Lake v. State Health Plan for Teachers & State Employees ( 2014 )

NO. COA13-1006
NORTH CAROLINA COURT OF APPEALS
Filed: 17 June 2014
I. BEVERLY LAKE, JOHN B. LEWIS,
JR., EVERETTE M. LATTA, PORTER L.
McATEER, ELIZABETH S. McATEER,
ROBERT C. HANES, BLAIR J.
CARPENTER, MARILYN L. FUTRELLE,
FRANKLIN E. DAVIS, JAMES D.
WILSON, BENJAMIN E. FOUNTAIN, JR.,
FAYE IRIS Y. FISHER, STEVE FRED
BLANTON, HERBERT W. COOPER, ROBERT
C. HAYES, JR., STEPHEN B. JONES,
MARCELLUS BUCHANAN, DAVID B.
BARNES, BARBARA J. CURRIE, CONNIE
SAVELL, ROBERT B. KAISER, JOAN
ATWELL, ALICE P. NOBLES, BRUCE B.
JARVIS, ROXANNA J. EVANS, and JEAN
C. NARRON, and all others
similarly situated,
Plaintiffs,
v. Gaston County
No. 12-CVS-1547
STATE HEALTH PLAN FOR TEACHERS AND
STATE EMPLOYEES, a corporation,
formerly Known as the North
Carolina Teachers and State
Employees’ Comprehensive Major
Medical Plan, TEACHERS’ AND STATE
EMPLOYEES’ RETIREMENT SYSTEM OF
NORTH CAROLINA, a corporation,
BOARD OF TRUSTEES TEACHERS’ AND
STATE EMPLOYEES’ RETIREMENT SYSTEM
OF NORTH CAROLINA, a body politic
and corporate, JANET COWELL, in
her official capacity as Treasurer
of the State of North Carolina,
and the STATE OF NORTH CAROLINA,
Defendants.
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Appeal by Defendants from order entered 23 May 2013 by
Judge Edwin G. Wilson, Jr. in Gaston County Superior Court.
Heard in the Court of Appeals 6 March 2014.
Attorney General Roy A. Cooper, III, by Special Deputy
Attorney General Marc Bernstein, for the Defendants-
appellants.
Gray, Layton, Kersh, Solomon, Furr & Smith, P.A., by
Michael L. Carpenter, for Plaintiffs-appellees.
DILLON, Judge.
The State Health Plan for Teachers and State Employees, et
al., (the “Defendants”) appeal from the denial of their motion
to dismiss pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1),
(2), and (6) in favor of I. Beverly Lake, et al., (the
“Plaintiffs”). For the foregoing reasons, we affirm in part,
and dismiss in part.
I. Background
On 20 April 2012, Plaintiffs filed a complaint alleging,
inter alia, that they are all former employees and current
retirees with the State of North Carolina with at least five
years of contributory service; as part of their employment, they
were offered certain benefits, including a health benefit plan
after retirement through the State Health Plan; this health
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benefit plan provided the option to each Plaintiff to
participate on a non-contributory 80/20 basis or on a 90/10
basis with a contribution; they had vested by working at least
five years and were eligible upon retirement to receive these
health insurance benefits from the State Health Plan; Defendants
stopped providing a non-contributory 80/20 health benefit in
2011 and the 90/10 plan for retirees in 2009, respectively; and
that these actions by Defendants constituted a breach of
contract.1
On 23 July 2012, Defendants filed a motion to dismiss
pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1), (2), and (6),
arguing that the trial court lacked jurisdiction based, in part,
on Defendants’ sovereign immunity defense and that the complaint
should otherwise be dismissed because the allegations therein
failed to state a claim upon which relief could be granted. On
23 May 2013, Judge Edwin G. Wilson, Jr.2, entered an order
denying Defendants’ motion to dismiss in its entirety. On 14
June 2013, Defendants filed notice of appeal from the trial
court’s denial of their motion to dismiss.
1
Plaintiffs also raised a number of other claims which are
not at issue in Defendants’ appeal.
2
On 26 November 2012, the Chief Justice of the North
Carolina Supreme Court designated this case as “exceptional”
under Rule 2.1 of the General Rules of Practice for the Superior
and District Courts, and assigned Judge Wilson to the case.
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II. Interlocutory Appeal
On 19 December 2013, Plaintiffs filed a motion to dismiss
Defendants’ appeal with this Court, arguing that “the appeal is
an impermissible interlocutory appeal and Defendant-Appellants
do not have a substantial right to immediate review[.]”
Plaintiffs raised similar arguments in their brief on appeal.
We have recently stated that
“[a]s a general rule, interlocutory orders
are not immediately appealable.” Id.
