IN THE SUPREME COURT OF NORTH CAROLINA
No. 339A18
Filed 3 April 2020
THE NEW HANOVER COUNTY BOARD OF EDUCATION
v.
JOSH STEIN, in his capacity as Attorney General of the State of North Carolina;
and NORTH CAROLINA COASTAL FEDERATION and SOUND RIVERS, INC.,
Intervenors
Appeal pursuant to N.C.G.S. 7A-30(2) from a divided panel of the Court of
Appeals, 820 S.E.2d 89 (N.C. Ct. App. 2018), reversing and remanding an order
entered on 12 October 2017 by Judge Paul C. Ridgeway in Superior Court, Wake
County. On 30 January 2019, the Supreme Court allowed petitions for discretionary
review as to additional issues filed by plaintiff, defendant, and intervenors. Heard in
the Supreme Court on 19 November 2019 in session in the Whitted Building in the
Town of Hillsborough pursuant to section 18B.8 of Chapter 57 of the 2017 North
Carolina Session Laws.
Stam Law Firm, PLLC, by R. Daniel Gibson and Paul Stam, for plaintiff-
appellee.
Joshua H. Stein, Attorney General, by Matthew W. Sawchak, Solicitor General,
James W. Doggett, Deputy Solicitor General, and Marc Bernstein, Special
Deputy Attorney General, for defendant-appellant Josh Stein.
The Southern Environmental Law Center, by Mary Maclean Asbill, Brooks
Rainey Pearson, and Blakely E. Hildebrand, for intervenor-appellants North
Carolina Coastal Federation and Sound Rivers, Inc.
NEW HANOVER CTY. BD. OF EDUC. V. STEIN
Opinion of the Court
Tharrington Smith, L.L.P., by Lindsay Vance Smith and Deborah R. Stagner;
and Allison B. Schafer for North Carolina School Boards Association, amicus
curiae.
ERVIN, Justice.
On 25 July 2000, following a five-year period during which ruptured or flooded
hog waste lagoons spilled millions of gallons of waste into North Carolina’s
waterways, then-Attorney General Michael F. Easley entered into an agreement with
Smithfield Foods, Inc., and several of its subsidiaries.1 Pursuant to the agreement,
Smithfield and its subsidiaries agreed to:
(1) undertake immediate measures for enhanced
environmental protection on Company-owned Farms
and provide assistance to Contract Farmers in
undertaking these same measures;
(2) commit $15 million for the development of
Environmentally Superior Technologies for the
management of swine waste and to facilitate the
development, testing, and evaluation of potential
technologies on Company-owned Farms;
(3) install Environmentally Superior Technologies on each
Company-owned Farm in North Carolina and provide
financial and technical assistance to Contract Farmers
for the installation of these technologies;
(4) commit $ 50 million to environmental enhancement
activities;
(5) cooperate fully with the Attorney General to ensure
compliance with applicable laws, regulations, policies
and standards; and
1 The Smithfield subsidiaries that joined in the agreement include Brown’s of
Carolina, Inc.; Carroll’s Foods, Inc.; Murphy Farms, Inc.; Carroll’s Foods of Virginia, Inc.;
and Quarter M Farms, Inc.
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Opinion of the Court
(6) in cooperation with the Attorney General and all other
interested parties, take a leadership role in enhancing
the effectiveness of the Albemarle-Pamlico National
Estuary Program . . . .
In compliance with the provision of the agreement in which Smithfield and its
subsidiaries agreed to commit $50 million to facilitate environmental enhancement
activities, the entities in question promised to “pay each year for 25 years an amount
equal to one dollar for each hog in which [Smithfield and its subsidiaries] . . . had any
financial interest in North Carolina during the previous year, provided . . . that such
amount shall not exceed $2 million in any year.” The agreement further provided
that the monies derived from these payments were to be deposited into an escrow
account and “paid to such organizations or trusts as the Attorney General will
designate . . . to enhance the environment of the State.” In administering the grant
program, the Attorney General was entitled to consult with the North Carolina
Department of Environmental Quality2 and “any other groups or individuals he
deem[ed] appropriate and [to] appoint any advisory committees he deem[ed]
appropriate.” Finally, the agreement provided that, “in consideration of the
commitments by [Smithfield and its subsidiaries], the Attorney General agrees . . .
[t]o use the full power and authority of his office to diligently pursue expeditious
implementation of Environmentally Superior Technologies” on farms identified in the
2 At the time that the agreement between the Attorney General and Smithfield and
its subsidiaries was entered into, the North Carolina Department of Environmental Quality
was known as the North Carolina Department of Environment and Natural Resources.
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Opinion of the Court
agreement; to “use his influence to expedite the permitting process”; and to refrain
from “undertak[ing] any actions in conflict with” the agreement.
In January 2003, then-Attorney General Roy Cooper established the
Environmental Enhancement Grants Program in order to “improve the air, water and
land quality of North Carolina by funding environmental projects that address the
goals of the agreement.” On an annual basis, the grant program accepts applications
from government agencies and nonprofit organizations. The submitted applications
are reviewed by a panel consisting of representatives from the North Carolina
Department of Justice, the Department of Environmental Quality, the North
Carolina Department of Natural and Cultural Resources, academic institutions, and
conservation-focused nonprofit organizations.
After completing the review process, the panel makes a recommendation to the
Attorney General concerning the manner in which the available grant monies should
be distributed. A representative of Smithfield and its subsidiaries is entitled to make
a separate recommendation concerning the same subject. After considering the
recommendation, the Attorney General selects the recipients to be awarded grants
and determines the amount, up to a maximum of $500,000, to be awarded to each
recipient. In the years since the agreement was executed, the Attorney General has
awarded approximately $25 million in grants under the program.
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Opinion of the Court
On 18 October 2016, Francis X. De Luca filed a complaint alleging that
payments made pursuant to the agreement were actually civil penalties for purposes
of article IX, section 7 of the North Carolina Constitution, which states that:
(a) Except as provided in subsection (b) of this section,
all moneys, stocks, bonds, and other property belonging to
a county school fund, and 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.
(b) The General Assembly may place in a State fund the
clear proceeds of all civil penalties, forfeitures, and fines
which are collected by State agencies and which belong to
the public schools pursuant to subsection (a) of this section.
Moneys in such State fund shall be faithfully appropriated
by the General Assembly, on a per pupil basis, to the
counties, to be used exclusively for maintaining free public
schools.
N.C. Const. art. IX, § 7. As a result, Mr. De Luca sought to have the Attorney General
preliminarily and permanently enjoined from distributing monies received pursuant
to the agreement to any recipient other than the Civil Penalty and Forfeiture Fund
authorized by article IX, section 7(b) and N.C.G.S. §§ 115C-457.1–475.3 and
requested that all monies distributed under the grant program within the last three
years and all future payments received by the Attorney General be placed into the
Civil Penalty and Forfeiture Fund.
On 19 December 2016, the Attorney General filed a motion to dismiss Mr. De
Luca’s complaint pursuant to Rules 12(b)(2) and 12(b)(6) of the North Carolina Rules
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of Civil Procedure. On 25 January 2017, Mr. De Luca filed an amended complaint
adding the New Hanover County Board of Education as an additional party plaintiff
and substituting current Attorney General Joshua H. Stein, in his official capacity,
as the party defendant. The Attorney General then filed an amended dismissal
motion. On 14 June 2017, plaintiffs filed a motion seeking the issuance of a
preliminary injunction precluding the Attorney General from making any further
disbursements under the grant program and requiring the Attorney General to
initiate legal proceedings to recoup any funds that had been disbursed in accordance
with the grant program since 2014. On 16 June 2017, plaintiffs filed a motion seeking
the entry of summary judgment in their favor.
On 27 June 2017, Judge Robert H. Hobgood entered an order denying the
Attorney General’s amended dismissal motion and directing the Attorney General to
answer the amended complaint and an additional order preliminarily enjoining the
Attorney General from making disbursements under the agreement pending final
resolution of this case. On 17 July 2017, the Attorney General filed an answer to
plaintiffs’ amended complaint in which he denied the material allegations contained
in the amended complaint and asserted a number of affirmative defenses, including
laches, waiver, failure of consideration, and equitable estoppel. On 21 July 2017,
Judge Hobgood entered an amended preliminary injunction precluding the Attorney
General from making any disbursements to recipients relating to grants awarded on
or after 30 September 2016. On 21 August 2017, the North Carolina Coastal
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Opinion of the Court
Federation and Sound Rivers, Inc., filed a motion seeking leave to intervene in
support of the Attorney General and a proposed answer to plaintiffs’ amended
complaint.
On 22 September 2017, the Attorney General filed a motion seeking the entry
of summary judgment in his favor along with a number of attached affidavits from
individuals with knowledge about the process that led to the execution of the
agreement. In his affidavit, Alan S. Hirsch, a former Director of the Consumer
Protection Division of the Department of Justice, stated that he had “led the
negotiation and drafting” of the agreement on behalf of the Attorney General. Mr.
