93-39

Opinion No. 93-39

BEFORE THE NEVADA COMMISSION ON ETHICS

In the Matter of the Opinion Request Regarding ROBERT SADER

This opinion is in response to an opinion request filed on September 1, 1993, with the Nevada Commission on Ethics ("Commission") by the citizens for Honest Government through its President Michael Oliver, concerning former Nevada State Assemblyman Robert Sader.

A hearing on the merits of the request was held on November 10, 1993 in Reno, Nevada. Assemblyman Robert Sader was present and was represented by Lorne Malkiewich, Legislative Counsel. Michael Turnipseed, state Engineer, Nevada Division of Water Resources, John Collins, Chief Sanitary Engineer, Washoe County, and Richard K. Atkinson, Manager, Financial Services, sierra Pacific Power Company were also present and testified in the matter. Two days prior to the hearing, on November 8, 1993,Michael Oliver notified the Commission of his intention not to appear and testify at the hearing. Subsequent to the hearing Mr. Oliver submitted two letters to the Commission which have been included in the record. The first letter is dated February 23, 1994 and the other March 7, 1994. In each, Mr. Oliver alleges the existence of new evidence and in the latter requests that another hearing be scheduled at which he would appear. The Commission finds no new or material evidence contained in the post-hearing submissions to merit reopening of the hearing in this matter.

The opinion request and the hearing were confidential pursuant to NRS 281.511 and therefore the hearing was not open to the public.

Thereafter, the Commission met and deliberated on the opinion request on November 10, 1993, and again on December 7, 1993. The Commission has jurisdiction over this matter pursuant to NRS 281.511(2).

The Commission makes the following Findings, uncontested at the administrative hearing, and renders the following Opinion.

FINDINGS

1. Robert Sader was an elected Nevada State Assemblyman during all relevant times concerning this matter and served as Chairperson of the Assembly Judiciary Committee during the 1993 Legislative Session in which Assembly Bill 337 ("AB 337") was introduced and considered.

2. NRS 533.325 provides:

Application to state engineer for permit. Any person who wishes to appropriate any of the public water, or to change the place of diversion, manner of use or place of use of water already appropriated, shall, before performing any work in connection with such appropriation, change in place of diversion or change in manner or place of use, apply to the state engineer for a permit to do so.

AB 337 added the following language to chapter 533 of the NRS:

As used in NRS 533.325, 533.345 and 533.425, "water already appropriated" includes water for whose appropriation the state engineer has issued a permit but which has not been applied to the intended use before an application to change the place of diversion, manner of use or place of use is made.

(Act of May 27, 1993, ch. 181, § 2, 1993 Nev. Stat. 321, codified at NRS 533.324).

AB 337 was drafted at the request of the Nevada State Engineer, introduced, and passed by both the Assembly and the Senate during the 1993 Legislative Session and became law on May 27, 1993.

3. For 88 years (since 1907), the Nevada State Engineer has interpreted the phrase "water already appropriated" of NRS 533. 325 to include both water which is subject to a "permitted right" and water which is subject to a "certificated right." Water subject to a permitted right has not necessarily been put to beneficial use. Holders of permitted rights are entitled to proceed to develop their water rights within a specified time for completion of their work and the beneficial use of the water. NRS 533.380(1). Water which is subject to a certificated right is water which has actually been put to beneficial use for a statutorily sufficient period of time in an approved manner of use, in order to receive the approval of the State Engineer for issuance of a certificated right by the State Engineer. NRS 533.400; NRS 533.425. A certificate verifies that beneficial use of the water right has been established.

4. The Ninth Circuit Court of Appeals on May 26, 1992, in United States v. Alpine Land & Reservoir Co., 965 F.2d 731 (9th cir. 1992) amended 983 F.2d 1487 (9th Cir. 1992) ruled that under NRS 533.325 a change in the point of diversion, place and/or manner of use is permissible only with respect to water which has already been appropriated by actual physical diversion of water applied to beneficial use. The Court ruled that "[a]n application to transfer rights to water not already appropriated--i.e., not beneficially used on the transferor property-- would not constitute a proper application and therefore be ineligible for consideration under this section." 965 F.2d at 736-737; 983 F.2d at 1493.

