City upheld against NAF

By Thomas Wilson
star staff
twilson@starhq.com

  A three-member panel of the Tennessee Court of Appeals has unanimously upheld the ruling against North American Fibers, Inc. (NAFI) involving a sewer line interceptor owned by the Elizabethton city government.
  In an opinion issued Friday, the appeals court affirmed the decision of Chancellor Richard Johnson to award the city $3.2 million in compensatory damages and interest against NAFI over the access via easement to a city sewer line on the company's property.
  The city of Elizabethton sued NAFI and company President Charles K. Green in August of 2000 for breach of a sewer easement, which the municipality purchased as a path for its underground sewer line. The city alleged that after construction of the sewer line, the landowner's long-standing practice of depositing fly ash and cinders over the area of the easement rendered the line inaccessible and necessitated the construction of an alternate sewage system for which the municipality requested compensation. The city also sought to hold Green liable as the alter ego of the company.
  Johnson heard the case in December 2002 in Johnson City. Johnson issued a memorandum opinion and final order decreeing that NAFI "unreasonably and substantially burdened" the city's sewer line easement and awarding the city damages in the amount of $3,414,985, consisting of $1,102,754, attributable to the construction of the bypass system, plus $2,312,231 in interest. In response to post judgment motions filed by NAFI, the trial court reduced its judgment to $3,215,270 and further reduced that amount to its present value of $1,187,581.49.
  Johnson decreed that NAFI had unreasonably burdened the easement, and that, although Green was an alter ego of the landowner, he was not personally liable.
  In the appeal, NAFI attorney Stephen Smith of Knoxville argued that the municipality's cause of action was barred under the statute of limitations; that under the rule of practical construction the easement allowed the landowner to dump material over the sewer line; the trial court erred in its award of damages; and that the court erred in refusing to strike findings with respect to Green.
  In the opinion written by Judge Sharon G. Lee and joined by Judges Herschel P. Franks and Charles D. Susano, the Court of Appeals ruled the city was not subject to a statute of limitations in filing the complaint as alleged by NAFI in the appeal.
  "If for no other reason, resolution of the problem which caused the city to file its complaint in this case benefits not only the citizens of Elizabethton, but the general population of this state by securing, protecting and preserving the right to unpolluted waters. The city was engaged in the exercise of a governmental function as an arm of the state in this case and, accordingly, the city is not subject to the indicated statute of limitations," the court opinion states.
  The court's opinion disagreed with NAFI's claim that the city was inattentive to the problem created by the constant dumping which continued despite notification. The opinion stated that the city's problem of accessing its sewer line was further exacerbated by the capping of the already overburdened easement, an event mandated by the Tennessee Department of Environment and Conservation in consequence of NAFI's dumping of fly ash.
  The opinion further stated, "It is beyond dispute that an overburdening of the sewer line with fly ash and other material interfered with the city's clearly articulated right under the easement to maintain the line."
  The opinion further reads "Upon its discovery that the area over the sewer line had been capped and the line was no longer accessible without great expense, the city entered into negotiations with NAFI in an attempt to resolve the problem." The court found no merit in NAFI's argument that the city failed to take reasonable action to mitigate damages in this case.
  NAFI had argued that the new sewage system cost the city $2,202,000 but that the money was spent in lieu of the $1.3 million the city otherwise would have spent to replace a 40-year-old influent pump, which was part of the replaced system. NAFI contended that the "damages from breach of the easement cannot be more than the net additional cost incurred by the city as a result of the breach."
   The Court of Appeals found evidence presented did not preponderate against the finding that construction of the new system was the only proposal presented that constituted a reasonable solution to the overburden problem. The court ruled that while it is true that the new sewer system resulted in incidental benefits to the city, "this does not belie the fact that the new system constituted a reasonable solution to the problem caused by NAFI."
  The court further ruled NAFI presented no authority to support its argument that the trial court should not have included the financing costs in its award of damages. The appellate court affirmed the trial court's award of damages.
  The appellate court also ruled that the trial court did not abuse its discretion in failing to delete any of its findings with respect to Green.
  The city purchased an easement in 1957 from Beaunit Mills and North American Rayon Corporation, Inc., the predecessors in title to NAFI. The easement ran approximately 1,700 feet across an open field and provided the city with a path for placement of one of two 24-inch diameter gravity sewer interceptor lines.
  According to the case background, the issue began in 1995 when the city's wastewater plant manager found that the sewer line and manholes located within the easement area were buried under the debris and clay cap and were inaccessible.
  After considering removal of the debris, the city subsequently determined that the process of getting TDEC's approval to remove the debris and accessing the line by bulldozing was both impractical and cost prohibitive, the court record states.
   Discussions between NAFI and city officials to resolve the problem did not lead to a mutually acceptable solution. The city filed the lawsuit on Aug. 16, 2000, against NAFI, North American Corporation, and Green, individually and as 'alter ego' of NAFI.