Interesting Article On The Roberts Court And Corporate America

FINDLAW is running an article on how the Roberts Court may deal with cases affecting corporate America.

NC SCT: Town Can't Use Amended Zoning Ordinance To Deny Application That Was Pending Before The Amendment

On Friday the SCT handed down its decision in Robins v. Town of Hillsborough, a case dealing with the power of local government to change the rules of the game (zoning rules) and apply the new rules to a pending application for site plan approval. I did a post on this case in October to preview the oral argument. The SCT affirmed the Court of Appeals (COA), but on a different rationale.

Most businesses will sympathize with Robins. He wanted to construct an asphalt plant in the Town of Hillsborough. He bought property for the facility and applied for site plan approval. At the time Robins filed his application, the zoning ordinance permitted an asphalt plant there, and in reliance on that zoning ordinance, he spent about $100,000 to comply with the ordinance and prepare for the required public hearings. The Town held several public hearings but reached no decision. A fourth hearing was scheduled, but a week before the hearing, the Town adopted a new zoning ordinance imposing an 8-month moratorium on manufacturing and processing facilities involving the use of petroleum products, including, specifically, asphalt plants. The moratorium applied to Robins's pending application. The Town then made the moratorium permanent, amending its zoning ordinance to ban such facilities within the limits of the Town. The ban applied to all pending applications, including Robins's. Robins sued.

The trial court granted summary judgment to the Town, but the COA reversed in a split decision, handing Robbins a victory. Judge Tyson wrote the majority opinion, joined by Judge John. Judge Jackson dissented. The majority opinion had two holdings. First, on the basis of a common law "vested rights" theory, the majority held that Robins was entitled to rely on, and have his application considered on the basis of, the language of the zoning ordinance that was in effect at the time he applied for the permit. "To hold otherwise would allow compliance with regulations and permitting to become a moving target to ever changing revisions and amendments." In short, the majority essentially recognized a vested right to have a zoning ordinance remain unchanged while an application is pending. The majority thus reversed the grant of summary judgment to the Town.

Having held that Robins was entitled to have his permit application considered (grandfathered) under the zoning ordinance in effect at the time he applied for site approval, unaffected by the later ban, it is unclear why the majority went any further. But it did. The majority proceeded to address a facial challenge to the constitutionality of the Town's ban on manufacturing and processing facilities using petroleum products, a challenge under the "Law of the Land Clause." (The Law of the Land Clause, which is in Article I, Section 19 of the State's Constitution, is analogous to the federal Due Process Clause.) Ruling against the Town, the majority held that a trial is needed on the constitutionality of the ban. The majority began its constitutional analysis by observing that due process prohibits arbitrary governmental action or action that doesn't reasonably serve a legitimate governmental objective. While this bespeaks rational basis review (where governmental action is presumed constitutional, and the burden falls on the challenger to establish the absence of a rational basis), the majority actually applied heightened scrutiny to this economic regulation. Seizing on the distinction between a zoning ordinance that imposes a total ban on lawful activity and one that imposes a more limited regulation (e.g., confining an activity to a particular location in the community), the majority concluded that the Town's ban was not entitled to a presumption of constitutionality; instead, the burden was on the Town to prove constitutionality - a burden to demonstrate a "substantial relationship" between its ban and a legitimate governmental interest. (The only support cited for this standard consisted of language from Michigan and Pennsylvania cases decided more than 30 years ago.) Having so held, the majority remanded for a trial because, the majority concluded, a genuine issue of material fact exists as to whether "the public purpose [the Town] sought to accomplish by a total and permanent ban on asphalt plants is legitimate and whether [the Town's] decision to place a permanent ban on asphalt plants was not arbitrary and capricious." "The burden of proof," the majority held, "rests upon defendant [the Town]." By shifting the burden of proof to the Town to demonstrate a "substantial relationship" between its new regulation and public health, safety, or welfare, the majority essentially created a standard of intermediate scrutiny for substantive due process and equal protection challenges to exclusionary zoning laws.

Judge Jackson's dissent contended, among other things, that had Robins received a permit he would've had a vested right, but he never received a permit, and therefore he had no vested right. And, consequently, he had no property interest protected by the Constitution.

