### IN THE SUPREME COU RT OF TEN NESSEE AT MEMPHIS Nov em be r 4, 2 00 8 S es si on

HI GHW OODS PROPERTI ES, I NC. E T A L 

### . v. CIT Y OF MEMPHI S

Appeal by Per m ission from the Court of Appeals, Wester n Section

Chancery Court

for Sh elby County No. CH-06-2070- 1 Walter L. Evan s, Chancellor

No. W2007-00454-SC- R11-CV - F iled Jul y 27, 2009

W I L L I A M C. K O C H , J R ., J ., dissenting.

At the hear

t of this case is the opera tion of the chec ks and balanc es that influence and control

a municipality ’s exercise of its power to annex adjoining proper ty

. The controve rsy involves a duly

enac ted annexation or dinance that was substantially altere d in a neg otiated settlement of litigation betwee n some of the aff

ecte d proper

ty owner s and the attorney repr esenting the municipality

. Other aff ecte d proper

ty owner s filed suit in the Chancer y Court for Shelby

County seeking a decla

ratory judgme nt reg arding the validity of the eff ectively amende d annexation ordinanc e that had not been ratified by the municipality ’s leg islative body . The trial c ourt, the Court of Appe als, and now this Court have dismiss ed the complaint beca use it was not filed within the thirty -day p er i od within which a quo war

ranto action challeng ing the rea sonablene s s o f t h e an n exation must be filed. I respe ctfully dissent. The ag g rieve d proper ty owner s are entitled to their day in court. They are not challeng ing the rea sonablene ss of the orig inal annexatio n o rd i n an ce

. To the contra ry , they are challeng ing the leg ality of the neg otiated settlement that eff ectively amende d the orig inal annexation ordinanc e without the appr oval of the Me mphis Ci ty Council.

I.

On November 4, 1997, the M emphis City Council enac ted an ordinanc e to annex sever al trac ts of rea l proper

ty ref err ed to as “Ar ea 42.” The eff ective date of this ordinanc e was J anuar y 1, 1998. On Dec ember 3, 1997, sever al owner s of the proper ty located in Are a 4 2 fi l ed t h re e quo
war ranto proce eding s in the Circuit Court for Shelby County challeng ing the rea sonablene ss of the annexation. These c ases we re c onsolidated but then lang uished in the courts for y ear s.

On Dec ember 29, 2005, Hig hwoods Properties, I nc. (“H ighw oods”), also an owner of proper ty in Are a 42, filed a quo war ranto action in the Circuit Court fo r S h el b y County

. I n an amende d complaint filed one month later, Hig hwoods and other parti es alleg ed that a “potential [c] onsent [j ]udgment” betwee n the City of Memphis and the 1997 plaintiffs was not only detrimental to the Hig hwoods parties but a lso inconsistent with t he ter ms of the 1997 anne x ation ordinanc e.As it turned out, the 1 997 plaintiffs and the City of Memphis had settled their almost teny ear -old dispute. Their ag ree ment eff ectively amende d the 1997 annexation ordinanc e. I nstead of simult aneously annexing all of Are a 42, the co m p ro m i s e called for annexing part of Are a 42 on Dec ember 31, 2006, and the rema inder of Are a 42 on Dec ember 31, 2013. Neither the city attorney

n o r t h e 1 9 9 7 plaintiffs obtained the Memphis City Council’s approva l or ratification of their compromise.

The trial court dismiss ed the Hig hwoods parties’ quo war ranto complaint on Marc h 3, 2006. On J une 8, 2006, the t rial court enter ed a final j udg ment by consent disposing of t he consolidated 1997 quo war

ranto complaints. This j u d gment approve d and made the compromise two-step annexation of Are a 42 part of the decr ee. On October 24, 2006, the Hig hwoods parties filed a new complaint for decla

ratory judgme nt in the Circuit Court for Shelby County challeng ing the validity of the compromise two-step annexation proce ss included in the J une 8, 2006 order

. The Hig hwoods parties stated that the compromise two-step annexation unlawfully circ umvented the statutory

ann ex ati on proce dures by eff ectively amending the original 1997 ordinanc e without action by the Memphis Cit y

Council.

