Anyone who is familiar with California knows that water is the key to its agricultural abundance and vast urban spaces. It should be no surprise then that the legislature has devoted significant attention to corporations dedicated to the delivery of water. These are commonly referred to as “mutual water companies”. See Public Util. Code § 2725. (This post isn’t just about mutual water companies, so please keep reading.)

Earlier this week, the Second District Court of Appeal issued an interesting decision involving a mutual water company and the General Corporation Law, De Boni Corp. v. Del Norte Water Co. (Case No. B226767, Nov. 14, 2011). The plaintiff, a shareholder, argued that the corporation’s water allocation system violated Corporations Code § 400 which generally provides that classes or series of shares may be issued with rights, preferences, privileges and restrictions as are stated in the articles of incorporation and that all shares of any one class have the same rights, preferences, privileges and restrictions. The Court of Appeal decided that § 400 does not apply because the water company had not elected to be governed by the current General Corporation Law. That is perhaps the least interesting part of the opinion.