Shigo, LLC v. Hocker

2014 COA 16, 338 P.3d 421, 2014 WL 785478, 2014 Colo. App. LEXIS 311

• Court: Colorado Court of Appeals
• Decided: February 27, 2014
• Docket: Court of Appeals No. 13CA0094
• Status: Published

Opinions

Opinion by

JUDGE FOX

T1 This case addresses whether the protection provided by Colorado's homestead exemption statute, §§ 3841-201 to -212, C.R.S.2013 (the homestead exemption), covers water rights represented by shares in a mutual ditch company. . Defendant-Appellant Mary Ann Hocker (Hocker) appeals the district court's judgment denying her request to exempt her water rights from levy and execution by creditors,. We conclude that the homestead exemption may protect those rights. Therefore, we reverse the district court's judgment and remand the case with directions. -

I. Background

12 Plaintiffis-Appellees Shigo, LLC, George Shipp, Victoria Shipp, and Trent Production Company Money Purchase Pension Plan and Trust (collectively Plaintiffs), sued Hocker in 2010 for fraud, civil conspiracy, civil theft, violation of the Colorado Organized Crime Control Act, and breach of fidu-clary duty. Plaintiffs claimed that Hocker had operated a Ponzi scheme that defrauded them of more than six million dollars. Hock-er failed to defend the action, and the district court entered a default judgment against her. The parties then stipulated that Hocker would pay Plaintiffs damages amounting to $4,400,000.00 plus interest.

T8 For nearly a year after the court entered the judgment against Hocker, Plaintiffs were unable to collect. In an attempt to reach some of Hocker's assets, they served Hocker with a writ of execution seeking to levy Hocker's shares in the Highland Ditch Company (Highland). Hocker owns an undivided one-half interest in two and three-quarter shares of Highland stock. The Highland shares represent Hocker's right to use water that runs through a mutually owned ditch, a branch of which leads to a pond on the 35-acre farm that Hocker owns with her husband.

T4 The first three-quarters of a share of Highland stock were included in the deed to the farm when Hocker bought the property in 1999. Hocker purchased the remaining two shares in 2002, and those shares are not noted on the deed. Plaintiffs claimed that they are entitled to levy the Highland shares to satisfy the judgment.

15 Hocker protested, and filed a claim under the homestead exemption asserting that the shares could not be levied. A homestead is real property-including "a farm consisting of any number of acres"-owned by a debtor and occupied by the debtor or a member of her family. § 38-41-205. If property qualifies as a homestead, it is, within | monetary limits, exempt from levy and execution by creditors. § 38-41-201(1). Hocker argued that the Highland shares provided her with the water necessary to irrigate her farm, and that they are therefore part of the "homestead" that the statute shields from creditors. ' '

T 6 The district court held a hearing on, the matter. At the conclusion of the hearing, the court determined that, while a farm may be a "homestead" protected by the act, the term "farm" as used in the act includes only "the dirt and the structure itself," not the water rights attached to the farm. Therefore, the court concluded, the exemption "does not apply to water stock certificates," and "does not preclude the seizure and levy of the Stock Certificates." The court denied Hock-er's claim of exemption. Hocker now appeals the trial court's judgment.

II. Standard of Review

T7 This case presents a question of the proper interpretation of Colorado's homestead exemption. The proper interpretation of a statute is a question of law which we review de novo. Larson v. Sinclair Transp. Co., 2012 CO 36, 17, 284 P.3d 42; City & Cnty. of Denver v. Eat Out, Inc., 75 P.3d 1141, 1143 (Colo.App.2008). Our primary task when interpreting a statute is to give effect to the intent of the General Assembly. Larson, 18. We begin our analysis by looking to the plain language of the statute. Sperry v. Field, 205 P.3d 365, 367 (Colo.2009). If the statute is clear and unambiguous on its face, we need look no further. Id. But if the language of the statute is ambiguous, we look "to the statute's legislative history, the consequences of a given construction, and the overall goal of the statutory scheme to determine the proper interpretation of the statute." Id.

IIL Discussion

T8 The question we must address is whether, by including protection for a "farm" in the homestead exemption, the General Assembly intended to protect the water rights attached to the farm-represented in this case by shares of stock in a mutual ditch company. The district court concluded that, while "water rights are part of the agriculture," they "are not inherently part of a farm," and therefore are not protected by the homestead exemption. We disagree with the district court's interpretation.

