Guilford County Board of Commissioners v. Trogdon

478 S.E.2d 643 (1996)

GUILFORD COUNTY BOARD OF COMMISSIONERS; Guilford County; James Robert McNally and Danny Lee Kelly, on behalf of themselves and taxpayers similarly situated, Plaintiffs,
v.
E. Wayne TROGDON; Guilford County Board of Education; and Peerless Insurance Company, Defendants.

No. COA95-499.

Court of Appeals of North Carolina.

December 17, 1996.

Jonathan V. Maxwell, County Attorney, and J. Edwin Pons, Deputy County Attorney, Greensboro, for plaintiff-appellees Guilford County Board of Commissioners and Guilford County.

Stern, Graham and Klepfer by Jerry R. Everhardt and Robert H. Edmunds, Jr., Greensboro, for plaintiff-appellees James Robert McNally and Danny Lee Kelly.

Roberts Stevens & Cogburn, P.A. by James W. Williams and Wyatt S. Stevens, Asheville, for defendant-appellant E. Wayne Trogdon.

Haywood, Denny, Miller, L.L.P. by George W. Miller, Jr., Durham, for defendant-appellant Peerless Insurance Company.

Tharrington Smith, by Michael Crowell, Raleigh, for defendant-appellee Guilford County Board of Education.

McGEE, Judge.

Appellants first argue the judgment of the trial court should be reversed because the parties had a valid contract, the settlement was not an unconstitutional emolument, the former Board's actions complied with the terms of the Merger Act, and the contract did not require a pre-audit certificate. However, we find the former Board exceeded its authority in extending Dr. Trogdon's contract and affirm the judgment of the trial court. See Shore v. Brown, 324 N.C. 427, 428, 378 S.E.2d 778, 779 (1989)(summary judgment upheld on appeal if it can be sustained on any grounds).

The Merger Act was ratified by our General Assembly 8 May 1991 and, by its terms, became effective on that date. 1991 N.C. Sess. ch. 78 § 31. (However, Part I of the Merger Act, the portion dealing with the procedures for merger of the systems, became effective on the date of the certification of the November 1991 referendum election results. 1991 N.C. Sess. Laws ch. 78 § 28(b).) Section 4(3) of the Merger Act, contained in Part I, states that a newly created Guilford County Board of Education (the new Board) would be responsible for "[m]aking contracts, hiring personnel and adopting policies for the 1993-94 and subsequent school years." By the terms of the Merger Act, employees covered under N.C. Gen.Stat. § 115C-325 (i.e., teachers and their supervisors and principals, but specifically not superintendents) were guaranteed employment to the same extent as they were employed by the then existing three school systems. N.C. Sess. Laws ch. 78 § 13. Administrative, supervisory and operational staff were to be hired based on need as determined by study, and equitable policies were to be established to consider those persons for positions in the new merged school system. N.C. Sess. Laws ch. 78 § 11. Therefore, under the terms of the Merger Act, only the new Board had the authority to make employment contracts for administrative personnel, such as a superintendent, for the 1993-94 school year and beyond.

However, appellants argue that despite the provision in the Merger Act declaring only the new Board would have the authority to make contracts covering the 1993-94 school year and beyond, the former Board still had authority to make the contract because Part I of the act was not effective until the November 1991 election, one month after the execution of the agreement with Dr. Trogdon. We disagree.

In Rowe v. Franklin County, 318 N.C. 344, 349 S.E.2d 65 (1986), our Supreme Court held a hospital's board of trustees could not enter into a binding employment contract with the plaintiff because the trustees lacked the authority to do so. In that case, the county commissioners, pursuant to statute, had created a board of trustees with the power to operate and hire personnel for the county hospital. On 23 May 1983, the commissioners and trustees met with representatives from two different non-profit, tax-exempt corporations to receive proposals from the corporations to take over operation of the hospital. Both proposals stated the administrator of the hospital would be an employee of the management company selected. The commissioners voted 6 June 1983 to hire one of the corporations to manage the hospital. On 15 June 1983, the trustees met and adopted a resolution stating their intent to enter into a management contract with the other corporation. They also purported to enter into a written three-year contract with the plaintiff to act as hospital administrator. The commissioners met later that same night and voted to revoke the trustees' purported contract with the other corporation. On 27 June 1983, the commissioners adopted a resolution repealing the trustees' authority to operate and manage the hospital. The commissioners voted to fire the plaintiff 1 July 1983.

