By Amanda Frye and Mark Gutglueck
BlueTriton this week filed a lawsuit challenging the State Water Resources Control Board’s finalized cease and desist order handed down on September 19 curtailing the company’s diversion of water from the Strawberry Creek headwater springs located high in the San Bernardino National Forest below Strawberry Peak and Highway 18 for use in its Arrowhead Spring Water bottling operation.
The lawsuit comes after environmentalists’ seemingly interminable challenges of the water diversion by BlueTriton’s predecessors, Nestlé Waters of North America and Perrier, ones launched decades ago, resulting in the long-delayed methodical administrative hearing process carried out in 2021 and 2022 that formed the basis of State Water Resources Control Board’s action.
In its challenge, the company, which was formed some three years ago by Metropoulos & Company and One Rock Capital Partners, LLC, for the explicit purpose of acquiring the lion’s share of Nestlé’s Western Hemisphere water bottling operations, maintains that the State of California overstepped its water use regulatory and water rights adjudicative purviews, as codified in the state’s governmental and water codes. That challenge is being made despite a substantial back-and-forth and exchange of motions between attorneys representing the state water board’s enforcement team and BlueTriton’s lawyers in which the hearing officer conducting the 2021/2022 hearing made a determination during the administrative examination process that the state’s water regulatory authority extends to groundwater that manifests in surface flow.
Water originating in the San Bernardino Mountains and using the Arrowhead brand in one form or another has been marketed at least since 1909. Questions have long existed, however, as to whether the water rights originally claimed, attributed or granted to Arrowhead Puritas, the corporate predecessor to Arrowhead Spring Water, pertain to the current source of the water drawn at the 5,200-foot-to 5,600-foot altitude from Strawberry Creek in what is known as Strawberry Canyon rather than water drawn farther down the mountain at around the 2,000-foot above sea level on the grounds of the Arrowhead Springs Hotel.
In 1929, the California Consolidated Waters Company was formed to merge three Los Angeles-based companies that bottled and distributed “Arrowhead Water,” “Puritas Water” and “Liquid Steam.” The bottling operations, water distribution and administration of Arrowhead Springs Company, Puritas of California Consumers Company and the water bottling division of Merchants Ice and Storage were all administered by California Consolidated Waters Company. In August 1930, 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 or any further valid authorization or rights, 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 the diversion to be a perennial stream which was fed by abundant flowing headwaters springs.
The Arrowhead Water Bottling Company, under various names and corporate configurations, including divisions of Standard Oil of California and Rheem Manufacturing, continued to operate, drawing water from Strawberry Canyon throughout the 20th Century. In 1969, the Arrowhead Water Bottling Company was acquired by the Coca Cola Bottling Company of Los Angeles and in 1978, Chicago-based Northwest Industries acquired Arrowhead Puritas when it bought Coca Cola Bottling of Los Angeles. In 1982, Northwest Industries unloaded Coca-Cola Bottling of Los Angeles to Beatrice Foods. BCI subsequently acquired Beatrice in a leveraged buyout. While under BCI’s control, the U.S. Forest Service-issued Arrowhead Puritas water drafting permit in Strawberry Canyon expired, and 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.
The then-pending water extraction permit renewal required a U.S. Forest Service review of the water drafting arrangement and its environmental/ecological impact, which the U.S. Forest Service then did not have the immediately available resources to carry out. In a gesture of compromise, Perrier was allowed, pending the eventual 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 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 has 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 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 on an annual basis was unauthorized, according to a report released on December 21, 2017.
In March 2021, Nestlé’s parent company, Nestlé S.A., a corporate conglomerate headquartered in Vevey, Vaud, Switzerland, sold its Nestlé Waters North America division, with the exception of its bottling rights to Perrier, to One Rock Capital Partners, LLC, in partnership with Metropoulos & Company.
Nestlé Waters North America existed as Nestlé’s operations pertaining to bottling drinking water in the United States and Canada, including eight of the leading water bottling operations in the United States. Upon the sale being completed to One Rock Capital and Metropoulos, Nestlé Waters North America was redubbed BlueTriton Brands.
