### IN THE COURT OF APP EALS OF TENNESS EE AT NAS HVILLE O ct obe r 10, 200 7 S es sio n TOW N OF HUNTSVI LLE , TENNESS EE, ET AL 

### . v. SCOT T COUNTY, TEN NES SEE, ET A L 

### . Appeal from the Chancery Court for D avidson County No. 06-11-II Car ol L. McCoy, Chancellor

No. M2006- 02146-COA-R3-CV - Filed February 28, 2008

The dispositive issue on appeal in this annexation dispute by the annexing municipality against the county and Te nnesseeCommi ssioner of Re v en ue is which tax allocation statute controls the allocation of Loc al Option Revenuederive d from the annexed te rritory, the one in effe ct when the municipality passed the anne xation ordinanc es upon final reading or the one in ef

fec t when q uo war ra nto litigation challenging the ordinanc es wa s conclud ed

. The c ounty and Commiss ioner of Revenuecontend the statute in effe ct when the quo warranto actions challenging the validity of the ordinanc es were concluded applies, because that is the date theannexations becameoperative. The municipality contends that the tax scheme in e ffe ct when the ordinanc es wer e passe d by final re ading app l i es bec ame the qu o wa rra nto actions challenging the ordinanc es we re dismissed due to the petitioners’ failure to eff

ect sufficient service of proce ss on the m unicipality. The Chanc ellor ruled in f avor of the municipality, f inding in pertinent part that the qu o wa rra nto litigation t hat was f iled but not followed by sufficie nt service of process had no eff ect on the operative dates of anne xation. We r ever se, finding that the statute in ef fec t wh en the qu o wa rra nto litigation was concluded c on tr ols thea llo c atio n o f t a x r e ve nu e fr om thea nn e xe d te rrito ri e s. Tenn. R. App . P. 3 Appeal as of Right; Judgment of the Chancer y Court Re verse d
F R ANK G. C LE MENT , J R ., J., delivere d the opinion of the court, in which P AT R I C I A J. C OTTRE LL , P.J., M. S., a ndJ. S TE VE N S TA FF O RD , S P
. J., joined.
DavidL. Buu c k, Kn ox vi lle, Te nn e sse e , andJo hnBe a ty, Hu nts vil le , T e nn e sse e , f or theapp e llant, Scott Count y, Tenne ssee, A Munic ipal Corporation of the State of Tenne ssee. Robert E. Cooper, Jr., Attorney General and R eporte r, and Mary Ellen Knac k, Assistant Attorney Gene ral, for

the appe llant, Comm issioner of Reve nue of the State of Tenne ssee. Andre w R. Tillman, Knoxville, Tennessee , for the a ppellee, T own of Huntsville, Tenne ssee.Tenn. R. Ci v. P. 4. 04( 8) r equi r es t hat s er vi ce m ay be m ade upon a m uni ci pal i t y by de l i ver i ng a c opy of t he 1

s um m on s an d com pl ai nt t o t he “chi ef ex ecut i ve offi cer t here of, o r t o t he ci t y at t orney. ” I n t he quo war r ant o ac t i o n s, a co p y of t h e sum m o n s an d co m p l ai n t w ere l eft at t h e m ay o r’ s o ffi ce, b u t w ere n o t p ers o n al l y d el i v ered t o t h e m ay o r. St at e ex r el

. Bar ge r , 63 S. W

. 3d a t 399.

T h e 1 9 9 8 sta tu te p ro v id e d th a t w h e n a m u n ic ip a lit y a n n e x e d ter rito ry in w h ic h th e re is re ta il o r w h o le sa le 2

ac t i vi t y a t t he t i m e t he anne xat i on t ake s e f f ec t , t he t ax r eve nue f r om t he anne xed ar ea s hal l be a l l oca t ed bet w ee n t he
m u n i cip ali t y an d co u n t y as fo l l o w s:

[F ]o r re ta il a c tivity sub je c t t o the L o c a l O p ti o n R e v e n u e A c t, t he co unt y s hal l co nt i nue t o recei ve an n u al l y an a mou n t e qu al t o t h e amou n t of r ev en u e t h e cou n t y r ec ei v ed pu r s u an t t o § 67- 6- 712( a) ( 2) ( A) i n t h e t we l v e ( 12) mon t h s i mmedi at el y pr ec edi n g t h e ef f ec t i v e dat e of

t h e an n ex at i on f

or bus i nes s es t abl i s hment s i n t he ann exe d ar ea t hat produced Local O pt i on Reven ue A ct dur i ng t hat ent i re t welve (12 ) m o nt hs.

