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Bradley County School System v. City of Cleveland

Court of Appeals of Tennessee, Knoxville

December 27, 2017

BRADLEY COUNTY SCHOOL SYSTEM BY AND THROUGH THE BRADLEY COUNTY BOARD OF EDUCATION ET AL.
v.
THE CITY OF CLEVELAND, TENNESSEE

          Session August 8, 2017

         Appeal from the Chancery Court for Bradley County No. 2014-CV-84 Jerri S. Bryant, Chancellor

         This is one of four separate actions currently before this Court with the common issue of whether the version of Tennessee Code Annotated § 57-4-306(a)(2)(A) in effect prior to the July 2014 amendment of that statute required a municipality governed by its own liquor-by-the-drink referendum and operating its own school system to share one-half of its liquor-by-the-drink tax revenue with the county in which the municipality was located when the county had not enacted a liquor-by-the-drink referendum. The county commenced the instant action by filing a complaint requesting declaratory judgment of its asserted right to a portion of liquor-by-the-drink tax revenue collected within the municipality. Upon subsequent competing motions for summary judgment, the trial court granted summary judgment in favor of the municipality, finding that the municipality was entitled to keep all liquor-by-the-drink tax monies distributed to it by the Tennessee Commissioner of Revenue ("the Commissioner"). Upon the county's motion to alter or amend, the trial court reserved judgment on the issue of whether the municipality was entitled to the local political subdivision's portion of the liquor-by-the-drink tax revenue for sales that took place at private clubs within the municipal limits of the municipality prior to the municipality's 2002 passage of its referendum authorizing liquor-by-the-drink sales. Following consideration of a motion for summary judgment on this remaining issue filed by the municipality and a response filed by the county, the trial court again granted summary judgment in favor of the municipality, dismissing the county's complaint in its entirety. The county has appealed. Determining that the municipality was not required under the applicable version of the statute to share its liquor-by-the-drink tax revenues with the county, we affirm the trial court's judgment.

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

          James F. Logan, Jr., Cleveland, Tennessee, for the appellants, Bradley County School System, by and through the Bradley County Board of Education, and Bradley County, Tennessee.

          Douglas S. Johnston, Jr., Nashville, Tennessee, for the appellee, the City of Cleveland, Tennessee.

          Kristin Ellis Berexa and Mark E. McGrady, Nashville, Tennessee, for the amicus curiae, Tennessee Municipal League Risk Management Pool, Inc.

          Thomas R. Frierson, II, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and Richard H. Dinkins, J., joined.

          OPINION

          THOMAS R. FRIERSON, II, JUDGE

         I. Factual and Procedural Background

         The facts underlying this action are essentially undisputed. Tennessee Code Annotated § 57-4-301(c) (2013 & Supp. 2017) provides for a tax "to include each and every retail" of an alcoholic beverage sold for consumption on the premises by various establishments delineated in section -301, such as restaurants, hotels, sports facilities, and private clubs. This tax is commonly referred to as a "liquor-by-the-drink tax." See Tenn. Code Ann. § 57-4-306 (2013 & Supp. 2017); Copper Cellar Corp. v. Jackson, 762 S.W.2d 560, 562 (Tenn. 1988). Tennessee Code Annotated § 57-4-306, originally enacted in 1967, prescribes the manner in which proceeds from the liquor-by-the-drink tax are to be distributed, primarily in support of public education. At issue in this action is the version of section -306 in effect prior to the Tennessee General Assembly's 2014 amendment of that statutory section ("2014 Amendment"). See 2014 Tenn. Pub. Acts, Ch. 901 § 1 (H.B. 1403). Particularly at issue is statutory language added to subsection -306(a)(2)(A) through an amendment made by the General Assembly in 1982 ("1982 Amendment"). See 1982 Tenn. Pub. Acts, Ch. 942, §§ 1-2 (S.B. 1817).

         The City of Cleveland ("the City") passed a liquor-by-the-drink referendum in 2002. The citizens of Bradley County ("the County") have rejected such a referendum. As the trial court stated in its final order:

Prior to the 2002 referendum, private clubs operated within the city limits of Cleveland, Tennessee and legally sold liquor-by-the-drink on the premises. The clubs collected liquor taxes and remitted the taxes to the State. In accordance with T.C.A. § 57-4-306, the State then returned one-half of those revenues to the City, which the City in turn allocated fifty (50%) percent of the revenues received back from the State to its[] school system through the City's annual appropriations.

