Highwoods Properties v. City of Memphis

• Citation: 297 S.W.3d 695
• Decision Date: 27 July 2009
• Docket Number: No. W2007-00454-SC-R11-CV.,W2007-00454-SC-R11-CV.
• Parties: HIGHWOODS PROPERTIES, INC. et al. v. CITY OF MEMPHIS.
• Court: Supreme Court of Tennessee

297 S.W.3d 695

HIGHWOODS PROPERTIES, INC. et al. v. CITY OF MEMPHIS.

No. W2007-00454-SC-R11-CV.

Supreme Court of Tennessee, at Memphis.

November 4, 2008 Session.

July 27, 2009.

John S. Golwen, Colleen Denise Hitch, and Amy Charlyne Worrell, Memphis, Tennessee, for the appellant, Highwoods Properties, Inc., Highwoods Realty LP, Highwoods/Tennessee Holdings, LP, and AP Southeast Portfolio Partners, LP.

Jonathan C. Hancock, Ross Emerson Webster, Don Lester Hearn, Jr., Memphis, Tennessee, for the appellee, City of Memphis.

OPINION

GARY R. WADE, J., delivered the opinion of the court, in which JANICE M. HOLDER, C.J., CORNELIA A. CLARK, and SHARON G. LEE, JJ., joined. WILLIAM C. KOCH, JR., J. filed a separate dissenting opinion.

The Plaintiffs filed an action for declaratory judgment seeking to set aside a consent judgment entered in a lawsuit between property owners in an area of a proposed annexation and the City of Memphis. The earlier lawsuit, which the Plaintiffs failed to timely join, was a quo warranto challenge to an ordinance purporting to annex certain territory contiguous to the boundaries of the City. The consent judgment provided for the annexation of the territory described within the ordinance in two stages, with a portion of the area having an effective annexation date in 2006 and the remainder having an effective date in 2013. The trial court dismissed the complaint and the Court of Appeals affirmed. We granted permission to appeal in order to determine the propriety of the challenge to the consent decree approving of the two-step annexation. We hold that (1) the Plaintiffs are not authorized to file a declaratory judgment action challenging the consent judgment as violative of the terms of the annexation ordinance; and (2) the consent judgment did not create an unconstitutional taxing structure. The judgment of dismissal is, therefore, affirmed.

This appeal arises out of a declaratory judgment action filed by Highwoods Properties, Inc., Highwoods Realty Limited Partnership, Highwoods/Tennessee Holdings LP, and Southeast Portfolio Partners, LP (the "Plaintiffs"), all of whom are landowners and developers, against the City of Memphis (the "City"), challenging the annexation of adjacent territory known as Southwind-Windyke Annexation Area No. 42 ("Area 42"). When the trial court granted a motion to dismiss by the City, the Plaintiffs appealed. The Court of Appeals affirmed.

Factual and Procedural Background

The facts underlying this dispute are largely uncontested. On November 4, 1997, the Memphis City Council enacted Ordinance No. 4513 (the "Ordinance"), adopting a proposal to annex Area 42, a property adjacent to its city limits. The Ordinance provided as follows:

[T]he City of Memphis on its own initiative is authorized to annex territory if it appears that the prosperity of the City of Memphis and of the territory will be materially retarded, and the safety and welfare of the inhabitants and property thereof endangered if said property is not annexed to the city of Memphis. ...

. . . .

[I]t was determined by the Council of the City of Memphis that the proposed annexation reflects the planned and orderly growth and development of the City of Memphis taking into consideration the characteristics of the City of Memphis and those of the area proposed for annexation and is reasonable for the overall well being of the City of Memphis and the proposed area to be annexed; that it appears that the prosperity of the City of Memphis and the affected territory will be materially retarded and safety and welfare of the inhabitants and property thereof endangered if such area is not annexed to the City of Memphis; that, therefore, it is in the best interest, safety and welfare of the inhabitants and property of said territory as well as the municipality as a whole to annex [Area 42] to the boundaries of the City of Memphis.

The Ordinance incorporated a detailed "Plan of Services" setting forth the expected dates by which enumerated city services would be extended to the annexed area.

On December 3, 1997, a number of the property owners within Area 42 filed three separate quo warranto proceedings challenging the propriety of the annexation. See Tenn.Code Ann. § 6-51-103 (2005). All were timely filed within thirty days of the passage of the Ordinance. See State ex rel. Bastnagel v. City of Memphis, 224 Tenn. 514, 457 S.W.2d 532, 535 (1970). Pursuant to statute, the three quo warranto actions were consolidated in the Chancery Court for Shelby County. See Tenn. Code Ann. § 6-51-103(d) ("If more than one (1) [quo warranto] suit is filed, all of them shall be consolidated and tried as one (1) in the first court of appropriate jurisdiction in which suit is filed."). Although the record does not include the details of the litigation, the pleadings do establish that the suit concluded in a settlement in 2006. None of the Plaintiffs in the present case, however, were among the property owners involved in the 1997 litigation.

