EAGLE CREEK IRRIGATION COMPANY, INC., an Idaho corporation, Plaintiff-Counterdefendant-Appellant,
A.C. & C.E. INVESTMENTS, INC., a California corporation, Defendant-Respondent, and LEE P. ENRIGHT and NANCY K. ENRIGHT, Husband and Wife, Defendants.
from the District Court of the Fifth Judicial District, State
of Idaho, Blaine County. Jonathan P. Brody, District Judge.
Court Judgment, vacated in part.
Lawson, Laski Clark & Pogue, PLLC, Ketchum, for
A. Lawson argued.
Bromley, PLLC, and Cosho Humphrey, LLP, Boise, for
Christopher M. Bromley argued.
BURDICK, CHIEF JUSTICE
Creek Irrigation Company ("Eagle Creek") appeals
the Blaine County District Court's award of summary
judgment in favor of A.C. & C.E. Investments, Inc.
("AC&CE Investments"). The dispute centers on
15 shares of Eagle Creek stock which authorize the holder to
divert 30 cfs of water (or 15 miner's inches) of Eagle
Creek's water right. AC&CE Investments purchased 15
acres ("the Property") located within Eagle
Creek's boundaries. The prior property owners also owned
15 shares in Eagle Creek stock. The question presented on
appeal is whether the 15 shares passed as an appurtenance to
the Property. The district court ruled that AC&CE
Investments acquired 15 shares in Eagle Creek when it
acquired title to the Property because the shares passed as
an appurtenance to the Property. Eagle Creek timely appeals.
FACTUAL AND PROCEDURAL BACKGROUND
2011, the Snake River Basin Adjudication ("SRBA")
court declared Eagle Creek the owner of Water Right No.
37-00863E (the "SRBA Water Right"). The SRBA Water
Right granted Eagle Creek the right to divert 4.56 cfs (228
miner's inches) of water and carried a priority date of
1902. Eagle Creek also received a water right for .04 cfs for
aesthetic and recreation purposes under a separate water
right (Water Right No. 37-00863F) for a total of 4.6 cfs (230
inches). The SRBA Water Right declares Eagle Creek's
permissible place of use as 143.9 acres within its
water-delivery system. Eagle Creek has a serviceable area of
189 acres. This area is informally referred to as "the
Eagle Creek subdivision." The subdivision sits in a
valley north of Ketchum, Idaho along Highway 75. The Property
is the most northeastern lot in the subdivision.
SRBA Water Right dates to a 1923 Blaine County District Court
decision (the "Original Water Right"). The Original
Water Right authorized the diversion of 4.6 cfs of water (230
miner's inches) and applied to roughly the same area as
the Eagle Creek subdivision. Since the Original Water Right
was first decreed, the property in the area has been divided
and has changed hands numerous times.
Eagle Creek formed in 1973, John and Gladys Feldhusen owned
the Original Water Right, the Property, and other property in
the area. The Property was subdivided into three five-acre
lots, referred to by separate deeds as Lot 17, Lot 18, and
Lot 19. In 1970, the Feldhusens conveyed those lots by
separate deeds, "with their appurtenances," to
William and Patricia Woolway.
1973, Eagle Creek was formed as a nonprofit mutual irrigation
corporation to hold water rights, in trust, for the benefit
of its shareholders. As the corpus of its trust, Eagle Creek
purchased 90% of the Original Water Right from the
Feldhusens. This amounted to 207 miner's inches of water
(4.14 of 4.6 cfs, or 207 of 230 miner's inches). Eagle
Creek's articles of incorporation ("Articles")
declared its purpose as constructing, maintaining, and
operating a system of water delivery for its shareholders.
For admitting shareholders, Eagle Creek stated in both the
Articles and Bylaws:
[T]his corporation shall admit as stockholders only such
persons, groups of persons, organizations or corporations who
own property in the immediate vicinity of the irrigation
system and to which property the corporation can make
delivery of water for domestic or irrigation purposes under
the contemplated distribution system of the corporation.
who met these conditions were "entitled to subscribe to
and purchase shares of stock . . . as provided in the
corporation's By-Laws." Under the Articles and
Bylaws, Eagle Creek would issue either 207 or 230 shares on a
one-share-per-irrigable-acre basis. For water rights, the
The corporation will hold all water rights acquired in Trust,
and operate the system for the distribution of water
primarily for the benefit of the lands to which said water
rights are to be appurtenant. The shareholders of the
corporation shall be entitled to the appropriate share of the
water annually available by virtue of their proportionate
stock interest in this corporation.
Creek shares could not be transferred without Board approval,
which was granted "under such criteria as the By-laws
may prescribe." A share could be transferred only by its
holder or its holder's legal representative "by the
surrender and delivery of the said certificate and assignment
of said certificate and the shares of stock represented
thereby in writing." Old stock certificates were to be
"surrendered and cancelled before new certificates in
lieu thereof shall be issued."
1974, Eagle Creek sent "form letters to all prospective
and interested buyers." Included among those
"interested buyers" were the Woolways. It appears
the Woolways acquired some quantity of shares because, in
October 1974, the Woolways conveyed the Property to Glenn and
Carolyn Olbum by three separate deeds. Two deeds specifically
conveyed the properties "together with 5 shares in the
Eagle Creek Irrigation Company," but the third was
silent on whether Eagle Creek shares were included.
