IN THE SUPREME COURT OF NORTH CAROLINA
No. 115PA18
Filed 1 November 2019
INTERSAL, INC.
v.
SUSI H. HAMILTON, Secretary, North Carolina Department of Natural and
Cultural Resources, in her official capacity; NORTH CAROLINA DEPARTMENT
OF NATURAL AND CULTURAL RESOURCES; STATE OF NORTH CAROLINA;
and FRIENDS OF QUEEN ANNE’S REVENGE, a Nonprofit Corporation
On writ of certiorari pursuant to N.C.G.S. § 7A-32(b) to review an opinion and
order entered on 13 October 2017 dismissing plaintiff’s second amended complaint
and an order entered on 4 May 2018 granting defendants’ motion to dismiss plaintiff’s
appeal, both by Judge Gregory P. McGuire, Special Superior Court Judge for Complex
Business Cases, in Superior Court, Wake County, after the case was designated a
mandatory complex business case by the Chief Justice under N.C.G.S. § 7A-45.4(b).
Heard in the Supreme Court on 15 May 2019 in session in the New Bern City Hall in
the City of New Bern pursuant to section 18B.8 of Session Law 2017-57.
Linck Harris Law Group, PLLC, by David H. Harris Jr., for plaintiff-appellant.
Joshua H. Stein, Attorney General, by Matthew W. Sawchak, Solicitor General,
Ryan Y. Park, Deputy Solicitor General, Brian D. Rabinovitz, Special Deputy
Attorney General, and Kenzie M. Rakes, Assistant Solicitor General, for
defendant-appellees Susi H. Hamilton, North Carolina Department of Natural
and Cultural Resources, and State of North Carolina.
Hedrick Gardner Kincheloe & Garofalo LLP, by Joshua D. Neighbors, for
defendant-appellee Friends of Queen Anne’s Revenge.
INTERSAL, INC. V. HAMILTON
Opinion of the Court
HUDSON, Justice.
This case is before us pursuant to plaintiff’s petition for writ of certiorari
seeking review of the trial court’s 13 October 2017 opinion and order dismissing
plaintiff’s second amended complaint. We allowed plaintiff’s petition for writ of
certiorari on 5 December 2018 and we now review whether “the trial court err[ed] in
dismissing any or all of Plaintiff’s claims for relief and Plaintiff’s Second Amended
Complaint under N.C. R. Civ. P. 12(b)(1), (2), (6), or other reasons stated in the order.”
Accordingly, we affirm in part, reverse in part, and remand to the trial court because
we conclude that it: (1) correctly granted the State Defendants’1 motion to dismiss
plaintiff’s claims for breach of the 1998 Agreement; (2) correctly granted the motion
filed by Friends of the Queen Anne’s Revenge (FoQAR) to dismiss plaintiff’s tortious
interference with contract claim; (3) erred in granting the State Defendants’ motion
to dismiss plaintiff’s claim that the State Defendants breached the 2013 Settlement
Agreement by violating plaintiff’s media and promotional rights; and (4) erred in
granting the State Defendants’ motion to dismiss plaintiff’s claim that DNCR
breached the 2013 Settlement Agreement by failing to renew plaintiff’s El Salvador
search permit.
Factual and Procedural Background
1 This opinion will—as the trial court did below—use the name “the State Defendants”
to refer collectively to defendants (1) Susi H. Hamilton, Secretary of the North Carolina
Department of Natural and Cultural Resources; (2) the North Carolina Department of
Natural and Cultural Resources (DNCR); and (3) the State of North Carolina.
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Opinion of the Court
The facts of this case begin with, and are now woven into, the tales of two ships
(1) Queen Anne’s Revenge (QAR) and (2) El Salvador.2 QAR is believed to be the
flagship of pirate Blackbeard and was reported lost in 1718. El Salvador was a
privately owned merchant vessel that was reported lost at sea, off the coast near Cape
Lookout, North Carolina, during a storm in 1750.
In 1994, centuries after the disappearances of these two ships, plaintiff
Intersal, Inc., a marine research and recovery corporation, received permits from the
North Carolina Department of Natural and Cultural Resources (DNCR) to search for
QAR and El Salvador in Beaufort Inlet in Carteret County. On 21 November 1996,
plaintiff discovered QAR just over a mile off Bogue Banks.
After discovering QAR, plaintiff entered into an agreement with DNCR on 1
September 1998 (1998 Agreement). As part of the agreement, plaintiff agreed to forgo
its entitlement to any share in “coins and precious metals” recovered from QAR. The
ultimate disposition of all artifacts from QAR was a matter left to DNCR.
In return for plaintiff forgoing its rights to the artifacts from QAR, DNCR
recognized plaintiff as a partner in all aspects of the “QAR Project.” The 1998
Agreement defined the QAR Project as “all survey, documentation, recovery,
preservation, conservation, interpretation and exhibition activities related to any
2 This factual background is a summary of the allegations contained in plaintiff’s
second amended complaint. When reviewing a trial court’s decision on a motion to dismiss
pursuant to N.C. R. Civ. P. 12(b)(6), we treat the allegations contained in the complaint as
true. See CommScope Credit Union v. Butler & Burke, LLP, 369 N.C. 48, 51, 790 S.E.2d 657,
659 (2016) (quoting Bridges v. Parrish, 366 N.C. 539, 541, 742 S.E.2d 794, 796 (2013)).
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Opinion of the Court
portion of the shipwreck of QAR or its artifacts.” Accordingly, plaintiff also obtained
the following rights: (1) “the exclusive right to make and market all commercial
narrative (written, film, CD Rom, and/or video) accounts of project related activities
undertaken by the Parties”; (2) the reasonable cooperation of “[a]ll Parties . . . in the
making of a film and/or video documentary . . . with regard to project activities”; (3)
“reasonable access and usage, subject to actual costs of duplication, of all video and/or
film footage generated in the making” of “a non commercial educational video and/or
documentary” that “[a]ll Parties agree[d] to cooperate in [ ] making”; and (4)
“exclusive rights to make (or have made) molds or otherwise reproduce (or have
reproduced) any QAR artifacts of its choosing for the purpose of marketing exact or
miniature replicas” subject to “standard museum practices,” approval by the project’s
“Advisory Committee,” and the requirement that the replicas “be made on a limited
edition basis” and authenticated by individual numbering or some other means.
In addition, the 1998 Agreement provided that:
Subject to the provisions of Article 3 of Chapter 121 of the
General Statues of North Carolina and subchapter .04R of
Title 7 of the North Carolina Administrative Code, [DNCR]
agrees to recognize [plaintiff’s] . . . efforts and participation
in the QAR project as sufficient to satisfy any performance
requirements associated with annual renewal of
[plaintiff’s] permits for [ ] El Salvador . . . for the life of this
Agreement, renewal of said permits cannot be denied
without just cause.
Plaintiff alleges that in 2013, DNCR breached the 1998 Agreement in a
number of ways. First, plaintiff alleges that DNCR failed to recognize plaintiff’s
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Opinion of the Court
renewal of the 1998 Agreement. Plaintiff alleges that it validly executed its option to
renew the 1998 Agreement via letters sent on 28 October 2012 and 4 December 2012.
Second, plaintiff alleges that certain DNCR employees, who had the
responsibility of overseeing the QAR Project, violated the 1998 Agreement’s conflict
of interest provisions—and its provisions granting plaintiff exclusive commercial
media rights—by serving on the board of the nonprofit corporation FoQAR.
Specifically, plaintiff alleges that the DNCR employees, serving in their roles as board
members of FoQAR, contracted with an independent media company to produce
videos and a website covering the QAR Project. Allegedly, the execution of this
contract included a ten thousand dollar payment from FoQAR to the spouse of
FoQAR’s treasurer, and that payment was not reported on FoQAR’s 2013 Form 990.
FoQAR’s treasurer was also a DNCR employee who oversaw the QAR Project.
Plaintiff alleges that these actions also constituted tortious interference with contract
by FoQAR. FoQAR filed Articles of Dissolution on 14 March 2016. However, this
action continues under N.C.G.S. § 55A-14-06(b)(5) (2017).