The SCT held that the COA majority erred in even addressing the constitutionality of the Town's ban, and thus the SCT vacated that portion of the COA majority's decision.

As for the vested rights theory on which the COA and Robins relied, the SCT said the vested rights doctrine was distinguishable: "Although the parties have presented arguments as to whether plaintiff may assert a vested right, either by operation of statute or common law principles, these arguments are inapposite because our vested rights decisions have considered whether a plaintiff has a right to complete a project despite changes in the applicable zoning ordinances, an issue distinct from the one before us today."

But while distancing itself from the vested rights doctrine, the SCT proceeded to adopt something strikingly similar in ruling for Robins. The SCT held that an "applicant is entitled to have his application reviewed under the ordinances and procedural rules in effect as of the time he filed his application." The SCT based its decision on case law holding that a town board must follow its own procedures. The SCT concluded that the Town, to follow its procedures, would've had to render a decision on Robins's application (approve or deny) based on the ordinance in effect at the time his application was submitted.

I agree that the Town was required by its procedures to render a decision on Robins's application. But I'm not sure why the procedures forbade the Town from making that decision on the basis of the amendment passed while his application was pending. Wouldn't the Town be following its procedures if, based on the amended zoning ordinance, it were to deny Robins's application? This makes me wonder: was the problem that troubled the SCT less a procedural one and more a substantive one wrought by the perceived retroactive use of a new regulation? Frankly I'm having difficulty understanding how the SCT's decision is not a "vested rights" decision.

NC SCT Holds Worker Injured At Employer Fun Day Not Injured In Course of Employment, Not Entitled To Workers' Comp.

On Friday, a majority of the NC SCT ruled in Frost v. Salter Path Fire & Rescue that an employee injured at her employer's "fun day" was not entitled to workers' compensation benefits because her injury at the fun day did not arise out of her employment.

Plaintiff Frost was a volunteer emergency medical technician--and volunteers have been treated like paid employees for workers' compensation purposes. See, e.g., Hix v. Jenkins, 118 N.C. App. 103, 453 S.E.2d 551 (1995). Frost attended Salter Path's fun day, an employer-sponsored event at an amusement park apparently meant to, inter alia, boost morale and show appreciation for volunteer employees. Crucially to the Court's result, attendance at fun day was voluntary, i.e., not required, and the fun day activities were "authorized merely for [plaintiff's] optional pleasure and recreation while she was off duty."

The majority analogized plaintiff's optional go-carting at Salter Path's fun day to the voluntary behavior of the plaintiff in Perry v. Am. Bakeries, Co., 262 N.C. 272, 136 S.E.2d 643 (1964). In Perry, the plaintiff injured himself was swimming during free time at an employer-sponsored sales meeting, and his injury was not compensable. The Frost majority also made clear that the 6 factors for determining whether an injury arose out of employment spelled out in Chilton v. Bowman Gray Sch. of Med., 45 N.C. App. 13, 262 S.E.2d 347 (1980), are not controlling but merely "helpful guideposts."

In the end, the Frost majority held that "Plaintiff attended 'Fun Day' of her own will and for her own personal benefit and pleasure. Therefore, we hold that an employee who, on a purely voluntary basis, attends a 'Fun Day' and is injured while participating therein, cannot be said to have suffered a compensable injury which arises out of and in the course of the employment. Thus defendant is not responsible under the [Workers' Compensation] Act for the non-compensable injuries plaintiff suffered furing her participation."

Justice Hudson did not participate in the decision; she was the author of the overturned COA majority. And Justice Timmons-Goodson dissented. Justice Timmons-Goodson found Perry distinguishable and Frost more analogous to Rice v. Uwharrie Council Boy Scouts of Am., 263 N.C. 204, 139 S.E.2d 223 (1964), in which an employee sustained injury while deep-sea fishing at an employer-sponsored conference. The fishing outing was "a planned part" of the conference program, and the evidence permitted an inference that the employer impliedly required participation in the outing. Justice Timmons-Goodson noted, inter alia, that the Salter Path chief had told plaintiff he wanted her to attend the fun day, the fun day tangibly benefited Salter Path, and "plaintiff was injured while engaging in activities at the very event her employer asked her to attend." Justice Timmons-Goodson would have affirmed the Industrial Commission's award of workers' compensation benefits to Frost.