On December 29, 2005, while the consolidated 1997 challenges were still pending, Highwoods Properties, Inc. ("Highwoods Properties"), one of the Plaintiffs in this litigation, filed a separate quo warranto challenge to the annexation, seeking to have its suit consolidated with those filed in 1997. A month later, Highwoods Properties filed an amended complaint, adding Highwoods Realty Limited Partnership, Highwoods/Tennessee Holdings LP, and Southeast Portfolio Partners, LP, as Plaintiffs. The Amended Complaint contained allegations that the City had "neither ... the ability nor the intent to render municipal services to the subject annexation area to the extent as other areas already within the City of Memphis are receiving" and included assertions that the City had initiated the annexation for the "imposition and collection of taxes [with] an intent to increase the revenues of the City of Memphis. ..." The Plaintiffs further contended that a "potential Consent Judgment" between the City and the property owners in the 1997 consolidated actions "included terms especially detrimental to the Plaintiffs and inconsistent with the ordinance ... as passed." On March 3, 2006, the trial court dismissed the complaint as untimely. The Plaintiffs appealed and the Court of Appeals affirmed the dismissal. Highwoods Props., Inc. v. City of Memphis, No. W2006-00732-COA-R3-CV, 2006 WL 3628102 (Tenn.Ct.App. Dec. 14, 2006) ("Highwoods Properties I"). There was no application for permission to appeal to this Court.

On May 10, 2006, during the course of the appeal by the Plaintiffs, the trial court approved and entered a "Consent Final Judgment" in settlement of the 1997 challenge to the annexation. On June 8, 2006, an "Amended Consent Final Judgment" superceding the initial judgment was approved for entry. The amended judgment divided Area 42 into five sections, which appear below:

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The terms of the final settlement provided for each of the five sections of Area 42 to become a part of the City; however, the annexation of areas A1, A2, and A3 (collectively "Area A") was to become effective on December 31, 2006, while the annexation of areas B1 and B2 (collectively "Area B") would be delayed until December 31, 2013.¹

On October 24, 2006, during the pendency of their appeal in the quo warranto action, the Plaintiffs, owning property located in Area A, filed suit for declaratory judgment asking the chancery court to rule (1) "that the Consent Final Judgment and Amended Consent Final Judgment are invalid" and (2) "that ... Area 42 has not been annexed by the City." As grounds, the Plaintiffs first alleged that "[a] genuine dispute exists as to whether the ... Ordinance, as amended through the Consent Final Judgment and Amended Consent Final Judgment[,] is valid. ("Count I")." The Plaintiffs argued that the settlement constituted "an attempt to unlawfully circumvent the exclusive procedures established by the General Assembly" by effectively amending the Ordinance to incorporate the two-tiered annexation schedule, without enacting a new ordinance. Secondly, the Plaintiffs alleged that the terms of the settlement are constitutionally invalid because they "subject[] taxpayers in Areas A and B to different tax rates in violation of [article 2, section 28] of the Tennessee Constitution. ("Count II")."

In its motion to dismiss, the City argued that (1) the claims are barred by res judicata and collateral estoppel; (2) the Plaintiffs do not have standing to file a declaratory judgment action challenging the terms of a judgment to which they were not a party; (3) the complaint was untimely; and (4) the Plaintiffs failed to join indispensable parties, specifically the property owners involved in the 1997 consolidated litigation. On January 22, 2007, the trial court granted the motion to dismiss "on all grounds set forth therein."

On direct appeal, the Court of Appeals affirmed, concluding that there was "no authority to vacate the annexation ordinance based upon the ... procedural defects" alleged by the Plaintiffs. Highwoods Props., Inc. v. City of Memphis, No. W2007-00454-COA-R3-CV, 2007 WL 4170821, at *10 (Tenn.Ct.App. Nov. 27, 2007) ("Highwoods Properties II"). The court further concluded that the Plaintiffs' constitutional claims were without merit. Id. at *14.

Standard of Review

A Rule 12.02(6) motion under the Tennessee Rules of Civil Procedure seeks to determine whether the pleadings state a claim upon which relief may be granted. Edwards v. Allen, 216 S.W.3d 278, 284 (Tenn.2007). Such a motion tests only the legal sufficiency of the complaint, not the strength of the proof. The resolution of the motion is determined by an examination of the pleadings alone. Cook ex rel. Uithoven v. Spinnaker's of Rivergate, Inc., 878 S.W.2d 934, 938 (Tenn.1994) (citing Wolcotts Fin. Servs., Inc. v. McReynolds, 807 S.W.2d 708, 710 (Tenn.Ct.App.1990)). For...