Third, plaintiff alleges that DNCR breached the 1998 Agreement by
obstructing and delaying the renewal of plaintiff’s permit, which authorized it to
search for El Salvador. Plaintiff also alleges that this obstruction of renewal of its
permit implicates the 1998 Agreement’s conflict of interest provisions because the
DNCR employees who obstructed and delayed the renewal of its permit were also
board members of FoQAR.
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Opinion of the Court
On 26 July 2013, plaintiff filed a petition for a contested case hearing with the
Office of Administrative Hearings (the OAH) seeking a remedy for State Defendant’s
alleged violations of the 1998 Agreement and of plaintiff’s intellectual property rights.
Following that filing, plaintiff’s El Salvador permit was renewed on 9 August 2013.
Thereafter, the OAH ordered mediation in the matter and, as a result of the
mediation, plaintiff, DNCR, and plaintiff’s long-time “QAR Video Designee,” Nautilus
Productions, LLC (Nautilus), entered into a settlement agreement on 15 October 2013
(2013 Settlement Agreement).
The parties expressly agreed that the 2013 Settlement Agreement would
supersede the 1998 Agreement. Further, plaintiff and DNCR agreed to release each
other from all claims that they could have asserted under the 1998 Agreement.
Plaintiff also agreed to withdraw its petition for a contested case hearing within five
business days of the execution of the agreement. Moreover, the agreement stated
that, in the event of breach, the parties could “avail themselves of all remedies
provided by law or equity.”
Under the 2013 Settlement Agreement, the parties agreed that DNCR would
“establish and maintain access to a website for the issuance of Media and Access
Passes to QAR-project related artifacts and activities.” The website would include, in
pertinent part: (1) plaintiff’s terms of use agreement, and (2) links to the websites of
DNCR, plaintiff, and Nautilus. Further, the parties agreed that, regardless of the
entity that produced the media,
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[a]ll non-commercial digital media . . . shall bear a time
code stamp, and watermark (or bug) of Nautilus and/or
D[N]CR, as well as a link to D[N]CR, [plaintiff], and
Nautilus websites, to be clearly and visibly displayed at the
bottom of any web page on which the digital media is being
displayed.
Moreover, DNCR agreed “to display non-commercial digital media only on D[N]CR’s
website.”
Further, with regard to plaintiff’s El Salvador permit, the 2013 Settlement
Agreement provided that:
In consideration for [plaintiff’s] significant contributions
toward the discovery of the QAR and continued cooperation
and participation in the recovery, conservation, and
promotion of the QAR, D[N]CR agrees to continue to issue
to [plaintiff] an exploration and recovery permit for the
shipwreck El Salvador in the search area defined in the
current permit dated 9 August 2013. D[N]CR agrees to
continue to issue the permit through the year in which the
QAR archaeology recovery phase is declared complete so
long as the requirements contained in the permit are
fulfilled. . . . D[N]CR agrees to recognize [plaintiff’s] efforts
and participation in the QAR project as sufficient to satisfy
any performance requirements associated with annual
renewal of [plaintiff’s] permit for the El Salvador.
Plaintiff alleges that DNCR later breached the 2013 Settlement Agreement by:
(1) displaying over two thousand QAR digital media images and over two hundred
minutes of QAR digital media video on websites other than DNCR’s website; (2)
displaying those images without a watermark, time code stamp, or website links; (3)
continuing to obstruct and delay the renewal of plaintiff’s permit to search for El
Salvador; (4) failing to implement certain mandates of the 2013 Settlement
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Agreement, such as changes to the QAR Project media policy; (5) failing to properly
inform certain groups of opportunities under the collaborative commercial narrative
opportunity and/or media procedure language of the 2013 Settlement Agreement; (6)
allowing FoQAR to film QAR recovery operations through an independent media
company; (7) allowing FoQAR to post the footage that it filmed on the FoQAR
Facebook page without a time code stamp, watermark, or website link; and (8)
allowing FoQAR to bring the crew of a local radio show to dive the QAR shipwreck
and shoot footage aboard the recovery vessel. Plaintiff also contends that FoQAR
tortiously interfered with plaintiff’s contract rights by filming the QAR recovery
efforts and placing the footage on its website, while FoQAR was aware of the 2013
Settlement Agreement.
On 2 March 2015, plaintiff filed a second petition for a contested case hearing
with the OAH. DNCR moved to dismiss plaintiff’s petition, arguing that the OAH
lacked subject matter jurisdiction to hear contractual claims that were not raised in
plaintiff’s earlier contested case hearing petition. Plaintiff dismissed its second
petition for a contested case hearing without prejudice on 26 May 2015.
On 3 November 2015, plaintiff received a notice of termination for its permit
to search for the El Salvador even though it already requested renewal of the permit.
However, on 5 November 2015, plaintiff received another notice from the Attorney
General’s Office stating that DNCR had received plaintiff’s request for renewal of the
permit, that the notice of termination was rescinded, and that it would take thirty
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days to review plaintiff’s renewal request. In those thirty days, State Defendants, for
the first time, solicited an opinion from counsel for the Kingdom of Spain as to
whether State Defendants could issue a permit to search for El Salvador. On 30
November 2015, counsel for the Kingdom of Spain issued an opinion that State
Defendants could not grant a permit to search for El Salvador without the Kingdom
of Spain’s permission. Plaintiff received notice that its request for review of the El
Salvador permit was denied. The notice stated that plaintiff’s permit was being
terminated because (1) plaintiff “failed to demonstrate operational control of
laboratory activities and failed to meet certain reporting requirements”; and (2) the
issuance of further permits was “not deemed to be in the best interest of the State”
because “Spain’s assertion of its ownership interest in El Salvador requires careful
consideration of the State’s legal authority to issue a permit in this situation.”
Plaintiff alleges that El Salvador was a private merchant vessel and, therefore, the
Kingdom of Spain has no legitimate claim to it.
Plaintiff sought review of the decision to terminate its permit, and on 21
January 2016, DNCR issued a final agency decision upholding the denial of the El
Salvador permit. Thereafter, plaintiff filed a petition for a contested case with the
OAH seeking review of DNCR’s final agency decision. Plaintiff’s contested case was
dismissed on 27 May 2016. Plaintiff then sought review in Superior Court, Wake
County.
On 27 July 2015, plaintiff separately filed a complaint in Superior Court, Wake
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County, asserting claims against the State Defendants for breach of contract, and
requesting that the trial court enter a declaratory judgment, a temporary restraining
order, a preliminary injunction, and a permanent injunction. The case was designated
a mandatory complex business case on 10 September 2015. However, on 4 May 2016,
this case was stayed by the trial court pending the resolution of plaintiff’s
administrative appeal.
With regard to plaintiff’s administrative appeal, plaintiff filed its petition for
judicial review of the OAH’s decision to dismiss its contested case on 23 June 2016.
Pursuant to judicial review, the trial court entered an order upholding the OAH
decision, granting summary judgment in favor of the State Defendants, and denying
and dismissing plaintiff’s petition for judicial review because
the Kingdom of Spain has a sufficient likelihood of success
in its claim of ownership of the consigned cargo of the El
Salvador, and that a reasonably cautious and prudent
steward of the State’s resources, in a good faith exercise of
discretion, could conclude that the issuance of the [El
Salvador] permit to the Petitioner was no longer in the best
interest of the State.
Following its first order, the trial court granted plaintiff’s motion for leave of
court to file a second amended complaint on 20 February 2017. Plaintiff’s second
amended complaint was also deemed to be filed on that date. In the second amended
complaint, plaintiff asserted the following pertinent claims: (1) breach of contract
claims against the State Defendants for violating the terms of the 1998 Agreement,
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for violating plaintiff’s media and promotional rights under the 2013 Settlement
Agreement, and for refusing to renew plaintiff’s El Salvador permit as required by
the 2013 Settlement Agreement; and (2) tortious interference with plaintiff’s
contractual rights under the 1998 Agreement and the 2013 Settlement Agreement
against FoQAR. Both State Defendants and FoQAR moved to dismiss plaintiff’s
second amended complaint.
