OF JUDGMENT: 08/29/2013.
FROM WHICH APPEALED: FORREST COUNTY CHANCERY COURT. TRIAL
JUDGE: HON. HOLLIS MCGEHEE.
APPELLANT: NEVILLE H. BOSCHERT, KAYTIE M. PICKETT, JOLLY W.
APPELLEES: OFFICE OF THE ATTORNEY GENERAL, BY: HAROLD E.
PIZZETTA, III, R. DAVID KAUFMAN, R. RICHARD CIRILLI, JR.,
PERRY W. PHILLIPS.
PRESIDING JUSTICE. WALLER, C.J., RANDOLPH, P.J., LAMAR AND
KING, JJ., CONCUR. COLEMAN, J., DISSENTS WITH SEPARATE
WRITTEN OPINION JOINED BY KITCHENS, CHANDLER AND PIERCE, JJ.
Lamar County wishes to withdraw from the Pat Harrison
Waterway District (" the District" ). The question
presented is the amount of money Lamar County must pay to do
so. The chancery court found that Lamar County owed $337,088,
excluding the District's perpetual park operating and
maintenance obligations as " contractual obligations . .
. that are outstanding" under the statute. We affirm.
AND PROCEDURAL HISTORY
The Pat Harrison Waterway District
In 1962, in order to develop Mississippi's water
resources, the Mississippi Legislature created the Pat
Harrison Waterway District, which included Lamar and fourteen
other counties within the Pascagoula River
Basin. Funding for the District primarily is
provided by assessments of the member counties.
The District's Governmental Contracts
After it was formed, the District worked with the United
States Army Corps of Engineers to develop a comprehensive
development plan under which the District entered into a
series of eight contracts with various departments of the
federal and state governments to operate its water
Land and Water Conservation Fund Contracts
The District established four water parks under contracts
with the United States Department of the Interior, which
provided funding from its Land and Water Conservation Fund
(" LWCF" ). These contracts, under the "
Project Termination" heading, provide that the federal
government may seek specific enforcement of its contracts in
case of a breach of performance by the State. And the
District's general obligations for the " Use of
Facilities" under the LWCF contracts require that:
1. The State shall not at any time convert any property
acquired or developed pursuant to this agreement to other
than the public outdoor recreation uses specified in the
project proposal attached hereto without the prior approval
of the Director.
2. The State shall operate and maintain, or cause to be
operated and maintained, the property or facilities acquired
or developed pursuant to this agreement in the manner and
according to the standards set forth in the Manual.
Finally, the 2008 LWCF State Assistance Program
Manual--referenced in the District's contracts--provides
post-completion operation and maintenance obligations:
Property acquired or developed with LWCF assistance shall be
operated and maintained as follows:
1. The property shall be maintained so as to appear
attractive and inviting to the public.
2. Sanitation and sanitary facilities shall be maintained in
accordance with applicable health standards.
3. Properties shall be kept reasonably open, accessible, and
safe for public
use. Fire prevention, lifeguard, and similar activities shall
be maintained for proper public safety.
4. Buildings, roads, trails, and other structures and
improvements shall be kept in reasonable repair throughout
their estimated lifetime to prevent undue deterioration and
to encourage public use.
5. The facility shall be kept open for public use at
reasonable hours and times of the year, according to the type
of area or facility.
6. A posted LWCF acknowledgment sign shall remain displayed
at the project site . . . .
The LWCF Manual also provides the following escape from
operation and maintenance costs when facilities become
obsolete: " Project sponsors are not required to
continue operation of a particular recreation area or
facility beyond its useful life." According to the
District's 2011 audits, the " estimated useful
lives" of the District's assets are 5-30 years for
buildings, 5-25 years for building improvements, 5-50 years
for improvements other than buildings, 5-20 years for
equipment, and 15-50 years for capital leases. Obsolescence
may also arise, among other reasons, if " changing
recreation needs dictate a change in the type of facilities
provided," or " park operating practices dictate a
change in the type of facilities required."
Soil Conservation Service and National Watershed Protection
and Flood Prevention Contracts
Three of the District's water parks were established with
funding through the United States Department of
Agriculture's Soil Conservation Service Department and
the National Watershed Protection and Flood Prevention Act
Program. Under the Dry Creek contract, the
relevant provision provides that:
The Dry Creek Water Management District and the Pat Harrison
Waterway District agree that all land acquired on which
Federal assistance is provided will not be sold or otherwise
disposed of for the evaluated life of the project, except to
a public agency which will continue to maintain and operate
the recreational development in accordance with the operation
and maintenance agreement.