Hirsch averred that, in his opinion, Smithfield and its subsidiaries had entered into
the agreement in order to address a “long running problem of major public concern,
to demonstrate good corporate citizenship[,] . . . and to further its public standing by
making additional enhancements of North Carolina’s environment” given that “[t]he
image of the industry was under intense scrutiny.” Mr. Hirsch indicated that the
agreement was drafted in such a manner as to prevent it from being “read to limit or
affect in any way the compliance responsibilities of [the Department of
Environmental Quality]”; that the agreement did not “arise from,” “address,” or
“settle” “any actual or alleged violations of law” that Smithfield and its subsidiaries
might have committed in the past or might commit in the future or to resolve any
cases in which a civil penalty “had been issued or might later be issued” against
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Opinion of the Court
Smithfield and its subsidiaries; and that “[n]o penalties or punitive action of any sort
was ever discussed or considered” during the negotiations of the agreement.
Daniel C. Oakley, a former Director of the Environmental Division of the
Department of Justice, averred in his affidavit that he had been a “primary
negotiator” of the agreement. According to Mr. Oakley, “the agreement was not
reached in order to settle any cases in which a civil penalty had been assessed by [the
Department of Environmental Quality].” In fact, Mr. Oakley “[knew] that no civil
penalty being defended by attorneys in [his] [d]ivision was settled, compromised, or
in any way impacted by the negotiation or execution of” the agreement. In addition,
Mr. Oakley noted that, “[a]lthough there were Notices of Violation and Civil Penalty
Assessments issued to various hog farms from 1995 to 2001, any Civil Penalty
Assessments were resolved by other means and were not part of the [a]greement at
issue in this case.” Finally, Mr. Oakley stated that Roy Cooper took office as Attorney
General and William G. Ross took office as Secretary of the Department of
Environmental Quality in January 2001 and that these two individuals had “ensured
that [the Department of Environmental Quality] continued its robust enforcement
activity against those of the State’s hog farms that were not in compliance with laws
and regulations for discharge and non-discharge operations.”
Dennis Ramsey, a former Supervisor of the Non-Discharge Branch of the
Division of Water Resources at the Department of Environmental Quality, stated in
his affidavit that penalties for environmental noncompliance were assessed by the
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Opinion of the Court
director of the Division of Water Quality from 1995 until 2001. Mr. Ramsey indicated
that he had been responsible for making recommendations to the division director
concerning the entities that should be penalized during that period. In addition, Mr.
Ramsey averred that he was familiar with the process by which penalty assessments
were settled and compromised. Mr. Ramsey stated that he had never been asked to
modify any enforcement-related recommendation based upon the agreement and
that, “[t]o the best of [his] knowledge,” the agreement was “entirely separate from,
and in no way related to, any pending or anticipated enforcement action by [the
Department of Environmental Quality] against any of the signatories to the
[a]greement.”
Finally, Christine Lawson, the Program Manager for the Department of
Environmental Quality’s Animal Feeding Operations Program, executed an affidavit
in which she provided information demonstrating that the Department of
Environmental Quality had assessed approximately nineteen civil penalties against
Smithfield and its subsidiaries during the year preceding the execution of the
agreement and the year following the execution of the agreement. According to the
information provided by Ms. Lawson, almost half of those penalties were assessed
after the execution of the agreement and were based upon notices of violation that
had been issued prior to the agreement’s execution.
On 25 September 2017, the North Carolina School Boards Association filed a
motion seeking leave to file an amicus curiae brief in support of plaintiffs’ position.
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Opinion of the Court
On 28 September 2017, plaintiffs filed a response in opposition to the intervention
petition filed by the Coastal Federation and Sound Rivers and a renewed summary
judgment motion in which they cited to (1) records showing a history of environmental
violations by Smithfield and its subsidiaries, including several violations that had
been noticed in the year prior to the execution of this agreement; (2) a letter written
by counsel for Smithfield and its subsidiaries several months after the execution of
the agreement stating that “Smithfield [and its subsidiaries] benefit[ ] [from the
agreement] because it is an opportunity to avoid enforcement actions by correcting
deficiencies before they become enforcement problems” and because it “gives both the
State and Smithfield [and its subsidiaries] an opportunity to correct deficiencies that
might not be compliance problems now, but could lead to noncompliance in the future
if not corrected”; and (3) statements that the Attorney General’s Office had made in
press releases issued in 2002 and 2013 referring to the agreement as a “settlement.”
In addition, plaintiffs asserted that the Attorney General lacked the authority to
enter into the agreement.
On 12 October 2017, the trial court entered an ordering granting summary
judgment in favor of the Attorney General. In reaching this conclusion, the trial court
stated that the Attorney General had “presented sufficient evidence to establish its
right to judgment as a matter of law that . . . the payments made by [Smithfield and
its subsidiaries] under the [agreement] were not ‘penalties,’ ‘forfeitures,’ or ‘fines’
collected for ‘any breach of the penal laws of the State’ and thus [were] not within the
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scope of article IX, sec[tion] 7.” According to the trial court, the facts in this case are
distinguishable from those at issue in earlier penalty-related cases decided by this
Court. The trial court determined that, even if Smithfield and its subsidiaries had
entered into the agreement in the hope of avoiding future penalties, this
“speculation[,] . . . even if true, would not be sufficient, as a matter of law, to recast
the payments made under the [agreement] as ‘penalties,’ ‘forfeitures’ or ‘fines’
collected ‘for any breach of the penal laws of the State’ ” for purposes of article IX,
section 7. In other words, the trial court decided that “there is simply no proffer of
competent evidence” that the agreement was entered into “to reduce, settle, remit or
compromise any threatened or pending violation or to obtain forbearance by [the
Department of Environmental Quality] of any anticipated enforcement action.”
Finally, the trial court noted that plaintiffs had not challenged the Attorney General’s
constitutional authority to enter into the agreement in the complaint and that, even
if plaintiffs had pled such a claim, “it does not logically follow that the payments made
under the [agreement], if made pursuant to an agreement in excess of the Attorney
General’s authority, would fall under the scope of article IX, sec[tion] 7.” As a result,
the trial court granted the Attorney General’s motion for summary judgment, denied
plaintiffs’ summary judgment motion, dismissed plaintiffs’ complaint, and dissolved
the preliminary injunction. The trial court entered separate orders allowing the
intervention petition filed by the Coastal Federation and Sound Rivers and the filing
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of the amicus curiae brief submitted by the School Boards Association. Plaintiffs
noted an appeal from the trial court’s orders to the Court of Appeals.
In seeking relief from the trial court’s orders before the Court of Appeals,
plaintiffs argued that the payments made pursuant to the agreement constituted
penalties for purposes of article IX, section 7 and that the Attorney General lacked
the authority to enter into the agreement unless it was a settlement agreement
subject to article IX, section 7. On 4 September 2018, the Court of Appeals filed an
opinion reversing the trial court’s summary judgment order and remanding this case
to the Superior Court, Wake County, for trial.
The Court of Appeals began its analysis by addressing the issue of whether Mr.
De Luca had standing to assert a claim against the Attorney General pursuant to
article IX, section 7. De Luca v. Stein, 820 S.E.2d 89 (N.C. Ct. App. 2018). According
to the Court of Appeals, Mr. De Luca had failed to allege that “(1) the payments at
issue constitute an illegal or unconstitutional tax; (2) the [a]greement has caused him
a personal, direct, and irreparable injury; or, (3) he is a member of a class prejudiced
by the [a]greement,” id. at 95 (citing Texfi Indus., Inc. v. City of Fayetteville, 44 N.C.
App. 268, 270, 261 S.E.2d 21, 23 (1979), aff’d, 301 N.C. 1, 269 S.E.2d 142 (1980)), and
had failed to file suit on behalf of any local board of education, make any demand
upon an entity with standing to assert a claim such as the one at issue to in this case,
or demonstrate that the making of such a demand would be futile. Id. On the other
hand, the Court of Appeals held that the Board of Education did have standing to
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bring an action against the Attorney General pursuant to article IX, section 7 because
it was an intended beneficiary of monies that were subject to the relevant
constitutional provision and claimed to have been unconstitutionally deprived of
monies to which it was entitled. Id.
Secondly, the Court of Appeals addressed plaintiffs’ contention that payments
made pursuant to the agreement constituted penalties for purposes of article IX,
section 7. Id. at 96. In spite of the fact that “[t]he sworn attestations in the[ ]
affidavits [submitted on behalf of the Attorney General] purport [that] the payments
[Smithfield and its subsidiaries] undertook to pay under the [a]greement are not
punitive because they did not resolve any past, present, or future violations of
environmental laws,” the Court of Appeals noted that “several factors in the record
raise genuine issues of material fact regarding whether the payments were ‘intended
to penalize’ [Smithfield and its subsidiaries] or were ‘imposed to deter future
violations and to extract retribution from’ [Smithfield and its subsidiaries].” Id. at 97
(citing Mussallam v. Mussallam, 321 N.C. 504, 509, 364 S.E.2d 364, 367 (1988); N.C.
