Tennessee Wastewater Systems, Inc. v. Tennessee Regulatory Authority ( 2016 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
November 19, 2015 Session
TENNESSEE WASTEWATER SYSTEMS, INC.
v. TENNESSEE REGULATORY AUTHORITY
Appeal from the Tennessee Regulatory Authority
No. 14-00041
________________________________
No. M2014-01903-COA-R12-CV – Filed June 30, 2016
_________________________________
Tenn. R. App. P. 12 petition for review of the decision of the Tennessee Regulatory
Authority to revoke Tennessee Wastewater Systems, Inc.‟s Certificate of Public
Convenience and Necessity. Determining that the revocation of the CCN satisfies the
requirements of law, is supported by substantial and material evidence, and is an
appropriate and reasonable exercise of the TRA‟s authority and discretion, we affirm the
decision.
Tenn. R. App. P. 12 Direct Review of Administrative Proceeding; Judgment of the
Tennessee Regulatory Authority Affirmed;
Case Remanded
RICHARD H. DINKINS, J., delivered the opinion of the court, in which FRANK G.
CLEMENT, JR., P.J., M.S., and W. NEAL MCBRAYER, J., joined.
Henry M. Walker and Patricia Head Moskal, Nashville, Tennessee, for the appellant,
Tennessee Wastewater Systems, Inc.
Kelly Cashman-Grams, Nashville, Tennessee, for the appellee, Tennessee Regulatory
Authority.
Herbert H. Slatery, III, Attorney General and Reporter; Andrée Blumstein, Solicitor
General; and Rachel A. Newton, Assistant Attorney General, for the amicus curiae, the
Consumer Advocate and Protection Division Office of the Tennessee Attorney General.
C. Mark Troutman, LaFollette, Tennessee, for the amicus curiae, Emerson Properties,
LLC.
OPINION
I. FACTUAL AND PROCEDURAL HISTORY
Tennessee Wastewater Systems, Inc. (“TWSI”) is a public utility which has held a
Certificate of Public Convenience and Necessity (CCN) since 1994. The original CCN
allowed TWSI to provide wastewater service in the Oakwood Subdivision of Maury
County; over the years the CCN has been amended to allow TWSI to operate in other
areas. By order entered April 11, 2007 (the “CCN Order”), the Tennessee Regulatory
Authority (“TRA”) authorized an amendment to TWSI‟s CCN which would allow TWSI
to provide service to The Villages at Norris Lake (“Villages”), a new subdivision in
Campbell County. The CCN Order recited:
TWS[I] states that no contracts have been signed at this point; however, it
is the intent of the parties that TWS[I] will own the collection, treatment,
and dispersal system and a permanent easement to the property occupied by
the system. The estimated contributed capital from the developer[1] is
$3,000,000; therefore, limited funding is needed from TWS[I] to construct
the initial wastewater systems. TWS[I] is responsible for any future
additions to its infrastructure.
TWSI and Land Resource thereafter entered into a maintenance and service contract, and
the Tennessee Department of Environment and Conservation (“TDEC”) issued TWSI a
State Operating Permit (SOP) to operate the wastewater system on February 28, 2007,
with an expiration date of February 28, 2012.
Land Resource filed for bankruptcy, and on February 3, 2009, the bankruptcy
court entered an order authorizing the sale of Land Resource‟s assets; Emerson
Properties, LLC (“Emerson”), purchased Villages and began developing the subdivision.
After purchasing the property, Emerson began to complete the construction of the
wastewater system and plant; after unsuccessful negotiations with TWSI, Emerson
engaged the Caryville-Jacksboro Utility Commission (“Caryville”) to obtain an operating
permit for the wastewater system. TDEC issued a SOP to Caryville on July 29, 2011.
On November 16, 2011, TWSI filed a petition with the TRA seeking a declaratory
ruling that TWSI had a protected right under Tenn. Code Ann. § 6-51-301(a)(1) to
provide wastewater services to Villages and an order prohibiting Caryville from
providing such services. The Hearing Officer entered an Initial Order holding that, since
the TRA did not have primary jurisdiction to enforce Tenn. Code Ann. § 6-51-301(a), the
1
The developer of the Villages was Land Resource Company (“Land Resource”).
