Bear Hollow Restoration, LLC v. Public Service Commission of Utah

2012 UT 18, 274 P.3d 956, 704 Utah Adv. Rep. 8, 2012 WL 982788, 2012 Utah LEXIS 37
CourtUtah Supreme Court
DecidedMarch 23, 2012
Docket20100329
StatusPublished
Cited by2 cases

This text of 2012 UT 18 (Bear Hollow Restoration, LLC v. Public Service Commission of Utah) is published on Counsel Stack Legal Research, covering Utah Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bear Hollow Restoration, LLC v. Public Service Commission of Utah, 2012 UT 18, 274 P.3d 956, 704 Utah Adv. Rep. 8, 2012 WL 982788, 2012 Utah LEXIS 37 (Utah 2012).

Opinion

Justice NEHRING,

opinion of the Court:

INTRODUCTION

T1 This is an appeal from the Public Service Commission's dismissal for lack of jurisdiction of a Complaint and Request for Agency Action. The complaint requested a review and investigation of Summit Water Distribution Company's (SWDC) exemption from public regulation and was filed by one of SWDC's minority shareholders, Bear Hollow. The Commission dismissed the complaint on the basis that SWDC was not a public utility, and therefore, the Commission did not have jurisdiction. We affirm the Commission's dismissal. ~ > non

BACKGROUND

T2 Summit Water Distribution Company was formed in 1979 as a nonprofit mutual water company to provide water to its shareholders in unincorporated areas of Summit County. In 1989, the Public Service Commission issued a letter of exemption from public regulation because SWDC operated as a cooperative association that provided culinary water to only its members and did not serve the public generally. Since that time, the Commission has reviewed SWDC's exemption three times. On each occasion, the Commission has found no reason to alter SWDC's exempt status.

T3 SWDC's Articles of Incorporation create four classes of stock: (1) Class A development shares, (2) Class B use shares, 8) Class C irrigation shares, and (4) Class D snowmaking shares. Only Class A development shares and Class B use shares have voting rights (one vote per share of each). The holders of these classes of stock may vote to elect SWDC's Board of Directors. Shareholders pay a monthly rate for the water they consume.

T4 As compared to the other types of shares, Class A shareholders are unique because their shares do not permit them to consume water provided through SWDC. Rather, SWDC issues Class A shares to a developer when the developer conveys water rights to SWDC. Thereafter, when the developer sells a development lot to a prospective homeowner, the sale transfers Class A shares sufficient to meet the water needs of the property conveyed. Upon the sale of the lot, the Class A development shares convert to Class B use shares. Class B shares are appurtenant to and inseparable from the land to which they provide a right to water.

T5 Individual respondent Mr. Leon H. Saunders is founder, president, member of the Board of Directors, and largest Class A shareholder of SWDC. Bear Hollow alleges that as of 2002, Mr. Saunders owned 42.5 percent of all Class A shares and 27.5 percent of all outstanding SWDC shares, but only 1.5 percent of all Class B use shares.

T6 Individual respondent Mr. Stuart Knowles is also a member of the SWDC Board of Directors and is the second largest Class A shareholder of SWDC stock. Bear Hollow alleges that as of 2002, Mr. Knowles owned 37.6 percent of all Class A shares and 24.4 percent of all outstanding SWDC shares.

T7 Mr. Saunders and Mr. Knowles have joined forces to form a partnership, SK Resources. As of 2002, through the combined holdings of Mr. Saunders and Mr. Knowles, SK Resourcées controlled 80.1 percent of all Class A shares and 51.9 percent of all outstanding SWDC shares. Because of its voting block, SK Resources exerts considerable influence over SWDC affairs.

T8 SK Resources markets the water rights it owns, represented by SWDC Class A shares, to other developers in SWDC's service area. In doing so, it competes with other providers of culinary water, publicly regulated or otherwise. When SK Resources sells Class A development shares to a developer, it customarily requires the purchasing developer to enter into "development agreements" in which the purchased Class A shares are immediately attached to and become appurtenant to the land being developed. Consequently, the purchasing developer cannot transfer the Class A development shares without transferring the underlying land, regardless of whether the *960 land is actually developed or the shares are ever converted to Class B use shares. As a result, the transfer of most Class A shares not held by SK Resources is limited, while SK Resources may freely transfer its Class A shares not tied to any particular parcel of land.

T9 Petitioner Bear Hollow is a minority Class A shareholder of SWDC. Bear Hollow acquired its Class A shares in the bankruptcy proceedings of its predecessor-in-interest, which had originally purchased the Class A shares from SK Resources in anticipation of developing certain real property. In its original transaction with SWDC, Bear Hollow's predecessor-in-interest entered into a development agreement, as described above, that tethered the Class A shares in appurtenancy to the land being developed. After Bear Hollow bought the development, it found that it owned more Class A shares than it needed to complete the development. As a result, in March 2009, Bear Hollow agreed to sell its surplus Class A development shares to Park City, despite the development agreement binding the shares to the underlying land. Thereafter, Bear Hollow repeatedly requested that SWDC amend the development agreement to permit Bear Hollow to transfer a portion of its Class A shares separately from the land to which they were attached. SWDC repeatedly declined the request, stating that the proposed amendment is contradictory to the SWDC bylaws and the interests of other shareholders. Without SWDC's authorization, Bear Hollow cannot transfer its surplus shares.

T10 After SWDC refused to amend Bear Hollow's development agreement to permit it to sell its surplus shares, Bear Hollow petitioned the Public Service Commission to reevaluate SWDC's exempt status under the now-repealed rule RT746-3831-1. Bear Hollow also requested that the Commission regulate both SWDC and individual respondents Mr. Saunders and Mr. Knowles because of their voting control and purported manipulation of SWDC affairs for their own profit.

T11 Bear Hollow alleged that due to SK. Resources' considerable voting block and influence over SWDC operations, SK Re-. sources has issued additional Class A shares to itself or to entities it controls. As a result, Bear Hollow alleged that somewhere between 1,500 and 10,000 Class A shares are at risk of not being supported by sufficient water if they are all converted to Class B use shares. In contrast, SK Resources maintains that the shares it owns have been obtained in accordance with SWDC Articles of Incorporation and bylaws through the conveyance of additional water rights to SWDC.

€12 SWDC and individual respondents Mr. Saunders and Mr. Knowles moved to dismiss Bear Hollow's complaint. The Commission granted the motion to dismiss. It stated that there was nothing in the complaint that alleges that SWDC serves the general public and that "[albsent any [factu-all allegation ... that Summit serves those who are not shareholders, the Commission cannot assert jurisdiction-even for an investigation, and must dismiss." In addition, the Commission ruled that it did not have jurisdiction to determine whether SWDC or individual shareholder actions violated laws governing nonprofit corporations organized, registered, and in good standing with the state of Utah.

1 13 Following dismissal, Bear Hollow filed an Amended Complaint and a Motion to Reconsider with the Commission. On March 29, 2010, the Commission denied the request for rehearing and refused to consider the Amended Complaint because it had already dismissed the action.

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Bluebook (online)
2012 UT 18, 274 P.3d 956, 704 Utah Adv. Rep. 8, 2012 WL 982788, 2012 Utah LEXIS 37, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bear-hollow-restoration-llc-v-public-service-commission-of-utah-utah-2012.