NC Supreme Court and Court of Appeals Review (August 2012-July 2013)


Aug 23rd, 2013
by Jeanette Doran & Tyler Younts

North Carolina Supreme Court and

Court of Appeals Review (August 2012-July 2013)

North Carolina Institute for Constitutional Law[1]

August 23, 2013

 

Taxation and Revenue

IMT v. City of Lumberton,

___ N.C. ___, 738 S.E.2d 156 (2013)—Supreme Court. Opinion by Martin.  Beasley took no part in decision.  Motion for rehearing pursuant to Rule 31 DENIED.  740 S.E.2d 478.

 

The City of Lumberton increased privileged license taxes on companies using “electronic machines . . . to conduct games of chance, including . . . sweepstakes.”  IMT, Inc. v. City of Lumberton, ___ N.C. ___, 738 S.E. 2d 156, 157 (2013).  Previously, the City taxed these companies at a rate of $12.50 per year. Following the new tax increase, these businesses were required to pay $5,000 per location and $2,500 per computer terminal. This change imposes a 59,900% tax increase on such business with only one computer terminal.  Id.  Two sweepstakes businesses filed complaints against the City claiming the tax was unconstitutional, and the City filed complaints against two other businesses for failure to pay the tax.  Id. 

            The North Carolina Constitution states, “The power of taxation shall be exercised in a just and equitable manner, for public purposes only, and shall never be surrendered, suspended, or contracted away.”  N.C. Const. art. V, § 2(1); IMT, Inc., 738 S.E. 2d at 158.  The Just and Equitable Clause had never been addressed directly as a substantive claim in its own right.  Id.  The City argued that the amount of a tax is not a justiciable claim under the Just and Equitable Clause. However, the Court disagreed. The Court held that this clause should be treated as a substantive limitation on the legislature, just like the Public Purpose and Contracting Away Clauses.  Id. 

Cases arising under the Just and Equitable Tax clause must be determined on a case-by-case basis.  Id. at 159.  The Court considered the factors listed in Nesbitt v. Gill, including the size of the city, sales volume, and exemptions from other taxes, in evaluating Plaintiffs claims.  Id. The Court balanced the need for deference to legislative authority to enact taxes and the constitutional limitations on the power of taxation. “While these competing considerations might be difficult to reconcile in nuanced cases, the case at bar is hardly nuanced. Here, the City's 59,900% minimum tax increase is wholly detached from the moorings of anything reasonably resembling a just and equitable tax.” Id. at 160. Accordingly, the Court held the challenged tax unconstitutional.

 

 

Delhaize Am. Inc. v. Lay,

___ N.C. App. ___, 731 S.E.2d 486 (2012)—Court of Appeals. Opinion by Thigpen. Stroud and McCullough concurring.

 

            In Delhaize Am. Inc. v. Lay, plaintiff (formerly known as Food Lion, Inc., challenged a change by the N.C. Department of Revenue in the definition of “true earnings” for the purpose of calculating tax payments on the grounds that the change violated procedural due process under the Fourteenth Amendment to the U.S. Constitution and the taxing power under N.C. Const. art. V, Sec. 2(1).  Plaintiff had engaged in a restructuring of ownership of some of its assets in order to avoid certain tax liabilities which the Dept. of Revenue recaptured through its change in the definition of true earnings.   

            This case required the Court of Appeals to determine whether the Department of Revenue’s change in how it defined true earnings was without notice (violating due process) or retroactive (violating the taxing power). 

The Court of Appeals noted that due process requires fair notice of what is prohibited and an opportunity for a hearing.  Plaintiff had notice, however, because of relevant case law, agency decisions, and an Attorney General opinion on the topic.  The definitional change did not result in retroactive taxation, either, because taxation is not considered retroactive if a provision of the North Carolina Administrative Code, in this case 17 N.C.A.C. 5C.0703, applies to plaintiff’s situation. 

 

 

Free Speech

Hest Technologies, Inc. v. State of N.C. ex rel Perdue,

366 N.C. 289 (2012)—Supreme Court. Opinion by Hudson.  Motion for temporary stay DENIED.  735 S.E.2d 342.

 

Plaintiffs, internet sweepstakes businesses, raised a First Amendment challenge to N.C.G.S. §14-306.4, banning the operation of electronic sweepstakes machines using an “entertaining display,” which is defined as “visual information, capable of being seen by a sweepstakes entrant, that takes the form of actual game play, or simulated game play.” Internet sweepstakes companies typically sell long distance telephone cards or internet access, and promote a free sweepstakes game with purchase. The Court explained that the General Assembly determined that the sale of internet or phone access was merely a pretext for a gambling operation. The Court went on to evaluate Plaintiffs’ claims against that backdrop.

The Court noted that the right to free speech is not unlimited. “Obscenity, defamation, fraud, incitement, and speech integral to criminal conduct” receive no protection.  366 N.C. at 297-98. Further, conduct can fall under the First Amendment if it is “sufficiently imbued with elements of communication.” Id. at 298. Regulation of conduct that is not “sufficiently imbued with elements of communication” must only bear a “rational relationship to a legitimate state purpose.” Id. at 299.

In this case, the Court held N.C.G.S. §14-306.4 regulates noncommunicative conduct rather than protected speech. Id at 296. “Operating or placing into operation an electronic machine is clearly conduct, not speech.” Id. Under United States v. O’Brien, the State’s police power includes the power to address health, safety, and welfare concerns brought on by gambling operations or activities which involve the same concerns.  Id. at 301.  The interest in protecting the public against the problems associated with gambling is substantial and it is unrelated to the suppression of free speech.  Id.  Finally, the Court held the restriction in N.C.G.S. §14-306.4 is not any greater than necessary since it burdens only sweepstakes which encourage repeated and addictive play.  Id.

