Court Opinion

ID: 9908506
Source: CourtListenerOpinion
Date Created: 2023-12-08 22:07:42.806599+00
Date Added: 2024-06-11T12:49:12.808317
License: Public Domain

12/08/2023

                IN THE COURT OF APPEALS OF TENNESSEE
                           AT KNOXVILLE
                         Assigned on Briefs November 1, 2023

      THE STATE OF TENNESSEE on behalf of BLEDSOE COUNTY,
      TENNESSEE, and THE CITY OF PIKEVILLE, TENNESSEE v.
                       WHORISKEY, INC.

              Appeal from the Chancery Court for Bledsoe County
     No. 2019-DT-3368 and 2020-DT-3400 Melissa Thomas Willis, Chancellor
                   ___________________________________

                            No. E2023-00505-COA-R3-CV
                        ___________________________________

This appeal arises from an action to recover delinquent ad valorem real property taxes.
Whoriskey, Inc., which currently owns the property, raises numerous challenges to the
proposed delinquent tax sale. In principal part, it asserts that the property at issue was not
subject to taxation during the relevant tax period, 2017 and 2018, because it claims that,
during that time, the property was owned by the United States Government through a
federal forfeiture. Further, Whoriskey contends that Bledsoe County and the City of
Pikeville are barred from recovering back taxes because they failed to assert a claim in
federal court. The trial court found no factual or legal basis to support Whoriskey’s
contentions and determined that the County and City could proceed with the delinquent tax
sale to recover ad valorem real property taxes on the subject real property for the tax years
2017 and 2018. This appeal followed. We affirm.

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

FRANK G. CLEMENT, JR., P.J., M.S., delivered the opinion of the court, in which ARNOLD
B. GOLDIN and KRISTI M. DAVIS, JJ., joined.

Thomas K. Austin, Dunlap, Tennessee, for the appellant, Whoriskey, Inc.

Howard L. Upchurch, Pikeville, Tennessee, for the appellees, Bledsoe County, Tennessee
and The City of Pikeville, Tennessee.
                                 MEMORANDUM OPINION1

                              FACTS AND PROCEDURAL HISTORY

       On March 29, 2019, and then on March 31, 2019, the State of Tennessee, acting on
its own behalf and on behalf of the City of Pikeville and Bledsoe County (“the City and
the County” or collectively “Plaintiffs”), commenced these consolidated actions to collect
delinquent ad valorem property taxes for the years 2017 and 2018 on various and sundry
real properties, including an industrial property located on Ferro Street in Pikeville,
Tennessee (hereinafter “the Pikeville Plant”).2 Both actions were brought pursuant to
Tennessee Code Annotated § 67-5-201, et. seq. and Tennessee Code Annotated § 67-5-
2405, et seq.

       Whoriskey, Inc., filed an answer stating that it is the owner of the Pikeville Plant,
which it acquired through a foreclosure sale on July 29, 2019, from the previous owner,
Textile Corporation of America, LLC (“TCA”).3

        Whoriskey asserted that, after it acquired title to the Pikeville Plant, the United
States of America commenced criminal proceedings against the former members and
owners of TCA, Karim Sadruddin and Rahim Sadruddin (collectively “the Sadruddins”).
These criminal proceedings gave rise to a federal court protective order and a federal court
forfeiture proceeding. Furthermore, Whoriskey asserted that the Sadruddins had filed a
complaint in the Chancery Court of Bledsoe County, by which they were attempting to set
aside the TCA foreclosure sale and regain title to the Pikeville Plant.

        For its defense, Whoriskey contended that it should not be held responsible for the
ad valorem property taxes assessed by the City and County for the years 2017 and 2018.
Whoriskey asserted that the Pikeville Plant was owned by the United States Government
during the relevant time period as a consequence of the federal forfeiture, and that federal
law prevents a municipality from assessing property taxes on property owned by the United
States. Further, Whoriskey argued that because the City and County had failed to perfect a
claim in federal court, they were barred from recovering the back taxes for 2017 and 2018.

       1
          Rule 10 Memorandum Opinion. When a case is decided by memorandum opinion pursuant to
Court of Appeals Rule 10 it shall be designated “MEMORANDUM OPINION,” shall not be published,
and shall not be cited or relied on for any reason in a subsequent unrelated case.

       2
         In case number 2019-DT-3368, they sought to collect 2017 taxes and in case number 2020-DT-
3400 they sought to collect 2018 taxes.