(citation omitted). However, “immediate
appeal of interlocutory orders and
judgments is available in at least two
instances: when the trial court certifies,
pursuant to N.C.G.S. § 1A-1, Rule 54(b),
that there is no just reason for delay of
the appeal; and when the interlocutory order
affects a substantial right under N.C.G.S.
§§ 1-277(a) and 7A-27(d)(1).” Id.
(quotation omitted).
Jenkins v. Hearn Vascular Surgery, P.A., ___ N.C. App. ___, ___,
719 S.E.2d 151, 153-54 (2011). Defendants admit that their
appeal is interlocutory, and we agree. Since there is no Rule
54(b) certification, we must determine whether Defendants’
appeal affects a substantial right.
In North Carolina, “appeals raising issues of governmental
or sovereign immunity affect a substantial right sufficient to
warrant immediate appellate review.” McClennahan v. N.C. Sch.
of the Arts, 177 N.C. App. 806, 808, 630 S.E.2d 197, 199 (2006),
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disc. review denied, 361 N.C. 220, 642 S.E.2d 443 (2007).
However, as stated by our Supreme Court, “[t]he denial of a
motion to dismiss for failure to state a claim upon which relief
can be granted, made pursuant to Rule 12(b)(6), Rules of Civil
Procedure, G.S. 1A-1, is an interlocutory order from which no
immediate appeal may be taken.” Teachy v. Coble Dairies, Inc.,
306 N.C. 324, 326, 293 S.E.2d 182, 183 (1982) (citation
omitted). Therefore, we dismiss Defendants’ appeal as to any
issues related to the trial court’s Rule 12(b)(6) ruling
regarding the validity of the alleged contract as interlocutory,
and address only those issues related to sovereign immunity and
Rule 12(b)(2)3, as those issues relate to a substantial right and
3
Our Supreme Court has stated that an order denying a motion
to dismiss for lack of subject-matter jurisdiction, pursuant to
Rule 12(b)(1) is not immediately appealable, but that an order
denying a motion for lack of personal jurisdiction, pursuant to
Rule 12(b)(2) is immediately appealable. Teachy, 306 N.C. at
327-28, 293 S.E.2d at 184. The Court in Teachy also noted that
there is a split in authority around the country as to whether a
motion to dismiss based on sovereign immunity is properly a
motion under Rule 12(b)(1) or under Rule 12(b)(2) and that the
determination of this issue is relevant in North Carolina in
situations involving an interlocutory appeal denying a motion to
dismiss based on sovereign immunity. Id. However, our Supreme
Court did not ultimately resolve the issue in Teachy, deciding
rather to review that appeal based on its supervisory
jurisdiction. Id. Though our Supreme Court has not resolved
the issue as to whether a motion to dismiss based on sovereign
immunity is a motion under Rule 12(b)(1) or under Rule 12(b)(2),
our Court has determined that the denial of a motion to dismiss
based on sovereign immunity can be based on Rule 12(b)(2), and
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are immediately appealable. See McClennahan, 177 N.C. App. at
808, 630 S.E.2d at 199. We next turn to address Defendants’
appeal and their arguments regarding sovereign immunity.
III. Rule 12(b)(2) Dismissal Based on Sovereign Immunity
To survive a Rule 12(b)(2) motion to dismiss based on
sovereign immunity, “the complaint must specifically allege a
waiver of governmental immunity. Absent such an allegation, the
complaint fails to state a cause of action.” Paquette v. County
of Durham, 155 N.C. App. 415, 418, 573 S.E.2d 715, 717 (2002)
(citations omitted), disc. review denied, 357 N.C. 165, 580
S.E.2d 695 (2003). However, consistent with the concept of
notice pleading, “as long as the complaint contains sufficient
allegations to provide a reasonable forecast of waiver, precise
language alleging that the State has waived the defense of
sovereign immunity is not necessary.” Fabrikant v. Currituck
County, 174 N.C. App. 30, 38, 621 S.E.2d 19, 25 (2005) (citation
omitted).
is, therefore, immediately appealable. See, e.g., Data Gen.
Corp. v. City of Durham, 143 N.C. App. 97, 99-100, 545 S.E.2d
243, 245-46 (2001), explained in Atl. Coast Conf. v. Univ. of
Md., ___ N.C. App. ___, __, 751 S.E.2d 612, 617 (2013).
Therefore, we dismiss Defendants’ appeal to the extent that it
is based on the denial of their motion to dismiss for lack of
subject-matter jurisdiction, pursuant on Rule 12(b)(1).
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Here, Plaintiffs argue that they have sufficiently pled
that sovereign immunity has been waived by alleging the
existence of a valid contract; and, therefore, the trial court
properly denied Defendants’ Rule 12(b)(2) motion to dismiss.