 

 

Attorney Client Privilege, Work Product Doctrine and Legislative Privilege

 

Dickson v. Rucho,

366 N.C. 332 (2013)—Supreme Court. Opinion by Jackson.  Beasley did not participate.  Hudson dissented.

 

Several individuals and activist groups brought suit against various state legislators and officials, seeking to enjoin the state from conducting elections based on newly drawn legislative and Congressional districts. In discovery, plaintiffs sought emails to and from attorneys which were to and from various legislators and legislative staff. Defendants objected on the basis of attorney-client privilege, legislative privilege, and work-product doctrine. A three judge panel issued an order compelling production of the documents. Defendants appealed.

Plaintiffs claimed that the North Carolina General Assembly had waived these privileges in G.S. § 120-133. 366 N.C. at 339. The statute states in relevant part:

Notwithstanding any other provision of law, all drafting and information requests to legislative employees and documents prepared by legislative employees for legislators concerning redistricting the North Carolina General Assembly or Congressional Districts are no longer confidential and become public records upon the act establishing the relevant district plan becoming law.

 

G.S. § 120-133 (2011).

The Court explained that a waiver of attorney-client privilege must be clear and unambiguous. “When there is no reference whatsoever to the attorney-client privilege in the statute, a clear and unambiguous waiver is absent, meaning the common law right to assert the privilege prevails.” 366 N.C. at 339. In other cases where the General Assembly had waived attorney-client privilege, the majority found that the statutory language was either clear and unambiguous or at least without ambiguity. The Court stated that there was no equivalent revocation of the common law in the statute at hand. The Court held the statute at issue “cannot reasonably be construed to waive these common law doctrines because the section in no way mentions, let alone explicitly waives, the attorney-client privilege or work-product doctrine.” Id. at 340.

 The court further ruled that the statute’s phrase “notwithstanding any other provision of law” in G.S. § 120-133 referred to other statutes, not the common law presumptions at issue. The court concluded by referencing the principle of separation of powers, and interpreted this principle to mean that the courts needed a clearer declaration from the General Assembly that it intended to abandon attorney-client privilege before the courts would imply that presumption.

 

 

Education

Doe v. Charlotte-Mecklenburg Bd. of Ed.,

___ N.C. App. ___, 731 S.E.2d 245 (2012)—Court of Appeals. Judge Ervin, Judge Robert C. Hunter concurring.  Judge Stroud dissented by separate opinion.

 

In Doe v. Charlotte-Mecklenburg Bd. of Ed., plaintiff claimed a violation of her state constitutional right to the opportunity for a “sound basic education” pursuant to Art. I, Sec. 15 and Art. IX, Sec. 1 of the state constitution as a result of being sexually abused by her high school band teacher.  Plaintiff also alleged violation of due process under Art. I, Sec. 19.   

Here the Court of Appeals noted that the right to an opportunity for a sound basic education has not yet been extended beyond the nature and quality of educational opportunities in public schools.  Moreover, the Court analogized this right to the Fourteenth Amendment’s protection of due process, which it noted does not give rise to claims arising from a government official’s negligent act, which harms life, liberty, or property.  There is also no claim under Art. I, Sec. 19 since no due process claim had been sufficiently stated. 

 

 

Hoke Cty. Bd. of Ed. V. State of N.C.,

___ N.C. App. ___, 731 S.E.2d 691 (2012)—Court of Appeals. Opinion by Elmore, Martin and Steelman concurring.  Petition for discretionary review ALLOWED by S. Ct. 738 S.E.2d 362 (2013).

 

In Hoke Cty. Bd. of Ed. v. State of N.C., plaintiff school system challenged a 2011 amendment to the “More at Four” (MAF) program (originally enacted in 2001) for at-risk pre-kindergarten children that capped enrollment in the program at 20%. The trial court prohibited the State from denying any eligible at-risk child from the program and enjoined the 20% cap.  The State appealed. 

The long factual and procedural history was considered by the Court of Appeals.  First, Leandro v. State combined Article I, Section 15 and Article IX, Section 2 of the North Carolina Constitution to guarantee every child in North Carolina “the opportunity to receive a sound basic education in our public schools.” 731 S.E.2d at 692.  Next, Leandro II, explained that the State must assist students who enter public schools to “avail themselves of an opportunity to obtain a sound basic education.”  Id. at 693.  The Supreme Court directed the legislative and executive branches to address “at-risk” students enrolling in public schools.  Id. at 693.  As a response, the General Assembly enacted the “More at Four” program.  Id.   In Leandro II, the Supreme Court reversed part of a trial court order requiring the State to provide pre-kindergarten classes for at-risk children.  Id. at 694.  The Court said that such a specific remedy imposed by the judiciary would be rare, and that pre-kindergarten is not the only way the State can address the problems associated with at-risk children.  Id.

Now, years after Leandro II, the only program developed by the State to address “at-risk” children entering kindergarten is MAF.  Id. at 694-95.  The Court declared that the State had time to develop other methods of addressing the problem, but it did not do so.  Id. at 694-96.  Thus pre-kindergarten is the method the State has decided to use without any other plan.  Id. at 694-95.  The State must give all students the opportunity to a sound basic education, so it cannot deny pre-kindergarten to some at-risk students.  Id. at 695.  However, the Court emphasized that the state is free to try new and different approaches other than MAF.  Id. at 698 (“Therefore, should the problem at hand cease to exist or should its solution be superseded by another approach, the State should be allowed to modify or eliminate MAF. This should be done by means of a motion filed with the trial court setting forth the basis for and manner of any proposed modification.”).  The trial court’s order was affirmed.  Id. at 696.

