Southam v. South Despain Ditch Co.

Summary

The Utah Supreme Court affirmed summary judgment for South Despain Ditch Company, holding that its restrictions on transfers of shares in the nonprofit mutual irrigation company were enforceable under the Utah Revised Nonprofit Corporation Act. Because the transfer restrictions were enforceable, the plaintiff acquired no valid shareholder interest and lacked standing to pursue claims for breach of contract, breach of fiduciary duty, and statutory violations. The court also rejected arguments based on beneficial-use water law, restraints on alienation, and waiver.

Holdings

1. Section 16-6a-606 of the Utah Revised Nonprofit Corporation Act comprehensively governs the transferability of nonprofit corporation memberships and shares. Restrictions adopted in the bylaws are enforceable prospectively, subject to the statutory limitation against retroactive application to memberships issued before adoption absent approval by the affected member.
2. Utah water-law principles concerning beneficial use do not invalidate or require free transferability of shares in a nonprofit mutual irrigation company when the transfer is specifically and comprehensively regulated by section 16-6a-606.
3. Common-law rules restricting restraints on alienation of real property do not govern the transferability of shares in a nonprofit mutual irrigation company where the Utah Revised Nonprofit Corporation Act specifically and comprehensively regulates those shares.
4. An isolated instance of non-enforcement of a share-transfer restriction, without additional evidence of intentional relinquishment or a course of conduct, does not establish waiver as a matter of law.
5. Because the transfer restrictions were enforceable and Southam acquired no valid shareholder interest, he lacked standing to pursue claims for breach of contract, breach of fiduciary duty, or violation of the Utah Revised Nonprofit Corporation Act.

Questions Presented

1. Whether the transfer restrictions on shares in the nonprofit mutual irrigation company were enforceable under the Utah Revised Nonprofit Corporation Act.
2. Whether Utah water-law principles concerning beneficial use required free transferability of the shares or otherwise invalidated the transfer restrictions.
3. Whether common-law restrictions on restraints on alienation of real property invalidated the transfer restrictions.
4. Whether South Despain waived its right to enforce the transfer restrictions by approving Sandy City's acquisition of shares in 1977.
5. Whether Southam had standing to pursue his contract, fiduciary-duty, and statutory claims after acquiring shares in violation of enforceable transfer restrictions.

Disposition

affirmed