The City moved to dis m i ss the Hig hwoods parties’ decla ratory judgme nt complaint on
sever al g rounds, including the g round that the complaint was not timely filed. I n its J anuar y 22, 2007 order , the t rial cour

t gr anted the City ’s motion to dis miss “on all gr ounds.” The H ighw oods parties appea led, and the Court of Appea ls affirme d the dismissal of their complaint. Wit h reg ard to the Hig hwoods parties’ claim that the two-step annexation c ompromise was invalid w ithout the

enac tment of a new annexation ordinanc e, the Court of Appea ls st at ed “althoug h we have no authority to vacate the annexation ordinanc e based upon alleg ed proce dural defe cts, Appellants’ proce dural challeng es wer e meritless

. ” Highwoods Props., Inc. v. City of Mem phis , No. W2007- 00454-COA-R3-CV, 2007 WL 4170821, at *10 (Te nn. Ct. App. Nov. 27, 2007).

II.

The power of annexation is essentially leg islative in char acte r. City of Kingsport v. State ex rel. Crown Enters., Inc. , 562 S.W .2d 808, 811 (Tenn. 1978); 2 Dennis J ensen & Ga il O’Gra dney , McQ uillin Law of

Municipal Corporati ons § 7.10 & n.2 (3d ed. 2008). Prior to the mid-1950s, this p o we r was wielded by the Gene ral Assembly throug h the enac tment of private acts. Walla ce Mendelson, Suggestions for the Improveme nt of Municipal Annexation Law , 8 Vand. L

. Rev. 1, 3 (1954). The Gene ral Asse mbly ’s power was c onsidered to be plenar y

. Thus it was c oncede d that t h e Ge n er al Assembly could chang e municipal boundarie s at its “plea sure,” Daniel v. Mayor o f Mem phis , 30 Tenn. (11 Hum.) 582, 583-84 (1851), and that there could be no judicial revie w of the Gene ral Assembly ’s actions, McCallie v

. M a y o r o f Ch a tt a n o o g a , 40 Tenn. (3 Hea d) 317, 321 (1859).

I n 1953, the citizens of Tenne ssee ratified an amendment to Article XI , Section 9 of the Tenne ssee Const itution that authoriz ed the Gene ral Assembly to deleg ate its annexation power to the municipalities themselves. This amendment contained a “municipal boundarie s clause ” that provided that “[t] he Gene ral Assembly shall by g ener al law provide the exclusive methods by which

-2-municipalities may be cre ated, merg ed, consolidated and dissolv ed an d by which municipal

boundarie s may

be alter ed.”

I n 1955, as a result of this amendment to Article XI , Section 9, the Gene ral Assembly enac ted the statutory fra

mework that has g overne d annexations ever since. These s t at u t es p rovide two 1 methods of annexation – the ordinanc e method and the ref ere ndum method. Wit h specific reg ard 2 3 to a n n exations acc omplished by ordinanc e, the Gene ral Assembly provided aff ecte d pr o p e r

ty o w n e r s with a limit ed rig ht of judicial revie w. Ag g rieve d proper ty owner s wer e g iven the statutory rig ht to challeng e the rea sonablene ss of the annexation by filing a “suit in the nature of a quo war ranto proce eding .” Tenn. Code Ann. § 6-51-103( a)( 1)(A)

. Howeve r, these proper ty owner s wer e require d to file t heir suit s within thirty day s afte r t he operative date of t he ordinance. City of Oak Ridge v. Roane County , 563 S.W .2d 895, 898 (Tenn. 1978); W itt v. McCanless , 200 Tenn. 360, 367-68, 292 S.W .2d 392, 395 (1956).

The annexation statutes themselves provided the basis for these rea sonablene ss challeng es. Tenn. C o d e Ann. § 6-51-103( a)( 1)(A) , -103(a )(2) (A) limit ed them to deter mining whether the annexation was “dee med nece ssary for the welfa re of the re s i d en t s and proper ty owner s of the aff ecte d territory and the municipality as a whole.” Tenn. Code Ann. § 6-51-103(a) (1 )( A) , - 103(a) (2)( A). Stated in slightly differ ent t erms, Tenn. Code Ann. § 6-51-103( d) def ined the issue

as “whe ther the proposed annexation is or is not unrea sonable in considera tion of the health, safe ty and welfa re of the citizens and proper ty owner s of the territory soug ht to be annexed and the citizens and proper

ty owner s of the municipality .” Acc ording ly , this Court articula ted the “re asonable ness” inquiry as follows: “ the primary test of the rea sonablene ss of an annexation or dinance must be the planned and order ly g rowth and development of the city , taking into consideration the char acte ristics of t he ex isting city and thos e of the area proposed for annexation.” State ex rel. Colli er v. City of Pigeon Forge , 599 S.W .2d 545, 548 (Tenn. 1980); see also City of Kingsport v. State ex rel. Crown Enters., Inc. , 562 S.W .2d at 812 (listing the fac tors to consider when analy zing the rea sonablene ss of an a nnexation ordinance)