 

 

 

Learning Center/Ogden Sch., Inc. v. Cherokee County Bd. of Educ.,

___ N.C. App. ___, 736 S.E.2d 201 (2012)—Court of Appeals. Opinion by Geer, Robert C. Hunter and Beasley concurring. 

 

In Learning Center/Ogden Sch., Inc. v. Cherokee County Bd. of Educ., plaintiff charter school operating in western North Carolina challenged the practice of the Cherokee County Board of Education of transferring already-spent funds to other accounts as a violation of the duty to share funds with charter schools located within the district. 

In Thomas Jefferson Classical Acad. V. Rutherford Cnty. Bd. of Educ., 715 S.E.2d 625 (2011), disc. review denied, __N.C. App.__, 724 S.E. 2d 531 (2012), the North Carolina Court of Appeals held that attempts by local school to transfer funds from “local current expense funds” into new accounts after the fiscal year has ended were without effect, and would not allow those school boards to avoid the statutory requirement to share funds with charter schools. See G.S. 115C-238.29H(b). In Learning Center, the court had to decide whether to extend this ruling to already-spent funds transferred by school districts within the same fiscal year.

The issue arose when the plaintiff, sent a letter to the defendant demanding funds from the past 2006-2009 school years and the then-ongoing 2009-2010 school year.  In response, the defendant voted to move funds from all school years at issue into “Fund 8”. This transfer included the 2009-2010 school year, even though that fiscal year was nearly complete.  Fund 8 was created by the Department of Public Instruction and Local Government Commission for local boards after the Court of Appeals ruled that charter schools were entitled to a pro-rata share of all funds in the local current expense fund, even if portions of that fund were supposedly for a restricted purpose. See Sugar Creek Charter Sch. Inc., v. Charlotte-Mecklenburg Bd. of Educ., 195 N.C. App. 348 (2009); Sugar Creek Charter Sch. Inc., v. Charlotte-Mecklenburg Bd. of Educ., 188 N.C. App. 454 (2008). This fund was for restricted uses only and not the use of the general K-12 population.  After this transfer, the plaintiff filed suit for all funds it claimed it was due from 2006-2010. Id.

The trial court granted the plaintiff summary judgment regarding funds from the 2006-2009 school years, but granted the defendant school board summary judgment for the 2009-2010 school year. Id.  Both sides appealed to the Court of Appeals. Id. The Court of Appeals unanimously affirmed the trial court’s decision. Id. at __, 715 S.E.2d at 204.

The court reasoned that Thomas Jefferson Classical Acad. was explicit that transfers of funds were only without legal effect if the current fiscal year had already expired. Id. (citing Thomas Jefferson Classical Acad., 715 S.E. 2d at 632). Thomas Jefferson Classical Acad. allowed local boards to transfer funds into restricted accounts during the current fiscal year. Id. (citing Thomas Jefferson Classical Acad., __ N.C. App. __, 715 S.E. 2d at 635). Here, even though the defendant school board had transferred its funds right before the fiscal year had nearly ended, and most of the transferred funds had already been spent, the court rejected the plaintiff’s argument that it was entitled to a pro-rata share of the already spent funds. Id. Essentially, as long as school boards acted within the current fiscal year, they could transfer already-spent funds into a restricted account to avoid paying a pro-rata share to charter schools. 

 

 

Lobbying

Mark Beason v. NC Dept. of Sec'y of State,

___ N.C. App. ___, 742 S.E.2d 209 (2012)—Court of Appeals. Opinion by Robert C. Hunter, Elmore and Steelman concurring.

 

In Beason I, the Court of Appeals AFFIRMED the trial court’s order reversing and setting aside a civil fine of $6,000 assessed against petitioner (Mark Beason) for alleged lobbying law compliance violations.  Petitioner argued that the Department of the Secretary of State exceeded its statutory authority in interpreting the lobbying laws and in finding violations of those laws through the common law legal doctrine of “acting in concert.”  The Court of Appeals agreed with the trial court that the SOS lacked statutory authority to interpret the lobbying laws and to expand the definition of lobbying. 

            Unknown to petitioner, his father/business partner signed petitioner’s name on a contract with a potential lobbying client (Sigma).  The Engineering Export Promotion Council (EECP), a potential backer of Sigma and unknown to petitioner, refused to sign the contract.  However, Sigma signed it and Don, petitioner, and a business associate (Mr. Williams) all registered with the Secretary of State as lobbyists for Sigma.  Upon launching an investigation, the Secretary of State fined Petitioner $6,000 for not registering as a lobbyist for EEPC, failing to file lobbyist reports for EEPC, and failing to disclose to designated individuals that he was a lobbyist for EEPC. Don was fined $111,000 for nine alleged violations of lobbying laws and administrative rules. 

The trial court reversed and set aside the civil penalty, determining that the Secretary of State lacked statutory authority to interpret and expand the definition of lobbying under Chapter 120C of the General Statutes. In affirming the trial court, the Court of Appeals noted that G.S. 120C-101(a) assigns to the Ethics Commission, not the Secretary of State, the authority to “adopt any rules or definitions necessary to interpret the provisions of this chapter” in addition to the authority to “adopt any rules necessary to administer the provisions of this Chapter, except for Articles 2, 4, and 8 . . . .”  The Secretary of State, on the other hand, only has authority to “adopt any rules, orders, and forms as are necessary to administer the provisions of Articles 2, 4 and 8 . . . .”  In addition, the Court of Appeals noted that penalty statutes are to be strictly, not expansively, construed in favor of petitioner.  Moreover, the Court noted that the statutory definition of lobbying, which requires “direct communication or activities,” precludes an expansive interpretation that would encompass indirect communications “such as those that could be based on ‘acting in concert’ or imputed liability . . . .”  Slip Opinion 17.  Thus, since petitioner had no knowledge of EECP, he could not have engaged in lobbying on its behalf as defined by Chapter 120C.

