Court Opinion

ID: 1049642
Source: CourtListenerOpinion
Date Created: 2013-10-08 19:52:44.287607+00
Date Added: 2024-06-11T15:43:23.455424
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                   May 26, 2010 Session

                              BILL TRAVIS, ET AL.
                                      v.
                         TRUSTEES OF LAKEWOOD PARK
                                      v.
                          COFFEE COUNTY, TENNESSEE

                  Appeal from the Chancery Court for Coffee County
                   No. 04-238    Charles Lee, Judge, by designation

               No. M2009-01935-COA-R3-CV - Filed September 3, 2010

This appeal concerns sovereign immunity. A subdivision in the defendant county had
restrictive covenants that, inter alia, required the payment of an annual assessment by all lot
owners to the subdivision trustees. In the wake of delinquent taxes, pursuant to statutes, the
county took title to lots in the subdivision after delinquent tax sales failed to yield sufficient
bids. The county held the lots for several years, and declined to pay the trustees the annual
assessments on the properties. Residents of the subdivision sued the trustees, and cross-
claims against the county were asserted for the past-due assessments. The county contended
that it was immune from liability for the lot assessments under the doctrine of sovereign
immunity. After a trial, the trial court held that the county was entitled to sovereign
immunity insofar as it had complied with the pertinent statutes on delinquent tax sales, and
granted a partial judgment against the county on the assessment claims. The trustees appeal,
arguing that the county was not entitled to assert sovereign immunity as a defense to the
contract claims under the restrictive covenants. We agree, and affirm in part and reverse in
part the decision of the trial court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in
                    Part and Reversed in Part, and Remanded

H OLLY M. K IRBY, J., delivered the opinion of the Court, in which A LAN E. H IGHERS, P.J.,
W.S., and D AVID R. F ARMER, J., joined.
Mark A. Nobles, Murfreesboro, Tennessee, for the Plaintiff/Appellants, Trustees of
Lakewood Park

Robert L. Huskey, Manchester, Tennessee, for the Defendant/Appellee, Coffee County,
Tennessee

                                                OPINION

                                 F ACTS AND P ROCEDURAL H ISTORY

National Development Company, Inc., owned a large tract of land in rural Coffee County,
Tennessee (“the County”). The land was developed into the Lakewood Park subdivision,
consisting of roughly 3800 lots. About 2600 were unimproved camping lots and the
remaining 1200 were residential lots allowing permanent dwellings.

In November 1983, National Development created a trust indenture for the benefit of all
present and future Lakewood Park lot owners, and filed the trust indenture with the County’s
Register of Deeds. The trust indenture contained various restrictive covenants and
authorized the Lakewood Park Trustees (“Trustees”) to enforce the restrictions. To fund the
Trustees’ operations, the trust indenture provided for an annual assessment of eighty-five
dollars per lot.1 In the event that an assessment was not paid, the trust indenture granted a
lien on the property and authorized the Trustees to “institute proceedings to foreclose” the
lien.2

As National Development continued developing Lakewood Park, over time, sales of the lots
slowed, and the value of the property declined. Eventually, National Development went into
bankruptcy before the subdivision was completed.

For various reasons, the owners of numerous lots in the Lakewood Park subdivision had
failed to pay their property taxes. Pursuant to Tennessee Code Annotated § 67-5-2401 et
seq., the County asserted liens and initiated sales of these lots to collect the delinquent taxes.
When the lot sales failed to generate bids sufficient to pay the taxes due, the County
purchased the properties in accordance with Tennessee Code Annotated § 67-5-2501 et seq.

1
 The original trust indenture provided for a regular assessment of fifty dollars per lot plus a special
assessment of twenty-five dollars per lot. In August 1996, the regular assessment was increased to sixty
dollars per lot, by amendment to the trust indenture.
2
 This provision of the trust indenture was later amended to provide that the Trustees could collect “[a]ny
expenses of collection, including but not limited to collection agency, attorney’s fee, court cost, and private
process fees, . . . in addition to the past due assessments, regular or special, plus interest.”

                                                     -2-
In this manner, the County took title to twenty Lakewood Park lots in 1993 and sixty-nine
lots in 2001; the lots taken by the County were scattered throughout the subdivision.
However, the County did not pay annual assessments to the Trustees on any of the lots to
which it took title.

In June 2004, Bill Travis and seventy-one other residents of Lakewood Park (“the residents”)
filed a petition in the Coffee County Chancery Court to remove the Trustees from their
positions. As grounds, the residents alleged that the Trustees had breached their fiduciary
duty to the residents by allowing “a general decline in all areas and aspects” of the
subdivision.3 In response, the Trustees generally denied the allegation. The Trustees
asserted, inter alia, that their efforts to fulfill their obligations to the residents were hampered
by their inability to collect annual assessments from all lot owners. Consequently, the
Trustees asserted a counterclaim against the residents for $21,058 in unpaid assessments.

