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Coffee County Board of Education v. City of Tullahoma

Supreme Court of Tennessee, Nashville

May 8, 2019

COFFEE COUNTY BOARD OF EDUCATION
v.
CITY OF TULLAHOMA

          Session October 4, 2018

          Appeal by Permission from the Court of Appeals Chancery Court for Coffee County No. 2014-CV-179 Vanessa A. Jackson, Judge

         This is one of five cases on appeal to this Court regarding the proper distribution of liquor-by-the-drink tax proceeds between a county and a municipality within the county. In each case, the county had not approved the liquor-by-the-drink sales, but the city had approved such sales. The Commissioner of the Tennessee Department of Revenue, who collects taxes on all liquor-by-the-drink sales, distributed tax proceeds to the defendant cities in accordance with the liquor-by-the-drink tax distribution statute, Tennessee Code Annotated section 57-4-306. The statute required the recipient cities to then distribute half of their proceeds "in the same manner as the county property tax for schools is expended and distributed." Tenn. Code. Ann. § 57-4-306(a)(2)(A) (2013). In each case, the recipient city distributed half of its tax proceeds to its own city school system and did not share the proceeds with the county. The counties sued the cities, claiming that the statute required the cities to distribute the tax proceeds as the counties distribute the county property tax for schools, which is pro rata among all schools in the county based on average daily attendance. In the instant case, the trial court granted summary judgment against the county and in favor of the city. The Court of Appeals reversed, concluding that the tax distribution statute plainly required the city to distribute half of its liquor-by-the-drink tax proceeds pro rata among all schools in the county. The city appeals. We agree with the city and hold that the distribution statute directed cities to expend and distribute half of their liquor-by-the-drink tax proceeds for the benefit of the city's own school system, if any. In this case, because the city has its own school system, it was permitted to use half of its liquor-by-the-drink tax proceeds for its own school system, and it was not required to share those proceeds with the county or the county schools. Therefore, we reverse the Court of Appeals and affirm the trial court's grant of summary judgment in favor of the city.

         Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals Reversed; Judgment of the Trial Court Affirmed

          Kristin Ellis Berexa and Mark E. McGrady, Nashville, Tennessee, for the Defendant/Appellant, City of Tullahoma.

          Eric J. Burch, Manchester, Tennessee, for the Plaintiff/Appellee, Coffee County Board of Education.

          Holly Kirby, J., delivered the opinion of the Court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Sharon G. Lee, and Roger A. Page, JJ., joined.

          OPINION [1]

          HOLLY KIRBY, JUSTICE

         The issues in this case are better understood with some knowledge of the development of the pertinent liquor-by-the-drink statutes. Consequently, we offer some background on the history of the statutes before we outline the facts and analyze the issues.

         The Liquor-By-The-Drink Act

         During the years of federal prohibition (1920-1933), Tennessee had "bone dry" laws, which criminalized the sale, purchase, receipt, possession, transport, and manufacture of alcoholic beverages. City of Chattanooga v. Tenn. Alcoholic Beverage Comm'n, 525 S.W.2d 470, 472 (Tenn. 1975); Tenn. Op. Att'y Gen. 79-215 (May 3, 1979). After prohibition ended, Tennessee enacted a "local option" law authorizing counties to hold county-wide local option elections on whether to allow off-premises (package) sales of alcoholic beverages within their borders. City of Chattanooga, 525 S.W.2d at 472; Chadrick v. State, 137 S.W.2d 284, 285 (Tenn. 1940); see also Templeton v. Metro. Gov't of Nashville & Davidson Cnty., 650 S.W.2d 743, 754 (Tenn. Ct. App. 1983). "The 'bone dry law' continued in effect in counties not electing to come under the provisions of the local option law." City of Chattanooga, 525 S.W.2d at 472; see also Renfro v. State, 144 S.W.2d 793, 794 (Tenn. 1940).

