200 Cal. App. 4th 1163
Cal. Ct. App.2011Background
- Del Norte Water Company allocates water among shareholders via domestic threshold followed by pro rata irrigation allotment in shortages; domestic priority exists and is historically established.
- De Boni Corporation challenges the allocation as violating Corporations Code section 400 and creating de facto classification of stock (domestic vs. irrigation).
- Stock is privately transferable, not appurtenant to land, and entitlement ties to acreage and share ownership per articles and bylaws; historic practice provided as much domestic water as needed.
- Articles amended in 1988; there is a dispute whether §400 applies to pre-§400 incorporation, with the court noting amendments did not elect to be governed by new law.
- Trial court found no discrimination; on appeal, court affirms that the threshold system treats all shares equally, §400 not applicable, and water rights are vested contractual rights of shareholders; conduit for discretionary allocation during shortages remains with statutory framework.
- Appendix contains the 1988 amendment language showing domestic threshold and irrigation stock rules.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Del Norte's threshold/irrigation system violate §400(a)-(b)? | De Boni: system creates discrimination; authorized only if §400 applies. | Del Norte: system neutral; shares treated equally after threshold; §400 not applicable. | No violation; §400 not applicable; system non-discriminatory. |
| Is §400 applicable to a company incorporated before its enactment/amendment? | De Boni contends amendments subject it to §400 requirements. | Del Norte: pre-existing incorporation remains governed by prior law; amendments don’t automatically apply. | §400 not applicable; pre-§400 incorporation governs. |
| Is the domestic threshold inherently discriminatory among shares? | Threshold creates de facto unequal rights among shares. | Threshold applies uniformly; all shares are subject to the same rule; no preferential treatment. | Threshold not discriminatory; uniform application to all shares. |
Key Cases Cited
- Miners’ Ditch Co. v. Zellerbach, 37 Cal. 543 (Cal. 1869) (mutual water companies; property interest in water)
- Leavitt v. Lassen Irrigation Co., 157 Cal. 82 (Cal. 1909) (duty to fairly apportion water during shortage)
- Wat. Code, not a case citation (not applicable) (statutory authority for discretionary allocation during shortage (cited in opinion))
- Erwin v. Gage Canal Co., 226 Cal.App.2d 189 (Cal. App. 1964) (stockholders’ right to proportionate share of distributable water)
- Consol. Peoples D. Co. v. Foothill D. Co., 205 Cal. 54 (Cal. 1928) (stockholders’ right to proportionate share; contractual rights)
- Bent v. Second Extension Water Co., 51 Cal.App. 648 (Cal. App. 1921) (stock ownership constitutes a vested right)