 

 

Donald Beason v. NC Dept. of Sec'y of State (Donald Beason I)

___ N.C. ___, 743 S.E.2d 41 (2013)—Court of Appeals. Opinion by Robert C. Hunter, Elmore and Steelman concurring.

 

Donald Beason I involved the same core set of facts present in the companion cases.  In Donald Beason I, the Court of Appeals AFFIRMED in part and REVERSED in part the order of the trial court that set aside the civil fine imposed on petitioner Donald Beason for lobbying law violations.  At issue here was whether respondent Department of the Secretary of State had the authority to interpret lobbying laws and expand the definition of lobbying.

Petitioner was issued a fine of $111,000 by the Secretary of State for nine lobbying laws and administrative rules violations stemming from “petitioner’s ‘coordinated efforts’ on behalf of Sigma and five unregistered lobbyist principals and his ‘acting in concert’ with numerous individuals and business entities in his lobbying efforts.”743 S.E.2d at 43.  Petitioner filed a petition for a hearing before an administrative law judge who concluded “[t]he activities of Don Beason . . . constituted lobbying.”  Id. at 44.   Petitioner then sought judicial review before the Wake County Superior Court.  Next the Secretary of State  issued its Final Agency Decision in which it affirmed in part and modified in part the Administrative Law Judge’s decision, noting in particular that petitioner’s “activities” constituted lobbying, and modifying the civil penalty to $30,000.  Petitioner then filed an amended petition for judicial review with the trial court.  The trial court ultimately reversed and set aside the civil fine based on its conclusion that the Secretary of State lacked statutory authority to interpret lobbying laws and expand the definition of lobbying. 

The Court of Appeals noted that respondent Secretary of State’s appeal was interlocutory because one of petitioner’s claims—a state constitutional Corum claim—was still pending at the trial court.  Nevertheless, the Court permitted the appeal because the effect of the trial court’s ruling declaring the Secretary of State did not have the authority to interpret lobbying laws involved a substantial right—the agency’s ability to do its job in administering the law.  The Court AFFIRMED the trial court’s determination that the Secretary of State lacked authority under G.S. 120C-101(a) to interpret lobbying laws, a task reserved for the State Ethics Commission.  Id at 48.  The Court further agreed that the respondent SOS “improperly construed the definition of ‘lobbying’ to find violations based on ‘coordinated efforts’ or ‘acting in concert’ with another.” Slip Opinion 16.  This expansion of the definition of lobbying to include indirect efforts was in contradiction to the plain language of the statute, which required “direct communication or activities.”  G.S. 120C-100(a)(9) (emphasis added).

However, because the trial court only considered whether petitioner’s actions constitute “direct communications” but did not consider the “activities” prong of the lobbying definition, the Court of Appeals reversed and remanded that portion of the trial court’s order for further consideration by the lower court.       

 

Donald Beason v. NC Dept. of Sec'y of State (Donald Beason II),

___ N.C. App. ___, 741 S.E.2d 663 (2013)—Court of Appeals. Opinion by Robert C. Hunter, Elmore and Steelman concurring.

 

This decision AFFIRMED the trial court’s order dismissing as moot petitioner’s (Donald Beason) suit seeking Judicial Review and Writ of Mandamus or Mandatory Injunction. Due to alleged lobbying laws violations, the Department of the Secretary of State assessed petitioner, a lobbyist, civil penalties, plus penalty enhancements based on seven aggravating factors, totaling $111,000.  Petitioner challenged the Secretary’s authority to utilize aggravating factors to enhance civil penalties, absent statutory authorization.  But because the Secretary’s Final Agency Decision did not include penalty enhancements based on aggravating factors, the issue was rendered moot. 

            The Secretary of State noted the presence of seven aggravating factors when applying enhancements in its original decision to issue a civil penalty against petitioner.  Petitioner petitioned for a hearing with an administrative law judge who upheld the penalty, but only at an amount of $6,000, without regard to aggravating or mitigating factors.  In response, thesecretary of State  issued a Final Agency Decision that did not use aggravating or mitigating factors in its analysis, assessing the civil penalty at $30,000.  Filing an amended petition in the Wake County Superior Court, petitioner sought a declaratory ruling as to whether the aggravating/mitigating factors used by respondent Secretary of Stae were required to undergo rules-making and whether the Secretary of State had authority to adopt rules concerning aggravating/mitigating factors.  The trial court dismissed on grounds of mootness. 

            In affirming the trial court, the Court of Appeals noted “any alleged error regarding respondent’s use of aggravating factors to enhance the fine was rendered moot when respondent decided to not apply those factors in its Final Agency Decision.” Slip Opinion 8.  Despite petitioner’s assertions that the issue is not moot because he continues to be regulated by the respondent and potentially subject to future penalty enhancements, the Court of Appeals concluded that “once respondent stopped enhancing petitioner’s fine with aggravating factors, the case became moot, and the trial court was not required to address petitioner’s remaining questions.”  Slip Opinion 9. 

 

Sovereign Immunity

Richmond Cty. Bd. of Ed. v. Cowell,

___ N.C. App. ___, 739 S.E.2d 566 (2013)—Court of Appeals. Opinion by McCullough, Steelman and Stephens concurring. 

 

In Richmond County Bd. of Ed. v. Cowell, plaintiff board of education challenged the diversion of funds collected under G.S.  7A-304(a), which provided for a $50 fee for all Chapter 20 offenses resulting in an improper equipment conviction, as a violation of Article IX, Section 7 of the North Carolina Constitution. 

The statute provided that these funds be paid to the Statewide Misdemeanor Confinement Fund in the Division of Adult Correction to provide contractual services to reduce county jail populations.  Plaintiff argued that the statute violated Article IX, Section 7 of the North Carolina Constitution, which states:

“the clear proceeds of all penalties and forfeitures and of all fines collected in the several counties for any breach of the penal laws of the State, shall belong to and remain in the several counties, and shall be faithfully appropriated and used exclusively for maintaining free public schools.”