Sch. Bds. Ass’n v. Moore, 358 N.C. 474, 496, 614 S.E.2d 504, 517 (2005)). More
specifically, the Court of Appeals held that the record reflected the existence of
genuine issues of material fact concerning whether the agreement had been
“instigated at the behest of and initiated by the Attorney General’s office” rather than
by Smithfield and its subsidiaries or the Department of Environmental Quality and
why “the Attorney General retains sole authority over the disbursement of the funds”
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if the agreement was “sought or undertaken by [Smithfield and its subsidiaries] to
‘demonstrate good corporate citizenship’ and to ‘improve the image’ of the hog farming
industry.” Id. at 97–98. In addition, the Court of Appeals held that there was a
genuine issue of material fact concerning whether “the basis, formula, and manner
in which the amounts are calculated for [Smithfield and its subsidiaries] to pay each
year under the [a]greement [rested more upon] penalties, or a ‘head tax’ calculation,’
rather than [being] ‘voluntary contributions’ designed to enhance [Smithfield and its
subsidiaries’] ‘good corporate citizenship,’ images or goodwill.” Id. at 98. In other
words, the Court of Appeals questioned why Smithfield and its subsidiaries “would
agree to pay $1-per-hog over 25 years as opposed to a specific lump sum or stated
contribution” if they were “purely motivated out of a desire to further their corporate
image” given that “the per-hog payments specified under the agreement [bore] a
resemblance to the per-cigarette payments [that] the General Assembly enacted in
the late 1990s to implement the Master Settlement Agreement with tobacco
manufacturers to settle lawsuits filed by several states’ Attorneys General . . . over
healthcare costs stemming from tobacco use.” Id. Thus, the Court of Appeals held
that “a genuine issue of material fact exist[ed concerning] whether the agreement
was motivated by a desire by [Smithfield and its subsidiaries] to forestall, or forebear,
any potential claims the Attorney General or [the Department of Environmental
Quality] could have asserted against them” and “whether [Smithfield and its
subsidiaries] would not have agreed to make the payments at issue, but for potential
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legal claims, and consequent civil penalties or fines, the Attorney General could have
asserted against them.” Id. at 99.
Similarly, the Court of Appeals held that the timing of enforcement actions
taken against Smithfield and its subsidiaries raised a genuine issue of material fact
as to whether the payments provided for in the agreement were intended to be
punitive in nature. Id. In support of its decision, the Court of Appeals noted that,
even though the Department of Environmental Quality had assessed nine penalties
against Smithfield and its subsidiaries in the fourteen months preceding the signing
of the agreement and an additional nine penalties in the eight months following the
signing of the agreement, each of the penalties related to “notices of violations accrued
or issued by [the Department of Environmental Quality] before the [a]greement was
executed.” Id. (emphasis omitted). In addition, the Court of Appeals determined that
the record “d[id] not demonstrate [that the Department of Environmental Quality
had] issued any notices of violations to [Smithfield and its subsidiaries] after the
[a]greement was signed.” Id. (emphasis omitted). According to the Court of Appeals,
the “apparent discrepancy between the number of notices of violations issued to
[Smithfield and its subsidiaries] before and after the [a]greement was signed” raised
a genuine issue of material fact concerning whether payments made pursuant to the
agreement were made “in lieu of further enforcement actions[ ] and their related civil
penalties.” Id. (emphasis omitted).
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Finally, the Court of Appeals held that “the express terms of the [a]greement”
evidenced the existence of a genuine issue of material fact concerning whether the
payments were intended to “penalize [Smithfield and its subsidiaries] for non-
compliance with environmental standards or to induce forbearance on the part of the
Attorney General, or [the Department of Environmental Quality], in bringing future
enforcement actions.” Id. at 99–100. In essence, the Court of Appeals asked “why
[Smithfield and its subsidiaries] committed to undertake actions to remediate
deficient conditions on their farms and operations, install equipment, and
additionally pay up to $50 million” for environmental enhancement activities,
particularly given that they had “relinquish[ed] any control over to whom and in what
amounts the Attorney General distribute[d] the environmental grants.” Id. at 100
(emphasis omitted). Similarly, the Court of Appeals noted that the Attorney General
had described the agreement as a “settlement” in press releases issued in 2002 and
2013 and concluded that these descriptions of the agreement raised a genuine issue
of material fact concerning the extent to which the payments provided for in the
agreement were intended to be penalties. Id. As a result, given that the Court of
Appeals determined that the record disclosed the existence of genuine issues of
material fact and that “[t]he record . . . is not sufficiently developed for [the Court of
Appeals] to make the de novo determination of whether the payments undertaken by
[Smithfield and its subsidiaries] under the [a]greement were, as a matter of law,
‘penalties’ within the scope of [article IX, section 7],” the Court of Appeals reversed
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the trial court’s order and remanded this case to the Superior Court, Wake County,
“to determine whether the payments in the [a]greement were intended to constitute
penalties, payment in lieu of penalties, forbearance for potential or future
enforcement actions, or were not penalties.” Id. (emphasis omitted).
In dissenting from the majority’s decision, Judge Bryant stated that “the record
on appeal is sufficient to make a determination as a matter of law on the question
before this Court” and opined that the trial court had not erred by concluding as a
matter of law that funds paid pursuant to the agreement were not penalties subject
to article IX, section 7. Id. at 101. According to Judge Bryant, the majority
erroneously created an argument that had not been advanced by any party in the
course of concluding that the record disclosed the existence of genuine issues of
material fact necessitating a trial on the merits. Id. Instead, Judge Bryant “would
[have] reach[ed] the main legal issue that is before us—which is the same issue that
was before the trial court—[and would have held] that the trial court properly applied
the law to the undisputed material facts of this case, and affirm the judgment of the
trial court.” Id.
The Attorney General and the Coastal Federation and Sound Rivers filed
notices of appeal seeking review of the Court of Appeals’ decision based upon Judge
Bryant’s dissent. In addition, each party filed a petition seeking discretionary review
of additional issues pursuant to N.C.G.S. § 7A-31 to ensure that each of the issues
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that had been properly raised in this case before the lower courts were properly before
this Court.3 The Court allowed each party’s discretionary review petition.
In seeking to persuade us to overturn the Court of Appeals’ decision, the
Attorney General4 argues that, unlike this Court’s earlier decisions holding that
payments relating to the violation of environmental standards constituted civil
penalties for purposes of article IX, section 7, this case did not involve the
replacement of, or a reduction in, a previously assessed civil penalty resulting from
violations of environmental standards. As a result, the Attorney General contends
that the Court of Appeals erred by failing to hold that the payments made in
compliance with the agreement fell outside the scope of article IX, section 7.
In addition, the Attorney General contends that the Court of Appeals failed to
base its decision upon the analytical framework that appellate courts are required to
utilize in evaluating the validity of a trial court’s decision to grant or deny a summary
judgment motion. The Attorney General argues that, after affidavits tending to show
that payments made pursuant to the agreement should not be treated as penalties
had been submitted, the burden shifted to plaintiffs to rebut that evidence. See
3 Although the Board of Education expressed disagreement with the Court of Appeals’
determination that Mr. De Luca lacked standing to challenge the Attorney General’s failure
to pay monies received under the agreement to the Civil Penalty and Forfeiture Fund, Mr.
De Luca refrained from seeking review of the Court of Appeals’ standing-related decision
because the Board of Education could adequately present plaintiffs’ challenge to the
agreement before this Court.
4The brief filed by the Coastal Federation and Sound Rivers adopted the arguments
advanced by the Attorney General.
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N.C.G.S. § 1A-1, Rule 56(c), (e); Charlotte-Mecklenburg Hosp. Auth. v. Talford, 366
N.C. 43, 50–51, 727 S.E.2d 866, 871–72 (2012) (affirming the trial court’s decision to
grant summary judgment in the plaintiff’s favor in a case in which the plaintiff
presented “minimally sufficient” evidence to satisfy its burden and the responsive
evidence offered by the defendant “failed to demonstrate that an issue of material fact
remained”); Kidd v. Early, 289 N.C. 343, 370, 222 S.E.2d 392, 410 (1976) (holding
that, where the party seeking summary judgment has produced sufficient evidence
to demonstrate that he or she is entitled to prevail as a matter of law, “the rule
requires the party opposing a motion for summary judgment—notwithstanding a
general denial in his pleadings—to show that he [or she] has, or will have, evidence
sufficient to raise an issue of fact”). The Attorney General contends, instead, that the
Court of Appeals developed a number of unsupported and speculative theories for the
purpose of showing that the record did, in fact, disclose the existence of disputed
factual issues. As a result, the Attorney General contends that the Court of Appeals’
conclusion that there are genuine issues of material fact should be reversed as well.