2
petition would not be accepted or set for hearing; the record before us does not show any
further action taken in the proceeding.
On January 27, 2012, TWSI filed a petition for declaratory judgment in Davidson
County Chancery Court, naming the TRA, Emerson, and Caryville as defendants, and
seeking a declaration that TWSI had the exclusive right to provide wastewater services to
Villages and that, pursuant to Tenn. Code Ann. § 6-51-301(a), its rights under the CCN
were superior to Caryville‟s. Emerson filed a counterclaim seeking to invalidate TWSI‟s
CCN. In due course, TWSI moved for summary judgment and the court granted the
motion, declaring that TWSI‟s rights were superior to those of Caryville. The court
dismissed the counterclaim without prejudice to Emerson‟s rights to proceed before the
TRA. The record does not show that an appeal was taken in the Chancery Court
proceeding.
Emerson filed a petition with the TRA on March 1, 2013, requesting that the TRA
terminate TWSI‟s CCN and SOP to provide services to Villages, asserting that, as a result
of the Land Resource bankruptcy, “TWSI has no interest in the real property which
comprises the Villages . . . and has no contractual rights to provide any services to the
owner of the subdivision, or present or future owners of lots.” TWSI filed an answer,
denying any violation of statutes or regulations; a motion to dismiss, asserting that the
chancery court‟s order established its right to provide wastewater services; and a
counterclaim requesting that the TRA prevent Emerson from operating as a public utility
without first obtaining a CCN. The TRA conducted a hearing on Emerson‟s petition on
November 25, at the conclusion of which it took the matter under advisement; on
December 4 the TRA entered an order denying the motion to dismiss. At a conference
held on January 13, 2014, the TRA voted 2-1 to require TWSI to appear and show cause
why the TRA should not revoke the CCN; further proceedings relative to Emerson‟s
petition were held in abeyance. On March 25 the TRA issued an order setting a show
cause hearing for April 14; on that date the TRA, inter alia, continued the matter,2
opened a new show cause docket3 with a hearing to be held no later than June 16, and
transferred the evidentiary record from the Emerson proceeding to the new show cause
proceeding. On April 24, 2014, the TRA issued a new show cause order: setting forth
certain of the factual findings which had been established in the Emerson proceeding;
stating that the majority of the panel “concluded that the allegations were sufficiently
proven to demonstrate that TWSI has failed to comply with and/or violated state law and
TRA rules”; stating four alleged violations (denominated “counts”) of state law or TRA
rules; and requiring TWSI to show cause why its CCN should not be revoked and other
sanctions imposed.
2
TWSI had previously moved to continue the hearing; Emerson and the Consumer Advocate and
Protection Division of the Office of the Tennessee Attorney General, both of whom had participated in
the Emerson proceeding, opposed the continuance.
3
The new docket was assigned case number 14-00041.
3
The matter was heard on June 10, 2014, and on June 16 the TRA panel met and
voted 2-1 to revoke TWSI‟s CCN, sustaining three of the four counts. An order was
entered on August 11 setting forth the relevant facts as to each count and, with respect to
those which it sustained, holding that: (1) TWSI failed to demonstrate the current ability
to provide service in that it did not hold legal ownership or an easement to the land or
system from the developer; (2) TWSI failed to begin providing services to The Villages
at Norris Lake within two years of receiving its certificate of public convenience and
necessity; and (3) because TWSI did not own the wastewater system, it was not in a
position to comply with the TRA rule that prohibits the title of the physical assets of the
wastewater system from being subject to liens or judgments.
TWSI appeals, contending that the order revoking the CCN violates Tennessee
law, is arbitrary and capricious, and is unsupported by substantial and material evidence. 4
TWSI asks this court to reverse the decision.
II. STANDARD OF REVIEW
This is a petition for direct review pursuant to Tenn. R. App. P. 12(a) of the final
order of the TRA; our review is governed by the Uniform Administrative Procedures Act
(“UAPA”):
The court may affirm the decision of the agency or remand the case for
further proceedings. The court may reverse or modify the decision if the
rights of the petitioner have been prejudiced because the administrative
findings, inferences, conclusions or decisions are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion; or
(5)(A) Unsupported by evidence that is both substantial and material in the
light of the entire record.