         As the trial court noted, the City had continuously operated its own school system since 1966, one year before the liquor-by-the-drink tax was initially enacted by the General Assembly. Since passage of the 2002 referendum, the City had continued to receive fifty percent of gross receipt taxes arising from sales of liquor by the drink. The City had not distributed any of its liquor-by-the-drink revenue to the Bradley County School System or the Bradley County Education Fund.

         On April 14, 2014, the Bradley County School System ("the County School System"), acting by and through the Bradley County Board of Education ("the County Board"), filed a complaint in the Bradley County Chancery Court ("trial court"), seeking declaratory judgment regarding the rights and responsibilities of the parties concerning the liquor-by-the-drink tax. The County Board requested, inter alia, an order directing the City to remit to the County Board "the full amount of unremitted tax revenues" plus prejudgment interest. On May 13, 2014, the City filed a motion to dismiss the complaint, asserting, pursuant to Tennessee Rule of Civil Procedure 12.02(6), that the County Board had failed to state a claim upon which relief could be granted. The City argued that because the County had not authorized liquor-by-the-drink sales, all of Title 57, Chapter 4, including section -306, did not apply to the County. See Tenn. Code Ann. § 57-4-103(a) (2013 & Supp. 2017) ("This chapter shall be effective in any jurisdiction which authorizes the sale of alcoholic beverages for consumption on the premises in a referendum . . . ."). The County Board filed a response in opposition to the motion to dismiss on June 12, 2014.

         Upon the County Board's subsequent motion filed pursuant to Tennessee Rule of Civil Procedure 42.01, the trial court entered an order on July 25, 2014, consolidating this action with similar actions filed by the McMinn County Board of Education against the Cities of Athens, Niota, and Etowah solely "for the purpose of consideration of the Motions to Dismiss presently pending." McMinn County also had not passed a liquor-by-the-drink referendum, and the Cities of Athens, Niota, and Etowah had filed motions to dismiss the respective complaints.[1] The trial court denied the various motions to dismiss in an order entered September 24, 2014.

         The City filed an answer to the complaint on October 16, 2014, asserting, as pertinent to this appeal, that (1) the County School System and County Board were not proper parties; (2) Title 57, Chapter 4 of the Tennessee Code was not applicable to the County because the County had not authorized liquor-by-the-drink sales; and (3) the City was exempted by operation of Tennessee Code Annotated § 57-4-306(a) (2013) from paying any portion of the liquor-by-the-drink tax proceeds received from the Commissioner because the City operated its own school system separate from the County School System. The County subsequently filed a motion to intervene as a co-plaintiff with the County Board, which the trial court granted in an order entered February 3, 2015. We will hereinafter refer to the plaintiffs collectively as "the County."

         In the meantime, the General Assembly amended Tennessee Code Annotated § 57-4-306(a)(2), effective July 1, 2014, setting forth, inter alia, a detailed process by which counties that were owed funds by municipalities under Tennessee Code Annotated § 57-4-306 could seek those funds and negotiate settlements as applicable. See 2014 Tenn. Pub. Acts, Ch. 901 § 1 (H.B. 1403). The 2014 Amendment included a distinction between the liquor-by-the-drink tax proceeds received by a local political subdivision in the time period spanning July 1, 2014, until June 30, 2015, and those proceeds received after July 1, 2015, when, according to the 2014 Amendment, the statute would revert back to its pre-amendment language. See Tenn. Code Ann. § 57-4-306(b)-(c) (Supp. 2014); 2014 Tenn. Pub. Acts, Ch. 901 § 1 (H.B. 1403).[2] However, the General Assembly has also amended Tennessee Code Annotated § 57-4-306 each year since the 2014 Amendment, extending the amended language in subsequent years, one year at a time. See 2015 Tenn. Pub. Acts, Ch. 220 §§ 1, 2 (S.B. 990); 2016 Tenn. Pub. Acts, Ch. 885 §§ 1, 2 (H.B. 1691); 2017 Tenn. Pub. Acts, Ch. 346 §§ 1, 2 (S.B. 1262).

         Upon competing motions filed for summary judgment in January 2015, the trial court conducted a hearing on March 2, 2015. In an order entered July 30, 2015, the court granted the City's motion for summary judgment. The court found that pursuant to Tennessee Code Annotated § 57-4-103(a), only local political subdivisions that had authorized liquor-by-the-drink sales had rights and responsibilities under Chapter 4 of Title 57. The court concluded that pursuant to the governing version of Tennessee Code Annotated § 57-4-306(a)(2), liquor-by-the-drink funds were "to be paid to the local political subdivision which has passed the referendum thereby allowing the City to keep all funds raised by this tax." The court also determined that the 2014 Amendment did not affect its interpretation of the prior version of the statute.