In affirming summary judgment against the plaintiff, the Supreme Court held the trustees lacked the authority to enter into a binding employment contract. Rowe, 318 N.C. at 350, 349 S.E.2d at 69. The court reasoned that:

Under the circumstances, the 6 June resolution choosing [a corporation to manage the hospital] clearly showed the commissioners' intent to exercise their authority to decide how the hospital would be managed in the future. By so resolving, the commissioners manifested their intent to divest the trustees of the delegated authority to make long-term management decisions on behalf of the hospital. Therefore, the resolution of 6 June 1983 impliedly repealed that part of the [earlier] resolution... which had delegated authority to the trustees to enter into long-term contracts regarding management of [the hospital]. Thus, on 15 June 1983 the trustees had no authority to enter into a long-term contract of employment with plaintiff.

Rowe, 318 N.C. at 348, 349 S.E.2d at 68. The court further held that because plaintiff was, or should have been, aware the trustees had no authority to enter into a contract, he could not recover under an argument that the trustees had apparent authority to enter into a contract. Id. at 350-351, 349 S.E.2d at 70. Therefore, even though the commissioners did not formally repeal the trustees' power to hire hospital personnel until after the trustees and plaintiff had entered into the purported employment contract, the trustees lacked authority to enter into the contract. Id. at 347-48, 349 S.E.2d at 68.

In this case, the General Assembly clearly intended by enacting the Merger Act, that if the voters chose to merge the school systems, the new Board would make hiring and contract decisions for the merged system. Although the former Board had been given power to extend or renew a current superintendent's contract under N.C. Gen.Stat. § 115C-271, the General Assembly, by enacting the Merger Act, "manifested their intent to divest" the former Board of its statutory authority to make contract decisions for the 1993-94 school year and beyond if the voters approved the merger. Here, the position of the former Board is analogous to the position of the trustees in Rowe. Therefore, the attempt by the former Board to enter into an employment contract for the 1993-94 and 1994-95 school years, which would be binding if the merger was approved, was made without actual authority and was unenforceable. See Rowe, supra. The voters did approve the merger. Because the General Assembly ratified the Merger Act in May 1991, even though the official effective date was November 1991, the General Assembly's adoption of the Merger Act impliedly repealed the former Board's ability to enter into an employment contract to be in effect after the effective date of the merger. Since the parties to the purported contract were on notice of the provisions of the Merger Act, the October 1991 agreement was unenforceable upon the vote in favor of merger. Therefore, the trial court properly entered summary judgment for plaintiffs.

Appellants also argue plaintiffs have no standing to bring this action. We disagree. Regardless of the issue of whether the Guilford County Board of Commissioners has standing, we hold the two taxpayer plaintiffs, McNally and Kelly, have standing. The right to sue for recovery of the school funds of a particular school administrative unit belongs to the school board governing that unit. Branch v. Board of Education, 233 N.C. 623, 625, 65 S.E.2d 124, 126 (1951). However, "a taxpayer [may] bring a taxpayer's action on behalf of a public agency or political subdivision for the protection or recovery of the money or property of the agency or subdivision in instances where the proper authorities neglect or refuse to act." Id. To bring this type of action, taxpayers must show they are a taxpayer of the public agency or political subdivision and must further establish that either: 1) there has been a demand on and refusal by the proper authorities to institute proceedings for the protection of the interests of the agency or subdivision; or 2) a demand on the proper authorities would be useless. Id. at 626, 65 S.E.2d at 126-27. Here, the record shows McNally and Kelly are Guilford County taxpayers. Further, because the new Board had already voted not to take legal action to recover the $275,000 from Dr. Trogdon, it would have been useless for the taxpayers to demand the new Board institute legal proceedings. Therefore, the taxpayers had standing to bring this action.

Because of our holding that the former Board did not have the authority to execute the October 1991 agreement with Dr. Trogdon, we do not address the issue of whether the agreement was an unconstitutional emolument, an illusory contract, or invalid for lack of a preaudit certificate. For the reasons stated, the judgment of the trial court is affirmed.

Affirmed.

JOHNSON and JOHN C. MARTIN, JJ., concur.

JOHNSON, J., participated in this opinion prior to 1 December 1996, the effective date of his retirement.