Tucker Corporation v. City of Clarksville

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
February 10, 2003 Session
THE TUCKER CORPORATION v. THE CITY OF CLARKSVILLE,
TENNESSEE
Appeal from the Circuit Court for Montgomery County
No. C9-299 John H. Gasaway, III, Judge
No. M2002-00627-COA-R3-CV - Filed May 30, 2003
This is an appeal seeking to overturn the action of the trial court in granting a motion for summary
judgment in favor of the City of Clarksville in a suit wherein the plaintiff challenged the validity of
an ordinance enacted by the defendant setting water and sewage connection fees based on the square
footage of the heated and cooled living space of the house connected to those services. We affirm
the judgment of the trial court.
Tenn. R. App. P. 3 Appeal as a Right; Judgment of the Circuit Court Affirmed and
Remanded
VERNON NEAL, Sp. J., delivered the opinion of the court, in which BEN H. CANTRELL , P.J.M.S. and
WILLIAM B. CAIN , J., joined.
James D. Kay, Jr., Nashville, Tennessee, for the appellant, The Tucker Corporation.
David Haines, Clarksville, Tennessee, for the appellee, The City of Clarksville, Tennessee.
OPINION
The plaintiff, The Tucker Corporation, is a Tennessee Corporation primarily involved in the
residential development and construction business in Montgomery County, Tennessee. The City of
Clarksville owns and operates a municipal water and sewage system. The plaintiff filed an action
against the defendant in May, 1993, seeking to declare Section 13-309 of the City’s Codified
Ordinance invalid alleging that the provisions thereof are arbitrary, capricious, unreasonable,
confiscatory, and unconstitutional and further seeking to enjoin the City and any of its officers,
agents, officials or employees from enforcing the provisions of Section 13-309. The defendant
responded by filing a motion for summary judgment which was granted by an order entered on
February 4, 2002, dismissing plaintiff’s claims against the defendant with prejudice.
Factual Background
In 1986 the City of Clarksville commissioned a study from the engineering firm of Barge,
Waggoner, Sumner & Cannon to develop a comprehensive plan to make a provision for water and
sewage facilities and services in Clarksville through the year 2005. The study and analysis was
completed and the final draft of the plan was filed with the City in February, 1987.
The report drafted by Barge, Waggoner gave several analysis and recommendations relative
to connection to the City’s water and sewage system. In particular, the report recommended that the
Clarksville City Council adopt some type of rate and fee schedule for water and sewer services that
would take into account what was deemed to be the inequitable situation that would be created by
charging all customers, both old and new, the same rates. The study found that the bonded debt of
the Clarksville water system was approximately $14.7 million which was calculated to equate to
$451 per equivalent residential customer. The study further concluded that the total bonded debt of
the sewage system was $23.3 million which was calculated to equate to $1,590 per equivalent
residential customer. Barge, Waggoner found that sewer rates in Clarksville were generally lower
than other Tennessee communities of similar size. Inasmuch as Clarksville was a fast growing
municipality, the study and analysis recommended that the new water and sewage connection fees
be increased in a manner which would take into account the cost indebtedness of the present
infrastructure. The report more fully stated in pertinent part as follows:
....
The current fee schedule is less than the cost incurred by the City to
make the tap. Ideally, tap fees should be sufficient to not only cover
the cost of making the tap, but help pay for the existing treatment and
piping system (or help pay for any expansion necessary in part to
serve the new customer(s)).
The existing rate payers have made a substantial investment in plant
facilities, and having incurred costs to make water and sewer service
to or near the area, which may be one reason why the area is being
developed. The question arises, should the existing customers bear
the burden of supplying the services to an area for the benefit of the
new customers, or should the new customers bear their fair share?
....
Clarksville’s tap fees and policies should be modified so that new
customers help pay for both the cost of local facilities and part of the
infrastructure supplying the area. The objective should be fairness to
all parties, both new and existing customers. The policy should be
-2-
directed toward preventing or reducing the inequity to existing
customers that results when these customers must pay the increases
in water rates that are needed to pay for added plant and line costs for
new customers. Clarksville is facing a period of large and substantial
growth. This growth will require the expansion of both the water
treatment and sewer treatment plant, as well as extensive
improvements in the water distribution and sewerage collection
systems. Realistic and fair tap fees would allow these new customers
to help pay for the improvements needed to serve them. Front end
capital contributions would permit the use of a single rate schedule
applicable to both existing and new customers, rather than different
rates for different areas. New customers connecting to the system
should be required to pay an amount similar to that which has already
been paid by existing customers towards the invested capital funds.
