City of New Johnsonville v. Handley, No. M2003-00549-COA-R3-CV (TN 8/16/2005)
| Decision Date | 16 August 2005 |
| Docket Number | No. M2003-00549-COA-R3-CV.,M2003-00549-COA-R3-CV. |
| Parties | CITY OF NEW JOHNSONVILLE v. KEVIN E. HANDLEY, ET AL. and GENE PLANT, ET AL. v. KEVIN E. HANDLEY, ET AL. |
| Court | Tennessee Supreme Court |
R. Eric Thornton, Dickson, TN, for Appellants.
T. Holland McKinnie, City Attorney, Franklin, TN; Michael R. Hill, Milan, TN, for Appellee, City of New Johnsonville, TN.
Benjamin C. Regen, Dickson, TN, for Appellees, Kevin E. Handley & Gloria J. Handley.
Stephen D. Wakefield, Memphis, TN, for Appellee, E. I. Dupont De Nemours and Company
John Lee Williams, Robert I. Thomason, Jr., Waverly, TN, for Appellee, Volunteer Title Company, Inc., Trustee
Lewis L. Cobb, Jerry P. Spore, J. Brandon McWherter, Jackson, TN, for Appellee, Union Planters Bank
OPINION
This appeal involves protracted litigation over a parcel of land conveyed by the City of New Johnsonville, Tennessee, to a member of the New Johnsonville City Council. The mayor, on behalf of the city, subsequently filed suit against the councilman seeking to nullify the transaction. During the pendency of that litigation, several taxpayers filed their own suit against the councilman alleging the same causes of action set forth in the city's complaint. The city and the councilman ultimately settled their lawsuit. The taxpayers' lawsuit continued, ultimately naming the city as a defendant. The trial court partially granted the defendants' motions for summary judgment by ruling that the taxpayers did not have standing to contest the land transaction between the city and the councilman. The court ruled that the taxpayers did have standing to continue with their other causes of action concerning allegations that the councilman engaged in illegal business transactions with the city. The taxpayers subsequently took a voluntary nonsuit on their remaining claims and filed an appeal to this Court to contest the trial court's grant of summary judgment on their claim regarding the land transaction. We vacate the trial court's decision regarding the land transaction, and we remand for further proceedings not inconsistent with this opinion.
This appeal involves protracted litigation between numerous parties concerning the transfer of a parcel of land located in New Johnsonville, Humphreys County, Tennessee. The facts, as set forth in over 2,000 pages of technical record, are largely undisputed.
In 1986, Mr. and Mrs. E. W. Lucas (the "Lucases") conveyed, as a gift, approximately eighty (80) acres of property (the "Lucas Property") located in the City of New Johnsonville ("City") to the City. Although not expressly stated in the deed, the Lucases and the City apparently reached an oral agreement that the City would use the property for industrial development. Specifically, the City agreed to convey the Lucas Property at no cost to entities desiring to engage in industrial and/or commercial development on the Lucas Property for the overall benefit of the City.
The City subsequently created an industrial park on the Lucas Property by conveying several tracts of land to various industries at no cost. In approximately July of 1999, Mayor Lawrence A. Hethcoat ("Mayor Hethcoat")1 began negotiating with E. I. DuPont de Nemours & Company ("DuPont"), an already existing industry in the City, about locating its new warehouse and distribution facility in the City's industrial park. DuPont expressed its desire to have someone else build the facility on the property which DuPont would, in turn, lease. The City offered to convey a portion of the Lucas Property to an entity selected by DuPont to build the facility.
During the course of the City's negotiations with DuPont, Kevin E. Handley ("Councilman Handley") served as a member of the New Johnsonville City Council ("City Council").2 Councilman Handley alleged that, in August of 1999, he had a chance meeting with a DuPont employee at a local restaurant. Councilman Handley learned from the employee that DuPont had decided to accept the City's offer. During the course of their conversation, Councilman Handley inquired about bidding on the construction of the DuPont facility. In September of 1999, DuPont mailed Councilman Handley a "Request for Proposal" form. Councilman Handley completed his bid proposal and submitted it to DuPont. On November 1, 1999, DuPont sent a letter to Councilman Handley notifying him that it had, in essence, selected his bid proposal over the others submitted.
