‘Treat Me Nice’ on the Concept of Res Judicata is Granted in Arena Case
By Robert J. Romano, JD LLM, Assistant Professor of Sport Management, St. John’s University
Things got ‘All Shook Up’ in the State of Tennessee when its Supreme Court ruled on February 24, 2021, that the plaintiff’s, Elvis Presley Enterprises, Inc., lawsuit against the defendants, City of Memphis, Shelby County, and Memphis Basketball, LLC, was not barred by the legal concept of res judicata.
By way of background, in 2014, Elvis Presley Enterprises, Inc., thought ‘It’s Now or Never’ to begin a redevelopment project that involved the celebrated and renowned home of Elvis Presley, and Memphis tourist destination, Graceland. The purposed revitalization plan initially included the construction of a 450-room non-heartbreak hotel, convention and concert facilities, a theater, and a series of upgrades to the museum and archive studio.
To make the Graceland project economically feasible, Elvis Presley Enterprises, Inc. approached the Economic Development Growth Engine for the City of Memphis and Shelby County to request a property tax benefit through its Tax Increment Financing Program (TIF). The Economic Development Growth Engine is a Tennessee non-profit corporation that, among other things, considers applications that promote industrial development. Its ‘Don’t Be Cruel’ TIF program, rather than providing for direct funding, allows developers to share in the increased property tax revenues received by the city and county from the surrounding area of the developer’s project.
After receiving TIF approval from both the city and the county for its initial revitalization project, Elvis Presley Enterprises, Inc. amended its application to include a 6,200-seat arena. After becoming aware of the changes made by Elvis Presley Enterprises, Inc. to its proposal, Memphis Basketball, LLC, with a ‘Suspicious Mind’, contacted the City of Memphis to assert its position that the granting of a TIF to Elvis Presley Enterprises, Inc. for its proposed arena would violate the ‘Non-Participation Provision’ of the ‘Arena Agreement’ between the City of Memphis and Memphis Basketball, LLC. This ‘Arena Agreement’, signed by the two parties in 2001, requires Memphis Basketball, LLC to pay a rental fee to the city and county, while also covering any and all costs, expenses, and operational losses incurred in order for the Memphis Grizzlies’ basketball team to call the FedEx Forum home. In exchange, the ‘Arena Agreement’ prohibits the City of Memphis from providing tax incentives for facilities that would compete with the FedEx Forum. Specifically, the ‘Non-Participation Provision’ of the ‘Arena Agreement’ states:
Non-Participation. During the Term, neither CITY/COUNTY nor any CITY/COUNTY Affiliate shall, without the prior written consent of [Memphis Basketball], design, develop, construct or otherwise fund, provide economic or tax benefits or incentives to, or materially participate in the design, development, construction or financing of . . . any new Competing Facility; provided, however, the foregoing provisions shall not be interpreted to prohibit transactions and activities normally and/or routinely engaged in by the (x) planning, building, permitting and engineering departments of CITY/COUNTY in the ordinary course of reviewing and/or approving projects submitted by private developers, or (y) CITY/COUNTY Industrial Development Corporations and/or other CITY/COUNTY Affiliates, the general purpose of which is to encourage private development, in the ordinary course of establishing tax freeze programs, tax incentive programs, PILOT programs and other similar economic programs aimed at encouraging private development.
In addition, the ‘Arena Agreement’ defines ‘Competing Facility’ as follows:
Competing Facility means any now existing or new indoor or covered sports or entertainment arena, indoor or covered performance facility or other indoor or covered facility that (i) could compete with the [FedEx Forum] for the booking of any event, or (ii) has or will have a seating capacity of more than 5,000 persons and fewer than 50,000 persons; provided, however, the foregoing provisions shall not apply to any hotel ballrooms, movie theaters or convention and hotel facilities that are not designed or constructed to be able to accommodate or be used as venues for concerts, theatrical shows, public assemblies or sporting events.
After reviewing the language of the 2001 ‘Arena Agreement’, the Economic Development Growth Engine for the City of Memphis and Shelby County decided not to grant Elvis Presley Enterprises, Inc. TIF approval for its new, supplemental project that included the 6,200-seat arena.
Feeling like a ‘Hound Dog’, Elvis Presley Enterprises, Inc, in November 2017,
filed suit against the City of Memphis, Shelby County, and Memphis Basketball, LLC, requesting the court to find on its behalf a declaratory judgment, intentional interference of business relations, together with any and all other injunctive and equitable relief.
The three named defendants, seeking ‘A Little Less Conversation’ on the issue moved the court to dismiss the plaintiff’s claims. The Chancery Court agreed with the defendants, finding that plaintiff, Elvis Presley Enterprises, Inc. lacked standing because it failed to exhaust all administrative remedies before filing its lawsuit. Subsequent to the Chancery Court’s ruling, however, both the Economic Development Growth Engine for the City of Memphis and Shelby County and the County Commission approved Elvis Pressley Enterprises, Inc.’s application for the amended TIF, which included the 6,200-seat arena. This approval was contingent, however, on either a court order or an agreement by the parties to the original ‘Arena Agreement’ (i.e. The City of Memphis and Memphis Basketball, LLC) that the Elvis Presley Enterprises, Inc. revitalization project did not violate their contract.
As a result of the Economic Development Growth Engine for the City of Memphis and Shelby County’s contingent approval, Elvis Presley Enterprises, Inc., on June 9, 2018, instigated a second lawsuit against the same three defendants, seeking a declaratory judgment that the TIF does not violate the ‘Arena Agreement’ between the City of Memphis and Memphis Basketball. The Chancery Court, upon a motion to dismiss filed by the defendants alleging that this was now ‘Too Much’, again dismissed the plaintiff’s lawsuit for a lack of standing. The Court of Appeals affirmed, finding that the second lawsuit filed by Elvis Presley Enterprises, Inc. was barred by the legal concept of res judicata. The Tennessee Supreme Court granted an appeal on this issue.
The doctrine of res judicata is a ‘Love Me Tender’ rule that bars a second suit between the same parties on the same claim with respect to all issues which were, or could have been, litigated in the former suit. (It is a rule of rest, and it promotes finality in litigation, prevents inconsistent or contradictory judgments, conserves judicial resources, and protects litigants from the cost and vexation of multiple lawsuits.) A party asserting a defense of res judicata must demonstrate to the court (1) that the underlying judgment was rendered by a court of competent jurisdiction; (2) that the same parties or their privies were involved in both suits; (3) that the same claim or cause of action was asserted in both suits; and (4) that the underlying judgment was final and on the merits.
The Tennessee Supreme Court determined that the doctrine of res judicata was not applicable to the parties in this matter because the dismissal of the prior lawsuit for failure to exhaust administrative remedies did not constitute an adjudication on the merits. Therefore, since the second suit was not barred by the doctrine of res judicata, the Tennessee Supreme Court in a ‘Return to Sender’ move, remanded the case back to the Court of Appeals for consideration of the standing issue.