By Heather Mullinix
Tansi Waste Management, Inc.'s bankruptcy filing earlier this year has changed the legal options available to a number of individuals involved in litigation regarding the embattled wastewater treatment system.
District Attorney General Randall York said, "Once TWMI filed bankruptcy, everything changed."
Those changes include the ability of the bankruptcy trustee, John McLemore of Cookeville, to recoup assets of TWMI and sell those assets to satisfy creditors.
"There is an asset, a cause of action, a lawsuit," McLemore said during a mediation conference held Monday at Brown Elementary School. "Tansi Waste Management, Inc. was loaned money, an unsecured loan, by the [Lake Tansi P.O.A.] to build a sewer system. The sewer system is built and it is currently operating. It has been conveyed to [Tansi Sewer Utility District]. TSUD did not pay anything for it."
Bankruptcy law allows for the transfer of an asset from an entity to be voided if the transfer was for less than adequate consideration and took place within four years of an entity filing for bankruptcy protection. McLemore explained TSUD could return the sewer system back to TWMI or wait for him to file suit seeking recovery of the asset.
"What happens? I get the sewer system back...Something has to be done with the sewer system. I am going to sell it," he said.
While bankruptcy law considers the transfer to be fraudulent because it was made without adequate payment, McLemore said that did not mean the transfer was done with ill intent.
In a bankruptcy sale, the property to be sold would be appraised to determine worth and bids solicited. All creditors would be notified if a bid was received. If there is no objection, the sale is completed in 22 days. If there is an objection and a creditor returns with a bid higher than the bid received, then an auction is held that is open to anyone and the assets sold to the highest bidder.
The sewer system is an "unusual" asset, McLemore noted, and buyers would be subject to regulatory issues and that some interested bidders would be better positioned to take the system if they had alliances with others.
"That's your business," McLemore said. "I put the asset on the table and somebody will buy it."
TWMI's lawsuit is but one of numerous legal actions concerning the sewer system. In fact, McLemore was speaking to parties of four lawsuits during a mediation conference Monday at Brown Elementary School, where attempts were being made to find a suitable settlement for all parties.
The four cases included in the mediation conference were:
•State of Tennessee vs. Dana Lee and Sharon Kay Crockett, filed in Cumberland County Chancery Court, to force connection of 24 condominum units to an available public sewer system;
•Mary Aggers vs. Lake Tansi POA, Inc., et al, filed in Cumberland County Chancery Court, with claims of negligence in administration of POA funds and assets;
•Lake Tansi Village POA, Inc., et al vs. Tansi Waste Mangement, Inc., et al, filed in Cumberland County Chancery Court, seeking default judgment against TWMI for nonpayment of loans and seeking to nullify transfer of TWMI assets to the Tansi Sewer Utility District. TWMI has since filed for bankruptcy protection in federal court; and
•Mary Aggers, et al vs. Lake Tansi Village POA, et al, filed in Cumberland County Chancery Court, seeking dissolution of the Lake Tansi POA following allegations of illegal, oppressive or fraudulent actions and that corporate assets were misapplied or wasted.
Also present were representatives of South Cumberland Utility District, Crab Orchard Utility District, the Tennessee Comptroller's Office, the Tennessee Utility Management Review Board and the city of Crossville.
Circuit Court Judge John Maddux presided over the mediation conference and expressed to those present the importance of the work they would undertake.
"These cases are separate, but they intertwine and have a huge impact on the reputation of Lake Tansi and its ability to remain as an entity. What we do here will decide the fate of Lake Tansi," he said.
He noted mediation offered the parties involved an opportunity to settle their cases without expending further costs for legal fees, save the time involved in preparing for a trial, reduce risks associated with a trial judgement, lesson emotional costs and reduce stress for the litigants.
The Lake Tansi POA allowed TWMI to use a line of credit established by the POA at First National Bank of Tennessee. Promissory notes were issued by TWMI that included the principal and interest rate of 6.25 percent from the date of the loan, with all notes titled "due on demand promissory note." Eleven such notes were issued from Feb. 17, 2009, through June 15, 2010, with about $1.3 million in loans made and only $187,438.15 paid back to the POA. The POA filed suit against TWMI seeking default judgement against the non-profit corporation.
TWMI had constructed the wastewater treatment facility but that asset, along with sewer collection lines, were transferred to Tansi Sewer Utility District Sept. 1, 2010. TSUD did not pay for the assets nor has the sewer utility district paid toward the outstanding loan balance.
The only other asset TWMI has is a building, currently serving as the TSUD office, which is fully encumbered.
Also at issue are bills of upward of $430,000 for engineering services from ECE Engineering Services. TSUD voted at its July meeting to remove those charges from its financial statements, as the board does not agree TSUD is responsible for the charges.
Such lawsuits against TWMI would become claims against the bankruptcy, McLemore explained, with creditors submitting a claim and documentation. A value of the claims is determined and those lawsuits become claims that are dealt with in the bankruptcy system. If there isn't enough money to cover all the claims after assets are liquidated, creditors will receive less than what they are owed, he said.
"That's what will happen in the next few days unless some sort of agreement comes out of today's negotiations that I think is satisfactory and does justice," McLemore said.
The Crossville City Council was meeting in work session during the mediation conference and the idea of purchasing the sewer system was briefly discussed. Crossville Mayor J.H. Graham III has previously made a proposal to merge TSUD and SCUD with the city's water and sewer departments. Monday, he discussed using the Brown Elementary sewer line to transport the current wastewater to the city's treatment facility. However, he noted the area would need sewer service for continued growth. He's identified 529 homes around the golf course and lake, and 1,129 lots, that would benefit from sewer service at an estimated cost of about $5 million.
He has previously proposed requiring 51 percent of those on a street agree to take sewer service and pay tap fees before the system would be expanded. When asked if those who did not want to use or pay for sewer service would have to pay, Graham noted it would depend on the type of financing secured, but added the cost for servicing the debt would be greatly reduced if shared by all affected property owners.
Jay Brown, chairman of the SCUD board of commissioners, told the council he would want 51 percent of the district's water customers, many of whom live outside of the area affected by the sewer system, to approve any merger.
He added he wanted the city to present a unanimous position.
"We will not get into your fights," he told the council. "If you can agree to this, we'll consider it. But we won't go into this with a 3-2 vote."
Councilman Pete Souza responded, "I can tell you there won't be a unanimous decision."
Councilman Jesse Kerley questioned how a water supply project and regional water district proposed by COUD would affect the city's current water and sewer operations. Interim City Manager Jack Miller noted the city and SCUD have a 10-year contract for water purchase.
Graham said he wanted to discuss the parameters the council would like to see in any merger or purchase agreement.
"We've got to know what they are," he said. "We all have ideas. To say no before we hear those ideas is not fair."
He noted that his conditions included a merger with SCUD to provide water service to the area, which is necessary to make the proposal economically viable, he said, and that Lake Tansi would maintain Lake Hiawatha and the dam at Lake Tansi.
"We have to have SCUD to do this," Graham said.
Miller added, "We would not expand the system until there were the customers to support it."
Graham said, "It has to be economically feasible. If not, we won't do it."
Souza said the city's water and sewer debt, about $31 million, would not support additional debt to purchase, operate and expand the TSUD system.
Graham said the city had assets of $81 million in its water and sewer systems and did not have a cash flow problem. The assets of SCUD would be integral to any future bond financing, he noted.