U.S. v. Anderson County, Tenn.
| Decision Date | 10 May 1985 |
| Docket Number | No. 84-5026,84-5026 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. ANDERSON COUNTY, TENNESSEE; David O. Bolling, Anderson County Executive; Patsy Stair, Anderson County Trustee; Owen Richardson, Anderson County Property Assessor; Clyde Claiborne; Robert Jolley; Jerry George; Everett Sharp; Charlotte Hayes; Helen Norman; Ernie Phillips, O.V. Leinhart; Kenneth Wallace; Darell Copeland; Jim Hackworth; Jack Keeney & Jack Raines, County Commissioners; Charles Oldham; K.E. Jones; R.R. Tippy; Happy Young & Tom F. Mullinx, Anderson County Board of Equalization; the Board of Equalization of the State of Tennessee and Lamar Alexander; Gentry Crowell; William C. Koch, Jr.; William Snodgrass; Harlan Matthews; Claude Ramsey; Martha Olsen and John E. Sloan, Jr., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
W.J. Michael Cody, Atty. Gen. of Tenn., Jim G. Creecy, Charles L. Lewis, Nashville, Tenn., Mike Lawson, Haynes & Associates, Goodlettsville, Tenn., George John Keto (argued), Alvord & Alvord, Washington, D.C., for defendants-appellants.
John J. McCarthy (argued), U.S. Dept. of Justice, Tax Div., David English Carmack, Washington, D.C., John W. Gill, U.S. Atty., Knoxville, Tenn., Glenn L. Archer, Jr. (Lead), Asst. Atty. Gen., Michael L. Paup, Chief, Appellate Section, Tax Div., Dept. of Justice, Washington, D.C., for plaintiff-appellee.
Before ENGEL, KEITH and JONES, Circuit Judges.
This is an appeal brought on behalf of Anderson County, Tennessee and the Tennessee State Board of Equalization from a reported decision of the United States District Court for the Eastern District of Tennessee. See United States v. Anderson County, Tennessee, 575 F.Supp. 574 (E.D.Tenn.1983). This case concerns the propriety of the imposition of an ad valorem real property tax against the Union Carbide Corporation on account of an alleged real property interest in the federally-owned Oak Ridge Reservation. For the reasons set forth below, the decision of the district court, granting summary judgment in favor of the United States, is hereby affirmed.
The United States, through the Department of Energy (DOE) owns 37,185 acres of land in Anderson and Roane Counties, on which government-owned production and research facilities are located. The property was acquired in 1943 and the facilities have continuously performed functions relating to the development of nuclear energy and the production of nuclear weapons components for the national defense. The Y-12 Plant is located on approximately 805 acres in Anderson County and consists of 271 buildings and structures, all of which are owned in fee simple by the United States.
In 1946, Congress authorized the Atomic Energy Commission (the predecessor of DOE) to contract with private and public entities for the research and development of nuclear processes, utilizing government facilities. Union Carbide has operated the Y-12 Plant pursuant to a management contract which authorizes it to manage, operate and maintain the facility in accordance with the directions of the Department of Energy. Union Carbide procures materials, supplies and equipment, although DOE retains the right to furnish any of these items. Payment for such purchases is made by Carbide from funds provided by the government, and title passes directly from the vendor to the government.
Union Carbide performs all the work under the contract with its own employees who numbered approximately 7,000 at the time of this litigation. Union Carbide has no capital investment in the Y-12 Plant. The contract costs include all expenditures under the contract, including the salaries of Carbide employees. In fiscal year 1980, the allowable costs totaled $272,642,000. In addition to the allowable costs under the contract, Carbide receives a negotiated fee for operating, managing and maintaining three industrial facilities, one of which is the Y-12 Plant. It was estimated that Carbide received $1,800,000 for its work at the Y-12 Plant in 1980. The fee is unrelated to the value of the real or personal The contractual relationship is reviewed periodically in accordance with applicable agency regulations. Each review since 1943 has resulted in an extension of Union Carbide's contract. However, effective April 1, 1984, Union Carbide severed its contractual relationship with DOE and was replaced as management contractor by the Martin Marietta Corporation.
property managed or to the amount of weapon components produced. Union Carbide performs no work as a private entrepreneur on behalf of itself or any other private entity at the Y-12 Plant. Union Carbide is not obligated to pay any rent, fee or other consideration in exchange for its presence at, and right of access to, the Y-12 Plant for the purpose of performing its duties under the management contract. The Department of Energy can terminate the contract for any reason upon six months notice.