On 13 October 2017, the trial court, in pertinent part, dismissed the following
with prejudice: (1) plaintiff’s breach of contract claims against the State Defendants
under the 1998 Agreement; (2) plaintiff’s claim that FoQAR tortiously interfered with
plaintiff’s contractual rights under both the 1998 Agreement and the 2013 Settlement
Agreement; and (3) plaintiff’s breach of contract claim against the State Defendants
under the 2013 Settlement Agreement stemming from the State Defendants’ refusal
to renew plaintiff’s El Salvador permit. It also dismissed without prejudice plaintiff’s
breach of contract claim against the State Defendants under the 2013 Settlement
Agreement stemming from DNCR’s alleged violations of plaintiff’s media and
promotional rights.
On 9 November 2017, plaintiff filed a notice of appeal from the trial court’s
decision; however, that notice of appeal named the Court of Appeals, not this Court,
as the judicial body to which plaintiff had a statutory right of appeal. See N.C.G.S. §
7A-27(a)(2) (2017). Accordingly, on 10 April 2018, the State Defendants filed a motion
to dismiss the appeal. Before the State Defendants filed their motion to dismiss the
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appeal, plaintiff filed a petition for writ of certiorari to this Court seeking review of
the trial court’s 13 October 2017 opinion and order dismissing its second amended
complaint. The trial court dismissed plaintiff’s appeal on 4 May 2018. We, however,
allowed the petition for writ of certiorari on 5 December 2018. Pursuant to plaintiff’s
certiorari petition, we now review whether the trial court erred in dismissing
plaintiff’s second amended complaint to the extent summarized above.
Analysis
We conclude that the trial court properly dismissed plaintiff’s claims against
the State Defendants for breach of the 1998 Agreement and its claim against FoQAR
for tortious interference with contract. However, we also conclude that the trial court
erred in dismissing plaintiff’s claims for (1) breach of the 2013 Settlement Agreement
stemming from DNCR’s alleged violations of plaintiff’s media and promotional rights;
and (2) breach of the 2013 Agreement stemming from DNCR’s non-renewal of
plaintiff’s El Salvador permit. Accordingly, we affirm in part, reverse in part, and
remand to the trial court.
A. Standard of Review
This Court reviews de novo the grant of a motion to dismiss pursuant to Rule
12(b)(6) of the North Carolina Rules of Civil Procedure. See CommScope Credit Union
v. Butler & Burke, LLP, 369 N.C. 48, 51, 790 S.E.2d 657, 659 (2016) (citations
omitted). “In considering a motion to dismiss under Rule 12(b)(6), the Court must
decide ‘whether the allegations of the complaint, if treated as true, are sufficient to
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state a claim upon which relief can be granted under some legal theory.’ ” Id. (quoting
Bridges v. Parrish, 366 N.C. 539, 541, 742 S.E.2d 794, 796 (2013)). Dismissal of a
claim under Rule 12(b)(6) is proper when one or more of the following is satisfied: “(1)
when the complaint on its face reveals that no law supports plaintiff's claim; (2) when
the complaint reveals on its face the absence of fact[s] sufficient to make a [ ] claim;
(3) when some fact disclosed in the complaint necessarily defeats the plaintiff's
claim.” Oates v. Jag, Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985) (citing Forbis
v. Honeycutt, 301 N.C. 699, 701, 273 S.E.2d 240, 241 (1981)) (other citation omitted).
However, “a complaint should not be dismissed for failure to state a claim unless it
appears beyond doubt that the plaintiff can prove no set of facts in support of [a] claim
which would entitle [the plaintiff] to relief.” Sutton v. Duke, 277 N.C. 94, 102, 176
S.E.2d 161, 165–66 (1970) (quoting Conley v. Gibson, 355 U.S. 41, 45–46, 78 S. Ct. 99,
102, 2 L. Ed. 2d 80, 84 (1957), abrogated by Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 561–63, 127 S. Ct. 1955, 1968–69, 167 L. Ed. 2d 929, 943–44 (2007)).
This Court also reviews a dismissal for lack of subject matter jurisdiction
pursuant to Rule 12(b)(1) of the North Carolina Rules of Civil Procedure de novo and
it may consider matters outside of the pleadings. Harris v. Matthews, 361 N.C. 265,
271, 643 S.E.2d 566, 570 (2007) (citations omitted).
B. Breach of Contract: The 1998 Agreement
The trial court dismissed plaintiff’s breach of contract claims against the State
Defendants under the 1998 Agreement because it concluded that “the 2013
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Settlement Agreement was a novation of the 1998 Agreement and that Plaintiff’s
rights under the 1998 Agreement have been extinguished.” We affirm.
“A novation is the substitution of a new contract for an old one which is thereby
extinguished.” Carolina Equip. & Parts Co. v. Anders, 265 N.C. 393, 400, 144 S.E.2d
252, 257 (1965) (citing Tomberlin v. Long, 250 N.C. 640, 109 S.E.2d 365 (1959)). “The
essential requisites of a novation are a previous valid obligation, the agreement of all
the parties to the new contract, the extinguishment of the old contract, and the
validity of the new contract.” Tomberlin, 250 N.C. at 644, 109 S.E.2d at 367–68
(citation omitted). Further, in determining whether a later contract is a novation of
a prior contract,
[t]he intent of the parties governs. . . . If the parties do not
say whether a new contract is being made, the courts will
look to the words of the contracts, and the surrounding
circumstances, if the words do not make it clear, to
determine whether the second contract supersedes the
first. If the second contract deals with the subject matter of
the first so comprehensively as to be complete within itself
or if the two contracts are so inconsistent that the two
cannot stand together a novation occurs.
Whittaker Gen. Med. Corp. v. Daniel, 324 N.C. 523, 526, 379 S.E.2d 824, 827 (1989)
(citing Wilson v. McClenny, 262 N.C. 121, 136 S.E.2d 569 (1964); Tomberlin, 250 N.C.
at 644, 109 S.E.2d at 367–68; Turner v. Turner, 242 N.C. 533, 89 S.E.2d 245 (1955);
Bank v. Supply Co., 226 N.C. 416, 38 S.E.2d 503 (1946)).
Here, neither plaintiff nor the State Defendants have argued before this Court
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that either the 1998 Agreement or the 2013 Settlement Agreement are invalid.3
Further, plaintiff and the State Defendants both agreed to the 2013 Settlement.
Therefore, if the parties intended the 2013 Settlement Agreement to be a novation of
the 1998 Agreement, it extinguished the 1998 Agreement. See Tomberlin, 250 N.C.
at 644, 109 S.E.2d at 367–68; Whittaker Gen. Med. Corp., 324 N.C. at 526, 379 S.E.2d
at 827.
The words of the 2013 Settlement Agreement themselves “make it clear . . . the
second contract supersedes the first.” Whittaker Gen. Med. Corp., 324 N.C. at 526,
379 S.E.2d at 827. Specifically, the 2013 Settlement Agreement states that it
“supersedes the 1998 Agreement, attached as Attachment A, and all prior
agreements between D[N]CR, [plaintiff], and Nautilus regarding the QAR project.”
(emphases added). Because the language of the 2013 Settlement Agreement so clearly
demonstrates the parties’ intent that it would function as a novation of the 1998
Agreement, our analysis can end with the plain wording of the agreement. See
Whittaker Gen. Med. Corp., 324 N.C. at 526, 379 S.E.2d at 827 (stating that a court
will look to the circumstances surrounding the second agreement to determine
whether it is a novation “if the words [of the agreement] do not make it clear”
(emphasis added))).
3 In its brief, plaintiff points to the State Defendants’ second affirmative defense in
their answer to plaintiff’s original complaint, in which the State Defendants appear to have
asserted that certain paragraphs of the 1998 Agreement and the 2013 Settlement Agreement
are unenforceable because they are against public policy. However, plaintiff does not actually
argue that either agreement is invalid, and neither do the State Defendants.
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Because the 2013 Settlement Agreement was a novation of the 1998
Agreement, plaintiff’s breach of contract claims arising from the 1998 Agreement are
“extinguished.” See Carolina Equip. & Parts Co., 265 N.C. at 400, 144 S.E.2d at 257
(citing Tomberlin, 250 N.C. at 644, 109 S.E.2d at 367).
Accordingly, we affirm the decision of the trial court to dismiss plaintiff’s
breach of contract claims under the 1998 Agreement.
