Response to Applicants' Joint Motion for Costs and Fees

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The State has believed since the initiation of these proceedings that it would be in the interest of all of the parties to continue these proceedings pending the Colorado Supreme Court's ruling in Application of the City of Golden, Case No. 01SA252. Accordingly, on November 15, 2001, the State filed a motion for stay and continuance. Applicants vigorously opposed that motion, notwithstanding the fact that the Applicants could demonstrate no prejudice resulting from a continuance, and the fact that such a continuance would have conserved all of the parties' resources. Rather, the Applicants offered to agree to a continuance only if the State would agree to a condition requiring the State to drop all opposition to the Applicants' claims if the State did not "prevail" on appeal. See Affidavit of Glenn Porzak, attached to Applicants Joint Motion. Because this condition would make the status of the State's opposition uncertain if the Court issued a ruling partly in favor of the State, or ruled on only some of the issues appealed, this condition was understandably unacceptable to the State. As the correspondence accompanying the Affidavit of Glenn Porzak demonstrates, however, the State reiterated its request that the parties continue the trial pending the Supreme Court's decision. This the Applicants refused to do. Applicants also argue that the State acted vexatiously by "spurning" an offer of settlement. The settlement negotiations were initiated on the part of the CWCB, however, not the Applicants. See December 17, 2001 Letters from Rod Kuharich to Tim Gagen and Dennis Gelvin, attached hereto as Exhibits C and D. As part of these negotiations, CWCB representatives Rod Kuharich, Ted Kowalski, and the undersigned proposed possible flow rates as a basis for a settlement. Contrary to the Applicants' representations, these terms were not a settlement offer, but were conditioned upon final acceptance by the CWCB. See Affidavit of John J. Cyran, attached hereto as Exhibit A. Relying on these flow rates, Glenn Porzak, as counsel for the Applicants, drafted proposed decrees. These decrees, while including the proposed flow rates, also included conditions and findings objectionable to the CWCB. Such conditions and findings included language defining control, beneficial use, and waste in a manner favorable to future whitewater appropriations, requiring the State engineer to administer the rights based upon existing gauges, characterizing the whitewater course structures as dams, tying the amounts of water claimed to economic benefits, and predicting continued increases in those benefits at higher flow rates. The CWCB was concerned that this language would create unacceptable legal precedent for future whitewater boating applications, and that would allow the Applicants to return to court at a later time to obtain water rights in excess of those discussed in the settlement. This language was one of the factors that resulted in the State refusing to agree to the proposed decrees. See Affidavit of John J. Cyran, attached hereto as Exhibit A. Contrary to the Applicants' representations, the State proposed a continuance in the interest of all the parties, and initiated and pursued settlement negotiations in good faith. The State's actions in pursuing such settlement negotiations cannot be characterized as "vexations," and cannot be the basis for an award of attorney fees. 11