The residents responded to the Trustees’ counterclaim with a denial that they were in arrears
on the annual assessments. By an agreed order, the residents amended their petition to add
the County as a respondent. In the amended petition, the residents alleged that the County
owed $219,620 in unpaid assessments for the lots that the County had acquired in the
delinquent tax sales. The Trustees later amended their responsive pleading to assert a cross-
claim against the County for the unpaid annual assessments on the County-owned lots.

In response to the contentions of the residents and Trustees, the County admitted that it had
not paid any annual assessments for the Lakewood Park lots that it owned. The County
denied liability for the assessments on the basis that the doctrine of sovereign immunity was
a defense to the terms of the trust indenture. In the alternative, the County contended that
the applicable statute of limitations limited any recovery.

Discovery ensued. At some point, the residents and the Trustees settled the dispute between
them. The residents and the Trustees then united to pursue collection of the assessments
allegedly due from the County.

In August 2008, the County held a special auction and sold all of the Lakewood Park lots that
it owned. Most of the lots sold for the minimum bid amount of fifty dollars, although some
were sold for more.

3
 In particular, the residents asserted that the Trustees had allowed dilapidated structures to be built on
camping lots, permitted some lot owners to use their yards as trash dumps, failed to regulate the subdivision’s
sewage disposal system, let the roads become riddled with potholes, and neglected to maintain the
recreational facilities and common areas.

                                                     -3-
In the late fall of 2008, the parties filed cross-motions for summary judgment. After a
hearing, the trial court concluded that the County was immune from suit under the doctrine
of sovereign immunity insofar as it carried out the functions mandated under Tennessee
statutes. Because Tennessee Code Annotated § 67-5-25074 required the County to act “as
expeditiously and advantageously as possible” to sell the lots, the trial court determined that
the County was immune from liability insofar as the County had acted in such a manner.
Accordingly, the cross-motions for summary judgment were granted in part and denied in
part, reserving for trial the determination of the extent to which the County had acted in
accordance with Section 67-5-2507.

In July 2009, the trial court conducted a bench trial. Nine witnesses testified, including past
and present Lakewood Park Trustees, past and present County mayors, and the County’s
delinquent tax attorney. Eight exhibits were entered into evidence, including a copy of the
trust indenture and a calculation of the assessments allegedly due. The Trustees’ testimony
generally concerned the County’s lack of communication with the Trustees during the period
of time in which the County owned the lots, and the County’s alleged lack of effort to sell
the lots. The testimony of the County officials described their efforts to sell the lots. At the
conclusion of the testimony, the trial court took the matter under advisement.

In August 2009, the trial court issued a memorandum opinion and order, awarding judgment
to the Trustees. In the order, the trial court found that the County had not acted expeditiously
and advantageously, as required by statute, from 1993 to 2003 with respect to the lots
acquired in 1993. Regarding the lots the County acquired in 2001, the trial court found that
the County’s efforts met the statutory requirements. The parties had previously agreed that
the statute of limitations barred any award against the County for assessments incurred prior
to 1999. Consequently, the trial court awarded the Trustees a judgment against the County

4
    Tennessee Code Annotated § 67-5-2507 provides:

          (a)(1) It is the duty of the county mayor of each county to take charge of all the lands bought
          in by the county at such delinquent tax sales.

          (2) During the period when redemption of any such tract of land can be made, the land shall
          be held and put only to such use as will not result in a waste of such land.

          (3) After the period of redemption has elapsed, it shall be the duty of the county mayor to
          arrange to sell every tract of such land as expeditiously and advantageously as possible.

T.C.A. § 67-5-2507 (2006).

                                                       -4-
in the amount of $8698 for assessments incurred from 1999 through 2002. The Trustees now
appeal.

                         ISSUES ON A PPEAL AND S TANDARD OF R EVIEW

On appeal, the Trustees contend that the trial court erred by holding that the County was
immune under the doctrine of sovereign immunity to any degree, as to any of the annual
assessments and penalties for the time in which the County owned the subject lots.

