Ownership of Mutual Ditch Company Assets
| Publication year | 1991 |
| Pages | 2081 |
| Citation | Vol. 10 No. 1991 Pg. 2081 |
1991, October, Pg. 2081. Ownership of Mutual Ditch Company Assets
This article discusses the basis for the claims of shareholders in "mutual ditch companies" to the ownership and use of "non-water assets," such as reservoirs and ditches. While not directly addressed in this article, the discussion also may have some relevance to whether a mutual ditch company can lease those assets or pledge them to obtain financing.
In the 1990s and beyond, municipalities and other developers will continue to look to the conversion of existing water rights to meet increased demands for water. This results, in part, from the difficulty and cost of permitting and constructing new projects in this era of increased environmental awareness. While Denver's Two Forks development may be the paradigm example of the pitfalls facing big water projects in this era, other municipalities and developers have encountered similar obstacles in trying to develop new sources of water.
Thus far, Colorado Springs and Aurora have been denied local permits for phase two of their Homestake Project.(fn1) Arapahoe County is facing strong local and environmental opposition to its attempt to export water from the Gunnison River basin.(fn2) American Water Development is facing a coalition of local and environmental opposition to its proposed project to transport ground water from the San Luis Valley to the Denver metropolitan area.(fn3) Therefore, municipalities and developers are expected to continue the conversion of existing senior agricultural water rights to meet expanding needs. The City of Thornton's purchase of almost 50 percent of the shares in the Water Supply and Storage Company, which owns senior water rights from the Cache La Poudre and Colorado Rivers, illustrates this alternative.(fn4)
Suppliers of potable water have a great interest in ensuring consistent delivery of water to consumers, even in years of extreme drought. Thus, contemporaneously with the purchase of senior agricultural rights, potable water suppliers seek to develop reserves which can firm up the varying yields of even senior direct flow rights. To meet these needs, purchasers may look beyond the water rights to the other assets of the company in which they have purchased shares.(fn5) These assets may include the reservoirs, ditches, headgates and other structures titled by the company and may be referred to as the "non-water assets" of the company.
Corporations owning senior direct flow or storage water rights in Colorado are frequently "mutual ditch companies" formed under special legislation.(fn6) It is well accepted in Colorado that shareholders are entitled to their pro rata delivery of the water diverted under the water rights of the company. However, shareholders also may claim a right to the use of the non-water assets of the company beyond what is necessary to deliver their pro rata share of the company's water. Those assets may have value approaching or exceeding those of the shareholders' water rights.
The seminal case in Colorado defining the rights of shareholders in mutual ditch and reservoir companies is Jacobucci v. District Court.(fn7) Jacobucci arose from an attempt by the City of Thornton to condemn various assets of the Farmers Reservoir & Irrigation Company, including decreed water rights, Standley Reservoir and certain ditches.(fn8) The specific issue before the Colorado Supreme Court was whether the individual shareholders were "indispensable parties in an action to condemn the shareholders' decreed water priorities."(fn9) (Emphasis added.) The court attempted to define the rights and obligations of mutual ditch companies and
their shareholders as related to the rights and properties titled in the corporation.
The court first distinguished mutual ditch companies from other corporations based on the ditch companies' organization under separate statutory authorization and the unique circumstances and purposes under which, and for which, they were formed. The court noted that farmers commonly transferred water rights and conveyance facilities to mutual companies in return for shares of stock in the...
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