The plan submitted by Barge, Waggoner showed the amount of connection fees that were
reasonably necessary to accomplish the stated purposes. It was on that recommendation that the City
adopted Ordinance 16-1987-88 effective November 1, 1987, which, among other things, fixed water
and sewer fees for new connections. In 1991, the Clarksville City Council acting through the mayor
appointed a committee to study the issue of water/sewer connection fees and to make
recommendations to the City Council for funding the expanded facilities that would be needed in
the coming years. The committee consisting of engineers, developers, homebuilders and others filed
its report February 24, 1992. Among other things, the study committee recommended that all future
permitted homes falling under the original ordinance guidelines should be assessed a water/sewer
connection fee based on the heated and cooled living space expressed in units of square feet. As a
result of that report, the Clarksville City Council adopted Ordinance 59-1991-92 in 1992 which is
codified as Section 13-309 of the Official Code o the City of Clarksville. The ordinance provides
that water and sewer connection fees for all new residential construction shall be based on the
number of square feet of heated and cooled living area contained in the new constructions and set
the new residential construction water connection fee at Twenty cents ($.20) per square foot and for
new residential construction sewer connection fee at Thirty cents ($.30) per square foot. The
connection fees suggested by the Barge, Waggoner report were far in excess of the fees ultimately
adopted by the Clarksville City Council. The term “connection fee” as used in the Clarksville City
Code refers only to a fee charged to defray the cost of adding new users to the system. The
connection fee does not contain a charge for the developer or any other home builder tapping onto
the system when that is done at the developer or builder’s expense.
The document filed in the trial court by the City Comptroller states that from 1988 to
October, 2001, the Clarksville Gas, Water and Sewer Department has collected a total of $6,915,658
in connection/tap fees and of that amount $4,677,200 has been returned to developers of off-site
improvements in the way of rebate coupons. Developers receive credit for improvements they make
to the water and sewer system which are unrelated to the property that they themselves are
developing. In return, the City of Clarksville, Gas, Water and Sewer Department gives those
-3-
individuals a credit equal to the amount of the improvements. As a result thereof, the Gas, Water
and Sewer Department has netted a total of $2,238,458 in connection fees for water and sewer
services during this time period. From 1987 to October 17, 2001, the Clarksville Gas, Water and
Sewer Department has incurred $97,305,214.35 in costs associated with water and sewer treatment
facility expansion, all of which has been occasioned by increased demands on both systems as a
result of population growth and attendant development.
Standard of Review
The trial court found that based on the documents submitted, there is no genuine issue as to
any material fact that the defendant was entitled to judgment as a matter of law.
The party moving for summary judgment bears the burden of demonstrating that no genuine
issue of material fact exists. The court must take the strongest legitimate view of the evidence in
favor of the nonmoving party giving all reasonable inferences in favor of that party and discarding
all countervailing evidence. Hamblen v. Davidson, 50 S.W.3d 433 (Tenn.Ct.App. 2000). Once the
party moving for summary judgment satisfies its burden of showing that there is no genuine issue
of material fact, the burden then shifts to the nonmoving party to show that there is a genuine issue
of material fact requiring submission to the trier of facts. Versa v. Policy Studies, Inc., 45 S.W.3d
575 (Tenn.Ct.App. 2000). Since only questions of law are involved, there is no presumption of
correctness regarding a trial court’s granting of summary judgment. Our review of the granting of
a motion for summary judgment is de novo on the record before this Court. See In Re: Estate of
Hamilton v. Morris, 67 S.W.3d 786 (Tenn.Ct.App. 2001).
Issues Presented
Two issues have been presented for review on this appeal which are: (1) whether the trial
court erred in granting the defendant’s motion for summary judgment on the plaintiff’s claim that
the connection fee assessed by the defendant is an unauthorized form of taxation and is ultra vires;
(2) whether the trial court erred in granting the defendant’s motion for summary judgment on the
plaintiff’s claim that the connection fee assessed by the defendant is discriminatory in violation of
the Equal Protection Clause of the State Constitution and the United States Constitution.