On cross-appeal, the County argues that the restrictive covenants of the Lakewood Park
subdivision do not provide a right of action by the Trustees against an owner of a lot with
whom the Trustees have no privity of contract for collection of various assessments. The
County contends instead that the restrictive covenants merely grant the Trustees a lien against
the lots in question to secure those assessments. The County also argues that the trial court
erred in denying in part its motion for summary judgment. In addition, the County appears
to challenge the trial court’s factual findings as to whether the County acted “as expeditiously
and advantageously as possible.” 5

Since this case was tried by the trial court sitting without a jury, we review the trial court’s
findings of fact de novo with a presumption of correctness unless the evidence preponderates
otherwise. T ENN. R. A PP. P. 13(d). The trial court’s conclusions of law are reviewed de
novo, affording them no presumption of correctness. Nashville Ford Tractor, Inc. v. Great
Am. Ins. Co., 194 S.W.3d 415, 425 (Tenn. Ct. App. 2005). “[T]he construction of restrictive
covenants, like any other written contract, is a question of law.” Barnett v. Behringer, No.
M1999-01421-COA-R3-CV, 2003 WL 21212671, at *3 (Tenn. Ct. App. May 27, 2003), no
perm. app. (citing New Covenant Baptist Church v. Sark, No. E2000-02930-COA-R3-CV,
2002 WL 313155, at *1 (Tenn. Ct. App. Feb. 28, 2002), perm. app. denied June 24, 2002;
Maples Homeowners Ass’n, Inc. v. T & R Nashville Ltd. P’ship, 993 S.W.2d 36, 38-39
(Tenn. Ct. App.1998)).

                                                 A NALYSIS

We note at the outset that the County argues that the trial court erred in declining to grant its
motion for summary judgment against the Trustees, and by proceeding instead to conduct a
trial. It is well-settled that “this Court is precluded from entertaining, as alleged error, the
trial court’s denial of a summary judgment motion (predicated upon the existence of a
genuine issue of material fact) when the case proceeds to a trial on the merits and a judgment

5
 After acknowledging that the Trustees do not challenge the trial court’s findings, the County then states that
the findings are “appropriate and certainly supported by the evidence.”

                                                     -5-
is subsequently rendered.” Cortez v. Alutech, Inc., 941 S.W.2d 891, 893 (Tenn. Ct. App.
1996). Thus, this issue is not appealable and we decline to address it.

The Trustees argue on appeal that the trial court erred in concluding that the County is
protected to any degree by the doctrine of sovereign immunity. Citing Turnley v. Garfinkel,
362 S.W.2d 921 (Tenn. 1962), the Trustees assert that, provided the purchaser took with
notice of the covenants, restrictive covenants are contractual in nature and enforceable like
any other contract. They contend that the County purchased the Lakewood Park lots with
notice because the trust indenture was recorded with the County’s Register of Deeds. The
Trustees assert that Tennessee Code Annotated § 5-1-105 waives the County’s defense of
sovereign immunity on contractual claims, and argue that the trial court erred in failing to
award the Trustees a judgment for all assessments incurred by the County, subject to the
applicable statute of limitations.

In response, the County emphasizes that it acquired the lots solely by performing the
governmental functions mandated under Tennessee statutes. The County contends that it
never entered into a contract as such with the Trustees. Comparing the payment of lot
assessments to “a tax upon the County by Lakewood Park,” the County argues that, under the
Tennessee Constitution, only the sovereign has the power to impose taxes. For these reasons,
the County submits that the trial court’s decision was correct. In the alternative, the County
contends that restrictive covenants must be construed narrowly and asserts that the trust
indenture limits the Trustees’ remedy to a lien on the lots formerly owned by the County.

Restrictive covenants are commonly adopted for the purpose of protecting the beauty and
value of a residential neighborhood. Turnley, 362 S.W.2d at 923. They are covenants that
run with the land; restrictive covenants bind anyone who purchases with notice of them, and
may be enforced by the owner of any of the lots protected by them. Id. (citing Ridley v.
Haiman, 47 S.W.2d 750 (Tenn. 1932); Laughlin v. Wagner, 244 S.W. 475 (Tenn. 1922)).
Restrictive covenants are contractual in nature and “will be enforced according to the clearly
expressed intentions of the parties.” Id.

Restrictive covenants are in derogation of the right of unrestricted use and enjoyment of
property; consequently, they are not favored in Tennessee. Id. (citing Lowe v. Wilson, 250
S.W.2d 366 (Tenn. 1952); S. Adver. Co. v. Sherman, 308 S.W.2d 491 (Tenn. Ct. App.
1957); Emory v. Sweat, 9 Tenn. App. 167, 176 (1927)); Williams v. Fox, 219 S.W.3d 319,
324 (Tenn. Ct. App. 2007) (citing Arthur v. Lake Tansi Vill., Inc., 590 S.W.2d 923, 927
(Tenn. 1979); Shea v. Sargent, 499 S.W.2d 871, 873 (Tenn. 1973)). Restrictive covenants
are strictly construed and “will not be extended by implication to anything not clearly and
expressly prohibited by their plain terms.” Turnley, 362 S.W.2d at 923.