. . . Fo r busi ness est ab l i shments whi ch d i d not p rod uce revenue b ef o re t he
a n n e x a tio n d a te a n d p ro d u c e d re v e n u e w ithin thr e e (3 ) m o n ths a fter the a n n e x a tio n d a te

. . . t h e c o u n ty shall c o n t i nue t o recei ve annual l y an am o unt de t erm i ned

. . . . A m uni ci p al i t y s hal l only pa y t he
co un t y t he am o un t req uired b y t his s ub d i visi o n (b )(2 ), f o r a p erio d o f

f i f t ee n (1 5 ) years.
(c o n tin u e d ...) -2- OP IN ION
The Town of

Huntsville (the “Ci ty”) passed two separ ate annexation ordinances, O rdinanc e 97-98-05 and Ordinanc e 97-98-06, on second and final re ading on Dec ember 29, 1997, and Februa

ry 16, 1998, to annex c ertain property in Scott County (the “County”). Property owne rs in the anne xed are as time l y filed qu o wa rra nto actions challenging the ordinanc es. The qu o wa rra nto actions remained viable for four year s, until 2002, when the Tenne ssee Supreme Court denied an application for pe rmission to appeal the judgment of this court. See State ex re l. Barge r v . Ci ty of H un tsv ill e , 63 S.W.3d 397 (Tenn. Ct. App. 2001 ) (p er m
. ap p
. denied Jan. 7, 2002). Significant to the issue on appeal, this court had af firmed the trial court’s dismissal of the q u o w a rra nto act io ns du e to insufficient service of proc ess. Id

. at 398. The actions wer e brought against t he City. The Summons stated t hat i t was served upon the City “at Mayor Charles Sexton’s Of

fice .” Id . The City contended therewas no personal se rvice on the Mayor, but r ather that copies of theSummons and Complaint wer e mer ely “lef

t at the Mayor’ s office .” Id. The City argue d that Tenn. R. Civ. P. 4.04(8) r equire d personal se rvice on the Mayor. Id. The trial court agree d and dismissed the quo warranto a c tio ns , 1
a ndthi s c ou rt

a ff irme d th etria l c ou rt

. This court af

firmed the trial co u rt ’s dismiss al of the qu o wa rra nto actions for insufficient serviceof proc ess in August of 2001, and the Tenne ssee Supreme Court issued its order de nying the plaintiffs’ application for permission t o appeal on January 7, 2002.
While the c hallenges to the suf ficienc y of proc ess of the a bove re fer ence d qu o wa rra nto actions we re pending, the Tennessee Gener al Assembly enac ted Tenn. Code Ann. § 6-51-115( b)(2) (1998). This statute, whic h went into eff ect on May 19, 1998, made significant changes t o the manner in which tax re venues from new ly annexe d are as we re allocated be tween thecounty and the annexing municipality. Those c hanges r edire cted a significant portion of the applicabletaxes fr om the municipality to the county for a period of f

ifteen ye ars f

ollowing the annexation. 2(

. . . cont i nued) 2 T e n n . C o d e A n n . § 6 -5 1 -1 1 5 (b )( 2 ). Pr i or t o 1998, Tenn. Code A nn. § 6- 51- 115 pr ovi ded t hat t he count y “ s hal l c ont i nue t o r ec ei ve t he r eve nue f r om al l s t at e a nd l oca l t axe s di s t r i but ed on t he bas i s of s i t us of c ol l ec t i on, ge ner at ed w i t hi n t he
annex ed ar ea, unt i l J ul y 1 fol l ow i ng t he annex at i o n
. . . ” Bas ed up on t he s t at ut e a s i t exi s t ed w hen t he ordi nances at i s s ue w er e pas s ed, t he C i t y w ou l d hav e r ece i ved t he appl i cabl e t axes as of J ul y 1 fol l ow i ng t he annex at i on ordi nance goi ng i nt o e f f ec t ; how eve r , unde r t he 1998 s t at ut e, t he Count y w oul d cont i nue t o r ec ei ve t he appl i ca bl e t axe s f or t he next fi ft ee n ye ar s
. The s t at ut e ha s bee n t he s ubj ec t of s eve r al s ubs t ant i ve am endm ent s t hat a f f ec t t he al l oca t i on of t he Loca l O pt i on Reve nue bet w ee n t he count y a nd t he anne xi ng m uni ci pal i t y. The a m endm ent s i ncl ude Chapt er 959 of t he Publ i c A ct s of

2004, Chapt er 311 of

t he Publ i c A ct s of

2005, a nd Chapt er 602 of t he Publ i c A ct s of

2007.

