Tennessee-American Water Company v. City of Chattanooga, Tennseess ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
June 2000 Session
TENNESSEE-AMERICAN WATER COMPANY v. CITY OF
CHATTANOOGA, TENNESSEE, ET AL.
Direct Appeal from the Chancery Court for Hamilton County
No. 52118 Howell N. Peoples, Chancellor
FILED AGUST 2, 2000
No. E2000-00415-COA-R3-CV
The City of Chattanooga asserted, by counter-claim, that the franchise rights of a state-franchised
water company had terminated when the original stated corporate existence of ninety-nine years
expired. The Hamilton County Chancery Court found that the water company’s franchise was
separate from the incorporation, that perpetuity of the franchise is the appropriate interpretation when
there exists no limiting language in the franchise grant itself, and that the water company had not
trespassed by continuing to operate in Chattanooga past the expiration of the original ninety-nine
year grant of corporate existence. The judgment of the Chancellor is affirmed.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
D. MICHAEL SWINEY , J., delivered the opinion of the court, in which HOUSTON M. GODDARD , P.J.,
and CHARLES D. SUSANO, JR., JJ., joined.
Randall L. Nelson, Fredrick L. Hitchcock, Larry L. Cash, and Stephen D. Barham, Chattanooga,
Tennessee, for the appellant, City of Chattanooga, Tennessee.
Joe A. Conner and Misty Smith Kelley, Chattanooga, Tennessee, for the appellee, Tennessee-
American Water Company.
OPINION
Background
The Chancellor set out a remarkably detailed factual and procedural background of
the events leading to Trial of this case on pages two through thirteen of the Memorandum Opinion
and Order on appeal. We adopt and attach as an addendum pages two through thirteen of the Trial
Court’s Memorandum Opinion and Order as part of the background section of our Opinion.
A review of the background reveals that the Tennessee legislature granted corporate
status to a group of incorporators for the formation of the Chattanooga Water Company in Chapter
91, Section 19 et seq. of the 1868 Public Acts of the General Assembly of Tennessee. The purpose
of the corporation was to establish a water company to provide service within the city of
Chattanooga. The corporation was granted extensive rights relating to provision of water service,
including the rights to enter onto private property to install and maintain pipes, tanks, fire hydrants,
and related facilities. After that venture failed, the legislature in the 1869 Public Acts recognized
another corporation, the Lookout Water Company, and passed to this new entity, “. . . all the rights,
powers and privileges granted to, and subject to all the rules, restrictions and penalties imposed upon
the Chattanooga Water Company . . ..” The parties have stipulated that Plaintiff/Appellee
Tennessee-American Water Company (“Plaintiff”) succeeded to the rights, privileges, duties, and
limitations set forth in the 1868 Act.
The original charter stated a corporate existence of ninety-nine years, and Plaintiff
amended its charter in 1940 to provide for a perpetual corporate existence. This grant of franchise
from the state of Tennessee provides Plaintiff’s principal claim of right to operate as a water
company. Defendant/Appellant City of Chattanooga (“Defendant”) never granted a specific
franchise to Plaintiff to operate within the corporate boundaries of Defendant, although certain
agreements, permits, ordinances, and the course of conduct of the parties are consistent with
recognition of the rights established in the 1868 Act. Certain disputes arose between Plaintiff and
Defendant during the 1970s when Defendant, according to the Chancellor, “. . . embarked on an
aggressive annexation program,” part of which included efforts to acquire Plaintiff. In 1976 and
1977, Defendant, by ordinance, granted limited water service franchises to Southern Cellulose
Products and Dixie Yarns. Plaintiff objected to these franchises, asserting exclusive right to provide
water service within the City of Chattanooga. Plaintiff filed suit in July 1977, naming as parties
defendant the City of Chattanooga and the two companies granted water service franchises by the
City. Defendant City of Chattanooga filed an Answer and Counter-claim, averring in the Counter-
claim “. . . that the original charter of the plaintiff . . . expired on March 10, 1967, and was never
validly amended to enlarge its corporate existence . . ..” This Counter-claim was based upon the
ninety-nine year life of the original corporation, and asserted claims for damages arising from
Plaintiff’s trespass since March 10, 1967.