5. Similarly, the Second Judicial District Court in Washoe County Nevada on August 31, 1992, in Pyramid Lake Paiute Tribe of Indians v. R. Michael Turnipseed, Case No. CV91-2231, CV91-2232, CV91-2245, consolidated, ruled that "water already appropriated, "as that term is used in NRS 533.325 means that the State Engineer may grant an application to change a point of diversion, place and/or manner of use only if the water had already been put to beneficial use by the water permit holder.

6. The two court rulings raised questions about the validity of 5000 or more previously approved applications, changing the point of diversion, place and/or manner of use of permitted water rights for all types of uses by agriculture, mining, public utilities and water districts throughout the State. The two court decisions also adversely affected 367 applications for such changes then pending with the State Engineer. AB 337 was sponsored in the 1993 State Legislature by the State Engineer in reaction to the rulings made in U.S. v. Alpine Land & Reservoir and Pyramid Lake Paiute Tribe to: (i) ratify past rulings of the State Engineer which changed the point of diversion place and/or manner of use of water subject to a permitted right during the last 88 years and on which the affected parties relied and (ii) clarify and confirm the State Engineer's authority to do so in the future.

The Nevada State Engineer also sought through AB 337 to preserve the inclusion of both permitted and certificated water permits within the meaning of "water already appropriated" under Nevada law based on the historical practice of that interpretation. His reason for doing so is best illustrated by the farmer or rancher who makes application to drill a well for irrigation use. After a permit is issued, one drills for water and attempts to put the water to beneficial use within a specifically identified area and within a statutorily prescribed period of time. Nevada's mountainous topography, however, frequently makes it likely that one will have to drill several holes before locating water. The rancher or farmer does not wish to lose the priority of the permit to appropriate water in the specified area because of a failure to put the water to beneficial use with the first dry well. Without the ability to transfer the point of diversion, place or manner of use of the permitted water rights, any priority of the original permit to appropriate such water is lost if the drilled well does not provide water.

Similarly, when public water utilities and districts place permitted water rights in use, they often must make application to change the place of use as their service areas change or expand. At times, the water is permitted and has not yet been put to the beneficial use necessary to be a certificated right. Yet the demand for public water service exists and enlarges as communities grow. Because the future location of expansion is not known, however, utilities and districts hold their permitted water rights and apply for change of place of use once future growth is identified in a known location. Utilities and districts need the flexibility to anticipate urban growth by obtaining permitted water rights and applying for transfer of place of use.

7. Honey Lake Valley lies to the North of Reno-Sparks, Nevada and straddles the Nevada-California state line in Washoe County, Nevada and Lassen County, California. In August of 1986, the Nevada State Engineer issued permitted water rights with a point of diversion, place and/or manner of use within the Honey Lake basin for agricultural use to, among others, Fish Springs Ranch Inc. ("FSR"), and in May and September of 1989 to Northwest Nevada Water Resources ("NNWR"). The permitted water rights held by FSR and NNWR represent in excess of 17,000 acre feet of water and are authorized to be used only within the Honey Lake Basin. Change applications of these rights were made to the State Engineer, the ultimate purpose of which was to consolidate a group of water rights in the southeastern corner of the basin to facilitate exportation of groundwater to areas of Washoe County outside the Honey Lake Basin. See August 31, 1992 Order, Pyramid Lake Paiute Tribe v. Turnipseed, at 3.

8. In response to a growing demand for water resources in Washoe County, Nevada, the County entered into joint venture agreements with NNWR, FSR and Western Water Development Company to develop Honey Lake Basin water as a potential resource for quasi-municipal purposes for all of the Truckee Meadows area in Washoe County, including the Reno-Sparks metropolitan area, and valleys north of the Truckee Meadows. In furtherance of that plan, in June and November of 1989, Washoe County filed applications to change the place and manner of use of the Honey Lake groundwater permits held by FSR and NNWR, to areas in and around the Truckee Meadows outside of the Honey Lake Basin. These applications sought to export Honey Lake groundwater to other areas in Washoe County; they were applications for inter-basin transfers of the groundwater.

