Ragsdale v. City of Memphis

• Decision Date: 17 August 2001
• Docket Number: No. W2001-01652-COA-R3-CV.,W2001-01652-COA-R3-CV.
• Parties: Duncan E. RAGSDALE, et ux. v. The CITY OF MEMPHIS, et al.
• Court: Tennessee Court of Appeals

70 S.W.3d 56

Duncan E. RAGSDALE, et ux. v. The CITY OF MEMPHIS, et al.

No. W2001-01652-COA-R3-CV.

Court of Appeals of Tennessee, Western Section, at Memphis.

August 17, 2001.

Permission to Appeal Denied by Supreme Court December 10, 2001.

Leo Bearman, Jr., Elizabeth E. Chance, Dedrick Brittenum, Jr., Thomas C. Quinlen, Memphis, for Appellant, Shelby County, Tennessee.

Allan J. Wade, Memphis, for Appellant, City of Memphis.

J.N. Raines, Oscar C. Carr, III, Jonathan C. Hancock, Memphis, for Appellant, Hoops, L.P.

Paul G. Summers, Attorney General and Reporter, Michael E. Moore, Solicitor General, Janet M. Kleinfelter, Nashville, for Appellant, State of Tennessee.

Lyle Reid, John Knox Walkup, Thomas R. Dyer, Stephen J. Zralek, Memphis, for Amicus Curiae, Memphis Chamber of Commerce.

Duncan E. Ragsdale, Memphis, for Appellees.

OPINION

W. FRANK CRAWFORD, P.J., W.S., delivered the opinion of the court, in which DAVID R. FARMER, J. and HOLLY KIRBY LILLARD, J., joined.

Two taxpayers sued the county, city, and a professional basketball franchise seeking a declaratory judgment that the actions of the city and county to procure and provide financing for a new arena and the agreements made in connection therewith, all in an effort to relocate the franchise to Memphis, violates art. II, § 29 of the Tennessee Constitution because it constitutes a giving or lending of credit of the city and county to a private entity and that the proposed expenditures are not for a public purpose. Defendants filed a motion, pursuant to Tenn.R.Civ.P. 12.02(6), to dismiss the complaint for failure to state a claim or cause of action upon which relief can be granted and also contested standing of the plaintiffs to maintain the action. The trial court denied the motion to dismiss and declared that the expenditures financed by the city and county were not for a public purpose and that the expenditures were in violation of art. II, § 29 of the Tennessee Constitution requiring a referendum election. The trial court enjoined defendants from proceeding further with the plans and agreements for the relocation and the proposed furnishing of expenditures in connection therewith. Defendants have appealed. We affirm in part, reverse and remand.

The parties to this appeal are plaintiffs, Duncan E. Ragsdale and Diane M. Ragsdale (hereinafter Ragsdale or Plaintiffs) and Defendants, City of Memphis (hereinafter City), County of Shelby (hereinafter County), and Hoops, L.P. (hereinafter Hoops). Also, the State of Tennessee has filed a brief in defense of Ragsdale's assertion that the chancery court erred in failing to hold that the public purpose exception, as articulated in Tennessee case law, is a violation of the Tennessee Constitution and should be overturned.¹

The original complaint, filed April 12, 2001, alleges that "[t]hese defendants are negotiating to enter a contract or contracts which will require the creation of municipal ordinance, county ordinance, and/or acts of the legislature of the State of Tennessee for the purpose of funding said contract with public tax funds." Plaintiffs allege that they are owners of real property located in the City of Memphis, County of Shelby, State of Tennessee, and that they are taxpayers. Plaintiffs allege that the contemplated or existing contracts violate the provisions of art. XI, § 8 of the Tennessee Constitution. Plaintiffs pray that the court declare the resolutions, ordinances, contracts, and agreements in violation of the Tennessee Constitution and for an injunction prohibiting appropriation of funds and other relief.

On April 17, 2001, Plaintiffs filed an amendment to the complaint which in essence asserts a class action and names numerous other defendants, including individual members of the Shelby County Commissioners, individual members of the Memphis City Council, state senators, and state representatives.

On May 11, 2001, Plaintiffs filed a second amendment to the complaint which alleges that the contemplated or existing contracts and agreements to which the City, County, and State may be parties, violate the provisions of art. II, § 29 of the Tennessee Constitution, because it will constitute both the City and County giving or lending their credit to persons, companies, or associations without election, as required by this section of the Tennessee Constitution. The amendment further avers that any such ordinances or undertakings on the part of the City of Memphis will be in violation of § 835 of the City of Memphis Charter. Plaintiffs further aver that said agreements and contracts violate art. I, § 22 of the Tennessee Constitution in that they have or will create a monopoly. Plaintiffs further aver that the said agreements and contracts violate the provisions of art. II, § 31 of the Tennessee Constitution. It is further averred that the County of Shelby will be in violation of § 1.01 of the Charter of Shelby County, Tennessee. Plaintiffs again seek injunctive relief and a declaration that the various resolutions, ordinances, contracts, and agreements violate the Tennessee Constitution.

