By Mark Gutglueck
The Administrative Hearing Office of the State Water Resources Control Board today concluded its first week of hearings meant to address whether a proposed cease-and-desist order issued to BlueTriton Brands, Inc. relating to that company’s drafting of water from the San Bernardino National Forest’s Strawberry Canyon at the approximate 5,200-foot to 5,600-foot elevation in the San Bernardino Mountains should be finalized.
In March 2021, One Rock Capital Partners, LLC in partnership with Metropoulos & Company formed Triton Water Holdings, Inc. to purchase Nestlé Waters North America, Inc. in a leveraged buyout involving corporate cash, loans, high-yield and high-risk bonds and unknown investors.
The buyout from Nestlé S.A., a food and drink processing conglomerate headquartered in Vevey, Switzerland, included Arrowhead® Brand Mountain Spring Water along with other water bottling operations in the U.S. and Canada, with the exception of Nestlé Waters North America’s Perrier division. One Rock Capital Partners, LLC and Metropoulos & Company rechristened Nestlé Waters North America, Inc. as BlueTriton Brands, Inc. Obtained in the purchase were Poland Spring® Brand 100% Natural Spring Water, Deer Park® Brand 100% Natural Spring Water, Ozarka® Brand 100% Natural Spring Water, Ice Mountain® Brand 100% Natural Spring Water, Zephyrhills® Brand 100% Natural Spring Water, Arrowhead® Brand Mountain Spring Water, Pure Life® and Splash.
Arrowhead Mountain Spring Water had been obtained by Nestlé Waters North America, Inc. as a consequence of Nestlé’s 1991 acquisition of Perrier, which came amidst some confusion about the chain of title to Arrowhead, which was included within the portfolios of otherwise non-existent entities, shell companies or distributorships such as the Arrowhead Water Corporation and Great Spring Waters. Perrier had acquired Arrowhead from the BCI-Arrowhead Drinking Water Company, a division of Beatrice Foods, in 1987.
There had been several companies bottling water under brands incorporating the Arrowhead name, some going back to the first decade of the 20th Century. Names used over the years included Arrowhead, Puritas, Arrowhead and Puritas, Arrowhead Puritas, Arrowhead Spring Water and Arrowhead Mountain Spring Water among them, all under the aegises of the Arrowhead Hot Springs Company, Arrowhead Springs Corporation, Arrowhead Water Corp, Arrowhead Mountain Spring Water Company, Coca-Cola Bottling of Los Angeles, Rheem, and California Consolidated Water Company. The pre-1930 bottling operations had drawn water from a source near the privately-owned historic Arrowhead Hotel as well as from Arrowhead Springs on the east side of Arrowhead Mountain and in Coldwater Canyon at a level below the National Forest, which was established higher up in the San Bernardino Mountains in 1893. The springs were said to come from rock bank fissures and crevices that fed Coldwater Creek where the water was first collected for the hotel and bottling activity.
In 1929, the California Consolidated Waters Company was formed and purchased the Arrowhead Water bottling operation from the Arrowhead Springs Hotel. The purchase merged three Los Angeles-based companies that bottled and distributed “Arrowhead Water,” “Puritas Water” and “Liquid Steam.” The property, bottling operations, water distribution and administration of Arrowhead Springs Company, Arrowhead Puritas and the water bottling division of Merchants Ice and Storage were all administered by California Consolidated Waters Company, which was owned by the California Consumers Company. Soon after, California Consolidated Waters, on the basis of a single pipeline permit that was not based on any water rights and without having obtained a diversion permit, in August 1930 started diverting spring water from a single “bedrock crevice” spring in the San Bernardino National Forest along Strawberry Creek at an elevation of 5,600 feet. Subsequently, in 1933 and 1934, the company put in place tunnels, ultimately accompanied by holes and horizontal wells at or near the headwaters of Strawberry Creek in Strawberry Canyon. Strawberry Creek was noted in maps and springs studies prior to diversion to be a perennial stream which was fed by abundant flowing headwaters springs.