 

N.C. Const. art. I, sec. 7(a). Defendants filed a motion to dismiss claiming sovereign immunity.  Id.  The trial court denied the defendants’ motion to dismiss, and defendants appealed.  Id.  Because the denial of a motion to dismiss based on sovereign immunity affects a substantial right the order was an immediately appealable interlocutory order.  On Appeal the Court of Appeals addressed whether the complaint “specifically alleges a waiver of governmental immunity.” 739 S.E.2d. at 569.

            The State may only be sued if it has “consented by statute or otherwise waived its immunity from suit.”  Id.  In Corum v. University of North Carolina, the State Supreme Court held that individual state constitutional rights prevail when they come into conflict with the common law defense of sovereign immunity.  Id. at 569-70.  However, Corum does not suggest that any alleged violation of the North Carolina Constitution automatically waives sovereign immunity.  Id. at 570.  The violation of a constitutional right allows a direct claim against the State in the absence of an adequate State remedy.  Id.  Additionally, a long line of cases has allowed constitutional claims against the State, specifically under Article IX, Section 7.  Id. at 571.

            Here, the plaintiff sufficiently alleged a waiver of sovereign immunity. Therefore, the trial court’s denial of defendant’s motion to dismiss was affirmed.

 

 

Civil Procedure (Collateral Estoppel and Standing)

Hillsboro Partners v. City of Fayetteville,

___ N.C. App. ___, 738 S.E.2d 819 (2013)—Court of Appeals. Opinion by Stroud. Robert N. Hunter and Davis concurring.

 

            In Hillsboro Partners v. City of Fayetteville, plaintiff property owner sought just compensation under the Fifth Amendment to the U.S. Constitution for a building the City ordered demolished.  Plaintiff disputed that the building was unsafe, but never attended the administrative hearing in which it was determined to be a hazard and ordered to be destroyed.  The City moved to dismiss the suit, but the trial court denied this motion.  The City appealed. 

            The issue before the Court of Appeals was whether the prior determination in a quasi-judicial administrative hearing that the building was a fire, health, or safety hazard under G.S. 160A-429 collaterally estopped plaintiff from raising the issue in the suit seeking just compensation. 

            The Court of Appeals held that plaintiff could not relitigate the issue of the condition of the property in the suit for just compensation because the principle of collateral estoppel prevented him from doing so.  Collateral estoppel provides that the previous determination of an issue in a judicial or administrative proceeding precludes later litigation of the same issue in a subsequent action.  The four necessary elements of collateral estoppel are:

1.     A prior suit resulting in a final judgment on the merits,

2.     Identical issues involved,

3.     The issue was actually litigated in the prior suit and was necessary to the judgment, and

4.     The issue was actually determined.

 

The prior administrative hearing, which plaintiff did not attend, was a final judgment on the merits, the condition of the property that was determined at the hearing was the same issue plaintiff wished to litigate again, and the issue of whether the building was a hazard had actually been determined at the hearing.  Thus, plaintiff was collaterally estopped from asserting that the property was not unsafe.  The practical effect of this decision was that the City does not have to pay for the taking under the Fifth Amendment because the property was a nuisance threatening public health or safety.   

 

 

Morgan v. Nash Cty.,

___ N.C. App.___, 735 S.E.2d 615 (2012)—Court of Appeals. Opinion by Robert C. Hunter, Stroud and Ervin concurring.  Plaintiff's petition for discretionary review DENIED by S. Ct.  738 S.E.2d 379 (2013).

 

            In Morgan v. Nash County, plaintiff City of Wilson challenged the rezoning of a 147 acre tract of land, owned by Nash County, on which Sanderson Farms was interested in building a poultry processing plant.  The basis of this challenge was that the rezoning was illegal “contract zoning.”  Defendant, on the other hand, claimed that plaintiff lacked standing.

            The two issues before the Court of Appeals were (1) standing and (2) contract zoning.  As to standing, its elements are:

1.     ‘Injury in fact’ – an invasion of a legally protected interest that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical;

2.     The injury is fairly traceable to the challenged action of the defendant; and

3.     It is likely, as opposed to merely speculative that the injury will be redressed by a favorable decision.

 

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).  The Court noted that in prior cases standing had been found to be lacking where plaintiffs live greater than one-half mile from the property in question. 

            As to contract zoning, G.S. 153A-341 requires the board to adopt a statement “describing whether its action is consistent with an adopted comprehensive plan” and explaining the reasonableness of the change before approving or rejecting a zoning amendment. 735 S.E.2d at 621.  Illegal contract zoning exists when a landowner and the zoning authority “undertake reciprocal obligations” under a bilateral contract.  Id. at 623. 

            Here, the City claims that the proposed sprayfields would harm the City’s water supply.  Id. at 619.  However, the proposed sprayfield was “separate and distinct” from the land at issue for rezoning.  Id.  Further, disposal of agricultural wastewater is permitted on that land whether the tract at issue was rezoned or not.  Id. at 620.  Additionally, the disposal of the wastewater would have to meet state and federal regulations, so the City did not establish any actual or imminent injury.  Id. The City’s property is also located more than one-half mile from the property.  Id. at 621.  The Board complied with G.S. 153A-341 by adopting a statement explaining why the proposed zoning was reasonable and consistent with the overall plan.  Id.  Finally, there was no illegal contract zoning in this case because Sanderson Farms did not own the property and they were not the ones applying for the rezoning amendment, thus there was no bilateral contract.  Id. at 623. 