C. Tortious Interference
The trial court dismissed plaintiff’s tortious interference with contract claim
against FoQAR under the 1998 Agreement and the 2013 Settlement Agreement
because
[m]ere allegations that DNCR employees also served as
members of F[o]QAR’s board of directors, or that DNCR
permitted F[o]QAR to film recovery operations and post
videos to its website or to dive the QAR wreck do not
amount to allegations of purposeful conduct on the part of
F[o]QAR that was intended to induce DNCR to breach any
contracts.
We affirm.
A claim for tortious interference with contract has the following elements:
(1) a valid contract between the plaintiff and a third person
which confers upon the plaintiff a contractual right against
a third person; (2) the defendant knows of the contract; (3)
the defendant intentionally induces the third person not to
perform the contract; (4) and in doing so acts without
justification; (5) resulting in actual damage to plaintiff.
Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC, 368 N.C.
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693, 700, 784 S.E.2d 457, 462 (2016) (quoting United Labs., Inc. v. Kuykendall, 322
N.C. 643, 661, 370 S.E.2d 375, 387 (1988)).
The first theory by which plaintiff asserts that FoQAR tortiously interfered
with the 1998 Agreement and the 2013 Settlement Agreement appears to be that the
FoQAR was a mere “shadow corporation of DNCR through which certain upper level
employees of DNCR sought to profit from contracts, books, tours, personal promotion,
etc., connected to the QAR Project.” Under this theory, plaintiff claims that certain
DNCR employees (dual hat employees) with “specific responsibility for oversight of
QAR Project and [plaintiff’s] El Salvador search permit,” “wore dual hats” as “officers
and agents of DNCR” while also serving as “office[r]s, agents, and directors of . . .
FoQAR.” Therefore, plaintiff asserts that any action that the dual hat employees took
in their capacities at DNCR (1) was the result of a “conflict of interest” and an
“unethical relationship[ ]”; and (2) was also imputed to FoQAR. Plaintiff’s complaint
appears to attempt to support the imputation theory by invoking the doctrine of
respondeat superior. However, neither plaintiff’s complaint, nor its briefs filed in this
Court, cite any authority to support its application of that doctrine to these facts.
We conclude that the trial court correctly determined that “[m]ere allegations
that DNCR employees also served as members of F[o]QAR’s board of directors” do not
amount to allegations that FoQAR intentionally induced DNCR to not perform its
obligations under either the 1998 Agreement or the 2013 Settlement Agreement.
Specifically, plaintiff has alleged that the dual hat employees (1) had “specific
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responsibility for oversight of QAR Project and [plaintiff’s] El Salvador search
permit,” (2) were serving as employees of DNCR and FoQAR under a “conflict of
interest” and an “unethical relationship[ ],” and (3) were conspiring “with FoQAR to
violate multiple provisions of the QAR Settlement Agreement.” However, plaintiff
has not alleged how the dual hat employees intentionally used their positions to
induce DNCR to breach either the 1998 Agreement or the 2013 Settlement
Agreement. See Beverage Sys. of the Carolinas, LLC, 368 N.C. at 700, 784 S.E.2d at
462 (citing United Labs., Inc., 322 N.C. at 661, 370 S.E.2d at 387). We are persuaded
that plaintiff’s allegations show, at most, that the dual hat employees “induced
themselves to breach the 1998 Agreement and [2013] Settlement Agreement.”
In addition to its overarching shadow corporation theory, plaintiff alleged that
FoQAR tortiously interfered with the 1998 Agreement when, in mid-2013, FoQAR
agreed to pay third party companies to produce “various materials, including videos
and a website” about the QAR Project. Plaintiff also alleged that some of the payment
pursuant to the agreement went to the spouse of a dual hat employee. However, these
allegations—involving an agreement between FoQAR and third parties, which did
not include DNCR—are devoid of any conduct by FoQAR that “intentionally
induce[d]” DNCR to not perform on its contract with plaintiff. Beverage Sys. of the
Carolinas, LLC, 368 N.C. at 700, 784 S.E.2d at 462 (quoting United Labs., Inc., 322
N.C. at 661, 370 S.E.2d at 387).
Moreover, plaintiff alleged that FoQAR tortiously interfered with the 2013
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Agreement by: (1) contracting with an independent media company to film QAR
recovery operations and posting the footage on the FoQAR Facebook page without a
time code stamp, watermark, or website link; and (2) bringing the crew of a local radio
show to dive the QAR shipwreck and shoot footage from aboard the recovery vessel.
As with the allegations addressed above, plaintiff’s allegations here—involving
agreements with third parties other than DNCR, and involving FoQAR’s own conduct
in posting footage of the recovery operation to its own Facebook page—fail to mention
any conduct by FoQAR that intentionally induced DNCR to not perform on its
contract with plaintiff.
Accordingly, we affirm the decision of the trial court to dismiss plaintiff’s
tortious interference with contract claim.
D. Breach of Contract: QAR Media Rights Under the 2013 Settlement Agreement
The trial court dismissed for lack of subject matter jurisdiction plaintiff’s claim
that DNCR breached the 2013 Settlement Agreement by violating plaintiff’s QAR
media rights. Specifically, the trial court concluded that plaintiff (1) failed to exhaust
administrative remedies; and (2) did not allege that administrative exhaustion would
be futile. The trial court reached this conclusion because plaintiff dismissed its second
petition for a contested case hearing under the North Carolina Administrative
Procedure Act (the APA) and then filed a breach of contract claim in superior court
without a final decision by the OAH. We reverse.
Our analysis of whether a plaintiff may bring a breach of contract claim against
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Opinion of the Court
a State agency in superior court begins with our holding in Smith v. State “that
whenever the State of North Carolina, through its authorized officers and agencies,
enters into a valid contract, the State implicitly consents to be sued for damages on
the contract in the event it breaches the contract[,]” and accordingly, the State cannot
invoke the doctrine of sovereign immunity as a defense. 289 N.C. 303, 320, 222 S.E.2d
412, 423–24 (1976).
We later concluded, however, that the holding in Smith was “superfluous”
where “statutory provisions . . . permit an aggrieved party, after exhausting certain
administrative remedies, to institute a civil contract action in Superior Court.”
Middlesex Const. Corp. v. State ex rel. State Art Museum Bldg. Comm’n, 307 N.C. 569,
573–74, 299 S.E.2d 640, 643 (1983) (emphasis added). In Middlesex, we ultimately
held that the superior court lacked subject matter jurisdiction to adjudicate plaintiff’s
breach of contract claims arising from its construction contract with the State in the
first instance. Id. at 575, 299 S.E.2d at 644. We reasoned that the plaintiff was
ultimately required to pursue its claims under the provisions of N.C.G.S. § 143-135.3,
which provided the requisite procedure “[w]hen a claim arises prior to the completion
of any contract for construction or repair work awarded by any State board to any
contractor under the provisions of this Article.” Id. at 571, 299 S.E.2d at 641 (quoting
N.C.G.S. § 143-135.3 (Supp. 1981)). In support of this reasoning, we determined that
the language of N.C.G.S. § 143-135.3
could not be clearer: although a contractor may ultimately
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Opinion of the Court
file an action in Superior Court, the exhaustion of
administrative remedies as provided [by the statute] is a
condition precedent to such action, and the provisions
become a part of every contract entered into between the
State and the contractor.
Id. at 573, 299 S.E.2d at 642.
The State Defendants rely on our decision in Middlesex, along with our decision
in Abrons Family Practice and Urgent Care, PA v. N.C. Dep’t of Health and Human
Servs., 370 N.C. 443, 810 S.E.2d 224 (2018), in arguing that the trial court was correct
to dismiss plaintiff’s claim because plaintiff failed to exhaust administrative
remedies. The State Defendants argue that the APA provided plaintiff with an
administrative remedy here under N.C.G.S. § 150B-23(a). The State Defendants’
argument is unavailing.
First, we note that our decision in Middlesex does not support the conclusion
that plaintiff was required to exhaust any administrative remedy under N.C.G.S. §
150B-23(a) before filing a common law breach of contract claim in superior court. As
an initial matter—and unlike the relevant statute in Middlesex—N.C.G.S. § 150B-
23(a) provides no administrative procedure which specifically applies to plaintiff’s
contract claim. Compare N.C.G.S. § 150B-23(a) (2017), with N.C.G.S. § 143-135.3
(Supp. 1981) (specifically creating an administrative procedure for “[w]hen a claim
arises prior to the completion of any contract for construction or repair work awarded
by any State board to any contractor under the provisions of this Article”).