Following motions for summary judgment, the Trial Court dismissed the Complaint,
finding that Plaintiff had a non-exclusive franchise to provide water service in Chattanooga, but left
open the issue raised in Defendant’s Counter-claim. Following other procedural events not relevant
to the issues on appeal, Defendant’s Counter-claim was tried in May, 1981, but no decision was filed
for reasons not apparent from the record. In March, 1999, Plaintiff filed to re-open the case. Claims
against the other original defendants to the Complaint were dismissed with prejudice, and trial on
the Counter-claim was held during August, 1999. On October 11, 1999, the Trial Court filed a
Memorandum Opinion and Order, finding that the franchise arising from the 1868 Act is perpetual
and did not expire in 1967, dismissing Defendant’s Counter-claim for trespass as well as the original
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Complaint. There is no dispute concerning the non-exclusive nature of Plaintiff’s franchise. It is
from the October 11, 1999 Order of the Chancellor that Defendant appeals.
Discussion
Neither party suggests a standard for our review of the Order of the Chancery Court,
moving directly into argument of the issues presented on appeal. The issues as presented by
Defendant are:
1. Whether the Chancery Court misconstrued the State-granted franchise held by
Plaintiff-Appellee when the Court found it to be a perpetual grant instead of a grant
for the time of the originally-granted corporate succession?
2. If the Chancery Court’s construction correctly concluded that Plaintiff-Appellee’s
franchise constituted a vested, perpetual property right, whether the Chancery Court’s
construction of the franchise is correct to include all of present day Chattanooga
instead of Chattanooga as it existed at the time the interest vested?
This case was tried by the Chancellor sitting without a jury, making our scope of review on appeal
de novo upon the record below. This review is undertaken with a presumption that the findings of
fact by the Chancellor are correct, unless the evidence in the record preponderates against such
findings. T.R.A.P. Rule 13(d); Town of Bruceton v. Arnold, 818 S.W.2d 347, 349 (Tenn. Ct. App.
1991).
Defendant’s argument that Plaintiff’s franchise ended when ninety-nine years had
passed centers upon the contention that the grant of corporate existence with a stated corporate life
of ninety-nine years placed an absolute limit on the franchise to operate as a water company in
Chattanooga granted by the Tennessee Legislature. The Chancellor, in a thorough analysis of
relevant statutes and cases, found that language contained in the 1868 Act allowed for the rights
granted in the franchise to be assigned to the successor corporation. The language at issue reads:
Be it further enacted, That Thomas J. Carlile, Robert R. Byard, R.E. McEwen, their
associates and successors be, and they are hereby, incorporated a body corporate and
politic, under the name and style of the “Chattanooga Water Company;” and by that
name and style, shall have succession for ninety-nine years . . ..
1868 Public Acts of the General Assembly of Tennessee, Chapter 91, Section 19.
In finding a perpetual grant, the Chancellor rejected Defendant’s argument that the
franchise grant lacked the “magic words” necessary to create the authority to assign the rights
granted. While, under the common law, the lack of the term “successors and assigns” created a mere
life estate in property, the Chancellor is correct that the law applicable at the time of the franchise
at issue eliminated such drafting precision in favor of an approach that applies the intention of the
parties to grants of property rights. The Chancellor cited T.C.A. § 66-5-101 and its predecessors,
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along with supporting citations, in finding that the grant of franchise was perpetual rather than
limited to the stated ninety-nine year life of the corporation itself. The current version of the statute
reads:
Every grant or devise of real estate, or any interest therein, shall pass all the estate or
interest of the grantor or devisor, unless the intent to pass a less estate or interest shall
appear by express terms, or be necessarily implied in the terms of the instrument.
T.C.A. § 66-5-101.