A l t hough t he r ec or d i s unc l ea r a s t o t he t i m i ng, i t i s undi s put ed t hat t he Ci t y m et t he pr oce dur al r equi r em ent 3 of pe t i t i oni ng t he D ep art m en t o f R eve nue f or a de cl ar at or y or der

. The r ec or d c ont ai ns a N ot i ce of Fi l i ng of D epa r t m ent ’ s Ref

us al t o I s s ue D ec l ar at or y O r der fi l ed i n t he t r i al cour t on J anua r y 25, 2006. N ei t her t he Ci t y’ s pe t i t i on f or a de cl ar at or y a ct i on nor t he D epa r t m ent of Reve nue’ s r ef

us al i s i n t he r ec or d. -3- Following t he conc lusion of the quo warranto actions and a ppeals, the City was informed that certain r e v e n u e d e riv e df r o m th e a n n e x e dar e a s w o u ldb e d is trib u te dto th e Co u n ty f o r the statut ory pe ri od of fi ft e e n ye ars , pur su a nt to Te nn . Code An n. § 6-5 1- 11 5( b) (2 ) ( 19 98 ), be c aus e it was what the state identified a s “anne x at i o n d at e reve nue.” T here afte r, the City filed this action, seeking a decla ratory judgment a gainst the County and L o re n L. Chumley, Comm issioner, De pa rtme nt o f R e ve nu e of

the S tat e of

Te nn e sse e (c oll e c tiv e ly, the“ de fe nd a nts ” ). Th e City 3 conte n d ed t h at b oth ordinance s werepassed on f inal rea ding beforeTenn. Code Ann. § 6- 51- 115(b)( 2) (1998) went into effect on May 19, 1998, and, ther efor e, Te nn. Code Ann. § 6-51- 11 5( b) (2 ) ( 19 98 ) d id n ot a pp ly to the ann e xe d a

re a s at is su e . A lte rn a tiv e ly, theCity so ug ht a decla ration that the qu o wa rra nto a c tio ns c ha lle ng ing its a nn e xatio ns didno t to ll theop e rativ e date o f t h e annexations because the qu o wa rra nto actions we re dismissed for insuff icient servic e of proce ss. There fore , the City contended, the annexations became operative t hirty days af ter pa ssage, wh ic h w as months be

for e the ena ctment of Te nn. Code Ann. § 6-51- 115(b)( 2) (1998) . The defe ndants, howeve r, conte nded the annexations did not becomeoperative until the qu o wa rra nto actions we re dismi ssed i n 2002, that Tenn. Code Ann. § 6-51-115(b) (2) ( 1998) wa s in effe ct in 2002, a ndthe re fo re , it

c on tr oll e d th e a llo c atio n o f t a xe s inthea nn e xe d a re a s. There being no fac tual disputes, all pa rties filed motions for summary judgment. The tria l court granted the City’s motion for summary judgment. The trial court f ound the ordinanc es we re passed be forethe provisions of Tenn. C o d e An n. § 6-51-115( b)(2) (1998) be cameeff ective, and the re fo re , th e 19 98 statut e didno t app ly. Th etria l c ou rt a lso fou nd th at th e an ne xatio ns be c a me opera t i v e t h i rt y d ays af

ter pa ssage of

the ordinanc es on sec ond rea ding due to the fa ct the quo war ra nto actions “had no eff ect or conseque nce on the operative date in that they were not followed with sufficient service of

proce ss.” This appeal followed.The i s s ue i n C ity o f Kn o x v ill e w as w het her T enn. C ode A nn. § 6- 51- 115( b) ( 2) , e nac t ed by Chapt er 1101 of 4
t he Pub l i c A ct s of 19 98 and eff ect i ve M ay 19 , 19 98 , appl i es t o a n ann exat i on ordi nance, t he fi nal r eadi ng and app r ov al ofw hi ch oc c u r r e d p r i o r t o M a y 1 9 , 1 9 9 8 , b u t t h a t wa s n o t o p e r a t i v e u n t i l a ft e r M a y 1 9 , 1 9 9 8 , b e c a u s e o f l i t i g a t i on c h a llen g in g th e a n n e x a tio n
. C i t y of Kn oxvi l l e v
. Kn ox C ou nt y, Tenness ee , N o
. M2 0 0 6

- 0 0 9 1 6

- C O A

- R 3

- C V , 2 0 0 8 WL 465265 a t *2 ( Tenn. Ct

. A pp. Fe b. 20, 2008)

. W e r eve r s ed t he Chanc er y Cour t ’ s de t er m i nat i on t hat t he t ax di s t r i but i on sta tu te in e ff e c t w h e n th e o rd in a n c e w a s p a sse d a n d a p p ro v e d b y th e c ity a p p lies. Id. a t *4.