Arrowhead Mountain Spring Water is among the most iconic of the brands now in the possession of BlueTriton. To the chagrin of the company, the California State Water Resources Control Board’s finalized determination on September 19 to issue the cease & desist order entails a finding that “BlueTriton does not have any water rights that authorize these diversions and uses.”
Numerous complainants, including Story of Stuff Project Executive Director Michael O’Heaney and local residents and whistleblowers Steve Loe and Hugh Bialecki among others, offered testimony before the state water board on September 19, urging its approval of the order. O’Heaney also submitted a petition signed by 25,000 global citizens gathered by his organization and corporate accountability campaigner Eko, formerly known as Sum of Us, calling upon the board to act. The petition stated that “one cannot sell what it does not own. And BlueTriton does not own, nor does it hold a right to, the water in Strawberry Creek.”
The cease & desist order the board approved was drafted by the board’s administrative hearings office, including Administrative Hearing Office Allen Lilly, who presided over a nearly year-long hearing that took place after BlueTriton appealed a 2021 tentative cease and desist order based on the findings of the State Water Board’s enforcement staff following an extensive investigation. In addition to prosecutors from the State Water Board and attorneys for BlueTriton, the Story of Stuff Project and multiple other complainants were able to introduce evidence and call witnesses during the hearings and to participate in a site visit to the springs in February 2022.
The order concluded that the water in question, because it originates from springs, even if it is intercepted prior to expressing at the surface, falls under the jurisdiction of the State Water Board, which by law regulates surface water and not groundwater. Further, according to the order, BlueTriton did not perfect an appropriative right to the water it removes and in particular, did not perfect a pre-1914 right, considered to be California’s inviolable gold standard in terms of water rights, as it has long claimed.
The order is silent on the removal of water from three of the spring sources BlueTriton taps at a lower elevation in Strawberry Canyon and allows the company to divert water from those springs to the owners of the Arrowhead Hotel property for riparian uses as the collection of environmentalists had made no challenge of those three diversions. Nevertheless, environmentalists have indicated they will importune the Forest Service to deny BlueTriton’s application for a new special use permit for its operation on public lands without proof of a valid water right.
On October 24, Blue Triton, represented by John Kinsey and Nicholas Cardella of the Fresno-based law firm Wanger Jones Helsley and Robert Donlan, Christopher Sanders and Shawnda Grady of the Sacramento-based law firm Ellison Schneider Harris & Donlan, filed suit in Fresno Superior Court, alleging “The State Water Resources Control Board’s September 19, 2023 Order WR 2023-0042 is the culmination of a calculated eight-year effort to expand improperly the State Water Resources Control Board’s authority over subterranean waters far beyond what California law allows. The final order ignores the undisputed facts in the record, as confirmed in the final order itself, and inexplicably asserts that rather than applying applicable and binding law, the State Water Resources Control Board ‘should treat’ BlueTriton Brand’s collections of groundwater, collected from deep underground, as surface water subject to the State Water Resources Control Board’s permitting authority. The final order invents an entirely new jurisdictional standard articulated for the first time in the final order, ignores the clear jurisdictional limits that the state legislature and the courts imposed on the State Water Resources Control Board’s permitting authority, ignores the unwavering pattern and practice of State Water Resources Control Board staff for decades, and essentially creates a new, ad hoc rule for the State Water Resources Control Board to determine how and when it will require a permit for diversion and collection of subterranean waters in California.”
The legal theory BlueTriton is pursuing in the case holds that there is a distinction in California water law between surface water and subsurface water and that the State Water Resources Control Board’s authority extends only over surface water and not to water drafted out of the water table or aquifer. Since the Arrowhead Water operation consists of borings, tunnels and adits which tap into subsurface water, according to BlueTriton’s legal team, the State Water Resources Control Board’s undertaking to apply a cease-and-desist order was illegitimate from the inception and the ultimate conclusion that BlueTriton had not established water rights to the water it is drafting in Strawberry Canyon within the San Bernardino National Forest is moot and therefore inapplicable, as only the U.S. Forest Service has authority with regard to underground water within its jurisdiction. Thus, the U.S. Forest Service special use permit bought for a $524-per year fee issued to Nestlé and subsequently to its corporate successor, BlueTriton, provides a fully proper, appropriate and both administratively and legally defensible basis to have allowed the drafting of that water in the past, at present and into the future, Kinsey, Cardella, Donlan, Sanders and Grady maintain.
