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Greenwood v. City of Lebanon

Court of Appeals of Tennessee, Nashville

April 19, 2017

GEORGE M. GREENWOOD, ETAL.
v.
CITY OF LEBANON, TENNESSEE

          Session Date: February 23, 2017

         Appeal from the Chancery Court for Wilson County No. 2014-CV-183 Charles K. Smith, Chancellor

         The plaintiffs entered into a contract signed by the commissioner of finance for the City of Lebanon to act as the City's insurance broker for health care benefits. The plaintiffs secured a group health care benefit contract for the City for the period from July 1, 2013 through July 1, 2014. In February 2014, the City informed the plaintiffs that it had appointed another broker and refused to pay the monthly service fees for the remaining months of the contract. The City asserted that the contract was ultra vires because it was not signed by the mayor or approved by ordinance enacted by the city council as required by the City's charter. The trial court found the contract to be ultra vires, but determined that the City "should be equitably estopped from denying the validity of the agreement" and granted summary judgment in favor of the plaintiffs. We affirm the judgment of the trial court.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

          Phillip Andrew Wright, Jr., Lebanon, Tennessee, for the appellant, City of Lebanon, Tennessee.

          Joe M. Haynes, Goodlettsville, Tennessee, for the appellees, George M. Greenwood and Janet Langley.

          Andy D. Bennett, J., delivered the opinion of the Court, in which Richard H. Dinkins and W. Neal McBrayer, JJ., joined.

          OPINION

          ANDY D. BENNETT, JUDGE

         Factual and Procedural Background

         The City of Lebanon ("the City") is a municipal corporation of the State of Tennessee, chartered pursuant to chapter 644 of the Tennessee Private Acts of 1911, as amended through 2016. Article II, section 1 of the charter provides that the City shall have numerous powers "by ordinance, " including the power "to make contracts" and "to expend the money of the City for all lawful purposes." 2016 Tenn. Priv. Acts ch. 52, § 3. The City has the authority to provide health insurance for its employees. Charter, art. II, § 3, 1953 Tenn. Priv. Acts ch. 414. Pursuant to article III, section 1 of the charter, the City's governing body, the city council ("the Council"), consists of a mayor and one alderman from each ward of the City. 1929 Tenn. Priv. Acts ch. 685, as amended. The Council "shall, by resolution, have the power to approve all contracts and agreements that would legally bind the City in some manner." Charter, art. III, § 5, 2016 Tenn. Priv. Acts ch. 52, § 4. The mayor is the "chief executive officer of the City" and "shall execute all deeds, bonds, and contracts made in the name of the City as approved by the City Council." Charter, art. V, § 1, 2016 Tenn. Priv. Acts ch. 52, § 7. The commissioner of finance and revenue is to attest the mayor's signature. Id.

         George M. Greenwood filed suit against the City on May 7, 2014 for breach of contract. Mr. Greenwood alleged that he entered into an employment contract with the City on May 9, 2003 and a substantially similar employment contract[1] on June 14, 2013. According to Mr. Greenwood, these contracts were approved by the Council and signed by the commissioner of finance.[2] Pursuant to the terms of these contracts, copies of which are attached to the complaint, Mr. Greenwood was named the agent of record (May 2003) or broker/service provider of record (June 2013) for purposes of employee benefits. Because this lawsuit seeks to recover under the June 2013 contract, we will focus on the terms of that agreement. As broker/service provider ("Broker"), Mr. Greenwood was to provide the following services:

1. Review the rate renewal information received from the current carrier on behalf of the Customer Account [the City].
2. Create an analysis of the current plan and renewal premium vs. current premium.
3. Negotiate the very best premium rates and/or benefits on behalf of the Customer Account.
4. Seek proposals from other insurance companies when it meets the needs of the Customer Account by providing the maximum benefits and features at the lowest cost.
5. Prepare a spread sheet comparing the benefits, features and cost of other options.
6. Recommend to the Customer Account as to employee benefits which in the opinion of the Broker/Service Provider shall be in the best interest of the Customer Account and the Customer [Account's] employees.
7. Assist the Customer Account on an ongoing basis with employee benefits.
8. Keep Customer Account updated with information on new employee benefits which the Broker/Service Provider may become aware of.
9. Will repeat these services each year to make sure the Customer Account is always getting the best coverage at the best cost.

