Adams v. State of NC ( 2016 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA15-1275
Filed: 2 August 2016
Wake County, No. 14 CVS 15027
RODNEY K. ADAMS, ELIZABETH I. ALLEN, JOSEPH J. BATEMAN, WILLIAM
PAUL BATEMAN, GILBERT A. BREEDLOVE, DEBRA D. CARSWELL, JASON
GRAY CHEEK, CHRISTOPHER E. DUCKWORTH, BRYAN G. FARLEY, MELISSA
FERREL, JAMES ROBERT FREEMAN, JOSHUA PHILLIP GRANT, WANDA M.
HAMMOCK, MARLENE HAMMOND, THOMAS MURPHY HARRIS, RONALD E.
HODGES, THOMAS W. HOLLAND, GARY H. LITTLETON, LINDA B. LONG,
PANSY K. MARTIN, SHARON S. McLAURIN, BRUCE A. McPHERSON, THOMAS
G. MILLER, JEFFREY MITCHELL, DONALD D. PASCHALL, SR., ROBERT
WARREN PEARCE, CONNIE C. PEELE, JULIAN R. POTEAT, MARGARET L.
RATHBONE, RONALD RAYMOND ROBERTS, JR., RAE RENEE ROTHROCK,
SUZANNE SHEEHAN, SUSAN B. SMEVOG, KENNETH SPEARS, STEVEN R.
STORCH, CECIL LYNN WEBB, EMILY ALICIA WESTOVER, WILLIAM ERIC
WHITTEN, and WILLIAM T. WINSLOW, individually and on behalf of a class of
similarly situated persons, Plaintiffs,
v.
The STATE OF NORTH CAROLINA, PATRICK L. McCRORY, Governor of the State
of North Carolina, in his official capacity, LEE HARRIS ROBERTS, State Budget
Director, in his official capacity, and DR. LINDA MORRISON COMBS, State
Controller, in her official capacity, Defendants.
Appeal by Plaintiffs from order entered 13 July 2015 by Judge Michael
O’Foghludha in Wake County Superior Court. Heard in the Court of Appeals 14 April
2016.
Cloninger, Barbour, Searson, & Jones, PLLC, by Frederick S. Barbour and W.
Scott Jones, and the Law Office of David A. Wijewickrama, by David A.
Wijewickrama, for the Plaintiffs-Appellants.
Attorney General Roy A. Cooper, III, by Special Deputy Attorney General Marc
Bernstein, for the Defendants-Appellees.
ADAMS V. STATE OF NC
Opinion of the Court
DILLON, Judge.
Plaintiffs appeal from the trial court’s order granting Defendants’ motion to
dismiss and entering final judgment dismissing Plaintiffs’ claims for (1) breach of
contract, (2) impairment of contract under Article I, Section 10 of the United States
Constitution, (3) violations of Article I, Sections 18 and 19 of the North Carolina
Constitution, and (4) specific performance.
I. Background
Plaintiffs are all employed by the State of North Carolina as magistrates.1 The
office of magistrate was created by constitutional amendment in 1962 as part of a
comprehensive revision of the North Carolina court system spearheaded by Governor
Luther H. Hodges and leaders of the North Carolina Bar Association.2 The North
Carolina Constitution provides that “[t]he General Assembly shall prescribe and
regulate the . . . salaries . . . of all officers provided for in [] Article [IV],” N.C. Const.
art. IV, § 21, which includes the salaries of magistrates. See N.C. Const. art. IV, § 10.
1 The class of Plaintiffs consists of all magistrates employed by the State of North Carolina at
any time between 30 June 2009 and 1 July 2014, who had not, as of 1 July 2014, reached Step 6 of the
pay schedule set forth in N.C. Gen. Stat. § 7A-171.1.
2 In a special message to the General Assembly in March 1959, Governor Hodges encouraged
the North Carolina Bar Association to “take the lead in making a thorough and objective study of our
courts,” and to “show our State what should be done to improve the administration of justice in North
Carolina.” Special Message of Governor Luther H. Hodges to the North Carolina General Assembly,
Article IV—Judicial Department (March 12, 1959), in Journal of the House of Representatives of the
General Assembly of the State of North Carolina, at 209 (1959) (available at
http://digital.ncdcr.gov/u?/p249901coll22,558990).
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Opinion of the Court
The General Assembly enacted a salary schedule for magistrates in 1977.
