People ex rel. Arkansas Valley Sugar Beet & Irrigated Land Co. v. Burke

• Decision Date: 08 January 1923
• Docket Number: 10174.
• Parties: PEOPLE ex rel. ARKANSAS VALLEY SUGAR BEET & IRRIGATED LAND CO. v. BURKE et al.
• Court: Colorado Supreme Court

212 P. 837

72 Colo. 486

PEOPLE ex rel. ARKANSAS VALLEY SUGAR BEET & IRRIGATED LAND CO. v. BURKE et al.

No. 10174.

Supreme Court of Colorado, En Banc.

January 8, 1923

Concurring Opinion, February 14, 1923.

Error to District Court, Bent County; A. C. McChesney, Judge.

Proceedings by the People on the relation of the Arkansas Valley Sugar Beet & Irrigated Land Company, against Carl W. Burke and others, to oust defendants from the office of directors of the Ft. Lyon Canal Company. Judgment for defendants, and relator brings error.

Affirmed.

Teller Denison, and Burke, JJ., dissenting in part.

James Grafton Rogers and Charles R. Enos, both of Denver, for plaintiff in error.

H. L Lubers and Granby Hillyer, both of Denver, for defendants in error.

CAMPBELL J.

The Arkansas Valley Sugar Beet & Irrigated Land Company and the Ft. Lyon Canal Company, the former in this opinion styled the storage company, the latter the canal company, are domestic corporations organized to acquire, and each of them has acquired, and now is, and for many years has been, the owner and operator of an extensive and valuable irrigating system in the valley of the Arkansas river in southeastern Colorado. Neither corporation is the builder or original owner of its present system, having obtained the same by purchase or under a reorganization of a former corporation owner. Some of the contracts and some of the transactions involved in this litigation were between their grantors, to some other contracts and transactions they themselves were the immediate parties. To avoid prolixity and confusion, and because these two corporations now own the property rights and have assumed the obligations of their respective grantors, they will be regarded as the immediate actors, and treated as if they actually participated in all these matters and controversies.

In the year 1896 the canal company was in the custody of the district court of Prowers county, through its receiver. Its stockholders, under the terms of a contract with the original builder of its canal, were about to become its legal, as well as equitable, owners, and the canal was to be conveyed to a new canal company. The storage company, desiring to build an irrigating and storage system of its own, entered into a contract with the stockholders of the old canal company represented by the receiver, whereby, among other things, the storage company and the new canal company, thereafter to be incorporated, were to own, or at least were to use jointly, a part of the existing physical canal, in consideration of which the storage company was required to, and it did, at considerable expense, rebuild and enlarge the same. To the old canal company stockholders the stock of the new canal company was to be, and was, issued, and for the purpose of giving some kind of representation to the storage company in the problems of maintenance and operation of the canal, or that part of it subject to joint use, the same contract by which this joint interest was created further specifically provided that the stockholders of the new canal company, at their regular annual election of directors, shall annually vote for and elect as two of its five directors, the two stockholders of their own number to be selected and designated by the storage company. This provision, in effect, amounted to an irrevocable agreement by the stockholders of the canal company to vote according to the direction of the storage company for two of its five directors, not according to their own wish or pleasure, or as guided by their own judgment and discretion, but as determined for them by the board of directors of a rival and competitive corporation, whose property rights and interests, not only might be, but in important respects were, antagonistic and adverse to the rights and interests of their own corporation. To secure its permanancy, this provision was incorporated or referred to in the articles of incorporation of the new canal company, and appears also in some other contracts between the corporations and stockholders.

