Viking Utilities Corp. v. Onslow Water & Sewer Authority

NO. COA13-597
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
VIKING UTILITIES CORPORATION,
INC., GARLAND W. TUTON, AND SUE C.
TUTON,
Plaintiffs,
V. Onslow County
No. 12 CVS 3846
ONSLOW WATER AND SEWER AUTHORITY,
Defendant.
Appeal by defendant from order filed 18 February 2013 by
Judge W. Allen Cobb, Jr., in Onslow County Superior Court. Heard
in the Court of Appeals 9 October 2013.
Ward and Smith, P.A., by Ryal W. Tayloe and Jeremy M.
Wilson, for plaintiff-appellees.
Turrentine Law Firm, PLLC, by S.C. Kitchen, for defendant-
appellant.
STEELMAN, Judge.
Where further development of the record is necessary for
determination of whether the defendant is entitled to assert the
defense of governmental immunity, the trial court did not err by
denying defendant’s motion to dismiss under N.C. Gen. Stat. §
1A-1, Rule 12(b)(1), (2), and (6).
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I. Factual and Procedural Background
On 16 November 2007, Viking Utilities Corporation, Inc.,
Garland W. Tuton, and Sue C. Tuton (collectively plaintiffs),
entered into an “Asset Purchase Agreement for the Acquisition of
the Wastewater System Assets of Viking Utilities Corporation,
Inc., by Onslow Water and Sewer Authority.” The parties amended
the agreement on 17 April 2008. The agreement provided that
Onslow Water and Sewer Authority (defendant) would purchase
Viking’s wastewater system, including real property owned by
plaintiffs, for $5,550,000. Defendant paid plaintiffs $500,000
at closing, and the parties agreed that most of the balance of
the purchase price, $4,800,000, would be donated to defendant by
plaintiffs. The agreement also contained a specific provision
that defendant would receive a credit of $250,000 towards the
purchase price in return for allowing plaintiffs to connect over
the next five years to the wastewater system at any location
served by defendant without payment of a “Tap Fee.” The credit
would be used at the rate of $2,500 per connection. The
agreement also contained a specific representation by defendant
that the transaction did not require “the approval or consent of
any federal, state, local or other governmental body or agency
that has not been obtained[.]”
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On 27 September 2012, plaintiffs filed a complaint alleging
that defendant had breached its agreement by refusing to allow
plaintiffs to connect with defendant’s sewer system without
payment of a tap fee. The complaint sought specific performance
of the agreement, a declaratory judgment that plaintiffs were
entitled to 100 residential tap fees, and in the alternative
asked for rescission or reformation of the agreement. On 18
October 2012, defendant filed a motion to dismiss pursuant to
Rules 12(b)(1), (2), and (6) of the North Carolina Rules for
Civil Procedure, for lack of jurisdiction and for failure to
state a claim upon which relief may be granted. On 5 December
2012, plaintiffs filed their First Amended Complaint, which
added three additional claims: (1) restitution, quantum meruit,
and unjust enrichment; (2) estoppel; and (3) negligent
misrepresentation. On 28 December 2012, defendant filed its
second motion to dismiss for lack of jurisdiction and failure to
state a claim upon which relief may be granted. On 18 February
2013, Judge Cobb denied defendant’s motions to dismiss pursuant
to Rules 12(b)(1), (2), and (6) of the North Carolina Rules for
Civil Procedure
Defendant appeals.
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II. Interlocutory Appeal
Defendant’s appeal of the denial of its motion to dismiss
is interlocutory. However, “this Court has repeatedly held that
appeals raising issues of governmental or sovereign immunity
affect a substantial right sufficient to warrant immediate
appellate review.” Price v. Davis, 132 N.C. App. 556, 558-59,
512 S.E.2d 783, 785 (1999) (citations omitted). To the extent
defendant’s appeal is based upon the affirmative defense of
immunity, this appeal is properly before this Court. See id.III. Motion to Dismiss
In defendant’s only argument on appeal, defendant contends
that the trial court erred in denying its motion to dismiss. We
disagree.
A. Standard of Review
We review “a trial court’s denial of a motion to dismiss
that raises sovereign immunity as grounds for dismissal” de
novo. White v. Trew, 366 N.C. 360, 362-63, 736 S.E.2d 166, 168
(2013).
B. Governmental Immunity
“Under the doctrine of governmental immunity, a county or
municipal corporation ‘is immune from suit for the negligence of
its employees in the exercise of governmental functions absent
waiver of immunity.’” Estate of Williams v. Pasquotank County,
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366 N.C. 195, 198, 732 S.E.2d 137, 140 (2012) (quoting Evans ex
rel. Horton v. Hous. Auth., 359 N.C. 50, 53, 602 S.E.2d 668, 670
(2004) (internal quotation omitted). “Nevertheless, governmental
immunity is not without limit. ‘[G]overnmental immunity covers
only the acts of a municipality or a municipal corporation
committed pursuant to its governmental functions.’ Governmental
immunity does not, however, apply when the municipality engages
in a proprietary function.” Williams, 366 N.C. at 199, 732
S.E.2d at 141 (quoting Evans, 359 N.C. at 53, 602 S.E.2d at 670(citations omitted), and citing Town of Grimesland v. City of
Washington, 234 N.C. 117, 123, 66 S.E.2d 794, 798 (1951).