Since 1977, this salary schedule has been amended numerous times. The current
version is codified in N.C. Gen. Stat. § 7A-171.1 (the “Salary Statute”) and provides
for the salaries of magistrates as follows:
(1) A full-time magistrate shall be paid the annual salary
indicated in the table set out in this subdivision. . . . Initial
appointment shall be at the entry rate. A magistrate's
salary shall increase to the next step every two years on
the anniversary of the date the magistrate was originally
appointed for increases to Steps 1 through 3, and every four
years on the anniversary of the date the magistrate was
originally appointed for increases to Steps 4 through 6.
Table of Salaries of Full-Time Magistrates
Step Level Annual Salary
Entry Rate $35,275
Step 1 37,950
Step 2 40,835
Step 3 43,890
Step 4 47,550
Step 5 51,960
Step 6 56,900.
N.C. Gen. Stat. § 7A-171.1(a)(1) (2015).
On 1 July 2009, the General Assembly enacted legislation suspending the step
increases under the Salary Statute for fiscal years 2009-2010 and 2010-2011, such
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ADAMS V. STATE OF NC
Opinion of the Court
that no magistrate could ascend to a higher step of the pay schedule during those
years. The step increases were again suspended by the General Assembly in 2011 for
the 2011-2013 fiscal biennium3 and in 2013 for the 2013-2015 fiscal biennium. On 1
July 2014, however, the General Assembly fully reinstated the pay schedule and step
increases.
Plaintiffs filed suit against the State of North Carolina in May 2014, alleging
that when they accepted employment as magistrates, the pay schedule set forth in
the Salary Statute became a vested contractual right and that the State committed a
breach of contract by suspending the step increases. Plaintiffs also asserted related
constitutional claims, as well as claims for specific performance and declaratory
judgment.
Defendants filed a motion to dismiss pursuant to N.C. Gen. Stat. § 1A-1, Rules
12(b)(1), (2), and (6). The trial court granted Defendants’ motion to dismiss,
specifically concluding that Plaintiffs’ complaint “failed to state a claim upon which
relief can be granted[.]” See N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) (2015). In its order,
the trial court specifically concluded that N.C. Gen. Stat. § 7A-171.1 did not create
any contractual right for the Plaintiffs to receive step increases, and therefore
3However, in 2012, the General Assembly granted magistrates and most other state employees
a 1.2% pay increase and increased the entire salary schedule in N.C. Gen. Stat. § 7A-171.1 by 1.2%.
2012 N.C. Sess. Laws 142, § 25.1A(b) & (g).
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ADAMS V. STATE OF NC
Opinion of the Court
Plaintiffs’ claims were barred by the doctrine of sovereign immunity. We agree, and
therefore affirm the trial court’s order granting Defendants’ motion to dismiss.
II. Analysis
On appeal from a motion to dismiss under Rule 12(b)(6) of the North Carolina
Rules of Civil Procedure, this Court conducts a de novo review of “whether the
allegations of the complaint, if treated as true, are sufficient to state a claim upon
which relief can be granted under some legal theory.”4 Bridges v. Parrish, 366 N.C.
539, 541, 742 S.E.2d 794, 796 (2013). Plaintiffs argue that their complaint did, in
fact, state a claim for breach of contract entitling them to relief. Plaintiffs also
contend that they are entitled to relief under the Contract Clause of the United States
Constitution and the Law of the Land Clause of the North Carolina Constitution.5
We address each of these arguments in turn.
A. Principles Governing Contracts With the State
It is well established in North Carolina that “an appointment or election to
public office does not establish contract relations between the person[s] appointed or
elected and the State.” Smith v. State, 289 N.C. 303, 307, 222 S.E.2d 412, 416 (1976);
see also Mial v. Ellington, 134 N.C. 131, 46 S.E. 961 (1903). Unless specifically
4 We consider the merits of Plaintiffs’ contract claim because the trial court specifically
dismissed their complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can
be granted.
5 Plaintiffs did not address the trial court’s dismissal of their remaining claims on appeal, and
these claims are therefore deemed abandoned. N.C. R. App. P. 28(a).
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ADAMS V. STATE OF NC
Opinion of the Court
prohibited by our Constitution, as a general rule, “[t]he Legislature may reduce or
increase the salaries of such officers . . . during their term of office, but cannot deprive
them of the whole.” Cotton v. Ellis, 52 N.C. 545, 545 (1860). “[I]f the Legislature
should increase the duties and responsibilities, or diminish the emoluments of the
office, the officer must submit. Clearly any other rule would subordinate the public
welfare to the interest of the officer. [The officer] takes subject to the power of the
Legislature to change [the] duties and emoluments as the public good may require.”