It was the seller Arrowhead Springs Corporation, not the United States Forest Service nor the State Water Resources Board, that granted California Consolidated Waters Co. the unwarranted right to develop the springs and divert the water from the Strawberry Creek headwaters. By 1934, California Consolidated Waters, had developed three springs using adits – horizontal passages bored into rock for drainage purposes – and then added 10 horizontal borehole wells to tap spring water aquifers in the mountainside, thereby diverting the forest spring water through a pipeline down the mountain, giving twenty percent to half of the water thus obtained to the hotel and then bottling and selling the rest. This unauthorized twenty percent giveaway to the Arrowhead Springs owners is still going on today.
While water withdrawal diversions can take place on National Forest land, all water diversions must be authorized by the State Water Resource Control Board, and a valid water right is required. The San Bernardino Forest reserved the water resources within it upon its founding in 1893. Valid claims preexisting 1893 were required in order to legally draft water from the forest after its establishment as a national forest. Federal reserve rights and the authority of the overlaying landowner are applicable to such situations where groundwater rights are at stake, and the appropriation of water rights through adverse possession or unauthorized use, known as prescriptive rights, is not applicable to U.S. Forest lands. The use of surplus water above forest reservation needs might be authorized if the user possesses a valid water right, but given the arid nature and drought in Southern California it would appear there would no basis to declare forest water “surplus.”
The tunnels, boreholes and horizontal wells established in Strawberry Canyon were not in place at the time of the founding of the San Bernardino National Forest on February 25, 1893. Nor were they put in place pre-1914, as Nestlé once claimed without substantiation.
In California, water rights obtained prior to 1914 are given special status as a “pre-1914 appropriative water right.” A water user with a pre-1914 right, on non-federal land, needs no water right permit unless the use of the water increases beyond the amount of water used prior to 1914, in which case the user must obtain a permit for the new amount unless it can be established that there was a plan in place before 1914 to use the additional water after 1914.
The historic record shows the tunnels, boreholes and horizontal wells at the higher elevation of 5,600 were established no earlier than August 1930, which in any event were located on federal land where no water rights could be established.
Arrowhead Puritas, the corporate predecessor to BCI-Arrowhead, Beatrice Foods, Perrier, Nestlé and now BlueTriton Brands, held and hold no valid water rights to the water being drawn from Strawberry Canyon, as is now asserted by BlueTriton Brands. Although, BlueTriton Brands claims a pre-1914 water right for its water withdrawals, no predecessor interest had a pre-1914 water right in the Strawberry Creek headwaters on the public forest lands. Any possible pre-1914 water rights were on the private lands of the Arrowhead Springs property, at Arrowhead Springs or in Coldwater Canyon, all outside the national forest. Those water rights were either not transferred upon sale or deeded back to the Arrowhead Springs property owner during the 1930s.
The Arrowhead Hotel property was leased to the U.S. government in 1920 to 1924 as a sanitarium for gassed and shell-shocked WW I veterans. Thereafter, in late 1924, the government returned the hotel to the Arrowhead Springs Company. From 1915 onward and into the 1920s Strawberry Creek was stocked with trout for recreational fishing and was a noted trout fishing stream on the 1915 American Auto Club 101 Mile Drive on the Rim of the World map.