The Fee or Tax Issue
Municipalities may exercise only those express or necessarily implied powers delegated to
them by the Legislature in their Charter or under Statutes. See City of Lebanon v. Baird, 756 S.W.2d
236 (Tenn. 1988) citing Barnes v. City of Dayton, 216 Tenn. 400, 410, 392 S.W.2d 813, 817 (1965);
Adams v. Memphis & Little Rock R.R. Co., 42 Tenn. 645, 654 (1866). In Warren v. Bradley, 39
Tenn. App. 451, 459, 284 S.W.2d 698, 702 (1995) the court stated:
“It is universally recognized that municipal corporations can exercise
no powers which are not in express terms, or by reasonable
-4-
intendment, conferred upon them, and hence have no power [to do an
act], in the absence of a charter provision or statutory enactment
empowering them to do so either in express terms or by necessary
implication”.
When a municipality fails to act within its charter under applicable statutory authority, the
action is ultra vires and void or voidable. Crocker v. Town of Manchester, 178 Tenn. 67, 70, 156
S.W.2d 383, 384 (1941). Under Tennessee law, a municipal action may be declared ultra vires for
either of two reasons: (1) because the action was wholly outside the scope of the city’s authority
under its charter or statute, or (2) because action was not undertaken consistent with the mandatory
provisions of its charter or a statute. Thus the law recognizes a difference between the existence of
a municipal power and the manner or mode of exercising municipal power legitimately. City of
Lebanon v. Baird, 756 S.W.2d at 241.
Both state law and the Charter of the City of Clarksville expressly or impliedly authorizes
the City to charge connection fees for new connections to the water and sewer systems. Tenn. Code
Ann. § 7-34-104 titled Powers of municipalities provides in pertinent part as follows:
(a) In addition to powers which it may now have, any municipality
has the power under this chapter to . . . .
(2) Operate and maintain any public work for its own
use or for the use and benefit of its inhabitants, and
also operate and maintain such public works for the
use and benefit of persons, firms and corporations
(including municipal corporations and inhabitants
thereof) whose residences or place of business are
located outside the territorial boundaries of such
municipality.
....
(5) Prescribe and collect rates, fees and charges for the
services, facilities and commodities furnished by such
public works.
The term “Public works” is defined in Tenn. Code Ann. § 7-34-102(3) as any one (1) or combination
of two (2) or more of the following: water, sewerage, gas or electric heat, light or power works,
plants and systems or parking facilities, together with all parts thereof and appurtenances thereto
including, but not limited to, supply and distribution systems, reservoirs, dams, sewage treatment
and disposal work and generating plants.
-5-
A portion of the Environmental Protection Act dealing with water and sewage codified in
Tenn. Code Ann. § 68-221-101 et seq., provides in § 68-221-210:
§ 68-221-210. Authority to levy and collect other charges. - (a) The
municipality collecting the user’s fee shall have in addition the
authority to fix, levy and collect fees, rents, tolls or other charges in
an amount necessary to provide for the maintenance and operation of
sewage treatment works and payment of any indebtedness.
(b) This authority shall be in addition to any other authority to set like
fees or to levy taxes pursuant to any other statute or authority granted
by the state.
The Charter of the City of Clarksville authorizes the imposition of necessary charges to
provide utility services and provides that the City may own, operate and maintain a sewage disposal
system and furnish the product. While the City of Clarksville has ample legislative authority to
impose connection fees, it is uncontroverted that the City does not have authority to levy a tax for
such purpose.
It has been consistently held that a tax is a revenue raising measure levied for the purpose of
paying the government’s general debts and liabilities and that a fee is imposed for the purpose of
regulating a specific activity or for defraying the cost for providing a service or benefit to the party
paying the same. See City of Tullahoma v. Bedford County, 938 S.W.2d 408 (Tenn. 1997) citing
Memphis Retail Liquior Dealers’ Ass’n v. City of Memphis, 547 S.W.2d 244, 245-46 (Tenn. 1977).
The essential test to determine whether fees are or are not taxes is whether they are, or are not, paid
into the general public treasury and disbursable for general public expenses. See Memphis Natural
Gas Co. v. McCanless, 183 Tenn. 635; 194 S.W.2d 476 (1946).
In the case now before this Court, the revenues generated from the connection fees are not
paid into the city’s general fund but are deposited into a water, sewage and gas utility funds account.
Those fees have not been levied nor used for the purpose of paying for the City’s general debts and
liabilities, but have, instead, been used solely for the purpose of defraying cost of providing service
for the benefit of the party paying the fee by improving and upgrading the City’s sewage and water
systems. In view of the case law definition of what is a fee and what is a tax, we hold that the
connection charge at issue constitutes a permissible fee and not a tax.