In response, Defendant asserts that the statute only applies to transfers of title in fee simple, and is
not applicable in the present case as no property right was conveyed by the Legislature in the
franchise grant. The Opinion of the Trial Court cites as authority and discusses the applicability of
City of Chattanooga v. Tennessee Electric Power Co., 112 S.W.2d 385 (Tenn. 1938). “A right of
way upon a public street, whether granted by act of the legislature, or ordinance of city council, or
in any other valid mode, is an easement, and as such is a property right, capable of assignment, sale,
and mortgage, and entitled to all the constitutional protection afforded other property rights and
contracts.” Id. at 390. Among the extensive rights granted in the 1868 Act, although in more arcane
language, is the right to condemn property for necessary easements. The Chancellor reasoned that
the franchise property rights granted Plaintiff’s predecessors in sections 24 and 25 of the 1868 Act
contained no limiting language, and that the ninety-nine year existence applied only to the original
stated corporation existence. We agree.
The Chancellor quoted a learned treatise for the proposition that the intention behind
establishing a franchise such as the one at issue is to create a perpetual franchise.
According to a number of cases, the grant of a franchise to a public utility company
is a grant of a property right in perpetuity unless limited in duration by the grant
itself, or as a consequence of some limitation imposed by the general law of the state,
or by the powers of the subordinate agency making the grant.
36 Am.Jur.2d, Franchises, § 44.
The Chancellor further cites City of Chattanooga v. Tennessee Electric Power Co. as authority for
the finding of a perpetual grant.
The grant of a franchise to a public utility company is, according to the weight of
authority, a grant of a property right in perpetuity, unless limited in duration by the
grant itself, or as a consequence of some limitation imposed by the general law of the
state, or by the corporate powers of the municipality making the grant. If there be
authority to make the grant, and it contains no limitation or qualification as to
duration, the plainest principles of justice and right demand that it shall not be cut
down, in the absence of some controlling principle of public policy. This conclusion
finds support from a consideration of the public and permanent character of the
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business utility companies conduct, and the large investment which is generally
contemplated.
City of Chattanooga v. Tennessee Elec. Power Co., 112 S.W.2d 385 at 389-390.
Defendant cites no persuasive authority to establish error in the legal reasoning set forth in the
Chancellor’s Opinion, and we find no support for Defendant’s argument on appeal that the franchise
itself, and not just the original corporate existence, was limited to ninety-nine years.
It is obvious from the action of the Legislature in 1869 that the rights granted in the
1868 Act were assignable. The Legislature assigned the rights to the new corporation, Lookout
Water Company. This assignment was stated as being “. . . with all the rights, powers and privileges
granted to, and subject to all the rules, restrictions and penalties imposed upon the Chattanooga
Water Company by Act of the General Assembly . . .” 1869 Public Acts of the General Assembly
of Tennessee, Chapter 51, Section 12. We note that the ninety-nine year existence is not recited in
the 1869 Act, and is argued on appeal as one of the “restrictions and penalties” referenced by the
Legislature. This interpretation is strained at best, and certainly does not indicate legislative intent
to limit the franchise to the ninety-nine year existence granted the original corporation in the 1868
Act. Defendant does not accept the Chancellor’s position that the creation of the corporation, with
a stated life of ninety-nine years, is separate from the grant of the franchise, which, through
assignment as previously discussed, passed from the original incorporators listed in the 1868 Act,
to the incorporators listed in the 1869 Act, and subsequently to the present Plaintiff whose charter
was amended in 1940 to provide for perpetual existence in place of the previous ninety-nine year
existence.
Defendant cites as authority opinions of the United States Supreme Court,1 which are
distinguished as dealing with issues not on point to the present appeal. We agree with the Chancellor
that, as noted in the Opinion on appeal, the Tennessee Supreme Court quoted with approval from
another opinion of the United States Supreme Court in declaring perpetuity of a utility franchise to
be the logical approach.