Accordingly—and also unlike the relevant statute in Middlesex—neither N.C.G.S. §
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150B-23(a) nor our decision in Smith explicitly make any specific administrative
procedure a “condition precedent” to bringing a contract claim in superior court.
Compare N.C.G.S. § 150B-23(a) (2017), with N.C.G.S. § 143-135.3 (Supp. 1981)
(specifically stating that following the administrative procedure set forth in the
statute “shall be a condition precedent” to filing suit in superior court). Additionally—
and also unlike the relevant statute in Middlesex—N.C.G.S. § 150B-23(a) does not
explicitly make a specific administrative procedure part of every contract entered into
between the State and a private citizen. Compare N.C.G.S. § 150B-23(a) (2017), with
N.C.G.S. § 143-135.3 (Supp. 1981) (specifically stating that the administrative
procedure “shall . . . form a part of every contract entered into between any board of
the State and any contractor”). Accordingly, N.C.G.S. § 150B-23(a) does not disturb
the superior court’s “original general jurisdiction of all justiciable matters of a civil
nature.”4 N.C.G.S. § 7A-240 (2017) (emphasis added). We decline to read N.C.G.S. §
150B-23 as creating a specific requirement for the exhaustion of administrative
remedies. Accordingly, in the absence of a specific statutory exhaustion requirement,
4 Under the General Statutes, it is the General Court of Justice—not an “independent,
quasi-judicial agency” such as the OAH, N.C.G.S. § 7A-750 (2017) (emphasis added)—which
is presumed to have “general jurisdiction” over “matters of a civil nature.” N.C.G.S. § 7A-240;
see also Reaves v. Earle-Chesterfield Mill Co., 216 N.C. 462, 465, 5 S.E.2d 305, 306 (1939)
(concluding that an “administrative [body], with quasi-judicial functions,” and with “special
or limited jurisdiction created by statute[,]” is not a court of general jurisdiction and its
jurisdiction can be “enlarged or extended only by the power creating the court.” (citations
omitted)).
DNCR acknowledged this state of the law in its motion to dismiss plaintiff’s second
petition for a contested case.
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Opinion of the Court
we affirm our holding in Smith that, generally, where the State enters into a contract,
it consents to be sued in the event of a breach of the contract.
Moreover, the text of the 2013 Settlement Agreement does not make the
exhaustion of a specific administrative procedure a condition precedent to filing a
breach of contract claim in superior court, nor does it provide a specific procedure for
settling disputes under the contract. The only provision in the 2013 Settlement
Agreement concerning breach provides that, “[i]n the event D[N]CR, [plaintiff], or
Nautilus breaches this Agreement, D[N]CR, [plaintiff], or Nautilus may avail
themselves of all remedies provided by law or equity.”
Accordingly, here—unlike in Middlesex—plaintiff’s ability to bring a common
law breach of contract claim in superior court was not restricted by any statutory or
contractual provision. As a result, the State Defendants cannot rely on Middlesex for
the proposition that plaintiff was barred from bringing its claim in superior court in
the first instance. See Middlesex, 307 N.C. at 570, 229 S.E.2d at 641.
The State Defendants’ reliance on Abrons is also misplaced. In Abrons,
plaintiffs—all of whom were health care providers—filed suit against the North
Carolina Department of Health and Human Services (DHHS), and Computer
Sciences Corporation (CSC). Abrons, 370 N.C. at 444–45, 810 S.E.2d at 226. DHHS
entered into a contract with CSC to develop a new Medicaid Management
Information System (later named NCTracks). Id. at 445, 810 S.E.2d at 226. After the
system went live, plaintiffs began submitting claims to DHHS for Medicaid
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Opinion of the Court
reimbursements. Id. at 445, 810 S.E.2d at 226. However, “[i]n the first few months of
being in operation, [the system] experienced over 3,200 software errors, resulting in
delayed, incorrectly paid, or unpaid reimbursements to plaintiffs.” Id. As a result,
plaintiffs filed claims—including claims for monetary damages—alleging “that CSC
was negligent in its design and implementation of [the system] and that DHHS
breached its contracts with each of the plaintiffs by failing to pay Medicaid
reimbursements.” Id. Further, plaintiffs alleged that “they had a contractual right to
receive payment for reimbursement claims and that this was ‘a property right that
could not be taken without just compensation.’ ” Id. Moreover, plaintiffs “sought a
declaratory judgment that the methodology for payment of Medicaid reimbursement
claims established by DHHS violated Medicaid reimbursement rules.” Id.
After receiving adverse determinations on their reimbursement claims,
plaintiffs failed to request a reconsideration review or file a petition for a contested
case, as specifically required by DHHS procedures. Abrons, 370 N.C. at 448, 810
S.E.2d at 228; see also id. at 446–47, 810 S.E.2d at 227–28 (discussing DHHS
regulations and provisions of the APA which specifically require Medicaid providers
to request a reconsideration review and file a petition for a contested case hearing
before obtaining judicial review). As a result, we held that the trial court correctly
dismissed plaintiffs’ claims because they failed to exhaust their administrative
remedies and failed to demonstrate that such exhaustion would be futile. Id. at 453,
810 S.E.2d at 232.
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Opinion of the Court
Here, plaintiff has filed a claim against the State Defendants for their alleged
violations of plaintiff’s media rights under the 2013 Settlement Agreement. Unlike
the relevant claims in Abrons, this claim is exclusively one for common law breach of
contract and, therefore, it is not a mere “insertion of a prayer for monetary damages”
into what is otherwise a claim that is primarily administrative. See id. at 452, 810
S.E.2d at 231.
Because plaintiffs’ claim here is a common law breach of contract claim, and
the State Defendants have failed to demonstrate that this case is governed by our
holdings in either Middlesex or Abrons, or any other provision requiring plaintiff to
exhaust administrative procedures, we conclude that plaintiff was not required to
exhaust administrative remedies before bringing its breach of contract claim in
superior court.
Our conclusion that the trial court had subject matter jurisdiction over
plaintiff’s claim is supported by the APA. Specifically, the APA provides that
“[n]othing in this Chapter shall prevent any party or person aggrieved from invoking
any judicial remedy available to the party or person aggrieved under the law to test
the validity of any administrative action not made reviewable under this Article.”
N.C.G.S. § 150B-43 (2017) (emphases added); see also Pachas v. N.C. Dep’t of Health
& Human Servs., 822 S.E.2d 847, 855 (N.C. 2019).
Here, the relevant judicial remedy available to plaintiff is a common law
breach of contract claim. As addressed above, we reject the State Defendants’
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Opinion of the Court
argument that the APA makes such a common law claim reviewable through the
administrative process under N.C.G.S. § 150B-23(a)—which provides the procedure
for commencing a contested case.
As a result, the trial court erred in concluding that it lacked subject matter
jurisdiction over plaintiff’s claim. Because the trial court had jurisdiction to
adjudicate plaintiff’s claim, plaintiff need not have demonstrated that exhaustion of
administrative remedies would be futile. See Pachas, 822 S.E.2d at 857 (“Because we
conclude that the trial court had jurisdiction over petitioner’s motion and petition, we
need not determine whether exhaustion of administrative remedies was inadequate
or futile here.”). Accordingly, we reverse the trial court’s conclusion that it lacked
subject matter jurisdiction over plaintiff’s claim.
E. Breach of Contract: El Salvador Permit
The trial court dismissed plaintiff’s breach of contract claim based on DNCR’s
failure to renew the El Salvador permit because it concluded that the claim was
barred by the trial court’s 20 February 2017 order under “the doctrine of res judicata”5
5 Even though the trial court’s order discussed “the doctrine of collateral estoppel, or
issue preclusion” at some length, it ultimately concluded only that plaintiff’s breach of
contract claim as to the El Salvador permit was “barred by the doctrine of res judicata.”
Accordingly, of the two doctrines, we will address only whether plaintiff’s claim is barred by
the doctrine of res judicata. These two doctrines, although historically recognized “as species
of a broader category of ‘estoppel by judgment,’ ” are not interchangeable. Whitacre P’ship v.