Frost means that workers aren't entitled to workers' compensation for injuries occurring at their employers' voluntary "fun days." It would seem, then, that if those fun days are excluded from the workers' compensation scheme, employers could be on the hook for ordinary negligence claims arising out of such "fun day" events (negligence claims against employers are otherwise precluded by the exclusivity of workers' compensation benefits). Employers may want to think about that before planning their next "fun day" white water rafting trip or go-carting excursion...

Bringing A Legal Malpractice Action About A Botched Med. Mal. Case? Better Get Your 9j Certification...

On Friday, the NC SCT filed Formyduval v. Britt, with Justice Timmons-Goodson not participating and the other Justices evenly divided. At issue in Formyduval was whether Civil Procedure Rule 9(j), which requires certification by an expert of complaints alleging medical malpractice prior to the complaint's being filed, also applies to legal malpractice claims where the underlying, allegedly mishandled, claim was a medical malpractice claim.

The COA majority held 9(j)'s expert certification requirement did not apply to legal malpractice claims, that the plain language of Rule 9(j) spoke only to medical malpractice actions. The COA dissent, authored by Judge Bryant, would have upheld the trial court's dismissal of the legal malpractice action because, to succeed on a legal malpractice claim, the plaintiff needs to prove he or she would have won in the underlying medical malpractice case had it not been for the alleged legal malpractice.

The evenly divided Supreme Court opinion leaves the COA decision undisturbed but without precedential value . . . and leaves smart legal malpractice plaintiffs' counsel with the knowledge that they had better secure 9(j) certification for botched med. mal. cases.

SCOTUS Watchers, Get Out Your Popcorn

PBS will be airing a new documentary about SCOTUS Wednesdays, Jan. 31 - Feb. 7, 2007, 9:00 - 11:00 p.m. For more information, check the PBS site.

COA Applies Workers' Comp. Statutory Employer Law To Purchase And Lease Agreements

Under NC workers' compensation law, a contractor who has to perform work for another may sublet work to a subcontrator. But the contractor will be liable for workers' compensation benefits to the subcontractors' injured workers if the contractor failed to obtain a certificate stating that the subcontractor had workers' compensation insurance. N.C. Gen. Stat. § 97-19.

At issue in Masood v. Erwin Oil Co., filed Tuesday, was whether Erwin Oil was a contractor under a purchase agreement, and whether Abassi, Erwin's tenant, was a subcontractor under a lease agreement, such that Erwin was liable to Abassi's injured employee, the plaintiff.

Erwin was a gas wholesaler; it bought gas from Amoco and resold it. Erwin's contract with Amoco for purchasing gas included broad marketing language: The contract required best efforts for the marketing of Amoco's gas, as well as the sale of Amoco's gas.

Erwin was also a lessor of gas stations and gas station equipment, and Abbasi was one of its tenants. Under Abassi's lease with Erwin, Abassi was required to maintain the station according to Amoco image standards and to operate the station for a certain number of hours each day. The contract apparently contained no specific gas marketing and sales requirements.

The Majority held that the broad marketing language in the gas purchase contract between Amoco and Erwin made Erwin a contractor regarding the gas it bought from Amoco, and the maintenance and operating hours requirements in the lease between Erwin and Abassi were sufficient to make Abassi Erwin's subcontrator regarding the Amoco gas. Therefore, under section 97-19, Erwin was the statutory employer of Abassi's injured worker and liable for workers' comp. benefits to him.

Judge Bob Hunter dissented from the majority, stating that the majority was expanding section 97-19 beyond its intended scope by applying it to a purchase agreement and a lease agreement. Judge Hunter would have held that Erwin was not a principal contractor, Abassi was not a subcontractor, and 97-19 was inapplicable.

Wholesalers and other "middlemen," whose purchase contracts may include broad marketing language and whose contracts with distribution points may include operating hour, display, or other requirements, could be statutory employers under Masood and will surely be interested in how this case plays out at the Supreme Court, assuming the defendants appeal.

