East Ridge of Fort Collins, LLC v. Larimer & Weld Irr. Co.

• Decision Date: 21 March 2005
• Docket Number: No. 03SA372.,03SA372.
• Citation: 109 P.3d 969
• Parties: EAST RIDGE OF FORT COLLINS, LLC, a Colorado limited liability company, Plaintiff-Appellant, v. The LARIMER AND WELD IRRIGATION COMPANY, a mutual ditch company, Defendant-Appellee, and Division Engineer for Water Division No. 1, Appellee Pursuant to C.A.R. 1(e).
• Court: Colorado Supreme Court

109 P.3d 969

EAST RIDGE OF FORT COLLINS, LLC, a Colorado limited liability company, Plaintiff-Appellant, v. The LARIMER AND WELD IRRIGATION COMPANY, a mutual ditch company, Defendant-Appellee, and Division Engineer for Water Division No. 1, Appellee Pursuant to C.A.R. 1(e).

No. 03SA372.

Supreme Court of Colorado, En Banc.

March 21, 2005.

Rehearing Denied April 25, 2005.¹

Tienkin & Hill, LLP, Alan G. Hill, Louisville, for Plaintiff-Appellant.

The Dow Law Firm, LLC, Mayo Sommermeyer, Fort Collins, for Defendant-Appellee.

KOURLIS, Justice.

This is a water case in which East Ridge of Fort Collins, LLC filed a Complaint for Declaratory Judgment against the Larimer and Weld Irrigation Company ("Irrigation Company"), a mutual ditch company. In the Complaint, East Ridge averred that it was the owner of certain real estate and, as such, successor in interest to the rights and privileges conferred by two contracts: one entered into between Benjamin H. Eaton and Clara A. McGinley and another entered into between Eaton and Zur C. Plummer, dated April 1878 (collectively referred to as "the Contracts"). East Ridge sought a declaration from the court that its interest in water delivered to the real property pursuant to the two Contracts was not perpetually restricted to irrigation of the property, but rather was a water right capable of being changed in point of diversion and place and type of use. The Irrigation Company countered that the Contracts did provide for the delivery of water, but did not establish water rights in East Ridge that could be changed.

The matter proceeded to trial before the Water Court in September of 2003, and the court entered its Order on October 30, 2003, declaring that the nature and extent of East Ridge's right to water under the Contracts was limited to the terms of the contract — namely, the right to divert water from the Larimer and Weld Ditch at a specified location to irrigate the eighty acres of land identified in the Contracts — and did not include the right to change the delivery of the water absent the consent of the Irrigation Company.

East Ridge appealed to this court, stating six issues for our review.² We now conclude that East Ridge does not own water rights in any traditional sense; rather, East Ridge owns contractual water delivery rights. Thus, we must look to the contracts themselves to answer any questions concerning the nature of those delivery rights. The contracts are ambiguous. Thus, we look to extrinsic evidence. That extrinsic evidence reflects various facts: (1) the water rights originally held by East Ridge's predecessors were made a part of the Irrigation Company's decree in consideration of the Contracts; (2) East Ridge's predecessors did not receive shares in the Irrigation Company; (3) the minutes of the Irrigation Company's shareholder meeting reflect an intent to restrict the contractual delivery rights to the land owned by the grantors; and (4) a weighing of the benefits of the bargain supports the conclusion that the preferred rights were tied to the property and use specified. Thus, when we look at all surrounding circumstances, we determine that the Contracts created restrictive rights to receive a certain amount of water for the purpose of irrigating identified lands. The restrictive delivery rights cannot, therefore, support a change of use and change of place of diversion proceeding. Accordingly, we affirm the Water Court.

I. FACTS

In approximately 1864, several individuals dug a ditch from the Cache la Poudre River to their lands, for the purpose of diverting irrigation water. This ditch was called the No. 10 Ditch, and the Irrigating Ditch Company No. 10 was incorporated in 1873. The Certificate of Incorporation states that "the use for which the said water is intended is for irrigation and no other." Eventually, the No. 10 irrigated 17 properties.

In the 1870s, Benjamin H. Eaton conceived the plan of building a large irrigation system. He wished to acquire the diversion structures and ditch of the No. 10. Eaton made a proposal to each of the shareholders and, in 1878, acquired the interests of every shareholder. By deed of March 12, 1879, the Irrigating Ditch Company No. 10 itself conveyed all of its rights, title and interest in itself, including "all appurtenances of said ditch, together with all privileges, franchises and rights acquired by reason of its incorporation and association" to Eaton. The contracts with the individual shareholders include the two contracts at issue in this case. Pursuant to those contracts, the shareholders in the old No. 10 transferred all of their right, title and interest in the irrigation ditch to Benjamin H. Eaton. Each of the contracts provided as follows: that the owner

shall have the right and privilege and the said right and privilege is hereby granted unto the said [owner] to take from said Irrigating Ditch No. 10 at the place where the lower portion of said ditch as now constructed intersects with a new survey made by said Benjamin H. Eaton, a sufficient quantity of water to irrigate eighty acres of land and no more. The right to irrigate the said eighty acres of land from said ditch shall be perpetual and without expense to the said [owner] in maintaining said ditch.