In seeking to persuade us to reverse the decision of the Court of Appeals, the
Board of Education argues that there is no genuine issue of material fact in this case
and that the only question that we should address and resolve is the extent to which
a payment made pursuant to the agreement constitutes a settlement of penalty
claims, so that the payments required by the agreement must be remitted to the Civil
Penalty and Forfeiture Fund. The Board of Education argues that it “provided many
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examples of [Smithfield and its subsidiaries’] violations and assessed penalties, press
releases, and other documents” that “prove[d that] the [a]greement is a settlement
agreement and is subject to article IX, section 7.” However, instead of resolving the
substantive issue that both parties agree was before the Court of Appeals, the Board
of Education contends that the Court of Appeals erred by holding that the parties’
subjective intent in entering into the agreement “would be determinative” and by
concluding that there existed a genuine issue of material fact as to the parties’
subjective intent.
Next, the Board of Education asserts that the agreement is a settlement, with
this contention being based upon record evidence that, in its opinion, demonstrates
that (1) the payments made pursuant to the agreement were designed to deter
noncompliance on the part of Smithfield and its subsidiaries and are, for that reason,
the functional equivalent of penalties; (2) the payments made pursuant to the
agreement are punitive rather than remedial in nature; and (3) the Attorney
General’s references to the agreement as a settlement in 2002 and 2013 demonstrate
that the Attorney General understood the agreement to be a settlement. As a result,
the Board of Education contends that this Court should hold that the payments made
pursuant to the agreement constitute penalties subject to article IX, section 7 and
should, for that reason, be remitted to the Civil Penalty and Forfeiture Fund.
We review appeals from trial court summary judgment orders using a de novo
standard of review. Daughtridge v. Tanager Land, LLC, 835 S.E.2d 411, 415 (N.C.
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2019) (citing Ussery v. Branch Banking & Tr. Co., 368 N.C. 325, 334–35, 777 S.E.2d
272, 278 (2015)). “The purpose of summary judgment can be summarized as being a
device to bring litigation to an early decision on the merits without the delay and
expense of a trial where it can be readily demonstrated that no material facts are in
issue.” Kessing v. Nat’l Mortg. Corp., 278 N.C. 523, 533, 180 S.E.2d 823, 829 (1971)
(citing 2 McIntosh, N.C. Practice and Procedure § 1660.5 (2d Ed., Phillips’ Supp.
1970); 3 Barron and Holtzoff, Federal Practice and Procedure § 1234 (Wright ed.,
1958)). Summary judgment is appropriate in two instances: “(a) [t]hose where a
claim or defense is utterly baseless in fact, and (b) those where only a question of law
on the indisputable facts is in controversy and it can be appropriately decided without
full exposure of trial.” Id.
“Summary judgment is proper if ‘there is no genuine issue as to any material
fact and . . . any party is entitled to a judgment as a matter of law.’ ” Daughtridge,
835 S.E.2d at 415 (citing N.C.G.S. § 1A-1, Rule 56(c) (2017)). “The movant is entitled
to summary judgment . . . when only a question of law arises based on undisputed
facts.” Id. In determining whether the entry of summary judgment is or is not
appropriate, the trial court must take “[a]ll facts asserted by the [nonmoving] party
. . . as true” and view the evidence “in the light most favorable to that party.” Id.
(quoting Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000)). Summary
judgment involves a two-step process: first, “[t]he party moving for summary
judgment bears the burden of establishing that there is no triable issue of material
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Opinion of the Court
fact,” DeWitt v. Eveready Battery Co., 355 N.C. 672, 681, 565 S.E.2d 140, 146 (2002)
(citing Nicholson v. Am. Safety Util. Corp., 346 N.C. 767, 774, 488 S.E.2d 240, 244
(1997)), and then, “[o]nce the moving party satisfies these tests, the burden shifts to
the nonmoving party to ‘produce a forecast of evidence demonstrating that the
[nonmoving party] will be able to make out at least a prima facie case at trial.’ ” Id.
at 681–82, 565 S.E.2d at 146 (quoting Collingwood v. Gen. Elec. Real Estate Equities,
Inc., 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989)).
As an initial matter, we note that the Board of Education argued, among other
things, that the payments contemplated in the agreement could only have been a
penalty given that the Attorney General lacked the authority to enter into the
agreement unless it involved the settlement of a notice of violation. In support of this
assertion, the Board of Education argued that, at the time that the agreement was
entered into, the only authority granted to the Attorney General was that delineated
in N.C.G.S. §§ 114-1.1 and 114-2, neither of which give the Attorney General the
power to enter into an agreement such as the one at issue in this case, and that the
agreement must have been a settlement for that reason.5 The Attorney General, on
the other hand, argued that, as the State’s chief legal officer, he possessed the
common law authority to manage the legal affairs of the State, including the
authority to accept gifts on behalf of the State such as the grant funding embodied in
5As an aside, we note that the Board of Education never argued before this Court that
the Attorney General lacked the authority to enter into the agreement at all and, in fact,
expressly disclaimed any intention of doing so.
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Opinion of the Court
the agreement. Although the question of the extent to which the Attorney General
had the authority to enter into the agreement is an interesting one, we do not believe
that it is before us in this case.
Generally speaking, the only persons entitled to “call into question the validity
of a statute [are those] who have been injuriously affected thereby in their persons,
property or constitutional rights.” Piedmont Canteen Serv., Inc. v. Johnson, 256 N.C.
155, 166, 123 S.E.2d 582, 589 (1962) (citing Leonard v. Maxwell, 216 N.C. 89, 98, 3
S.E.2d 316 (1939); and St. George v. Hardie, 147 N.C. 88, 98, 60 S.E. 920 (1908)); see
also Mangum v. Raleigh Bd. of Adjustment, 362 N.C. 640, 642, 669 SE.2d 279, 282
(2008) (stating that “the ‘gist of the question of standing’ is whether the party seeking
relief has ‘alleged such a personal stake in the outcome of the controversy as to assure
the concrete adverseness which sharpens the presentation[s] of issues upon which
the court so largely depends for illumination of difficult constitutional questions’ ”
(quoting Stanley v. Dep’t of Conservation & Dev., 284 N.C. 15, 28, 199 S.E.2d 641, 650
(1973))). In this instance, the mere fact that the Attorney General and Smithfield
and its subsidiaries entered into the agreement did no harm to the Board of Education
in light of the fact that it was not a party to the agreement, did not have any rights
under the agreement, and would not be entitled to have any monies paid into the
Civil Penalty and Forfeiture Fund in the event that the agreement was determined
to be unenforceable. For that reason, while the Board of Education did have standing
to assert that the payments made pursuant to the agreement constituted penalties
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Opinion of the Court
for purposes of article IX, section 7, it lacks standing to assert that the Attorney
General lacked the authority to enter into the agreement at all and appropriately
made no such argument.
Moreover, the ultimate issue before us in this case is not whether the Attorney
General had the authority to enter into the agreement. Instead, the question that we
are called upon to decide in this instance is whether, taking the existence of the
agreement as a given, payments made pursuant to the agreement constitute
penalties that must be turned over to the Civil Penalty and Forfeiture Fund or
something else. As a result, for all of these reasons, we express no opinion concerning
the extent, if any, to which the Attorney General had the right to enter into the
agreement or what status any relevant party would occupy in the event that the
agreement was determined to be invalid.
The first issue that we do have to address is whether, as the Court of Appeals
determined, one or more genuine issues of material fact exist in this case or whether
this case involves “only a question of law on the indisputable facts . . . in controversy
[that] can be appropriately decided without full exposure of trial.” Kessing, 278 N.C.
at 533, 180 S.E.2d at 829. As we have already noted, all of the parties to this case
are, and the trial court was, of the opinion that no such factual issue arose upon the
present record. Although the Court of Appeals concluded that issues of fact that
needed to be resolved at trial existed in this case, each of the allegedly factual issues
delineated in the Court of Appeals’ opinion focuses upon the subjective intentions
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Opinion of the Court
with which either the Attorney General or Smithfield and its subsidiaries acted at
the time that the agreement was executed, the purposes that Smithfield and its
subsidiaries sought to achieve by entering into the agreement, and other similar
questions. We do not believe that any of the “issues” upon which the Court of Appeals’
decision was predicated suffice to preclude an award of summary judgment on behalf
of one party or the other to this case.
We begin by noting that the Court of Appeals did not point to any conflicts in
the evidence about which credibility determinations needed to be made. See Kessing,
278 N.C. at 535, 180 S.E.2d at 830. Moreover, none of the parties indicated that
additional evidence existed that might shed light upon the substantive legal issue
that is in dispute between the parties. On the other hand, a number of the issues
that the Court of Appeals believed to require further factual development involve the
manner in which the undisputed evidence should be evaluated in light of the
applicable legal standard, rather than disputed issues of fact about which further
factual development would be appropriate. As this Court has previously stated, “the
presence of important or difficult questions of law is no barrier to the granting of
summary judgment,” id. at 534, 180 S.E.2d at 830 (citing Ammons v. Franklin Life
Ins., 348 F. 2d 414 (5th Cir. 1965); Palmer v. Chamberlin, 191 F.2d 532, 27 A.L.R.2d
416 (5th Cir. 1951); Crowder v. United States, 255 F. Supp. 873 (N.D. Cal. 1964), aff’d,
362 F.2d 1011 (9th Cir. 1966); 3 Barron and Holtzoff, supra § 1234, pp. 126–27
(Wright ed. 1958); 6 Moore’s Federal Practice § 56.16 (2d ed. 1966)), and the record
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Opinion of the Court
suggests that the questions that we have before us in this case are just such issues of
law rather than disputed issues of material fact.