A leading case on this subject is Louisville v. Cumberland Teleph. & Teleg. Co., 224
U.S. 649, 32 S.Ct. 572, 576, 56 L.Ed. 934, wherein it appears that the telephone
company was operating in the City of Louisville under a franchise granted to its
predecessors, which authorized the use of the streets of the city for the purpose of
operating telephone lines thereon, and which was without limit as to duration. The
contention was made that the original grant of street rights, having been indefinite
1
Turnpik e Co. v. Illino is, 96 U.S. 63, 24 L.Ed. 651 (1877)(w here a franchise limited to the construction and
mainten ance of o ne specific toll road w as not assign able); Owensboro v. Cumberland Telephone and Telegraph Co.,
230 U.S. 58, 33 S .Ct. 988, 57 L.Ed. 1 389 (19 12)(discu ssing the co mmo n law “m agic wo rds” requ iremen t previou sly
discussed as inapplicable un der T.C .A. § 66 -5-101 ); Blair v. Chicago, 201 U.S. 400, 26 S.Ct. 427, 50 L.Ed. 801(1906)(where the Illinois legislature had passed legislation requiring acquiescence by local authorities to extending
franchise rights beyond the original state grant).
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as to time, was either void ab initio, or revocable at the will of the general council,
or that it expired in 1893 when Louisville was made a city of the first class, with new
and enlarged power. In the course of the opinion the court said:
In considering the duration of such a franchise it is necessary to consider that
a telephone system cannot be operated without the use of poles, conduits,
wires, and fixtures. These structures are permanent in their nature and
require a large investment for their erection and construction. To say that the
right to maintain these appliances was only a license, which could be revoked
at will, would operate to nullify the charter itself, and thus defeat the state's
purpose to secure a telephone system for public use. For, manifestly, no one
would have been willing to incur the heavy expense of installing these
necessary and costly fixtures if they were removable at will of the city, and
the utility and value of the entire plant be thereby destroyed. Such a
construction of the charter cannot be supported, either from a practical or
technical standpoint.
This grant was not at will, nor for years, nor for the life of the city. Neither
was it made terminable upon the happening of a future event; but it was a
necessary and integral part of the other franchises conferred upon the
company, all of which were perpetual, and none of which could be exercised
without this essential right to use the streets.
City of Chattanooga v. Tennessee Elec. Power Co., 112 S.W.2d at 391.
We agree with the Chancellor that, as the franchise grant itself had no limiting
language as to the duration of the rights granted, the original ninety-nine year limit on the existence
of the corporation does not convert the franchise from the presumption of perpetuity for such utility
franchises to one of limited duration that ended in 1967.
As for Defendant’s second issue, Plaintiff responds that the limitation of Plaintiff’s
franchise to the 1868 boundaries of Chattanooga was not raised before the Chancellor at trial, and
it cannot be raised on appeal.
It is well-settled that issues not raised at trial may not be raised for the first time on
appeal. Simpson v. Frontier Community Credit Union, 810 S.W.2d 147, 153
(Tenn.1991); Lawrence v. Stanford, 655 S.W.2d 927, 929 (Tenn.1983).
Chadwell v. Knox County, 980 S.W.2d 378, 384 (Tenn. Ct. App. 1998)(quoting State
v. Defriece, 937 S.W.2d 954 (Tenn. Ct. App.1996); Cf., State v. Lewis, 958 S.W.2d
736, 738 (Tenn. 1997)(where an issue regarding double jeopardy in a criminal case
was not raised at trial, the Court nevertheless addressed the issue “in order to correct
an error of constitutional dimension and to prevent manifest injustice”).
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Defendant responds that the issue was raised at trial “by implication.” The record does not support
Defendant’s position. Even under the approach taken by the Court in State v. Lewis, Defendant
alleges neither error of constitutional dimension nor manifest injustice in this appeal. We agree with
Plaintiff that Defendant’s second issue was not raised at trial, and may not be raised for the first time
on appeal.
Conclusion
The Order of the Trial Court is affirmed, and this case is remanded for such further
proceedings as may be required, if any, consistent with this Opinion. Costs of this appeal are
assessed to the appellant, City of Chattanooga.
___________________________________
D. MICHAEL SWINEY, JUDGE
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