.
E v entually , the reasonablene ss inquiry was broadene d to include procedura l defe cts in the passag e of the annexation ordinance . I n 1978, this Court observed that eve n though

[t ]he courts are n o t expressly or impliedly authorized to void a municipal ordinanc e for fail u re o f the municipality to g ive notice, hold a public hear i n g, o r submit a plan of service s to the local planning commission [ , ]

. . . . a city would be unable to car ry the burden of proving that the annex ation was reasona bly nece ssary for the welfa re of the residents and proper ty owner s of t h e af

fe cted

A c t o f M a r

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-3-territory and the municipality as a whole witho u t a p u blic hear ing afte r the re quired notice

. City of Oak Ridge v. Roane County , 563 S.W .2d at 897-98. One y ear later, we narr owed City of Oak Ridge v. Roane County by stating tha

t to be actionable, the proce dural defec ts in the enactment of

an annexation ordinanc e must result in “constitutional infirm i t i es

. ” City of W atauga v. City of Johnson City , 589 S.W .2d 901, 905 (Tenn. 1979)

.
None of these case s addre ssed the question of whether the statutory quo war ranto proce eding authorized by Tenn. Code Ann. § 6-51-103( a)( 1)(A) was the exclusive reme dy for challeng ing an annexation ordinanc e. That question was answe red in 1998 when this Court held that “[t] he validity of an annexation ordinanc e alleg ed to exceed the authority deleg ated by the leg islature is subject to challeng e under the Dec lara tory J udg ment Act.” State ex rel. Earhart v. City of Bristol , 970 S.W .2d 4 948, 954 (Tenn. 1998). Wit h this decision, this Court clea rly established that decla

ratory judgme nts may be used to challeng e the validity of annexation ordinanc es on gro u n ds other than their

rea sonablene ss.

The decision in State ex rel. Earhart v. City of Bristol is signific ant for a second rea son. The decla ratory judgme nt action in the case had been filed approximately two y ear s afte r the challeng ed annexation ordinance had bec ome ef fec tive. Thus, even thoug h the Court did not dir ectly addre ss the question of the time within which the decla ratory judgme nt acti o n m u s t b e filed, the decision approving the decla

ratory judgme nt action nece ssarily m ea n s that decla ratory judgme nt actions ch al leng ing annexation ordinanc es on g rounds ot her than rea sonablene ss need not be filed wi t h i n thirty day s afte r the eff

ective date of the challeng ed annexation ordinanc e. I concur completely with this conclusion.

Be cause of its leg itimate conce rn about piece meal challeng es to annexation ordinanc es, the Court in this case has narrowly construed State ex rel. Earhart v. C ity of Bristol

. As I understand the Court’s decision, it is clar ify ing t h at the decla ratory judgme nts authorized by State ex rel. Earhart v. City of Bristol must satisfy two require ments. First, they can only be filed when no quo
war ranto proce eding is available

. Second, the basis of the decla ratory judgme nt actio n must be limit ed to ultra vires c onduct by the anne x ing municipa lity . Stated another way , these decla ratory judgme nt actions must be based on claims that the municipality has exceede d the annexing authority deleg ated by

the Gene ral Asse mbly

.
III.

For the purposes of t his case , I will conce de the appropr iateness of the l imitati o n s that the Court is placing on d ec l aratory judgme nts that challeng e annexation ordinanc es. I part company 5

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. 4

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-4-with the Court beca use I have c oncluded that the Hig hwoods parties’ decla ratory judgme nt action meets both of the Court’s require ments for decla ratory judgme nt actions challeng ing an annexation ordinanc e.

The first require ment is that a quo war ranto action cannot be available to the parties filing the decla ratory judgme nt a ction. The Court has de cided that the Hig hwoods parties cannot satisfy this requ i re m ent beca

use they could have filed a quo war ranto in late 1997 or ear ly 1998. True enoug h. To challeng e the rea sonablene ss of the 1997 annexation ordinanc e, the Hig hwoods parties would have been required to file a timely quo war ranto action. Howeve r, t he Highwoods parties

6

are not asserting a re asonable ness cha lleng e or e ven a pr eliminary proce dural de fec t in this case

