State of Tennessee, ex rel. William L. Gibbons v. Clayton R. Smart

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

October 17, 2013 Session

STATE OF TENNESSEE, EX REL, WILLIAM L. GIBBONS, ET AL v.

CLAYTON R. SMART, ET AL

Appeal from the Chancery Court for Shelby County

No. CH0700502 Arnold B. Goldin, Judge

No. W2013-00470-COA-R3-CV - Filed November 12, 2013

This is an appeal from the trial court’s denial of penalties and interest on ad valorum taxes

owed by a funeral home business after the business was placed in receivership. The

Appellant/Shelby County Trustee filed a claim with the Appellee/Receiver to recover

delinquent taxes, penalties and interest. The trial court denied the penalties and interest, but

allowed the Receiver to pay the base taxes. The Trustee appeals. Discerning no abuse of

discretion, we affirm and remand.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court is Affirmed

and Remanded

J. S TEVEN S TAFFORD, J., delivered the opinion of the Court, in which D AVID R. F ARMER, J.

and H OLLY M. K IRBY, J., joined.

Robert E. Cooper, Jr., Attorney General and Reporter; William E. Young, Solicitor General;

Laura T. Kidwell, Senior Counsel, Financial Division, for appellee, State of Tennessee.

Max Shelton, Memphis, Tennessee, Receiver for Forest Hill Funeral Home and Memorial

Park-East, LLC.

Gregory S. Gallagher, Memphis, Tennessee, for appellant, David Lenoir.

OPINION

On January 8, 2007, the State of Tennessee (“State”), through the Shelby County

District Attorney General and the Commissioner of the Tennessee Department of Commerce

and Insurance (“TDCI”), filed a complaint in the Shelby County Chancery Court against

Forest Hill Funeral Home and Memorial Park-East, L.L.C. (together, “Forest Hill”), Clayton

Smart, Stephen Smith, Indian Nation, L.L.C., and Redbud Tree Investments, L.L.C..1 The

lawsuit was filed as a result of audits that were conducted by the TDCI. These audits

revealed substantial deficiencies in Forest Hill’s statutory trust funds.2

Based upon the audits and other evidence filed in the trial court, the complaint alleged

that Messrs. Smart and Smith had diverted or otherwise misappropriated approximately

$20,000,000.00 in trust funds to the detriment of the interests of some 13,465 pre-need

contract holders. Concurrent with the complaint, the State filed a motion for the appointment

of a receiver for the purpose of restoring the statutory trust funds. The State also applied for

a restraining order and temporary injunction against the defendants. The court granted the

State’s request for a restraining order.

On January 22, 2007, Messrs. Smart and Smith filed a voluntary bankruptcy petition

on behalf of Forest Hill in the United States Bankruptcy Court for the Eastern District of

Oklahoma. See In re Forest Hill Funeral Home and Memorial Park-East, L.L.C., 364

B.R. 808, 815 (Bankr. E.D. Okla. 2007). Messrs. Smart and Smith also filed a motion to stay

all proceedings in the Shelby County Chancery Court on the ground that Forest Hill had been

placed into bankruptcy. On February 2, 2007, the trial court denied this motion and granted

1

Forest Hill is comprised of three cemeteries, three funeral homes, and three mausoleums in

Memphis. Forest Hill was purchased by Indian Nation, L.L.C. in December 2004. Clayton Smart

owned a 95% interest in Indian Nation, and Stephen Smith owned the remaining 5% interest. At the time

of the purchase, Forest Hill had been in the business of selling pre-need funeral plans for many years.

Forest Hill also provided cemetery merchandise and services, and it provided for the upkeep and

improvement of the cemeteries. As required by Tennessee law, Forest Hill had established trusts to

satisfy its obligation to honor its pre-need contracts and cemetery merchandise and service agreements

and to provide for the improvement and maintenance of the cemeteries. At the time of Indian

Nation’s acquisition, Forest Hill had twelve trusts to meet these obligations. The trusts were

funded with approximately $29,500,000.00.