Secondly, and perhaps more importantly, the bulk of the “factual” issues upon
which the Court of Appeals relied in remanding this case for trial focus upon the
subjective intent of the parties at the time that they took certain actions. However,
as has already been noted, the principal substantive issue that we are called upon to
decide in this case is whether the payments that are received pursuant to the
agreement are or are not penalties as that term is used in article IX, section 7. In
making that determination, our focus must necessarily be upon what the payments
actually are, rather than upon questions such as which party instigated the process
that led to the execution of the agreement, why the agreement was structured the
way that it was, or what each party subjectively and in isolation thought to be the
purpose served by the payments contemplated under the agreement. For that reason,
most of the issues of “fact” upon which the Court of Appeals’ decision rests are simply
irrelevant to the ultimate legal issue that the Court has been called upon to resolve
in this case and pose no obstacle to a decision to grant summary judgment in favor of
one party or the other. As a result, we hold (1) that the Court of Appeals erred by
reversing the trial court’s order and remanding this case to the Superior Court, Wake
County, for trial on the merits and (2) that this case is ripe for resolution on the merits
on the basis of the parties’ cross motions for summary judgment.
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Opinion of the Court
As we have already noted, article IX, section 7 provides, in pertinent part, that
“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. IX, § 7. In making
a determination as to whether a particular payment is a penalty for purposes of
article IX, section 7, “the label attached to the money is not controlling.” Moore, 359
N.C. at 487, 614 S.E.2d at 512 (citing Cauble v. City of Asheville, 301 N.C. 340, 271
S.E.2d 258 (1980); State v. Rumfelt, 241 N.C. 375, 85 S.E.2d 398 (1955); Bd. of Sch.
Dirs. v. City of Asheville, 128 N.C. 249, 38 S.E. 874 (1901); and Bd. of Educ. v. Town
of Henderson, 126 N.C. 689, 36 S.E. 158 (1900)). Instead, the “determinative” or
“critical” question is whether the alleged “ ‘civil penalty’ is punitive or remedial in
nature” or, put another way, “whether the penalty mandated for violation of the
statute is imposed as punishment to deter noncompliance or to measure the damages
accruing to an individual or class of individuals resulting from the breach.” Id. at
512–13, 614 S.E.2d at 488 (citing Remedial, Black’s Law Dictionary (6th ed. 1990)).
In applying this basic standard to funds collected relating to environmental
enforcement, this Court has held that money paid to support a Supplemental
Environmental Project as a full or partial substitute for an environmental
noncompliance penalty was a penalty for purposes of article IX, section 7, given that
[t]he payment would not have been made had [the
Department of Environmental Quality] not assessed a civil
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Opinion of the Court
penalty against [the violator] for violating a water quality
law. To suggest that the payment was voluntary is
euphemistic at best. Moreover, the money paid under the
[Supplemental Environmental Project] did not remediate
the specific harm or damage caused by the violation even
though a nexus may exist between the violation and the
program [funded by the payment]. The payment was still
punitive in nature. Nor is the nature of the payment by
the City of Kinston or any other violator altered by its being
made to a third party pursuant to a policy promulgated by
[the Department of Environmental Quality] in an attempt
to circumvent the statutory and constitutional
requirement that the clear proceeds of civil penalties be
paid to the Civil Penalty and Forfeiture Fund.
Id. at 509, 614 S.E.2d at 525. Similarly, this Court held in Craven Cty. Bd. of Educ.
v. Boyles, 343 N.C. 87, 92, 468 S.E.2d 50, 53 (1996), that monies paid to settle
proceedings initiated for the purpose of enforcing environmental standards
constituted penalties subject to article IX, section 7, stating that “it is not
determinative that the monies were collected by virtue of a settlement agreement” or
that the parties “stated that the payment [was] not [to] be construed as a penalty”
given that “[t]he monies were paid to settle the assessments of a penalty for violations
of environmental standards.” As a result, the ultimate question before this Court is
whether the payments made pursuant to the agreement, construed in realistic, rather
than nominal terms, were intended to punish Smithfield and its subsidiaries for
committing one or more environmental violations or to serve some other purpose.
The language in which the agreement is couched clearly demonstrates that the
payments at issue in this case were not intended to punish Smithfield and its
subsidiaries for any specific environmental violation or to deter them from
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Opinion of the Court
committing any future environmental violation. On the contrary, the agreement
provides, in pertinent part, that:
[Smithfield and its subsidiaries] have entered into this
binding [a]greement freely for the purpose of
memorializing the commitments they have voluntarily
agreed to undertake . . . .
[Smithfield and its subsidiaries] acknowledge that the
Attorney General, in consultation with [the Department of
Environmental Quality], will undertake a comprehensive
review of the operation of the swine industry in North
Carolina to ensure that [Smithfield and its subsidiaries]
and other integrators and operators of swine facilities are
taking all appropriate steps, and have adopted compliance
assurance systems, to ensure that they remain at all times
in compliance with the law . . . .
Nothing in this [a]greement shall be construed to in any
way limit State or private enforcement against [Smithfield
and its subsidiaries] for past, present, or future violations
of law . . . . This [a]greement shall not be construed as a
settlement of any liability of [Smithfield and its
subsidiaries] for penalties, fines, damages or other liability.
....
Nothing in this [a]greement shall relieve [Smithfield and
its subsidiaries] of their responsibility to comply with
applicable law . . . .
Thus, the agreement specifically provides that the commitments made by Smithfield
and its subsidiaries do not effect a settlement of any liability that might arise from
any past environmental violation or have any effect upon any enforcement action that
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Opinion of the Court
might be taken by the Department of Environmental Quality in the event that any
environmental violation occurs in the future.6
Consistently with the general terms in which the agreement is couched, the
specific payments at issue here, unlike those that the Court deemed to be penalties
in Moore and Boyles, do not stem from an enforcement proceeding in which the
Department of Environmental Quality or some other state agency attempted to
assess a penalty for the purpose of punishing a past environmental violation or
deterring future violations before accepting a payment from the alleged violator to
either an agency of the State or some other entity in full or partial satisfaction of a
civil penalty that would have otherwise become due and owing. On the contrary, the
agreement was not, by its own terms, tied to any particular violations of the
environmental laws. In addition, the undisputed evidence forecast by the Attorney
General tends to show that no existing settlement actions were disposed of as a result
of the decision of Smithfield and its subsidiaries to enter into the agreement and that
6 The fact that sections III.A.1.b and III.A.1.d of the agreement provide that Smithfield
and its subsidiaries will submit plans that “identif[y] those Company-owned Farms that have
the potential to adversely impact water quality due to deficient site conditions or operating
practices and a description (together with expeditious implementation schedules) of proposed
measures to correct such deficiencies or operating practices” and “identif[y] all abandoned
lagoons on Company-owned Farms and a description (together with expeditious
implementation schedules) of proposed measures for closure of the lagoons on Company-
owned Farms in accordance with current NRCS and [Department of Environmental Quality]
standards and consistent with [the Department of Environmental Quality’s] most current
priority list” does nothing to undercut the conclusion set out in the text. Simply put, nothing
in the record shows that the actions delineated in these provisions of the agreement, which
are explicitly stated to be remedial in nature, involve the sanctioning of violations of legally-
enforceable environmental standards.
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Opinion of the Court
no State agency or official, including the Department of Environmental Quality or
the Attorney General, has refrained from seeking the imposition of a penalty for any
environmental violation that occurred after the date upon which the agreement was
entered into. In light of the language in which the agreement is couched, there is no
evidence in the present record tending to show that Smithfield and its subsidiaries
made the payments contemplated under the agreement in lieu of paying a penalty for
specific violations of an environmental standard.
In seeking to persuade us that the payments contemplated under the
agreement were, in fact, the functional equivalent of a civil penalty, the Board of
Education advances a number of arguments, none of which we find persuasive. For
example, the Board of Education argues that an examination of the Department of
Environmental Quality’s enforcement records relating to Smithfield and its
subsidiaries indicates that the Department of Environmental Quality began “going
light” on them after the agreement was entered into and that this information
permits a reasonable inference that the agreement did, in fact, serve as a substitute
for penalties that would have been assessed against Smithfield and its subsidiaries.
However, given that the Board of Education has not shown what level of enforcement
would have been appropriate in light of the level of compliance with the
environmental laws exhibited by Smithfield and its subsidiaries after the date upon
which the agreement was executed, we are unable to say that the Board of
Education’s argument is anything more than an exercise in speculation or conjecture.
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Opinion of the Court
See Dickens v. Puryear, 302 N.C. 437, 457, 276 S.E.2d 325, 337 (1981) (stating that,
where the plaintiff “in essence relies on the allegations . . . in his complaint and
possible speculation or conjecture[,]” such information “is not enough to survive [the
defendant’s] motion for summary judgment”). Such a deficiency in the record
precludes reliance upon rhetorical questions asking what considerations might have
motivated Smithfield and its subsidiaries to enter into the agreement if it was not
intended to avoid or lessen future penalty payments.
