Nelson v. Lake Canal Co. of Colorado

• Decision Date: 03 December 1981
• Docket Number: No. 79CA0939,79CA0939
• Citation: 644 P.2d 55
• Parties: Clovis R. NELSON and Lyal M. Nelson, Plaintiffs-Appellants, v. The LAKE CANAL COMPANY OF COLORADO, Henry Brunner, as its President and Director, Charles Willis, as its Superintendent and Director, Larry (Lawrence) Rudolph, as a Director, Robert Ochsner, as a Director, Larry Hoffmer, as a Director, John D. Hartman, as its Secretary, and Dave Becker, as its Ditch Rider, Defendants-Appellees. . II
• Court: Colorado Court of Appeals

Page 55

644 P.2d 55

Clovis R. NELSON and Lyal M. Nelson, Plaintiffs-Appellants, v. The LAKE CANAL COMPANY OF COLORADO, Henry Brunner, as its President and Director, Charles Willis, as its Superintendent and Director, Larry (Lawrence) Rudolph, as a Director, Robert Ochsner, as a Director, Larry Hoffmer, as a Director, John D. Hartman, as its Secretary, and Dave Becker, as its Ditch Rider, Defendants-Appellees.

No. 79CA0939.

Colorado Court of Appeals, Div. II.

Dec. 3, 1981.

Rehearing Denied Dec. 31, 1981.

Certiorari Denied March 22, 1982.

Hill & Hill, P. C., Alden T. Hill, Fort Collins, for plaintiffs-appellants.

Fischer, Brown, Huddleson & Gunn, Charles R. Huddleson, Fort Collins, for defendants-appellees.

KELLY, Judge.

Plaintiffs, Clovis and Lyal Nelson, sought a mandatory injunction to compel defendants, Lake Canal Company and its officers, to provide irrigation water in excess of the company's regulation limiting water deliveries to four days per week. The trial court granted the injunction, but ordered plaintiffs to pay the company for the cost of providing water on the fifth day. Plaintiffs appeal the trial court's denial of their claims for damages and costs. Plaintiffs also argue that the Lake Canal Company is a carrier ditch, without authority to set the fee for providing the extra water, and not a mutual ditch company, as found by the trial court. We affirm in part, reverse in part, and remand for determination of damages.

The trial court found that the Lake Canal Company (LCC) was formed in 1872 for the purpose of furnishing water to its shareholders, and not for the purpose of making a profit. Its irrigation ditches carry water from the Cache La Poudre River, from the Big Thompson, and from various reservoirs. The water rights are owned by the individual shareholders of LCC, and not by the company itself.

During the dry 1977 irrigation season, the directors of LCC reinstituted a 1958 regulation limiting the supply of water to four days per week instead of five. Additional runs on the fifth day would be made only if a shareholder ordered a minimum of 20 cubic feet per second. The directors later decided to continue this policy into 1978, and a majority of the shareholders ratified the decision. Plaintiffs, who are shareholders of LCC, objected to the policy because they needed water on the fifth day but their irrigation equipment handles only eight cubic feet per second. Plaintiffs sought an injunction prohibiting LCC from enforcing its 20 c.f.s. rule and claimed crop damage resulting from LCC's failure to provide the requested water.

The trial court held that LCC is a mutual ditch company, obligated to furnish water to its shareholders because they own the water rights. The trial court further held that LCC may make reasonable regulations such as the 20 c.f.s. rule, but that "the interest of the individual shareholders cannot be defeated or altered by any action of the ditch company or its other shareholders." LCC has the "right to make a direct assessment against one or more of its particular shareholders for providing services and delivering water in excess of that of the general delivery policy to all shareholders.... (I)f the plaintiff requests delivery beyond the 'four day-minimum flow' policy the defendant mutual ditch company must provide the water, and it may also assess plaintiffs for the cost of making said delivery whether such means hiring an extra ditch rider or making extra or special payments to the regular ditch rider."

Defendants did not appeal the trial court's grant of a mandatory injunction, but plaintiffs appeal the trial court's designation of LCC as a mutual ditch company. Plaintiffs claim that LCC is a carrier ditch company, the rates of which are set by the board of county commissioners, and not a mutual ditch company, with the right to set its own rates.

Mutual v. Carrier Ditch

A mutual ditch company is one not organized for profit or hire, but existing primarily for the benefit of the shareholders. It is engaged in the business of storing and transporting water to its shareholders, who own the right to use the water. Delivery of the water is conditioned on payment of an annual assessment levied to meet operating expenses of the company. Jacobucci v. District Court, 189 Colo. 380, 541 P.2d 667 (1975). See W. Fischer, Water Title Examination, 9 Colo. Lawyer 2043 at 2051 (1980). A carrier ditch owns the legal title to a decreed appropriation of water from a natural stream. City & County of Denver v. Miller, 149 Colo. 96, 368 P.2d 982 (1962). Carrier ditches carry water for sale to consumers who have contracted with the company. Charges for water delivered by carrier ditches are fixed by the board of county commissioners. Fischer, Water Title Examination, supra, at 2053. See § 7-42-107, C.R.S.1973. Mutual ditches are distinguished from carrier ditches in that the shareholders of mutual ditch companies are the sole owners of the ditch and diversion works. They share the costs of operation without profit, while the carrier ditch is entitled to a reasonable return on its investment over and above costs. Miller, supra.

There was ample evidence in the record to justify the trial court's conclusion that LCC was a mutual ditch company. Its shareholders are the owners of the decreed appropriations of water, and they pay an annual assessment to cover the operating expenses of the company. Plaintiffs argue that in 1872, when LCC was organized, there was no statutory provision for mutual ditch companies. However, the practice and policy adopted by a ditch company in its operation, and not the language contained in its articles of incorporation, are determinative of its character. Billings Ditch Co. v. Industrial Commission, 127 Colo. 69, 253 P.2d 1058 (1953). Since LCC is currently operated as a mutual ditch company, the trial court was correct in its designation.

Plaintiffs seek to designate LCC as a carrier ditch so that the board of county commissioners and not LCC would set the assessment for the additional water provided to plaintiffs on the fifth day. However, the trial court's conclusion that LCC is a mutual ditch company is the basis of its determination that LCC is obligated to provide water to plaintiffs on the fifth day. Plaintiffs' ownership of the water is the source of their right, and if LCC were a carrier ditch, they would have no such right.

LCC's status as a mutual ditch company is also the source of its right to...