Eagerton v. Second Econ. Dev. Coop. Dist.

• Decision Date: 04 March 2005
• Citation: 909 So.2d 783
• Parties: Fred EAGERTON v. SECOND ECONOMIC DEVELOPMENT COOPERATIVE DISTRICT OF LOWNDES COUNTY, a public corporation; et al.
• Court: Alabama Supreme Court

909 So.2d 783

Fred EAGERTON v. SECOND ECONOMIC DEVELOPMENT COOPERATIVE DISTRICT OF LOWNDES COUNTY, a public corporation; et al.

1030667.

Supreme Court of Alabama.

March 4, 2005.

J. Doyle Fuller and Susan G. Copeland of Law Office of J. Doyle Fuller, P.C., Montgomery, for appellant.

E. Alston Ray and Thomas E. Walker of Johnston Barton Proctor & Powell, LLP, Birmingham, for appellees.

Kenneth Smith, chief counsel, Montgomery, for amicus curiae Alabama League of Municipalities, in support of the appellees.

Mary E. Pons, Montgomery, for amicus curiae Association of County Commissions of Alabama, in support of the appellees.

J. Foster Clark and Ed R. Haden of Balch & Bingham, LLP, Birmingham; and John G. Harrell and W. Stanley Gregory of Bradley Arant Rose & White, LLP, Montgomery, for amicus curiae J. Foster Clark.

HARWOOD, Justice.

Fred Eagerton appeals from an order entered by the Lowndes Circuit Court validating the issuance and sale of bonds for the purpose of financing an industrial manufacturing facility in Lowndes County. We reverse and remand.

Facts and Procedural History

In January 2003, Daehan Solution Alabama, L.L.C. ("Daehan"), announced that it would build a plant in a 168-acre industrial park in Lowndes County. Daehan had chosen to locate in Lowndes County because of financial incentives offered by the County. In October 2003, three applicants applied to the Lowndes County Commission ("the Commission") and the Second Economic Industrial Development Authority of Lowndes County ("the IDA") for the authority to incorporate the Second Economic Development Cooperative District of Lowndes County ("the District") as a capital improvement cooperative district, a public corporation organized under Ala. Code 1975, § 11-99B-1 et seq.¹ On October 15, 2003, the Commission held a meeting at which it adopted a resolution purporting to authorize the application to incorporate the District. On that same day, the IDA adopted an authorizing resolution containing language identical to the language in the resolution adopted by the Commission. Following the adoption by the Commission and the IDA of both resolutions, and in compliance with Ala. Code 1975, § 11-99B-4, the applicants filed a certificate of incorporation in the office of the judge of probate in Lowndes County.

During the incorporation process, the District entered into a funding agreement with Lowndes County. In the funding agreement, the District proposed to borrow up to $10 million to finance Daehan's locating its plant in the County and to issue revenue bonds to evidence that debt. In order to assist the District in paying off both the principal and interest of the bonds, the funding agreement required the County to "budget and appropriate and pay over to the District in each fiscal year an amount equal to certain County ad valorem taxes and certain County sales and use taxes received by ... the County in such fiscal year." Specifically, the County agreed to budget and appropriate payments from the income from five existing sources, referred to in the funding agreement collectively as "County Tax Revenues."

The first source is a three-mill ad valorem tax levied by the County pursuant to Act No. 2002-327, Ala. Acts 2002, on each dollar of taxable property, to be paid "to the county general fund to be used for county general fund purposes." The second source is the noneducational ad valorem taxes payable to the County from the property on which the industrial park is located. The third source is an amount derived from one mill of the ad valorem taxes payable to the County pursuant to § 215, Ala. Const. 1901. The fourth source of revenue consists of two one-cent privilege license taxes against gross sales or gross receipts, levied pursuant to Act No. 2003-143, Ala. Acts 2003, and Act No. 97-551, Ala. Acts 1997, respectively. These taxes are specifically directed to be deposited into the Lowndes County General Fund, and Act No. 2003-143 specifically directs that the funds be used "for general county purposes." The fifth and final source of revenue is described in the funding agreement as "for the fiscal year ending September 30, 2004, the sum of $100,000 out of the payment in lieu of taxes made by General Electric to the County."