         The contract further states that termination of the agreement "shall in no way impair this Broker/Service Provider's rights to all service fees and renewal service fees for the remainder of the current contract year for and on business placed by the Broker/Service Provider of record and is hereafter considered earned as Broker/Service Provider of Record." The Broker agrees to "accept a service fee of 3.5% of medical premiums billed by the insurance company as payment for services."

         The complaint alleges that, on February 5, 2014, the City's commissioner of finance sent Mr. Greenwood a letter stating that it had approved the appointment of a new broker for health insurance. The City refused to pay Mr. Greenwood his monthly service fees from February 5, 2014 through July 1, 2014, the end of the contract year. Mr. Greenwood asserts that the City's refusal to pay him amounts owed under the terms of the agreement constitutes a breach of contract. On October 13, 2014, Mr. Greenwood was permitted, by agreed order, to amend his complaint to add Janet Langley as a plaintiff. The amended complaint states that the plaintiffs secured group health benefits for the City's employees from United HealthCare Services, Inc. ("UHC") and that Mr. Greenwood and Ms. Langley executed a billing and collection agreement with the City. The billing and collection agreement provides that the City would collect a 3.5% service fee from UHC, which would be paid to the plaintiffs: 75% to Mr. Greenwood and 25% to Ms. Langley.

         In its answer to the amended complaint, the City denied the existence of a valid contract between the parties or any breach of such agreement. Citing its charter, the City stated that any contract had to be approved by ordinance enacted by the Council and that the Council had never approved any contract between the City and Mr. Greenwood. Furthermore, the City alleged that, contrary to the requirements of the charter, the mayor had not signed the contract. Thus, the City asserted, any alleged contract would be ultra vires. Citing the principle that a person contracting with officers of a municipal corporation is deemed to be on notice of the authority of such officers to contract on behalf of a city, the City further stated that the plaintiffs failed to establish they exercised due diligence to insure that the alleged contracts were enforceable. The City requested that the amended complaint be dismissed.

         In April 2015, the plaintiffs moved for partial summary judgment with respect to liability. In support of this motion, the plaintiffs filed a statement of undisputed material facts, the affidavit of Mr. Greenwood, the affidavit of Ms. Langley, and the affidavit of Don Fox, mayor of Lebanon from January 1994 through December 2008. The City moved to strike the plaintiffs' affidavits on the grounds that they were not based on personal knowledge, set forth facts not admissible at trial, and did not establish that the plaintiffs were competent to testify to the matters addressed in their affidavits. The City opposed the plaintiffs' motion for summary judgment and filed a cross-motion for summary judgment on the ground that there were no genuine issues of material fact in dispute and the City was entitled to judgment as a matter of law. In support of its motion for summary judgment, the City responded to the plaintiffs' statement of undisputed material facts and submitted its own statement of additional material facts. In July 2015, the plaintiffs filed amended affidavits of Mr. Greenwood and Ms. Langley and opposed the City's motion to strike and motion for summary judgment. According to the City's brief, the trial court orally denied the plaintiffs' motion for partial summary judgment and the City's motion to strike and motion for summary judgment at a hearing on July 10, 2015. There is nothing in the record on appeal to reflect the trial court's rulings.

         In February 2016, the plaintiffs filed another motion for summary judgment based on their amended affidavits, an affidavit of Nick Arnold (an executive at UHC), and an amended statement of undisputed material facts, as well as requests for admissions submitted to the City to which the City had failed to respond. The plaintiffs asserted that these requests for admissions should be deemed admitted. The City opposed the motion.

         The plaintiffs' motion for summary judgment was heard by the court on March 23, 2016. The court accepted the affidavits relied upon by the plaintiffs. The court further determined:

3. The Plaintiffs produced evidence that the June 4th, 2013, service provider agreement upon which they rely was a valid contract that existed between the Plaintiffs and the Defendant.
4. The service provider was a valid contract as the Mayor at that time, Don Fox, had the authority to direct the Finance Commissioner at that time, Russell Lee, to sign the service provider agreement ...

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