       3
         Textile Corporation of America, LLC, acquired the property via Warranty Deed from the Bledsoe
County Industrial Development Corporation Board, dated July 7, 2017, and recorded July 17, 2017 in Book
RB 313, Page 448, Register’s Office of Bledsoe County, Tennessee.
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       Whoriskey also filed a motion to stay any hearings in the matter, asserting that the
court was preempted from taking any action due to the County and City’s failure to claim
any interest in the federal court protective order and the federal court forfeiture action.
Thereafter, Whoriskey filed a motion to dismiss the complaint. Plaintiffs filed responses in
opposition to Whoriskey’s motions. The trial court implicitly denied Whoriskey’s motions
by subsequently deciding the case on its merits.

        The case was tried upon the argument of counsel and examination of exhibits and
the record on January 9, 2023. Pursuant to a final order entered on March 30, 2023, the
trial court found the following:

       Tenn. Code Ann. 67-5-2102 and 2103 are the prevailing statutes and
       [Whoriskey’s] arguments are inapplicable because there was never a final
       order of forfeiture or evidence that the property in dispute was ever owned
       by or vested with a federal or [sic] government, which would bar the accrual
       of property taxes.

       Based on these findings, the court determined that Plaintiffs could proceed with the
delinquent tax sale to recover ad valorem real property taxes on the Pikeville Plant for the
tax years 2017 and 2018, plus penalties and interest. The court also awarded liens in favor
of Plaintiffs upon the Pikeville Plant to secure the payment of taxes, penalties and interest
subject to the equity of redemption.

       This appeal followed.
                                            ISSUES

       The issue, as framed by Whoriskey, reads:

       Whether the Bledsoe County Chancery Court erred by Ordering that the City
       of Pikeville and Bledsoe County could proceed with a tax sale to recover ad
       valorem taxes for tax years 2017 and 2018 on a piece of real property located
       at 90 Ferro Street Pikeville, Tennessee even though the property was subject
       to a federal forfeiture and Bledsoe County and the City of Pikeville never
       filed a claim in the US District Court?

       For their part, Plaintiffs identify the issue as follows:

       Whether the Trial Court erred in its determination that the City and County
       could proceed with the delinquent tax sale and enforce their statutory lien to
       recover ad valorem real property taxes for the tax years 2017 and 2018
       against the subject real property situated at 90 Ferro Street, Pikeville, Bledsoe
       County, Tennessee.

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                                  STANDARD OF REVIEW

       Our standard of review of legal issues, such as statutory interpretation, is de novo.
Moore v. Town of Collierville, 124 S.W.3d 93, 97 (Tenn. 2004) (citing Tucker v. Foamex,
LP, 31 S.W.3d 241, 242 (Tenn. 2000). Thus, our review of this case is de novo upon the
record with a presumption of correctness of the findings of fact by the trial court. Tenn. R.
App. P. 13(d). Absent error of law, the trial court’s decision will be affirmed, unless the
evidence preponderates against the factual findings. Wilson v. Blount Cnty., 207 S.W.3d
741, 745 (Tenn. 2006) (citing Tenn. R. App. P. 13(d)). No presumption of correctness
attaches to the trial court’s conclusions of law. Id. (citing Carvell v. Bottoms, 900 S.W.2d
23, 26 (Tenn. 1995)).

       With regard to the proper construction of a statute, this court has stated

       The leading rule governing our construction of any statute is to ascertain and
       give effect to the legislature’s intent. Walker v. Sunrise Pontiac–GMC Truck,
       Inc., 249 S.W.3d 301, 309 (Tenn. 2008)). To that end, we start with an
       examination of the statute’s language, Curtis v. G.E. Capital Modular Space,
       155 S.W.3d 877, 881 (Tenn. 2005), presuming that the legislature intended
       that each word be given full effect. Lanier v. Rains, 229 S.W.3d 656, 661
       (Tenn. 2007). When the import of a statute is unambiguous, we discern
       legislative intent “from the natural and ordinary meaning of the statutory
       language within the context of the entire statute without any forced or subtle
       construction that would extend or limit the statute’s meaning.” State v.
       Flemming, 19 S.W.3d 195, 197 (Tenn. 2000); see also In re Adoption of
       A.M.H., 215 S.W.3d 793, 808 (Tenn. 2007) (“Where the statutory language
       is not ambiguous ... the plain and ordinary meaning of the statute must be
       given effect.”) (citing Calaway ex rel. Calaway v. Schucker, 193 S.W.3d 509,
       516 (Tenn. 2005)). The construction of a statute is also a question of law
       which we review de novo without any presumption of correctness. Lind, 356
       S.W.3d at 895.

Pinnacle Towers Acquisition LLC v. Penchion, 523 S.W.3d 673, 678 (Tenn. Ct. App. 2017)
(quoting Myers v. AMISUB (SFH), Inc., 382 S.W.3d 300, 307–08 (Tenn. 2012)).

                                         ANALYSIS

       Whoriskey contends that the Pikeville Plant was not subject to taxation during the
relevant tax periods, 2017 and 2018, because it claims that the property was owned by the
United States Government during that time. The contention that the United States
Government owned the Pikeville Plant is principally based on the above-mentioned
preliminary orders of forfeiture that arose from criminal proceedings against the
Sadruddins.