         The County filed a motion to alter or amend the judgment on July 31, 2015, which the trial court partially denied in an order entered November 19, 2015. The court reserved judgment on the issue of whether proceeds from liquor-by-the-drink taxes collected prior to the City's 2002 referendum should be divided between the City and the County. Following consideration of a motion for summary judgment on this issue filed by the City, a response filed by the County, and supplemental briefs, the trial court entered a final judgment on May 2, 2016, confirming its prior judgment and finding that the City was entitled to retain all funds from "pre-referendum taxes collected from private clubs." The court granted the City's motion for summary judgment in its entirety and dismissed the County's complaint. The County timely appealed.

         During the pendency of this appeal, this Court granted a motion filed by the Tennessee Municipal League Risk Management Pool ("the Pool") to file a brief in this matter as an amicus curiae. Upon Bradley County's motion to consolidate this case with three others pending on appeal, this Court entered an order on May 26, 2017, granting the motion "only to the extent that these cases shall be set for oral argument on the same docket and on the same day."[3]

         II. Issues Presented

         Bradley County presents three issues on appeal, which we have restated as follows:

1. Whether the trial court erred by declining to find that the version of Tennessee Code Annotated § 57-4-306(a)(2)(A) in effect prior to the 2014 Amendment required the City, as a municipality governed by its own liquor-by-the-drink referendum and operating its own school system, to share one-half of its liquor-by-the-drink tax revenue with the County when the County had not enacted a liquor-by-the-drink referendum.
2. Whether the trial court erred by declining to find that the pre-2014 version of Tennessee Code Annotated § 57-4-306(a)(2) required that one-half of all liquor-by-the-drink sales tax revenue received by the City must be distributed in support of education in the same manner as the County property tax is distributed.
3. Whether the trial court erred by finding that the City was entitled to the local political subdivision's portion of the gross receipt liquor-by-the-drink taxes for sales that took place within the municipal limits of the City prior to the City's 2002 passage of the referendum authorizing liquor-by-the-drink sales.

         III. Standard of Review

         The grant or denial of a motion for summary judgment is a matter of law; therefore, our standard of review is de novo with no presumption of correctness. See Rye v. Women's Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015); Dick Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 671 (Tenn. 2013) (citing Kinsler v. Berkline, LLC, 320 S.W.3d 796, 799 (Tenn. 2010)). As such, this Court must "make a fresh determination of whether the requirements of Rule 56 of the Tennessee Rules of Civil Procedure have been satisfied." Rye, 477 S.W.3d at 250. "Statutory construction is a question of law that is reviewable on a de novo basis without any presumption of correctness." In re Estate of Tanner, 295 S.W.3d 610, 613 (Tenn. 2009).

         As our Supreme Court has explained concerning the requirements for a movant to prevail on a motion for summary judgment pursuant to Tennessee Rule of Civil Procedure 56:

We reiterate that a moving party seeking summary judgment by attacking the nonmoving party's evidence must do more than make a conclusory assertion that summary judgment is appropriate on this basis. Rather, Tennessee Rule 56.03 requires the moving party to support its motion with "a separate concise statement of material facts as to which the moving party contends there is no genuine issue for trial." Tenn. R. Civ. P. 56.03. "Each fact is to be set forth in a separate, numbered paragraph and supported by a specific citation to the record." Id. When such a motion is made, any party opposing summary judgment must file a response to each fact set forth by the movant in the manner provided in Tennessee Rule 56.03. "[W]hen a motion for summary judgment is made [and] . . . supported as provided in [Tennessee Rule 56], " to survive summary judgment, the nonmoving party "may not rest upon the mere allegations or denials of [its] pleading, " but must respond, and by affidavits or one of the other means provided in Tennessee Rule 56, "set forth specific facts" at the summary judgment stage "showing that there is a genuine issue for trial." Tenn. R. Civ. P. 56.06. The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., 475 U.S. [574, ] 586, 106 S.Ct. 1348');">106 S.Ct. 1348 [(1986)]. The nonmoving party must demonstrate the existence of specific facts in the record which could lead a rational trier of fact to find in favor of the nonmoving party. If a summary judgment motion is filed before adequate time for discovery has been provided, the nonmoving party may seek a continuance to engage in additional discovery as provided in Tennessee Rule 56.07. However, after adequate time for discovery has been provided, summary judgment should be granted if the nonmoving party's evidence at the summary judgment stage is insufficient to establish the existence of a genuine issue of material fact for trial. Tenn. R. Civ. P. 56.04, 56.06. The focus is on the evidence the nonmoving party comes forward with at the summary judgment stage, not on hypothetical evidence that theoretically could be adduced, despite the passage of discovery deadlines, at a future trial.