         In 1967, the Legislature passed comprehensive legislation related to liquor sales for on-premises consumption, i.e., liquor by the drink (hereinafter "LBD"). We refer to this as "the LBD Act." The LBD Act "authorize[s] the sale of intoxicating liquors by the drink for consumption on the premises, impose[s] taxes upon such sales[, ] and provide[s] for the collection thereof." Aetna Cas. & Sur. Co. v. Woods, 565 S.W.2d 861, 865 (Tenn. 1978). Initially, the LBD Act allowed only the largest counties to hold local option elections. See Tenn. Code Ann. § 57-164 (1968). Gradually, in increments, the Act was amended to allow all counties-as well as all municipalities-to approve LBD sales by local option election. See 1987 Tenn. Pub. Acts, ch. 456 § 2; 1992 Tenn. Pub. Acts, ch. 711 § 1.

         In any jurisdiction that approves LBD sales, such sales can lawfully be made by the establishments enumerated in the statutes, including restaurants, hotels, and sports facilities. See Tenn. Code Ann. § 57-4-101 (2013). Private clubs are among the enumerated establishments, but they are also permitted to sell LBD even in counties or municipalities that have not adopted LBD.[2]

         Tennessee Code Annotated section 57-4-301(c) levies a 15% tax on all LBD sales.[3] Tenn. Code Ann. § 57-4-301(c) (2013). We refer to this as "the LBD tax." Retailers collect the LBD tax from consumers and then forward the tax proceeds to the Commissioner of the Tennessee Department of Revenue ("Commissioner"). See Tenn. Code Ann. § 57-4-302 (2013 & 2018). The Commissioner then distributes the LBD tax proceeds in accordance with the statute at issue in this case, Tennessee Code Annotated section 57-4-306. We refer to this as "the distribution statute."

         This case involves the application of the distribution statute as it existed prior to the enactment of a July 2014 amendment (effectuated after these lawsuits were filed).[4]The relevant versions of the distribution statute required the Commissioner to distribute 50% of all LBD tax proceeds to Tennessee's "general fund to be earmarked for education purposes." Tenn. Code Ann. § 57-4-306(a)(1). The Commissioner was directed to distribute the remaining 50% of the tax proceeds back "to the local political subdivision" that generated the proceeds. Id. § 57-4-306(a)(2).

         Important to this appeal, the remaining provisions of the distribution statute described what was to be done with the tax proceeds sent back to the originating local political subdivision. The distribution statute said that half of those proceeds would go to the general fund of the county, city, or town in which the taxes were generated. Id. § 57-4-306(a)(2)(B). The other half, the distribution statute stated, "shall be expended and distributed in the same manner as the county property tax for schools is expended and distributed." Id. § 57-4-306(a)(2)(A). Interpretation of this provision is the issue presented to us in this case.

         Coffee County

         The facts in the instant case are essentially undisputed. The City of Tullahoma ("the City") is located in Coffee County.[5] The City has at all relevant times had its own municipal school system separate from the Coffee County school system.

         In 1987, citizens of the City passed a referendum authorizing LBD sales within City limits. Coffee County has never approved LBD sales in the unincorporated areas of the county.

         The Commissioner has at all times distributed LBD tax proceeds generated from sales in the City in accordance with the distribution statute-50% to the State general fund for education and 50% to the City as the "local political subdivision" from which the taxes were generated.[6] See Tenn. Code Ann. § 57-4-306(a).

         From the 50% of LBD tax proceeds distributed to the City, the City has at all times retained half of the proceeds in its general fund and distributed the other half to its own school system. The City has never distributed any LBD tax proceeds to Coffee County or to any other local school system in the County. This longstanding practice is consistent with Tennessee Attorney General opinions from the early 1980s interpreting the distribution statute. See Tenn. Op. Att'y Gen. 83-36 (Jan. 18, 1983); Tenn. Op. Att'y Gen. 82-21 (Jan. 20, 1982); Tenn. Op. Att'y Gen. 81-270 (Apr. 27, 1981); Tenn. Op. Att'y Gen. 80-457 (Sept. 19, 1980).