Fourth Circuit Invalidates MD's "Wal-Mart Act"

The Fourth Circuit just released its decision in Retail Industry Leaders Assn. v. Fielder. In a 2-1 decision written by Judge Niemeyer, with Judge Michael dissenting, the Court held that Maryland's Fair Share Health Care Fund Act is preempted by ERISA.

The Act was enacted last year as part of a nationwide campaign to force Wal-Mart to increase health insurance benefits for its employees. The Act forces employers with 10,000 or more Maryland employees to spend at least 8% of their total payrolls on employees' health insurance costs or, failing that, to pay to the State of Maryland the amount their spending falls short.

The Fourth Circuit held that the Act is preempted by ERISA, because it effectively requires employers in Maryland covered by the Act to restructure their employee health insurance plans, thus conflicting with ERISA's goal of permitting uniform nationwide administration of these plans.

Judge Michael's dissent essentially concluded that there's no necessary impact on ERISA plans, because the Act gives employers the option to pay an assessment to the State of Maryland -- which the State can use to support its Medicaid program -- in lieu of increasing spending on employee health insurance.

COA Issues Another Viar Decision

Today the COA, in an unpublished decision, held that it had to dismiss an appeal because the appellant failed to comply with the Rules of Appellate Procedure. His brief (1) failed to contain a statement of the ground for appellate review and (2) failed to contain a statement of the standard of review. See App. R. 28(b)(4),(6). The COA, however, went on to explain why it would affirm the trial court even if there had been no violation of the rules. Judge Wynn wrote the decision, and this is not the first time he's taken this (very fair) approach -- i.e., dismissing for noncompliance with the rules while noting that the panel would've affirmed the trial court anyhow.

COA Issues Expansive Declaratory Judgment Act Decision In Challenge To Courtroom Oath

Today the COA applied the Declaratory Judgment Act in a fairly broad manner, reversing a superior court decision (by Judge Donald Stephens). The case is ACLU v. State.

In 2003 Syidah Matteen, a Muslim woman, appeared as a witness in state court. She asked that her oath be sworn on the Quran. Her request was denied, and she refused to swear on the Christian Bible. See G.S. 11-2 (administration of oaths). Instead she chose to affirm without a religious text. See G.S. 11-4 (affirmation in lieu of oath). More than two years later, she sued the State, seeking a declaratory judgment that she had a right under 11-2 to swear on the Quran and, if not, that G.S. 11-2 is unconstitutional. Matteen acknowledged she hadn't sustained damages; she wasn't seeking damages of any kind. Instead she was "seeking justice" based on the "insult to her." She contended that, insofar as those in the courtroom perceived her affirmation as a sign that she had no religious faith, that was insulting to her.

As a side note, this insult contention -- that others in the courtroom might perceive that she has no religious faith -- seems misplaced, because there's a separate statute that gives one a right to appeal to God as a witness as an alternative to swearing on the Bible or taking an oath by affirmation. G.S. 11-3 provides: "When the person to be sworn shall be conscientiously scrupulous of taking a book oath in manner aforesaid, . . . the oath required shall be administered in the following manner, namely: He shall stand with his right hand lifted up towards heaven, in token of his solemn appeal to the Supreme God, and also in token that if he should swerve from the truth he would draw down the vengeance of heaven upon his head, and shall introduce the intended oath with these words, namely: I, A.B., do appeal to God, as a witness of the truth and the avenger of falsehood, as I shall answer the same at the great day of judgment, when the secrets of all hearts shall be known (etc., as the words of the oath may be)." Thus, with respect to a witness who has a religious faith and is concerned that others in the courtroom may perceive she does not, she may dispel that perception by taking the alternative "appeal to God" oath in G.S. 11-3. (Of course, if the witness is an atheist, she wouldn't opt for that oath; she'd choose affirmation. But presumably an atheist wouldn't feel insulted by another's perception that she has no religious faith, and, in any event, the only way to cure that problem would be to strike any religious reference or text from the oath and to prevent any witnesses and jurors from appealing to God or religion.)

