Water rights can be a contentious issue and those rights involving Eagle Lake has a long sordid history. In 1939, the State of California revoked the water rights of the failed Baxter Creek and Tule Irrigation Districts. A legal battle ensued and the districts won. In the meantime, between all the barbs and volleys being lobbed during the litigation process, the level of lake started rising wherein the water began to flow through the Bly Tunnel. In 1955, work was being carried to clear out debris and resurrect the irrigation system. Not everyone was pleased and an unknown vigilante party went to the Bly Tunnel inlet and dynamited it to prevent water flowing. The opposition stated that the lake was more valuable for recreation than for irrigation.
In 1959, the State once again revoked the Tule Irrigation District’s rights to the lake. The Baxter Creek District went bankrupt in 1952 and was no longer in the picture. The issue did not go away, as the District and a handful of ranchers filed for water rights and opposition was immediate. After heated three-day public hearing in Susanville the Water Board took the matter under consideration and on March 15, 1962 registered its opinion to deny future water rights to the lake.