Biosignia, Inc., 358 N.C. 1, 15, 591 S.E.2d 870, 880 (2004) (quoting Bockweg v. Anderson, 333
N.C. 486, 491–92, 428 S.E.2d 157, 161 (1993)). Specifically, res judicata, or claim preclusion,
functions to bar a plaintiff’s entire “cause of action,” whereas collateral estoppel, or issue
preclusion, bars only “the subsequent adjudication of a previously determined issue, even if
the subsequent action is based on an entirely different claim.” Id. at 15, 591 S.E.2d at 880
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Opinion of the Court
because “[p]laintiff’s breach of contract claim was raised in the contested case
proceeding” that ultimately reached the trial court on judicial review, and the order
constituted “a final adjudication on the merits in the administrative matter.” We
reverse.
As an initial matter, “[t]he fact that the original claim arose in a quasi-judicial
administrative hearing” does not preclude the applicability of res judicata. See Batch
v. Town of Chapel Hill, 326 N.C. 1, 14–15, 387 S.E.2d 655, 664 (1990). “Under the
doctrine of res judicata or ‘claim preclusion,’ a final judgment on the merits in one
action precludes a second suit based on the same cause of action between the same
parties or their privies.” Whitacre P'ship v. Biosignia, Inc., 358 N.C. 1, 15, 591 S.E.2d
870, 880 (2004) (quoting State ex rel. Tucker v. Frinzi, 344 N.C. 411, 413, 474 S.E.2d
127, 128 (1996); Hales v. North Carolina Ins. Guar. Ass'n, 337 N.C. 329, 333, 445
S.E.2d 590, 594 (1994)). Further, “[t]he doctrine prevents the relitigation of ‘all
matters . . . that were or should have been adjudicated in the prior action.’ ” Id. at 15,
591 S.E.2d at 880 (quoting Thomas M. McInnis & Assocs. v. Hall, 318 N.C. 421, 428,
349 S.E.2d 552, 556 (1986)). However, neither Whitacre nor McInnis provide guidance
on what “matters,” are considered to be barred by a prior action. See id. at 15, 591
S.E.2d at 880 (ultimately applying the separate doctrine of judicial estoppel); see also
(emphases added) (citing Hales v. North Carolina Ins. Guar. Ass’n, 337 N.C. 329, 333, 445
S.E.2d 590, 594 (1994)). Therefore, although “[t]he two doctrines are complimentary,” they
are not the same. Id. at 15–16, 591 S.E.2d at 880.
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McInnis, 318 N.C. at 428, 349 S.E.2d at 556 (holding that the doctrine of res judicata
was inapplicable in that action).
Our decision in Bockweg v. Anderson, 333 N.C. 486, 428 S.E.2d 157 (1993),
provides guidance on what matters are barred by res judicata. Specifically, in
Bockweg, we stated that “[w]hile it is true that a ‘judgment is conclusive as to all
issues raised by the pleadings,’ . . . the judgment is not conclusive as to issues not
raised by the pleadings which serve as the basis for the judgment.” Bockweg, 333 N.C.
at 492, 428 S.E.2d at 161–62 (citation omitted). In Tyler v. Capehart, we stated that
a
judgment is decisive of the points raised by the pleadings,
or which might properly be predicated upon them. . . .[but]
does not embrace any matters which might have been
brought into the litigation, or any causes of action which
the plaintiff might have joined, but which in fact are
neither joined nor embraced by the pleadings.
125 N.C. 64, 70, 34 S.E. 108, 109 (1899).
Here, there is no dispute that the trial court’s order was (1) “a final judgment”6;
6 Plaintiff does argue, without citing to authority, that the trial court’s order was
somehow a “deferral” to DNCR’s decision to deny the El Salvador permit and, therefore, the
order was not a final judgment. However, this argument is without merit because the order
specifically granted summary judgment in the State Defendants’ favor, while denying and
dismissing plaintiff’s petition. Therefore, the trial court’s order constitutes a final judgment.
See Veazey v. City of Durham, 231 N.C. 357, 361–62, 57 S.E.2d 377, 381 (1950) (“A final
judgment is one which disposes of the cause as to all the parties, leaving nothing to be
judicially determined between them in the trial court.” (citing Sanders v. May, 173 N.C. 47,
49, 91 S.E. 526, 527 (1917); Bunker v. Bunker, 140 N.C. 18, 22–24, 52 S.E. 237, 238–39 (1905);
McLaurin v. McLaurin, 106 N.C. 331, 335, 10 S.E. 1056, 1057 (1890); Flemming v. Roberts,
84 N.C. 532, 538–39 (1881)).
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Opinion of the Court
and (2) that the final judgment was “between the same parties or their privies.”
Whitacre, 358 N.C. at 15, 591 S.E.2d at 880. The issues are whether the final
judgment was “on the merits” and whether that judgment concerned the “same cause
of action”—namely plaintiff’s breach of contract claim arising from DNCR’s denial of
plaintiff’s permit to search for El Salvador. Bockweg, 333 N.C. at 492–93, 428 S.E.2d
at 162 (citing and quoting Tyler, 125 N.C. at 70, 34 S.E. at 109).
We conclude that the trial court’s order was not a final judgment on the merits
of plaintiff’s breach of contract claim because that claim is a separate cause of action
which was not raised by plaintiff’s pleadings before the trial court, and which cannot
be “properly predicated upon [those pleadings].” Bockweg, 333 N.C. at 492–93, 428
S.E.2d at 162 (citing Tyler, 125 N.C. at 70, 34 S.E. at 109). Specifically, in its petition
for judicial review, plaintiff only ever asserted that DNCR was “contractually bound,”
to continue renewing the El Salvador permit in support of plaintiff’s argument that
the OAH’s final agency decision affirming the denial of the permit was “in violation
of constitutional provisions, in excess of the statutory authority or jurisdiction of the
agency or the administrative law judge, made upon unlawful procedure, affected by
other error of law, unsupported by substantial evidence and is arbitrary, capricious
and is an abuse of discretion.” In this vein, plaintiff asserted that “[DNCR] had
previously entered into an agreement with [plaintiff], known as the [2013] Settlement
Agreement, in which [DNCR] bound itself to continue renewing [the El Salvador
permit] ‘through the year in which the QAR archaeology recovery phase is declared
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Opinion of the Court
complete so long as the requirements contained in [the El Salvador permit] are
fulfilled.’ ”
Further, nowhere in plaintiff’s petition for judicial review did it make the
following necessary allegations for a breach of contract claim: “[(1)] the existence of a
contract between plaintiff and defendant, [(2)] the specific provisions breached, [(3)]
the facts constituting the breach, and [(4)] the amount of damages resulting to
plaintiff from such breach.” RGK, Inc. v. U.S. Fid. & Guar. Co., 292 N.C. 668, 675,
235 S.E.2d 234, 238 (1977) (quoting Cantrell v. Woodhill Enterprises, Inc., 273 N.C.
490, 497, 160 S.E.2d 476, 481 (1968)). Even assuming—without deciding—that
plaintiff’s aforementioned assertions were allegations concerning the existence of the
2013 Settlement Agreement, as well as the specific provision of the contract at issue,
plaintiff’s petition for judicial review still failed to sufficiently allege that the denial
of the permit constituted a breach of the 2013 Settlement Agreement, and failed to
allege an amount of damages. Therefore, the pleading before the trial court did not
raise plaintiff’s breach of contract claim, and plaintiff could not have “properly
predicate[d]” a breach of contract claim upon that pleading. Bockweg, 333 N.C. at 493,
428 S.E.2d at 162 (citation omitted). Accordingly, the trial court erred in dismissing
plaintiff’s breach of contract claim based on DNCR’s failure to renew the El Salvador
permit through the doctrine of res judicata.
The State Defendants argue to the contrary, stating that our prior decision in
Batch is controlling here and requires the Court to conclude that plaintiff’s claim was
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Opinion of the Court
barred by res judicata. Because Batch is distinguishable from this case, we do not
agree. In Batch, a property owner submitted an application to subdivide her property
to the Town of Chapel Hill. Batch, 326 N.C. at 4, 387 S.E.2d at 657. In its ultimate
resolution concerning the property owner’s subdivision application, the planning
board denied the application on the grounds that the subdivision application was not
consistent with several aspects of the town’s development ordinance. Id. at 7–8, 387
S.E.2d at 659–60. After the planning board denied her application, the property
owner filed a “combined complaint and petition for writ of certiorari” in Superior
Court, Orange County. Id. at 8, 387 S.E.2d at 660. The trial court determined that
the claims were properly joined and issued the writ of certiorari. Id. at 8, 387 S.E.2d
at 660. After that, the property owner moved for summary judgment and the trial
court ordered the town to approve the property owner’s preliminary plat with a minor
exception. See id. at 10, 387 S.E.2d at 661.