Specifically, Plaintiffs pled that they each had a contract of
employment with the State and that these contracts included a
promise to provide a guaranteed health benefit during retirement
on a non-contributory 80/20 basis or a 90/10 basis with a
contribution. Our Supreme Court has held that “whenever the
State of North Carolina, through its authorized officers and
agencies, enters into a valid contract, the State implicitly
consents to be sued for damages on the contract in the event it
breaches the contract.” Smith v. State, 289 N.C. 303, 320, 222
S.E.2d 412, 423-24 (1976) (emphasis added). We have held that
this waiver of immunity applies in the context of employment
contracts:
“The existence of the relation of employer
and employee . . . is essentially
contractual in its nature, and is to be
determined by the rules governing the
establishment of contracts, express or
implied.” Hollowell v. Department of
Conservation and Development, 206 N.C. 206,
208, 173 S.E. 603, 604 (1934). Guided by
this principle, as well as the reasoning in
[Smith v State, 289 N.C. 303, 222 S.E.2d 412(1976)], we hold that the County may not
assert the defense of sovereign immunity in
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this case . . . . We agree with plaintiffs’
assertion that the employment arrangement
between the County and plaintiffs was
contractual in nature, although the contract
was implied. Employment contracts may be
express or implied. An implied contract
refers to an actual contract inferred from
the circumstances, conduct, acts or
relations of the parties, showing a tacit
understanding. . . . We do not limit Smith
to written contracts; its reasoning is
equally sound when applied to implied oral
contracts.
Archer v. Rockingham Cty., 144 N.C. App. 550, 557, 548 S.E.2d
788, 792-93 (2001), disc. review denied, 355 N.C. 210, 559
S.E.2d 796 (2002).
We believe that Plaintiffs sufficiently pled a valid
contract. For instance, Plaintiffs alleged in their complaint
that the State of North Carolina acted by offering specific
health plans when Plaintiffs were hired and made representations
to Plaintiffs while they were employed that if they worked five
years then those health plans would vest and be irrevocable upon
retirement. Also, Plaintiffs alleged that they acted by
accepting employment based, in part, on these health plans and
working a set amount of time with the State of North Carolina so
that those health plans would vest or be irrevocable upon
retirement. We believe that our decision in Sanders v. State
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Pers. Comm’n, 183 N.C. App. 15, 644 S.E.2d 10, disc. review
denied, 361 N.C. 696, 652 S.E.2d 654 (2007), is instructive.
In Sanders, the plaintiffs, who were employed as
“temporary” employees by the State of North Carolina for more
than 12 consecutive months, filed their action alleging that a
rule promulgated by the State Personnel Commission prohibited
individuals from being employed by the State as temporary
employees for more than twelve consecutive months; that this
rule was part of their contracts of employment; that by working
for more than twelve consecutive months, they were entitled to
be treated as “permanent” State employees; and that the State
breached their contracts of employment by “wrongfully den[ying]”
the plaintiffs the employment benefits that permanent employees
are entitled to receive. Id. at 16, 644 S.E.2d at 11. The
State moved to dismiss the plaintiffs’ breach of contract claim
based on sovereign immunity, a motion which was granted by the
trial court. Id. at 17, 644 S.E.2d at 11. On the plaintiffs’
appeal, the State argued that the “plaintiffs’ claim for relief
based on a breach of contract cannot overcome sovereign immunity
. . . because the alleged contract is ‘implied,’ ‘imaginary,’
and in no way ‘an authorized and valid contract.’” Id. at 19,
644 S.E.2d at 12.
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In our opinion, we stated that the plaintiffs alleged “that
the State entered into employment contracts with the plaintiffs,
incorporating state personnel regulations, pursuant to which
they were entitled to certain benefits as a result of their
employment for more than 12 months.” Id. at 18-19, 644 S.E.2d
at 13. We stated that these “allegations [were] materially
indistinguishable from those found sufficient in several
opinions of this Court[,]” including Peverall v. County of
Alamance, 154 N.C. App. 426, 430-31, 573 S.E.2d 517, 519-20
(2002) (reversing the trial court’s dismissal based on sovereign
immunity when the plaintiff had alleged a valid employment
contract in which the defendant had agreed to provide the
plaintiff “disability retirement benefits . . . in exchange for
five years of continuous service”), disc. review denied, 356
N.C. 676, 577 S.E.2d 632 (2003) and Hubbard v. County of
Cumberland, 143 N.C. App. 149, 150-51, 544 S.E.2d 587, 589,
disc. review denied, 354 N.C. 69, 553 S.E.2d 40 (2001). Id. at
19-20, 644 S.E.2d at 13. In further comparing these cases, we
held,
[p]laintiffs allege that defendants are
manipulating State personnel policies and
benefit plans, which govern the terms of
state employment, to avoid providing
plaintiffs benefits that they rightfully
earned as a result of the tenure of their
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employment. Plaintiffs’ complaint
sufficiently alleges that defendants
accepted plaintiffs’ services and,
therefore, “may not claim sovereign immunity
as a defense” to their alleged commitment to
provide the benefits provided by the
personnel policies setting forth the terms
of employment.
