No Appropriation Without Exclusive Control: Shoreline-Connected Canals Do Not Require Water Appropriation Permits under South Dakota Law

Case: McCook Lake Recreation Area v. Dakota Bay, LLC, 2025 S.D. 53 (S.D. Sept. 24, 2025)

Court: Supreme Court of South Dakota

Author: Justice Kern (unanimous; Chief Justice Jensen did not participate)

Introduction

This decision resolves a high-profile dispute over whether a developer must obtain a water appropriation permit before constructing a man-made canal that connects to an existing public lake. Dakota Bay, LLC, owned by Michael Chicoine, proposed an 1,800-foot-long, 110-foot-wide canal to connect its property to McCook Lake (an oxbow of the Missouri River) to create additional lake access and recreational amenities. The McCook Lake Recreation Area Association (the Association), which pumps Missouri River water into McCook Lake each year under its own Missouri River water right, opposed the canal. It petitioned for a declaratory ruling that the canal would “appropriate” McCook Lake water and thus required a water appropriation permit. In parallel, Dakota Bay sought a separate permit to use groundwater from an existing irrigation well to initially fill the canal and to keep a clay liner wet to prevent seepage-related failure.

The Water Management Board (the Board) denied the Association’s declaratory petition and granted Dakota Bay’s groundwater permit. The circuit court affirmed. On consolidated appeal, the Supreme Court of South Dakota likewise affirms, issuing two significant holdings that will guide future water and administrative practice in the state:

Substantive water law: A canal that is hydrologically connected to a public lake (with water moving freely between them) is not an “appropriation” of lake water and is not a “work for storing water”—no appropriation permit is required to build such a canal.
Administrative procedure: In contested cases under South Dakota’s Administrative Procedures Act (APA), subpoenas must be issued by the agency or tribunal under SDCL 1-26-19.1; attorneys may not self-issue subpoenas under civil Rule 45.

The Court also reaffirms that “clearly erroneous” is the correct standard for judicial review of agency fact findings under SDCL 1-26-36 and clarifies the Board’s role in evaluating “beneficial use” and “public interest” when issuing water permits.

Summary of the Opinion

No appropriation permit required for the canal: The Court holds that “appropriation” in South Dakota water law entails taking possession or exercising control over water to the exclusion of others for a beneficial use. A shoreline-connected canal without a separating control structure does not take exclusive possession of lake water; it becomes part of the lake, with water moving freely. Therefore, constructing such a canal does not require a water appropriation permit under SDCL 46-1-15. The canal is also not a “work for storing water” under SDCL 46-5-9.
Groundwater permit affirmed: The Board’s approval of Dakota Bay’s permit to appropriate groundwater (20.61 acre-feet for initial fill; 7.99 acre-feet annually thereafter) from the Missouri: Elk Point aquifer is upheld. The intended uses—filling the canal and maintaining the clay liner moisture to prevent failure—are beneficial and in the public interest. The Court emphasizes that “beneficial use” is an ongoing requirement and that the Board need not speculate about future engineering outcomes before issuing a permit; waste-prevention and revocation mechanisms exist if conditions change.
APA governs subpoenas; Rule 45 does not: In contested administrative cases, attorneys cannot issue subpoenas under SDCL 15-6-45. Parties must request subpoenas from the agency/tribunal per SDCL 1-26-19.1 and effect proper service. The Board did not abuse its discretion in quashing the Association’s subpoenas.

Factual and Procedural Background

McCook Lake frequently loses water via seepage and evaporation. The Association holds a Missouri River water right and permit—allowing seasonal pumping of river water into the lake when river levels permit and lake elevation falls below 1,090.3 fmsl—to maintain lake levels. Dakota Bay proposed a lined canal to extend lake access and relocate a public boat ramp.

GF&P (Game, Fish & Parks) flagged the porous soils and recommended an 18-inch fat clay liner; if exposed and dried, the liner could crack or float. Dakota Bay applied for a groundwater permit from its existing irrigation well to initially fill the canal and to keep the liner wet.

The Board denied the Association’s declaratory petition and granted the groundwater permit, subject to conditions: (1) control withdrawals to avoid reducing supplies to adequate domestic or senior wells, (2) annual reporting, and (3) diversion capped at 28.6 AF the first year and 7.99 AF annually thereafter. The circuit court affirmed both rulings and upheld the decision to quash the Association’s subpoenas (while misapplying Rule 45; ultimately affirmed here because the right result was reached).