4
The Consumer Advocate, Emerson Properties, and the Villages at Norris Lake filed amicus briefs on
behalf of the TRA.
4
(B) In determining the substantiality of evidence, the court shall take into
account whatever in the record fairly detracts from its weight, but the
court shall not substitute its judgment for that of the agency as to the
weight of the evidence on questions of fact.
Tenn. Code Ann. § 4-5-322(h). Our Supreme Court most recently discussed the scope of
judicial review of agency decisions in StarLink Logistics Inc. v. ACC, LLC:
The reviewing court‟s standard of review is narrow and deferential. …This
narrow standard of review, as opposed to the broader standard of review
applied in other appeals, reflects the general principle that courts should
defer to decisions of administrative agencies when they are acting within
their area of specialized knowledge, experience, and expertise. . . . Courts
do not review questions of fact de novo and, therefore, do not second-guess
the agency as to the weight of the evidence. This is true even if the
evidence could support a different result.
No. M2014-00362-SC-R11-CV, 2016 WL 2726333, at *7 (Tenn. May 9, 2016)
(citations omitted).
III. DISCUSSION
In our review of the TRA‟s decision, we adopt the procedure set forth in McEwen
v. Tennessee Department of Safety:
Tenn. Code Ann. § 4-5-322 requires courts to engage in a three-step
analysis when they review a final administrative order. The court must first
determine whether the agency has identified the appropriate legal principles
applicable to the case. Then, the court must examine the agency‟s factual
findings to determine whether they are supported by substantial and
material evidence. Finally, the reviewing court must examine how the
agency applied the law to the facts. This step is, of course, a highly
judgmental process involving mixed questions of law and fact, and great
deference must be accorded to the agency. At this stage, the court must
determine whether a reasoning mind could reasonably have reached the
conclusion reached by the agency, consistent with a proper application of
the controlling legal principles.
173 S.W.3d 815, 820 (Tenn. Ct. App. 2005) (footnotes omitted) (citing State of Maryland
Comm’n on Human Relations v. Kaydon Ring & Seal, Inc., 818 A.2d 259, 275 (Md. Ct.
Spec. App. 2003)).
The findings of fact the TRA made in the Emerson proceeding were adopted and
5
made part of the record in the show cause hearing.5 In the order revoking the CCN,
although not specifically identified as such, the TRA made findings of fact as to counts 1,
2, and 3 as well as conclusions relative to each alleged violation; the TRA made no
factual findings as to count 4. In our analysis of this issue, we have identified the factual
findings with respect to each violation in italics.
A. Count 1
As respects Count 1, the TRA alleged that TWSI was “unwilling and/or incapable
of effectively operating and/or managing The Villages in compliance with TRA rules and
Tennessee statutes, and that constitutes material non-compliance and/or a violation under
TRA Rule 1220-4-13-.09.” TWSI does not dispute that this regulation is the appropriate
legal standard.
The factual findings as to Count 1 are as follows:
FINDING OF VIOLATION ON COUNT 1
TWSI claims it is changing its business model in this situation, but
the facts of its proposal show there has not been any substantial change in
the circumstances or facts at issue in this docket. TWSI still refuses to
operate a system it does not own and still expects Emerson to build the
5
The findings in the Emerson petition proceeding are as follows:
a) Tennessee Wastewater‟s CCN was amended to include the Villages at Norris Lake in
an Order issued in TRA Docket No. 06-00277 on April 11, 2007. However, to date,
TWSI has not provided wastewater service to The Villages. TWSI does not have a
contract for service with Emerson, nor does Emerson intend to enter into a
contractual relationship with TWSI.
b) TWSI has not been deeded any land at The Villages, nor does it have an easement.
Emerson has no intention of giving TWSI a deed to property or an easement.
c) TWSI does not own a wastewater system or pipes at The Villages. Emerson will not
give its system or pipes to TWSI.
d) TWSI‟s business model is that the developer builds the system and then deeds it to
TWSI. TWSI‟s tariff does not include capital costs for it to build a system.
e) TWSI is not willing to provide service to The Villages if the wastewater system is not
given to TWSI.
f) Since TWSI does not and cannot own the system, it is not in a position to comply
with TRA Rule 1220-04-13-.10(1), which prohibits the title of the physical assets of a
wastewater system from being subject to any liens or judgments.
g) TWSI has failed to file a petition requesting approval of its alternative proof of
financial security by May 1st of 2012 and 2013 and has failed to file a bond until
alternative financial security is approved in violation of TRA Rule 1220-4-13-.07(5).