Id. at 20, 644 S.E.2d at 13 (quoting Hubbard, 143 N.C. App. at
154, 544 S.E.2d at 590).
In overruling the defendants’ argument “that any contract
was only ‘implied’ and, therefore, no waiver of sovereign
immunity has occurred[,]” the Court relied on the holding in
Archer, supra, which extended the holding in Smith, supra,regarding written contracts to oral implied contracts and also
noted that Archer “held that plaintiffs could assert their
claims because they were ‘in the nature of a contractual
obligation[.]’” Id. at 20-21, 644 S.E.2d at 13-14.
Like Sanders, Defendants here essentially make an argument
that their Rule 12(b)(2) motion should have been granted because
Plaintiffs failed to allege an express agreement concerning the
retirement health benefits. Specifically, they point to
Plaintiffs’ allegations that Defendants have, through
representations, policies, and statutes, “avoid[ed] providing
plaintiffs benefits that they rightfully earned as a result of
the tenure of their employment” and because of this alleged
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exchange, Defendants, “‘may not claim sovereign immunity as a
defense’ to their alleged commitment to provide the benefits
provided by the personnel policies setting forth the terms of
employment.” See id. at 20, 644 S.E.2d at 13. However, as in
Sanders, we believe that Plaintiffs have alleged something “in
the nature of a contractual obligation” which would still amount
to a valid contract under Archer, sufficient to survive a Rule
12(b)(2) motion to dismiss based on sovereign immunity. See
Sanders, 183 N.C. App. at 21, 644 S.E.2d at 13.
We further held in Sanders that the defendants’ arguments
“that the alleged contract is ‘imaginary’ and not ‘an authorized
and valid contract’” went to the merits of the plaintiffs’
breach of contract claims, pointing out that
in considering the applicability of
sovereign immunity to allegations of breach
of a governmental employment contract, “that
we are not now concerned with the merits of
plaintiffs’ contract action. . . . [W]hether
plaintiffs are ultimately entitled to relief
are questions not properly before us.”
Archer v. Rockingham County, 144 N.C. App.
550, 558, 548 S.E.2d 788, 793 (2001), disc.
review denied, 355 N.C. 210, 559 S.E.2d 796(2002). See also Smith, 289 N.C. at 322, 222
S.E.2d at 424 (“We are not now concerned
with the merits of the controversy. . . . We
have no knowledge, opinion, or notion as to
what the true facts are. These must be
established at the trial. Today we decide
only that plaintiff is not to be denied his
day in court because his contract was with
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the State.”).
Id. at 20, 644 S.E.2d at 13-14.
In the same way, Defendants here make a number of arguments
which go to the merits of Plaintiffs’ breach of contract claims.
However, “[t]his Court has consistently held that we are not to
consider the merits of a claim when addressing the applicability
of sovereign immunity as a potential defense to liability.” Cam
Am South, LLC v. State of North Carolina, ___ N.C. App. ___,
___, ___ S.E.2d ___, ___, 2014 N.C. App. LEXIS 558 at *16 (N.C.
App. June 3, 2014). Rather, our analysis is restricted to
whether Plaintiffs have sufficiently alleged that Defendants
have waived sovereign immunity. As Plaintiffs sufficiently
alleged a valid contract between them and the State in their
complaint to waive the defense of sovereign immunity, we affirm
the trial court’s order denying Defendants’ motion to dismiss
pursuant to Rule 12(b)(2). See Cam Am South, at *18 (holding
that “the State waives its sovereign immunity when it enters
into a contract with a private party, not when it engages in
conduct that may or may not constitute a breach”) (emphasis in
original).
IV. Conclusion
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For the foregoing reasons, we affirm the trial court’s
order denying Defendants’ motion to dismiss this action based on
their sovereign immunity defense, pursuant to Rule 12(b)(2); and
we dismiss Defendants’ appeal of the trial court’s order denying
their motion to dismiss to the extent the order is based on
grounds other than Defendants’ sovereign immunity defense.
AFFIRMED, IN PART, and DISMISSED, IN PART.
Judge BRYANT and Judge CALABRIA concur.