.
I n this proce eding , the Hig hwoods parties are square ly challeng ing the leg ality of the settlement of the 1997 litigation reg arding the orig inal annexation ordinanc e. They are asser ting that the neg otiation and acc eptanc e of this settlement which va ries fr om the terms of the or igina l 1997 annexation ordinanc e is ultra vires. As is well stated by the Cour t , t h e Hi gh woods parties have reque sted the invalidation of the June 8, 2006 consent fina l judgment be cause

“[a] g enuine dispute exis ts as to whether the

. . . Or d inance , as amende d throug h the Consent Final J udg ment and Amended Consent Final J udg ment[,] is valid.” The Plaintiffs arg ued that the settlement constituted “an attempt to unlawfully ci rcumve nt the exclusive proce dures established by the Gene ral Assembly ” by eff ectively amending the Ordinance to incorporate the two-tiere d annexation schedule , without enacting a new ordinanc e.

The Hig hwoods parties could not have asser ted this claim by quo war ranto or decla

ratory judgme nt befor e the expiration of the time for filing a quo war ranto action. The settlement did not take place until 2006 – nine y ear s after the time for f

iling a quo w arr anto ac tion had ex pired. The order approving the settlement wa s not entere d until J une 8, 2006. Simpl y stated, t he Highwoods parties’ prese nt conce rn over the annexation methodology did not exis t until t h e neg otiated settlement betwee n the city attorney and some of th e af fe ct ed proper

ty owner s in Are a 42 was
acc epted by the trial court. Acc ording ly , they could not have ass er t ed t h e claim they are now
asser ting until mid-2006.

(

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. -5-The second require ment is that the party filing the decla ratory judgme nt actio n m u s t b e claiming that the annexation ordinanc e was ultra vires. T h e Hi gh woods parties are asser ting just such a claim. They claim that by allowing a city attorney and private parties to amend an annexation ordinanc e without ratification or approva l f rom the city ’s leg islative body , the anne x ation beca me ultra vires and inv al i d b ecause it exceeds the annexation authority deleg ated by the Gene ral Assembly

.
Two y ear s ag o, the Court of Appea ls addre ssed the challeng e to the validity of an annexation ordinanc e that had been modified by consent order

. Dis t i n gu i s h ing betwee n a rea sonablene ss challeng e and an ultra vires challeng e, the court conclude d that the party challeng ing the annexation ordinanc e “lost its leg al rig ht to challeng e annexation of its proper ty o n t h e g rounds of

rea sonablene ss thirty day s afte r passag e of the annexation ordinanc e when it did not file a quo warranto proce eding .” Blount v. City of Mem phis , No. W2006-01191-COA-R3-CV, 2007 WL 1094155, at *4 (Tenn. Ct. App. Apr. 13, 2 0 0 7 ) (N o T en n. R. App. P. 11 application filed). Neve rtheless, the court held that the bar to challeng ing the reas o n ab l en ess of the annexation ordinanc e did “not prec lude, impair or impede [t he party ’s] ability to litigate its claim that the ‘new ’

or ‘modified’ ordinanc e is invalid in a decla ratory judgme nt action.” Blount v. City of Mem phis , 2007 WL 1094155, at *4. I ag ree with the rea soning of the Court of Appe als in this case.

The Hig hwoods parties’ decla ratory judgme nt action is aimed pre cisely at the invalidity of the modified annexation ordinanc e. Their complaint alleg es that the city attorney and private parties may not modify a duly enac ted annexation ordinanc e. I f the Hig hwoods parties are corr ect and such authority does not reside with the city attorney and private parties, then the 2006 consent decr ee modif y i n g the 1997 annexation ordinanc e cannot be g iven leg al eff ect beca use the compromise ordinanc e has not be en ra tified or adopte d by the Memphis City

Council.

IV.

I share the C ourt’s concern about piece meal annexation litigation. However, I am equally

conce rned abou t t h e p rese rvation of the car eful balanc ing of interests that the Gene ral Assembly engag ed in when it empower ed municipal leg islative bodies to annex adjoining propert y b y ordinanc e. This c ase reve als a potentially problematic unbalanc ing of these compromises beca use in this case , an executive b ra n ch o ff i ci al – the city attorney – and private parties appea r to be perf orming a leg islative act with the city ’s l eg islative body sitti ng on the sidelines. I t is my belief that the Hig hwoods parties are entitled to pr esent to the courts the important issue of whether such an appr oach to a

nnexation is ultra vires a

nd to have the issue de cided on the me rits.

______________________________ WI L L I AM C. KOCH, J R., J USTI CE

-6-