City wins sewer line suit, NAF ordered to pay $3.4 million for sewer easement blockage

By Thomas Wilson

   North American Fibers, Inc. has been ordered to pay the City of Elizabethton more than $3.4 million for effectively blocking the city's access to a main sewer line, according to an order issued by Chancellor Richard Johnson on Tuesday.
   The ruling comes almost three years after the city sued the company, Charles K. Green, and North American Rayon Corp. (NARC) after being unable to access the West End Inceptor sewer line that had been covered by a fly-ash landfill on the NARC property.
   Johnson concluded the defendant's waste site unreasonably burdened the city's main interceptor sewer line easement and violated the city's easement grant to access the sewer line. He awarded the city $3,414,985 in damages to cover the city's construction costs of a new sewer line. Johnson's order cited the $1.1 million construction cost plus $2.3 million in interest the city would pay over a 29-year period on the loan used to fund construction of the sewer line.
   Elizabethton City Manager Charles Stahl said Tuesday that the city was "very pleased" with the ruling.
   "We think it is a victory for the taxpayers and rate payers of Elizabethton," Stahl said. "The court system has stood by them for money spent because of corporate arrogance."
   The defendants' attorney, Stephen G. Anderson of Baker, Donelson, Bearman, Caldwell, & Berkowitz law firm, said Tuesday afternoon the company would appeal the ruling. Neither Green himself nor North American Rayon Corp. were found liable as defendants under Johnson's order.
   "It will probably take one year to get all the way through the court of appeals process," said Anderson who added he would be handling the appeal. He has 30 days from the date of judgment to file an appeal with the Tennessee Court of Appeals.
   Neither Green nor Anderson had seen the order when initially contacted by the Star on Monday afternoon. While pleased he and NAC were dropped as liable defendants in the order, Green said he was disappointed North American Fibers was ordered to pay the amount set forth by Johnson.
   "We will be appealing the case," said Green, who is president and chief executive officer of North American Fibers.
   "The actual costs of constructing the sewer line was about $1.3 million," said Green. "How they got from $1.4 to $3.4 million, I don't know."
   Cost of constructing the parallel sewer line was $1.1 million plus the sum of $110,708, which represents the investment or interest lost due to the project. During the trial, city finance director and city clerk Brad Moffitt testified the city borrowed $1.2 million to construct the line.
   He testified that with the added interest, the city would be paying back a total of more than $3.5 million over the next 29 years. The City Council has voted twice since 2001 to raise water and sewer rates to fund infrastructure.
   Stahl said he was surprised by the amount of the judgment and added it was the city's goal to be compensated for what we had to spend in terms of relocating that line.
   The city filed the lawsuit against Green, individually, and several companies, in August 2000, alleging that an NAF landfill was sitting on top of one of the city's main sewer lines. The case went to trial in Chancery Court in December. The suit asked that NAF, North American Corporation (NAC), and Green be held responsible for the cost of a new section of sewer line placed after a landfill was built over the existing line on NAF property.
   Attorneys for the city and defendants spent three days calling witnesses during trial in Chancery Court on Dec. 16-18, 2002. According to testimony in court, the city had a sewer line easement allowing them to place the line on the property in 1957. During the 1980's, NAF later developed the site above the sewer line as a landfill for fly ash, which is formed from the non-combustible minerals found in coal.
   Approximately 1,750 feet of the sewer line are covered by the landfill, as well as four manhole covers. The defendants had argued the city's easement grant did not delineate the width of the easement nor forbid them to dump waste over the easement. Johnson ruled those doctrines were not applicable to North American Fibers " ... As to governmental functions such as the operation of a sewer line."
   According to testimony during the trial, Green was not the president of NAF or NAC at the time the landfill was created or at the time it was capped. Therefore, the defense argued, Green was not responsible for the problems presented by the landfill's being positioned on top of the city's west-end interceptor sewer line, which runs through the NAF property.
   During Green's time as NAF president, the company set up an employee stock ownership plan in which employees of the company were given a percentage of ownership in the company. Because the company was owned and operated by its employees, Green and Anderson stated that Green was not the alter ego of the company.
   The order reads that although Green was president and CEO of NARC during the time of the capping of the landfill (1983-1988), he denies any knowledge of the city's sewer easement until the plant manager made him aware of it in 1996 or 1997.
   Johnson's order cited state law that " ... a corporation is considered to be an entity (treated as a person) separate and apart from its shareholders, officers, and directors." He rules the city had "Clearly and unequivocally" proven that Green was the alter ego of the defendant corporations. However, Johnson's order also reads " ... it is equally clear that the (city) has not proven by a preponderance of evidence that any alter ego act of Green or act of the corporations, legally or proximately caused the unreasonable and substantial burden on the (city's) sewer easement."
   Stahl said if the city actually collected the full amount of the judgment, additional water and sewer infrastructure needs could be reevaluated. However, he said it was far too early to assess what projects the city could take on before ever seeing the judgment.
   "It would be premature to make any permanent plans at this time," Stahl said. He also praised the work of the attorneys Charlton DeVault and city attorney Roger Day, the city's public works department for their work in the case. He also commended former and sitting City Council members for their diligence in pursuing the case.
   "They made the decision to move forward believing the interest of the community needed to be protected," he said. "The facts of this case spoke for itself. This started 8 years ago, it did not come overnight; it took a lot of legal research time."