The order did not specify the particular count to which any or all of these findings might apply.
6
system and give it to TWSI. TWSI failed to present any evidence that
Emerson will either give its system to TWSI or grant any easements to
TWSI. In its proposal, TWSI agrees to use Emerson‟s plans and
construction company; however, the only new fact presented by TWSI
relevant to Count I is that TWSI will now seek to take Emerson‟s system by
eminent domain if Emerson continues to refuse to give its system to TWSI.
Emerson maintains that it does not want to do business with TWSI and will
not give or sell its system or grant an easement to TWSI.
Further, although TWSI now asserts -- over seven years after being
granted a CCN for The Villages -- a willingness to take the system by
eminent domain, it has provided no evidence that it has taken any steps
toward exercising any eminent domain rights it may have. Therefore, TWSI
has not demonstrated a current ability to provide service. TWSI remains
unable to assert legal ownership or an easement to the land or the system
from the owner/developer. TWSI did not present any evidence at the
hearing to overcome the finding that it was unable to provide service at The
Villages. Nor did TWSI present any evidence that would cause the
Authority to refrain from taking action against TWSI on this violation.
Thus, TWSI failed to meet its burden of proof as to Count 1.
In the section of the revocation order entitled “Alleged Violations of State
Law/TRA Rules,” the TRA cites the testimony of Charles Hyatt, President of TWSI, and
George Potter, Chief Manager of Emerson Properties, which was introduced in the
Emerson proceeding, as evidence that supports the factual basis of the revocation. Mr.
Hyatt testified that there was no enforceable contract between TWSI and Emerson; that
TWSI was willing to enter into a contract to provide wastewater services to Emerson
under “reasonable terms and conditions”; that Emerson had made no requests for TWSI
to provide wastewater services; that TWSI did not own a wastewater facility at Villages;
that TWSI did not raise capital to pay for the construction of a wastewater system; and
that TWSI was unwilling to provide wastewater service if a system was not given to
them. Mr. Potter testified that Land Resource filed a motion in the bankruptcy
proceeding to cancel TWSI‟s existing contracts which was granted by the bankruptcy
court; that Emerson had no existing contract with TWSI and no intent to enter into a
service contract; that TWSI had no recorded interest in the land at Villages; that TWSI
had no ownership or nonpossessory interest in the land at Villages; and that Emerson had
no intent to provide TWSI with a wastewater system. This is substantial and material
evidence supporting the factual findings as to the violation of Tenn. R. & Reg. 1220-4-
13-.09.
The portion of Tenn. Comp. R. & Reg. 1220-4-13-.09 pertinent to this issue
provides:
7
(1) Where a public wastewater utility through the actions of its owner(s),
operator(s), or representative(s) demonstrates an unwillingness, incapacity,
or refusal to effectively operate and/or manage the wastewater system(s) in
compliance with these rules and Tennessee statutes, or the wastewater
system(s) has been abandoned, the Authority shall take appropriate action
based on good cause that may include suspension or revocation of a public
wastewater utility‟s CCN, forfeiture of wastewater utility funds, and/or
making a claim against the public wastewater utility‟s financial security.
***
(4) Proceedings before the Authority for suspension or revocation of a
public wastewater utility‟s CCN, forfeiture of wastewater utility funds,
and/or making a claim against the public wastewater utility‟s financial
security shall be conducted in accordance with Tenn. Code Ann. § 65-2-
106 and after notice to the public wastewater utility and its surety, and an
opportunity to be heard, unless the conduct of a public wastewater utility
poses an imminent threat to the health or safety of the public. In such
exigent circumstances, the Authority may order the summary suspension of
the CCN and follow the procedures as set forth in Tenn. Code Ann. § 4-5-
320.
The Authority will not seek to suspend or revoke a public wastewater
utility‟s CCN, to forfeit the wastewater utility funds, or make a claim
against the public wastewater utility‟s financial security for good cause
without first affording the public wastewater utility a reasonable
opportunity to correct the conditions that are alleged to constitute the
grounds for such action unless:
(a) the conduct of a public wastewater utility poses an imminent threat to
the health or safety of the public; or
(b) a public wastewater utility is unable to provide safe, adequate, and
reliable wastewater service.