Anyhow, the State argued that Matteen and the ACLU were seeking a purely advisory opinion. The superior court held that the suit presented no justiciable controversy.

The COA reversed, holding that litigation would be "unavoidable" (the prerequisite for bringing suit under the Declaratory Judgment Act) since Matteen may be called as a witness or juror again in the future. In a similar vein, the COA also held that the ACLU itself presented a justiciable controversy to sue the State, since members of the ACLU who are religious but not Christian and who would prefer to swear on a religious text may be called as jurors or witnesses in the future.

(For another recent expansive decision under the Declaratory Judgment Act, see Goldston v. State (NC 2006), where Chief Justice Parker, in dissent, accused the majority of rendering an advisory opinion by allowing a declaratory judgment action to proceed. In that case taxpayers were seeking a mere declaration (no redress in the form of damages or injunctive relief) that the Governor and the General Assembly violated the Constitution in the past by transferring money from the Highway Trust Fund to the General Fund.)

Last month the Raleigh N&O, citing this oath case, had an editorial in favor of expanding G.S. 11-2 to include the Quran as a religious text, arguing that "North Carolina needs to make a change." If Matteen and the ACLU are successful on the merits on remand, the result of this challenge may be this: taxpayer funds may have to be used to purchase a lot of Qurans to fill the courtrooms of this State. And not only Qurans: the ACLU contends that other religious texts, including the Bhagavad-Gita (the sacred text of the majority of Hindu traditions), must be made available for witnesses and jurors who wish to swear on them.

Fourth Circuit Issues FLSA Decision On Meaning of "Employee"

Today the Fourth Circuit issued a decision in a case from Asheville involving an unusual business relationship, where the Court was asked to decide whether the plaintiff was an "employee" under the Fair Labor Standards Act. The Act provides little guidance on the meaning of "employee." The Court held, after an extended analysis, that the plaintiff was not an "employee," and affirmed summary judgment for the defendant.

Judge Boyle's 4th Circuit Nomination Withdrawn

The Washington Post and other outlets are reporting that the nominations of Judge Boyle and William Haynes to the Fourth Circuit have been withdrawn.

Gov. Easley Reappoints Judge Stephens to Court of Appeals

Governor Easley first appointed Judge Stephens to the Court of Appeals in January 2006. She was narrowly unseated in the recent Nov. 2006 election by Judge Stroud. Easley today reappointed Judge Stephens to the fill the vacancy created by Robin Hudson's election to the N.C. Supreme Court. Justice Hudson was sworn in today.

Before being appointed to the appeals court, Judge Stephens worked with the Raleigh law firm of Teague, Campbell, Dennis & Gorham for 21 years. She was also a former deputy commissioner of the N.C. Industrial Commission. She was selected as the first female president of the N.C. Association of Defense Attorneys in 2001.

Circumstances, Not Agreements, Determine Employee / Independent Contractor Status

In Gilreath v. Yellow Cab of Charlotte, an unpublished opinion filed yesterday, the COA issued a reminder to businesses that a contract declaring someone an independent contractor, by itself, establishes nothing, and that courts look beyond such contracts to the circumstances of the relationship to determine whether someone is an independent contractor or an employee.

The COA noted that factors considered in determining whether an independent contractor or employer-employee relationship exists include whether the person employed: (a) is engaged in an independent business, calling, or occupation; (b) is to have the independent use of his special skill, knowledge, or training in the execution of the work; (c) is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis; (d) is not subject to discharge because he adopts one method of doing the work rather than another; (e) is not in the regular employ of the other contracting party; (f) is free to use such assistants as he may think proper; (g) has full control over such assistants; and (h) selects his own time.

In this case, the would-be independent contractor, a taxi driver: did not have special skills, training, or prior experience; did not work for a lump sum or on a quantitative basis, but rather was paid on commission; was subject to discharge if he failed to perform his duties in a manner other than what was described to him; was required to report to work by 7:00 a.m. six days a week; was required to drive a particular route and obtain permission from defendant's dispatcher if he traveled to a destination other than the airport; and was required to contact defendant's dispatcher to obtain the appropriate fare for passengers.