T enness ee C od e A nn ot at ed § 6-51-102 ( a) ( 1) a ut ho r i zes a m un i ci pal i t y t o annex an adj oi ni ng t er r i t ory “w hen 5 i t ap p ears t h at t h e p rosp eri t y of such m u n i ci p al i t y a n d ter ri t o ry w i l l be m at eri al l y ret arde d an d t h e safet y an d w el fare of t he i nh abi t ant s and propert y end angere d. ” C ity o f Kn o x v ill e , 2 00 8 W L 4 65 26 5 at * 3. T he annex at i on , h ow ever , does
n o t g o in to e ff e c t im m e d ia te ly u p o n p a ssa g e o f t h e o rd in a n c e b y th e m u n ic ip a lit y
. Id. T h e o r d i n a n c e d o e s n o t b e c o me op er at i v e u n t i l t hi r t y day s af t er fi nal pas s age, duri ng w hi ch t i m e pr op er t y ow ners m ay fi l e a q u o w a rra n to a c tio n to c o n te st th e a n n e x a tio n
. Id. (c iti n g T e n n . C o d e A n n . § 6 -5 1 -1 0 2 (a )( 1 )) ; s ee Tenn. Code Ann. § 6- 51- 103. -4- S TANDA RD OF R EVIEW No g enuine mate rial fa ctual disputes ar e pre sented. The issues prese nted hi ng e on the prope r interpre tation of Tenne ssee statutes a nd their application to the f acts of this c ase. I ssues involving the construc tion of statutes and their a pplication to f

acts involve questions of law. Mem phis Publ’g Co. v. Cheroke e Children &Family Serv s., Inc ., 87 S.W. 3d

67 , 7 4 ( Te nn . 2 00 2) ; W

aller v. Bryan , 16 S.W. 3d 77 0, 77 3 (T e nn . Ct. App . 199 9) . The re fo re , th e tr ia l c ourt ’s re so lut ion of the se iss ue s is not entitled to Tenn. R. App. P. 13(d)’s presumption of corr ectne ss on appea l. We will re view the iss ue s de novo and reac h our own independe nt conclusions reg ardingthem. King v. Pope , 91 S.W .3d 314, 318 (Tenn. 2002)

. A N A L Y SIS
The de fendants present two i s s u es on appeal. First, t hey conte nd that the tax distribution schemein effe ct when theannexations became operat i v e, n o t t h e st atute in ef fec t when the ordinanc es we re pa ssed on sec ond and fina l rea ding, controls the alloca t i o n of taxe s from the annexe d territorie s betwee n the City and the County. Seco n d , t h e d efendants contend that the annexations did notbecomeoperative until the qu o wa rra nto actions challenging them became final upon the Tenne ssee Supreme Court’s de nial of application for permission t o appeal on January 7, 2002.
The first issue prese nted was decide d by this court while this appe al was pe nding in City of Knoxville v. Knox County, Tenne ssee , No. M2006-00916-COA- R3-CV, 2008 WL 465265 (Te nn. Ct. App. Feb. 20, 2008). In City of Knoxville we held the determinative date wa s “the date on which 4 the anne xation ordinanc e bec omes “e ffe ctive” or “oper ative.” Id. at *4 (c iting Piper v. City of Me mp his , 86 1 S

. W. 2 d 8 32, 833-34 (Te nn. Ct. App. 1992)). As westated in Cityof K no x v ill e , “[w ]hen a qu o wa rra nto action is timely filed to challenge an annexation, the ef fec tive date of

the challenge d annexation or dinance is ‘ held in a beyanc e’ pending t h e l i t i gation.” Id . at *3 (c iting 5 High woo ds Pr

op e rti e s, In c . v . Ci ty of M e mp his , No. W2006- 00732-COA-R3-CV, 2006 W L 36 2 8 1 0 2 at *7 (Tenn. Ct. App. De c. 14, 2006)) (empha sis added). W e further e xplained that the annexation was not “‘ eff

ective’ or ‘ope rative’ until the ordinanceis upheld as valid by the pre siding court.” Cityof K

no x v ill e , 2008 WL 465265 at *3 (c iting Piper , 861 S.W.2d at 833-34). T hus, the-5-

