By Brendon Derr
A lawsuit brought by two out-of-state investment firms could make it harder for Arizona to protect vulnerable groundwater basins, threatening one of the state’s few tools for safeguarding rural water supplies.
The companies, tied to real estate developers in Utah and Nevada, sued after the Arizona Department of Water Resources designated northern Mohave County’s Hualapai groundwater basin an Irrigation Non-Expansion Area in 2022. Under the designation, no new farmland can be irrigated, though existing farms can keep pumping.
The investors argue ADWR should have used the state’s standard rulemaking process in creating the INA. A Maricopa County Superior Court judge agreed with the investors in January, rejecting ADWR’s position that state law allows it to use a separate procedure. The agency has appealed.
If the ruling stands, creating future INAs could take far longer. That could give landowners more time to expand irrigation before restrictions take effect, ultimately leading to more groundwater pumping in some of the state’s most at-risk basins.
“ADWR has observed this behavior firsthand,” the agency wrote in court documents. “When landowners learn that INA designation procedures may start, some will rush to irrigate large areas of uncleared land.”
The Arizona Center for Investigative Reporting has similarly documented spikes in irrigation well applications whenever groundwater regulations appeared imminent.
“This is a really familiar kind of dynamic,” said Paul Hirt, a professor emeritus at Arizona State University whose work has focused on environmental policy, conservation and regulation in the American West. “A whole bunch of people are going to file for claims that they can then have grandfathered in and be able to use in the future—and you almost undermine your whole effort.”
The Hualapai case doesn’t just jeopardize years of local efforts to protect the valley’s dwindling water supply from out-of-state interests, which now own 99% of the basin’s cultivated acreage. If the investors win and the INA designation has to be redone, work completed after the state imposed restrictions could become a new point of contention.
An AZCIR analysis of ADWR records found at least 12 applications for industrial-scale wells in the Hualapai Valley since irrigation restrictions were implemented in October 2022, all by large out-of-state agricultural operations or investment firms. In several cases, records show drilling is already complete.
The lawsuit is also complicating attempts to secure INAs elsewhere in the state. In court documents, ADWR said it is considering a petition involving a groundwater basin in southeastern Arizona and “needs clarity about how to proceed.”
“Investment firms are challenging ADWR’s authority to respond adequately to local, unique conditions,” said Christopher Kuzdas, Water Program director for the Environmental Defense Fund in Arizona.
“It is a statewide issue.”
ADWR created the Hualapai Valley Irrigation Non-Expansion Area in response to a surge of out-of-state investment in vacant land for new industrial-scale farms, which Mohave County had little authority to stop. Many landowners were quick to drill multiple large wells and began irrigating land ahead of the INA, which allowed them to continue pumping under the new regulation.
The pair of companies behind the lawsuit evidently missed that window. They sued in January 2023, just over a month after the INA took effect, saying the designation prevented them from securing irrigation rights and therefore reduced the value of their land.
In their initial complaint, the investors challenged just about every aspect of the INA—the data behind the decision, the designation’s underlying purpose, the extent of ADWR”s discretion. Only one argument ultimately stuck: that ADWR should have followed Arizona’s Administrative Procedure Act, the state’s formal process for adopting agency rules.
ADWR countered that the Legislature created a separate review mechanism for the agency to assess conditions in individual groundwater basins, and directed it to make those decisions as quickly as possible to avoid prolonged uncertainty for landowners.
“It seemed like a Hail Mary to suggest that (establishing an INA) was actually a rulemaking process rather than a local, science-driven, data-driven process to be managed by the experts,” said Kuzdas. “It was challenging authorities that had been in place for decades for the Arizona Department of Water Resources—that the Legislature had delegated to ADWR because groundwater is unique.”
The January ruling nonetheless declared that the Hualapai Valley INA had been illegally established. But before the final order was signed in May, ADWR asked the Arizona Court of Appeals to intervene based on the issue’s “statewide importance.”
“Each day of delay risks irreparable groundwater depletion as landowners may rush to irrigate new acreage while the legal framework remains unsettled,” the agency wrote.
Mohave County told the court it believes the legal fight is already influencing decisions in the basin.