9. The applications of FSR, NNWR and Washoe County referred to above were protested by various parties including the pyramid Lake Paiute Tribe and the Lassen county Board of Supervisors. The Nevada state Engineer issued an administrative ruling on both the intra-basin and inter-basin change applications on March 1, 1991 and issued a supplemental ruling on October 9, 1992 granting the intra-basin change application and approving the inter-basin transfer for only 13,000 acre-feet of these groundwater rights from the Honey Lake Valley. The State Engineer further found that mandatory discharge standards prohibited Honey Lake water from being distributed to any area in which the water could be transmitted to the Reno-Sparks joint sewage treatment plant on the Truckee River. The effect of this ruling was to limit the place, manner of use and the service area sought to be covered by FSR, NNWR and Washoe County in their permit applications.

10. A portion of FSR's and NNWR's water rights in Honey Lake Valley had not been put to beneficial use when FSR, NNWR and Washoe County made application to change the point of diversion, place and/or manner of use to the Reno Sparks area. The State Engineer's administrative decisions of March 31, 1991, and October 9, 1992, were the subject of the Pyramid Lake Paiute Tribe case filed in the Second Judicial District of Washoe County, supra.

11. Separate and apart from the applications of FSR and NNWR to transfer the place of use of Honey Lake water, in October of 1986, Washoe County independently applied to the State Engineer for ~ permitted rights of 14,479 acre feet of Honey Lake groundwater to be exported and placed to beneficial use in the Truckee Meadows area in Washoe county. These applications of Washoe County, however, were held in abeyance and were not the subject of the state Engineer's administrative rulings. Those applications did not involve a change of the place or manner of use of permitted rights and, therefore were not affected by either of the two court decisions or by AB 337 described herein. Those applications, however, were also limited in their usefulness as a water resource for the County by the State Engineer's March 31, 1991, and October 9, 1992, rulings restricting total exportation of Honey Lake Basin groundwater to 13,000 acre feet. Since FSR and NNWR hold earlier water permits for water rights in excess of 17,000 acre feet, the original applications for permitted rights of Washoe County are junior to those of FSR and NNWR.

12. Many in Washoe County who opposed the "Honey Lake Water Project" saw the purpose of AB 337 as a means of allowing transfer of FSR's and NNWR's permitted rights (which were not certificated rights) notwithstanding the circuit Court and District Court rulings. Accordingly, they saw AB 337 as furthering the "Honey Lake Water Project," and, therefore, opposed AB 337. In the context of the Honey Lake Project controversy, AB 337 apparently became known to the public and the press as the "Honey Lake Bill" despite the state Engineer's stated purpose of ratifying and continuing Nevada's historical practice of approving in certain circumstances the transfer of permitted rights not yet placed to beneficial use or included in the definition of appropriated water, as interpreted by the aforementioned court decisions.

13. Former Assemblyman Sader was a co-sponsor of AB 337, actively supported the bill, testified in favor of its passage, and voted for it in the Assembly. Assemblyman Sader made no disclosures of any private interests or commitments to others in relation to AB 337 prior to any discussion, testimony or vote by him on the bill.

14. Assemblyman Sader in his private capacity is an attorney licensed to practice law in the State of Nevada and has, since 1982 been counsel for HAWCO Corporation (HAWCO), a privately owned Nevada corporation engaged in the development of single family homes in Spanish Springs Valley, Washoe County, Nevada. Assemblyman Sader also represents the two primary shareholders of HAWCO in some of their personal legal matters. Assemblyman Sader has no ownership interest in HAWCO and is not an officer, director or resident agent of that company. HAWCO was not an active development entity in 1993.

15. Spanish Springs Valley is located to the north of the city of Sparks, Washoe County, Nevada, and is approximately three miles wide and 11 miles long.

16. Assemblyman Sader owns 20% of the issued and outstanding shares of stock of HAWCO Investment and Development Company (HIDC) and is vice president, legal counsel, resident agent and a director of HIDC. HIDC was formed in 1990 to succeed to HAWCO's interests in residential development in Spanish Springs Valley.

17. HAWCO has developed several tentative maps in the Spanish Springs valley located on land originally owned by and purchased from the Spanish Springs Association. The Spanish Springs Association has sold land and water rights to HAWCO and HIDC for residential and commercial development in Spanish Springs. Spanish Springs Association has also sold land to other entities, but HAWCO was the primary developer of Spanish Springs Association land for approximately 10 years, until succeeded by HIDC. While HAWCO still exists, HIDC has performed HAWCO's agreements with Spanish Springs Association on HAWCO's behalf. Pursuant to a development rights agreement between HAWCO and HIDC, HIDC has the right to develop any land owned by HAWCO.

