Steele v. Industrial Dev. Bd. of Metropolitan Gov.

• Decision Date: 24 October 2000
• Docket Number: No. CIV. 3:91-0421.,CIV. 3:91-0421.
• Citation: 117 F.Supp.2d 693
• Parties: Harold E. STEELE, Don Peterson, Rev. David Maynard, Harmon Wray, Rev. Tom Baker, Jr., Individually, and as State Tax Payers and as Members of Americans for Religious Liberty; and Americans for Religious Liberty, a Foreign, Not-For-Profit Corporation, Plaintiffs, v. The INDUSTRIAL DEVELOPMENT BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY; the Metropolitan Government of Nashville and Davidson County; David Lipscomb University; Sovran Bank; Sovran Bank/ Tennessee. Defendants.
• Court: U.S. District Court — Middle District of Tennessee

Page 693

117 F.Supp.2d 693

Harold E. STEELE, Don Peterson, Rev. David Maynard, Harmon Wray, Rev. Tom Baker, Jr., Individually, and as State Tax Payers and as Members of Americans for Religious Liberty; and Americans for Religious Liberty, a Foreign, Not-For-Profit Corporation, Plaintiffs, v. The INDUSTRIAL DEVELOPMENT BOARD OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY; the Metropolitan Government of Nashville and Davidson County; David Lipscomb University; Sovran Bank; Sovran Bank/ Tennessee. Defendants.

No. CIV. 3:91-0421.

United States District Court, M.D. Tennessee, Nashville Division.

October 24, 2000.

Joseph Howell Johnston, David Randolph Smith, David Randolph Smith & Associates, Nashville, TN, for Plaintiffs.

Bobby Dean Davis, Madison, TN, James Lawrence Charles, James Leo Murphy, III, Paul D. Krivacka, Bradley Alan MacLean, Farris, Warfield & Kanaday, Robert J. Warner, Jr., Watkins, McGugin, McNeilly & Rowan, James Logan McElroy, Baker, Donelson, Bearman & Caldwell, Nashville, TN, for Defendants.

MEMORANDUM

TRAUGER, District Judge.

In this proceeding to invalidate a political subdivision's bond issue to benefit a private, religious university, the principal inquiry is whether the bond issue violates the Establishment Clause of the First Amendment of the United States Constitution.

The court has before it motions for summary judgment filed by Defendant David Lipscomb University ("Lipscomb"), Defendant Metropolitan Government of Nashville ("Metro"), and the plaintiffs. Defendant Industrial Development Board of the Metropolitan Government of Nashville and Davidson County ("Industrial Development Board" or "Board"), Defendant Sovran Bank, and Defendant Sovran Bank/Tennessee have not filed motions for summary judgment and have not responded to the plaintiff's motion for summary judgment.

I. STATEMENT OF FACTS AND PROCEDURAL HISTORY

David Lipscomb University, founded in 1891, describes itself as a "liberal arts university." (Docket No. 269, para. 4) It is located in Nashville, Tennessee, and has an enrollment of approximately 2,500 students. (Docket No. 269, para. 4) It is affiliated with the Churches of Christ, and its primary mission has been to integrate Christian faith and practice with the pursuit of academic excellence. (Docket No. 269, para. 4)

During the early 1990s, Lipscomb undertook a major redevelopment project on its campus. To finance the project, Lipscomb sought a $15 million, low-interest loan from the Industrial Development Board. The Industrial Development Board approved the loan and financed it by issuing tax-exempt industrial development bonds worth $15 million.¹ The bond issue was also approved by Metro's Mayor Bill Boner as federally tax-exempt. The loan from the proceeds of the bonds was used in part to construct and equip a new library, to renovate and convert the old library into administrative offices, and to construct a new intramural athletics building ("or student activities center"), four new tennis courts, a new baseball stadium, an intramural field, and an addition to the school's Business Center. (Docket No. 192, Cochran Aff., para. 10)

The bonds are typical of industrial revenue bonds that are commonly issued for educational or industrial purposes. The bonds were issued by the Board pursuant to its authority under state law to issue bonds for the financing of projects for "[a]ny nonprofit educational institution in any manner related to or in furtherance of the educational purposes of such institution, including but not limited to classroom, laboratory, housing, administrative, physical education, and medical research and treatment facilities." TENN. CODE ANN. § 7-53-101(11)(A)(vii) (1990 Supp.).² Because the bonds were issued as education revenue bonds by the Board, the income produced by the bonds is exempt from state taxation. In addition, the bonds were approved by both the Board and Metro's Mayor under the provisions of 26 U.S.C. § 103 (1994), making the interest on the bonds federally tax exempt. Consequently, the bonds carry a lower interest rate than conventional financing, and Lipscomb realizes the benefit through the resulting lower interest rate on its loan from the Board.

