LAKE COUNTY, Calif. — On Wednesday the city of Clearlake scored a win in its lawsuit against Highlands Mutual Water Co. when a judge ruled that the water company must hold a new board election and release more information about its operations.

In making his decision, Judge J. David Markham considered the water company’s bylaws, case briefs, arguments, district practice — and even matters of punctuation.

Markham presided over the brief oral arguments in the case on Tuesday afternoon, taking the matter under submission and planning to release the decision by the end of the week, as Lake County News has reported.

Highlands Mutual held its annual shareholder meeting on April 10 to elect a board, at which time the city brought 177 proxy votes in an attempt to have the Clearlake City Council elected.

Instead, Highlands Mutual ruled that its board had been reelected with 217 votes. It also said nearly half of the proxies submitted by the city were not valid because they were from owners of vacant lots that they said are not eligible to vote.

In June, the city of Clearlake filed the lawsuit seeking to have the election set aside and to force Highlands Mutual to release more information about its operations that the city maintained it is entitled to have under state corporation law.

That matter of who was eligible to vote under the definition of “shareholder” was key to the case, and emphasized during Tuesday’s argument.

Brian Hamilton, representing the city, said the water company’s bylaws and articles of incorporation were clear in considering property owners within the water company boundaries as shareholders.

Highlands Mutual’s attorney, Damian Moos, argued that in order to be a shareholder, a property owner must have a connection to the system. He said that the water company has conducted elections using that shareholder definition for decades, and the city had not previously raised an issue with it.

Markham’s reading of Highlands Mutual’s bylaws found that each lot or parcel is entitled to one share in the water company. “The language does not limit shares to those with water connections.”

The ruling noted, “Defendants rely on language in the Articles [of incorporation], conduct of the City, and conduct of the Board of DIrectors of Highlands.”

The articles of incorporation said that the water company’s purpose is “‘to sell and distribute [water] among the stockholders of this corporation who have land reached by a conduit or pipe line of this Company …’ Defendants argue that by adding the words ‘who have land reached by a conduit or pipe line,’ the drafters intended to limit ‘stockholders’ to those who have land reached by a conduit or pipe line.”

However, he said punctuation was an important consideration, explaining that the lack of punctuation or parenthetical phrases — such as, “in other words” or “to-wit” — indicated “the drafters did not intend to convey that meaning.”

Markham further explained, “For example, the drafters could have written, ‘among the stockholders of this corporation, to-wit, those who have land reached by a conduit or pipe line …’ Or they could have written, ‘among the stockholders of this corporation, who have land reached by a conduit or pipe line …’ Even the addition of a single comma could have indicated that the stockholders were limited to owners of land reached by a conduit or pipe line.”

As a result, Markham found that the city’s interpretation of Highlands Water’s bylaws is consistent with the “plain meaning” of the words in the document and the corporation’s stated purpose.

“Allowing unconnected properties to have shares and the right to vote furthers the purpose of Highlands by allowing future water users [to] have a say in how Highlands is managed so as to protect their ability to obtain connections and receive water in the future,” Markham wrote in the seven-page decision.

He found the water company’s understanding “is inconsistent with the plain meaning of the language used.”

The city’s failure to previously enforce its shareholder rights didn’t help the court with the issue of the language interpretation, and the city not taking action earlier “does not add to or detract from the terms used in the Bylaws or Articles,” Markham wrote.

Based on his evaluation of the evidence, Markham concluded that “owners of all lots and parcels, with or without a water connection, are shareholders of Highlands Mutual Water Company.”

As a result, because Highlands did not notice all shareholders of the board of directors election on April 24, Markham said the election was invalid.

Moos argued on Tuesday that Highlands Mutual has no knowledge of who owns the parcels in its territory, and that it would have to send notices to landowners they don’t know exist.

The city, in response, said the recorder’s office would have that information about the parcels.

Despite Highlands Mutual’s objections to having to send out those notices to all property owners in its territory, Markham has ordered the water company to notice a new election to all shareholders, with the election to take place within 45 days of the issuance of the order on Wednesday.

Email Elizabeth Larson at This email address is being protected from spambots. You need JavaScript enabled to view it.. Follow her on Twitter, @ERLarson, or Lake County News, @LakeCoNews.