         On May 30, 2014, the Plaintiff/Appellee Coffee County Board of Education (referred to collectively with Coffee County as "the County") filed this lawsuit against the City[7] for damages based on its failure to distribute LBD tax proceeds to the County under the distribution statute over the previous thirty years.[8] The claim focused on the language in the distribution statute requiring the local political subdivision-here, the City-to distribute half of its LBD tax proceeds "in the same manner as the county property tax for schools is expended and distributed." Tenn. Code Ann. § 57-4-306(a)(2)(A). According to the County, this language meant that the City was required to distribute the proceeds in the way the property tax for schools is "expended and distributed" by the County, which is pro rata with the County school system and all local education agencies (LEAs)[9] in the County in accordance with an average daily attendance formula. See Tenn. Code Ann. § 49-3-315(a) (2013).

         The City denied liability and challenged the County's interpretation of the distribution statute. The City maintained that the distribution statute required the City to expend and distribute LBD tax proceeds in the same manner that the county property taxes for schools are expended and distributed within the City, that is, for the benefit of the City school system. The City also argued that, because the County has never approved LBD sales, the distribution statute is inapplicable to the County, and the County, therefore, is not entitled to a share of the City's LBD tax proceeds.

         The City and the County filed cross-motions for summary judgment. Both parties averred that the facts were undisputed. Each claimed to be entitled to judgment as a matter of law, based on their differing interpretations of the distribution statute.[10] They each filed a statement of undisputed facts, and neither challenged the other's factual averments for purposes of the summary judgment motions.[11]

         In April 2017, the trial court entered an order denying the County's motion and granting the City's motion for summary judgment. The trial court concluded that, based on Tennessee Code Annotated section 57-4-103, the distribution statute is "effective only in jurisdictions which have approved [LBD sales] by referendum. Coffee County has not approved [LBD sales] by referendum, thus the distribution provisions . . . are not effective in Coffee County." As alternative reasoning, the trial court found that the language in the distribution statute is ambiguous. Considering the purpose, legislative history, and entire statutory scheme of the LBD Act, the trial court held that the statute did not require the City to share its portion of the LBD tax proceeds with the County or other schools in the County. The County appealed.

         While the County's appeal was pending before the Tennessee Court of Appeals for the Middle Section, on December 27, 2017, the Tennessee Court of Appeals for the Eastern Section contemporaneously issued four opinions in separate cases involving similar facts and the same legal issue. See Blount Cnty. Bd. of Educ. v. City of Maryville, No. E2017-00047-COA-R3-CV, 2017 WL 6606855 (Tenn. Ct. App. Dec. 27, 2017) ("Blount Cnty."); Bradley Cnty. Sch. Sys. ex rel. Bradley Cnty. Bd. of Educ. v. City of Cleveland, No. E2016-01030-COA-R3-CV, 2017 WL 6598557 (Tenn. Ct. App. Dec. 27, 2017) ("Bradley Cnty."); Sullivan Cnty. v. City of Bristol, No. E2016-02109-COA-R3-CV, 2017 WL 6598559 (Tenn. Ct. App. Dec. 27, 2017); Washington Cnty. Sch. Sys. ex rel. Washington Cnty. Bd. of Educ. v. City of Johnson City, No. E2016-02583-COA-R9-CV, 2017 WL 6603656 (Tenn. Ct. App. Dec. 27, 2017) ("Washington Cnty.").[12]

         In all four Eastern Section cases, the intermediate appellate court panel held in favor of the cities.[13] It first determined that the language in the distribution statute was ambiguous regarding whether a city that operates its own school system is required to remit a portion of its LBD tax proceeds to the county. Blount Cnty., 2017 WL 6606855, at *9; Bradley Cnty., 2017 WL 6598557, at *8; Sullivan Cnty., 2017 WL 6598559, at *8; Washington Cnty., 2017 WL 6603656, at *10. After considering the statutory framework, legislative history, and other sources, the Eastern Section panel held that the distribution statute requires the cities to expend and distribute half of their LBD tax proceeds in the manner in which the county property taxes would be expended and distributed within the cities, that is, for the benefit of the cities' own school systems. See Blount Cnty., 2017 WL 6606855, at *21; Bradley Cnty., 2017 WL 6598557, at *17; Sullivan Cnty., 2017 WL 6598559, at *17; Washington Cnty., 2017 WL 6603656, at *17.

