North Carolina's Judicial Election Financing Challenged as Unconstitutional

Earlier this month, North Carolina Right to Life Political Action Committee and North Carolina Right to Life Committee Fund for Independent Political Expenditures ("NC Right to Life Plaintiffs") filed suit in the United States District Court for the Eastern District of North Carolina seeking to have North Carolina's public financing system for judicial elections declared unconstitutional.  Given the Supreme Court's holding last term in Arizona Free Enterprise Club's Freedom Club PAC v. Bennett, which declared a similar public financing to be unconstitutional, North Carolina's public financing system may be in jeopardy. 

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COA: Circumstances critical in determining whether right of first refusal is enforceable

On Tuesday, in the case of Taylor v. Miller, a panel of the North Carolina Court of Appeals (Geer, Martin, Elmore) held that a right of first refusal in a deed may be enforceable even if it contains a fixed price option. In this decision, the Court recognized the need to enforce arms-length negotiations and the importance of rights of first refusal in certain contexts, such as real estate development and family law.

Mr. Taylor and Ms. Miller were married in 1982 and separated in 1993. In 1994, they executed a warranty deed to Mr. Taylor for a piece of property in Morehead City, North Carolina. The deed contained a provision regarding Ms. Miller's right to repurchase the land should Mr. Taylor decide to sell it. That provision stated, in part, that Ms. Miller could buy the property (1) on the same terms and conditions of a bona fide offer received by Mr. Taylor, or (2) for the sum of $41,500 plus the costs of repairs and improvements made since the execution of the deed. In 2009, Mr. Taylor and his current wife filed a complaint seeking a declaration of rights under the deed and a determination whether the right of first refusal provision was enforceable.

A right of first refusal requires that, before the designated property may be sold to another party, it must first be offered to the person that holds the right of first refusal. Although a right of first refusal is considered a restraint on alienation of property, which is generally disfavored by the courts, a right of first refusal is not void per se and will be enforced if it is reasonable. To determine whether a right of first refusal is reasonable, courts consider two primary factors: (1) the duration of the right, and (2) the provisions for determining the price of exercising the right.

The Taylors argued that the right of first refusal in this case was unenforceable because it failed to satisfy the second prong. Specifically, they contended that the right of first refusal was unreasonable because of the fixed price option ($41,500), which, they argued, did not link the price of the property to the fair market value of the land or to a price they would accept from another buyer.

The Court of Appeals explained that in considering the second prong, courts must look to the circumstances existing at the time the contract was made to determine whether the price is reasonable. Here, the record contained a letter from Mr. Taylor to Ms. Miller indicating that the deed was part of their separation agreement. According to the Court, if the fixed price option was a "bargained-for sum" arising out of Mr. Taylor and Ms. Miller's negotiations during their property division, then those circumstances could suggest that the fixed-price right of first refusal was reasonable. However, because genuine issues of fact existed, summary judgment was not proper for either party.

Related links: Record on appeal; Taylors' brief; Miller's brief; Taylors' reply brief.

COA Reverses Order Granting Summary Judgment Where Parties Offered Competing Affidavits

Yesterday the Court of Appeals reversed a trial court's order granting summary judgment to defendant UPS, holding that competing affidavits submitted by the parties regarding whether plaintiff actually saw terms of service governing shipping and whether an oral contract was created were sufficient to create a genuine issue of material fact. The case is Marso v. United Parcel Service, Inc.

Marso sold a diamond ring and mailed it to the buyer via UPS. Marso claimed that the UPS Store employee told him that UPS would take cash from the purchaser; would hold on to the ring until Thompson delivered the cash; would collect cash only; that the collection was guaranteed, and that Marso would receive a check from UPS, not from the buyer. Marso paid UPS to ship the ring by COD, and Marso requested requested that UPS collect $12,145.00 for the ring upon delivery of the package to cover the purchase price and shipping costs. The shipment receipt provided to Marso said that the package was shipped “COD=$12,145.00, Guaranteed.”

When the package was delivered to the buyer, UPS collected what appeared to be a cashier's check, but Marso's bank refused to honor it and claimed it was a "bogus check of no value." Marso sued UPS for breach of contract.

The COA described the competing affidavits submitted by Marso and UPS. UPS submitted the affidavit of an employee that stated that each customer who ships packages from the store Marso shipped from had to use a computer program to enter shipping information and in doing so had to agree to the terms of service, which included a disclaimer that “UPS will not accept currency in any amount for payment of C.O.D. shipments,” and that the shipper accepts the risk for nonpayment and insufficient funds. In his affidavit Marso denied that he used a computer at the UPS store, and claimed that an employee entered the information in the computer for him and that he did not assent to the terms of service. Marso claimed that he formed an oral contract with the UPS employee that UPS would ship the ring and guaranteed receipt of a cash payment by the buyer.