2

Tennessee has a comprehensive scheme for regulating cemetery companies and pre-need

funeral contracts. See Tenn. Code Ann. §§ 46-1-101, et seq.; Tenn. Code Ann. §§ 62-5-401, et seq. The

statutory scheme provides for the establishment and maintenance of certain trust fund accounts and

bestows enforcement power upon the Commissioner of Commerce and Insurance to seek state court relief

against cemetery companies and sellers of pre-need funeral contracts when they fail to establish and

maintain these trust accounts.

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the State’s motion for temporary injunction. The trial court also appointed Max Shelton

(“Receiver,” or “Appellee”) as Receiver, finding that “Plaintiffs’ motion for appointment of

a receiver for the trust funds of Forest Hill is . . . well founded and ought to be granted, as

the Court finds that such trust funds are not part of Forest Hill’s bankruptcy estate.” The

Receiver was charged with tracing, recovering, and marshaling Forest Hill’s trust funds

wherever they might be found; to this end, the trial court authorized the Receiver to bring

such actions against such persons or entities as he might deem necessary and appropriate.

On March 26, 2007, the Bankruptcy Court dismissed Forest Hill’s petition, finding

that it had been filed in “bad faith.” The court concluded, inter alia, that the pre-petition

conduct of Messrs. Smart and Smith, in their capacity as acting management of Forest Hill,

had been “rife with indicia of bad faith.” In re Forest Hill Funeral Home and Memorial

Park-East, 364 B.R. at 821.3

Following the ruling in the Bankruptcy Court, on April 4, 2007, the Chancery Court

entered an order affirming in the Receiver all authority previously granted to him in the

February 2, 2007 order. The court further directed the Receiver to take:

exclusive custody, control and possession of all bank accounts,

goods, chattels, causes of action, credits, monies, investments,

stocks, shares, effects, books and records of account, other

papers and property, and all interests, whether real or personal,

3

Specifically, the Bankruptcy Court observed:

The governmental entities which regulate funerals and those who

would provide them have a significant interest in seeing to it that

those regulations are followed. In this case, TDCI and the Tennessee

Attorney General have a strong, perhaps even compelling, interest in seeing

the Chancery Action run its course and that the conduct of Debtor and its

prepetition management be properly brought to the light of day . . . .

All of the parties have agreed that the best way to proceed with

respect to this Debtor is to attempt to sell its business as a going concern.

The parties also agree that any buyer must be approved by the TDCI. It

thus appears to the Court that sale of the Debtor is either a one-step process

(through Chancery Action) or a two-step process (first through bankruptcy

court, then to the TDCI), with the TDCI having what amounts to a veto

power to any potential sale brokered in the bankruptcy case. Therefore, the

best manner of sale of the business is with the blessing of the TDCI in the

Chancery Action.

In re Forest Hill Funeral Home and Memorial Park-East, 364 B.R. at 823.

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tangible or intangible, of whatever type, kind of nature owned

or held by Forest Hill, with full power to sue for, collect, receive

and take possession of such properties and assets and to

conserve and administer them under the general supervision of

the Court.

Pursuant to the foregoing order, on May 7, 2007, the Receiver filed a complaint to recover

trust funds and for injunctive relief, ancillary to the State’s action.4

From the time of his appointment, the Receiver took steps to locate and recover the

statutory trust funds associated with Forest Hill. Several initial recoveries were made, and

the court granted the Receiver’s motions for summary judgment against several individuals

who were involved in the scheme to misappropriate those funds. On April 13, 2011, a final

judgment was entered against these entities in the amount of $20,832,768.70 in compensatory

damages and an additional $5,000,000.00 in punitive damages. The judgment, however, was

not paid. Consequently, the Receiver was faced with large trust shortfalls, which could not

be offset through business operations. The record indicates that annualized losses were

approximately $1,000,000.00, largely due to losses from honoring pre-need funeral and

burial services contracts. Despite the shortfall, the Receiver initially kept Forest Hill open

and, with the trial court’s approval, moved trust funds to pay the expenses associated with

honoring the pre-need contracts.

