2015 and] 2016 crop year[s]," that "LLNRD sent multiple notice to [Prokop] requesting he submit the annual reports," and that "LLNRD has reason to believe [Prokop] has intentionally and repeatedly violated the annual reporting requirements." LLNRD stated its belief that Prokop "should be subject to penalties pursuant to the GWMPA and a cease and desist order should be issued." The notice additionally provided that Prokop "has until June 1, 2017 to submit the complete annual reports" and informed Prokop of "LLNRD's intention to enforce the penalty provisions of the GWMPA in the event [Prokop] fails to submit timely and complete annual reporting in accordance with this Notice." In particular, the notice stated LLNRD's intention to "de-certify [Prokop's] irrigated acres" and "seek maximum civil penalties." The notice also informed Prokop that "a hearing is scheduled regarding this Notice at 5:00 p.m. on May 25, 2017," "[t]he hearing shall be conducted on the record," Prokop "will be given the opportunity to present any evidence or testimony he may have with respect to the violations identified in this Notice," Prokop may appear through counsel, and the board will determine whether a cease and desist order should be issued based on the record developed at the hearing.

         A hearing before the board on LLNRD's notice was held on May 25, 2017. At the hearing, LLNRD offered and the board received a copy of LLNRD's ground water rules and [302 Neb. 17] regulations, a blank "Groundwater Management Area Annual Report Form," the notice, the return of service of the notice, proofs of publication of the notice, the complaint and order in case No. CI 13-01, Prokop's "Groundwater Management Area Annual Report Form" for the 2015 crop year, and Prokop's "Groundwater Management Area Annual Report Form" for the 2016 crop year.

         LLNRD presented testimony from the assistant general manager of LLNRD. He testified to the rules and regulations adopted by LLNRD. He explained Prokop's property is within a subarea of the district that is designated "Phase III" and the rules that apply to the property, including Prokop's annual reporting obligations as the operator.

         LLNRD also presented testimony from an agronomy technician for LLNRD. He testified that the subarea in which Prokop's land is located has an issue with ground water nitrates which are unsafe for consumption at certain levels. He explained that the purpose of LLNRD's annual reports is to record nitrogen characteristics and develop a plan to reduce nitrate contamination. He testified that actual crop yield data is part of the factors that record nitrogen characteristics as it helps determine how many pounds of nitrogen are removed from the field.

         The agronomy technician testified that he reviewed Prokop's 2015 and 2016 reports and that the 2015 report was incomplete, because it failed to indicate an actual crop yield and was missing a signature, and that the 2016 report was late and incomplete, because it failed to indicate actual crop yields, failed to provide the irrigation data, failed to provide the nitrogen applications, and was not signed or dated. He explained that Prokop's reporting insufficiencies are ongoing and that LLNRD has had issues with the quality of Prokop's reporting since 2009.

         Prokop presented no evidence or witnesses, but he made factual arguments during the hearing and cross-examined both LLNRD witnesses. Prokop stipulated to the receipt of the [302 Neb. 18] notice and acknowledged publication in the newspapers of general circulation within the district. However, Prokop repeatedly objected to the hearing, arguing that he was not provided LLNRD's evidence with sufficient time prior to the hearing to enable a fair opportunity to develop his defense. He additionally challenged the applicability of the reports' actual crop yield requirements, stating he "has long taken the position that the LLNRD's demand that farmers provide actual yield information is unnecessary from a scientific standpoint and the request for such information is a governmental overreach not allowed or required by law."[8]

         After the presentation of evidence and argument by the parties, LLNRD's board took the matter under advisement and delayed any action until June 22, 2017, the next regularly scheduled meeting. The delay allowed Prokop additional time to meet the June 1 deadline set out in the notice to Prokop. However, Prokop failed to complete the reports and the board voted at the June 22 meeting to find Prokop had violated LLNRD reporting rules by failing to submit timely and complete reports for the 2015 and 2016 crop years.

         Pursuant to its vote on June 29, 2017, LLNRD's board executed a cease and desist order to impose penalties, which order was served on Prokop July 6. Through this order, the board found the following: Prokop's land was located in a phase III subarea; Prokop's 2015 annual report failed to include data on actual crop yields, nitrogen application, and a signature; and Prokop's 2016 annual report was filed after the January 31 deadline and failed to include data on actual crop yields, nitrogen application, water applied, and Prokop's signature. The order also noted Prokop's history of noncompliance with LLNRD's reporting requirements. In consideration of its findings and Prokop's noncompliant history, the board ordered:

1) [Prokop] and all heirs, successors, assigns, or agents cease and desist the use of all groundwater irrigation [302 Neb. 19] wells on the Property for a period of four (4) years commencing January 1, 2018 and continuing through December 31, 2021;
2) [Prokop] to submit complete annual report forms for the Property for the 2015 crop year and the 2016 crop year by January 31, 2018; and
3) [Prokop] to submit timely and complete annual report forms for the Property for all subsequent crop years.