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       To analyze the issues presented, it is necessary to review the facts and procedural
history that gave rise to the preliminary order of forfeiture and what happened thereafter.
The relevant facts and procedural history related to the collateral proceedings, as stated in
Whoriskey’s appellate brief, which facts Plaintiffs adopted, read, in pertinent part:

       Whoriskey, Inc. acquired its initial interest in the property at a foreclosure
       sale on July 29, 2019 for $1.4 million. Textile Corporation of America, LLC
       (“TCA”) was Whoriskey’s predecessor in title owning the Pikeville Plant
       during years 2017 and 2018. TCA members included Karim Sadruddin and
       Rahim Sadruddin (collectively, “Sadruddins”). The Sadruddins were
       ultimately convicted for various federal criminal offenses for their unlawful
       acts while acting as members for TCA. These convictions led to a forfeiture
       of the Pikeville Plant by the United States relating back to the date of first
       criminal activity, October 3, 2017. Whoriskey timely filed a claim in Federal
       Court and the United States eventually released the Pikeville Plant after
       reaching a negotiated settlement with Whoriskey in the United States District
       Court of the Eastern District of Tennessee.

       On July 1, 2017, TCA purchased the Pikeville Plant from the Bledsoe County
       Industrial Development Board for $850,000.00. On October 3, 2017, Karim
       Sadruddin, President of TCA, sent an email to Rahim Sadruddin and an
       individual with the Southeast Tennessee Development containing a
       fraudulent invoice in the amount of $1.4 Million purporting to reflect work
       that had been done on the building and a record reflecting the cost of the
       purchase of the building valued at $850,000. This email resulted in a
       disbursement of funds from the Bledsoe County Industrial Development
       Board to Karim Sadruddin in the amount of $2,256,900. Karim Sadruddin
       and Rahim Sadruddin then used these funds to purchase tarps which had been
       part of a scheme to defraud the Federal Emergency Management Agency
       (FEMA).

       Ultimately, TCA lost the Pikeville Plant to a foreclosure sale. Whoriskey,
       purchased the Pikeville Plant by being the highest and best bidder at the
       foreclosure sale on July 29, 2019. On November 13, 2019, Karim Sadruddin
       and Rahim Sadruddin plead guilty to a Federal Criminal Information on the
       charges of Wire Fraud x 2 pursuant to 18 U.S.C. § 1343 and Conspiracy to
       Commit Money Laundering pursuant to 18 U.S.C. § 1956(h). The
       Sadruddins admitted that they conspired and agreed to participate in a
       scheme and did intentionally participate in a scheme to defraud by knowingly
       making various fraudulent representations via wire. They further admitted
       that their scheme resulted in a collective loss to various victim entities
       between the amount of $3.5 million and $9.5 million.

                                            -5-
       Based on the Sadruddins plea agreements on November 13, 2019, the United
       States District Court entered Agreed Preliminary Orders of Forfeiture,
       forfeiting various assets, including the Pikeville Plant to the United States,
       pursuant to 18 U.S.C. § 1981, 982 and 28 U.S.C. § 2461. “The United States
       notified all interested persons believed to have an alleged interest in the
       property and published the forfeiture on the official government website
       pursuant to 21 U.S.C. § 853.” Whoriskey filed a timely Petition for Hearing
       and properly asserted its interest in the Pikeville Plant. Whoriskey also filed
       an interest in other forfeited assets seized by the United States. Neither
       Bledsoe County nor the City of Pikeville filed a claim in Federal Court to
       assert any interest in the forfeited property or any other forfeited assets.

       On June 9, 2021, Whoriskey entered into a settlement agreement with the
       United States Attorney General regarding the claims in the forfeited property.
       Said Agreement released the United States’ interest in the Pikeville Plant and
       Whoriskey released any claims to any other asset. On July 22, 2021 an Order
       Releasing Protective Order as to the Pikeville Plant was signed by US
       Magistrate Judge, Christopher Steger.

(Internal citations to the record omitted).

        It is significant to note that only preliminary orders of forfeiture resulted from the
Sadruddins’ federal court proceedings. A final order of forfeiture was never issued, which
is significant as is discussed and distinguished below. Moreover, as stated in the Notice of
Stipulated Settlement Agreement and Release of Claim, the previous lien lis pendens and
protective orders filed against the Pikeville Plant were released. It is also important to note
that even if the Pikeville Plant had been owned by the federal government, it was not used
exclusively for governmental purposes. The significance of this fact is discussed below.

