Headline: City files response to NAF motion to vacate $3.4 million judgment

By Thomas Wilson
STAR STAFF
twilson@starhq.com
Attorneys for the city of Elizabethton have filed a response to a motion from North American Fibers asking Chancellor Richard Johnson to vacate the $3.4 million judgment awarded to the city in June.
In a judgment issued June 24, Johnson ordered North American Fibers to pay the city of Elizabethton more than $3.4 million for effectively blocking the city's access to a main sewer line. The judgment awarded the city $1.2 million in construction costs of the sewer line plus the $2,312,311 amount in interest the city would pay over a 29-year period on the loan used to fund construction of the sewer line.
In the response filed in Carter County Chancery Court on Friday by the city's attorney, Charlton DeVault, the city does not object to NAF's motion to amend the debt service portion of the damage award from $2,312,231 to $2,112,515. An affidavit from city Director of Finance Bradley Moffitt reads the city would pay the $2.1 million figure on the $1.2 million loan based on revised amortization figures.
The city also offers to deposit the amount in a federal reserve bank allowing NAF to receive interest earned on the deposit until the sum of the deposit has been depleted by payments on the debt service.
The city filed the lawsuit against Green, individually, and several companies, in August 2000, alleging the fly-ash landfill located on NAF property blocked one of the city's main sewer lines. Several companies except NAF, North American Rayon Corp., and Green, individually, were removed from the action.
The case went to trial in December with three days of testimony and argument heard by Johnson. The attorney representing NAF, Stephen G. Anderson of the Baker, Donelson, Bearman, Caldwell, & Berkowitz law firm in Knoxville, filed a motion on July 22 to have Johnson's judgment amended, the monetary damage vacated and several findings of fact stated in Johnson's opinion stricken.
The city financed the Sycamore Shoals pump station and bypass sewer line through approximately $1.2 million in capital appreciation bonds (CAB). The CAB does not require the issuer to make payments for several years. The $3.4 million award is the sum of all payments made by the city between 2013 and 2031 if the bonds were not recalled or refinanced. The defendants' motion argued that the judgment requires NAF to pay the city principle plus interest for the next 29 years while alleging the city is not required to make payments on those bonds until June 1, 2013.
Anderson wrote 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 2031. He stated the judgment requires that NAF makes payments on principle plus interest for the next 29 years.
The city's latest response also takes issue with the post-judgment letter sent to the Court by Charles K. Green, president of North American Fibers, in which he complained of the court's findings.
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 "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.
Johnson's ruling named NAF but did not include Green or North American Fibers in the judgment for the city. "Instead of appreciating his hard-fought judicial victory, defendant Green chose to complain independently of his attorney," the city's response reads. The city's response reads that because Green believes the findings made by the Court were unflattering, it is no reason to delete those findings from the court's opinion. The city's response states the Court's findings are supported by trial record and relevant to the issues the Court was required to resolve in the case.
NAF's attorney also submitted a motion alluding that the court should base its award of damage solely upon an engineering report. Bob Alley prepared the letter and later testified during the trial that an estimate of $40,000 represented the city's cost of uncovering the sewer line manholes buried beneath the landfill submitted the report.
The city has also filed a motion seeking to recover $9,805 from NAF in legal costs incurred by its attorneys during the case. Johnson is expected to consider NAF's motion to amend the judgment at a hearing on Sept. 22 in Johnson City.