Equal Protection Challenge
The plaintiff next insists that the connection fee assessed by the defendant is discriminatory,
in violation of the Equal Protection Clause of the State and United States Constitutions. In
Throneberry Properties v. Allen, 987 S.W.2d 37 (Tenn.Ct.App. 1998), this Court held that equal
protection may be offended by treating persons in the same category differently without justification
and by passing laws of local application that violate or suspend a general law.
-6-
Both the Fourteenth Amendment to the United States Constitution and Article 1, Section 8
of our State Constitution known as the “Law of the Land” clause provide that equal protection
requires that all persons in similar circumstances be treated alike, but it does not require “things
which are different in fact or opinion to be treated in law as though they were the same”. See State
of Tennessee v. Smoky Mountain Secrets, Inc., 932 S.W.2d 905 (Tenn. 1996); Tigner v. State 310
U.S. 141, 147, 60 S. Ct. 879, 882, 84 L. Ed. 1124 (1940); Doe v. Norris, 751 S.W.2d 834, 841 (Tenn.
1988). The concept of equal protection espoused by the federal constitution and our state
constitution guarantees that “all persons similarly circumstanced shall be treated alike”. See
Tennessee Small School Sys. v. McWherter, 851 S.W.2d 139 (Tenn. 1993) citing F.S. Royster Guano
Co. v. Virginia, 253 U.S. 412, 415, 40 S. Ct. 560, 562 64 L. Ed. 989 (1920); Plyler v. Doe, 457 U.S.
202, 102 S. Ct. 2382, 72 L. Ed. 2d 786 (1982); State ex rel. Department of Social Services v. Wright,
736 S.W.2d 84 (Tenn. 1987). Conversely, it has been held that things which are different in fact or
opinion are not required by either constitution to be treated the same. See Plyler v. Doe, supra, 457
U.S. at 216, 102 S. Ct. at 2394; see also Tennessee Small School Sys. v. McWherter, supra, 851
S.W.2d at 153 wherein the court said: “The initial discretion to determine what is ‘different’ and
what is ‘the same’ resides in the legislatures of the States,” and legislatures are given considerable
latitude in determining what groups are different and what groups are the same.” Id. “In most
instances the judicial inquiry into the legislative choice is limited to whether the classifications have
a reasonable relationship to a legitimate state interest”. See Tennessee Small School Sys. v.
McWherter, 851 S.W.2d at 153 citing State v. Southern Fitness and Health, Inc., 743 S.W.2d 160,
164 (Tenn. 1987); Harrison v Schrader, 569 S.W.2d 822, 825 (Tenn. 1978). In Harrison v.
Schrader, 569 S.W.2d 822, 825-826 (Tenn. 1978), the court also found that the determinative issue
is whether the facts show some reasonable basis for the disparate state action. The court stated as
follows:
Under this standard, if some reasonable basis can be found for the
classification, or if any state of facts may reasonably be conceived to
justify it, the classification will be upheld.
The Schrader court further held that the test to be applied, is that the classification must rest
upon a reasonable basis and that if it has a reasonable basis, it is not unconstitutional merely because
it results in some inequality and that reasonableness depends on the facts of the case and no general
rule can be formulated for its determination. The burden of showing that a classification is
unreasonable and arbitrary is upon the individual challenging the statute and if any state of facts can
reasonably be conceived to justify the classification or if the reasonableness of the class is fairly
debatable, the statute must be upheld. See Tennessee Small School Systems v. McWherter, 851
S.W.2d at 154. If a classification is naturally and reasonably related to that which it seeks to
accomplish, it has passed the rational basis test and meets the constitutional standards. See Vogle
v. Wells Fargo Guard Services, 937 S.W.2d 856 at 858.
-7-
Conclusion
In the instant case, we hold that the connection fee at issue is a fee and not a tax and the
classification of charges for connection fees assessed to customers of Clarksville’s water and sewage
system have a reasonable relationship to a legitimate city interest. The fee is applied alike to all
customers of the same class. Assessment of the fee would not be unconstitutional even if it resulted
in some inequality inasmuch as the rational basis test has been met.
In applying the standards and tests enumerated herein for determining whether there has been
a violation of the state or federal constitution involving due process, we hold that the ordinance at
issue is not violative of due process.
The judgment of the trial court is affirmed and this cause is remanded to the trial court for
any further proceedings consistent with this opinion. The costs of this appeal are assessed to the
appellant, The Tucker Corporation.
_________________________________
-8-