The contract language provided, in addition, that each grantor was conveying "all the right, title and interest which I have in and to any share, shares, parts of shares or privilege or any surplus credit for and on account of any work and labor performed on account of the same in the irrigating ditch known as Irrigating Ditch Company Number ten (10)." The remedy clause provided that:

It is further agreed by the said Benjamin H. Eaton that in case he should fail to keep said ditch in repair so that there should not be a sufficient supply of water in said ditch to irrigate said eighty acres of land then the said Benjamin H. Eaton shall forfeit his right by virtue of such sale above made after due notice of such failure and neglect on his part (and further failure and neglect after said notice) to perform his agreement as aforesaid.

Easements for the ditch were the subject of separate deeds.

Eaton and the Larimer and Weld Irrigation Company then sought adjudication of the water rights on the Cache La Poudre River. The Water Court, in its Decree dated April 11, 1882, awarded 3 cfs with an appropriation date of June 1, 1864, to the Irrigation Company, and awarded an additional 718.47 cfs with varying later appropriation dates. All of the water decreed was to be diverted through a diversion structure located at the original headgate of the No. 10 Ditch, and carried in the original No. 10 Ditch and, in addition, all of the rights were adjudicated either to Eaton individually (which he later conveyed to the Irrigation Company) or to the Irrigation Company.

The relationship between the original owners of the No. 10 Ditch and the Irrigation Company has not been without its bumps in the 125 years since that time. For example, the parties became involved in litigation in 1893 before this court on the question of estimated capacity of the company's canal to furnish water. See Wyatt v. Larimer & Weld Irr. Co., 18 Colo. 298, 33 P. 144 (1893). From Wyatt, we gain some historical perspective. Specifically, the court noted that "in 1879, upon the acquisition of canal No. 10, the company entered into contracts with the persons who had acquired vested appropriations by virtue of user of [sic] water therefrom, expressly recognizing and confirming their rights to the continued use of water from defendant's canal, in the aggregate of 29 3/4 80-acre water rights, and allowing the owners of such rights to divert the full quota of water appertaining thereof, and without pro-rating with other owners of water rights in the canal in times of scarcity." Id. at 298, 33 P. at 146. The second time that case came to this court, in 1897, the court again referred to the No. 10 water as the "29 3/4 preferred water rights." Larimer & Weld Irr. Co. v. Wyatt, 23 Colo. 480, 48 P. 528, 528-9 (1897).

A report admitted into evidence in this case, prepared in 1935 by the attorney for the Irrigation Company indicates that all other users of water had their contracts converted into shares of stock within the Larimer and Weld Irrigation Company, based upon a 1 share per 80 acres owned formula, and also equaling an entitlement to 1.44 cfs for each 80 acres or share owned. The No. 10 Ditch owners' interests did not undergo that conversion, such that those owners held no interest in the Irrigation Company itself. Rather, the No. 10 rights were continually referred to as "preferred" rights to be satisfied before the shareholder interests.

Hence, the question before the court at this time is the nature of the No. 10 rights: are they water rights capable of being conveyed, changed and moved? Or, are they contractual rights governed by their terms, which — if unused for the purposes specified — are forfeited to the Irrigation Company?

II. ANALYSIS

To answer that question, we first address the nature of mutual ditch companies and the water rights held in those entities, then we turn to basic contract principles and their applicability to water cases, and lastly to the interface between those two legal principles for purposes of this case.

A. Mutual Ditch Companies

A mutual ditch company is not organized for profit, but exists primarily for the benefit of the shareholders. Nelson v. Lake Canal Co. of Colo., 644 P.2d 55 (Colo.App.1981). They are recognized in Colorado as quasi-public carriers. Colo. Const. art. 10, § 3; § 7-42-102 et. seq., C.R.S. (2004). Mutual ditch companies operate on the premise that the company owns the water rights and other property, including ditch easements, and the shareholders have the right to use the water on their lands. Fort Lyon Canal Co. v. Catlin Canal Co., 642 P.2d 501 (Colo.1982); Jacobucci v. District Court, 189 Colo. 380, 541 P.2d 667 ...