Thereafter, Councilman Handley communicated to Mayor Hethcoat that he had been selected by DuPont to build the facility. Mayor Hethcoat convened a special called meeting of the City Council on November 19, 1999, to discuss conveying a portion of the Lucas Property to Councilman Handley and his wife (along with Councilman Handley, collectively referred to as "the Handleys"). Councilman Handley came to the meeting and informed the other members of the City Council that he had been selected to build the DuPont facility. At the special called meeting, the City Council passed a resolution for the conveyance of 32.657 acres of the Lucas Property to the Handleys. That same day, Mayor Hethcoat, on behalf of the City, executed a "Warranty Deed" conveying 32.657 acres of the Lucas Property in consideration of $1.00 to the Handleys, d/b/a Mid South Logistics.
In the interim, the Handleys secured a loan from Union Planters Bank, N.A. ("Union Planters") in the amount of $5,373,181.69 to construct the DuPont facility.3 On January 3, 2000, the Lucases conveyed an additional 19.11 acres of property located adjacent to the parcel at issue to the Handleys in consideration of $38,220.00. On January 17, 2000, the Handleys executed a lease agreement with DuPont calling for the construction and subsequent lease of a warehouse. A "Side Letter" executed by the Handleys and DuPont set forth DuPont's specifications and called for the construction of a warehouse 297,5000 square feet in size. Councilman Handley proceeded to build an industrial warehouse partially located on the parcel obtained from the City and partially located on the parcel obtained from the Lucases.
At some point, the citizens of the City elected Mayor Gene Plant ("Mayor Plant") as their new mayor. After the transaction between the City and the Handleys had been concluded, the Comptroller of the Treasury for the State of Tennessee (the "Comptroller") conducted an investigation and audit of the City's records for a period spanning July 1, 1998, through March 31, 2000, "to determine the extent of the [City's] compliance with certain laws and regulations." On December 12, 2000, the Comptroller issued his findings which revealed several problem areas. The first area discussed in the Comptroller's report addressed the transaction between the City and Councilman Handley, providing:
1. FINDING: Apparent conflict of interest
Two city councilmen had apparent direct conflicts of interest between their official duties and personal interests. The City purchased goods and services from two councilmen as well as conveying a 32-acre tract of land to one of them. Section 12-4-101(a)(1), Tennessee Code Annotated, states:
It is unlawful for any officer, committee member, director, or other person whose duty it is to vote for, let out, overlook, or in any manner to superintend any work or any contract in which any municipal corporation, county, state, development district, utility district, human resource agency, or other political subdivision created by statute shall or may be interested, to be directly interested in any such contract. "Directly interested" means any contract with the official personally or with any business in which the official is the sole proprietor, a partner, or the person having the controlling interest. . . .
In addition, the New Johnsonville municipal code, Section 4-101, states, "Except for the receipt of such compensation as may be lawfully provided for the performance of his municipal duties, it shall be unlawful for any municipal officer or employee to be privately interested in, or to profit, directly or indirectly, from business dealings with the municipality."
RECOMMENDATION:
To provide impartial decisions regarding the city's contracts, official should ensure that unlawful conflicts of interest, as defined in Section 12-4-101, Tennessee Code Annotated, are avoided. Business dealings between the officials and the city should be avoided as required by Section 4-101 of the municipal code. The mayor and members of the city council should seek legal advice and take appropriate corrective action.
MANAGEMENT'S RESPONSE:
Mayor Plant and Councilmen C. Dellinger, J. Dellinger, Handley, Harbison,and James:
The city will abide and enforce Section 12-4-101, Tennessee Code Annotated, and will seek legal advice from the city attorney.
Former Mayor Hethcoat:
Failed to respond.
Councilman Laughlin:
Unused land should be returned immediately. An agreement should be negotiated for the land used.
The City's attorney subsequently issued an opinion letter expressing his opinion that the City could not lawfully convey real property to a member of the City Council.
On July 31, 2001, Mayor Plant, acting on behalf of the City, filed a complaint in the Chancery Court of Humphreys County against the Handleys individually; their business, Mid South Logistics; Volunteer Title Company, Inc., the trustee holding title to the property at issue; and Union Planters as mortgagee.4 The complaint alleged that the transaction between the City and Councilman Handley...
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