On appeal, this Court first held that the trial court erred in joining the
proceedings pursuant to the writ of certiorari and the complaint. Batch, 326 N.C. at
11, 387 S.E.2d at 661–62. Even though we determined that it was error to join the
two proceedings, we did not remand the entire case on that basis but, instead,
addressed the remaining issues. Id. at 11, 387 S.E.2d at 662. In reviewing the issues
raised pursuant to the property owner’s petition for writ of certiorari, we held, in
pertinent part, that “the Town Council properly denied [the property owner’s] petition
for approval of her subdivision,” and, accordingly, we reversed the decision of the
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Opinion of the Court
Court of Appeals. Id. at 13, 387 S.E.2d at 663. In reviewing the issues raised by the
property owner’s complaint, we determined that (1) “summary judgment should have
been entered for the [town]”; and (2) “[the property owner’s] complaint should be
dismissed.” Id. at 14, 387 S.E.2d at 663–64.
The basis for the Court’s conclusions that summary judgment should have been
granted in favor of the town, pursuant to the property owner’s complaint, and that
the property owner’s complaint should be dismissed, was that “[i]t having been
determined in this opinion that the Town Council of Chapel Hill properly denied
approval of [the property owner’s] subdivision plan,” Batch, 326 N.C. at 14, 387 S.E.2d
at 663 (emphasis added), under the issues raised by the petition for writ of certiorari,
“[t]he foundation of [the property owner’s] alleged causes of action [in her complaint]
[was] determined against her,” id. at 14, 387 S.E.2d at 663–64.
In describing how the Court’s holdings on the issues raised by the petition for
writ of certiorari resolved the issues raised by the complaint, we discussed the
doctrine of res judicata. Batch, 326 N.C. at 14, 387 S.E.2d at 663–64 (concluding that
it was unnecessary to review “any of [the property owner’s] constitutional claims or
other issues arising upon her complaint” because they were “based solely upon the
alleged improper refusal by the Town Council to approve her subdivision plans”).
Specifically, we determined that our holding under the issues raised by the property
owner’s petition for writ of certiorari—that “the Town Council properly denied [the
property owner’s] petition for approval of her subdivision”—barred, within the same
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Opinion of the Court
opinion, any conclusion that she was entitled to summary judgment on the
constitutional statutory claims raised by her complaint. See id. at 13–14, 387 S.E.2d
at 663–64. As such, our application of res judicata in Batch resulted from a complex,
fact-specific, procedural posture that is not applicable to the facts here.
Accordingly, we reverse the trial court’s conclusion that plaintiff’s breach of
contract claim based upon the State Defendants’ refusal to renew the El Salvador
permit was barred by res judicata.
Conclusion
For the above reasons, we conclude that the trial court (1) properly dismissed
plaintiff’s breach of contract claims against the State Defendants which arose from
the 1998 Agreement; (2) properly dismissed plaintiff’s tortious interference with
contract claim against FoQAR; (3) erred in dismissing plaintiff’s breach of contract
claim against the State Defendants concerning its QAR media rights under the 2013
Settlement Agreement for lack of subject matter jurisdiction; and (4) erred in
dismissing plaintiff’s breach of contract claim against the State Defendants arising
from DNCR’s failure to renew plaintiff’s El Salvador permit. Accordingly, we affirm
in part, reverse in part, and remand to the trial court for further proceedings not
inconsistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
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Justice MORGAN concurring in part and dissenting in part.
While I fully concur with my learned colleagues of the majority with respect to
plaintiff’s claims for breach of the 1998 Agreement, breach of the contractual
provisions relating to media rights contained in the 2013 Settlement Agreement, and
tortious interference with contract, I respectfully dissent from their determination
that the Business Court erred in concluding that plaintiff’s breach of contract claim
arising from DNCR’s refusal to renew plaintiff’s permit to search for the shipwreck
remains of the El Salvador was barred by the doctrine of res judicata. In my view,
our longstanding precedent regarding claim preclusion in conjunction with the record
on appeal in this matter indicates that this principle applies to plaintiff’s El Salvador
claim. Accordingly, I would affirm the Business Court on this issue.
As noted in the majority opinion, the 2013 Agreement provided that DNCR
would
continue to issue to Intersal an exploration and recovery
permit for the shipwreck El Salvador . . . . through the year
in which the QAR [Queen Anne’s Revenge] archaeology
recovery phase is declared complete so long as the
requirements contained in the permit are fulfilled. Subject
to the provisions of Article 3 of Chapter 121 of the North
Carolina General Statutes . . . and the North Carolina
Administrative Code, [DNCR] agrees to recognize
lntersal’s efforts and participation in the QAR [P]roject as
sufficient to satisfy any performance requirements
associated with annual renewal of Intersal’s permit for the
El Salvador.
INTERSAL, INC. V. HAMILTON
Morgan, J., concurring in part and dissenting in part
In sum, to the extent that it would be consistent with our General Statutes and the
North Carolina Administrative Code, plaintiff’s work on the QAR project would be
deemed to “satisfy any performance requirements” for renewal of the El Salvador
permit. However, when plaintiff applied for a renewal of the permit in 2015, the
application was denied. DNCR gave two reasons for the denial: 1) plaintiff’s failure
“to fulfill material requirements set forth in” the El Salvador permit and 2) that
renewal was “not deemed to be in the best interest of the State” due to its receipt of
a letter dated 30 November 2015 from the Kingdom of Spain which “expressed [the
Kingdom of Spain’s] intent on maintaining control of the shipwreck and cargo of the
El Salvador and asserted its position to defend its title,” along with stressing Spain’s
claim that the State of North Carolina lacked the authority to issue a permit to
recover the El Salvador. Plaintiff believed that this refusal to renew the permit
violated the terms of the 2013 Settlement Agreement as quoted above.
As a result of, inter alia, DNCR’s refusal to renew the permit to search for the
El Salvador, plaintiff filed a petition for a contested case hearing in the Office of
Administrative Hearings (OAH), seeking to compel DNCR to renew the permit.1 The
majority recognizes this development in its opinion in stating that plaintiff had
1 The contested case filing in 15DCR09742 is not part of the record on appeal, but
plaintiff’s assertion in the OAH that DNCR was “contractually bound” to issue the permit
renewal is referenced in decisions issued by the Administrative Law Judge (ALJ), the
superior court which undertook the judicial review of the final agency decision, and the
Business Court.
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INTERSAL, INC. V. HAMILTON
Morgan, J., concurring in part and dissenting in part
“asserted that DNCR was ‘contractually bound’ to continue renewing the El Salvador
permit” under terms of the 2013 Settlement Agreement and had failed to do so.
DNCR moved to dismiss the contested case. In a “Final Decision Order of
Dismissal” dated 27 May 2016, the ALJ assigned to the contested case by the OAH
did not address DNCR’s subject matter jurisdiction argument. Instead, the ALJ
resolved the contested case upon the finding, inter alia, that plaintiff “failed to allege
that it had permission from the Kingdom of Spain to engage in the exploration and
recovery of the historic shipwreck site of the El Salvador,” citing the November 2015
letter from the Kingdom of Spain and, among other authorities, Sea Hunt v.
Unidentified Shipwrecked Vessel, 221 F.3d 634, 640–41 (4th Cir. 2000) (stating “that
a shipwreck is abandoned only where the owner has relinquished ownership rights. .
. . [and w]hen an owner comes before the court to assert his rights, relinquishment
would be hard, if not impossible, to show”) (citing 43 U.S.C. § 2101(b)). As a result,
the ALJ granted DNCR’s motion to dismiss the contested case for failure to state a
claim upon which relief can be granted. See N.C.G.S. § 1A-1, Rule 12(b)(6) (2017).