In 2011, the shortfalls persisted, and the Receiver determined that the best approach

was to sell Forest Hill to a reputable operator that would agree to continue operation of the

funeral homes and cemeteries, and to honor the existing pre-need contracts that remained

unfulfilled. Thus, on June 8, 2011, the Receiver filed a petition to approve the sale of the

assets of Forest Hill. Among other provisions, the proposed terms of the sale required the

successful bidder to pay a purchase price that would be applied to partially cover remaining

shortfalls in the trust funds and to post a performance bond to secure the purchaser’s

performance of the pre-need contracts, which had been entered into prior to the closing of

the sale. In addition, the petition provided that the sale of Forest Hill’s assets would be free

and clear from all encumbrances, and proposed that part of the purchase price would be used

to pay various claimants who had outstanding claims against Forest Hill. The petition stated

that notice of the claims filing procedure would be provided to creditors by direct mailing

and publication of notice. The trial court approved the Receiver’s petition and exercised its

4

The State’s action was filed as Shelby County Chancery Court Case No. CH-07-0050-2. The

Receiver’s action was filed as Shelby County Chancery Court Case No. CH-07-0919-2. By Order of

Consolidation, entered on August 16, 2007, the trial court consolidated the Receiver’s action with the

State’s action.

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equitable power to permit a portion of the purchase price to be set aside to make payments

to various claimants, rather than requiring that all the sale proceeds be paid into the trusts.

One of the claimants was the Shelby County Trustee, David Lenoir (“Trustee,” or

“Appellant”), who had submitted claims to the Receiver prior to the sale. Specifically, on

May 15, 2007, the Trustee filed its first notice of delinquent Shelby County tax bills on

taxable property, both realty and personalty, owned by the defendants named in the State’s

action. The total taxes, which were allegedly owed at that time, were $96,100.27. According

to the Receiver, the taxes sought by the Trustee included those owed on Forest Hill’s

cemetery properties, which were allegedly exempt from taxation under Tennessee Code

Annotated Section 67-5-214 (“Places of burial used as such, monuments of the dead and all

nonprofit cemeteries shall be exempt from taxation.”). Accordingly, in 2007, the Receiver

directed Forest Hill to submit an application for tax exemption to the State Board of

Equalization.

On June 12, 2009, the Trustee filed an amended notice of delinquent Shelby County

taxes, asserting that the total tax arrears due from Forest Hill were $156,339.02 at that time.

On the same day, the trial court entered a consent order, staying the collection of any taxes,

pending the Board of Equalization’s ruling.

On March 9, 2010, the Trustee filed a second amended notice of delinquent taxes,

claiming that the total tax owed by Forest Hill at that time was $217,052.27. Shortly after

the Trustee made this filing, the Receiver submitted an appeal to the State Board of

Equalization. The appeal stemmed from the reappraisal of Forest Hill by the Shelby County

assessor in 2009. The 2009 appraised value of Forest Hill was substantially higher than the

2005 appraised value and allegedly did not reflect the changed circumstances at Forest Hill.

Because, as noted above, the TDCI expected any purchaser to assume the liability for the

outstanding pre-need contracts, the Receiver asserted that the fair market value of the funeral

homes was effectively zero because millions of dollars, beyond the monies entrusted at that

time, were needed to honor the contracts.

On August 13, 2010, the Receiver filed a formal response to the Trustee’s claim for

delinquent taxes. The Receiver informed the court and the Trustee that Forest Hill’s

application for tax exemption was still pending with the Board of Equalization. The response

further noted that the Board of Equalization could not address the appeal of the 2009

appraisal until the exemption application was resolved. The response also specifically states

that “[t]he Receiver has been actively discussing the sale of Forest Hill with prospective

bidders and will develop a bid process with the approval of the Chancery Court.” In

addition, the Receiver’s response states that:

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At the appropriate time, the Receiver will petition the Court for

equitable relief from all claimed penalties, interest and fees. If

the Court grants the Receiver’s petition for relief, the claims of

the Trustee and the City are overstated insofar as it includes

penalties, interest, and collection fees on delinquent tax

amounts.