Under the Turkey Creek Soil Conservation Operations and
Maintenance Agreement, the District agreed to operate and
maintain " project measures" developed through the
program and to use the real property " for the purpose
for which it was acquired and in accordance with the
[Operations and Maintenance] agreement." The
District's maintenance obligations require only that:
A. The Sponsor will:
1. Be responsible for and promptly perform or have performed
without cost to the Service . . . all maintenance of the
structural measures determined by either the Sponsor or the
Service to be needed.
2. Obtain prior Service approval of all plans, designs and
specifications for maintenance work involving major repair.
B. The Service will upon request of the Sponsor and to the
extent that its resources will permit, provide consultative
assistance in the preparation plans, designs and
needed repair of the structural measures.
Notably, the contract provides that " [a]dmission or
users fees shall be charged only as necessary to produce
revenues required by the Sponsor(s) to . . . provide adequate
inspection, operation, maintenance, and replacement of the
[project measures]." Additionally, under the National
Watershed Program's 2009 Manual, " [t]he term of the
[Operation and Maintenance] agreement expires when the
evaluated life of the works of improvement has been
Finally, under the Big Creek Soil Conservation Agreement, the
District agreed to " assume responsibility for operation
and maintenance in accordance with the Operation and
Maintenance Agreement." Like the Turkey Creek contract,
the Big Creek contract also contains the same language from
the National Watershed Program's 2009 Manual about the
operation and maintenance agreement expiring at the end of
the improvements' life span.
Lease Agreement with the Army Corps of Engineers
In establishing the Okatibbee Creek Water Park, the District
leased the land and water areas from the United States Army
Corps of Engineers. The term of the original lease agreement
was for fifty years--beginning July 1, 1968, and ending June
30, 2018. But in 1973, the District and the Army agreed to a
supplemental lease agreement providing:
This lease may be relinquished by the lessee at any time
prior to tender by the Government and acceptance by the
lessee of any cost-sharing payments pursuant to The Contract
by giving to the Secretary of the Army, through the District
Engineer, at least 30 days notice in writing. Subsequent to
such tender and acceptance, this lease may be relinquished by
the lessee at any time after 30 June 1999 by giving notice as
while the District's lease term does not expire until
2018, the District has the option to terminate the lease at
any time by giving thirty days' written notice to the
Agreement with the Mississippi Wildlife Heritage
Finally, the District maintains a state historic site at
Dunn's Falls through a 1982 agreement with the
Mississippi Wildlife Heritage Committee. As part of its
agreement with the State, the District agreed to various
4. Pat Harrison Waterway District agrees to maintain with
paint the property lines which have been established by the
property survey . . . .
5. Pat Harrison Waterway District agrees to assign an
employee to live on the Dunn's Falls property and shall
be responsible for any salary or other expenses which might
result from this employment.
6. Pat Harrison Waterway District agrees to enforce the rules
and regulations adopted by the Pat Harrison Waterway District
Board . . . .
Lamar County's Withdrawal from the District and the
On September 6, 2011, Lamar County notified the District that
it was exercising its right to withdraw under Mississippi
Code Section 51-15-118, which provides that " [t]he
withdrawing county shall be responsible for paying its
portion of any district bonds, contractual obligations, and
any other indebtedness and liabilities of the district that
on the date of such county's withdrawal from the
district."  Under the statute, the withdrawing
county's obligation " shall be determined through an
independent audit conducted by a certified public
Litigation Between the District and Lamar County
In January 2012, Wolfe, McDuff & Oppie, PA--the
District's own certified public accounting firm--sent
Lamar County an " Independent Accountant's
Report" which claimed that Lamar County's portion of
district bonds, contractual obligations, and other
indebtedness and liabilities was $9,201,619. Lamar County
disagreed, and this litigation soon followed.
Petition for Injunction and Appointment of Independent
The District fired the first shot in May 2012, by filing a
petition in the Chancery Court of Forrest County, seeking an
injunction. Lamar County responded with a motion for partial
summary judgment, claiming it did not owe the District for
contractual obligations incurred after September 6, 2011.
