NAF asks court to amend $3.4 million judgment

By Thomas Wilson
STAR STAFF
twilson@starhq.com

   An attorney representing North American Fibers, Inc. and the company's president Charles K. Green are requesting that a $3.4 million judgment made against the company be vacated by the judge who issued the ruling.
   Filed in Carter County Chancery Court on Tuesday, the motion requests the judgment of Chancellor Richard Johnson be vacated and fact findings made by the chancellor stricken from the record.
   In a judgment issued June 24, Johnson ordered North American Fibers pay the city of Elizabethton more than $3.4 million for effectively blocking the city's access to a main sewer line. The judgment 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.
   The judgment awarded the city $1.1 million in construction cost of the sewer line 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.
   The defendants' attorney, Stephen G. Anderson, writes in the motion that the court is ordering NAF to pay $160,820 now when the city would not be required to make that bond payment until June 30, 2031. He states the judgment requires NAF make payments on principle plus interest for the next 29 years. "There is no basis in law or equity for conferring such a windfall on the city," Anderson writes.
   The city filed the lawsuit against Green, individually, and several companies, in August 2000, alleging the fly-ash landfill located on NAF property was blocking one of the city's main sewer lines. The suit went to trial in December with three days of testimony and argument heard by Johnson.
   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.
   The motion to amend the decision comes roughly 10 days after Green sent a letter to Johnson disputing the same findings of fact set forth by Johnson in his decision. Neither Green nor North American Rayon Corp. were found liable as defendants under the judgment. Green is the president and chief executive officer of NAF.
   Johnson ruled the city had "clearly and unequivocally" proven that Green was the alter ego of the defendant corporations. However, he also ruled the city did not prove any alter ego act of Green or act of the corporations, caused the burden on the sewer easement.
   The court's award of $3.4 million to the city is the sum of all payments made by the city between 2013 and 2031 if the bonds were not recalled or refinanced, Anderson writes. The motion included a fee schedule alleging the city is not required to make payments on those bonds until June 1, 2013.
   Anderson's motion states the city could have chosen other alternatives rather than constructing the $1.3 million pressurized by-pass sewer line. He further writes that there is no basis for the court's holding that all costs of the by-pass line were chargeable to NAF. The motion requests damages against NAF be reduced to $40,000.
   The motion also requests roughly two pages of the findings of fact be stricken regarding the management of North American Rayon Corp. by Green. In his decision, Johnson touched on the management of NARC after Green joined the company. He specifically cited the plaintiff's aversion that Green placed a $5 million environmental liability debit on the company due to alleged potential liability for "prior environmental sins".
   The judgment stated no money was placed in the fund and termed the $5 million a "paper fiction." The Chancellor wrote, "This accounting gimmickry established a company liability which offset the company's assets, thus devaluing the shareholder's equity, i.e., reducing the per share value of the company's stock". In the letter to Johnson, Green stated the $5 million reserve was required by the accounting firm of Ernst and Young to certify North American's financial statements.
   Johnson's judgment also cited Green's sale of the realty of North American Fibers including land where the sewer easement was located to a North Carolina Corp. called HGB. The judgment states no deed of trust was recorded. A building located on the property burned in March 2000. That same month, after the fire, HGB transferred the same realty back to NAC, Johnson found. "As a result, North American Corporation collected five million dollars ($5,000,000) on a fire-loss insurance policy," the judgment reads.
   He also wrote that Green as owner of the "defendant corporation" appointed himself as board of directors and used his wife as conduit to fund NAC's land development business. Anderson states the findings were not necessary in the court's conclusion that the city did not prove that any alter ego of Green caused the burden on the sewer easement. The motion filed Tuesday does state those findings issued by Johnson are untrue.
   Regarding the property purchase, Green stated in his letter to Johnson that he acquired 50 percent of the property in question -- that is the present day Stonebrook Subdivision -- in his wife's Patricia's name and using her personal funds.
   Green and his wife subsequently sold the property to Larn, a limited liability company, which lists Green as its director according to the subdivision's deed restriction documents. The Stonebrook Subdivision Homeowners Association was subsequently created. According to the deed restrictions, the Stonebrook Subdivision Homeowners Association board of directors includes sitting city Mayor Sam LaPorte and his brother, Joe LaPorte, president of Citizens Bank in Elizabethton.
   The defendants had until Thursday to file a motion to amend the judgment or appeal the decision directly to the Tennessee Court of Appeals.