Similarly, the Board of Education directs our attention to portions of a letter
written by counsel for Smithfield and its subsidiaries following the execution of the
agreement in which the benefits of the agreement to Smithfield and its subsidiaries
are said to include the ability to proactively “correct[ ] deficiencies before they become
enforcement problems.” However, instead of suggesting that the agreement settled
future enforcement actions by providing for a payment that constituted the functional
equivalent of a penalty, the relevant portion of counsel’s letter actually demonstrates
that the agreement did not address or settle any environmental violations that had
previously occurred and that the agreement was intended, instead, to help correct
deficiencies that could lead to future enforcement actions. In other words, counsel’s
letter described the agreement as having a remedial and preventative, rather than a
punitive, purpose.
In a related argument, the Board of Education directs our attention to the fact
that the Attorney General referred to the agreement in two different press releases
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Opinion of the Court
as a “settlement” and argues that the Attorney General’s settlement authority is
limited to compromising an enforcement action. However, we believe that the Board
of Education puts more weight on this argument than it will reasonably bear. As we
have previously stated, “it is neither ‘the label attached to the money’ nor ‘the
[collection] method employed,’ but ‘the nature of the offense committed’ that
determines whether the payment constitutes a penalty.” Boyles, 343 N.C. at 92, 468
S.E.2d at 53 (quoting Cauble, 301 N.C. at 344, 271 S.E.2d at 260); see also Moore, 359
N.C. at 510, 614 S.E.2d at 526 (stating that “the terms and descriptions [that the
Department of Environmental Quality] and a violator use to refer to a payment are
not determinative” (citing Boyles, 343 N.C. at 92, 468 S.E.2d at 53)). Regardless of
whether the agreement represents a “settlement” or something else entirely, the
relevant issue for purposes of this case is whether the payments provided for in the
agreement constitute the functional equivalent of penalties, rather than the way in
which the parties characterize them. In other words, the relevant issue for purposes
of this case not whether the agreement involves a gift or a settlement; instead, the
relevant issue is whether the payments at issue here constitute penalties. And, as
we have previously indicated, the record does not contain any evidence tending to
show that the payments made pursuant to the agreement have served to either settle
any particular enforcement action or as the functional equivalent of a penalty and
does contain a considerable amount of evidence pointing in the opposite direction.
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Opinion of the Court
Finally, the Board of Education’s assertion that Smithfield and its subsidiaries
had no incentive to enter into the agreement if acting in that fashion did not somehow
offset some current or future liability rests upon a misunderstanding of the applicable
legal test, which focuses upon the purpose for which the relevant payment was made
rather than the subjective intentions of the persons or entities involved in the making
of that payment. In order for a particular payment to constitute a “penalty” as that
term is used in article IX, section 7, both the payor and the regulatory agency must
understand that the payment in question is the functional equivalent of a penalty to
which the payor would be exposed as a result of an environmental violation. In the
absence of an express or implied agreement on the part of the regulatory agency that
the payment will, in fact, be treated in that fashion, the mere fact that the payor
subjectively hopes that its actions will have the effect of reducing the severity with
which the regulatory agency views any violation that it might commit in the future
is simply not sufficient to convert that payment into a penalty for purposes of article
IX, section 7.
Thus, for all of these reasons, we hold that the Court of Appeals erred by
determining that the record disclosed the existence of genuine issues of material fact
that precluded the entry of summary judgment in favor of either party and remanding
this case to the Superior Court, Wake County, for a trial on the merits. In addition,
we hold that the trial court correctly decided to enter summary judgment in favor of
the Attorney General on the grounds that the payments contemplated by the
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Opinion of the Court
agreement did not constitute penalties for purposes of article IX, section 7.7 As a
result, we reverse the decision of the Court of Appeals and remand this case to the
Court of Appeals for any additional proceedings not inconsistent with this opinion.8
REVERSED AND REMANDED.
7 Any argument that the agreement is invalid because it rests upon a violation of
article I, section 6 of the North Carolina Constitution (providing that “[t]he legislative,
executive, and judicial powers of the State government shall be forever separate and distinct
from each other”) by impermissibly infringing upon the General Assembly’s constitutional
taxing authority is not properly before this Court. No such arguments were made before the
trial court, the Court of Appeals, or this Court, and we decline to deviate from our long-
standing refusal to address constitutional issues that were not presented to the lower court
by reaching out to decide that issue in this case. Dennis v. Duke Power Co., 341 N.C. 91, 103,
459 S.E.2d 707, 715 (1995) (stating that “[i]t is a well[-]established rule of this Court that it
will not decide a constitutional question which was not raised or considered in the court
below” (quoting Johnson v. Highway Commission, 259 N.C. 371, 373, 130 S.E.2d 544, 546
(1963))). As a result, we express no opinion concerning the merits of any separation of powers
challenge that might be advanced in opposition to the lawfulness of the agreement that is
before us in this case.
8 On 18 November 2019, Governor Roy Cooper signed 2019 N.C. Sess. Laws 250 into
law. The relevant session law amended N.C.G.S. § 147-76.1 so as to provide, in pertinent
part, that, “[e]xcept as otherwise specifically provided by law, all funds received by the State,
including cash gifts and donations, shall be deposited into the State treasury,” N.C.G.S. §
147-76.1(b), and that, “[e]xcept as otherwise provided by subsection (b) of this section, the
terms of an instrument evidencing a cash gift or donation are a binding obligation of the
State[, with] [n]othing in this section [to] be construed to supersede, or authorize a deviation
from the terms of an instrument evidencing a gift or donation setting forth the purpose for
which the funds may be used.” N.C.G.S. § 147-76.1(c). Although 2019 N.C. Sess. Laws 250,
§ 5.7.(c) provided that newly-enacted N.C.G.S. § 147-76.1 became effective on 1 July 2019,
and would be applicable to all funds received on or after that date, the parties agreed that
the provisions of newly-enacted N.C.G.S. § 147-76.1 have no bearing upon the proper
resolution of this case. As a result, we will refrain from attempting to construe N.C.G.S. §
147-76.1 or to apply its provisions to the facts of this case.
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Justice NEWBY dissenting.
According to the Attorney General, the multi-million-dollar agreement
reached with Smithfield is not a settlement, even though it references regulatory
deficiencies for which the State presumably could have held Smithfield responsible.
We are asked to believe instead that Smithfield regarded its potential payments
totaling $50 million over twenty-five years as nothing more than a gift that the
Attorney General would use in his sole discretion to fund grants to environmental
groups. The undisputed facts of this case, especially when viewed in light of
controlling legal precedent, reveal that the $50 million is not a gift. The agreement
is a settlement, drafted to circumvent the North Carolina Constitution’s
requirement that the money proceeds of fines and penalties go to the public schools.
Furthermore, if the agreement is not a settlement, it violates our state
constitution’s separation-of-powers principle by invading the General Assembly’s
policymaking and budgetary prerogatives in a way that invites other constitutional
officers to create and manage programs funded by “gifts” received from the very
companies they police. Because this agreement is a settlement, not a gift, I
respectfully dissent.
The circumstances leading to this agreement aid in understanding its true
nature. Severe flooding of swine farms in the 1990s brought about environmental
challenges. Ruptured and flooded swine waste lagoons spilled millions of gallons of
waste into the State’s waterways and groundwater. Smithfield was among the
NEW HANOVER CTY. BD. OF EDUC. V. STEIN
Newby, J., dissenting
largest companies in the swine industry; in the late 1990s, it received at least forty-
five notices of violation of environmental laws and regulations from the Department
of Environmental Quality (DEQ, formerly the Department of Environment and
Natural Resources).
On 25 July 2000 then-Attorney General Michael F. Easley made an
agreement with Smithfield and some of its subsidiaries (collectively, Smithfield) in
which Smithfield agreed to, among other things, immediately take measures to
enhance environmental protection on its farms, commit $15 million towards the
development of advanced technologies for dealing with environmental hazards like
swine waste, install these technologies on its farms, and cooperate with the
Attorney General to ensure compliance with environmental laws. The agreement
established a timeline for Smithfield to address many of its environmental issues.
For example, it allowed Smithfield until 15 October 2000 to submit a plan to correct
“deficient site conditions or operating practices” at some of its farms and until 15
December 2000 to submit a plan to shut down its abandoned lagoons. Most
significantly to this case, Smithfield promised to contribute up to $50 million over
twenty-five years towards “environmental enhancement” activities administered at
the discretion of the Attorney General. After the agreement was made, the Attorney
General’s office referred to it as a “settlement” multiple times in press releases.