 

 

Equal Protection and Law of the Land

State ex rel Utilities Comm'n v. Carolina Water Service Inc. of NC,

___ N.C. ___, 738 S.E.2d 187 (2013)—Court of Appeals. Opinion by Stephens, Calabria and Elmore concurring.

 

State ex rel Utilities Comm'n v. Carolina Water Service Inc. of NC, involved a sale of Carolina Water Service Inc. of NC (CWS) to Charlotte-Mecklenburg Utilities (CMU).  CWS challenged the decision of the Utilities Commission to allocate $3.36 million of the proceeds of the sale to CWS customers (and the rest to CWS shareholders), rather than the entire proceeds of the sale to the shareholders of CWS. CWS and CMU appealed the Commission’s decision alleging it was, among other things, a violation of Article I, Section 19 of the North Carolina Constitution, and that the Commission acted “arbitrarily and capriciously” and that the decision “constituted a taking without just compensation.”738 S.E.2d at 191, 196-97. 

  The pertinent facts were that CMU agreed to purchase existing water and sewer infrastructure from CWS following the annexation of Cabarrus Wood Systems. 13.2% of CWS’s water customers and 24.7% of their sewer customers would be transferred to the City.  Id. at 190.  Because of the cost advantages of having a larger consumer base, customers transferred to the city would expect a decline in their water and sewer bills and CWS customers could expect an increase of $2.37 per month on their water bill and $2.41 on their sewer bill.  The North Carolina Utilities Commission determined that the transfer would have a “significant adverse impact” on CWSNC customers.  Id.  The Commission cited “overwhelming and compelling evidence” for an exception to the Commission’s policy of assigning the total gain of a sale to the shareholders and decided to allocate $3.36 million of the sale to CWSNC’s remaining customers, with the remainder going to shareholders.  Id.            Article I, Section 19 of the North Carolina Constitution states: “No person shall be . . . deprived of his life, liberty, or property, but by the law of the land.  No person shall be denied equal protection under the laws . . . .”  Id. at 196 (quoting N.C. Const. art. I, §19).  Article I, Section 19 protects public utilities from disparate treatment unless that treatment is rationally related to a legitimate government interest.  Id.  In a similar case, Aqua, the Commission assigned 100% of the sale to shareholders when Aqua customers were facing an average increase of $1.96.  Id. at 194-95.

When applied to takings, Section 19 does not hold public utility takings unconstitutional when the “benefit to the public outweighs any deprivation of [the utility’s] constitutional rights.”  Id. at 197.  This is because the State’s police power gives it the power to regulate the charges and business of public utilities.  Id.  The courts look to the degree of reasonableness of the regulation to determine its constitutionality.  Id.

            In this case, the Commission’s order did not violate Equal Protection under Article I, Section 19.  Id. at 196-97.  Though Aqua is factually similar, the Court believed it was sufficiently distinguishable from this case to allow for different treatment. Aqua allowed shareholders to retain 100% of the sale, but it transferred a smaller percentage of customers and caused smaller rate increases for continuing customers.  Id. at 194-95.   The Court declared the Commission’s decision was “rooted in a rational, legitimate, government purpose.”  Id. at 197.  The order also did not amount to a taking without compensation under Article I, Section 19 because the Commission is given power by the legislature to allocate the gain from the sale between the shareholders and customers.  The allocation of $3.36 million of the deal to the ratepayers was not outweighed by a deprivation of CWS’s constitutional rights.  Id. at 197-98.

 

 

Bigelow v. Chapel Hill,

2013 N.C. App. LEXIS 485 (2013). Opinion by McGee, Geer and Davis concurring.  Motion for Temporary Stay ALLOWED by Supreme Court.  743 S.E.2d 646 (2013).

 

This case is a wrongful termination suit brought against the Town and the Town Manager by two sanitation workers who were at-will employees of the Town of Chapel Hill.  Plaintiffs alleged that they were fired for activities protected under Chapter 95 of the General Statutes, including photographing and complaining about unsafe working conditions and engaging in union activities.  Plaintiffs also claimed they were fired in part based on race and partly in retaliation for filing discrimination grievances, and that these firings violated their N.C. Const. art. I, §§ 14 and 19 rights.

Plaintiffs were fired by the Town Manager (Stancil) in Oct. of 2010 purportedly based on findings of insubordination, threatening and intimidating behavior, and unsatisfactory job performance.  But plaintiffs contended that the real motivation for the firing was retaliation for engaging in union/worker organization activities.  Plaintiffs appealed their firings to the Town’s Personnel Appeals Committee, which by a split vote decided to recommend that the Town manager uphold the firings.  Plaintiffs filed suit alleging wrongful termination and violation of various state constitutional rights against the Town and the Town Manager, both in his official and personal capacity.  Upon Defendant’s motion for judgment on the pleadings, the trial court GRANTED the motion.  Plaintiffs appealed. 

On appeal, the Court of Appeals REVERSED the trial court’s order that had dismissed Plaintiffs’ claims.  The Court of Appeals viewed Plaintiffs’ alleged facts in a light most favorable to Plaintiffs as the nonmoving party for the purpose of the motion for judgment on the pleadings.  Reasoning that the State’s public policy, as laid out in Chapter 95 of the General Statutes (the Retaliatory Employment Discrimination Act), was to protect Plaintiffs’ alleged labor-organizing activities, a retaliatory firing based on these activities would qualify for the public policy exception to the general rule of at-will employment.  In other words, even though at-will employees can generally be fired at any time, for any (or no) reason at all, they cannot be fired for reasons that violate public policy. 

The Court also REVERSED the trial court’s dismissal of Plaintiffs’ state constitutional rights claims.  Stating the rule that direct claims for violations of state constitutional rights are only appropriate where there is no adequate state remedy, the Court reasoned that because the Town had claimed the defense of sovereign immunity, which if successful would completely foreclose the only adequate state remedy, Plaintiffs’ state constitutional rights violations claims must be permitted to go forward.  

As to Plaintiffs’ claims against Stancil in his individual capacity, the court AFFIRMED the trial court because it found no support for allegations that he acted outside the scope of his official duties.  Moreover, Plaintiff’s claims against Stancil in his official capacity were redundant as they were, in essence, identical to the claims against the Town. 