The plaintiffs are state and local taxpayers residing in the Nashville area. They contend that the issuance of tax-exempt revenue bonds for David Lipscomb University provides an impermissible benefit to a pervasively sectarian institution, thereby violating the Establishment Clause of the First Amendment of the United States Constitution. (Docket No. 200) Such aid, they argue, has the impermissible effect of advancing religion because a substantial portion of Lipscomb's functions are subsumed in its religious mission. (Docket No. 200) Plaintiffs and/or their counsel objected to the issuance of the bonds on this basis at public hearings and meetings of the Board held on April 10, 1990, April 16, 1990,³ May 30, 1990 and January 22, 1991.⁴ (Docket No. 275, para. 9) When the bonds were approved over their objection, plaintiffs filed suit in this court on May 30, 1991, as municipal taxpayers challenging the validity of the Board's action in issuing tax-exempt revenue bonds for the benefit of Lipscomb. (Docket No. 1; Docket No. 268, para. 15) Lead plaintiff Harold E. Steele died on April 1, 1998. (Docket No. 273, para. 2)

The plaintiffs were found to have standing to bring this suit as municipal taxpayers who have an interest in preventing their local government from subsidizing religious institutions. (Docket No. 83) The plaintiffs argued that the tax base of the state and local governments was reduced by the tax-exempt bonds and, therefore, tax dollars were being expended on behalf of a pervasively religious institution. They asserted that, if tax-exempt bonds had not been issued, Lipscomb would have financed all or part of the project through taxable bonds, which would have provided significant revenue for the city coffers.

Although the Board is an instrumentality of the Metropolitan Government, the bonds do not constitute an indebtedness of either the Board or the Metropolitan Government. (Docket No. 1, attach., Ex. D at 4; Docket No. 197, Cochran Aff., paras. 7-8) Neither the Board nor the Metropolitan Government can be held liable to pay any portion of the principal or interest on the bonds or any costs incident to their issuance. TENN. CODE ANN. § 7-53-306 (1985). No state or local government tax revenues have been or will be spent as a result of the issuance of the bonds. (Docket No. 197, Cochran Aff., para. 7)

The judge originally assigned to this case found that, even if no tax money is spent, taxpayer status is proper grounds for an Establishment Clause challenge to policies that affect the city's general revenue fund. Summary judgment was denied on those grounds and, on interlocutory appeal, the Sixth Circuit Court of Appeals upheld the ruling on standing. Steele v. Indus. Dev. Bd. of the Metro. Gov't of Nashville and Davidson County, 39 F.3d 1182 (6th Cir.1994)(unpublished table decision), cert. denied, 515 U.S. 1121, 115 S.Ct. 2275, 132 L.Ed.2d 279 (1995).

Lipscomb submitted a renewed motion for summary judgment on December 15, 1995, asserting that the "tax exempt" status the bonds derived from the Board could not have harmed the plaintiffs because the bonds would not have fallen under the Hall Income Tax statute anyway. Because the bonds would mature in less than six months, the university argued, they were demand instruments, which are not taxable under the Hall Income Tax statute. The question of whether the bonds would have fallen under the Hall Income Tax statute if they had not been issued as tax-exempt bonds was certified to the Tennessee Supreme Court. The Tennessee Supreme Court ruled that, under the plain meaning of the law, bonds are not demand instruments and, therefore, are taxable. Steele v. Indus. Dev. Bd. of the Metro. Gov't of Nashville and Davidson County, 950 S.W.2d 345 (1997).

Lipscomb has now filed a third motion for summary judgment on the merits, alleging that its receipt of tax-exempt revenue bonds for its facilities expansion project is not a violation of the Establishment Clause, nor does it have the primary effect of advancing religion. (Docket No. 193) Metro has also moved for summary judgment on several grounds. (Docket No. 189) Oral argument was held May 10, 2000, after which the court requested that the plaintiffs submit a motion for summary judgment. The plaintiffs have moved for summary judgment on the grounds that Lipscomb is so pervasively sectarian that a substantial portion of its function is subsumed in its religious mission. (Docket No. 258) As such, the plaintiffs assert, the $15 million in tax-exempt revenue bonds provided in this case had the impermissible effect of promoting religion as a matter of law. (Docket No. 258)

II. ANALYSIS

A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment may be rendered if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c).

In order to prevail, the movant has the burden of proving the absence of a genuine issue of material fact as to an essential element of the opposing party's claim. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989). In determining whether the movant has met its burden, the court must view the evidence in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). If the nonmoving party, however, fails to make a sufficient showing on an essential element of the case with...