In Williams the Court took the “opportunity to restate our
jurisprudence of governmental immunity,” Williams at 196, 732
S.E.2d at 139, and in so doing focused on the need for courts to
engage in a fact-based analysis, considering various relevant
factors, rather than applying bright-line rules:
In determining whether an entity is entitled
to governmental immunity, the result
therefore turns on whether the alleged
tortious conduct of the county or
municipality arose from an activity that was
governmental or proprietary in nature. . . .
[T]he threshold inquiry in determining
whether a function is proprietary or
governmental is whether, and to what degree,
the legislature has addressed the issue.
Williams at 199-200, 732 S.E.2d at 141-42. Williams arose from a
drowning at a public park and, although noting the existence of
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statutory provisions affirming the public benefit of parks and
recreation, it declined to hold that these provisions were
dispositive. Instead, the Court held that, even if the general
operation of a parks program had been statutorily designated as
a governmental function, “the question remains whether the
specific operation of the [swimming area where the drowning
occurred] in this case and under these circumstances, is a
governmental function.” Williams at 201, 732 S.E.2d at 142. The
Williams Court also offered certain guiding principles for
future courts to apply:
[W]hen the particular service can be
performed both privately and publicly, the
inquiry involves consideration of a number
of additional factors, of which no single
factor is dispositive. Relevant to this
inquiry is whether the service is
traditionally a service provided by a
governmental entity, whether a substantial
fee is charged for the service provided, and
whether that fee does more than simply cover
the operating costs of the service provider.
We conclude that consideration of these
factors provides the guidance needed to
identify the distinction between a
governmental and proprietary activity.
Nevertheless, we note that the distinctions
between proprietary and governmental
functions are fluid and courts must be
advertent to changes in practice. We
therefore caution against overreliance on
these four factors.
Williams at 202-03, 732 at 143. Finally, Williams held:
Analysis of the factors listed above when
considering whether the action of a county
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or municipality is governmental or
proprietary in nature is particularly
important in light of two points we have
previously emphasized. . . . “First,
although an activity may be classified in
general as a governmental function,
liability in tort may exist as to certain of
its phases; and conversely, although
classified in general as proprietary,
certain phases may be considered exempt from
liability. Second, it does not follow that a
particular activity will be denoted a
governmental function even though previous
cases have held the identical activity to be
of such a public necessity that the
expenditure of funds in connection with it
was for a public purpose.” Consequently, the
proper designation of a particular action of
a county or municipality is a fact intensive
inquiry, turning on the facts alleged in the
complaint, and may differ from case to case.
Williams at 203, 732 S.E.2d at 143 (quoting Sides v. Cabarrus
Mem’l Hosp., Inc., 287 N.C. 14, 21-22, 213 S.E.2d 297, 302
(1975) (internal citations and emphases omitted).
In Town of Sandy Creek v. E. Coast Contr., Inc., __ N.C.
App. __, 741 S.E.2d 673 (2013) this Court applied Williams to
the plaintiff’s allegations that the defendant, the City of
Northwest, had failed to properly manage its contract with an
engineering firm for construction of a sewer system. We held
that, although the operation of a sewer system might be a
governmental function, the specific allegations of the
plaintiff’s complaint did not assert acts undertaken in a
governmental capacity:
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These allegations of breaches of the duty of
reasonable care do not concern decisions of
government discretion such as whether to
construct a sewer system or where to locate
the sewer system. Instead, the alleged
breaches concern Northwest’s handling of the
contract and Northwest’s business
relationship with the contractor, acts that
are not inherently governmental but are
commonplace among private entities. . . .
[W]we find that Northwest was involved in a
proprietary function while handling its
business relationship with ECC and the trial
court did not err in denying Northwest’s
motion to dismiss based on governmental
immunity.
Sandy Creek, __ N.C. App. at __, 741 S.E.2d at 676-77. In this
case, as in Sandy Creek, the plaintiffs’ allegations involve its
“business relationship” with defendant.
Based on Williams and Sandy Creek, we hold that
determination of whether defendant is entitled to assert the
defense of governmental immunity will require the trial court to
consider the pertinent statutory provisions as well as factual
evidence regarding plaintiffs’ allegations, fees charged by
defendant, whether the fees cover more than the operating costs
of the water authority, and any other evidence relevant to the
issue of whether, in executing and interpreting its contract
with plaintiffs, defendant was acting in a governmental or
proprietary capacity. Because such evidence was not before the
court in ruling on a motion to dismiss under N.C. Gen. Stat. §
1A-1, Rule 12(b)(1), (2), or (6), the trial court did not err by
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denying defendant’s motion to dismiss at this stage of the
proceedings. Our decision to affirm the trial court does not
prevent the parties from seeking summary judgment, at which time
they may offer documentary or testimonial evidence in support of
their positions. As we are holding that the trial court did not
err by denying the motion to dismiss, we do not reach the
parties’ arguments concerning whether, in the event that the
court determines that defendant is entitled to assert the
defense of governmental immunity, the defense has been waived by
execution of a valid contract with plaintiffs.
Conclusion
We hold that the trial court did not err in its denial of
defendant’s motion to dismiss and that its order should be
affirmed.
AFFIRMED.
Judges HUNTER, ROBERT C., and BRYANT concur.