State ex rel. Bunting v. Gales, 77 N.C. 283, 285 (1877).
The relationship between magistrates and the State is contractual in nature
in one respect in that the magistrates are employees who provide labor in exchange
for wages and benefits. And it is true that a statute enacted by our General Assembly
can create a vested contractual right where the statute provides a benefit for work
already performed. For instance, our Supreme Court has clearly stated:
. . . that when the General Assembly enacted laws which
provided for certain benefits to those persons who were to
be employed by the state and local governments and who
fulfilled certain conditions, this could reasonably be
considered by those persons as offers by the state or local
government to guarantee the benefits if those persons
fulfilled the conditions. When they did so, the contract was
formed.
Faulkenbury v. Teachers’ and State Employees’ Retirement System of North Carolina,
345 N.C. 683, 691, 483 S.E.2d 422, 427 (1997) (emphasis added). That is, the
Supreme Court has concluded that if an employee fulfills certain conditions under a
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Opinion of the Court
statute and thereby becomes entitled to a benefit, the benefit is considered “vested”
and may not be taken from the employee by legislative action. Id. at 692, 483 S.E.2d
at 428.
However, our Supreme Court more recently has reiterated the principle that
there is a strong presumption that a statute does not create contractual rights. N.C.
Ass’n of Educators v. State, ___ N.C. ___, ___, 786 S.E.2d 255, 262 (2016). Specifically,
the Court stated as follows:
The United States Supreme Court has recognized a
presumption that a state statute is not intended to create
private contractual or vested rights but merely declares a
policy to be pursued until the legislature shall ordain
otherwise. This presumption is rooted in the long-standing
principle that the primary function of the legislature is to
make policy rather than contracts. A party asserting that
a legislature created a statutory contractual right bears the
burden of overcoming that presumption by demonstrating
that the legislature manifested a clear intention to be
contractually bound. Construing a statute to create
contractual rights in the absence of an expression of
unequivocal intent would be at best ill-advised, binding the
hands of future sessions of the legislature and obstructing
or preventing subsequent revisions and repeals. We are
deeply reluctant to limit drastically the essential powers of
a legislative body by finding a contract created by statute
without compelling supporting evidence.
Id. at ___, 786 S.E.2d at 262-63 (internal marks and citations omitted).
In the present case, we hold that Plaintiffs failed to meet their burden of
showing that the Salary Statute creates a binding contract right for magistrates to
receive a certain salary in the future for work performed in the future. Rather, the
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Opinion of the Court
General Assembly is free to amend the Salary Statute so long as, in doing so, the
General Assembly does not reduce a magistrate’s salary for work already performed.
The General Assembly’s suspension of raises under the Salary Statute is much
different than the legislation at issue in Faulkenbury, which reduced the amount of
future pension benefits State employees would receive for work already performed.
See Faulkenbury, 345 N.C. at 691, 483 S.E.2d at 427 (“[P]ensions for teachers and
state employees [are] delayed salaries.”).
Although our Supreme Court concluded in the recent case of N.C. Ass’n. of
Educators that the Career Status Law itself did not create a contractual right to
tenure, the Court did conclude that the individual teacher contracts contained an
implied right to tenure for those who had already attained career status. N.C. Ass’n
of Educators, ___ N.C. at ___, 786 S.E.2d at 264 (concluding that the repeal of the
Career Status Law “unlawfully infringe[d] upon the contract rights of teachers who
had already achieved career status” (emphasis added)). And our Court concluded that
teachers who had not yet worked the requisite years to attain career status had no
contractual right to receive tenure in the future by completing the requisite years of
service, an issue which was not considered or otherwise disturbed by our Supreme
Court. N.C. Ass’n of Educators, ___ N.C. App. ___, ___, 776 S.E.2d 1, 23-24 (2015).
The magistrates here are much like the teachers in N.C. Ass’n. of Educators who had
not yet worked the requisite number of years to have a contractual right to career
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ADAMS V. STATE OF NC
Opinion of the Court
status. Here, a magistrate could not have a contractual right to receive a higher
salary in a future year simply until the magistrate completed work in that future
year. The actions of the General Assembly in suspending step increases for future
work did not take away any benefit already earned by Plaintiffs, whereas in N.C.