In his private capacity Assemblyman Sader performed legal work for the Spanish Springs Association and for some of its partners in personal matters in the past but has not done so since January, 1993.

18. HIDC owns land in Spanish Springs Valley known as Pyramid Ranch Estates, unit 5, with 95 developable lots, and as Spanish Springs Village with a development potential of 550 lots. At the time of the Commission hearing in November, approximately 150 of these lots had been developed and sold. The confirmed existing water source for these lots is Spanish Springs Valley groundwater. Water rights for both developments were dedicated to Washoe County for all 645 units by a May, 1989 agreement between HAWCO, Washoe County School District and Washoe County to provide water service to the proposed Spanish Springs Elementary School and HAWCO's single-family residences developed in that area.

At the time Pyramid Ranch Estates was proposed, Washoe County policy with respect to ensuring water availability for new developments required developers to have and convey both "certificated" groundwater rights and "permitted" groundwater rights. Washoe County policy was subsequently revised to require new developments to match permitted or certificated groundwater rights with an amount of imported, decreed surface water rights from a source such as the Truckee River. However, that subsequent change does not affect either pyramid Ranch Estates or Spanish Springs Village, which has met its water requirement with their acceptable "certificated" and "permitted" groundwater allocations.

19. HAWCO also owns 310 acres of undeveloped land in Spanish Springs Valley, north of Pyramid Ranch Estates. All 310 acres are in the FEMA 50 year flood plain designation and are not permitted to have subdivision development under the applicable Washoe County Master area plan through at least the year 2007. Unless a major flood control project is undertaken by the county, the existing topography of the surrounding land makes it difficult to plan any development of this acreage that could mitigate the 50-year flood plain without interfering with other land parcels downstream.

20. Spanish Springs Association owns certificated groundwater rights and approximately 2,500 acres of land north and west of HAWCO and HIDC's current land holdings in Spanish Springs Valley. HAWCO and HIDC have an option agreement to purchase two tracts of that land from Spanish Springs Association for development of a shopping center and 150 residential units, if development approvals are allowed by Washoe County. Both parcels are consistent with land uses approved by the county for potential development. The option agreement provides for the purchase and sale of land and a sufficient amount of certificated Spanish Springs groundwater to serve the needs of the 150 residential units and the shopping center upon exercise of the option. Additional groundwater from other sources such as Honey Lake is not necessary to meet the needs of these land option interests held by HAWCO and HIDC in Spanish Springs Association land. Pursuant to current Washoe county water development policy, HAWCO and HIDC still must purchase "imported" water rights to match the groundwater rights. The only "imported" water currently available for such a match is Truckee River surface water.

21. In 1989, the gas and water divisions of sierra Pacific Power company (Westpac) prepared for the Nevada Public Service Commission a long term water resource plan for the Truckee Meadows which evaluated numerous water supply options based on projected demands over a 10 to 20 year period of time. Honey Lake was one water resource option evaluated in that long-term plan. The 1989 plan determined that Honey Lake was not a part of the "least-cost plan" to pursue nor was it part of the "least-cost long term water resource plan" approved by the Nevada Public service Commission at that time.

In 1993, Sierra Pacific power, relying on outside research as well as its own analysis, estimated the cost differential between Sierra Pacific's and the Honey Lake project's charges to developers per residential unit for water rights would be $3,632 in 1997 for Sierra Pacific and $7,544 for the Honey Lake project. (This cost reflects tax liability associated with donated water rights.) By the year 2003, the cost differential was estimated to be $4,404 for Sierra Pacific and $10,140 for the Honey Lake project. These comparative costs assume that Sierra Pacific and Honey Lake water can be delivered to Spanish Springs Valley.

22. Subsequent to the passage of AB 337, on September 27, 1993, Judge John Handelsman found that, under Nevada law as then amended, FSR's and NNWR's applications to change the place or manner of use of permitted rights were not barred from consideration by the Nevada State Engineer for not having been put to beneficial use prior to filing the applications. Pyramid Lake Pauite (sic) Tribe v. Turnipseed, September 17, 1992, Order on Motion to Amend Order.