                                             -6-
Here, it is undisputed that the County acquired title to the subject lots with notice of the trust
indenture, and that the trust indenture requires lot owners to pay annual assessments to the
Trustees. The County admits that it has not paid any assessments to the Trustees as provided
in the trust indenture. As such, the County has plainly breached the terms of the trust
indenture, and the issue is whether the County is immune from liability to any extent under
the doctrine of sovereign immunity.

Under the doctrine of sovereign immunity, “the State cannot be sued in its own courts, unless
the State expressly consents to suit by statutory enactment of the legislature.” Thomas &
Assocs., Inc. v. Metro. Gov’t of Nashville, No. M2001-00757-COA-R3-CV, 2003 WL
21302974, at *4 (Tenn. Ct. App. June 6, 2003), no perm. app. (citing Brewington v.
Brewington, 387 S.W.2d 777, 779 (Tenn. 1965); Quinton v. Bd. of Claims, 54 S.W.2d 953,
957 (Tenn. 1932)). Tennessee Code Annotated § 5-1-105 states that “[s]uits may be
maintained against a county for any just claim, as against other corporations.” T.C.A. §
5-1-105 (2005). As early as 1874, our Supreme Court held that counties were formed as
corporations “to facilitate the execution of the powers delegated to [them] as . . . local
legislature[s], and to enable [them] to make binding contracts, and to be liable to suit for just
claims arising under such contracts.” Wood v. Tipton County, 66 Tenn. 112, 1874 WL 4363,
at *1 (1874). As recently as 2004, this Court has stated: “Its [a county’s] liability to suit only
extends to matters of contract and not to torts or the negligence of its employees.” Lucas v.
State, 141 S.W.3d 121, 126 (Tenn. Ct. App. 2004) (quoting McAndrews v. Hamilton
County, 105 Tenn. 399, 403-04, 58 S.W. 483 (1900)) (discussing development of Tennessee
counties’ sovereign immunity).

The County concedes in its appellate brief that “[a]ction can be brought against the County
for a contract.” Nevertheless, the County argues that it is insulated from liability because it
was performing a mandatory governmental function, as opposed to a proprietary function.
This argument is without merit. The difference between governmental functions and
proprietary functions has been considered in connection with tort claims against a
governmental entity. See, e.g., T.C.A. § 29-20-201 (2008 Supp.); Crowe v. John W. Harton
Mem’l Hosp., 579 S.W.2d 888, 890-92 (Tenn. Ct. App. 1979) (discussing the distinction
between governmental function and proprietary functions in context of tort claims). Here,
it is undisputed that the Trustees’ claim against the County is a contract claim, and the
distinction between governmental and proprietary function is irrelevant. Consequently, the
County is not immune from liability for the annual lot assessments under the doctrine of
sovereign immunity, to any degree.

In the alternative, the County contends that the trust indenture limits the Trustees’ recovery
to assertion and foreclosure of a lien on the subject lots. This argument is likewise without
merit. Certainly, the trust instrument grants a lien for past-due assessments and provides that

                                               -7-
“[t]he Trustee may institute proceedings to foreclose the liem [sic] imposed by the failure to
pay assessments under this instrument in a court of competent jurisdiction.” (emphasis
added). However, the trust instrument in no way limits the Trustees to such a lien, as
suggested by the use of the permissive “may.” We find that the trust indenture cannot be
read to limit the Trustees’ remedy to lien foreclosure. See Turnley, 362 S.W.2d at 923
(citing Lowe v. Wilson, 250 S.W.2d 366 (Tenn. 1952); S. Adver. Co. v. Sherman, 308
S.W.2d 491 (Tenn. Ct. App. 1957); Emory v. Sweat, 9 Tenn. App. 167, 176 (1927)).

These holdings pretermit all other issues raised on appeal.

                                         C ONCLUSION

Therefore, we must conclude that the trial court erred in declining to grant judgment against
the County for all Lakewood Park lot assessments not precluded by the applicable statute of
limitations. Accordingly, the award in favor of the Trustees for assessments on County-
owned lots incurred from 1999 through 2002 is affirmed. The decision not to award an
amount for assessments incurred from 2003 through the date on which the County sold each
subject lot is reversed. The cause must be remanded for proceedings to determine the
amount of the final award.

The decision of the trial court is affirmed in part and reversed in part, as set forth above, and
the cause is remanded for further proceedings consistent with this Opinion. Costs of this
appeal are taxed against the appellee, Coffee County, Tennessee, for which execution may
issue if necessary.

                                                     _________________________________
                                                     HOLLY M. KIRBY, JUDGE

                                               -8-