Pursuant to N.C.G.S. § 150B-45, plaintiff sought judicial review of the OAH
final decision, asserting that “continued renewal of [the El Salvador permit] is
required by the terms of the QAR Settlement Agreement (2013)” and that DNCR
“refused to renew [the El Salvador permit] on November 1, 2015, giving rise to this
contested case.” In its petition for judicial review, plaintiff further alleged:
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Morgan, J., concurring in part and dissenting in part
The ALJ ignored several additional Petitioner’s arguments
raised in briefs, exhibits and oral arguments, including,
without limitation, that . . . [DNCR] is contractually bound
by the [2013] Settlement Agreement to continue renewing
[the El Salvador permit] “through the year in which the
QAR archaeology recovery phase is declared complete so
long as the requirements contained in [the El Salvador
permit] are fulfilled.”
The matter was heard in the Superior Court, Wake County. In an order
entered 7 November 2016, the superior court noted that the ALJ had determined a
broader issue than that presented in plaintiff’s petition for a contested case hearing,
in that the ALJ purported to resolve the ownership of the El Salvador, while the
actual issue raised by plaintiff’s OAH contested case petition was whether or not
DNCR’s asserted reason for its denial of the permit renewal—that it would not be in
the best interest of the State of North Carolina to issue such a permit given the
assertion of ownership by the Kingdom of Spain—was arbitrary or capricious, as
plaintiff had couched the administrative controversy in those terms in its OAH
petition. However, the superior court determined that remand to the OAH was not
necessary despite this error, because the North Carolina General Statutes provide
that “[i]n reviewing a final decision allowing judgment on the pleadings or summary
judgment, the court may enter any order allowed by G.S. 1A-1, Rule 12(c) or Rule 56.”
N.C.G.S. § 150B-51(d) (2017). In its order, the superior court then 1) determined that
the record in the matter was fully developed and all issues were thoroughly briefed,
such that it could resolve defendant’s motion for summary judgment which was filed
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Morgan, J., concurring in part and dissenting in part
in the alternative to its motion to dismiss on the pleadings and 2) held that the denial
of the El Salvador permit renewal was not arbitrary and capricious, but instead was
in the best interest of the State in light of the ownership assertion of the Kingdom of
Spain. With this analysis, the superior court affirmed OAH’s dismissal of the
contested case. Plaintiff did not appeal from this determination.
However, in the subsequent civil suit which was brought before the Business
Court and which this Court has now been engaged to address, plaintiff pursued a
breach of contract claim, contending that defendants breached the 2013 Settlement
Agreement when defendants denied the plaintiff’s request for the renewal of the El
Salvador permit in 2015. The Business Court viewed this claim as barred by the
operation of the doctrine of res judicata, holding that the superior court’s “[o]rder was
a final adjudication on the merits in the administrative matter” and that “[p]laintiff’s
breach of contract claim was raised in the contested case proceeding.”
As the majority decision correctly notes,
Under the doctrine of res judicata or “claim
preclusion,” a final judgment on the merits in one action
precludes a second suit based on the same cause of action
between the same parties or their privies. State ex rel.
Tucker v. Frinzi, 344 N.C. 411, 413, 474 S.E.2d 127, 128
(1996); Hales v. North Carolina Ins. Guar. Ass’n, 337 N.C.
329, 333, 445 S.E.2d 590, 594 (1994). The doctrine
prevents the relitigation of “all matters . . . that were or
should have been adjudicated in the prior action.” [Thomas
M.] McInnis [& Assocs. v. Hall], 318 N.C. [421,] 428, 349
S.E.2d [552,] 556 [(1986)].
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Morgan, J., concurring in part and dissenting in part
Whitacre P’ship v. BioSignia, Inc., 358 N.C. 1, 15, 591 S.E.2d 870, 880 (2004)
(emphasis added; first alteration in original); see also Bockweg v. Anderson, 333 N.C.
486, 492, 428 S.E.2d 157, 161 (1993) (holding that a judgment is conclusive on all
issues raised by the pleadings). In Bockweg, we further explored the doctrine’s
application in observing that “subsequent actions which attempt to proceed by
asserting a new legal theory or by seeking a different remedy are prohibited under
the principles of res judicata.” 333 N.C. at 494, 428 S.E.2d at 163 (addressing a case
in which the “[p]laintiffs did not merely change their legal theory or seek a different
remedy. . . . [but r]ather, [were] seeking a remedy for a separate and distinct negligent
act leading to a separate and distinct injury”).
The disputed question in the present case is whether the pertinent claim—
breach of the El Salvador permit renewal provision of the 2013 Settlement
Agreement—was “or should have been adjudicated in the” OAH proceeding that
concluded with the superior court order dismissing plaintiff’s petition; if so, then it
cannot be revisited in this case. In the view of the majority, the well-established
principle of res judicata or claim preclusion does not apply here to bar plaintiff from
re-litigating the question of whether DNCR breached the 2013 Settlement Agreement
by failing to renew the El Salvador permit, based upon the majority’s deductive
reasoning that the breach of contract claim “was never considered” because the
superior court’s order did not expressly address the issue, but instead focused upon
the alternative basis for plaintiff’s challenge of the permit denial by defendants
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Morgan, J., concurring in part and dissenting in part
regarding the superior court’s determination that the renewal of the permit was not
in the best interest of the State. Further, although the majority acknowledges that
in the OAH proceeding plaintiff “asserted that DNCR was ‘contractually bound’ to
continue renewing the El Salvador permit,” my colleagues with the majority view
take the position that plaintiff did not make allegations to support a breach of
contract claim in its petition for judicial review and therefore conclude that “the
pleading before [the superior court] did not raise plaintiff’s breach of contract claim.”
The majority also focuses on the concept that plaintiff did not plead an amount of
damages—an element of a civil breach of contract claim—and therefore that the OAH
could not have awarded monetary damages to plaintiff in the contested case
proceeding, in an effort to fortify the rationale for this case outcome. However, the
majority misapprehends both our precedent and the procedural posture of the case
on this point.
As an initial matter, contrary to the majority’s reasoning, plaintiff’s petition
for judicial review was not a “pleading” as that term is construed in the appellate case
law which applies the doctrine of res judicata when discussing what issues were
raised and what “matters . . . were or should have been adjudicated in the prior
action.” Thomas M. McInnis & Assocs., 318 N.C. at 428, 349 S.E.2d at 556. Here, the
petition for judicial review which afforded the superior court its jurisdiction is more
properly viewed as an appeal document initiating appellate review, instead of a
pleading initiating a legal controversy in the first instance. In this regard, the
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Morgan, J., concurring in part and dissenting in part
contested case petition filed in the OAH was the “pleading” for purposes of proper
evaluation of the application of res judicata.
More importantly, in the OAH contested case proceeding, plaintiff asserted
that the 2013 Settlement Agreement “contractually” bound DNCR to renew the El
Salvador search permit and that DNCR did not renew said permit. See Bockweg, 333
N.C. at 492, 428 S.E.2d at 161 (holding that, generally, a judgment is conclusive on
all issues that are raised or could have been raised by the pleadings). However, the
fact that plaintiff sought one remedy—renewal of the permit—in the OAH proceeding
and a different remedy—money damages—in the civil suit does not remove plaintiff’s
essential claim—that the contract as evidenced by the 2013 Settlement Agreement
was breached—from the bar of res judicata. See id. at 494, 428 S.E.2d at 163
(“[S]ubsequent actions which attempt to proceed by asserting a new legal theory or
by seeking a different remedy are prohibited under the principles of res judicata”);
see also Cannon v. Durham Cty. Bd. of Elections, 959 F. Supp. 289, 292 (E.D.N.C.)
(“[R]es judicata operates to bar all related claims and thus plaintiffs are not entitled
to a separate suit merely by shifting legal theories”), aff’d, 129 F.3d 116 (4th Cir.
1997).
In sum, plaintiff had the opportunity to fully argue its contract-based claim
regarding DNCR’s refusal to renew the permit to search for the El Salvador in the
OAH proceeding, and the Business Court correctly held that the doctrine of res
judicata dictates that plaintiff could not have a second bite at that particular apple
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Morgan, J., concurring in part and dissenting in part
in its civil court action. Accordingly, I dissent from the majority on this issue and
would affirm the Business Court regarding it.
Justice ERVIN joins in this separate opinion.
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Intersal, Inc. v. Hamilton
Combined Opinion