Rye, 477 S.W.3d at 264-65 (emphasis in original). Pursuant to Tennessee Rule of Civil Procedure 56.04, the trial court must "state the legal grounds upon which the court denies or grants the motion" for summary judgment, and our Supreme Court has instructed that the trial court must state these grounds "before it invites or requests the prevailing party to draft a proposed order." See Smith v. UHS of Lakeside, Inc., 439 S.W.3d 303, 316 (Tenn. 2014).

         IV. Distribution of Liquor-by-the-Drink Tax Revenue

         The County contends that the trial court erred by finding that the version of Tennessee Code Annotated § 57-4-306(a)(2)(A) (2013) in effect prior to the 2014 Amendment did not require the City to share one-half of its liquor-by-the-drink tax revenue with the County's school system. The City asserts that the trial court properly interpreted the governing statute as directing that because the City operated its own school system, the portion of its liquor-by-the-drink revenue not paid into the state's general education fund was to be split between the City's school system and the City itself. Upon careful review, we determine that the governing statute was ambiguous in that the distribution scheme for a city operating its own school system could be reasonably interpreted in more than one way. Having therefore analyzed the surrounding statutory scheme, the legislative history, and other applicable authorities, as well as the record in this action, we conclude that the trial court did not err in determining that the City was not required to share one-half of its liquor-by-the-drink tax revenue with the County's school system.

         In conducting this analysis, we adhere to the following longstanding principles of statutory interpretation:

When dealing with statutory interpretation, well-defined precepts apply. Our primary objective is to carry out legislative intent without broadening or restricting the statute beyond its intended scope. Houghton v. Aramark Educ. Res., Inc., 90 S.W.3d 676, 678 (Tenn. 2002). In construing legislative enactments, we presume that every word in a statute has meaning and purpose and should be given full effect if the obvious intention of the General Assembly is not violated by so doing. In re C.K.G., 173 S.W.3d 714, 722 (Tenn. 2005). When a statute is clear, we apply the plain meaning without complicating the task. Eastman Chem. Co. v. Johnson, 151 S.W.3d 503, 507 (Tenn. 2004). Our obligation is simply to enforce the written language. Abels ex rel. Hunt v. Genie Indus., Inc., 202 S.W.3d 99, 102 (Tenn. 2006). It is only when a statute is ambiguous that we may reference the broader statutory scheme, the history of the legislation, or other sources. Parks v. Tenn. Mun. League Risk Mgmt. Pool, 974 S.W.2d 677, 679 (Tenn. 1998). Further, the language of a statute cannot be considered in a vacuum, but "should be construed, if practicable, so that its component parts are consistent and reasonable." Marsh v. Henderson, 221 Tenn. 42, 424 S.W.2d 193, 196 (1968). Any interpretation of the statute that "would render one section of the act repugnant to another" should be avoided. Tenn. Elec. Power Co. v. City of Chattanooga, 172 Tenn. 505, 114 S.W.2d 441, 444 (1937). We also must presume that the General Assembly was aware of any prior enactments at the time the legislation passed. Owens v. State, 908 S.W.2d 923, 926 (Tenn. 1995).

In re Estate of Tanner, 295 S.W.3d at 613-14.

         A. Ambiguity of Tennessee Code Annotated § 57-4-306(a)(2)(A) (2013)

         The version of Tennessee Code Annotated § 57-4-306 in effect when this action was commenced provided in pertinent part:

(a) All gross receipt taxes collected under § 57-4-301(c) shall be distributed by the commissioner as follows:
(1) Fifty percent (50%) to the general fund to be earmarked for education purposes; and
(2) Fifty percent (50%) to the local political subdivision as follows:
(A) One half (½) of the proceeds shall be expended and distributed in the same manner as the county property tax for schools is expended and distributed; provided, however, that except in counties having a population of not less than twenty-seven thousand nine hundred (27, 900) nor more than twenty-seven thousand nine hundred twenty (27, 920), according to the 1980 federal census or any subsequent federal census, any proceeds expended and distributed to municipalities which do not operate their own school systems separate from the county are required to remit one half (½) of their proceeds of the gross receipts liquor-by-the-drink tax to the county school fund; and
(B) The other one half (½) shall be distributed as follows:
(i) Collections of gross receipts collected in unincorporated areas, to the county general fund; and
(ii) Collections of gross receipts in incorporated cities and towns, to the city or town wherein such tax is collected.
(b) Notwithstanding subdivision (a)(2), the fifty percent (50%) of the gross receipt taxes allocated to local political subdivisions by subdivision (a)(2) and collected in a municipality which is a premier tourist resort shall be distributed to and ...

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