Lamar County also requested that the court appoint an
independent auditor to determine the amount it owed under
After all of the Forrest County Chancery Court judges recused
from the case, this Court appointed the Honorable Hollis
McGehee as Special Judge. Judge McGehee promptly held a
hearing and issued an order granting partial summary judgment
to Lamar County. Judge McGehee rejected the Wolfe audit and
ordered the parties to attempt to agree on a certified public
accountant to perform an independent audit to determine Lamar
County's obligation as of September 6, 2011. Both parties
later agreed on the certified public accounting firm of Tann,
Brown & Russ Co., PLLC, to perform the independent audit.
Independent Audit and Fight Over Contractual
Tann, Brown & Russ produced an " Independent
Auditor's Report," a " Schedule of Lamar
County's Portion of the Pat Harrison District's
Bonds, Contractual Obligations, and Other Indebtedness and
Liabilities," and " Notes to the Schedule of Lamar
County's Portion of Bonds, Contractual Obligations, and
Other Indebtedness and Liabilities." Lamar County filed
these audit reports with the court in December 2012. The
audit excluded the District's perpetual park operating
costs from the schedule of contractual obligations.
Tann, Brown & Russ's Audit
In its audit, Tann, Brown & Russ excluded the perpetual park
operating costs from its calculation of the portion of the
District's contractual obligations Lamar County was
obligated to pay, explaining:
As discussed in Note 6 to the schedule, the District has
included $146,524,357 as an estimate of the present value of
the District's future costs (net of park user fee
revenues) to operate the Okatibbee Creek Park through June
30, 2018, and to perpetually operate its other recreational
parks. In our opinion, the estimated future costs to operate
the Okatibbee Creek Park through June 30, 2018, and to
perpetually operate the District's other recreational
parks should not be included in the schedule because they are
not contractual obligations of the District as of September
6, 2011, in
accordance with Section 51-15-118 of the Mississippi
The report further explained why the perpetual park operating
costs were not contractual obligations:
The District's lease agreement with the U.S. Corps of
Engineers for the Okatibbee Creek Park is not a contractual
obligation because it is cancelable by the District. In
addition, while the District's agreements with the
National Park Service and Natural Resources Conservation
Service generally require the continued use of the
District's other parks for outdoor recreational purposes,
these agreements do not require a specific amount of
expenditures at the parks. Furthermore, the District's
agreements with the National Park Service, Natural Resources
Conservation Service, and U.S. Corps of Engineers allow the
District to charge park user fees to offset the park
operating costs. Consequently, the amount of the
District's net cost to operate the parks is within the
District's control and is not a contractual obligation in
accordance with Section 51-15-118 of the Mississippi Code.
After explaining its reasoning for excluding the perpetual
park operating costs, the Tan, Brown & Russ audit then
provided the following conclusion and calculation:
If the perpetual park operating costs of $146,524,357 were
excluded from the schedule, Lamar County's portion of the
Pat Harrison Waterway District's bonds, contractual
obligations, and other indebtedness and liabilities as of
September 6, 2011, would be decreased by $18,648,448, and
Lamar County's portion of the Pat Harrison Waterway
District's bonds, contractual obligations, and other
indebtedness and liabilities as of September 6, 2011, in
accordance with Section 51-15-118 of the Mississippi Code
would be $337,088.
While Tann, Brown & Russ excluded the perpetual park
operating costs as contractual obligations in the schedule,
it did consider other future contractual obligations,
including the District's project grant commitments
described in Note 4, and the District's operating lease
and service contract obligations described in Note 5. Note 4
The District awards grants each year for various projects in
its member counties. Grant awards generally cover 50% of the
eligible project costs up to a maximum grant amount of
$25,000. These grant commitments are payable after each
project's completion based upon documentation of the
costs incurred by the grant recipient.
Note 5 explained that " [t]he District has entered into
certain equipment operating leases and service contracts with
non-cancelable terms." Both of these future contractual
obligations were included in the schedule of contractual
The Tann, Brown & Russ audit did not declare the specific
accounting standards it used, stating only that it "
conducted [the] audit of the schedule in accordance with
auditing standards generally
accepted in the United States of America." Relevant to
this case are two generally recognized accounting standards,
either or both of which provide guidance as to what should
and should ...