What California Landowners, Water Companies, and Agencies Need to Know About the Las Posas Valley Groundwater Adjudication Rulings—and Why They Matter for SGMA Compliance Statewide

If you are involved in California groundwater, you’ll want to pay close attention to two recent appellate court decisions from the Las Posas Valley Groundwater Basin. These rulings, issued in March 2026, mark the first contested comprehensive groundwater adjudication affirmed under the framework enacted alongside SGMA. The court affirmed a settlement of the action over objection, addressing how adjudication integrates with SGMA planning, permissible allocation models, dormant rights, and ownership of overlying water rights by mutual water company shareholders. In short, these opinions offer a practical roadmap for post-SGMA groundwater cases across the state.

Key Takeaways:

• Groundwater adjudications can work together with SGMA by incorporating GSPs into the physical solution, with the GSA or other party serving as court-appointed watermaster.
• The court approved a hybrid allocation model for agricultural landowners combining base allocations (tied to irrigated acreage) with supplemental allocations (tied to historical use)—a balanced approach that the court held to be equitable.
• Dormant overlying rights are properly subordinated when landowners have not pumped for years and did not demonstrate an intent to resume use, giving courts a tool to manage speculative demands on overdrawn basins.
• Court-ordered basin management is not subject to Proposition 218 and CEQA challenges when the Court appoints and supervises the watermaster.
• Landowners who also own shares in mutual water companies typically retain their higher-priority overlying water rights unless they have expressly severed them in the company’s favor.  In an unpublished companion case, the court also applied the business judgment rule to a mutual water company’s board members’ decision to join the settlement.

Las Posas Valley Groundwater Adjudication: Two Appellate Opinions Confirm Important Lessons for California Water Law

On March 5, 2026, the California Court of Appeal, Second Appellate District, Division Six, issued two significant opinions arising from the Las Posas Valley Groundwater Adjudication—the first contested comprehensive groundwater adjudication to proceed to final judgment under the procedural framework enacted alongside the Sustainable Groundwater Management Act (SGMA). 

The published opinion in Las Posas Valley Water Rights Coalition v. Ventura County Waterworks District No. 1 (Case No. B330837) affirmed the trial court’s comprehensive adjudication judgment in its entirety. The companion unpublished opinion in US Horticulture Farmland, LLC v. Laurel Servin (Case No. B332314) affirmed the dismissal of a derivative action challenging a mutual water company’s decision to join and support the adjudication settlement and judgment. 

Together, these decisions offer important guidance in similar litigation, SGMA implementation, and water rights disputes statewide.

Trial Court Proceedings

The Las Posas Valley Groundwater Basin underlies approximately 42,200 acres in Ventura County. Groundwater from the Basin supports agricultural, commercial, and domestic uses, with agriculture accounting for most of the consumption. Some landowners pump through private wells, while others receive water through mutual water companies—private corporations organized to deliver water to their shareholders at cost.

The Basin has long faced water-supply pressures. The Department of Water Resources (DWR) designated it as a high-priority groundwater basin. Fox Canyon Groundwater Management Agency (Fox Canyon), created by the Legislature in 1982, had attempted to manage the Basin through pumping restrictions, including an emergency ordinance in 2014 that prohibited new wells and limited extractions. After SGMA’s enactment, Fox Canyon became the Basin’s Groundwater Sustainability Agency (GSA) and submitted a groundwater sustainability plan (GSP), which DWR approved in January 2022.

In March 2018, the Las Posas Valley Water Rights Coalition—an unincorporated association of overlying landowners—filed a complaint challenging Fox Canyon’s pumping restrictions as contrary to law and seeking a comprehensive determination of groundwater rights and priorities. The trial court ordered the adjudication to proceed in three phases: Phase 1 established the Basin’s initial Total Safe Yield at approximately 36,000 acre-feet per year (AFY) and allocated 12.31% to two public water suppliers. Phase 2 determined the remaining water rights allocations among groundwater users, based on a settlement agreement supported by ~87% of the Basin’s groundwater extractors. Phase 3 adopted a physical solution and appointed Fox Canyon as watermaster to implement it.

Three groups of parties—Mahan Ranch (a group of landowners), Del Norte Water Company, and Solano Verde Water Company—objected to aspects of Phases 2 and 3 and appealed the final judgment. Separately, US Horticulture Farmland, LLC, filed a derivative action against members of the Berylwood Heights Mutual Water Company board of directors, alleging that they breached their fiduciary duties by joining the Phase 2 settlement.

Core Holdings and Significance

Integration of Adjudication and SGMA

The court upheld the largely stipulated physical solution, which explicitly incorporates Fox Canyon’s GSP as a material component of the physical solution while recognizing Fox Canyon’s separate SGMA authority as the Basin’s GSA. The physical solution builds on existing SGMA management by analyzing water-supply projects and determining an “operating yield” that reflects anticipated basin conditions. The physical solution further establishes a Policy Advisory Committee and a Technical Advisory Committee, each designed to institutionalize structured stakeholder engagement and technical expertise within the adjudication framework. With Fox Canyon serving as watermaster, these committees operate in concert with—rather than duplicating—existing SGMA governance. 