        County governments are authorized to levy taxes on real property. See Tenn. Code
Ann. § 67-5-102. These taxes are due and payable on the first Monday in October of each
year. See Tenn. Code Ann. § 67-1-701. Property owners in Tennessee are charged with the
knowledge that their property is subject to taxation and that property taxes are due each
year. See Davidson Pabts, LLC v. Worsham, No. M2014-01061-COA-R3-CV, 2015 WL
4115174, at *4 (Tenn. Ct. App. May 18, 2015) (citing Marlowe v. Kingdom Hall of
Jehovah’s Witnesses, 541 S.W.2d 121, 124 (Tenn. 1976)). If a property owner fails to pay
taxes, the government shall file suit to collect them, see Tenn. Code Ann. § 67-5-2405, and
if taxes remain unpaid, the court has the authority to sell the property. See Tenn. Code Ann.
§§ 67-5-2005 and 67-5-2501.

       Title 67 of the Tennessee Code sets forth the relevant statutory scheme applicable
to the assessment of property taxes, liens imposed against real and personal properties in

                                              -6-
favor of cities and counties, and the procedures and mechanisms for enforcement of such
liens through the sale of real and personal properties. Under Tennessee Code Annotated §
67-5-101, all real property is to be assessed for taxation for county and municipal purposes.
Such assessments are mandatory. Tennessee Code Annotated § 67-5-102 authorizes the
counties to levy ad valorem taxes upon all properties, in amounts fixed by the county
legislative body, upon the values of the properties. Tennessee Code Annotated § 67-5-103
contains similar authority for municipalities.

        Notwithstanding the above requirements, Tennessee exempts “government
property” from taxation. See Tenn. Code Ann. § 67-5-203. This includes property of the
United States, the State of Tennessee, and any county or municipality. See Id. However, to
be exempt, the government property must be “used exclusively for public, county or
municipal purposes.” See Id. As discussed above, the United States Government did not
own or otherwise hold a legal interest in the Pikeville Plant. Assuming arguendo that it did,
there is no evidence that the United States Government ever used the Pikeville Plant
exclusively for public purposes as required by the governmental taxation exemption set
forth in Tennessee Code Annotated § 67-5-203.

       As Plaintiffs correctly contend, only upon the entry of a final order of forfeiture and
the disposition of any petitions by a federal court does title to seized properties pass to the
United States Government. See 21 U.S.C. § 853(n)(7). Here, a final order of forfeiture was
never issued, and it is undisputed that the United States forfeiture action was dismissed. As
a consequence, the United States Government was never an owner of the Pikeville Plant.
Because the United States Government was not an owner of the Pikeville Plant, the
assessment of the property for taxes by the City and the County and the attachment of the
City and County’s lien were appropriate.

       As for the lien upon the Pikeville Plant, Tennessee Code Annotated § 67-5-2101(a)
states that taxes assessed by a county or municipality upon real property, as well as
penalties, interests and costs accruing thereon, “shall become and remain a first lien upon
such real property from January 1 of the year for which such taxes are assessed.”
Furthermore, “property taxes shall become and remain a personal debt of the property
owner or property owners as of January 1 of the tax year and, when delinquent, may be
collected as any other personal debt.” Tenn. Code Ann. § 67-5-2101(b).

       Tennessee Code Annotated § 67-5-2102 provides as follows:

       (a) This lien shall extend to each and every part of all tracts or lots of land,
       and to every species of taxable property, notwithstanding any division or
       alienation thereof, of assessing or advertising the same in the name of persons
       not actually owners thereof at the time of the sale, or though the owner be
       unknown. However, there shall be no lien against leased personal property
       assessed to a lessee.

                                             -7-
       (b) Such taxes shall be a lien upon the fee in the property, and not merely
       upon the interest of the person to whom the property is or ought to be
       assessed, but to any and all other interests in the property, whether in
       reservation or remainder, or of lienors, or of any nature whatsoever. . . .

       Here, it is undisputed that the property taxes on the Pikeville Plant have not been
paid for 2017 and 2018, and that the property taxes owing for these periods are delinquent.
Accordingly, the City and County hold a valid lien against the Pikeville Plant for the
collection of delinquent ad valorem real property taxes.

       For the foregoing reasons, we affirm both the trial court’s decision that the City and
County held a valid lien against the Pikeville Plant for the collection of delinquent ad
valorem real property taxes, as well as its determination that the City and County may
proceed with the delinquent tax sale to recover ad valorem real property taxes on the
Pikeville Plant for the tax years 2017 and 2018.

                                     IN CONCLUSION

       The judgment of the trial court is affirmed and this matter is remanded to the trial
court for further proceedings consistent with this opinion. Costs of appeal are assessed
against the appellant, Whoriskey, Inc., for which execution may issue.

                                                   ________________________________
                                                   FRANK G. CLEMENT JR., P.J., M.S.

                                            -8-