The Attorney General, in his discretion, administers the $50 million fund as
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Newby, J., dissenting
follows: Smithfield deposits the payments for environmental enhancement activities
in an escrow account, from which funds are then paid out to organizations, at the
direction of the Attorney General, for environmental projects. The Attorney General
created the “Environmental Enhancement Grants Program.” Governmental and
nonprofit entities may apply for grants from the program and a panel made up of
individuals from the Department of Justice, DEQ, the Department of Natural and
Cultural Resources, and certain nongovernmental entities reviews the applications.
The panel, as well as a Smithfield representative, recommends to the Attorney
General how grants should be dispersed, but the Attorney General makes the
ultimate decision. Since the agreement was made, the Attorney General has
awarded more than $25 million in grants through this program. The program
continues to operate today, with millions of dollars more to be distributed.
The majority decides that the $50 million Smithfield promised to pay for the
Attorney General’s grant program is not a settlement payment for two primary
reasons. First, one section of the agreement provides that the agreement has no
effect on the Attorney General’s ability to resolve current enforcement actions or
bring new ones. Second, there is no evidence that Smithfield obtained the dismissal
of any outstanding enforcement action brought against it as a result of the
agreement. Certainly these considerations should factor into the analysis of the
agreement’s nature, but they do not capture the entire story.
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Newby, J., dissenting
The agreement must be viewed as a whole for its true effect, notwithstanding
how the agreement’s isolated provisions or the agreement’s parties characterize it.
See Cauble v. City of Asheville, 301 N.C. 340, 344, 271 S.E.2d 258, 260 (1980)
(explaining that, as to the question about whether funds are derived from penalties
and so reserved for education, this Court has “often stated that the label attached to
the money does not control”). When viewed in its entirety, the agreement reveals
that Smithfield promised millions of dollars to the Attorney General in exchange for
leniency in enforcing State environmental laws and regulations. The $50 million is
therefore a payment in lieu of penalties, subject to Article IX, Section 7’s
requirement that the funds go to the State’s public schools. See N.C. Const. art. IX,
§ 7.1 The agreement’s provision explaining that it should not be viewed in this way
does not change the agreement’s substance.
This case is not unique. Indeed, our case law applying Article IX, Section 7
has developed over time in response to attempts by state and local governmental
entities to circumvent the State constitutional requirement that proceeds from fines
or penalties inure to benefit of public schools. In Cauble citizens of the City of
Asheville paid funds for parking citations they received from the City. 301 N.C. at
342, 271 S.E.2d at 259. The City argued that the funds were not fines subject to
1Article IX, Section 7 of the North Carolina Constitution declares that “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 be faithfully appropriated and used
exclusively for maintaining free public schools.”
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Newby, J., dissenting
Article IX, Section 7 because, among other things, the citizens paid the funds
“voluntarily” after receiving a citation; they were not assessed after a criminal
conviction. Id. at 343–44, 271 S.E.2d at 260. The Court disagreed and held that the
funds were subject to Article IX, Section 7. Id. at 345, 271 S.E.2d at 261. The central
question in cases like that one, the Court said, is not “whether the monies are
denominated ‘fines’ or ‘penalties’ ” because “the label attached to the money does not
control.” Id. at 344, 271 S.E.2d at 260. It explained that “[t]he crux of the distinction
lies in the nature of the offense committed, and not in the method employed by the
municipality to collect fines for commission of the offense.” Id.
In response to the Court’s ruling in Cauble, the Department of Environment,
Health and Natural Resources (DEHNR) ventured a different argument in Craven
County Board of Education v. Boyles, 343 N.C. 87, 468 S.E.2d 50 (1996). In that
case, DEHNR assessed a penalty against a company for violating air pollution
standards. Id. at 88, 468 S.E.2d at 51. DEHNR and the company eventually made a
settlement agreement under which payments were not to “be construed as
forfeitures, fines, penalties, or payments in lieu thereof.” Id. at 89, 468 S.E.2d at 51.
Despite the language of the agreement, the Court explained that because the
payments arose from an environmental enforcement action against the payor, the
funds were proceeds from penalties and thus subject to Article IX, Section 7. Id. at
92, 468 S.E.2d at 53.
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Newby, J., dissenting
In due course, the Department of Environment and Natural Resources
(DENR), DEHNR’s successor, tried another argument to avoid Article IX, Section 7
in North Carolina School Boards Association v. Moore, 359 N.C. 474, 614 S.E.2d 504
(2005). In that case, DENR assessed a penalty against the City of Kinston, but
eventually remitted the penalty altogether. See id. at 509–10, 614 S.E.2d at 525.
Instead, the parties made an agreement under which the City of Kinston paid
money to the State’s “Supplemental Environmental Project.” Id. at 508, 614 S.E.2d
at 524–25. Nonetheless, the Court held the payment was a settlement of penalties
despite the State’s assertion that the payments were voluntary and remedial in
nature. Id. at 508–10, 614 S.E.2d at 524–26. Because the payment would not have
been made had DENR not assessed a penalty against the City of Kinston, the Court
stated it would be “euphemistic at best” to say the payment was voluntary. Id. at
509, 614 S.E.2d at 525.
This case represents perhaps the most creative effort yet to avoid Article IX,
Section 7. The Attorney General argues that the agreement at issue falls outside
that provision because it did not resolve any outstanding civil penalties assessed
against Smithfield. Though the agreement resolved no such penalties, a fair reading
of the document shows that, as consideration for its $50 million promise, Smithfield
received time to correct regulatory deficiencies that otherwise could have resulted in
the imposition of further penalties. For example, in subsection III(A)(1)(b), the
agreement gave Smithfield until 15 October 2000 to submit a plan to correct
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Newby, J., dissenting
“deficient site conditions or operating practices” at some of its farms. “Deficient”
sites indicate that those sites fell below the lawful standards. So, the agreement
appears to have allowed Smithfield nearly three months to submit a plan to correct
conditions for which the Attorney General presumably could have immediately
brought an enforcement action. Similarly, subsection III(A)(1)(d) of the agreement
allowed Smithfield until 15 December 2000 to submit a plan to shut down its
abandoned lagoons; it thus granted Smithfield nearly five months to submit a plan
to correct conditions for which the Attorney General could bring an enforcement
action immediately, assuming the abandoned lagoons presented an unlawful
environmental hazard.2
There simply is no good reason to believe that Smithfield would have entered
into the agreement had the deficiency provisions not been part of the document. In
support of his position, the Attorney General points to language near the end of the
document which states that the agreement should not be interpreted to limit State
enforcement “for past, present, or future violations of law . . . .” That language is no
more dispositive than the provision in the Boyles settlement agreement that
described the company’s settlement payments as something other than a fine,
2Counsel for the Attorney General admitted at oral argument that much of the
agreement functioned to help Smithfield come into compliance with State law. This
statement presumes that some of Smithfield’s facilities violated the law at the time the
agreement was made. The agreement thus secured for Smithfield an alternative to the
standard enforcement process.
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Newby, J., dissenting
penalty, or forfeiture. As this Court did in Boyles, we should refuse to take at face
value a single settlement provision that is at odds with the plain intent of the
parties and that appears designed to deny the public schools funds owed to them
under Article IX, Section 7.
The Attorney General’s effort to portray Smithfield’s payments as a gift
creates a Catch-22. At oral argument, when asked how the section under which
Smithfield promised to pay money is enforceable, the Attorney General asserted
that the funds are an enforceable charitable gift. It is, however, a longstanding
principle of contract law that a gift is not generally enforceable unless it is given for
consideration. See, e.g., Picot v. Sanderson, 12 N.C. (1 Dev.) 309, 309 (1827)
(explaining that a transaction was “a mere contract or agreement to give, which,
being without consideration, cannot be enforced”). In other words, a “gift” is
enforceable when the “giver” gets something in return—that is, when the gift is not
truly a gift at all. If the payments really are a gift, they are unenforceable. If they
are not a gift, then they are part of a settlement agreement involving the
enforcement of state law and therefore subject to Article IX, Section 7.
Because the best reading of the whole agreement shows that Smithfield
secured favor from the Attorney General regarding Smithfield’s noncompliant
practices, the funds promised by Smithfield are not a gift. It does not matter that no
outstanding enforcement action was dismissed by the Attorney General because of
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Newby, J., dissenting
the agreement. The function of the agreement viewed objectively is to secure
leniency by the regulators in favor of the regulated party, Smithfield. Because of the
potential of future enforcement actions against Smithfield, it is, like it was in
Moore, “euphemistic at best” to say that Smithfield voluntarily made a gift out of
pure good will. The agreement appears artfully drafted based on this Court’s
precedent on penalties, but the substance of the agreement shows through
nonetheless. Given the binary choice presented in this case—a gift or a settlement
in lieu of penalties—the funds should be classified as a settlement and thus directed
to the Civil Penalties and Forfeiture Fund. This classification is consistent with how
the Attorney General’s office has characterized the agreement.
Indeed, if the agreement with Smithfield is not a settlement, the Attorney
General lacked authority to make the agreement. The majority states that this
Court need not resolve the question of the Attorney General’s authority in this case.
I disagree.3 The issue is not only critically important to the State’s public interest
3The majority asserts that plaintiff does not have standing to challenge the
Attorney General’s authority to make the agreement because the existence of the
agreement does not harm plaintiff.