The COA held "these factors, considered with the circumstances, indicates that Gilreath was defendant's employee and not an independent contractor[,]" and the fact that the would-be independent contractor signed an independent contractor acknowledgment did not change that. The would-be independent contractor / employee was therefore entitled to worker's compensation for an accident arising out of his employment.

Unspecific Summary Judgment Order Raises Potential For 2 Trials On Same Fact Issues And Conflicting Verdicts

In Three Rivers Valle v. Grove Park Inn, filed yesterday, the COA held that where the trial court didn't specify a basis for granting summary judgment for the defendant and, under certain scenarios, the risk of two trials with inconsistent verdicts could arise, interlocutory appellate review was warranted.

Generally, interlocutory orders that don't fully dispose of a case are not appealable. They are appealable, though, where there is a risk of two trials on the same factual issues with potentially inconsistent verdicts on those issues (see, e.g., Camp v. Leonard, 133 N.C. App. 554, 515 S.E.2d 909 (1999)).

In Three Rivers Valle, the trial court granted summary judgment in favor of the defendant and dismissed plaintiff's breach of contract claim--without specifying a basis for the ruling. However, the defendant's breach of contract counterclaim against Plaintiff was still live. Nevertheless, plaintiff appealed.

The COA held that it was impossible to determine whether the trial court granted summary judgment in favor of the defendant because of (a) the running of the statute of limitations, (b) failure of consideration for an alleged contract modification, or (c) non- existence of a contract between the parties. Because the factual issues presented by possibilities (b) and (c) were also live as to the defendant's counterclaim, the COA held the possibility of a jury verdict on the counterclaim inconsistent with summary judgment on Plaintiff's claim existed. A substantial right was therefore affected and appellate review proper.

Softer View On Rules Violations?

Judge Jackson has been one of the strictest judges on the COA when it comes to rules violations. She's a leader of the group of judges who'll dismiss appeals for rules violations. See, e.g, Jones v. Harrelson and Smith Contractors, LLC (Dec. 19, 2006); Stann v. Levine (Nov. 17, 2006).

In a decision today by Judge Jackson, however, the Court didn't dismiss an appeal despite a clear rule violation. The case is Caldwell v. Branch. The appellants violated Rule 28(b)(6) by not including in their brief a statement of the standard of review with citation to authority. As the Court today observed, in June the Court dismissed an assignment of error in a criminal case because the appellant violated Rule 28(b)(6). On the other hand, in October a different panel in another case didn't dismiss an appeal for noncompliance with Rule 28(b)(6).

Today the Court observed, "It appears to be the trend of this Court to more severely penalize parties for 'substantial,' 'numerous,' or 'multiple' violations of our appellate rules." Accordingly, the Court chose not to dismiss the appeal but instead to sanction the appellants' counsel. The Court ordered the appellants' counsel to pay the printing costs of the appeal because the "single violation was not substantial."

This could be a significant ruling, one which may limit Stann v. Levine (see below) and other dismissal cases on the basis that those cases involved multiple or substantial rules violations. This reasoning, of course, cannot be squared with decisions like Ribble v. Ribble, where the Court in November dismissed an appeal for a single, inconsequential act of purported noncompliance with the rules: the record on appeal omitted the certificate of service for the notice of appeal.

Reminder: The Supreme court will hear oral argument next week in Walsh v. Town of Wrightsville Beach, a rule violation case that's in the Supreme Court based on a dissent by Judge Hunter.

COA: No Right To Jury Trial For Rule 11 Factual Disputes

Today in Hill v. Hill the COA held that a party isn't entitled to a jury trial to resolve factual disputes underlying a Rule 11 motion (e.g., whether a claim was filed for an improper purpose). The COA had held 20 years ago that trial court orders imposing discovery sanctions don't violate the right to a jury trial. Today's decision is consistent with that decision, and it's consistent with Rhyne v. K-Mart Corp. (N.C. 2004), which held that the statutory cap on punitive damages doesn't violate the right to a jury trial.