Tenn. Comp. R. & Regs. 1220-04-13-.09(1) and (4).
TWSI contends that the revocation of the CCN violated Tenn. Comp. R. & Reg.
1220-4-13-.09(4) because TWSI was not given a “reasonable opportunity” to correct the
conditions which led to the revocation of the CCN. In response the TRA contends: (1)
that TWSI was given a reasonable opportunity to cure within the meaning of the statute;
(2) that under Tenn. Comp. R. & Reg. 1220-4-13-.09(4)(b), TWSI failed to provide “safe,
adequate, and reliable wastewater service”; and therefore, (3) the TRA is not required to
allow TWSI additional time to obtain ownership rights prior to revoking the CCN.
As stated earlier, the scope of judicial review of agency decisions is narrow.
8
StarLink Logistics Inc., 2016 WL 2726333, at *7. Our Supreme Court has stated that
“[g]enerally, courts must give great deference and controlling weight to an agency‟s
interpretation of its own rules. A strict standard of review applies in interpreting an
administrative regulation, and the administrative interpretation „becomes of controlling
weight unless it is plainly erroneous or inconsistent with the regulation.‟” BellSouth
Advertising & Publishing Corp. v. Tennessee Regulatory Auth., 79 S.W.3d 506, 514
(Tenn. 2002) (citing Jackson Express, Inc. v. Tennessee Public Service Comm’n, 679
S.W.2d 942, 945 (Tenn. 1984).
In the present case, the TRA determined that, because TWSI provided no evidence
that it had taken steps toward exercising any eminent domain rights it had and was unable
to assert legal ownership or easement rights to either the land or the wastewater system at
the Villages, TWSI failed to demonstrate an ability to provide service or present any
evidence at the hearing to overcome the findings that it was unable to provide service.
The TRA concluded:
[U]nder TRA Rules 1220-04-13, et. seq., where a public wastewater utility
demonstrates through its actions an unwillingness or incapacity to
effectively operate or manage the wastewater system (i.e., provide service)
in compliance with applicable statutes, rules, and orders of the Authority,
the TRA shall take appropriate action based on good cause; such action
may include suspension or revocation of the utility‟s CCN. . . . [T]he
Authority is not required to afford a utility an opportunity to correct the
conditions that are alleged to constitute grounds for the revocation when
there is an imminent threat to public health or safety or the utility is unable
to provide safe, adequate, and reliable service. It has been clearly
established in the record that TWSI is unable to provide safe, adequate, and
reliable service at The Villages, thus the Authority is not required to
provide TWSI with an opportunity to cure. Nevertheless, even if the
Authority were required to provide an opportunity to cure, the Authority
has done so. TWSI has had multiple opportunities to cure, the most recent
being since the filing of Emerson‟s complaint in Docket No. 13-00017 on
January 6, 2013.
(footnote omitted).
While TWSI contends that Tenn. R. & Reg. Rule 1220-4-13-.09 requires that it be
given a reasonable opportunity to cure the deficiencies before the CCN was revoked, the
regulation only allows such opportunity unless there is an imminent threat to the public
health and safety or the utility is “unable to provide safe, adequate, and reliable
wastewater service.” Tenn. R. & Reg. Rule 1220-4-13-.09(4)(b). Here, the TRA
determined that TWSI did not have the ability to provide safe and adequate service and,
therefore, that an opportunity to cure was not required. This decision is consistent with
9
the evidence and is a reasonable application of the authority granted the TRA in Tenn. R.
& Reg. 1220-4-13-.09. The record also supports the finding that TWSI had several
opportunities to correct the conditions which led to the show cause hearing and failed to
do so.
B. Count 2
With respect to Count 2, the TRA alleged that “TWSI‟s failure to provide
wastewater services within two (2) years of obtaining its CCN . . . constitutes material
non-compliance and/or violation of TRA Rule 1220-04-13-.06(4).”
The factual findings relative to Count 2 are set forth below:
FINDING OF VIOLATION ON COUNT 2
In violation of TRA Rule 1220-04-13-.06(4), TWSI did not begin
providing service to The Villages within 2 years of receiving its CCN.
