Salt Lake City Corp.. v. Big Ditch Irrigation Co.

• Decision Date: 28 June 2011
• Docket Number: No. 20090757.,20090757.
• Citation: 2011 UT 33,258 P.3d 539,2011 Trade Cases P 77502,685 Utah Adv. Rep. 5
• Parties: SALT LAKE CITY CORPORATION, Plaintiff and Appellee,v.BIG DITCH IRRIGATION COMPANY, James Garside, J L.C., and Ryan Litke, Defendants and Appellants.
• Court: Utah Supreme Court

258 P.3d 539

2011-1 Trade Cases P 77,502

685 Utah Adv. Rep. 5

2011 UT 33

SALT LAKE CITY CORPORATION, Plaintiff and Appellee,

v.BIG DITCH IRRIGATION COMPANY, James Garside, J L.C., and Ryan Litke, Defendants and Appellants.

No. 20090757.

Supreme Court of Utah.

June 28, 2011.

Edwin C. Barnes, Steven E. Clyde, Wendy Bowden Crowther, Salt Lake City, for plaintiff.David C. Richards, Phillip E. Lowry, J. Bryan Quesenberry, Salt Lake City, for defendants.Justice PARRISH, opinion of the Court:

INTRODUCTION

¶ 1 This case involves a water rights dispute between Salt Lake City Corporation (the City) and Big Ditch Irrigation Company (Big Ditch). The dispute has its roots in a 1905 water exchange agreement (the Agreement or the 1905 Agreement) between the City and Big Ditch. In the Agreement, Big Ditch conveyed its Big Cottonwood Creek water right to the City in exchange for the City's commitment to supply Big Ditch with a specified quantity of irrigation-quality water from City sources.

¶ 2 Concerned that Big Ditch was infringing upon the City's water rights, the City initiated this case against Big Ditch and four Big Ditch shareholders ¹ (the Shareholders) in the Utah district court. The City sought a declaratory judgment on the following issues: (1) that the City was not in breach of the Agreement, (2) that the City holds title to the water rights conveyed in the Agreement, (3) that Big Ditch has only a contractual right to receive from the City sufficient water to satisfy the irrigation needs of its shareholders, and (4) that neither Big Ditch nor the Shareholders have a right to file change applications with the State Engineer involving the water rights. Big Ditch and the Shareholders responded with counterclaims alleging, among other things, breach of the 1905 Agreement and violation of the Utah Antitrust Act.

¶ 3 The district court granted summary judgment in favor of the City on most major issues. Big Ditch and the Shareholders appealed. We hold that the district court properly dismissed the antitrust counterclaims and correctly concluded that the City holds title to the water rights conveyed in the Agreement. But we hold that the district court erred in determining that Big Ditch did not have a right to file change applications. And it further erred in determining that the parties had modified the 1905 Agreement or, alternatively, that Big Ditch was estopped from enforcing its right to the amount of water specified in the Agreement. Finally, we hold that the district court erred when it refused to dismiss the City's claims against the Shareholders.

FACTUAL BACKGROUND ²

¶ 4 In 1905 the City and Big Ditch entered into a water exchange agreement. ³ The Agreement states that Big Ditch “grants, bargains and sells” to the City “all of the right of ... [Big Ditch's] portion of the water flowing in Big Cottonwood Creek.” In return, the City agreed to “perpetually and continuously deliver to [Big Ditch] from the first day of April until the first day of October” a flow of water “suitable for the purposes of irrigation” in an amount tied to the measured flow of the creek. The City was required to deliver the water to the Big Ditch canal at a diversion structure that the City agreed to construct and maintain. The Agreement also provided that the City may deliver the water to Big Ditch from any source that the City may see fit.

¶ 5 Pursuant to the 1905 Agreement, the City has delivered irrigation-quality water to the head of the Big Ditch system for over one hundred years. Big Ditch has, in turn, operated the City's control valve to distribute to its shareholders the amount of water needed for irrigation purposes. Over the years, the amount of water taken by Big Ditch has steadily decreased, commensurate with increasing residential and commercial development in the area surrounding the Big Ditch service area. At all times, “stream commissioner reports” have been generated that advised Big Ditch that it was entitled to a much greater flow of water than it had been taking. This entitlement calculation was based on the formula set forth in the Agreement.

