LEHI — Some shareholders of the Lehi Irrigation Co. say an auction the company had in January during which water shares with past-due fees were sold without notice was illegal.
"Lehi Irrigation Co. shares go for $10,000 apiece," said Evan Johnson, who filed a lawsuit against the company on Thursday in 4th District Court. "They're such a hot commodity that if you called somebody up and said, 'Do you want to buy my Lehi irrigation shares for $10,000?,' they'd come over to your house within the hour and buy it from you."
An auction of shares with past-due fees was held in early January.
But according to Johnson, the auction was never properly advertised, not even to the shareholders whose stocks were to be sold, and the shares were sold for a fraction of their value.
Johnson and Jim Garside, who jointly filed the lawsuit with Johnson, found out about the water-share auction after buying Lehi irrigation shares from Robert Lowery, who moved from Utah four years ago but still owned shares.
Johnson found Lowery's information from the water-share list and offered to buy from him since Lowery no longer lived in the area.
Johnson and Lowery completed the deal, but when Johnson went to change the share into his name, the irrigation company told him the share was no longer valid.
"(Lowery) had no idea his share had been sold out from under him," Garside said. "And we decided to go after the folks who are the cause of this."
Stan Lewis, president of the Lehi Irrigation Company and John Mabey, the company's legal representative, both declined to comment.
Utah Code regarding the notice of sale of delinquent shares is unclear.
Under state code 16-4-10, a notice must be "served personally" on a stockholder if the stockholder is past due on making payments on fees associated with the share.
The notice must also be published once a week for four successive weeks in a newspaper. To do otherwise, Garside says, the company's bylaws would have to say they could. Johnson said no such bylaws exist.
In addition to a preliminary notice of delinquency, state code requires the company to publish a notice that delineates the place and time that a sale of a necessary amount of shares — enough to cover the assessment fees and any costs of advertising — will take place.
According to the code, the notice is supposed to be published in a daily newspaper 10 days previous to the sale or for two weeks in a weekly paper.
Although a notice was published in a local newspaper on Jan. 5, it did not mention an auction or possible sale of shares. The notice listed the names of shareholders with past due fees and requested information for the shareholders.
"They made no effort to contact me," said Dee Broadhead, whose shares — in his wife's name — were also sold at the auction without his knowledge.
Broadhead also moved from Utah to Texas and then to Arizona but said he filled out a change-of-address form and received all of his mail — except a notice from the irrigation company.
Broadhead said he has tried to contact the company but said he could not find an address or phone number for the organization until recently.
When he tried to call, he said, he only received an answering machine, and no one has returned his call.
"That's what upsets me, is that they're a totally stealth company, and they have the power to sell my shares," Broadhead said.
Johnson and Garside said they hope to generate enough support from shareholders to have a revote on the shares already sold.
Garside sent a letter of complaint to the company's 780 shareholders, the mayor of Lehi and the mayor of Highland, and requested that a shareholders' meeting be called to discuss the auction. Both Lehi and Highland city have enough stock in the company to request such a meeting.
"We're looking into it," said Lehi Mayor Howard Johnson, who has met with the city engineer and the city attorney to discuss allegations surrounding the auction. "As of right now it appears that what the irrigation company did was legal, but we're looking into it."
Johnson and Garside say they also want to know how much their share was sold for.
Not only does Johnson suspect the share was sold beneath its market value, Johnson says he is entitled to reclaim his shares by paying the company whatever amount the share was sold for, in addition to any fees assessed to the share.
But Johnson's time is running out — the stock can only be recovered within six months of the date of the auction. If the auction took place in early January, Johnson may only have a matter of days.
Neither Johnson nor Garside has been able to find out when, exactly, the auction was held.
"We're not interested in a pound of flesh," Garside said. "We just want them to treat everybody fairly, and this was not fair."
E-mail: achoate@desnews.com