Analysis

A. Precedents and Authorities Cited

South Dakota’s prior appropriation framework. The Court situates the decision within South Dakota’s prior appropriation system, which supplanted riparian rights: all water is publicly owned; rights are acquired by appropriation. See SDCL 46-1-1, 46-1-3; Parks v. Cooper, 2004 S.D. 27, ¶ 43, 676 N.W.2d 823.

Defining “appropriation.” The term is undefined in SD statutes or rules. The Court turns to dictionary definitions (Black’s Law Dictionary) and to other prior-appropriation jurisdictions:

Black’s Law Dictionary: “appropriation” as taking possession or exercising control; “possession” includes control to the exclusion of others.
Colorado: “application of a specified portion of the waters of the state to a beneficial use” (C.R.S. § 37-92-103(3)(a)); appropriation consists of diversion with intent plus application to beneficial use (V Bar Ranch LLC v. Cotten, 233 P.3d 1200 (Colo. 2010)).
Nebraska: appropriation right is a right to divert unappropriated surface water to beneficial use (In re Appropriation A-7603, 868 N.W.2d 314 (Neb. 2015)).
U.S. Supreme Court: appropriator’s “exclusive control” while applying water to beneficial use (Montana v. Wyoming, 563 U.S. 368 (2011)).

From these sources, the Court distills three elements implicit in “appropriation”: taking possession/control, an element of exclusivity, and beneficial use.

“Works for storing water.” Interpreting SDCL 46-5-9, the Court looks to historical storage contexts where water is impounded or accumulated and then released for use: Robbins v. Rapid City, 23 N.W.2d 144 (S.D. 1946) (dam and reservoir storage with controlled releases), and Belle Fourche Irrigation Dist. v. Smiley, 176 N.W.2d 239 (S.D. 1970). A Colorado analogue is cited: Bd. of Cnty. Comm’rs v. Crystal Creek HOA, 14 P.3d 325 (Colo. 2000).

Standards of review and administrative procedure. The Court reiterates that “clearly erroneous” (not “substantial evidence”) governs review of agency fact findings under SDCL 1-26-36. See Sopko v. C & R Transfer Co., Inc., 1998 S.D. 8; Kirwan v. City of Deadwood, 2023 S.D. 20; In re Water Right Claim No. 1927-2, 524 N.W.2d 855 (S.D. 1994). Legal questions are reviewed de novo (Blazer v. S.D. Dep’t of Pub. Safety, 2024 S.D. 74; McKie Ford Lincoln, Inc. v. Hanna, 2018 S.D. 14). On subpoenas, the Court applies Perrine v. S.D. Dep’t of Labor, 431 N.W.2d 156 (S.D. 1988): civil rules govern circuit courts, not agencies, unless statutes say otherwise. SDCL 1-26-19.1 authorizes agencies to issue subpoenas (including upon party application); Rule 45 does not supply independent attorney authority in agency proceedings. See also Abdulrazzak v. Bd. of Pardons & Paroles, 2020 S.D. 10 (de novo review of procedural rules) and Bruggeman by Black Hills Advoc., LLC v. Ramos, 2022 S.D. 16 (abuse-of-discretion review for quashing subpoenas). The “right result, wrong reason” principle is reaffirmed (Aggregate Constr. v. Aaron Swan, 2015 S.D. 79).

B. The Court’s Legal Reasoning

1) Appropriation requires exclusive control; this canal is part of the lake, not an appropriation

The Court begins where South Dakota law had been silent: what “appropriate” means under SDCL ch. 46-1. Borrowing from Black’s and sister states, the Court concludes appropriation entails control/possession to the exclusion of others and use for a beneficial purpose. The record establishes that Dakota Bay’s canal will be hydrologically connected to McCook Lake, with water moving freely according to elevation. The developer contemplated no barrier or control structure separating the canal from the lake; testimony described the canal as effectively extending the shoreline. Even with a small berm proposed at the canal mouth, the Board found (and the record supports) that the canal and lake would function as a single water body. Because Dakota Bay would not exercise exclusive control over lake water in the canal, there is no “appropriation” of McCook Lake water requiring a permit under SDCL 46-1-15.