¶ 6 This controversy arose in the latter half of 2006 when Big Ditch, sometimes joined by one of its shareholders, J L.C., filed a series of change applications with the State Engineer seeking to change central attributes of its exchange water right. For example, one application sought to move the point of diversion to a series of wells in the southwest portion of the Salt Lake valley and to change the place of use from the Big Ditch system to Riverton City. In this application, Big Ditch proposed to receive its delivery from the City at the head of the Big Ditch system (as specified in the Agreement) and then deliver the water “back into the Big Cottonwood Creek and/or the Jordan River to administer the change.” The City lodged challenges to these change applications with the State Engineer arguing, among other reasons, that Big Ditch did not “own” the water rights affected by the applications.

¶ 7 The City initiated this case in the district court on March 8, 2007. In its Complaint, the City named as defendants Big Ditch and several shareholders of Big Ditch.⁴ The City sought the following declaratory relief: that it holds title to the water rights conveyed in the Agreement; that neither Big Ditch nor its shareholders have a right to file change applications involving those water rights; that the City is not in breach of its delivery obligations under the Agreement; and that Big Ditch and its shareholders have only a contractual right to receive from the City sufficient water to satisfy the irrigation needs of Big Ditch shareholders whose lands are served by the Big Ditch system.⁵

¶ 8 Big Ditch and the Shareholders filed an Answer, Counterclaims and Jury Demand. The only counterclaim at issue in this appeal is one alleging that the City violated the Utah Antitrust Act.⁶ At the core of the antitrust claim is Big Ditch's allegation that the City has illegally monopolized the Big Cottonwood Canyon water market and thereby unreasonably restrained trade of Big Cottonwood Canyon water.

¶ 9 The City filed a rule 12(b)(6) motion to dismiss the antitrust counterclaim. Shortly thereafter, the Shareholders sought dismissal of the City's claims against them by filing a Motion for Partial Summary Judgment for Failure to State a Claim. They argued that, as stockholders, officers, or directors of Big Ditch, they were not proper parties to the City's declaratory relief action.

¶ 10 The district court issued a memorandum decision in which it refused to dismiss the City's claims against the Shareholders but dismissed with prejudice Big Ditch and the Shareholders' antitrust counterclaims. The district court declined to dismiss the claims against the Shareholders because, according to the court, the Shareholders were pursuing counterclaims against the City and because the Shareholders “reli[ed] solely upon the allegations of the City's Complaint and have provided no other evidence to support their motion.”

¶ 11 The district court dismissed the antitrust claims on the grounds that Big Ditch and the Shareholders had failed to allege specific anticompetitive conduct that would violate the statute. In the alternative, it held that, even assuming the activities of the City's water utility could be viewed as anticompetitive, they were authorized by law and were therefore exempt from the Utah Antitrust Act.

¶ 12 Big Ditch and the Shareholders filed a Motion for Partial Summary Judgment on the issue of the quantity of water to which Big Ditch was entitled. They argued that the Agreement did not limit Big Ditch's use of the contract water to only irrigation purposes and did not contemplate a diminishing delivery of water as the area became urbanized. The City responded with its own motion for summary judgment, in which it asked the district court to declare (1) that the City has met and continues to meet its contractual obligations to Big Ditch, (2) that the City owns the water rights in question, and (3) that neither Big Ditch nor its shareholders have authority to file change applications respecting the water rights.

¶ 13 Big Ditch filed a Motion for Partial Summary Judgment on Title and Exchange Rights. In this motion, Big Ditch argued that it, and not the City, holds title to the Big Cottonwood Creek water rights.

¶ 14 After further oral argument, the district court issued another memorandum decision. It held that the 1905 Agreement did not restrict the nature or place of use of water delivered by the City to Big Ditch. It also ruled that the City held title to the Big Cottonwood Creek water rights. The district court expressly reserved for later consideration whether Big Ditch or its shareholders could file change applications on the water rights. It also declined at that time to consider the City's arguments that the 1905 Agreement had either been modified or that Big Ditch was estopped from claiming its full entitlement under the Agreement.

¶ 15 Big Ditch filed a “Motion for Partial Summary Judgment Re Estoppel and Modification (All Remaining Causes of Action),” in which it sought summary judgment on all pending issues. The City similarly filed a motion for summary judgment on all remaining issues.

¶ 16 The district court accepted the parties' invitation to decide all remaining issues and, after hearing oral argument, issued its final memorandum decision. The court granted the City's motion and denied Big Ditch's and the Shareholders' motions. It held that, based on the parties' admitted, consistent conduct over the decades, the principles of estoppel and modification prevented Big Ditch from taking the amount of water originally specified in the Agreement. The court also ruled that Big Ditch's contractual right to receive irrigation water from the City did not entitle Big Ditch or the Shareholders to file change applications on either the City's Big Cottonwood Creek water...