 

Municipal Authority and State Preemption

 

King v. Chapel Hill,

___ N.C. App. ___, 743 S.E.2d 666 (2013)—Court of Appeals. Opinion by Stephens, Martin and Robert N Hunter concurring.  Temporary Stay granted: 743 S.E.2d 645 (2013).

 

King v. Chapel Hill involved a tow truck company’s challenge of two local ordinances passed by the Town of Chapel Hill that (1) regulated the towing business primarily by setting a fee schedule limiting the amount tow truck operators could charge vehicle owners, and (2) prohibited the use of cell phones by a driver while operating a vehicle.  The ordinances impacted the plaintiff towing company by interfering with its ability to set its own rates and by making it illegal for tow truck drivers to use cell phones while in transit, which, it claimed, was necessary for it to respond to vehicle owners’ calls in a timely manner. 

Plaintiff claimed that the towing regulations violated the freedom of contract in the U.S. and N.C. Constitutions.  Plaintiff further argued that the Town of Chapel Hill was without statutory authority to enact towing business regulations, and that the towing ordinance enabling statute applicable to Orange County was unconstitutional as a local act “[r]egulating labor, trade, mining, or manufacturing[.]”  See N.C. Const. art. II, Sec. 24(1)(j) As to the cell phone use ban, plaintiff contended that State law pertaining to cell phone usage by vehicle drivers had preempted further regulation by local municipalities. 

The trial court found G.S. § 20-219.2 to be an unconstitutional local act, the Towing Ordinance unconstitutional as an application of G.S. § 20-219.2, and the cell phone ban unconstitutional as preempted by State law.   It issued its order and judgment permanently enjoining enforcement of the ordinances from which defendant Town of Chapel Hill appealed.

On appeal, the Court of Appeals REVERSED the trial court.  As creatures of statute, see N.C. const. art. II, Sec. 1, municipalities “can exercise only that power which the legislature has conferred upon them.” Bellsouth Telecomms., Inc. v. City of Laurinburg, 168 N.C. App. 75, 80 (2005).  Beginning in the late 1800s the N.C. courts adopted a restrictive approach to grants of authority to municipalities known as “Dillion’s Rule.”  However, the General Assembly reversed Dillion’s Rule in 1971 when it enacted Chapter 160A.  The current rule in North Carolina is that grants of power to municipalities “shall be broadly construed and grants of power shall be construed to include any additional and supplementary powers that are reasonably necessary or expedient to carry them into execution and effect . . . .” G.S. § 160A-4.  This broad interpretation was recognized by the N.C. Supreme Court in Homebuilders Ass’n of Charlotte, Inc. v. City of Charlotte, 336 N.C. 37, 43-44 (1994). 

Under the Bellsouth decision cited above, if an enabling statute is unambiguous as to the authority it grants municipalities, N.C. Courts apply the plain meaning of the statute.  But if the meaning is ambiguous, the Courts will apply the broad interpretive approach found in G.S. § 160A-4.  Following this approach, the Court of Appeals found G.S. § 160A-174(a) to be ambiguous.  Consequently, the Court broadly construed the ordinance-making authority granted to municipalities under G.S. § 160A-174(a), and found that the towing ordinance fell within the Town’s police power.  Because the towing ordinance was upheld under the police power, the Court did not reach the question of whether the towing ordinance enabling statute, G.S. § 20-219.2, was unconstitutional as a local act regulating a trade.    

Regarding the cell phone ban, the Court REVERSED the trial court’s grant of preliminary injunction which was based on a finding that plaintiff would suffer irreparable harm due to its inability to continue its business free of fear of prosecution under the ordinance.  Noting that municipal ordinances generally cannot be enjoined unless irreparable injury is manifest, Lanier v. Town of Warsaw, 226 N.C. 637 (1946) and Structural Components Int., Inc. v. City of Charlotte, 154 N.C. App. 119 (2002)), the Court agreed with the Town that no irreparable harm was posed by the ordinance and that plaintiff would need to challenge the ordinance if, and when, a citation was issued.    

 

Property

City of Wilson v. Batten,

___ N. C. App. ___, 740 S.E.2d 487 (2013). Opinion by McGee, Martin and Calabria concurring.

 

In City of Wilson v. Batten, the Court of Appeals held that a party must argue all issues of which he is aware, or reasonably should be aware, in a G.S. § 136-108 condemnation hearing, or forego the opportunity to raise those issues later. 

This was a condemnation action under Article 9 of Chapter 136 for a utility easement on defendant’s property along a Bloomery Rd.  The trial court held a hearing in which the main issue was whether the easement would affect 2 or 9 parcels of defendant’s property.  At the hearing defendant Dr. Batten testified that he still had access to Bloomery Rd and Packhouse Rd.  Defendant did not ask the court to rule on the matter of access to the roads.  The court’s order (Order #1) determined that all 9 parcels were affected and that the only remaining issue was the question of just compensation.  Neither party appealed Order #1. 

            Over a year later, defendant filed a motion to consider the issue of access to Bloomery Rd and how access had been affected by the easement.  The court denied this motion because it believed Order #1 had determined the issue of access.  Defendant appealed from this second order (Order #2). 

            Defendant argued that (1) Order #1 did not determine the issue of Bloomery Rd access, (2) even if it did determine the access issue, the court did not make sufficient findings of fact to support the conclusion and decretal order that defendant did have access, and (3) because Order #1 did not decide the issue, Order #2 was devoid of sufficient findings of fact and conclusions of law. 