Rules Violations Bounce Criminal Defendant's Appeal

In a case decided today, the COA, over a dissent, dismissed an appeal based on rules violations. The criminal defendant failed to include in the record on appeal a full copy of the order from which he appealed, and his notice of appeal failed to designate that order. Judge Elmore dissented, stating that he agreed with Judge Geer's recent dissent in Stann v. Levine that an appeal shouldn't be dismissed unless the violations substantively affect the appellee's ability to respond to the appeal and the Court's ability to address the appeal. (See Sarah's earlier posts below on Stann.) According to Judge Elmore, suspension of the rules under Rule 2 was warranted because, he said, there was a clear Fourth Amendment violation under a recent case decided last March by the U.S. Supreme Court.

COA Decides Public Records Act Case Involving Litigation Records

In a case decided today, the COA dealt with Public Records Act requests concerning litigation records. The case confirms the breadth of the Public Records Act. Recall that two years ago, in McCormick v. Hanson Aggregates Southeast, Inc. (2004), the COA held that a city attorney's work product may be subject to disclosure pursuant to the Public Records Act, since the General Assembly has not created a work product exception to the Act's disclosure requirements.

Today's case dealt with requests by The Outer Banks Sentinel to the Town of Kitty Hawk concerning oceanfront condemnation litigation. The requests concerned records made by or at the direction of the law firm that was appointed to serve as the town attorney.

The first category of documents concerned billing statements sent to the town by the law firm. The trial court ruled that the billing statements presumptively public records under the Act. The COA declined to address that ruling, holding that the issue was moot.

The second category of documents concerned contracts that the town's attorney made on behalf of the town in connection with the oceanfront condemnation cases--e.g., engineering and surveying contracts with third-parties. The trial court ruled that such contracts are public records and ordered that copies of them must be produced to the Sentinel. On appeal the town argued that the contracts weren't public records because, although the town paid for them, they were never in the town's possession: They were created by or on behalf of the law firm serving as town attorney, and they were kept by the law firm and never delivered to the town. The COA rejected the argument, holding that the law firm, in its capacity as town attorney, was a public officer of the town and thus constituted an agency of NC government subject to the Public Records Act with respect to its dealings with the town. The COA further held that the contracts in the possession of the town attorney belonged to its client, i.e., the town, and thus were public records under the Act, because the town ultimately paid for them. As a matter of policy, the COA concluded that if the town's argument were accepted, "there would be nothing to prevent municipalities and other governmental agencies from skirting the public records disclosure requirements simply by hiring independent contractors to perform governmental tasks and to have them retain all documents in conjunction with the performance of those tasks that municipalities and agencies choose to shield from public scrutiny."

Employer's Noncompete Suit Go Forward Despite Broad Geographic Restriction Potentially Covering Two Continents

Today in Okuma America Corp. v. Bowers the COA ruled against an employee in a case concerning a covenant not to compete. Bowers was a Vice President of Customer Service at Okuma America. He resigned and went to work for a competitor. Okuma America sued him, contending he violated a 6-month covenant not to compete. The trial court (Mecklenburg County's Judge Richard Boner) dismissed the action, finding that the covenant was "overly broad and unenforceable as a matter of law." The COA reversed, holding that the covenant's enforceability rests on questions of fact and can't be determined as a matter of law under Rule 12(b)(6).

The crux of the case concerned the geographic restriction. It extended to areas in which Okuma America "does business," and because Okuma America operates throughout both North and South America, the geographic effect of the restriction was broad, potentially extending throughout both continents. But when viewed in conjunction with the six-month duration, the Court said, it was not unreasonable per se. The Court emphasized three points. First, the duration was six months. Second, the covenant's language restrained Bowers from working for a competitor in a related capacity (customer service or machine tooling), meaning it permitted him to work for a competitor in a capacity unrelated to Okuma America's business. Third, Bowers allegedly occupied a senior position at Okuma America. On this score, the Court concluded that "the nature of the employee's duty and his knowledge of the employer's business operation" should be considered when examining the time and geographic restrictions of a covenant not to compete.

The Court held that whether the geographic effect of Okuma America's client-based restriction was excessive rests on factual questions concerning "Bowers' actual contacts with customers, the nature of his duties, the level of his responsibilities, the scope of his knowledge, and other issues relating to how closely the geographic limits fit within Mr. Bowers's work for Okuma America."