Emerson purchased The Villages out of bankruptcy in February 2009. Even
though the previous developer at The Villages filed for bankruptcy, TWSI
has had at least since 2009, when Emerson purchased the property, to
come into compliance with this rule. Yet, TWSI has done nothing to attempt
to comply with the rule for several years. TWSI admitted that it did not
contact Emerson to try to reach an agreement after Emerson‟s negative
experience with Mr. Hines, who was TWSI‟s representative. In fact, Mr.
Hyatt testified at the hearing that:
[W]e should have been more aggressive shortly after the
bankruptcy and called the bonds. The bonds were held by the
county on our behalf to complete all three phases of the sewer
system. ... If we would have stepped in right then and there
and negotiated the bonds, I don‟t think we would be here
today talking about this.
By its own testimony, TWSI could have called the construction
bonds to complete the system and begin providing service, yet it did not
take action. TWSI could have tried to reach an agreement with Emerson
after it purchased The Villages, but it neglected to do so. Thus, TWSI has
failed to provide wastewater service to The Villages within the time period
required by TRA Rule 1220-04-13-.06(4), and such failure appears from
the evidence to be the result of an unwillingness and/or incapacity on the
part of TWSI. TWSI failed to present any evidence to rebut Count 2 that
would cause the Authority to refrain from taking action against TWSI on
this violation. Thus, TWSI has failed to meet its burden of proof as to
10
Count 2.
In the order, the TRA cites to the testimony of George Potter and Charles Hyatt in
the Emerson proceeding as evidence that supports the factual basis of the violation as
alleged in count 2. Mr. Potter testified that TWSI had not rendered any services to
Villages since Emerson purchased the property in 2009. Mr. Hyatt testified that the CCN
to Villages was issued in 2007 and remains in effect, and that TWSI was not currently
providing wastewater services to Villages and had not done so since the CCN was issued
in 2007. This is substantial and material evidence in support of the findings as to count 2
quoted above.
Tenn. Comp. R. & Reg. 1220-4-13-.06(4) states:
If wastewater service has not been provided in any part of the area which a
public wastewater utility is authorized to serve within two (2) years after
the date of authorization for service to such part, whether or not there has
been a demand for such service, the Authority may require the public
wastewater utility to demonstrate that it intends to provide service in the
area or part thereof, or that based on the circumstances of a particular case,
there should be no change in the certified area, to avoid revocation or
amendment of a CCN.
TWSI does not dispute that Tenn. Comp. R. & Reg. 1220-4-13-.06(4) was the
appropriate legal principle, but argues that the TRA violated Tenn. Code Ann. §§ 65-4-
1076 & 65-1-1137 by revoking the CCN because the CCN Order required the developer to
6
At the time the Emerson proceeding was initiated, Tenn. Code Ann. § 65-4-107 stated:
(a) No privilege or franchise hereafter granted to any public utility by the state or by any
political subdivision of the state shall be valid until approved by the authority, such
approval to be given when, after hearing, the authority determines that such privilege or
franchise is necessary and proper for the public convenience and properly conserves the
public interest, and the authority shall have power, if it so approves, to impose such
conditions as to construction, equipment, maintenance, service or operation as the public
convenience and interest may reasonably require; provided, however, that nothing
contained in this chapter shall be construed as applying to the laying of sidings,
sidetracks, or switchouts, by any public utility, and it shall not be necessary for any such
public utility to obtain a certificate of convenience from the authority for such purpose.
Effective March 22, 2016, the statute was amended to add a section (b). That section has no relevance to
this proceeding.
7
Tenn. Code Ann. § 65-1-113 states:
11
fund and construct the wastewater system as a condition precedent to TWSI‟s duty to
provide services. We do not agree that the CCN order can be interpreted in the manner
urged by TWSI.
The portion of the CCN Order which TWSI contends imposed a condition
precedent to its obligation to provide services is contained in a section titled “The
Petition”; in that section the order sets forth the factual and procedural background of the
filing of TWSI‟s petition to expand its CCN, the details of the proposal, and the intent of
the various parties as to the construction, operation, financial obligations, and property
rights with respect to the wastewater system. The specific language says:
TWS[I] states that no contracts have been signed at this point; however, it
is the intent of the parties that TWS[I] will own the collection, treatment,
and dispersal system and a permanent easement to the property occupied by
the system. The estimated contributed capital from the developer is
$3,000,000; therefore, limited funding is needed from TWS[I] to construct
the initial wastewater systems. TWS[I] is responsible for any future
additions to its infrastructure.