1981, the Olbums conveyed the lots by warranty deed
"together with their appurtenances," but the deed
made no mention of Eagle Creek shares. A similar conveyance
occurred seven years later when the lots were conveyed to
Harold and Flora Jonassen "together with their
appurtenances," with no mention of Eagle Creek shares.
1990, with the SRBA looming, the Jonassens hired lawyers to
investigate their water rights. The investigation resulted in
the Jonassens filing two claims for water rights in the SRBA.
Around this time, Lee and Nancy Enright became interested in
purchasing the Property. In a letter, the Jonassens's
lawyer told the Enrights that a portion of the Original Water
Right was "apparently thereafter transferred" to
Eagle Creek. The letter further explained that because Eagle
Creek had not yet filed a claim in the SRBA, the lawyer had
filed claims for the Jonassens. Eagle Creek would eventually
file a claim with the SRBA. Later in the same year, the
Jonassens conveyed the lots to the Enrights "together
with their appurtenances." A year later, the Enrights
filed for a change of ownership in the SRBA claim. The filing
1991, the Eagle Creek board of directors added a provision to
the Bylaws declaring that if a shareholder wished to sell the
real property to which Eagle Creek was delivering water, the
shareholder must apply for a transfer of shares within sixty
days of selling the property. Failure to comply would result
in Eagle Creek deeming the stock cancelled and converted to
treasury stock. However, if the shareholder sold the property
and "provide[d] for an assignment of the stock in a
contract or sale agreement with the new purchaser," then
Eagle Creek would "consider such reference as an
application to transfer the shares of stock previously held
by the selling stockholder."
1992, the Enrights entered into an agreement with Eagle Creek
to change their point of diversion further upstream subject
to Idaho Department of Water Resources approval. At the time,
the Enrights owned 15 shares of Eagle Creek stock. Their
stock certificates made no specific mention of where the
water was to be used, but stated that "each share
entitles the owner to receive .02 of a cubic foot of water
per second of time per acre or one Miner's inch when
available from the waters of Eagle Creek."
memorandum decision approving the Enright's application,
the Department wrote that the Enrights sought to change the
diversion point for .30 cfs of water (15 miner's inches)
"represented by fifteen (15) shares of stock" in
Eagle Creek. The Department made the following conclusions
regarding ownership of the water right:
6. The water sought in the transfer is represented by shares
of stock in ECIC and is a portion of the company's water
. . .
8. The only right to divert and use the waters of [the Eagle
Creek stream] is vested with and is controlled by [Eagle
Creek] which distributes water to its shareholders.
. . .
16. The proposed change has been approved by [Eagle Creek],
the holder of the water right and is in the local public
Department also commented on questions over the scope of
Eagle Creek's water right:
There appears to be conflicting information concerning the
total number of shares of capital stock of [Eagle Creek],
i.e. 207 shares v. 230 shares. The difference, however, is
not of particular significance to the holding in this
decision but probably should be cleared up by [Eagle Creek]
for its own purposes.
2005, Eagle Creek provided the Enrights with a quitclaim deed
so they could "convey any ownership interest [they] may
have in the Eagle Creek water right back to the
company." Eagle Creek wrote that this
was "necessary" because the Department
"transferred ownership of a portion of the original
water right from the company to [the Enrights] on its records
when it approved your water right transfer." Eagle Creek
reassured the Enrights, explaining: "You will, of
course, continue to rely on your 15 shares of stock in the
Company to receive water out of Eagle Creek to irrigate your
property." The Enrights obliged and quitclaimed to Eagle
Creek "all their right, title and interest in and to
Water Right No. 37-863B."
2006, Lee and Nancy Enright executed a deed of trust with the
Bank of America. The deed of trust gave the bank a security
in the Property "together with . . . all easements,
appurtenances, and fixtures now or hereafter a part of the
property." A separate deed of trust gave the Bank's
trustee the property "together with all . . .
appurtenances now or later in any way appertaining to the
2009, in preparation for the foreclosure sale, emails were
exchanged between the title company, the auction company, the
Enrights, and Eagle Creek's attorney. In an email to the
title company, the auction company inquired about the status
of water rights on the Property:
There are surface water rights that are to be conveyed with
the property. Do these have to be transferred with a separate
deed? If so, what type of deed? Or will it be included in the
warranty deed transferring the real estate?
response, the title company stated that it had spoken with
the Department; "[t]he individual water rights for Eagle
Creek Subdivision have been disallowed and now are decreed in
the name of Eagle Creek Irrigation Company" and
"[e]ach owner in the subdivision have [sic] shares in
the irrigation company." The auction company then asked
the Enrights for information on their shares so they could
better advertise them. The Enrights responded: "We have
one inch water rights per acre for total of 15 inches (15
shares). The water rights go with the land. (One inch per
acre). I have the certificates which document that." The
auction company forwarded the Enrights' response to the
title company. It told the title company that it would set up
the purchase contract to convey the water rights with the
deed and then the purchaser could change the Department's
records. The title company reached out to Eagle Creek's
attorney for confirmation of the Enrights' description of
their water rights because the description "didn't
jive" with what it had been told. Eagle Creek's
attorney replied: ...