The Arrowhead Springs hotel had sustained significant damage from the government lease and needed extensive renovation. Plans for expansion and renovation were made. During the government lease Arrowhead maintained the rights to water for bottling. Ads for this product circulating at that time show the water came from Indian Springs near the landmark Arrowhead. In 1925, The Arrowhead Head Springs Hotel and water bottling operation was sold to a hotel conglomerate which then used “61/2% Gold Bonds” to finance renovation efforts using the hotel property and bottling operations as collateral for the bonds that would come due in 1929. In 1928, Charles Anthony, general manager of the bottling operation and vice president of Arrowhead Springs Corp., acting president of the Arrowhead Springs resort property and Arrowhead Springs Corporation in the 1920s and 1930s, entered into talks with California Consumers Co., parent of California Consolidated Waters Co., founded in February 1929, regarding the sale of the Arrowhead water bottling operations. Anthony was to be paid a commission of $100,000 to execute the deal. Arrowhead was to provide a warranty title of water rights. Former Arrowhead Springs attorney and former California Assemblyman Byron Waters wrote a letter about the “water rights.” In the February 14, 1929 letter from the 79-year-old attorney, who represented himself as a sixty-year resident familiar with the San Bernardino Valley and the legal representative for the Arrowhead Hot Springs property, Waters, in typical lawyerly fashion described the water rights to be sold in the deal with the words “belonging to the company.” The letter, asserting the company’s ownership without providing any documentary proof to that effect, indicates that the 1929 “Indian Springs tunnels” located on adjacent forest lands as “whatever rights and interests Arrowhead Springs Corporation owns and possess[es] in waters flowing from Indian Springs.” A 1929 survey and Waters’ letter’s legal description show this referenced “Indian Springs” was in Waterman Canyon on adjacent forest lands. The 1929 warranty title insurance policy accompanying the sale states exclusions on U.S. and state reservations and restrictions on occupancy of these lands which would have excluded any possible operations on 1929 “Indian Springs” or in Strawberry Canyon. The filed accompanying warranty deed excluded all water from surface streams and hot springs. In August 1930, California Consolidated Waters Co. filed a deed that says false and fraudulent claims were made regarding the water and nature of water rights represented by Arrowhead Springs Corp employees in the sale of the water bottling operation, but that a new agreement to correct errors was made. In this agreement Arrowhead Springs, not the United States Forest Service or State Water Resources Control Board, granted unwarranted rights and authority for California Consolidated Water Co. to extract water from springs in Strawberry Canyon and build a pipeline to the hotel property and give the Arrowhead Springs ownership half of the water from the Strawberry Creek’s headwaters springs. In return California Consolidated Water Company deeded back to the Arrowhead Springs owners any possible pre-1914 water rights. Again, Arrowhead Springs Corporation sold water rights on public forest lands it did not own. According to the ‘Nemo dat quod non habet’ legal principle, an individual cannot sell what he does not own, and any such transaction invalidates the legal title of the purchaser.
In 1931, the Del Rosa Mutual Water Company, an appropriator of water on East Twin Creek downstream of the Arrowhead Springs Hotel (and downstream of the confluence of Strawberry Creek and East Twin Creek), filed a lawsuit to enjoin the taking of any water either by Arrowhead Springs Corporation or California Consolidated Water Company from East Twin Creek or Strawberry Creek.
The Del Rosa suit did not involve the San Bernardino National Forest nor the State of California. A finding in that case was that neither Arrowhead Springs Corp nor California Consumers Co. had previous water rights.
Federal property is excluded in adverse possession claims. Thus, Strawberry Canyon and any water originating there could not be obtained via adverse possession prescriptive rights. Today BlueTriton claims it has rights because the Del Rosa suit granted one of its corporate predecessor’s water rights on federal land. The BlueTriton Corporation, during the current administrative hearing, acknowledged the San Bernardino National Forest, as the overlaying landowner of Strawberry Canyon, held the rights to water being extracted there for BlueTriton’s bottling purposes. This, by extension, was a recognition that Charles Anthony sold a bottling operation with no valid water rights in the National Forest to California Consolidated Waters Company as he collected a hefty commission and paid off Arrowhead Springs Corp’s bond obligations. Arrowheads’ Strawberry Canyon water rights were never verified. Nor, however, were those rights ever challenged, and for decades, the United States Forest Service, acting on the assumption that precedent diversions of water from Strawberry Creek were based on legal grounds and some order of water rights possession, simply allowed Arrowhead’s operation to proceed under the aegis of a pipeline special use permit since 1930.