The Trustee filed no further response.

In June 2011, the tax exemption for the cemetery properties was granted, and the

Shelby County Assessor’s Office and the Receiver agreed to revised appraisals/assessments

for the years 2009 to 2011. By this time, the Receiver was taking the necessary steps to sell

Forest Hill. In June 2012, the Receiver sought the court’s permission to pay the base real and

personal property taxes owing to the Trustee, but specifically asked the court for relief from

paying penalties, interest, and related charges. The Trustee filed an opposition to the

Receiver’s motion, and, on August 3, 2012, the Trustee submitted a third amended notice of

delinquent taxes, alleging that the total tax arrearage, at that time, was $386,389.66.

The pending motions were heard on August 6, 2012. By order of August 10, 2012,

the trial court granted the Receiver’s motion. The order states, in relevant part:

2. The Petition for Appointment of a Receiver was granted and

the Receiver was charged by the Court to trace, recover, marshal

and restore the missing trust funds on behalf of the pre-need

contract holders, and to continue the operations of the three

Forest Hill funeral homes and cemeteries so that the pre-need

funeral/burial services could be delivered to the contract holders

and their beneficiaries. Accordingly, the primary purpose of the

Receivership was to protect the interests of the pre-need contract

holders who were victims of the fraudulent activities of Clayton

Smart and his co-conspirators who misappropriated their trust

funds, rather than a receivership primarily to protect the interests

of the creditors of Forest Hill.

3. Because the funeral homes and cemeteries had been seriously

mismanaged and operated prior to the receivership, the business

was in severe financial distress, and no funds were available to

pay the real and personal property taxes assessed by the City of

Memphis and Shelby County and, at the same time, continue

operating the funeral homes and cemeteries and honoring the

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pre-need contracts as Receiver was charged with doing.

The court’s order notes that “this case involves extraordinary and unique facts and

circumstances and is not a typical case where a property owner is seeking to avoid a tax or

has inadequate justification for relief against penalties and interest.” Rather, the court noted

that “this is a matter of wide public interest in that the interests of 13,500 people who

purchased pre-need contracts for funeral/burial services are at stake.” Accordingly, the court

held that:

(f) granting the [Receiver’s] request for equitable relief [from

penalties and interest] will benefit the victims of the fraud by

helping to restore their pre-need trust funds, and the perpetrators

of the fraud will not benefit in any way;

(g) it has taken over five years of diligent work to get the

properties in a position where they could be sold and to get to

this point of requesting authority to pay the base property taxes

and request equitable relief; and, the delays in getting to this

point, including obtaining tax exemption for the cemeteries

(over a 4 year process), getting the assessments for 2009-2011

corrected (a several year process), and other delays were not the

fault of the Receiver;

(h) Although the Receiver and the County attorney have come

before the Court numerous times over the course of the

receivership for Receiver to provide updates on the status of the

receivership and status conferences regarding property taxes,

there was no motion to compel payment, which could not have

come from the trust funds that Forest Hill did not own or, given

the precarious financial condition, could not come from

operations without seriously impairing the ability to provide the

pre-need funeral/burial services.

8. The Court is reluctant to use its equitable power as requested,

but in this case the equities cry out for such use. Having fully

considered the arguments and briefs of the parties as well as its

own research, the purpose of the receivership, the public

interests involved in protecting approximately 13,500 pre-need

contract holders who were innocent victims of fraud resulting in

their being substantially deprived of their pre-need trust funds

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and the benefits of their pre-need contracts for funeral/burial

services, as well as the public interest of County and City

residents, and since the money that would have to be used to pay

penalties, interest and related charges will instead help replenish

the missing trust funds, the Court finds that the Receiver’s

Motion to pay the base amount of the delinquent taxes only, and

not penalties, interest and related charges, is fair and equitable,

and the Motion is therefore granted.

Based upon the foregoing order, the Receiver paid the Trustee the base taxes that were due

on Forest Hill’s property.