OPINION

Based on the foregoing findings of fact, the Commission concludes that Assemblyman Sader was a public officer in his capacity as a Nevada Assemblyman during the 1993 legislative session as defined by NRS 281.4365 and was a member of the legislative branch as defined by NRS 281.4355.

The issues presented by the requestor in this matter are whether Assemblyman Sader was prohibited from discussing, advocating, voting or otherwise acting on AB 337 because of his interests in Spanish Springs Valley and his representation of entities with similar interests. The standards found in NRS 281.501{2) and (3) are relevant to these issues, and provide in pertinent part:

NRS 281.501 Additional standards: Voting by members of legislative branch and other public officers or employees; effect of abstention from voting on quorum; required disclosures.

. . . .

2. In addition to the requirements of the code of ethical standards, a member of the legislative branch shall not vote upon or advocate the passage or failure of, but may otherwise participate in the consideration of a matter with respect to which the independence of judgment of a reasonable person in his situation would be materially affected by:

(a) His acceptance of a gift or loan;

(b) His pecuniary interest; or

It must be presumed that the independence of judgment of a reasonable person would not be materially affected by his pecuniary interest where that resulting benefit or detriment accruing to him is not greater than that accruing to any other member of the general business, profession, occupation or group.

3. A public officer or employee shall not approve, disapprove, vote, abstain from voting, or otherwise act upon any matter:

(a) Regarding which he has accepted a gift or loan;

(b) Which would reasonably be affected by his commitment in a private capacity to the interest of others; or

without disclosing the full nature and extent of the gift, loan, commitment or interest. Such a disclosure must be made at the time the matter is considered. If the officer or employee is a member of a body which makes decisions, he shall make the disclosure in public to the chairman and other members of the body. If the officer or employee is not a member of such a body and holds an appointive office, he shall make the disclosure to the supervisory head of his organization or, if he holds an elective office, to the general public in the area from which he is elected.

NRS 281.501(2) and (3) provide the standards legislators must follow in discussing, advocating, voting, or otherwise acting on a legislative matter with respect to which the independence of judgment of a reasonable person in his or her situation would be materially affected by the acceptance of a gift or loan, a pecuniary interest, or a commitment in a private capacity to the interest of others. The relevant questions are whether, in relation to AB 337, Assemblyman Sader for anyone of the foregoing reasons was required to disclose such interest and, additionally, to abstain from discussing or voting on AB 337 in the 1993 legislative session.

The Commission notes the requestor's failure to appear at the hearing held in this matter on November 10, 1993, which is a basis for the Commission to decline to render an opinion and to dismiss the request. NRS 281.511(6) provides:

If any person requesting an opinion pursuant to subsection 1 or 2 does not:

(a) Submit all necessary information to the commission; and

(b) Declare by oath or affirmation that he will testify truthfully, the commission may decline to render an opinion.

The request for opinion filed in this matter is in excess of 300 pages. The requestor's absence from the administrative hearing and failure to testify and explain the documentation contained in its request is also noted. The requestor, citizens for Honest Government, and its president, Michael Oliver, did not meet their statutory obligation to appear and testify with respect to their opinion request. Notwithstanding, Assemblyman Sader requested that the Commission proceed to address the statements and allegations of the opinion request.

The specific question is whether Assemblyman Sader had a conflict of interest during the 1993 Legislative Session in voting on AB 337 because of his financial interests and professional activity discussed above.

The request argues that AB 337 enabled the transfer of the manner and place of use of FSR and NNWR permitted water rights for Honey Lake water to the Spanish Springs Valley which was necessary for Assemblyman Sader and his clients to develop their land.

NRS 281.501(2) and (3) requires specific circumstances exist with respect to a pending matter which mandate disclosure and abstention if such would materially affect the independence of judgment of a reasonable person. The question of whether disclosure and abstention are required depends in these circumstances upon whether Mr. Sader (i) had a pecuniary interest which was affected by the matter or (ii) a commitment in his private capacity to the interests of others which were affected by the matter.