While Tenn. Code Ann. § 65-4-107 allows the TRA, in its discretion, to impose
conditions upon the grant of CCN‟s, the order does not impose any such conditions. This
language is a summary of the relevant procedural background and details of TWSI‟s
petition, not a mandate by the TRA.
TWSI also argues that the TRA violated Tenn. Code Ann. § 65-1-113 when it did
not enforce these conditions. In light of our holding that the CCN Order did not impose
conditions precedent, this argument fails.
C. Count 3
With respect to Count 3, the TRA alleged that “TWSI does not own either land or
the wastewater system and appears unable to obtain ownership of the system from the
owner/developer . . . . [and] is not in compliance nor in a position to comply with TRA
Rule 1220-04-13-.10(1).”
The entire finding as to Count 3 is as follows:
TWSI also failed to present any evidence to rebut Count 3. TWSI is not
It is the duty of the Tennessee regulatory authority to ensure that Acts 1995, ch. 305 and
all laws of this state over which they have jurisdiction are enforced and obeyed, that
violations thereof are promptly prosecuted, and all penalties due the state are collected.
12
currently in compliance or in a position to comply with this rule, which
prohibits the title of the physical assets of a wastewater system from being
subject to any liens or judgments. TWSI does not own the wastewater
system, and based on the facts in the record, remains unable to obtain
ownership of the system. As such, TWSI remains in violation of TRA Rule
1220-04-13-.10(l). In fact, the record shows that the title of the physical
assets has indeed been encumbered. The facts in the record clearly show
that TWSI is currently unwilling and unable to provide service at The
Villages in compliance with state law or the TRA‟s Rules, and TWSI did
not offer any evidence that would cause the Authority to refrain from taking
action on this violation. Thus, TWSI has failed to meet its burden of proof
on Count 3.
The revocation order cites the testimony of George Potter at the Emerson
proceeding as evidence that supports the finding of a violation as alleged in count 3. In
Mr. Potter‟s October 2013 testimony, he testified that TWSI had no recorded interest in
the real estate; that Emerson obtained loans to fund the purchase and development of the
Villages and “pledged virtually all of the real estate of the development including the
property that was to house” the wastewater system, as collateral; and that TWSI “does
not presently have an interest in that property and cannot hold that property free and
clear.” The order also cites Mr. Potter‟s testimony at the November 25, 2013 proceeding
in which he testified as to what Emerson had done since acquiring the property to
construct and operate the wastewater system, including securing the services of Caryville
as well as necessary approvals from the TDEC. This is substantial and material evidence
in support of the finding as to count 3 that TWSI has no ownership rights to the system or
the property and could not obtain the same.
Tenn. Comp. R. & Reg. 1220-4-13-.10(1) reads:
Title to all physical assets of the wastewater system managed or operated
by a public wastewater utility shall not be subject to any liens, judgments,
or encumbrances, except as approved by the Authority pursuant to Tenn.
Code Ann. § 65-4-109.
Tenn. Comp. R. & Reg. 1220-4-13-.10(1) is intended to prevent a wastewater
facility from being subject to liens or other encumbrances. TWSI has no ownership
interest in the real property or in the wastewater system under construction; accordingly,
it is not in a position to prevent liens or encumbrances on the land or the system. The
TRA‟s determination is a reasonable application of the rule to the facts presented.8
8
We acknowledge TWSI‟s argument, related to the discussion at Section III A, supra, that the effect of
the revocation order was to deny TSWI the opportunity to exercise its condemnation power to complete
the system. We determined in that section, however, that Tenn. Comp. R. & Reg. 1220-4-13-.09 did not
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D. Sufficiency of the Evidence
TWSI argues separately that the revocation order should be reversed, contending
that the determination that TWSI did not present evidence to rebut the violations is
contrary to the record, and that the order failed to mention certain evidence in the record
which weighs against the decision to revoke the CCN. Specifically, TWSI identifies the
following evidence:
1. The complete record of the Emerson hearing
2. A joint stipulation of the parties.
3. The deposition transcript of Frank Wallace, Executive Director of
Caryville, with exhibits.
