City of Blaine v. Hayes ( 1998 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE FILED
April 30, 1998
Cecil Crowson, Jr.
Appellate C ourt Clerk
CITY OF BLAINE, ) GRAINGER CHANCERY
)
Plaintiff/Appellant ) NO. 03A01-9711-CH-00520
)
v. ) HON. CHESTER S. RAINWATER
) CHANCELLOR
JOHN COLEMAN HAYES )
ASSOCIATES, INC., )
JOHN L. GILMORE, JR., )
RICHARD DEADMAN, )
RICKY OAKLEY, and )
ROBERT RAMSEY, )
) AFFIRMED and
Defendants/Appellees ) REMANDED
Robert C. Edwards, Knoxville, for Appellant.
W. Lee Corbett & Associates, Nashville, for Appellees.
OPINION
INMAN, Senior Judge
On July 10, 1985, the City of Blaine [Blaine] and John Coleman Hayes
and Associates [Hayes] entered into a contract whereby Hayes agreed to
perform professional engineering services for Blaine in connection with the
construction of a waste water treatment and collection system. The contract
provided for arbitration if disagreements arose; Blaine filed this complaint
seeking rescission of the contract alleging fraudulent inducement, while Hayes
sought arbitration and a stay of litigation. On appeal, we stayed the arbitration
proceedings until the rescission issue was resolved. See, City of Blaine v. John
Coleman Hayes, 818 S.W.2d 33 (Tenn. App. 1991).
Following remand, Hayes filed a motion for summary judgment pleading
the bar of the Statute of Limitations of three years, T.C.A. § 28-3-105.1 After
considering a host of affidavits and depositions, the Chancellor found that the
cause of action accrued more than three years before the complaint was filed
and the action for rescission was dismissed. Blaine appeals, and presents for
review the issue of whether its complaint accrued more than three years before
the filing of it. Review is de novo with no presumption of correctness, RULE
13(e),
T. R. A. P.; Carvell v. Bottoms, 900 S.W.2d 23 (Tenn. 1995).
The thrust of Blaine’s complaint is that Hayes misled its officials in the
matter of the amount of the monthly charges which would be assessed to the
users of the system, and thus fraudulently induced the contract. Blaine argues
that Hayes represented in March, 1985, that a monthly user rate of $6.00 to
$8.00 would adequately finance Blaine’s portion of the construction costs. Four
years later, this estimate2 increased to $19.00 monthly, and still later, to about
$30.00 per month. Blaine argues that it would not have entered into the
engineering contract, in the first place, had Hayes not misrepresented the
numbers, and therefore it was defrauded into the execution of the contract on
July 10, 1985, and seeks rescission of it to avoid payment of Hayes’ services.
Hayes argues that Blaine utilized its professional services for more than three
years after Blaine became aware that the monthly user fees would be excessive,
as evidenced by events which occurred after the contract was executed.
The first phase in designing and constructing a sewer system is to
develop what is known as a “201 Facilities Plan.” After the 201 Facilities is
1
Which is not disputed.
2
User fees depended upon (1) the costs of construction, (2) depreciation of the systems, (3) the number
of users, (4) collection of the fees, (5) the availability and amount of grant mon ey, since Blaine would require
substantial financial assistance. It is not seriously d isputed that Blaine w as aware of these fa ctors at all times.
completed, it is presented both to the Mayor and Board of Alderpersons as well
as to the Tennessee Department of Health and Environment for review. On
June 30, 1986, almost a year after the contract was signed, Hayes forwarded to
the Tennessee Department of Health and Environment, the final 201 Facilities
Plan for the City of Blaine. In the letter accompanying the 201 Facilities Plan,
Hayes states that
the total project cost is recommended at $1,861,072 . . . if the City
finances the local share at seven percent (7%) for thirty-five (35)
years, the annual debt service would be $28,700 equivalent to $7
monthly per user. Operations, maintenance, billing, administration
and depreciation amount to an additional cost of $34,600 annually
requiring a total budget of $63,300 and is equivalent to $15.47
monthly per user the first year of operation, a rate which may be
excessive . . . it is obvious, therefore, that Blaine should seek
additional financial assistance to reduce the user cost.
On July 7, 1986, a year after the contract was signed, a copy of the final
201 Facilities Plan was forwarded to Blaine, with a cover letter stating
there is a significant difference between this final 201 Plan and that
presented to the public hearing this past December. TDHE, by
technical review, at Number 7, February 20, required that the final
201 Plan “not assume that an innovative bonus will be granted for the
central treatment plan” . . . consequently the anticipated local share
shown in the summary and on pages 14 and 19 are greater than shown
in the January 2 plan. In both plans, the conclusion is drawn that
additional, significant, financial assistance will be needed to have
affordable user rates.
It is thus beyond peradventure that as of July 7, 1986, more than three
years before the complaint was filed, Blaine was aware that the amount of the
user rates could be significantly higher than expected unless appropriate
financial assistance was obtained.
On July 10, 1986, a year after the contract was signed, about four years
before the filing of this complaint, and three years before Blaine advised Hayes
that its services would no longer be required, the Tennessee Department of
Health and Environment informed Blaine that “if Blaine does not secure
funding other than the EPA and state grants, your consultant’s figures show a
possible user charge of over $25 monthly, rather than $10.00 a month.”
This letter is unequivocal notice to Blaine that the monthly user charge
would be substantially more than $6.00 to $8.00, as initially discussed. But
Blaine insisted that Hayes continue with its design and engineering work for
another three years, when a new administration took over, terminated the
contract, and refused to pay accrued charges.
The host of affidavits and depositions do not controvert the
uncontrovertible fact that at least by July 10, 1986 Blaine was aware that the
user rate would be greater than its sewer customers could or would pay. This
was more than three years before the complaint was filed. When faced with a
supported motion for summary judgment based upon this assertion, Blaine was
required to produce evidence of its entitlement to maintain the action. Merritt v.
Wilson County Board of Zoning Appeals, 656 S.W.2d 846 (Tenn. App. 1983),
and it failed to do so.
Finally, we think it permissible to note that the Mayor of Blaine rather
vehemently denied that Hayes misrepresented any fact or engaged in fraudulent
inducement, insisting that all who participated were fully aware that the
projected monthly user rate was an estimate fraught with obvious risks.
The judgment is affirmed at the costs of the appellant, and the case is
remanded for further proceedings.
________________________________
William H. Inman, Senior Judge
CONCUR:
_______________________________
Houston M. Goddard, Presiding Judge
_______________________________
Charles D. Susano, Jr., Judge