This lawsuit could upend Nevada water regulation — and cost taxpayers billions

A lawsuit that some say could cripple the state’s top water regulator is headed to trial in a Las Vegas courtroom next week.

Decades of back-and-forth between developers and the state has effectively ruined any chance of establishing Coyote Springs as an outpost of Las Vegas akin to Scottsdale, Arizona. Not one home stands in Coyote Springs today.

Now, following a landmark Nevada Supreme Court decision in 2024 that upheld the authority of the state engineer, developers are seeking at least $1.5 billion in damages, plus interest and attorney’s fees, according to court documents.

If a Clark County judge rules in favor of the developers, a jury would later determine specific damages — a sum that could total billions. That money would come directly from the state’s coffers.

The non-jury trial, which begins Wednesday, could have a chilling effect on the state engineer’s willingness to regulate water rights in the nation’s driest state without fear of financial liability, said Debbie Leonard, a Northern Nevada water attorney at the firm Leonard Law.

“It’s going to be a free-for-all in terms of payouts from the state, and the state can’t afford to pay,” Leonard said.

Attorneys allege the state unjustly destroyed the value of the developers’ property by preventing groundwater pumping. It’s a first-of-its-kind test of whether water rights can be considered property under a clause in the Nevada Constitution that says the government cannot take property without compensation in return.

A favorable outcome for the developer would undermine the so-called prior appropriation doctrine that underpins Nevada water law, she said. In the Silver State, water rights are established through a system of seniority that applies in times of shortage. Those with more junior water rights get cut first.

“The whole framework for prior appropriation would crumble,” Leonard said. “If every single junior appropriator who gets curtailed says that it’s a compensable taking, it’s simply not sustainable for the government. I can’t even picture how that could happen.”

The first part of the trial could ultimately take months. District Judge Mark Denton, who is set to retire at the beginning of next year, will likely preside over about 30 full days of arguments and expert testimony, attorneys said.

If Denton sets this precedent, it would likely discourage the state engineer from making hard decisions about water rights in the Nevada’s most over-stressed hydrographic basins, Leonard said.

Housing crash, water speculation

The rise and fall of the Coyote Springs project has spanned years.

In 1988, it began with a land swap. The Bureau of Land Management traded about 42,000 acres of land in Southern Nevada for 5,000 acres of land in the Florida Everglades owned by the company Aerojet, which hoped to build a rocket testing and manufacturing site at the time.

Reno lobbyist Harvey Whittemore bought the land in 1998 for $23 million. Whittemore, who eventually went to prison in 2014 for illegally reimbursing contributions to Harry Reid’s campaign for U.S. Senate, brought on two partners, Pardee Homes and the Seeno family. The Seenos, developers from California, are today the sole owners, seeking to recover hundreds of millions of dollars in investment.

Developers hoped to build a community twice the size of Summerlin, complete with golf courses, hotel-casinos and other amenities. Then came the 2008 housing crash, stifling those plans, as questions about water availability mounted.

Ex-Nevada State Engineer Jason King eventually determined the groundwater pumping needed to build Coyote Springs could not proceed due to conflicts with senior water rights in the larger Muddy River watershed.

The final death knell came in 2024, when the Nevada Supreme Court agreed with the state engineer’s decision to evaluate six interconnected hydrographic basins as a single groundwater source for the purposes of water rights applications.

Yet the potentially paradigm-shifting claim of the state causing civil damages to property has survived.

“We are laser-focused on proving that our case is clearly a situation where we have property interest in our water rights,” said Mark Hutchison, an attorney for the Seenos and the state’s former lieutenant governor. “Those rights have been taken by the state, and the state needs to pay us hundreds of millions of dollars in just compensation.”

Asked about the ripple effects of the case, Hutchison said he believes concerns are overblown.

“I know the state engineer is going to scream that the sky is going to fall if this happens,” Hutchison said. “What the state engineer has done has never happened before. … If he continues to engage in this kind of activity, where he’s going to reorder people’s priority rights, as he has here, then maybe he’s got to consider precedent-setting issues.”

Nevada’s defense

On Thursday, the Nevada Supreme Court denied an emergency petition from the state’s lawyers to intervene before trial on the issue of whether water rights can be considered property taken by the state.

Though she’s mostly retired these days, Carson City-based attorney Laura FitzSimmons eagerly picked up the Attorney General’s office call about this case. It deserves wide attention from the public, she said.

“This is the most consequential case for the citizens of Nevada, and that’s why I’m doing this for free,” FitzSimmons said.

Through department spokesperson Jenny Jackson, the state engineer declined to weigh in on the merits of the Seenos’ case or what the potential outcomes could be. State Engineer Joe Cacioppo took over the office in February following the firing of his predecessor, whose office had been evaluating the merits of a curtailment order in the Humboldt River Basin.

FitzSimmons argues the Coyote Springs developers’ original permits for groundwater pumping were speculative — and they included provisions that reserved the right of the state engineer to restrict pumping if conflicts arose.

“The permits had all kinds of conditions back then,” FitzSimmons said. “No one knew how much groundwater there was. There’s this concept of a deep carbonate aquifer: They knew that water was under there, but they had no idea how much it was. Some people hoped it would be almost like an underground lake.”

Scott Lake, an attorney with the nonprofit Center for Biological Diversity, said in an interview that his organization believed the state engineer’s order on water availability in 2020 wasn’t conservative enough to protect springs or species.

One of the creatures that could be decimated by over-pumping of groundwater is the Moapa dace, a federally protected and endangered species that lives in springs in the upper Muddy River and nowhere else in the world. It’s a particularly delicate situation because once those tiny fish go extinct, they won’t come back, Lake said.

When the state engineer is considering a water rights application, Lake said the single most critical question the regulator should ask themself is a simple one: “Is water available?”

“I hope this case gives the state at least a little bit more circumspection about handing out water rights where we have scarcity issues,” Lake said.

Contact Alan Halaly at ahalaly@reviewjournal.com. Follow @AlanHalaly on X.