The court found that this approach resolved conflicting claims and provided governance and judicial oversight for future Basin management. The court rejected arguments that a physical solution was unnecessary because Fox Canyon was already managing the Basin and denied requests by objecting parties to be excluded from the physical solution, warning that allowing individual exemptions would expose any solution to “death by a thousand cuts.” The trial court, moreover, noted that direct stakeholder involvement was crucial to solving Basin problems. As one example, the parties in the case created a Master Disclosure Record of all water use in the Basin, which far surpassed any similar agency-created record keeping that existed before, helped resolve all disputes, and was cited repeatedly by the appellate court in its opinion.

The Las Posas judgment demonstrates how dual tracks—judicial adjudication and SGMA planning—can be harmonized. It also provides helpful guidance for other basins navigating the relationship between adjudication and SGMA compliance.

A Hybrid Allocation Model for Equitable Division of Correlative Rights

The court upheld the judgment’s agricultural allocation structure, which employs a hybrid framework combining a “base allocation” and a “supplemental allocation.” All agricultural landowners receive a minimum base allocation of 1.3 acre-feet per irrigated acre. Landowners with historically higher water use per irrigated acre receive a supplemental allocation, calculated from their historical pumping average, and adjusted to account for circumstances such as immature crops, fire damage, or well failure. The judgment caps the combined allocation at a maximum of 3.1 acre-feet per irrigated acre. In a shortage situation, the supplemental allocation is reduced first, before any reduction to the base allocation, shielding lower water users from the initial burden of rampdown. 

The court rejected arguments that this structure discriminated against holders of equal-priority correlative rights, finding instead that all parties were treated equitably. The court detailed the extensive evidentiary record that proved that the hybrid allocation plan best balanced interests of and risks to all parties in the Basin. Those opposing the settlement insisted that the court adopt a pure historical approach to allocations, but that approach ran both contrary to law, see Tehachapi-Cummings Cnty. Water Dist. v. Armstrong, 49 Cal. App. 3d 992, 1001 (1975), and would have harmed farmers who had invested in water conservation technologies—a particularly absurd result, given California’s general policies of promoting conservation. 

The court’s endorsement of this hybrid allocation framework promotes practical management of a scarce resource. Dividing limited groundwater among equal-priority overlying landowners requires balancing competing interests and equitable considerations. Prior scholarship rightly identified the legal vulnerabilities of relying exclusively on any one metric—whether gross acreage, net irrigated acreage, or historical pumping—and advocated for hybrid approaches that integrate multiple factors.

The Las Posas framework provides a concrete, evidence-based model for a hybrid allocation structure. By establishing a base allocation tied to irrigated acreage—a metric rooted in the correlative rights principle that all overlying landowners share equally—and layering a supplemental allocation tied to historical pumping, the framework honors both the equitable foundations of correlative rights and the practical realities of historical reliance on groundwater, while placing an outer limit on total allocation that reflects the constitutional standard of reasonable and beneficial use. The judgment’s ramp-down mechanism ensures that landowners who historically used less water per irrigated acre—often those who invested in water-efficient crops or irrigation methods—are protected from bearing a disproportionate share of future supply reductions. At the same time, higher historical users are incentivized to conserve. This structure offers GSAs and courts facing similar challenges in other basins a practical template that can be customized to the facts in a particular basin.

Subordination of Dormant Overlying Rights

The court subordinated Solano Verde’s overlying rights because Solano Verde had not used Basin groundwater since 2005 and demonstrated no intent to resume use. The court did not extinguish Solano Verde’s rights but allowed for future access upon a showing that new use would not unduly impact the Basin. It further rejected Solano Verde’s claim to imported “return flows” as both untimely and meritless.

The subordination of dormant riparian rights has been established through the Long Valley line of cases, which the Legislature expressly extended to groundwater rights in 2015. The Las Posas opinion confirms that courts conducting comprehensive groundwater adjudications under the post-SGMA framework have the authority to subordinate rights of landowners who never pumped or have long ceased pumping with no demonstrated intent to resume, providing a practical mechanism for managing the speculative demands that dormant rights holders can impose on overburdened basins.

Proposition 218 and CEQA Immunity for Court-Ordered Basin Management

The court held that Basin assessments authorized by the judgment were imposed by the watermaster as an agent of the court—i.e., the judicial branch—and thus Proposition 218’s restrictions on taxes and assessments imposed by “local governments” did not apply. 

Similarly, CEQA does not apply to the courts or their agents, and Fox Canyon, acting as court-appointed watermaster, was not subject to CEQA in implementing the judgment.

In any event, the court held that such assessments would benefit all in the Basin.

These holdings help cut off obstructionist challenges to broadly supported settlements for basin management, as occurred in Las Posas.