statute in eff

ect whe n the ordinan ce b ec am e “effe ctive” or “oper ative” c ontrols the allocation of taxes fr om the annexe d territory be tween theannexing municipality and the c ounty. Id. With the first issue having be en answer ed by our ruling in Cityof K no x v ill e , we turn our atte nti onto thede te rm inativ e iss uein the ins tant ca se , whi c h is whe n the City ’s a nn e xatio ns be c a me “ef fec tive” or “oper ative.” The defendants contend the trial court e rre d by finding the anne xations became oper ative in 1998. The City, howeve r, conte nds the trial court corre ctly conc luded they became operative in 1998 beca use the qu o wa rra nto actions challenging the anne xation ordinanc es “had no e ffe ct or c onsequenc e on the operative date in that they were not followed with sufficie nt serviceof proc ess.” W e re spectfully disagre e with the City and the trial court.
As we de termined in Cityof K no x v ill e , the mere “ filing ” of a qu o wa rra nto action holds the eff ective date of the annexation in abe yanceuntil the filed action is dismiss ed. 2008 WL465265 at *3 . A ll c ivi l a c tio ns arec omm e nc e d b y “ fi lin g a com plai nt w iththec le rk of thec ou rt .” Te nn . R. Civ . P. 3. In su ff

ic ie nc y of se rv ic e of pr oc e ss doe s not re nd e r the fi lin g a null ity ; in ste a d, it i s me re ly a def ense that must be asserted, T enn. R. Civ. P. 12.02, and if the defenseof insufficie ncy of se rvice of pr oc e ss i s n ot p ro pe rl y a sserted, theiss ueis w a ive d. Te nn . R. Civ . P. 12 .0 8; e.g., Faulks v. Crowder , 9 9 S. W.3 d 1 16 , 1 25 (T e nn. Ct

. App. 20 02 ) ( ho ldi ngthat theTe nn e sse e Rul e s o f C ivi l Procedur e spec ifically address the def ense of insufficient proc ess, that they providefor the w aiver of such a defe nse, and that Rule 12.08 states t hat “[a] party waives all defe nses and objections which the party does not prese nt either by motion . . . or . . . in the party’s answe r or r eply”)

. The qu o wa rranto actions at issue we re timely filed and summons were timely issued. U n f o rtu n at e l y f

o r th e l a n d o w n e r

p e t i t i o n e r s , th e p r o c e s s s e r v e r l e f tth e s u m m o n s w i th th e City Recorde r and did not direc tly serve the Mayor. Although t h e C i t y h ad actual notice of the commence ment of the a ction, the City, as it was entitl ed to do, asserted t he defense of insufficient serviceof proc ess. Al t hough the trial court dismi ssed the quo warranto actions for insufficient serviceof proc ess, and this court aff irmed the trial court, the succe ssful defe nse did not rende r the filing of the qu o wa rra nto actions a nullity. To the contra ry, the qu o wa rra nto actions we re pe nding un til Janu ary 7, 20 02 , w he n the S up rem e Cou rt de nie d th e Rul e 11 app lic a tio n f or pe rm iss ionto appeal this court’s decision. Although the anne xation ordinanc es we re pa ssed and a pproved by the City i n Dec ember

of 1997 and February of

1998, quo warranto actions we re timely filed c hallenging the ordinanc es, and a s long as the quo warranto actions we re pe nding, the annexations did not becomeeff

ective or operative. Se e Cityof K

no x v ill e , 2008 WL 465265 at *3.
The de terminative date is the date on which the annexation ordinance be comes “ operative.” Id .; (citing Piper , 861 S.W.2d at 833-34). Tenn. C ode Ann. § 6- 51-115(b) (2), e nacte d by Chapter 11 01 of thePub lic Ac ts o f 1 99 8, wa s ine ff e c t w he n th e a nn e xatio ns at is su e be c a me o pera tiv e in January of 2002. Ther efor e, Te nn. Code Ann. § 6-51- 115(b)( 2), not the statute in ef fec t when the ordinanc es we re pa ssed on sec ond rea ding by the City, controls the allocation of taxes fr o m the annexe d territory be tween theTown of Huntsville and Scott County.
I N C ONCL US I ON-6-

W e va c ate thea wa

rd of su mma

ry jud gme nt i n f

a vo r o f theTo wnof

Hu nts vil le , r e mandwi th instructions for the Chanc ellor to grant the defe ndants’ mot ions for summary judgment and f or such other proc eedings a s may be ne cessa ry. C osts of this appeal ar e asse ssed against the Town of Huntsville.

___________________________________ FRANK G. CLEMENT, JR., JUDGE