Why are MMWC and CCMEPOA Separate Entities? Several years ago, there was some discussion of the possibility of MMWC and CCMEPOA merging into a common entity. There are several very practical reasons not to do this. For example, it would be unfortunate, in the aftermath of a lawsuit involving a POA, for the community the POA serves to have their water distribution system seized to satisfy a judgment debt. There are also some special circumstances, peculiar to Colorado statutory law, for keeping the entities separate. Mountain Mutual Water Company is a “special purpose corporation” under Colorado law. The Colorado Revised Statutes have specific provisions for different classes of “special purpose” corporations, including, for example, “telegraph companies” (Title 7, Art. 41), “ditch and reservoir companies (Title 7, Art. 42), and “toll road companies,” (Title 7, Art. 45). As a mutual ditch company, MMWC is not organized under the general Colorado corporation statutes, but under special legislation for ditch and reservoir companies. MMWC’s status as a mutual “ditch and reservoir” company confers a number of quasi-governmental advantages. First, the status confers certain water rights and rights-of-way to MMWC. See C.R.S. § 7-142-103. Second, the status gives its members an equitable right to a pro rata share of the water rights for which MMWC holds legal title. See Jacobucci v. District Court, 541 P.2d 667 (Colo. 1975). Moreover, those water rights are effectively “judgment proof” in any action against MMWC. See Millers Mutual Insurance Assoc. v. Grace, Civil Action No. 82-JM-1517 (D.Colo.), Memorandum and Order dated June 20, 1983. Third, the status gives MMWC considerable power with respect to assessments. The status empowers MMWC to levy assessments on its members to keep its system in good repair; gives MMWC a perpetual lien on memberships for all unpaid assessments; and authorizes MMWC to sue, deny service to, and/or cause a sale or forfeiture of the membership rights of a delinquent member. See C.R.S. § 7-142-104. Fourth, it allows MMWC to specify the manner in which memberships may be transferred. See C.R.S. § 7-142-104(4). Assuming that it is even possible to merge MMWC and CCMEPOA, the merged entity would not constitute a mutual “ditch and reservoir” company. Under C.R.S. § 7- 42-101, a “ditch and reservoir” company must be formed “for the purpose of constructing a ditch, reservoir, pipeline, or any part thereof to convey water from any natural or artificial stream, channel, or source whatever to any mines, mills, or lands or for storing the same….” (Emphasis added). The Colorado Supreme Court has observed that mutual ditch companies are “organized solely for the convenience of its members in the management of the irrigation and reservoir systems.” See Jacobucci v. District Court, 189 Colo. 380, 541 P.2d 667, 672 (1975) (emphasis added). Furthermore, they are “formed expressly for the purpose of furnishing water to shareholders, not for profit or hire.” Id. at 671 (emphasis added). Because a merged water & POA entity would not be organized “solely” for the management of a water delivery system, it would not qualify as a “ditch and reservoir company.” Therefore, the merged entity would forfeit the benefits that Colorado state law confers on “ditch and reservoir” companies. MMWC could also forfeit some tax advantages. According to Art. X, Sec. 3 of the Colorado Constitution, "[d]itches, canals and flumes owned and used by individuals or corporations for irrigating land owned by such individuals or corporations, or the individual members thereof, shall not be separately taxed so long as they shall be owned and used exclusively for such purposes." (Emphasis added). The merged entity would also be subject to a different – and potentially stricter – set of requirements in order to obtain exemption from federal income taxes. See 26 U.S.C. § 501(c)(12). Furthermore, it may be legally and/or practically impossible for CCMEPOA to merge with MMWC. The members of MMWC – and not MMWC – own the water, along with the rights to it, that is conveyed by MMWC’s distribution facilities. MMWC could not transfer these rights to CCMEPOA. In any event, a merger of MMWC and CCMEPOA would be inadvisable. CCMEPOA exists to maintain, preserve, and architecturally control the residence lots and common areas within CCME -- and thereby maintain and improve CCME residents' quality of life. MMWC exists to serve a more fundamental necessity – water. The loss of potable water would severely disrupt the lives of MMWC customers. To ensure a continued supply of potable water to its customers, MMWC regularly addresses complex water rights, water transmission and distribution, and water quality issues that require a considerable amount of serious attention. Securing the continued delivery of potable water to its customers merits the undivided attention of MMWC’s employees and directors. Copyright © 2009-2011 MMWC Director Eric W. Cernyar