As a further effort to 'cement' and fortify this election feature, the same was subsequently brought before the district court of Prowers county, and an order or decree was made which apparently sanctioned and approved of the making of this contract, by the receiver, which seems also to have been approved by some of the old stockholders. The approving decree was not rendered during the year 1896, but we designate it here as the decree of 1896. In La Junta & Lamar Canal Co. v. Hess, 31 Colo. 1, 71 P. 415, this contract, so made and judicially approved, was before our own court, and apparently there approved, in so far as it concerns the right to the use of the main canal and an uncompleted reservoir for the purpose of conducting and conserving water for storage. There was no reference in the opinion to, and no indication of approval of, the provision concerning the election of directors, and the court says in its opinion that the plaintiffs in error, who questioned the action of the district court in authorizing the receiver to enter into the contract, were not in a position to do so. However that may be, in our view, except as a part of the history of these unfortunate controversies, the 1896 contract and decree are neither important nor controlling, because the storage company now bases its right to the relief asked upon a later decree of 1918, which modified or took the place of the contract and decree of 1896. Besides, our conclusion as to the effect of the decree of 1918 equally applies to the 1896 decree.

From this somewhat incomplete statement, it would seem that these two systems were so interlaced in their operation that, as the storage company contends, if the parties in interest can agree, or if they have entered into an enforceable agreement, the joint operation might be continued to the advantage of both systems. It is scarcely necessary to say, however, that it is not our province to advise these parties what plan of operation and management to adopt. Our duty is to decide the legal questions submitted for determination. It was not long after this agreement was made and the approving decree entered, that internal disputes arose between different factions of the canal company and the storage company, and some of the stockholders of the canal company repudiated this agreement and decree of 1896. For several years attempts were made to compromise their differences and amicably continue the joint control. Finally, in the year 1912, after a long series of fruitless conferences, the storage company began a suit in the district court to assert and enforce its right under the decree of 1896. To this suit the canal company and all of its stockholders were made defendants. The court was called upon the adjust and settle all the differences between the two irrigating systems and their stockholders in whatever method seemed appropriate. Not all of the individual stockholders were served with summons, but a number of them appeared and some of them filed a motion to dismiss for lack of jurisdiction. For more than six years the action was allowed to rest. The motion was not passed upon until December 5, 1918, when it was overruled, and on the same day the court rendered a decree pursuant to a joint recommendation of the attorneys, representing both the storage company and the canal company, and, as a result of a new agreement, and as no one appeared in opposition, the decree passed as a matter of course. This decree of 1918 is not essentially different from the first contract and the approving decree of 1896; the only substantial difference being that section 1 of the later decree provides that the storage company 'shall hereafter be entitled to designate one director of the defendant, the Ft. Lyon Canal Company, instead of two, as contemplated by the previous agreements and orders of the court made on that subject.' The language of the new decree, in paragraph 2 thereof, which is important here, reads:

'2. That in electing the director to be designated by the Arkansas Valley Sugar Beet & Irrigated Land Company, that company at each meeting of the Ft. Lyon Canal Company stockholders at which directors are to be elected, shall nominate two stockholders of the Ft. Lyon Canal Company, one of whom shall be elected by the stockholders of the Ft. Lyon Canal Company as the director to be designated by the Arkansas Valley Sugar Beet & Irrigated Land Company. Upon these two nominees a vote shall be taken by the stockholders, and in taking this vote the Arkansas Valley Sugar Beet & Irrigated Land Company shall vote the stock which it may then hold in the Ft. Lyon Canal Company by casting its vote for one of its said nominees. The one of said two nominees who receives the higher number of votes shall be declared by the chairman of the meeting to be elected as the director designated by the said the Arkansas Valley Sugar Beet & Irrigated Land Company. After such election of said director, the Arkansas Valley Sugar Beet & Irrigated Land Company thus having made its nomination, nominations for the remaining four directors to be elected shall be made in the ordinary manner, and from these nominees the remaining four directors shall be elected in the ordinary manner, all stockholders having a right to vote.'

For convenience, there is here inserted, from section 865, Revised Statutes of 1908, the statutory way of electing directors of a private corporation.

'The corporate powers shall be exercised by a board of directors or trustees of not less than three, or more than thirteen who shall respectively be stockholders in said company, and who shall (except the first year) be annually elected by the stockholders, at such time and...