Landowners have taken steps “to bring previously unirrigated acreage into production, threatening to accelerate the very groundwater stress” the INA was created to address, the county wrote in an amicus brief.
The appeals court agreed to hear the case and, as of July 10, upheld the moratorium on new irrigation. Oral arguments are scheduled for Aug. 6.
Attorneys for the investment companies did not immediately respond to requests for comment.
As the appeal moves forward, the question isn’t whether landowners can drill wells. It’s what newly developed land, if any, will ultimately be eligible for irrigation.
ADWR has told the court that if the agency prevails, acreage developed after the INA took effect still won’t qualify, and landowners who irrigate those acres could face fines of up to $10,000 per day. But if the investors win, the state could have to restart the designation process, opening a window for additional irrigation before new restrictions take hold.
AZCIR’s analysis of the 12 large irrigation well applications filed since the October 2022 moratorium—about three months before investors challenged the INA in court—found that at least three have already been drilled.
These wells, each at least 1,000 feet deep, belong to Moga Agri Industries Holdings LLC, a California-based nut-growing operation. The company owns hundreds of acres in the basin, according to county parcel data, and first applied to drill wells there in 2020.
Peacock Nuts LLC, one of the basin’s largest farming operations, had roughly 3,200 acres in production prior to the INA and is behind six of the remaining nine applications. CEO Jeff Duarte said those applications reflect the company’s existing operations, not an attempt to get around the INA.
“We are perfectly within our rights to file permits and drill wells,” he told AZCIR.
The situation in the Hualapai Valley underscores why lawmakers directed the agency to designate Irrigation Non-Expansion Areas through a separate review process rather than formal rulemaking, according to ADWR.
The agency in court documents estimated that requiring rulemaking under the Administrative Procedure Act would more than triple the time it takes to establish an INA, from roughly four months to a year or more. It would also require approval from the Governor’s Regulatory Review Council, which Kuzdas said could inject more state-level politics into what is meant to be a technical assessment of conditions in a specific basin.
“The Legislature chose a compressed timeline for a reason: to protect landowners from an extended irrigation freeze pending a final determination,” ADWR wrote in court filings. “The freeze is a significant restriction, and the Legislature paired it with a prompt resolution—not an open-ended process.”
Duarte said the protracted legal battle has made long-term planning difficult for farmers.
“We don’t want to invest in prepping land that we can never irrigate,” he said.
Questions raised by the Hualapai case are already rippling across the state.
More than 300 miles southeast of the Hualapai Valley, farmers in Arizona’s San Simon sub-basin have asked ADWR to establish another Irrigation Non-Expansion Area there after seeing a similar surge of out-of-state nut tree operations. The agency received the INA petition in September 2025 but said the lawsuit has complicated what comes next.
“Every day that ADWR lacks clarity on how to proceed on the San Simon petition is a day that aquifer is unprotected,” the agency wrote in court documents. “The current uncertainty exposes the basin to the risk of a rush to irrigate.”
The case has drawn support from Arizona Attorney General Kris Mayes, whose office filed an amicus brief defending ADWR’s interpretation of the law, and two San Simon farmers who joined the Environmental Defense Fund in urging the appeals court to reverse the lower court’s ruling.
Mark Cook, one of those farmers, said outside interest in the basin has been building for years, transforming land once considered unsuitable for farming into a target for investors.
Cook recalled telling one of his business partners in 2015 that there was no reason to buy a nearby parcel with the intention of leaving it unplanted to help protect their existing fields and water supply.
“No, no, no,” Cook remembered saying. “There’s no way anyone in their right mind would buy that and plant it.”
“I was wrong,” he told AZCIR.
Some supporters see even a quickly established INA as an imperfect solution because it simply locks in the overpumping that put a basin in jeopardy in the first place. But after years of stalled efforts to strengthen Arizona’s groundwater laws, it remains one of the few options rural communities have to slow new pumping.
“I think what we’ve learned is the Legislature is not necessarily coming to save rural Arizona,” said Kuzdas, of the Environmental Defense Fund.
As the lawsuit unfolds, Hirt, the retired environmental historian and conservationist who lives in the San Simon sub-basin, said he and his neighbors have been monitoring land sales in the area closely.
“We all know it’s coming.”
This article first appeared on Arizona Center for Investigative Reporting and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
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