         About a month later, the Court of Appeals in the instant case issued its decision, reaching the opposite result. Coffee Cnty. Bd. of Educ. v. City of Tullahoma, No. M2017-00935-COA-R3-CV, 2018 WL 522423, at *4 (Tenn. Ct. App. Jan. 23, 2018) ("Coffee Cnty."). The intermediate appellate court below acknowledged the four decisions issued by the Eastern Section panel but disagreed with the analysis in those decisions. Id. at *3-4 (noting that it did "not disagree with [its] learned cohorts lightly"). Rather, the Middle Section panel determined that the applicable language in the distribution statute is unambiguous in favor of the County's interpretation. On its face, the intermediate appellate court held, the statute plainly requires the City to distribute the tax proceeds in the same manner that the County distributes county property taxes for schools, commenting, "[I]t is simply not possible to reasonably read this language to also mean a city that operates its own school system does not have to remit any funds to the county." Id. at *4. Having concluded that the language was unambiguous, the court found it unnecessary to consider anything outside the specific statutory provision itself, such as the statutory framework, the legislative history, or the Tennessee Attorney General opinions on the subject. Id. at *3. On this basis, it rejected the analysis of the Eastern Section panel in the other four cases.

         We granted permission to appeal in this case and also in the four similar cases arising out of the Eastern Section of the Court of Appeals to resolve the split of authority on the proper interpretation of the distribution statute, specifically Section 57-4-306(a)(2)(A), as it existed prior to the July 2014 amendments. Because the five cases all involve this common issue, they were consolidated for oral argument only.[14]

         Standard of Review

         We review a trial court's ruling on a motion for summary judgment de novo without a presumption of correctness in the lower court's decision. Rye v. Women's Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015) (citing Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997)). 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; Rye, 477 S.W.3d at 250.

         As we have indicated, the relevant facts in the instant appeal are undisputed, and the issues involve only the interpretation of statutes. Issues of statutory interpretation are questions of law, which are also reviewed de novo without a presumption of correctness. Beard v. Branson, 528 S.W.3d 487, 494-95 (Tenn. 2017) (quoting Kiser v. Wolfe, 353 S.W.3d 741, 745 (Tenn. 2011)); Circle C Constr., LLC v. Nilsen, 484 S.W.3d 914, 917 (Tenn. 2016).

         Analysis

         The issue on appeal requires us to interpret the distribution statute, specifically, Section 57-4-306(a)(2)(A). This Court has explained:

"The cardinal rule of statutory construction is to effectuate legislative intent, with all rules of construction being aides [sic] to that end." Browder[ v. Morris], 975 S.W.2d [308, ] 311 [(Tenn. 1998)]; see Beard, 528 S.W.3d at 496. We examine "the language of the statute, its subject matter, the object and reach of the statute, the wrong or evil which it seeks to remedy or prevent, and the purpose sought to be accomplished in its enactment." State v. Collins, 166 S.W.3d 721, 726 (Tenn. 2005) (citation omitted) (internal quotation marks omitted). "'We must seek a reasonable construction in light of the purposes, objectives, and spirit of the statute based on good sound reasoning.'" Beard, 528 S.W.3d at 496 (quoting Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 286 (Tenn. 2001)).

Spires v. Simpson, 539 S.W.3d 134, 143 (Tenn. 2017).

         "The text of the statute is of primary importance, and the words must be given their natural and ordinary meaning in the context in which they appear and in light of the statute's general purpose." Mills v. Fulmarque, Inc., 360 S.W.3d 362, 368 (Tenn. 2012). Therefore, we look first to the text of the distribution statute. Because the County argues it has been wrongfully denied LBD tax proceeds "dat[ing] at least back to 1980," we consider all versions of the statute relevant to that claim.

         The distribution statute is the only statute in the LBD Act that specifies how LBD tax proceeds are to be distributed. The original version, which remained unchanged from 1967 until 1980, read:

57-162. Distributions of collections.-All gross receipt taxes collected under subsection (b) of ยง 57-157 herein [now Section 57-4-301(c)] shall be distributed by the ...

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