In 1980, Anderson County advised both the United States and Union Carbide that it was going to assess an ad valorem real property tax against Union Carbide because of an alleged interest in real property consisting of Carbide's possession and use of the federally-owned Y-12 Plant. The United States sought to contest the validity of this tax and filed suit in the United States District Court for the Eastern District of Tennessee. However, on July 23, 1980, the district court ordered the parties to present their claims to the County and State Boards of Equalization. Subsequently, this initial federal action was dismissed.
Union Carbide appealed the tax assessment to the Anderson County Board of Equalization. On September 30, 1980, the Anderson County Board of Equalization ruled that the property tax on Union Carbide's interest in the Y-12 Plant was legal and appraised that interest at $370,000,000. Union Carbide then appealed to the state Assessment Appeals Commission. On June 10, 1981, the Assessment Appeals Commission reversed the Anderson County Board of Equalization, holding that Union Carbide had no taxable interest in the Y-12 Plant.
Anderson County appealed this ruling to the State Board of Equalization. On January 8, 1982, in a 4-3 decision, the State Board reversed the decision of the Assessment Appeals Commission and found that, under Tennessee law, Carbide was the owner of a real property interest in the Y-12 Plant.
Union Carbide sought review of the State Board's ruling in the Chancery Court for Davidson County. On February 2, 1983, the chancellor affirmed the decision of the State Board of Equalization and found that Carbide enjoyed two significant rights in the Y-12 Plant: the right to use it and the right to enter or leave it.
While the case was pending in the chancery court, the United States initiated a second declaratory judgment action in the United States District Court for the Eastern District of Tennessee, seeking to invalidate the tax assessment imposed against Union Carbide. The district court found that Union Carbide's pending parallel action in chancery court related to important and unsettled matters of state law. United States v. Anderson County, Tennessee, 547 F.Supp. 18, 19 (E.D.Tenn.1982), rev'd, 705 F.2d 184 (6th Cir. cert. denied ), --- U.S. ----, 104 S.Ct. 548, 78 L.Ed.2d 722 (1983). Accordingly, on April 15, 1982, the district court invoked the doctrine of abstention and dismissed the government's federal court action. 547 F.Supp. at 20.
The United States appealed the dismissal to this Court. This Court determined that abstention was inappropriate because there were no unsettled questions of Tennessee law as the relevant statutes were "clear in imposing an ad valorem tax on real property interests and need no judicial construction." 705 F.2d at 187. Further, this Court noted that the unsettled question before the district court was "whether the contractual relationship between Union Carbide and the United States conveyed to Union Carbide any real property interest in the Y-12 Plant" and that the "interpretation Thereafter, on November 9, 1983, the district court entered an order and opinion granting summary judgment in favor of the United States. United States v. Anderson County, Tennessee, 575 F.Supp. 574 (E.D.Tenn.1983). In granting judgment in favor of the government, the district court held that the contract between the United States and Union Carbide did not grant Carbide a leasehold or other traditional real property interest in the Y-12 Plant. See 575 F.Supp. at 578. Rather, the district court was convinced that Union Carbide's interest only amounted to a "mere license" to use the Y-12 Plant in fulfilling its contract with the government. Id. Further, the district court reasoned that the Tennessee statute was only designed to tax "that which is traditionally defined as an interest in real property." Thus, the court concluded that Anderson County could not tax Union Carbide under the Tennessee ad valorem real property tax statute, since, under Tennessee law, Carbide's interest in the Y-12 Plant was not real property. Id.
of a contract wherein the United States is a party is a federal issue." 705 F.2d at 187 (emphasis in the original). Accordingly, on April 20, 1983, this Court reversed and remanded the case to the district court
Anderson County now appeals the November 9, 1983 decision of the district court. However, subsequent to the district court's decision, two important opinions were filed by Tennessee appellate courts in Union Carbide's parallel state court litigation. On December 22, 1983, the Tennessee Court of Appeals held that Union Carbide's right to use, enter and leave the Y-12 Plant is not a taxable interest under Tennessee Code Annotation Section 67-5-502(6). 1 Union Carbide Corp. v. Alexander, slip op. at 9 (Tenn.Ct.App. Dec. 22, 1983), aff'd, 679 S.W.2d 938 (Tenn.1984).
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