         2. Appeal to District Court

         Prokop filed a pro se petition for review in the district court in June 2017, prior to the board's executing the cease and desist order. After obtaining counsel, Prokop filed an amended petition in July, claiming: the cease and desist order was not supported by the evidence; LLNRD's hearing and actions were not conducted in accordance with Nebraska law, LLNRD's rules and regulations, and the requirements of due process; the board's order was in violation of Nebraska law, LLNRD's rules and regulations, and the requirements of due process; the cease and desist order constituted a taking without just compensation and the due process required for such action; and the cease and desist order was issued for reasons not allowed by law.

         At a hearing on Prokop's amended petition, Prokop offered exhibits 4 and 5 to support his claims that LLNRD's actions, the hearing, and the cease and desist order were in violation of his due process rights. LLNRD objected to these exhibits because they were not part of the administrative record, while Prokop argued these exhibits fell within an exception for evidence showing a procedural due process violation.

         Exhibit 4 was an affidavit from Mitch Husmann, a location manager for a co-op, who sold Prokop and his tenants fertilizer and assisted Prokop in filling out the annual reports for LLNRD. Husmann explained that he would work with Prokop to fill out the reports, Prokop would sign them, and they would [302 Neb. 20] be delivered to LLNRD. While this is what occurred in 2015. Husmann provided that the typical procedure was interrupted in 2016 because Prokop's new tenant purchased fertilizer through another sales representative. Therefore, Husmann did not have all the information necessary to fill out Prokop's forms, so he filled out what he could and delivered the incomplete 2016 report to LLNRD in mid-January under the understanding that Prokop would come in to complete it.

         Exhibit 5 was an affidavit from Prokop detailing his relationship with Husmann and explaining that he was unaware until the hearing that the typical procedure was not followed for the 2016 report due to his tenant's using a different sales representative. The affidavit also asserted that Prokop believed the notice concerned only his refusal to provide actual crop yield data and that the notice failed to mention the 2016 reports were not signed and submitted in the same manner Husmann had submitted previous reports.

         The district court entered an order on the petition in January 2018. The court stated that exhibits 4 and 5 were not received because they are outside the scope of the official record. The order then affirmed the cease and desist order's findings. First, the court determined LLNRD rules and GWMPA enable LLNRD to require actual crop yield data on its annual reports as '"other field operations'" and suspend ground water rights for noncompliance. Second, the court determined LLNRD complied with its due process obligations. Specifically, the court found the notice adequately informed Prokop of the purpose of the hearing and the allegations against him. Because the court found Prokop was informed of the purpose of the hearing and the court's understanding that due process does not require notice of evidence to be presented at an administrative hearing, the court found Prokop was not denied due process as a result of insufficient notice from LLNRD of the evidence it would present. The court also found the order's factual findings were supported by the evidence. Finally, the court determined the purpose of [302 Neb. 21] the annual reports serves a substantial and legitimate government interest in preventing ground water contamination and. therefore, the cease and desist order is an appropriate exercise of police power that does not deprive Prokop of property rights without just compensation.

         However, the district court's order modified the cease and desist order's penalty. The district court found the suspension of 4 years to be an unreasonable use of LLNRD's police power under the facts of the case and determined the public health and welfare could be preserved by imposing a less severe restriction. Therefore, the court modified the penalty from the 4-year suspension of Prokop's ground water rights to a 1-year suspension with the possibility of 3 additional years if Prokop continues to violate LLNRD's reporting requirements.


         Prokop assigns, restated, that the district court erred in affirming the board's order and determining (1) LLNRD had the authority under LLNRD rules and GWMPA to require Prokop to provide information in his annual reports, including actual crop yield data; (2) LLNRD had the authority under LLNRD rules and GWMPA to impose a suspension of ground water access as a penalty for noncompliance with LLNRD rules; (3) LLNRD did not violate Prokop's right to procedural due process and deny him a reasonable opportunity to be heard; (4) LLNRD did not erroneously limit the possibility of competent judicial review by violating Prokop's due process rights; and (5) LLNRD's suspension of Prokop's ground water access did not constitute a taking without just compensation. Prokop also assigns the district court erred in sustaining LLNRD's objection to Prokop's exhibits 4 and 5 and failing to award Prokop attorney fees.

         LLNRD and the board assign on cross-appeal that the district court erred in modifying the duration ...

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