19 The homestead exemption was designed to spare homestead property from seizure to satisfy creditors. Barnett v. Knight, 7 Colo. 365, 870-72, 3 P. 747, 749 (1884). It ensures that a householder and her family will be able to keep their home regardless of their financial condition. Woodward v. People's Nat'l Bank, 2 Colo.App. 869, 31 P. 184 (1892). The exemption is to be construed broadly to meet that purpose. Knight, 7 Colo. at 870-72, 3 P. at 749. But the homestead exemption statute protects more than just the debtor's house; seetion 38-41-205 states that the homestead may also include a "lot or lots" and "a farm consisting of any number of acres," so long as that property meets the occupancy requirements and monetary limits of the statute. The statute does not define "farm," and it makes no mention of water rights.¹ But the fact that the legislature defined the homestead to include farms is significant.

A. Farm as Used in the Homestead Exemption

$10 The word "farm" connotes more than an empty tract of dirt. A farm is generally understood to be a tract of land used for agricultural purposes. Seq, eg., § 39-1-102(8.5), C.R.98.2018 (" 'Farm' means a parcel of land which is used to produce agricultural products.")";² see also Webster's Third New International Dictionary (2002) (a farm is "any tract of land devoted to agricultural purposes"). In our state's semiarid climate, land is often not suitable for agricultural use unless it is irrigated. Indeed, irrigation water is often the thing that distinguishes a fertile farm from a barren lot or a fallow field. Many farms in Colorado would cease to operate as farms if they were deprived of water, As Chief Justice Moses Hallett observed in Yunker v. Nichols :

In a dry and thirsty land it is necessary to divert the waters of streams from their natural channels, in order to obtain the fruits of the soil, and this necessity is so universal and imperious that it claims ree-ognition of the law. The value and usefulness of agricultural lands, in this territory [Colorado before statehood] depend upon the supply of water for irrigation.

1 Colo. 551, 570 (1872), superseded on unrelated grounds by the Colorado Constitution, as stated in Stewart v. Stevens, 10 Colo. 440, 15 P. 786 (1887). Thus, the fact that the General Assembly saw fit to make farms part of the homestead suggests that it intended to protect more than just dirt and buildings.

111 If the legislature had intended to allow creditors to strip a debtor's farm of the very thing which distinguishes it from a barren plot of dirt, it would not have included "farm" in the homestead definition. The protection for "a house and a lot or lots," § 88-41-205, would encompass the farmhouse where the debtor resides and the plot of land on which it sits. That protection alone would have been sufficient to achieve the legislature's goal of providing a home for the debtor. Woodward, 2 Colo.App. 869, 31 P. 184. But the legislature saw fit to provide an additional protection. Nothing in the statutory scheme suggests that the legislature's inclusion of the term "farm" was simply meant as surplussage to reiterate the protection for lots.

112 But even if the legislature's only purpose in including the word "farm" in the homestead exemption was to reflect, as the dissent suggests, a distinction between urban and rural land, we see no reason to deprive any homestead property, urban or rural, of its appurtenant water rights. There is no provision in the statute for splitting up homestead property. See, eg., In re Wells, 29 B.R. 688, 690 (Bankr.D.Colo.1983). A debtor is not required to strip homestead property of its timber or soil-though each of those things may be transferred independently of the homestead-and sell them in satisfaction of her debts. Id. The same should be true of the homestead's appurtenant water rights. We see no more reason to require a debtor to dehydrate her homestead than to deforest the homestead or strip it of its soll to satisfy her creditors. Therefore, we conclude that the homestead exemption for a "farm" includes not just the farm's soil, but also the water rights appurtenant to the land.

B. Only Appurtenant Water Rights Qualify for Homestead Protection

118 But it does not necessarily follow that the homestead exemption protects all of Hocker's Highland shares from levy and execution. Water rights may or may not be appurtenant to the land. Hastings & Heyden Realty Co. v. Gest, 70 Colo. 278, 281-84, 201 P. 37, 89-40 (1921) (recognizing that water rights are treated as appurtenant to land, and are therefore conveyed with the land even where the deed to the land is silent as to water rights, if they are "necessary to the beneficial use and enjoyment to the land conveyed."). Whether they are appurtenant depends on whether they are necessary to the use and enjoyment of the land. Id. Water rights used for domestic or irrigation purposes may, in some cases, become appurtenant the land. See id. at 288, 201 P. at 89-40 ("In the case at bar it is undisputed that the water right involved was necessary to the beneficial use and enjoyment of the land. The land was not susceptible to cultivation without water.... [The water was and is appurtenant to the land."); see also Kinoshita v. N. Denver Bank, 181 Colo. 188, 185, 508 P.2d 1264, 1265 (1978) (approving trial court's finding that irrigation water was appurtenant to the land on which it was used). Only water rights that are appurtenant to a tract of land are treated as part of the land. Seq, e.g., Kinoshita, 181 Colo. at 185-87, 508 P.2d at 1266. Therefore, only water rights that are appurtenant to Hocker's homestead property are include in the homestead.