An adit is a horizontal passage leading into an underground chamber for the purposes of access or drainage.
In the suit, Kinsey, Cardella, Donlan, Sanders and Grady seem to blur the distinction between the water drafted by BlueTriton and its corporate predecessors at the 5,600-foot level in the mountains from the water that was historically drawn much further down the mountain on the grounds of the Arrowhead Springs Hotel.
“The final order directs BlueTrion Brands to cease and desist from collecting the water that BlueTriton Brands and its predecessors have collected for more than a century. BlueTriton Brand’s water is sourced from horizontal boreholes and tunnels developed from 37 to 495 feet below the ground surface in Strawberry Canyon located within the San Bernardino National Forest,” the lawsuit states, “To be clear, the groundwater collected at the boreholes and tunnels is hydraulically connected to the surface of the earth, and thus classified as ‘spring water’ under Food and Drug Administration regulations. But under the Water Code and California common law, the legal classification of water for water rights and State Water Resources Control Board jurisdictional purposes is determined where the water is diverted and taken under control. The [California] Water Code expressly limits the State Water Resources Control Board’s permitting authority to ‘surface water… flowing in [a] natural channel,’ and ‘to subterranean streams flowing through known and definite channels.’ The final order ignores these express statutory standards and every other legal authority on the topic, and instead creates a vague new standard that would essentially render any groundwater that the State Water Resources Control Board deems to be ‘associated with’ the ground surface subject to its permitting authority.”
The suit makes no reference to that portion of the administrative hearing referencing Strawberry Creek within Strawberry Canyon existing as a flowing body of surface water before the addition of BlueTriton’s corporate predecessor’s horizontal boreholes, tunnels and adits.
According to Kenneth Petruzelli, an attorney with the California Water Resources Control Board, “A spring supplying a stream is part of the stream.”
The lawsuit further states, “Just as troubling, it appears this unprecedented new jurisdictional standard was developed in the course of prohibited ex parte communications by and among the State Water Resources Control Board members, its chief counsel, the hearing officers from its administrative hearings office, and certain of their respective staff members during multiple closed session meetings, which were reportedly conducted to ‘deliberate’ on the proposed order before and after the administrative hearing office issued it.”
The administrative hearing process under which the final cease and desist order was issued, according to Kinsey, Cardella, Donlan, Sanders and Grady, was inherently unfair because “the hearing officer then became an advocate for its proposed order expanding the State Water Resources Control Board’s jurisdiction over subterranean waters, materially revising the proposed order and responding to the comments on its proposed order with a 33-page document. This collaboration between the administrative hearing office and the State Water Resources Control Board violated the principles contained in the Administrative Procedures Act by having the entire process working toward a preconceived conclusion, Kinsey, Cardella, Donlan, Sanders and Grady maintain.
The U.S. Forest Service special use permits issued to Nestlé and subsequently to its corporate successor, BlueTriton, is only for a pipeline, while the removal of water requires a valid water right. The State Water Resources Control Board’s enforcement branch conducted a multi-year investigation and presented its findings at the multi-month hearing conducted in 2021 and 2022 that BlueTriton had no legitimate water rights in the San Bernardino National Forest Strawberry Creek headwater springs area at the approximate 5,600-foot elevation.
Despite hearing documents, legal filings and BlueTriton’s corporate predecessors’ documents confirming the 1930 date of encroachment in the National Forest within Strawberry Canyon, BlueTriton’s website states that “BlueTriton and our predecessors have collected water from Arrowhead Springs in Strawberry Canyon in an environmentally responsible and sustainable way for more than 125 years. BlueTriton will vigorously defend our water rights through the available legal process. BlueTriton continues to comply with all state and federal laws as they apply to our water rights in California. We look forward to continuing to work closely with the local communities near our operations.”
As to any continuing drafting of water from Strawberry Canyon, the company stated, “BlueTriton will comply with the order unless otherwise authorized by the courts.”
Steve Loe, a retired U.S. Forest Service biologist who testified during the hearings in 2022, told the Sentinel, “This is just more delay, delay, delay tactics. We have been watching this over and over for the 10 years we have been working to get water back in the stream.”
By Amanda Frye and Mark Gutglueck