The requestor erroneously contends that AB 337 amended the law to allow permitted rights to Honey Lake groundwater to be transferred from the Honey Lake Basin and put to beneficial use in Washoe county and Spanish Springs Valley. It is true that FSR and NNWR held permitted water rights for Honey Lake groundwater and AB 337 would have reaffirmed the State Engineer's jurisdiction to allow the transfer of those permitted rights to Washoe County, the Truckee Meadows and Spanish Springs Valley. Had AB 337 not passed, the State Engineer would have been prevented by the trial court's decision in Pyramid Lake Paiute Tribe v. Turnipseed discussed earlier from approving the transfer of those permitted water rights, unless an appeal by the State Engineer to the Nevada Supreme Court would have overruled that decision. Washoe County, however, had made application for similar permitted rights which were junior to the permitted water rights of FSR and NNWR. Washoe County's permitted rights did not require a change in use or point of diversion. If FSR's and NNWR's permitted rights could not have been approved for transfer (as allowed by AB 337), the junior permitted water rights of Washoe County were available for use in the Truckee Meadows and Spanish Springs Valley without the passage of AB 337, subject to approval of the application by the State Engineer. For this reason, Assemblyman Sader received no benefit or detriment by the passage of AB 337 with respect to the availability of Honey Lake groundwater in Spanish Springs Valley.

Further, even if Washoe County did not hold junior permitted rights for Honey Lake groundwater, the property of HAWCO and HIDC in Spanish Springs Valley have sufficient existing groundwater rights and do not depend on Honey Lake groundwater for development. Two of those developments, Pyramid Ranch Estates, Unit 5 and Spanish Springs Village, already have dedicated to the County sufficient permitted and certificated groundwater to support their water needs.

The interests of HAWCO and/or HIDC in land for 150 residential units and a shopping center, under an option contract for purchase from Spanish Springs Association, also have sufficient certificated groundwater rights to serve the needs of those developments if those options are exercised. Matching surface water rights for those developments is still necessary and, if development advances, could be purchased under current county policy from holders of Truckee River surface water rights, and not necessarily from holders of Honey Lake groundwater rights. Permitted rights from Honey Lake groundwater referred to by the requestor are irrelevant to the interests of HAWCO, HIDC and/or Mr. Sader in these developments.

HAWCO and/or HIDC's only other existing interests in Spanish Springs Valley are the 310 acres of HAWCO property, currently identified as undevelopable for subdivisions by Washoe County.

Finally, the request suggests that even if HAWCO, HIDC and Assemblyman Sader had no direct benefit from, or need for, Honey Lake groundwater for use in Spanish Springs Valley, Assemblyman Sader would benefit from increased property values resulting from an additional water source. Again, as already discussed above, AB 337 was not the determining factor in whether Honey Lake groundwater would come to the Truckee Meadows and Spanish Springs Valley in Washoe County. The evidence suggests that the acquisition cost projections to the developer of Honey Lake water, as opposed to water service by Westpac-Sierra Pacific (Truckee River water), would be substantially higher than any other sources of water in the region. Given the choice in the future, developers will no doubt seek to maximize profit by purchasing the less expensive water resource. Based on current projections, Honey Lake will not be the least expensive option. Its potential future availability does not therefore establish a motive for Assemblyman Sader to seek passage of AB 337 for his own development interests in Spanish Springs Valley.

Because there is no evidence of conflict in the foregoing circumstances, and those circumstances by themselves do not permit an inference of such a conflict as defined and discussed above, there is no violation of NRS 281.501(2) or (3).

CONCLUSION

A specific conflict of interest must be apparent from the circumstances or established by sufficient evidence in order to justify a finding that the Code of Ethical Standards has been violated. Such conflict is neither apparent from the circumstances nor established by the evidence. Accordingly, no violation by Assemblyman Sader is found to have occurred in voting or otherwise discussing or advocating a position on AB 337 during the 1993 legislative session.

COMMENT

It is specifically noted that the foregoing Opinion applies only to these specific circumstances, and may not apply to other circumstances. The provisions of NRS 281.501 quoted and discussed above must be applied on a case-by-case basis, with results which will vary depending on the specific facts and circumstances involved.

DATED: March 14, 1994.

NEVADA COMMISSION ON ETHICS

By: /s/ THOMAS R. C. WILSON, Chairman