Affirming Overlying Landowners’ Water Rights Within Mutual Water Companies

The court upheld the trial court’s conclusion that the mutual water companies in the Basin acted as agents or trustees for their shareholders, and that landowners never severed their overlying rights or transferred them to the companies. The companies’ articles and bylaws governed water delivery, not water ownership, and the court drew a clear distinction between a landowner’s water right and a shareholder’s contractual right to receive water service. 

The opinions provide clarity concerning the legal relationship between mutual water companies and their shareholders with respect to groundwater rights. California law has long recognized that mutual water companies can act as agents or trustees for their shareholders’ water rights or can own water rights independently. Existing law also confirms that who owns particular rights is a fact question for the trial court, to be determined based on the party’s course of conduct and source of the underlying water. 

The Las Posas opinions held that where landowners did not sever their overlying rights by written covenant, and where the company’s long course of conduct reflected an agency relationship, the overlying rights remained with the landowners. Many groundwater basins include mutual water companies whose legal relationship with their shareholders’ water rights has never been formally adjudicated, and the Las Posas court’s opinions provide sound analytic templates to resolve such questions.

The Business Judgment Rule in Water Rights Settlements

In the companion case, the Court of Appeal affirmed the trial court’s ruling in favor of Berylwood’s board of directors. That case began when small groups of shareholders in Berylwood (and other mutual water companies in the Basin) threatened to sue the mutual water companies, their boards, and the boards’ members if they approved the Phase 2 settlement in the Las Posas case. 

The trial court rejected these retaliatory claims on numerous grounds. On appeal, the court of appeal affirmed that the shareholders, not Berylwood, owned the overlying water rights in question. It further held that US Horticulture (the dissenting shareholder) could not demonstrate that Berylwood was damaged by the board taking a “legally correct” position in supporting the Phase 2 settlement. Nor could the dissenting shareholder show that the Phase 2 trial would have produced a different outcome had the board voted otherwise. The court further held that the business judgment rule protected the board’s decisions, finding that the directors acted in good faith, obtained independent legal advice, secured majority shareholder approval, and delegated final approval to a disinterested committee member with no shares in the company and no affected land ownership.

The US Horticulture opinion, while unpublished, offers useful guidance at the intersection of corporate law and water law, signaling that mutual water company directors who follow a deliberate process—obtaining independent legal advice, securing shareholder approval, and delegating final approval to a disinterested committee member—can be shielded from derivative liability under the business judgment rule.

Implications for Future Basin Adjudications

Looking ahead, the Las Posas opinions carry several practical implications for stakeholders across California. First, they confirm that broad settlements of phases of groundwater adjudications, clearly supported by compelling evidence, are supported both by the Legislature and the courts. While the trial court held it would have ruled in favor of the settlement even if clear and convincing proof of its merits were required, the Court of Appeal noted that, given the broad support for the settlement, it became the objectors’ burden (which they failed to carry) to show that the settlement was improper under Code of Civil Procedure section 850. Similarly, the court’s refusal to exempt just the objecting parties from the physical solution discourages holdout strategies and those seeking a free ride.

Second, the court’s approval of the physical solution’s “operating yield” concept—a dynamic, adjustable water-supply calculation tied to actual and anticipated conditions—validates a flexible management framework that maximizes beneficial use. This approach improves on more rigid safe-yield-based allocations by allowing cumulative permitted pumping to be reduced gradually over time to achieve sustainable groundwater management, while affording water users sufficient lead time to adjust their operations to those reductions and to develop supplemental water supplies that may mitigate the need for further curtailment.

Third, the opinions affirm that a single-basin allocation and management approach, consistent with DWR’s Bulletin 118 basin designations, can be appropriate even where a basin features internal geological features (such as the Somis Fault in the Las Posas Basin). This holding provides important guidance for basins with complex internal hydrogeology.

Finally, the Las Posas decisions reinforce the importance of stakeholder participation and compromise in groundwater management, consistent with the policy objectives underlying both SGMA and the 2015 adjudication reform legislation, which encourages parties to settle adjudications where possible and privileges negotiated solutions. The court’s endorsement of the settlement process—and its deference to the equitable judgments of the trial court—should encourage collaborative approaches to basin management across the state.

Conclusion

Water rights holders, mutual water companies, public agencies, and their counsel should carefully study the Las Posas opinions as they navigate the increasingly complex landscape of California groundwater management.

O’Melveny & Myers LLP represented a large group of defendant landowners throughout the Las Posas Basin Adjudication. The firm led the negotiations and drafting of the stipulated judgment, then served as lead trial and appellate counsel, securing the court’s adoption of the stipulated judgment, and defending the judgment in its entirety on appeal. O’Melveny’s work on the matter led it to be named California Lawyer of the Year by the Daily Journal in 2024, and merited “Litigator of the Week” runner-up mention by the American Lawyer in 2026. For more information about the case, please contact Matt Kline, Russ McGlothlin, or Heather Welles.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Matt Kline, an O'Melveny partner licensed to practice law in California; Russell McGlothlin, an O'Melveny partner licensed to practice law in California; and Heather Welles, an O'Melveny partner licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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