2) The canal is not a “work for storing water” under SDCL 46-5-9

SDCL 46-5-9 bars construction of “works for storing or carrying water” until a water appropriation permit has issued. The Court construes “store” in its ordinary sense—accumulating and holding for future use—and in the context of cases like Robbins and Smiley where water is impounded and later released for specific uses. Dakota Bay’s canal does not hold water in that manner. It is not a reservoir; there is no possessory interest in segregated water, nor an intent to release water for a separate use. Rather, it is an open, hydraulically-integrated extension of the lake. Thus, SDCL 46-5-9 does not compel an appropriation permit prior to canal construction.

3) Beneficial use and public interest: the groundwater permit

SDCL 46-2A-9 sets four prerequisites for a water permit: availability, no unlawful impairment, beneficial use, and public interest. The Association did not challenge availability or impairment on appeal. The Court focuses on the last two factors.

Beneficial use. Statutorily defined as “any use of water … reasonable and useful and beneficial to the appropriator, and … consistent with the interests of the public … in the best utilization of water supplies” (SDCL 46-1-6(3)), beneficial use is also “the basis, the measure and the limit” of the water right (SDCL 46-1-8). The record supports multiple beneficial uses: initial filling of the canal, ongoing replacement of evaporation and minor seepage, improved recreational access (including a public boat ramp), expanded boating and fishing area, and protection of the clay liner from drying and failure. GF&P’s former aquatic habitat biologist testified that keeping the liner wet is a beneficial use that “benefit[s] everybody.”

Public interest. The same evidence supports public interest: more recreation, safer and more accessible boat launching, and habitat benefits. The Board explicitly found the use “in the public interest.”

No requirement to prove long-term engineering success ex ante. The Association argued the Board could not find beneficial use/public interest without detailed design specifications and proof that the requested water volume would be sufficient to prevent liner failure. The Court rejects that approach. Beneficial use is an ongoing obligation; the statutory scheme supplies tools to prevent waste or misuse after a permit issues: revocation for violations (SDCL 46-1-12), discontinuance orders (SDCL 46-2-18), forfeiture for nonuse (SDCL 46-5-37), and fresh scrutiny of any proposed change in use (SDCL 46-2A-12). The Board is not required to speculate about hypothetical failures; it may proceed on the applicant’s intended uses and impose conditions, as it did here (withdrawal controls and annual reporting).

4) Administrative subpoenas: APA controls, not Rule 45

The Association’s counsel issued subpoenas directly to GF&P’s Secretary and the Attorney General’s assistant representing the Chief Engineer. The Board quashed them. The circuit court mistakenly endorsed attorney-issued subpoenas under Rule 45 but found service deficient; the Supreme Court clarifies the governing law: SDCL 15-6-1 limits the civil rules to circuit courts. In contested cases, SDCL 1-26-19.1 empowers agencies and tribunals to issue subpoenas, including “upon application” by interested persons. Therefore, parties must ask the agency/Board to issue subpoenas; counsel may not self-issue under Rule 45. The Board’s decision to quash was no abuse of discretion.

5) “Ongoing appropriation” language is not a new legal test

The Board used the phrase “ongoing appropriation” in distinguishing standard/“traditional” permits from temporary permits (e.g., for initial fills under SDCL 46-5-40.1). The Court clarifies that this was descriptive of permit categories—not a new legal standard for what counts as appropriation. The holding remains anchored in exclusivity and control: the canal, once filled, is part of the lake and not an appropriation of its water.

C. Impact and Practical Implications

1) Water development and shoreline projects

Connected canals and coves: Developers proposing canals, marinas, or basins that are openly connected to a lake—with no isolating gates or structures—do not need a water appropriation permit simply to construct the channel, because they do not “appropriate” lake water.
Initial fill and maintenance: If initial filling or maintenance water will come from a separate source (e.g., groundwater), an appropriation permit for that source is still required. Temporary permits under SDCL 46-5-40.1 may also be available for construction fills.
Not “storage works”: Open, connected canals are not “works for storing water” under SDCL 46-5-9; impoundments, reservoirs, or structures involving accumulation and controlled releases are different and remain regulated.

2) Beneficial use and Board practice

Intended use suffices at the permitting stage: Applicants should present a clear water budget and intended uses; exhaustive engineering proof of lifetime performance is not a prerequisite. However, permits can include monitoring and reporting conditions, and misuse or waste can prompt enforcement or revocation.
Evidence that helps: Quantified initial fill and annual make-up volumes, aquifer recharge/withdrawal analyses, domestic well protection measures, and public access/recreation plans all strengthen beneficial use and public interest showings.

