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As of March 12, 1903, the waters of Utah were recognized to be the property of the public, and a procedure was formalized for the acquisition of rights to the use thereof in Utah Code Ann. § 73-3-1. Under this method of appropriation, Utah Code Ann. § 73-3-2 requires any person seeking to appropriate water to do so by written application to the state engineer. The application must set forth the name of the person, corporation, or association making the application, the nature of the proposed use, the quantity thereof, and the source from which the water is to be diverted, together with all other pertinent information. Additionally, Utah Code Ann. § 73-3-3(5)(a) provides that a change in point of diversion, place, or use can be accomplished only upon application and approval of the state engineer following the same procedures governing applications to appropriate water.
Plaintiff East Jordan Irrigation Company was a nonprofit mutual water corporation owing legal title to certain water rights in Utah and the Jordan River. The corporation was diverting water from the river and the lake into a canal and delivering it to its 650 shareholders to be used primarily for irrigation. Subsequently, Payson City Corporation bought 38.5 shares of East Jordan’s stock in 1987. Soon after, it filed with the state engineer to change the point of diversion of the water. Plaintiff, together with, Salt Lake City Corporation, and the Provo River Water Users' Association protested the proposed change, arguing, inter alia, that the change application should have been filed by east Jordan as the owner of the water right. They also argued that the proposed change would impair the vested rights to water in Utah Lake. The state engineer, after holding two informal hearings, approved the change. Consequently, plaintiff brought the present action, seeking to overturn the engineer’s decision. The trial court denied plaintiff’s motion, granted Payson’s cross-motion, and subsequently entered judgment in favor of Payson. The trial court held that in the absence of a specific restriction in the articles of incorporation or bylaws, a shareholder in a mutual water corporation has the legal right to file a change application in its own name even where the company opposed the change. Plaintiff appealed, arguing that as the legal owner of the water rights, only the corporation may change the point of diversion.
In the absence of a specific restriction in the articles of incorporation or bylaws, would a shareholder in a mutual water corporation have the legal right to file a change application in its own name even where the company opposed the change?
The court disagreed and reversed the decision upholding the engineer's decision. The court found that the city corporation did not have the right to file a change application in its own name without the consent of the irrigation company. The court based its decision on the statutory scheme governing the appropriation of public waters, the principles of corporate law bearing on the function and power of boards of directors to manage corporate affairs in the interest of shareholders as a whole, and the dictates of sound public policy.