The COA held that "the parties presented conflicting evidence in competing affidavits regarding the attendant circumstances of the formation and terms of the agreed-upon contract, including whether plaintiff had either actual or constructive notice that he would be bound by the terms of [service]." This was enough to create a genuine issue of material fact as to whether Marso actually saw the terms of service and whether he entered into an oral contract with the UPS employee.

COA Opinions (9/20/11)

Today, the North Carolina Court of Appeals issued 15 published opinions.  We will report on any decisions of interest later.

COA: Premises lessor not liable absent sufficient control over site

A North Carolina Court of Appeals panel (Stroud, McGee, Beasley) ruled yesterday in Hylton v. Hanesbrands, Inc., that a premises lessor could not be liable for a plaintiff's injuries since the lessor did not have sufficient control over the site, and since the allegedly unsafe conditions were totally collateral to the work the lessee had agreed to perform. Womble Carlyle attorneys Reid C. Adams, Jr., Rachel E. Daly, and Jennifer B. Lyday represented Hanesbrands in this appeal.

James Hylton, an employee of Suez Energy, sued Hanesbrands, among other defendants, after he was injured in an accident at a steam plant Hanesbrands was leasing to Suez. Hylton was backing a front-end loader down a large sawdust pile when the loader overturned and rolled down the sawdust pile. Hylton claimed that there were lighting issues and problems which Hanesbrands failed to correct despite having had the ability to do so. He alleged that Hanesbrands was negligent in failing to maintain the property in a reasonably safe condition; failing to warn people of hidden, unsafe conditions; and failing to make reasonable inspections and to correct unsafe conditions.

In determining whether summary judgment for Hanesbrands was proper, the Court first considered the question of whether the terms of the lease agreement between Hanesbrands and Suez were sufficient to give Hanesbrands control over the condition that caused Hylton's injuries. Although Hylton pointed to several portions of the agreement which he argued showed that Hanesbrands retained sufficient control of the premises to establish a duty to him, the Court was not persuaded. The Court determined that even in the aggregate, those provisions showed that the agreement left to Suez the specifics of operating the steam plant. Furthermore, the Court noted, Hylton ignored other portions of the agreement which specifically showed that Suez was in exclusive control of safety issues.

Next, the Court considered whether the operation of heavy machinery at night without sufficient lighting was an inherently dangerous activity that would trigger a duty of care by Hanesbrands to Hylton. The Court observed that the agreement provided that Suez was acting as a subcontractor to provide steam for Hanesbrands's facility. Therefore, Suez made the decision as to how to provide steam, which included constructing large piles of sawdust in a particular location with poor lighting. As the Court explained, the nature of the sawdust piles and lighting were actions collateral to providing steam, and no recovery may be allowed for an injury resulting from an act or fault purely collateral to the work agreed upon and arising from a wrongful act of a subcontractor. For these reasons, the Court affirmed summary judgment for Hanesbrands.

Related links: Record on appeal; Hylton's brief; Hanesbrands's brief.

COA: "Loan Discount Fees" Are Not Interest Fees and Are Thus Not Preempted by Depository Institutions Deregulation and Monetary Control Act

Yesterday the COA affirmed a trial court's holding that a state bank's charging of "loan discount fees" where no discount was actually given to borrowers was unfair and deceptive, and that this claim was not preempted by the federal Depository Institutions Deregulation and Monetary Control Act because loan discount fees were not usury fees. The case is Bumpers v. Community Bank of Northern Virgina.

Plaintiff borrowers took out a loan with the defendant bank and claimed that loan closing, origination, and underwriting fees they were charged were excessive, and that they were charged a loan discount fee for a loan that did not have a discounted interest rate.

The COA ruled on several issues appealed by the bank. First, the COA upheld the order for partial summary judgment on the issue of liability for UDTP, affirming the trial court's order that the bank's practice of charging a loan discount fee without providing a loan with a discounted interest rate was unfair and deceptive. The Court reasoned that the facts showed that the borrowers were "charged for a product [a loan discount] that was never delivered," and "this type of systematic overcharging constitutes" an UDTP.

The COA further held that the Depository Institutions Deregulation and Monetary Control Act(DIDA), a federal statute designed in part to preempt state law usury claims against out-of-state banks, did not exempt the bank from the borrowers' claim related to the loan discount fees. The COA reasoned that the borrowers' claims were not claims for usury, but were related to the charging of fraudulent discount rate fees where no discount was given, and under DIDA, “interest” does not broadly encompass any and all fees connected with a loan.

The COA also found that there was a genuine issue of material fact on the issue of whether the closing fees were excessive and thus constituted an UDTP. The COA based this finding on the testimony of the borrowers' certified real estate specialist testified that closing fees should not exceed $400 but could theoretically rise to $1500 based on an attorney's hourly rate. The fees charged to borrowers were around $1200, so a jury could determine that they were not excessive.