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State ex rel. Appaloosa Bay, LLC v. Johnson County

Court of Appeals of Tennessee, Knoxville

June 9, 2017


          Session: January 25, 2017

         Appeal from the Chancery Court for Johnson County Nos. 6948 & 7146 John C. Rambo, Chancellor.

         Two owners of separate lots in a planned residential subdivision of twenty lots brought this action against the Johnson County Regional Planning Commission and several state entities after the subdivision's developer went into bankruptcy and development of the subdivision was halted. When the developer had earlier posted a performance bond securing the completion of the subdivision's infrastructure, the planning commission had approved the subdivision plat, although infrastructure, including roads and utilities, had not been completed. After developer's bankruptcy, the State of Tennessee bought the land comprising all of the subdivision lots, except the two owned by the plaintiffs. All of the remaining land in the intended subdivision, except for several other lots purchased by individuals before the bankruptcy, is now part of the Doe Mountain Recreation Area - an entity subsequently created by the State. Plaintiffs brought this action for breach of contract between developer and the planning commission. Plaintiffs also asked the trial court to issue a writ of mandamus compelling the county to complete the proposed subdivision infrastructure. The trial court granted the defendants summary judgment. The plaintiffs appeal. We affirm.

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

          Arthur M. Fowler and Arthur M. Fowler, III, Johnson City, Tennessee, for the appellants, Appaloosa Bay, LLC, David Castillo, and Deborah Castillo.

          Jeffrey M. Ward, Greeneville, Tennessee, for the appellees, Johnson County, Tennessee, and Johnson County, Tennessee Regional Planning Commission.

          Mona Butler Alderson, Mountain City, Tennessee, for the appellee, Doe Mountain Recreation Authority.

          Herbert H. Slatery III, Attorney General and Reporter, Andrée S. Blumstein, Solicitor General, and Jay C. Ballard, Deputy Attorney General, Nashville, Tennessee, for the appellee, Tennessee Department of Finance and Administration.

          Charles D. Susano, Jr., J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Thomas R. Frierson, II, J., joined.




         In 2006, Doe Mountain Development Group, Inc. (developer) owned about 8, 500 acres on Doe Mountain in Johnson County. Developer intended to build a private residential subdivision known as Charter Ridge Club. Following the creation of a subdivision plan and plat with twenty numbered lots, developer presented the plat for final approval to the planning commission on August 14, 2006. According to plaintiffs, at the time of the submission of the plat, the subdivision "consisted of stakes along a rough-cut dirt road identifying the 20 lots." There were no utilities. The approximately three-mile road to the entrance of the proposed subdivision was a gravel and dirt road, appropriately identified as "gravel road" on the plat. The lots varied in size, the smallest being 1.32 acres, and the largest 2.96 acres. The total acreage of the twenty lots was 35.95 acres.

         The minutes of the planning commission meeting on August 14, 2006 state the following:

An estimate to construct the roads for this subdivision, and the 16, 000 foot access road to it, was done . . . for $451, 000. [Developer] proposed depositing $451, 000 in the BB&T Bank in Johnson City to cover the cost of developing the roads. Final approval was granted subject to the cash deposit being executed, TDEC stamping the plat, and the other required signatures with staff's recommendation.

The plat was recorded on September 13, 2006. The $451, 000 performance bond was deposited in escrow to secure the completion of the subdivision's roads and utilities. On January 17, 2007, plaintiff Appaloosa Bay, LLC purchased a 2.11 acre lot in the planned subdivision. On February 15, 2008, plaintiffs David Castillo and Deborah Castillo purchased a 1.71 acre lot.[1] On June 9, 2008, the planning commission voted to release $150, 000 of the money held in escrow, apparently for work on the roads. After this expenditure, a second, revised escrow agreement in the amount of $301, 000 was executed on June 12, 2008.

         Developer defaulted on its loan obligations and the mortgagee foreclosed on the property. The foreclosure did not affect plaintiffs' lots. The subdivision's infrastructure was not completed. Developer filed for bankruptcy on August 24, 2011. On March 26, 2012, the bankruptcy court entered an order approving the bankruptcy plan for liquidation of developer's assets. As part of the plan, the property owned by developer was sold to the Nature Conservancy, free and clear of encumbrances or claims. Nature Conservancy then sold 8, 000 acres on Doe Mountain to the State of Tennessee. The State then transferred the property to the Doe Mountain Recreation Authority by way of a quitclaim deed as part of the creation of that latter entity, which opened to the public in November 2013. See Tenn. Code Ann. § 11-25-101 et seq. (2012) (The Doe Mountain Recreation Authority Act of 2012).

         On December 10, 2012, the planning commission voted to declare developer and the subdivision development to be in default. The commission further approved a motion to "release the bond held in escrow to the State of Tennessee for the sole purpose of infrastructure on Doe Mountain." The amount held in escrow was $301, 722.88, which the planning commission directed to be released to the State. The State applied $300, 000 of the funds toward the purchase of the property from the Nature Conservancy, and returned the remainder to Johnson County.

         Plaintiffs brought this action, [2] the essence of which is a request for the trial court to issue a writ of mandamus requiring Johnson County

to provide electricity to the [s]ubdivision, to provide water to the [s]ubdivision, and to complete the road within the [s]ubdivision in accordance with Defendant Johnson County's Subdivision Regulations; and that [the] County accept the road from Harbin Hill Road located in Johnson County, Tennessee, to the [s]ubdivision as a public road.

Plaintiffs also asserted a claim for breach of contract, alleging that Johnson County breached its duty "under the two Cash on Deposit Escrow Accounts . . . by failing to apply money held in escrow to complete the construction of the [s]ubdivision and all improvements thereto." Named as defendants were Johnson County, the Doe Mountain Recreation Authority, and the Tennessee Department of Finance and Administration. The trial court later allowed plaintiffs to add the Johnson County Regional Planning Commission as a defendant. Following discovery, the trial court granted defendants summary judgment, holding that Johnson County had no obligation or duty that might be enforced by a writ of mandamus. The trial court further held that plaintiffs were neither parties nor third-party beneficiaries to developer's performance bond agreement between it and the planning commission. Plaintiffs timely filed a notice of appeal.


Plaintiffs raise the following issues:
1. Whether the trial court erred in holding that they do not have standing to sue as third-party beneficiaries under the subdivision performance bond agreement between the developer and the planning commission.
2.Whether the trial court erred in denying plaintiffs' request to issue a writ of mandamus requiring Johnson County to complete the construction and installation of the subdivision's infrastructure.
3. Whether the trial court erred in denying plaintiff's request for a declaratory judgment that the gravel road from Harbin Hill road to the plaintiffs' lots is a county road that must be maintained by Johnson County.


         We review a grant of summary judgment in accordance with the following standard, as established by the Supreme Court:

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Tenn. R. Civ. P. 56.04. We review a trial court's ruling ...

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