First, I do not think standing is a bar to considering this issue because plaintiff does
not actually claim the agreement is invalid; it simply argues the agreed upon payments
must be a settlement if the agreement is to be considered valid. This argument is not a
separate claim for which a plaintiff must show standing. It is an additional argument
supporting the central claim, which plaintiff has standing to assert.
Second, as to the substance of the standing issue, generally, any person may bring
an action alleging a separation of powers violation if they can show any injury, even if the
injury is the same as that suffered by the rest of the public. We have recognized causes of
action arising directly under the North Carolina Constitution to vindicate rights secured by
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Newby, J., dissenting
and jurisprudence, but plaintiff also adequately presented it, arguing that the
agreement must involve settlement in lieu of penalties if the agreement is to be a
valid exercise of the Attorney General’s powers.
The General Assembly has decided that the Attorney General should have all
the “powers of the Attorney General that existed at the common law, that are not
repugnant to or inconsistent with the Constitution or laws of North Carolina.”
N.C.G.S. § 114-1.1 (2019) (emphasis added). Specifically, it gave the Attorney
General the duty to represent the interests of the State in legal proceedings,
the Declaration of Rights. Corum v. Univ. of N.C., 330 N.C. 761, 783, 413 S.E.2d 276, 290,
cert. denied, 506 U.S. 985, 113 S. Ct. 493, 121 L. Ed. 2d 431 (1992). The Declaration of
Rights provides, among many other things, that “[t]he legislative, executive, and supreme
judicial powers of the State government shall be forever separate and distinct from each
other.” N.C. Const. art. I, § 6. In this case, plaintiff may have been injured by a separation
of powers violation by the Attorney General because one conceivable result of the Attorney
General’s actions is that money that could have been extracted as a penalty, and so directed
to supporting education, is instead extracted as a “gift” for environmental enhancement.
This Court should consider the Attorney General’s authority in this case. The result
of the majority’s decision that the agreement does not involve settlement payments in lieu
of penalties means that both the agreement and the Attorney General’s grant program
remain intact and active. The Court thus allows a potentially invalid exercise of
governmental power to go unchecked indefinitely. Furthermore, if, as the majority says,
these payments are not in settlement of any wrongdoing, past or future, then what is the
true nature of the agreement? The agreement at least appears to involve the Attorney
General accepting gratuitous payments from entities against which the Attorney General
should be enforcing regulations. Can a regulated party give gifts to the regulator without
the public seeing the payments as being for something? By upholding such a scheme, the
majority invites mischief, and the public has an interest in curtailing such mischief. In
addition, Smithfield will continue to pay millions into the fund for at least the next five
years. Because of the agreement, these substantial funds go into the Attorney General’s
preferred grant program rather than into any other public fund. The public thus has an
interest in the extent of the Attorney General’s powers. Because the Attorney General’s
authority and the nature of this State’s separation of powers principle are critical to the
public interest and to the State’s jurisprudence, this Court should address those issues now.
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Newby, J., dissenting
N.C.G.S. § 114-2 (2019), and authority regarding settlements to which the State is a
party, N.C.G.S. § 114-2.1, -2.4 (2019). The Attorney General thus appears to have
the authority to settle legal claims that the State may have against private parties,
or that private parties may have against the State.
The Attorney General’s central argument in this case, however, is that the
agreement is not a settlement. If that is true, as the majority concludes, then the
Attorney General must find another basis for his authority to make such an
agreement.
The Attorney General argues that he has special authority to make the
agreement because he is the State’s “chief legal advisor,” and he has the authority
to accept gifts on the State’s behalf. The title of “chief legal advisor,” he says, gives
him the authority to manage all the State’s legal affairs, which is not limited to
litigation. Specifically, he claims, the Attorney General has “plenary authority to act
in the interests of the public, including non-litigation efforts ‘to enforce the state’s
statutes.’ ” (quoting 7 Am Jur. 2d Attorney General § 5, at 10 (2017)).
It is simply incorrect that the Attorney General has “plenary authority to act
in the interests of the public.” The separation of powers principle of the North
Carolina Constitution makes that clear. The Attorney General should act in the
public interest, but he may not exercise legislative power to do so. And even if the
Attorney General has the power to engage in “non-litigation efforts to enforce the
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Newby, J., dissenting
state’s statutes,” that power is not broad enough to vindicate his actions here if the
payments are not a settlement in lieu of penalties. Under the majority’s and the
Attorney General’s view, neither the agreement nor the grant program “enforces”
any State statute. The Attorney General in fact argues that the agreement was not
a penalty or settlement resulting from any violation of the law. It is, instead, part of
a policy initiative to conserve the State’s natural environment. The initiative may
be commendable, but it does not enforce the State’s laws. If the agreement does not
involve settlement of penalties, it involves legislative policy considerations, a role
constitutionally reserved for the General Assembly.
Searching for statutory authority, the Attorney General also argues he has
power to “accept gifts on behalf of the State” under N.C.G.S. § 138A-32(f)(5) (2019).
Obviously intended as an anti-corruption measure, section 138A-32 imposes
restrictions on the solicitation and receipt of gifts by certain state officials and
employees. Subsection (f)(5) merely states that the statute’s restrictions do not
apply in the case of gifts “accepted on behalf of the State for use by the State or for
the benefit of the State.” The best reading of this provision is that, if a
governmental official may otherwise accept a gift for the State, section 138A-32 does
not prohibit the official from doing so. Subsection (f)(5) does not give the Attorney
General or other officials authority they would not otherwise have to accept gifts on
the State’s behalf.
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Newby, J., dissenting
Moreover, under the agreement and grant program, the Attorney General
does not simply accept the funds on the State’s behalf, he accepts them for his
separate fund, and decides precisely how the money should be used. He, in
accordance with the agreement, has decided that the funds should be deposited into
a specific escrow account, and he has the final say about who receives grants from
that fund. The purpose of subsection (f)(5) is to enable public servants, legislators,
or legislative employees to accept gifts for the good of the State without violating
ethical rules. The General Assembly, in passing that provision, could not have
intended those officials and employees to have the authority to unilaterally decide
exactly how the State’s gift should be used. That is a strikingly broad power which
falls squarely within the General Assembly’s policymaking purview alone.
Without a specific statutory provision to grant the Attorney General the
authority to fund and establish the grant program, the actions of the Attorney
General in this case violate the separation of powers principle as well. The North
Carolina Constitution provides that “[t]he legislative, executive, and supreme
judicial powers of the State government shall be forever separate and distinct from
each other.” N.C. Const. art. I, § 6. The legislative power belongs to the General
Assembly. N.C. Const. art. II, § 1 (“The legislative power of the State shall be vested
in the General Assembly . . . .”). No governmental entity other than the General
Assembly may exercise a power that is uniquely legislative. Any usurpation of the
legislative power by the executive branch, regardless of intent, is an exercise of
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Newby, J., dissenting
powers in violation of the North Carolina Constitution.
By entering into this agreement and creating and operating the grant
program the Attorney General has unconstitutionally exercised legislative power.
The levying of funds received from private entities is a quintessentially legislative
power. References to such power in the North Carolina Constitution refer to powers,
or limitations of power, of the General Assembly. See, e.g., N.C. Const. art. II, §
24(1)(k); N.C. Const. art. V, §§ 1, 2, and 5. The Constitution does not grant any
similar power to the Attorney General or any other executive branch member. In
fact, the Constitution specifically provides that the General Assembly may pass laws
to allow other entities to appropriate funds for public purposes. See N.C. Const. art.
V, § 7. Thus, any executive action extracting funds from private entities violates the
separation of powers principle of this State unless authorized by the General
Assembly. The Attorney General’s agreement is unconstitutional if the payments
constitute a gift instead of a settlement. The entering of the agreement and
operating the grant program cannot, then, fall under the Attorney General’s power,
which extends only to those actions which are not “repugnant to or inconsistent
with the Constitution or laws of North Carolina.” N.C.G.S. § 114-1.1.
Under the Attorney General’s argument, every Council of State member
could “encourage” “gifts” from those entities that they regulate and redirect those
gifts to each member’s preferred recipients. In doing so, each member could
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Newby, J., dissenting
effectively “tax” the regulated entities to fund the member’s own policy initiatives,
thereby circumventing the General Assembly. This usurpation of legislative
authority would clearly be unconstitutional. Moreover, such governmental actions
could suggest impropriety, inviting the onlooking public to question whether those
regulated entities that participate in the “gift” programs sponsored by regulators
will be treated the same as those that do not.
The Attorney General’s agreement with Smithfield is a settlement for
purposes of Article IX, Section 7. The public schools are therefore entitled to the
clear proceeds of Smithfield’s settlement payments. If, as the Attorney General
insists, the agreement is not a settlement, it constitutes an unauthorized and
unconstitutional usurpation of powers that properly belong to the legislature. I
therefore disagree with the majority’s decision to let the agreement stand.
I respectfully dissent.
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New Hanover Cty. Bd. of Educ. v. Stein
Combined Opinion