Defendants filed a Tenn.R.Civ.P. 12.02(6) motion to dismiss the complaints as amended by the first and second amendment for failure to state a claim upon which relief can be granted. On June 13, 2001, the court denied the defendants' motions to dismiss with leave to refile the motions after Plaintiffs amended their complaint by affixing as exhibits thereto the actual resolutions adopted and the actual contracts executed.

On June 22, 2001, Plaintiffs filed a third amendment to the complaint which seeks relief essentially upon the constitutional grounds previously alleged and attached as exhibits to the amendment the resolutions and documents setting forth the obligations and agreements of the parties. Defendants again filed a motion to dismiss for failure to state a claim upon which relief can be granted. The State also filed a motion to dismiss, asserting that Plaintiffs lacked standing to challenge the constitutionality of the rental car tax legislation.

On July 10, 2001, Plaintiffs filed a fourth amendment to the complaint, attaching as exhibits the county commission resolution for the Memphis Arena Project agreement and the nonrelocation agreement. The amendment avers that the action of the county as memorialized in the exhibit violates the provisions of art. II, § 29 of the Tennessee Constitution. The amendment further avers that the county's lending of credit to Hoops, L.P., and becoming a stockholder with Hoops, L.P. has no public purpose. The complaint further attaches as exhibits the documents executed by the City of Memphis, the Memphis Arena Use and Operating Agreement, the Pyramid License Agreement, the Memphis Arena Project Agreement, and the Nonrelocation Agreement. The amendment also avers that the actions of the City of Memphis set out in the agreement violate provisions of art. II, § 29 of the Tennessee Constitution and further avers that this action to lend the City's credit to Hoops, L.P. and to become a stockholder with Hoops, L.P. has no public purpose. The amendment further alleges that the Memphis Arena Use and Operating Agreement, the Pyramid License Agreement, the Memphis Arena Project Agreement and all of the resolutions of the City of Memphis taken together violate § 835 of the City of Memphis Charter, because they amount to a lease which is not a profitable lease. The amendment seeks a declaration voiding all of the resolutions and agreements as in violation of constitutional, statutory, and ordinance provisions.

A hearing for argument on Defendants' motions was held July 9, 2001. On July 11, 2001, the trial court entered a declaratory judgment, denied the motions to dismiss, and issued its injunction. The judgment declared that the financing arrangement for the construction of the new NBA arena was unconstitutional as violating art. II, § 29 of the Tennessee Constitution. The court found that the proposed arena was not being built or used for a public purpose and that the City and County were enjoined from expending City and County funds for the construction of the arena without an election, as required by art. II, § 29 of the Tennessee Constitution. The court also dismissed Plaintiffs' constitutional challenge to the car rental tax legislation passed by the Tennessee legislature.²

Defendants have appealed and present three issues for review which, as stated in their brief, are:

I. Whether the financing agreement between Memphis and Shelby County and the Sports Authority constitutes a lending of credit by the City of Memphis or Shelby County in violation of Article II, Section 29 of the Tennessee Constitution?

II. Whether the Chancellor improperly substituted his judgment for the decisions of the City and County, where the City and County found the construction and use of a multipurpose arena—a necessary precondition to attract an NBA team to Memphis—is a proper public purpose with Article II, Section 29 of the Tennessee Constitution?

III. Whether Plaintiffs, alleging no more than that they are taxpayers and owners of real property located in the City of Memphis and Shelby County, Tennessee, have standing to challenge the financing agreement to build an area in Memphis for an NBA Franchise.

After entry of the trial court's declaratory judgment, Plaintiffs filed a motion to alter or amend the declaratory judgment by adding: (1) that the public purpose doctrine as an exception to art. II, § 29 of the Tennessee Constitution was overruled implicitly by the Supreme Court's decision in Cleveland Surgery Ctr., L.P. v. Bradley County Mem'l Hosp., 30 S.W.3d 278 (Tenn.2000). Plaintiffs also sought a ruling that the Tennessee Sports Authority Act is unconstitutional. This part of the motion was withdrawn prior to a hearing on the motion.

This Court remanded the case to the trial court for the purpose of hearing Plaintiffs' motion to alter or amend, and after that hearing...