Ass’n of Educators, the successful plaintiffs had already worked the requisite years
to earn career status. See Schimmeck v. City of Winston-Salem, 130 N.C. App. 471,
475, 502 S.E.2d 909, 912 (1998) (holding that a statute in force at the time plaintiff
police officer began employment allowing disabled officers with five years of service
to retire with benefits did not apply to plaintiff because the legislature amended the
statute to provide for disabled officers to be transferred to other departmental duties
prior to plaintiff’s rights vesting with five years of service.) Accordingly, we hold that
the trial court properly concluded that the General Assembly is free to alter the salary
schedule before the work supporting each step increase is actually performed by a
magistrate.
Plaintiffs also argue that the pay schedule and the representations of agents
and employees of the State of North Carolina regarding their pay became contractual
terms because they relied on these representations by accepting their positions as
magistrates. While our Court has previously held that representations of an
employer regarding benefits of employment can form supplementary employment
contracts, we also noted that the plaintiffs in that case were “not seeking to prevent
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Opinion of the Court
the city from changing the benefits to be earned in the future[.]”6 Pritchard v.
Elizabeth City, 81 N.C. App. 543, 552-53, 344 S.E.2d 821, 826 (1986). Rather, they
sought to recover “for benefits allegedly already conferred on them by virtue of the
ordinance and their contracts for services previously rendered[.]” Id. at 553, 344 S.E.
2d at 826.
In fact, if we were to find the presence of a contract in this case, it would still
be true that even “[i]f an Act prescribing the duties and compensation of a public
officer can in any case be held to be a contract, . . . it is a contract subject to the general
law, and therefore containing within itself a provision that such duties and
compensation may be changed by any general law whenever the Legislature shall
think a change required by the public good.” State ex rel. Bunting v. Gales, 77 N.C.
283, 286-87 (1877) (emphasis added); see also Mills v. Deaton, 170 N.C. 386, 87 S.E.
123, 124 (1915) (noting that the legislature may, “within reasonable limits[,] diminish
the emoluments of an office . . . by reducing the salary or the fees, for the incumbent
takes the office subject to the power of the Legislature to make such changes as the
public good may require”). Because the Plaintiffs in this case did not have a vested
right to every step pay increase, they had no contractual right for their future salaries
as set forth in the Salary Statute.
B. Constitutional Claims
6 In addition, the ordinance which created the benefit at issue in Pritchard “clearly
contemplate[d] that the . . . benefit program would assist in recruiting city employees and would
become part of their contracts.” Pritchard, 81 N.C. App. at 552, 344 S.E.2d at 826.
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ADAMS V. STATE OF NC
Opinion of the Court
Because we have determined that Plaintiffs did not have a contractual right to
the future pay schedule in the Salary Statute, Plaintiffs’ arguments regarding the
Contract Clause of the United States Constitution have no merit on appeal. See
Bailey v. State, 348 N.C. 130, 141, 500 S.E.2d 54, 60 (1998); see also U.S. Trust Co. of
N.Y. v. New Jersey, 431 U.S. 1 (1977). Plaintiffs’ remaining argument on appeal is
for an unconstitutional taking claim based on the Law of the Land Clause of the North
Carolina Constitution, which has been used in our State to allow “taking challenges
on the basis of constitutional and common-law principles.” Rhyne v. K-Mart Corp.,
358 N.C. 160, 179, 594 S.E.2d 1, 14 (2004); see also N.C. Const., art. I, § 19. For an
unconstitutional taking to occur, Plaintiffs must have a recognized property interest
for the State to take. See e.g., Rhyne, 358 N.C. at 179, 594 S.E.2d at 14-15. Although
we recognize that vested contractual rights are property and are protected by the Law
of the Land Clause of our Constitution, Bailey, 348 N.C. at 154, 500 S.E.2d at 68, we
reject Plaintiffs’ taking argument because they have failed to establish the presence
of a vested contractual right to the future pay schedule set forth in the Salary Statute.
III. Conclusion
We conclude that the Salary Statute does not create vested contractual rights
for magistrates to receive future salary increases for work not already performed.
Therefore, the General Assembly was free to suspend step increases under the Salary
Statute. Accordingly, we hold that the trial court did not err in dismissing Plaintiffs
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Opinion of the Court
complaint for failure to state any claim upon which relief could be granted, and we
affirm the ruling of the trial court.
AFFIRMED.
Chief Judge McGEE and Judge DAVIS concur.
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