Colorado Court of Appeals, Division VII, No. 11CA1416, June 7, 2012: Encumbrance of water rights in a conservation easement is valid in Colorado; enjoins severance of water rights from conserved land.
The United States granted a conservation easement in 1990 to Mesa County Land Conservancy, Inc. (Mesa), a land trust. The conservation easement provided that water rights should “remain with this land.” Ownership of the water rights was through shares of capital stock in a “mutual ditch company” (the “Big Creek shares”). (In its analysis, the Court cited an earlier decision the Colorado Supreme Court for the proposition that, “mutual ditch companies are not `true’ corporations in a legal sense but merely vehicles for individual ownership of water rights.”) The conservation land was sold by the Allens in 2007, and they exempted the Big Creek shares from the conveyance. Mesa Land Trust sought declaratory and injunctive relief against the Allens for violating the terms of the 1990 Easement by attempting to sever the Big Creek shares from the land. The trial court granted summary judgment to Mesa and enjoined the Allens from severing the water rights form the land. The Appeals Court affirmed.
In the course of reaching its decision, the Court ruled, contrary to the Allens’ allegations, that Colorado’s conservation easement statute allows encumbrance of water rights in a conservation easement and that notice requirements added in a 2003 amendment did not apply retroactively to the 1990 easement.
The Allens also contended that the Big Creek shares were corporate stock and that to encumber the shares (and the water rights derived associated with the shares), either a UCC filing was necessary or other actual notice of the encumbrance beyond the recording of the conservation easement with the land records office. The Court held, “It is well-settled in Colorado that mutual ditch company shares are ‘unlike ownership of stock in other corporate entities’” and are a real property interest in water rights rather than a personal property interest in corporate stock. Accordingly, the UCC’s notice requirements do not apply to mutual ditch shares in Colorado. The Court likewise dismissed any notion of a common law notice requirement, saying that the conservation easement statute contains these same notice requirements as for a deed, namely that if it is properly recorded, “subsequent purchasers have an obligation to find it at the county clerk and recorder’s office and are considered to have constructive notice of it, even if they do not locate it.”
Decision available at http://www.courts.state.co.us/Courts/Court_Of_Appeals/Opinion/2012/11CA1416-PD.pdf