On September 10, 2012, the Trustee filed a motion to alter or amend the trial court’s

August 10, 2012 order, asking the court to reconsider its decision to grant the Receiver’s

request for equitable relief from paying the penalties, interest, and related charges. By order

of October 31, 2012, the trial court permitted the Trustee to recoup the court costs of

$378.00, which amount was reflected on its tax bill. In the October 31, 2012 order, the trial

court also addressed a question that had been raised by counsel for the Trustee at the hearing

on the motion to alter or amend. Specifically, the Trustee argued that because the August 10,

2012 order did not address any tax lien that the Trustee might possess, the Trustee could still

enforce that lien. For the first time at the hearing on the motion to alter or amend, the Trustee

argued that its lien was not extinguished by the sale order because the Trustee was not a party

to the sale agreement and did not have notice of the petition to approve that agreement. In

its October 31, 2012 order, the trial court clarified that it was the court’s intention that the

August 10, 2012 would extinguish and release any tax liens that may have existed. The court

amended its August 10, 2012 order accordingly, but otherwise denied the Trustee’s motion

to alter or amend the judgment concerning the payment of fees, penalties, and interest on the

outstanding tax amounts.

The Trustee appeals. The sole issue for review is:

Whether the trial court abused its discretion in requiring the

Trustee to pay only the base property taxes assessed by Shelby

County and the City of Memphis and granting equitable relief

from the payment of penalties, interest, and other charges?

“A receivership is an equitable proceeding over which Chancery Court exercises

substantial discretionary authority.” In re The Matter of the Liquidation of United

American Bank in Knoxville, A Tennessee Corporation, 743 S.W.2d 911 (Tenn. 1987); see

also State ex rel. Johnson v. Mount Olivet Cemetery Co., 834 S.W.2d 306 (Tenn. Ct. App.

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1992) (“Where cemetery was in receivership and receiver had been ordered to take control

of cemetery and see to its management, care, preservation, and operation, trial judge had

discretion to decide how cemetery could best be preserved where cemetery had been

mismanaged.”). Accordingly, appellate courts review decisions made by the chancery court,

in the course of administering a receivership, under an abuse of discretion standard. See,

e.g., City of Knoxville v. Hessler, 165 S.W.2d 592 (Tenn. 1942); Harkins v. Wells, 13 Tenn.

App. 299, 1931 WL 1525, *6 (Tenn. Ct. App. March 13, 1931). Under the abuse of

discretion standard, the trial court's decision “will be upheld so long as reasonable minds can

disagree as to the propriety of the decision made.” Camp v. Camp, No. W2010-01037-COA-

R3-CV, 2011 WL 2567542, at *5 (Tenn. Ct. App. June 29, 2011) (quoting Eldridge v.

Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001)). The abuse of discretion standard involves “a less

rigorous review of the lower court's decision and a decreased likelihood that the decision will

be reversed on appeal.” Lee Medical, Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn.2010)

(citing Beard v. Bd. of Prof'l Responsibility, 288 S.W.3d 838, 860 (Tenn. 2009)). The

standard “reflects an awareness that the decision being reviewed involved a choice among

several acceptable alternatives.” Lee Medical, Inc., 312 S.W.3d at 524 (citing Overstreet v.

Shoney's, Inc., 4 S.W.3d 694, 708 (Tenn. Ct. App. 1999)). Accordingly, appellate courts are

not permitted to “second guess” the trial court's determinations or to substitute their judgment

for that of the trial court. Lee Medical, Inc., 312 S.W.3d at 524 (citing White v. Vanderbilt

Univ., 21 S.W.3d 215, 223 (Tenn. Ct. App. 1999)). “The abuse of discretion standard of

review does not, however, immunize a lower court's decision from any meaningful appellate

scrutiny.” Lee Medical, Inc., 312 S.W.3d at 524 (citing Boyd v. Comdata Network, Inc., 88

S.W.3d 203, 211 (Tenn. Ct. App. 2002)).