4. The deposition transcript of George Potter, with exhibits.
Upon our review, we note that in the revocation order, the TRA cites to the pre-
filed direct testimony of George Potter as well as his testimony during the November 25
proceeding; the revocation order incorporated the findings and conclusions made in the
April 24, 2014 show cause order which, in turn, referenced and incorporated the record of
the Emerson petition proceeding; the evidence in the Emerson proceeding included the
pleadings, pre-filed direct and rebuttal testimony of Charles Hyatt and George Potter and
exhibits, and the orders initiating the TRA‟s show cause docket. The revocation order
also discusses the testimony of George Potter during the show cause hearing and his May
12, 2014 deposition testimony, and discusses the joint stipulation of facts. TWSI‟s
contention that the final order failed to consider the entire evidence presented during the
show cause hearing is without merit.
TWSI argues that in light of the evidence it presented, the revocation was not
supported by substantial and material evidence. We do not reweigh evidence or second-
guess the agency as to the weight of the evidence on questions of fact. See Tenn. Code
Ann. § 4-5-322(h)(5)(B). We have considered the evidence which TWSI incorrectly
states was not considered in the order and see nothing that detracts from evidence
supporting the factual findings of the TRA; the revocation was supported by substantial
and material evidence.
E. Tenn. Code Ann. §§ 65-4-117 & 65-4-114
TWSI argues that, pursuant to authority granted at Tenn. Code Ann. §§ 65-4-
117(a) and Tenn. Code Ann. § 65-4-114(1) & (2),10 the TRA should have required TWSI
9
require an opportunity to cure under the facts presented.
9
Tenn. Code Ann. § 65-4-117(a) states, in relevant part:
(a) The authority has the power to:
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to complete construction of the wastewater system at its own expense and provide
wastewater services rather than revoke the CCN. We do not agree.
Tenn. Code Ann. § 65-4-117(a)(1) confers the authority to investigate matters that
concern public utilities; § 65-4-114(1) & (2) vests the TRA with the authority to compel
a public utility to furnish service, maintain property and equipment in a manner that
allows said service to be provided, and to construct extensions of existing facilities when
the TRA deems such construction reasonable. While both statutes grant the TRA this
authority, we do not read either statute as a mandate that the TRA use its authority to
require a public utility to provide services in all circumstances; § 65-4-114 also gives the
TRA authority to “abandon any service when, in the judgment of the authority, the public
welfare no longer requires the same.” Inherent in the statutory framework is discretion
granted to the TRA in the exercise its power. The decision to revoke the CCN was within
the authority granted the TRA and not a violation of Tenn. Code Ann. §§ 65-4-117 or 65-
4-114.
(1) Investigate, upon its own initiative or upon complaint in writing, any matter
concerning any public utility as defined in § 65-4-101.
10
Tenn. Code Ann. 65-4-114(1) and (2) state:
The authority has the power, after hearing, upon notice, by order in writing, to require
every public utility, as defined in § 65-4-101, to:
(1) Furnish safe, adequate, and proper service and to keep and maintain its property and
equipment in such condition as to enable it to do so; and
(2) Establish, construct, maintain, and operate any reasonable extension of its existing
facilities where, in the judgment of the authority, such extension is reasonable and
practicable, and will furnish sufficient business to justify the construction, operation, and
maintenance of the same, and when the financial condition of the public utility affected
reasonably warrants the original expenditure required in making such extension, or to
abandon any service when, in the judgment of the authority, the public welfare no longer
requires the same.
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IV. CONCLUSION
For the foregoing reasons and affording deference and controlling weight to the
TRA‟s interpretation of its rules, we conclude that the revocation was supported by
substantial and material evidence; the TRA did not violate Tenn. R. & Reg. 1220-4-13-
.09, Tenn. Code Ann. §§ 65-4-107, 65-1-113, 65-4-117, or 65-4-114 in revoking the
CCN; and that the decision to revoke the CCN is a reasonable application of Tenn. R. &
Reg. 1220-04-13-.10(l) to the facts presented. The order is, accordingly, affirmed.
RICHARD H. DINKINS, JUDGE
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