Dam Must Be Repaired

Vouga Reservoir Association (VRA) was organized under Colorado state law to build and maintain a water reservoir. Woodrow W. Watson was a minority shareholder in VRA with 35 percent of the shares. In 1994, the Colorado state engineers office discovered a defect in the reservoir's outlet pipe. Because the defect could not be corrected, the Colorado Division of Water Resources ordered that no water be stored in the reservoir until appropriate remedial measures were taken. The majority shareholders authorized VRA to levy a pro rata assessment on its shares, pursuant to state law, to pay for the repairs, which would cost more than $1 million. Watson refused to pay, and VRA forfeited his shares. Watson brought this suit to enjoin the repairs and to dissolve and liquidate VRA. The trial court awarded Watson damages equal to 35 percent of the value of VRA. On appeal, Watson argued that the remedial measures for which VRA proportionately assessed the shareholders were not authorized by state law because they constituted reconstruction of the dam, rather than repair. But the appellate court said that VRA's sole purpose was to supply water for irrigation to its shareholders' land. The court concluded that state law authorized the assessment for the repair cost, and the trial court decision was reversed.