114 The district court's findings on the matter are insufficient to allow us to conclude that Hocker's Highland shares represent water rights that are appurtenant to her land. At the hearing on her claim of exemption, Hocker testified generally that she uses her Highland shares to irrigate her land. But there was no fact finding regarding how much of the land is devoted to agricultural operations, how much water is necessary to sustain those operations, or how much water Hocker uses annually to irrigate her farm. Therefore, we are unable to determine whether the water rights represented by the Highland shares are necessary to the use and enjoyment of the land in question as a farm. Accordingly, it is unclear what portion of the Highland shares is appurtenant to Hocker's land, and we must remand the case to the trial court for findings on that matter.

$15 Plaintiffs argue, however, that even if the definition of the homestead included appurtenant water rights, Hocker's Highland shares are not protected because there is a distinction between water rights and shares of stock in a mutual ditch company. We disagree.

§16 Shares of stock in a mutual ditch company represent water rights. Jacobucci v. Dist. Court, 189 Colo. 880, 387-88, 541 P.2d 667, 672 (1975). Unlike shares of ordinary corporate stock, shares of ditch company stock constitute a real property interest in the water they represent. Id. The benefit derived from holding such stock is the right to use the water it represents, "the water being divided pro-rata according to the number of shares of stock held by each shareholder." Id. at 387, 541 P.2d at 672 (citing Kendrick v. Twin Lakes Reservoir Co., 58 Colo. 281, 144 P. 884 (1914), and Billings Ditch Co. v. Indus. Comm'n, 127 Colo. 69, 258 P.2d 1058 (1958)). The ownership of the stock is "merely incidental to the ownership of the water rights." Id. Therefore, shares of stock in a mutual ditch company represent water rights, and we see no reason to treat those rights differently than we would treat water rights recorded in a different medium.³

T17 On remand, the district court may, in its discretion, hear new evidence on the issue or decide the matter based on the evidence already presented. It may find that all of Hocker's Highland shares, or some of them, or none of them represent water rights that are appurtenant to her land. If the district court determines that water rights represented by the Highland shares are appurtenant to Hocker's land, it should conclude that those rights are part of her farm for purposes of the homestead exemption and grant Hocker's claim of exemption with respect to the necessary shares. If the water rights are not appurtenant, they should not be considered part of the farm, and they are not exempt from levy and execution by creditors.

118 The judgment is reversed, and the case remanded for further proceedings consistent with this opinion.

JUDGE STERNBERG * concurs. JUDGE BOORAS dissents.

1 . In our view, the legislative history does not tell us how the legislature intended us to construe the word "farm." The legislative history of the 1982 amendments to the statute indicates only that the legislature intended to provide broad homestead protections. See Hearing on H.B. 1060 Before the H. Local Gov. Comm., 53rd Leg., 2d Reg. Sess. (Colo. Jan. 20, 1982) (Representative Kopel explaining that the statute should be clarified to cover all property that is used as a homestead, regardless of whether it is located in a city, in a town, on a farm, or in an unincorporated area). However, the legislature's persistent desire to avoid a narrow interpretation of the homestead exemption supports our view that the homestead exemption for a farm protects more than dirt and buildings. That the term "farm" was added to ensure that properties in unincorporated areas were granted protection does not answer the question of whether certain items-like a water right-within the farm are also protected.

2 . The definition of a term in one set of statutes does not necessarily indicate the term's meaning in statutes in a different area. See, eg. Bertrand v. Bd. Of Cnty. Commis., 872 P.2d 223, 228 (Colo.1994). Here, however, there is no logical reason to ignore the definition of "farm" in the tax statute, § 39-1-102(3.5), where that definition is consistent with the dictionary definition of the term "farm."

3 . There are circumstances which may warrant different treatment of ditch stock. For example, if the owner of ditch company stock does not receive water from the ditch company, or if the water received is not dependent on the number of shares owned, the stock may represent an interest in the company itself rather than in the water supplied by the ditch. See First Nat'l Bank v. Hastings, 7 Colo.App. 129, 42 P. 691 (1895); see also Oligarchy Ditch Co. v. Farm Inv. Co., 40 Colo. 291, 88 P. 443 (1906). Here, however, the parties seem to agree that Hocker purchased the Highland stock so that she could have the benefit of the water rights the stock represents, and that she receives water in proportion to the amount of stock she owns. Therefore, Hocker's Highland shares represent water rights, and those rights may become appurtenant to her land.