In 2015, Nestlé Waters of North America was challenged in federal court for operating on an expired pipeline permit in the San Bernardino National Forest. Soon after complaints were filled with State Water Resource Control Board to investigate the validity of Nestle’s water rights in Strawberry Canyon. The original 1978 permit was issued to Arrowhead Puritas, then under the ownership of Beatrice Foods, in 1978 for a pipeline conveyance system permit involving water drafting in Strawberry Canyon for a standard fee of $524. The permit granted no water rights and required valid claims. Under the ownership of Beatrice Foods, Arrowhead Puritas had morphed into the BCI-Arrowhead Drinking Water Company. When the Arrowhead Puritas water drafting permit in Strawberry Canyon expired, the BCI-Arrowhead Drinking Water Company applied to extend the permit. In 1987, while that application was still pending, Perrier purchased the BCI-Arrowhead Drinking Water Company. Later the name “Arrowhead Mountain Spring Water Company” was handwritten on the permit. The name “Arrowhead Mountain Spring Water Company” is not in BlueTriton’s chain of title. Nevertheless, it was used during the 1990s in United States Forest Service correspondence, including on invoices and in spring site records for the water pipeline system in Strawberry Canyon. At that time, newspaper articles show the company using that name was bottling and shipping Arrowhead water to Japan. This was water extracted from public land – Strawberry Canyon in the San Bernardino National Forest. The diversion of that water left a parched and dewatered forest canyon below, which burnt in the “Old Fire” in 2003.
The water pipeline conveyance extraction special use permit renewal process entailed a U.S. Forest Service review of the water drafting arrangement and its environmental/ecological impact, which in the late 1980s and 1990s the U.S. Forest Service did not have the immediately available resources to carry out. In a gesture of compromise, Perrier was allowed, pending the eventual U.S. Forest Service review, to continue to operate in Strawberry Canyon by simply continuing to pay the $524-per year fee to perpetuate the water extraction under the terms of the expired permit. In 1992, when Nestlé acquired the Arrowhead brand bottling operations from Perrier, it inherited the Strawberry Canyon operation and continued to pay the $524 annual fee without renewing the permit, which at that time existed under the name of the “Arrowhead Mountain Spring Water Co,” one that was never listed legally in corporate filings, but which operated under Nestlé Waters of North America, Inc. until it was acquired by BlueTriton Brands.
Nestlé’s intensive water-drafting activity, which was long been decried by environmentalists, came under increasing fire as a statewide drought, which lasted for more than five years after it first manifested in 2011, advanced. In 2015 environmental groups were gearing up to file a lawsuit claiming the U.S. Forest Service had violated protocols and harmed the ecology of the mountain by allowing Nestlé Waters North America to continue its operations in Strawberry Canyon for 28 years after its permit expired. At that point, the Forest Service moved to make an environmental review. In the meantime, Nestlé continued its water extraction, pumping an average of 62.56 million gallons of water annually from the San Bernardino Mountains. Environmentalists lodged protests with the water rights division of the California Water Resources Control Board, alleging Nestlé was diverting water without rights, making unreasonable use of the water it was taking, failing to monitor the amount drawn or make an accurate accounting of the water it was taking, and wreaking environmental damage by its action.
Following a two-year investigation, state officials in late 2017 arrived at a tentative determination that Nestlé could continue to divert up to 26 acre-feet of water (8.47 million gallons) per year. Nestlé had gone far beyond the water drafting limit the company was entitled to, the State Water Resources Control Board said, and was actually drafting 192 acre-feet (62.56 million gallons), such that 166 acre-feet (54.09 million gallons) the company was taking annually was unauthorized, according to a report released on December 21, 2017.
The Water Rights Division of the State Water Resources Control Board called upon Nestlé to immediately end its diversions beyond the 26-acre-foot threshold or otherwise marshal evidence supporting its level of diversion.
Nestlé, despite being unable to produce any historical record of water rights approaching the volume of its diversion, continued to maintain it had established rights to roughly 190 acre-feet of water per year in Strawberry Canyon. The company refused to comply with the State Water Resources Board’s mandate, continuing to take 144 acre-feet in 2017, 141 acre-feet in 2018, 210 acre-feet in 2019, and 180-acre feet in 2020. By 2020, Nestlé was in negotiations with One Rock Capital Partners, LLC and Metropoulos & Company for the sale of Nestlé Waters North America. In late March 2021, in what was represented as a $4.3 billion transaction, that deal was closed.
