Court Opinion

ID: 4020670
Source: CourtListenerOpinion
Date Created: 2016-08-02 12:07:18.528575+00
Date Added: 2024-06-11T12:18:58.399513
License: Public Domain

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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                                  ADAMS V. STATE OF NC

                                    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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                                ADAMS V. STATE OF NC

                                   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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                               ADAMS V. STATE OF NC

                                  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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                                   ADAMS V. STATE OF NC

                                      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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                                 ADAMS V. STATE OF NC

                                    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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