Section two of the funding agreement states:

"Anything contained herein notwithstanding, the covenant of the County to so budget and appropriate shall not constitute a general indebtedness of the County and shall be payable solely from County Tax Revenues in each fiscal year of the County. The general faith and credit of the County are not pledged for payment of the principal of and interest on the Revenue Bonds, and the Revenue Bonds shall not be general obligations of the County."

Section three of the funding agreement sets out the County's obligations concerning the County Tax Revenues:

"In order to facilitate the collection and application of the County Tax Revenues to the payment of and the interest on the Revenue Bonds, the County will deposit with the [sic] a commercial bank having an office located in Lowndes County, Alabama that will act as depository of the County Tax Revenues (such bank, acting in such capacity as a depository being herein called the `Current Fiscal Year Depository'), daily as received by it, all County Tax Revenues.

"Not later than January 25 and July 25 in each year [preceding] the February 1 and August 1 interest and principal payment dates with respect to the Revenue Bonds, the Current Fiscal Year Depository shall transfer the balance held in the depository account created for such purpose to the Trustee, and an amount equal to any County Tax Revenues received by the Current Fiscal Year Depository between such January 25 or July 25, as applicable, and the following debt service payment date with respect to the Revenue Bonds, shall be paid by the Current Fiscal Year Depository to the Trustee on such debt service payment date or the next business day of the Trustee following such debt service payment date."

Section four of the funding agreement provides that the County's obligations under the funding agreement "shall continue for so long as any `Indenture Indebtedness,' as defined in the Indenture, shall remain outstanding." The trust indenture entered into between the District and J.P. Morgan Trust Company, N.A., which serves as the trustee under the indenture, defines "Indenture Indebtedness" as "all indebtedness of the District at the time secured by the Indenture, including" principal, interest, and any premium on the bonds, plus any fees for services performed and disbursements made.

Section five of the funding agreement lists the various events that constitute an "event of default" under the funding agreement. Those events include 1) the County's failure to deposit "any" of the County Tax Revenues or to make any other required payment when such payment becomes due and payable; 2) the County's failure to budget and appropriate the County Tax Revenues each year; and 3) the County's failure to abide by any other provision of the funding agreement for a period of 30 days after being notified of such failure. Upon the occurrence of an event of default the District is allowed several remedies, including the ability to

"take whatever other actions at law or in equity ... to collect the payments then due or to enforce any obligation, covenant or agreement of the County under this Agreement; provided, however, that under no circumstances [would] the District... be entitled to the payment of any moneys hereunder other than County Tax Revenues received by ... the County in the then current fiscal year of the County."

After filing the certificate of incorporation and executing the funding agreement, the board of directors of the District, along with the County and members of the Commission (collectively referred to as "the appellees"), pursuant to Ala.Code 1975, § 11-81-221, filed a complaint against the taxpayers and citizens of Lowndes County seeking to validate the revenue bonds the District proposed to issue to finance the Daehan plant. In response, Fred Eagerton, a taxpayer and citizen of the County, on behalf of the taxpayers and citizens of the County, filed a motion to dismiss the bond-validation action. He later filed an answer to the complaint and a counterclaim, which was subsequently amended. The amended counterclaim alleged that neither the resolution adopted by the Commission nor the resolution adopted by the IDA authorized the District's incorporation.

Upon close examination, the Commission and the IDA discovered that the authorizing resolution each adopted on October 15 did not contain certain findings necessary to comply with Ala.Code 1975, § 11-99B-3(b). Specifically, the resolutions failed to declare that it was "wise, expedient, and necessary that the proposed district be formed" and failed to authorize either the Commission or the IDA "to proceed to form the proposed district by the filing for record of a certificate of incorporation." The Commission and the IDA each adopted an amended resolution on December 8, 2003, to add this finding and the authorization to incorporate the District. Additionally, the Commission and the IDA each amended the minutes of its meeting of October 15 to reflect that the authorizing resolutions had been so amended.

On January 16, 2004, the Lowndes Circuit Court entered an order validating the revenue bonds the District sought to issue. Eagerton appealed from that order.

Standard of Review

Because the trial court heard "live" testimony at the hearing it conducted in this case, we review its findings of fact under the ore tenus standard of review. "`Under the ore tenus rule, a trial court's findings of fact are presumed correct and its judgment will be reversed only if plainly or palpably wrong or against the preponderance of the evidence.'" Ex parte Baron Servs., Inc., 874 So.2d 545, 548 (Ala.2003) (quoting Ex parte Cater, 772...