A month later, on April 23, 2021 the State Water Resources Control Board’s Division of Water Rights, through its permitting and enforcement branch, issued a cease-and-desist order relating to the Strawberry Canyon water diversion activity. Initially, that cease-and-desist order went to Nestlé Waters North America, as the State Water Resources Control Board had not been informed of the buyout of Nestlé Waters North America, including the Arrowhead Spring Water bottling operation, by One Rock Capital Partners, LLC and Metropoulos & Company.
By that point, the State Water Board had revised the maximum amount of water to be diverted from Strawberry Canyon to 7.26 acre feet per year.
In the April 23, 2021 notice, signed by Julé Rizzardo, the assistant deputy director for the permitting and enforcement branch of the State Water Board’s Division of Water Rights, a revised report of investigation and a draft cease-and-desist order was served upon Nestlé Waters North America, Inc., informing it to end its unauthorized and unlawful activities, which was defined in the cease-and-desist order as taking any more than 7.26 acre-feet (2.342 million gallons) of water annually out of Strawberry Canyon.
The draft order alleged that Nestlé’s diversion and use of water from Strawberry Creek in San Bernardino County violated or threatened to violate the prohibition in Water Code section 1052 against the unauthorized diversion or use of water subject to Division 2 of the Water Code. The draft cease-and-desist order notice, issued under Water Code section 1834, advised Nestlé that if Nestlé wanted to request a hearing on the draft order it had to submit a written request for a hearing to the administrative hearing office within 20 days from Nestlé’s receipt of the notice.
On May 11, 2021, eighteen days after the issuance of the notice, Robert E. Donlan of Ellison Schneider Harris & Donlan, L.L.P., the law firm representing BlueTriton Brands, Inc., filed a request for a hearing on the matters and allegations in the draft cease-and-desist order notice. The request for a hearing stated that BlueTriton is the “successor by name change” to Nestlé, is “the owner of the water rights and obligations subject to the notice, and is authorized to request a hearing in this matter.”
BlueTriton, through Donlan and Ellison Schneider Harris & Donlan, on August 5, 2021 made a motion to dismiss the State Water Board prosecution team’s draft cease-and-desist order.
On September 10, 2021 several other parties made requests to add additional hearing issues. Those additional parties eventually grew to include the San Bernardino Valley Municipal Water District; the Center for Biological Diversity; the Sierra Club; the California Department of Fish and Wildlife; the Story of Stuff Project; Steve Loe, a retired U.S. Forest Service biologist; Hugh Bialecki, a Lake Arrowhead-based dentist who is the president of the Save Our Forest Association; Amanda Frye, a Redlands resident who has done extensive historical research relating to water rights holdings and claims by various entities and corporations in San Bernardino County; Victor Vasquez, who has worked within the Division of Water Rights of the State Water Resources Control Board; Anthony Serrano, a resident of Highland and water user in the Bunker Hill Basin, where water originating in Strawberry Canyon eventually flows; and Tomas Eggers.
On November 4, 2021, the administrative hearing officer assigned to the case, Alan Lilly, rejected the motion to dismiss the prosecution team’s draft cease and desist order, ruling that the public hearing to be conducted was to involve examining evidence and considering arguments relevant to 1) whether the respondent, BlueTriton Brands, is violating prohibitions against the unauthorized diversion or use of water; 2) If any such violations or threatened violations are occurring, whether the State Water Board should issue a binding cease-and-desist order to BlueTriton Brands under Water Code section 1831; and 3) if the State Water Board decides to issue a cease-and-desist order to BlueTriton Brands under Water Code section 1831, then what provisions should be in the order. Lilly rejected the prosecution team’s motion to add the issue of public trust violations to the ground to be covered in the hearing since that accusation was not contained in the draft cease-and-desist order.