            The Court of Appeals AFFIRMED the trial court’s denial of the motion to determine the issue of access to Bloomery Rd.  Orders from condemnation hearings concerning title and the area to be taken are vital preliminary issues that must be immediately appealed because they affect a substantial right.  When an appeal is mandatory, it must be taken within 30 days. N.C.R. App. P. 3(c)(1).  Order #1 did not make conclusions of law or mention loss of access to Bloomery Rd, but did say that the only remaining issue was just compensation.  Thus, the proper avenue for defendant would have been to appeal within 30 days of Order #1’s issuance.  But defendant waited more than a year before filing a motion on the question of road access.  Ultimately, however, the Court of Appeals stated that the parties were free to argue the issue of access to Bloomery Rd as a part of the determination of just compensation. 

 

 

Political Advertisements

 

Friends of Joe Sam Queen v. Hise,

___ N.C. App. ___, 735 S.E.2d 229 (2012)—Court of Appeals. Opinion by Stroud.  Elmore and Beasley concurring.

 

In Friends of Joe Sam Queen v. Hise, plaintiff candidate committee for Democratic Senator Joe Sam Queen brought suit against his Republican challenger’s candidate committee alleging failure to comply with the “Stand by Your Ad” law.  G.S. 163-278.39(A) (the law was subsequently repealed in 2013 by §44.1 of S.L. 2013-381—The Voter Information Verification/Election Reform Act).  The Stand By Your Ad law required candidates and candidate committees to air disclaimers on political advertisements identifying the ad’s sponsors.  In its defense, defendant candidate committee asserted a tu quoque (“you too”) defense which bars plaintiff from recovering damages under the Act if the plaintiff’s own candidate committee had also violated the same statute.

The trial court granted summary judgment in favor of defendant and the Court of Appeals upheld that decision.  In order for plaintiff to successfully sue under the statute it had to prove not only that the opponent or opponent’s committee violated the statute, but that plaintiff and plaintiff’s committee did not also violate the statute.  The Court found that both of the candidates or their committees had violated the law.  Both the state Democratic Party and Republican Party had directly paid for the messaging portion of their candidate’s advertisements, which was enough to constitute sponsorship of political advertisement, requiring disclosure under the statute.  As such, plaintiff could not recover any damages. 

 

Firearms

 

Baysden v. State,

___ N.C. App. ___, 718 S.E.2d 699 (2011)—Court of Appeals. Opinion by Ervin.  Stephens concurring.  Beasley dissenting.

            In Baysden v. State, plaintiff filed suit seeking a declaratory judgment declaring that parts of the North Carolina Felony Firearms Act were unconstitutional, both facially and as applied.  Plaintiff had two felony convictions in Virginia from the early 1970s for sale of marijuana and possession of a sawed-off shotgun (that was actually rusted and unworkable).  Plaintiff regained his right to possess firearms in the mid-1980s, and exercised that right until passage of the statute in question made it illegal in 2004.

            This case called upon the Court of Appeals to decide whether the right to keep and bear arms recognized in both the state and federal constitutions rendered application of the State’s Felony Firearms Act unconstitutional, either facially or as-applied to plaintiff. 

            The Court found that the Act would be unconstitutional as applied to plaintiff.  The Court considered five factors:

1.     The type of felony convictions,

2.     The remoteness in time of the convictions,

3.     The history of law-abiding conduct since the convictions,

4.     The history of responsible gun ownership during the period it was legal,

5.     The felon’s assiduous and proactive compliance with the 2004 Act. 

 

Applying these factors the Court noted that the felonies were non-violent (despite a conviction for possessing a sawed-off shotgun, the gun did not work), the convictions were from decades prior, plaintiff had been a law abiding citizen since, and had responsibly owned firearms up until the Act made it illegal, at which point he complied with the law.  Thus, the Act’s prohibition was unconstitutional as applied to plaintiff.   

            On appeal to the Supreme Court, the Justices were equally divided (Justice Beasley taking no part in the case), leaving the decision of the Court of Appeals undisturbed but without precedential value.  366 N.C. 370 (2013).

 

 

 

 

Booth v. State,

___ N.C. App. ___, 742 S.E.2d 637 (2013)

Opinion by Stroud, Elmore and Steelman concurring.  Motion for Temporary Stay ALLOWED by Supreme Court. 743 S.E.2d 644 (2013).

In Booth v. State, the Court of Appeals held that by its own terms the North Carolina Felony Firearms Act’s prohibition on felons owning or possessing firearms does not apply to a felon who has been pardoned. 

Plaintiff had served time in the early 80s for non-aggravated kidnapping.  Since then he became an engineer and entrepreneur.  In 2001 Governor Hunt gave him a pardon of forgiveness.  When he became involved in a company called Victory Arms, he was forced to resign because he learned that he could not get a federal license because a 2004 amendment to G.S. § 14-415.1 was being interpreted as prohibiting issuance of the permit to him or any company that employed him. 

Plaintiff sued asking for declaratory judgment.  He filed a motion for partial judgment on the pleadings on the sole issue of whether the pardon made application of G.S. § 14-415.1 unconstitutional.  Trial court denied the motion for declaratory relief, but granted his motion for relief from application of the Felony Firearms Act based on his gubernatorial pardon.  The trial court did not reach the “as applied” question, but since the order disposed of all issues, it was a final order.  The State appealed. 

The Court of Appeals noted that the by the Act’s own terms, it did not apply to people who have been pardoned.

“This section does not apply to a person who, pursuant to the law of the jurisdiction in which the conviction occurred, has been pardoned or has had his or her firearms rights restored if such restoration of rights could also be granted under North Carolina law.”

 

G.S. 14-415.1(d). 

The Court found that this statutory language was clear and unambiguous.  Thus, the act did not apply to plaintiff.  Because it did not apply at all to plaintiff, it couldn’t logically be unconstitutional as applied to plaintiff.  Trial court’s ruling was affirmed.

 

 



[1] For more information, please contact Jeanette Doran, executive director, or Tyler Younts, staff attorney, at 919-838-5313 or info@ncicl.org. This review was prepared with the substantial assistance of Neal Inman and Ashley Berger, law student interns.