The Trustee first argues that he was denied due process in these proceedings because

he allegedly did not receive a copy of the Receiver’s petition to sell Forest Hill, and did not

receive notice of the hearing on the petition. Accordingly, the Trustee contends that his lien

to collect interest, penalties, fees and costs was “stripped” by the trial court’s approval of the

sale agreement. However, the Trustee’s brief does not raise violation of due process as a

specific issue; rather, the argument is made in the body of the Trustee’s brief. It is well

settled that an issue is generally waived when it is argued in the body of the brief, but not

designated as an issue on appeal. See, e.g., State v. Freeman, 402 S.W.3d 643, 653 (Tenn.

Ct. App. Oct. 16, 2012) (“Generally, an issue argued in the body of the brief, but not

designated as an issue will be considered waived”); Bunch v. Bunch, 281 S.W.3d 406, 410

(Tenn. Ct. App. 2008); Childress v. Union Realty Co., 97 S.W.3d 573, 578 (Tenn. Ct. App.

2002). Indeed, Rule 27 of the Tennessee Rules of Appellate Procedure specifically requires

that an appellant’s brief “contain under appropriate headings . . . [a] statement of the issues

presented for review.” Tenn. R. App. P. 27(a)(4); see also Tenn. R. App. P. 13(b) (“Review

generally will extend only to those issues presented for review.”). While we would normally

consider the due process issue waived because it is not specifically stated, because the

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Trustee's issue is so broadly worded we will exercise our discretion to address the due

process argument in the interest of full adjudication of this case. However, we discourage

this practice and encourage parties to always state their issues as specifically as possible in

compliance with Tennessee Rule of Appellate Procedure 27(a)(4).

Concerning the fact that the Trustee did not raise the “stripping” of the “priority lien”

argument until the hearing on the motion to alter or amend, at oral argument before this

Court, the Trustee stated that he could not have raised the tax lien issue before this time

because he did not know that the lien was in jeopardy prior to the hearing on the motion to

alter or amend. However, the record simply does not support this argument. As set out

above, on August 13, 2010, the Receiver filed a formal response to the Trustee’s claim for

delinquent taxes. The response specifically states that “[t]he Receiver has been actively

discussing the sale of Forest Hill with prospective bidders and will develop a bid process

with the approval of the Chancery Court.” In addition, and as set out in full context above,

the Receiver’s response states that he will be petitioning the court for relief from the

Trustee’s claim for penalties, interest, and fees. The Trustee does not contend that he did not

receive the Receiver’s response; rather, he asserts that he did not receive notice of the

petition for sale (filed June 8, 2011) and the hearing on same. Even if we assume, arguendo,

that the Trustee did not receive notice, in June 2011, that the Receiver was petitioning the

trial court for the sale of Forest Hill, the Receiver’s response (filed on August 13, 2010) to

the Trustee’s claim clearly puts the Trustee on notice that a sale was being contemplated, and

that the Receiver would seek relief from taxes and penalties. Thus, upon receipt of the

Receiver’s response on or about August 13, 2010, the Trustee knew, or should have know,

that a sale of Forest Hill was probable, and that the Receiver would petition for relief from

interest and penalties. The response was sent almost two years before the August 6, 2012

hearing on the Receiver’s petition for relief from interest and penalties. From the totality of

the circumstances, and the record as a whole, we can only conclude that the Trustee had

sufficient time, prior to the hearing on the motion to alter or amend, to make any arguments

concerning the ramifications of the sale of Forest Hill on his interests.

In addition, there is simply no evidence in the record to suggest that any lien that the

Trustee might have had was extinguished, or otherwise “stripped,” by the sale of Forest Hill.

It is clear that the lien for delinquent taxes survived the sale because the Trustee did, in fact,

recover the base taxes. In other words, the lien was transferred from Forest Hill’s property

to the monies received for the property. As discussed below, the trial court’s decision to

relieve the Receiver of paying penalties and interest was discretionary and was the result of

the court’s consideration of the relative equities between the parties. It was not, as the

Trustee argues, a “stripping” of the lien; at most, the relief from interest and penalties was

a compromise between competing interests and an attempt to satisfy the claims of as many

parties as possible with insufficient funds to entirely cover all claims.