Lilly also issued a ruling that other parties’ requests to add additional hearing issues will be evaluated as the hearing proceeds based on whether the information to be provided is relevant to the three issues circumscribed as pertinent to the purpose of the overall hearing and the addition of any further possible hearing issues as the proceedings warrant.
Prior to the initiation of the hearings on Monday, January 10, Donlan on January 7 filed on BlueTriton Brand’s behalf a motion in limine which sought to exclude the testimony of several members of the public who had registered to participate in the hearings and to exclude the evidence those individuals wanted to present, including those who are anticipated to weigh in with regard to the ecological havoc to the forest wrought by the water diversions, the reduction of water availability downstream from Strawberry Canyon as a consequence of the water diversions as well as the non-existence of the water rights in Strawberry Canyon which Nestlé had formerly asserted and which BlueTriton Brands is currently claiming.
BlueTriton’s second attorney Shawnda Grady verbally entered a second motion in limine during the January 13 hearing. BlueTriton’s purpose, in particular, appeared aimed at preventing Loe, Frye and the Story of Stuff, a public interest organization which has been involved in the effort to end the water diversions from Strawberry Canyon since 2015, from speaking on the record during the hearings or submitting evidence for the hearing. Ultimately, Lilly denied the motion, reiterating his November 4 ruling that testimony and statements will be permitted by the various parties, as the water board encouraged public participation by those who met the established deadline to register to participate in the hearing insofar as their input is relevant to the issues being considered in the course of the hearing.
This week’s proceedings were initially taken up with the state prosecution team’s initial round of presentations and the testimony of Tomas Eggers, a water resource control engineer with the State Water Resources Control Board; Natalie Stork, a hydrologist and investigator assigned to the Office of Research, Planning and Performance and the Groundwater Management Program with the California Environmental Protection Agency and the California Regional Water Board; Victor Vasquez, who is employed within the Division of Water Rights of the State Water Resources Control Board; and Mary Ann Dickinson, a Lake Arrowhead resident and the past president and chief executive officer of the Alliance for Water Efficiency. Thereafter, BlueTriton began to put on its case in chief with the input of that company’s primary expert witness, Larry Lawrence, the natural resources manager with BlueTriton Brands. Lawrence held a similar position with Nestlé Waters North America.
A mechanical engineer by training, Lawrence offered an overview of the water collection and diversion facilities in use by BlueTriton Brands at the confluence of the east and west forks of Strawberry Creek.
Lawrence said that prior to 2021, the excess water collected by Nestlé from Strawberry Creek had been deposited in Waterman Canyon, two watersheds over from Strawberry Canyon, where the cisterns that Nestlé had for the collection of the water ultimately used in the Arrowhead Spring Water bottling operation are located. Since 2021, Lawrence said, Nestlé and now BlueTriton had in large measure been complying with the Forest Service’s instructions to discharge the excess water in lower Strawberry Canyon, although roughly 20 percent of the diverted Strawberry Creek water is sent to the mountain base grounds of the historic Arrowhead Hotel now owned by the San Manuel Mission Indian Tribe.
Lawrence was cross examined by multiple parties.
The water diverted from Strawberry Canyon is conveyed to the Arrowhead Water collection site between Old Waterman Canyon and Coldwater Canyon by means of a 23,000-foot-long gravity-fed pipeline coming down the mountain from Strawberry Canyon. Arrowhead Spring Water Company trucks transport the water from the cisterns and tanks at the Arrowhead Water collection site to the Arrowhead Spring Water bottling facility in Ontario.
During his testimony, Larry Lawrence mentioned that a stock sale was involved so that One Rock Capital Partners, LLC and Metropoulos & Company could effectuate Triton Water Holdings, Inc.’s acquisition of Nestlé Waters North America.
The hearing is scheduled to resume January 31, after a site visit on January 26 and January 27. Rebuttal testimony is scheduled for February 14. Much of the hearing was rescheduled to accommodate BlueTriton’s attorneys’ complaints that they needed more time to read the other parties’ evidence files.
By Mark Gutglueck