PROJ02195

• Contract/PO #: 07000000090
• Contractor Name: Ditch and Reservoir Company Alliance
• Contract Type: Grant
• Water District: 0
• Loan Projects - Doc Type: Report

jority-any vote of the shareholders that is more than half of
the shares represented at a duly called stockholders meeting.
The normal vote requirement is a two-thirds or more approv-
al. Some companies require three-fourths. The supermajority
vote requirement is a way to dissuade changing the bylaws
too often. Also, a supermajority approval usually cannot be
obtained for controversial or overreaching bylaw changes.
Bylaws' provisions build in protections for the best inter-
ests of the company as a whole. For instance, the company
may institute staggered terms for board members so that if a
stockholder group takes over voting control of the company
at the annual meeting, not all of the directors can be booted
out of office at the meeting. Limiting proxy voting is another
way to make it harder for a minority to seize control and
make changes detrimental to the majority.

Stock assessments
The provisions in the bylaws regarding assessments on
stock must conform to the provisions of Section 7-42-104.
The provisions in the sample bylaws incorporate the statutes
provisions so company operations comply with state law.
Then, assessments are properly made and the ditch company
can take action if the assessments are not paid.5 Special as-
sessments for major capital improvements, such as rebuild-
ing the main headgate or dam in the river, rehabilitating a
dam, or lining a large section of the ditch, should go to a vote
of the stockholders.

Requests for documents
On occasion the board or an officer of the ditch company
or the ditch lider receives a request for information from the
ditch company. Having a bylaw provision or a policy is a pm-
dent business practice. A sample policy follows this section
in the handbook. It's based on the holding of the court in Left
Hand Ditch Co. v. Hill, 933 P.2d 1 (Colo., 1997) in which the
Colorado Supreme Court ruled on a stockholder's request for
a list of the ditch company's stockholders for the purpose of
marketing. of stock. The author strongly suggests that ditch
companies not withhold information from stockholders ex-
cept for the clearest of cases, such as employee records or
attorney-client communications.

The "Catlin" bylaw
The bylaws of the ditch or reservoir company usually con-
tain some of the details of the administration of the com-
pany's water. The bylaws, being relatively hard to change,
contain the important principals for ditch or reservoir opera-
tions that stockholders need / should know and that con-
tinue from year to year.
The sample bylaws contain some of the ones that the author
has drafted over the years. There are many others that could be
added and should be added as notice to new (and old) stock-
holders and users. The board should be authorized in the by-
laws to also adopt operating rules that can be initiated quickly,
such as drought-related mles. Write down all of unwritten rules
so there are no surprises for stockholders and other users and so
ditch liders can be politicians instead of paladins.
The bylaws are a good place to put in "who pays to replace

the headgate / weir," "a stockholder can / cannot change a head-
gate setting," "what happens if you take too much water by mis-
take," and "how do We allocate water in a water-short year."
In Fort Lyon Canal Co. v. Catlin Canal Co., 642 P.2d 501
(Colo. 1982), the Colorado Supreme Court enforced a bylaw
provision of the ditch company that required a stockholder
to take a plan for change in a water right to the board of di-
rectors of the ditch company for review before filing a Water
Court application for approval for the change in water right.
The court held, in essence, that not only does the water own-
er (shareholder) have to get the approval of the water court
for a change in water right, but the water owner may also be
required by the bylaws or articles of incorporation of a ditch
company to apply for the approval of the ditch company in
which the water is canied. The board of the ditch company
would then have the opportunity to review the application
to see if there might be an injury to the ditch system if the
proposal for change was detrimental.
In City of Thornton v. Bijou Inigation, 926 P.2d 1 (Colo.
1996), the Colorado Supreme Court stated: "We have ad-
dressed the legitimacy of imposing regulations on water
rights more strict than the applicable statutory requirements
in cases concerning mutual ditch company bylaws, and we
have consistently upheld reasonable limitations on the statu-
tOlY rights of a water user. See, e.g., In re Application for Water
Rights of the Fort Lyon Canal Co., 762 P.2d 1375, 1379 (Colo.
1988); Fort Lyon Canal Co. v. Catlin Canal Co., 642 P.2d 501,
509 (Colo. 1982); Model Land & Irrigation Co. v. Madsen, 87
Colo. 166,285 P. 1100 (1930)."
Here is a sample of a bylaw crafted to grant the board
a first right to deal with a stockholder's change in water
right proposal.

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Each stockholder or person receiving wa-
ter through the Corporation's system desiring
to change the place to which any water the
stockholder or person may be entitled shall
be delivered or to make any change in water
lights of any kind or nature shall make prior
written request to the Board. If in the opin-
ion of the Board, such change can be made
without injury to the ditches, the reservoirs,
the Corporation or other stockholders, such
water may be delivered to such place or places
as requested upon such terms and conditions
imposed by the Board. After such Board ap-
proval, such person shall notify in writing all
stockholders and other persons affected by the
change prior to such change.

In the end, since a stockholder has a right to apply for a
change in water right, it is doubtful that a ditch company
board of directors may absolutely prohibit a stockholder
from applying for a water light change in Water Court.
Any categorical refusal without a rational basis by the
board of directors to approve a change in water right could
be litigated in the context of the case before the Water Court.
This bylaw does allow the board to see the stockholders ap-

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Ditch & Reservoir Company Alliance