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Concerning whether the trial court abused its discretion by granting the Receiver’s

motion to be relieved from penalties and interest on the delinquent taxes, the Trustee argues

that there were sufficient funds from which these penalties and interest amounts could have

been paid. Accordingly, the Trustee contends that the trial court’s waiver of the penalties and

interest was not warranted under the facts presented here and, thus, worked a disadvantage

to county and city residents.

The instant case is similar to the case of State ex rel. Johnson v. Mount Olivet

Cemetery Co., 834 S.W.2d 306. In Johnson, this Court determined that it was within the

trial court’s discretion to deviate from the strict provisions of the cemetery statutes when it

was necessary to preserve the cemetery. In Johnson, a receivership was established due to

a conflict concerning the ownership rights to the cemetery and a deficiency in the cemetery’s

improvement care trust fund. As in the instant case, in Johnson, the trial court ordered the

receiver to take control of the cemetery and to see to its management, care, and preservation.

Id. at 310. One of the owners of the cemetery eventually proposed a plan for solving the

financial difficulties, but the court rejected the proposed plan and ordered that the cemetery

be sold. The owner appealed, asserting that the trial court abused its discretion because the

cemetery statutes provided that the court is authorized to sell the cemetery only when “it is

impossible to correct the deficiency in the improvement care trust fund.” Id. at 309. On

appeal, this Court affirmed the trial court’s sale order, stating:

When the receiver entered into his duties and found the

cemetery suffering from serious mismanagement, unable to pay

its debts as they came due, with a substantial deficiency in its

improvements care trust fund and a staggering tax obligation,

the trial judge, as a matter of general law, had the discretion to

decide how the cemetery could best be preserved. See 66 Am.

Jur. 2d Receivers §397. Thus, the court was not strictly bound

by the technical provisions of the Cemetery Act.

Id. at 310. Likewise, while we concede that the statutes give the Trustee the right to collect

penalties and interest on delinquent taxes, Tenn. Code Ann. § 67-5-2010(a)(1) (“To the

amount of tax due and payable, a penalty of one half of one percent (.5%) and interest of one

percent (1%) shall be added on March 1, following the tax year due date on the first day of

each succeeding month.”), in the receivership context, this right must be viewed in light of

the equitable interests of all parties involved. Furthermore, as held in Johnson, in

considering the equities, the trial court, in administering a receivership, is not absolutely

bound by statutory provisions, but may exercise discretion to formulate the best result. Here,

it is clear from the trial court’s August 10, 2012 order, set out in full context above, that the

trial court’s decision to waive the penalties and interest in this case was based upon its desire

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to advance the primary purpose of the receivership, which was to “protect, recover, and

marshal those statutory trust funds . . . for the purpose of protecting the interests of the pre-

need contract holders and beneficiaries. . . .” It is clear that this purpose drove the trial

court’s exercise of its discretion in this case. Although the Trustee’s brief states that the

Receiver recovered sufficient funds to cover penalties and interest on the taxes, it was

obviously the trial court’s goal to return as much of the recovered money as possible to the

approximately 13,500 parties that had purchased pre-need contracts. To this end, the trial

court had broad discretion to fashion a remedy. For example, it could have denied the

Trustee the base taxes, which it did not. In this regard, the Trustee was made whole.

However, it is clear from the record that the pre-need contract holders, rather than the

citizens of Shelby County were the true victims of the massive fraud giving rise to this case.

Given this fact, we cannot find an abuse of discretion in the trial court’s remedy and in its

decision to relieve the Receiver of penalties and interest on the taxes owed. By allowing base

taxes and nothing more, the trial court was able to ensure that the taxes were paid, while

allowing any additional funds to be returned to the pre-need contract holders. From the

totality of the circumstances, this result was not illogical or unreasonable; accordingly, we

conclude that there was no abuse of discretion.

For the foregoing reasons, we affirm the order of the trial court. The case is remanded

for further proceedings as may be necessary and are consistent with this Opinion. Costs of

the appeal are assessed against the Appellant, David Lenoir, in his official capacity as the

Shelby County Trustee.

_________________________________

J. STEVEN STAFFORD, JUDGE

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