3) Administrative litigation practice

Subpoenas: In contested cases before the Water Management Board (and, by implication, other agencies operating under SDCL ch. 1-26), parties must request subpoenas from the agency/tribunal. Attorneys cannot issue their own subpoenas under Rule 45, and service must comply with the APA’s requirements as implemented by the agency.
Standard of review: On appeal, agency fact findings are reviewed for clear error, not under a substantial evidence test.

4) Cautions and open questions

Control structures change the analysis: If a project includes gates, valves, or other devices that allow a developer to isolate and control water to the exclusion of others, the result could be different. Exclusive control can transform a canal or basin into an appropriation or a storage work.
Source-to-source impairment: The engineer’s testimony limited impairment analysis to the same water source; the Court did not adopt that as a rule. Future cases could present evidence of cross-source impacts requiring closer analysis.
Lake water rights remain distinct: The Court did not decide whether any party holds an appropriative right in the lake water itself (as opposed to the Association’s Missouri River right). That point was background and not outcome-determinative here.

Complex Concepts Simplified

Appropriation: Legally taking control or possession of public water, to the exclusion of others, for a beneficial use and in accordance with law.
Beneficial use: A use that is reasonable and useful to the user and consistent with the public’s interest in sound water management (e.g., irrigation, municipal supply, recreation, environmental protection).
Public interest: Broad assessment of whether the proposed use aligns with policy goals (efficient use, recreation, resource protection, prevention of waste).
Unlawful impairment: A diversion that measurably injures senior water rights or adequate domestic uses.
Works for storing water: Structures that accumulate and hold water for later controlled release (e.g., reservoirs, impoundments).
Hydrologically connected: Two water bodies are physically connected such that water levels equilibrate and move freely between them.
Acre-foot (AF): The volume covering one acre to a depth of one foot (~325,851 gallons). 7.99 AF/year is roughly 2.6 million gallons annually.
Cubic feet per second (cfs): A flow rate measure; 1 cfs ≈ 448.8 gallons per minute.
APA subpoenas: In agency contested cases, subpoenas must be issued by the agency or tribunal upon application; attorneys cannot issue subpoenas on their own under Rule 45.

Key Passages and Findings

“[A]ppropriation includes a taking of possession or exercise of control over water to the exclusion of others to be put to a beneficial use.”
“Once constructed, the canal extends the shoreline of the lake and becomes part of the lake.”
“The construction of the proposed canal does not constitute an ongoing appropriation of McCook Lake water and, therefore, does not require a standard or traditional water right.” (Clarified by the Court as a permit-category description, not a new legal standard.)
“[T]he canal is not a ‘work for storing water’ as used in SDCL 46‑5‑9.”
“Beneficial use is an ongoing obligation. … [T]he statutory procedure … does not require that the Board speculate about whether an appropriation which begins as a beneficial use will become wasteful at some point in the future.”
“[T]he provisions of the rules of civil procedure authorizing attorneys of record to issue subpoenas do not apply to administrative proceedings of contested cases governed by SDCL chapter 1‑26.”

Conclusion

McCook Lake Recreation Area v. Dakota Bay, LLC establishes two important guideposts in South Dakota law. First, in substantive water law, the Court supplies a working definition of “appropriation” grounded in exclusivity and control. A shoreline-connected canal that simply extends a lake and allows free water exchange is not an appropriation of lake water and is not a “work for storing water”—no appropriation permit is required to build it. The Court also affirms that intended recreational uses and liner maintenance are legitimate beneficial uses in the public interest, and it underscores that beneficial use is enforced over time through the permit system rather than by speculative engineering inquiries at the threshold.

Second, in administrative procedure, the Court clarifies that the APA governs agency subpoenas in contested cases: subpoenas must issue from the agency upon application, not from attorneys under Rule 45. The decision also reaffirms the “clearly erroneous” standard for agency fact review.

Together, these rulings provide concrete guidance to developers, water users, associations, and agencies: plan shoreline-connected projects with hydrologic openness in mind, secure permits for any separate-source water needed to fill or maintain works, expect permit conditions and ongoing oversight for beneficial use, and conduct administrative litigation under the APA’s procedural framework.