COA: Oral arguments this week

This week, the Court of Appeals will hear seven oral arguments:

• Tuesday, 9:30 A.M.
• France v. France
• Wednesday, 1:00 P.M.
• State v. Jones and White
• Capital Resources, LLC v. Chelda, Inc.
• Veitia v. Mulshine Builders LLC
• Thursday, 9:30 A.M.
• State v. Ryan
• In re D.W.-S.
• Vellines v. Childree

Here is a link to the full calendar of arguments.

NC Supreme Court: In considering applicability of governmental immunity, analysis of whether function is governmental or proprietary must start with relevant legislation

On Friday, in the case of Estate of Williams v. Pasquotank County Parks & Recreation Department and Pasquotank County, the Supreme Court restated the principles applicable to an analysis of whether counties and municipal corporations are entitled to governmental immunity.  Womble Carlyle's Burley Mitchell and Robert Numbers represented the defendants in their appeal to the Supreme Court.

On June 10, 2007, Erik Dominic Williams drowned at Fun Junktion, a public park owned by defendant Pasquotank County and maintained and operated by defendant Pasquotank County Parks & Recreation Department.  Williams's estate later sued the defendants, alleging that their negligence resulted in his death at the "Swimming Hole," an area of the park that was rented out to private parties.

The trial court ruled that the defendants were not entitled to governmental immunity, a doctrine under which counties and municipal corporations are immune from suits based on their employees' negligence in performing governmental (as opposed to proprietary) functions unless there has been a waiver of immunity.  Governmental functions are those which are “discretionary, political, legislative, or public in nature and performed for the public good in behalf of the State rather than for itself,” whereas proprietary functions are those which are “commercial or chiefly for the private advantage of the compact community.”

The defendants appealed to the Court of Appeals.  In a unanimous decision, the COA affirmed the denial of summary judgment for the defendants, concluding that the defendants were engaged in a proprietary function because the services they provided could also be provided by private entities.

The defendants then petitioned the Supreme Court for discretionary review, which the Court granted.  Recognizing the increasing difficulty in identifying services that can only be provided by a governmental entity, the Court explained the inquiry to be applied when distinguishing between governmental and proprietary functions.

The threshold inquiry is whether the legislature has addressed the issue.  If the legislature has not resolved the question, then the court looks to other factors.  If the undertaking is one in which only a governmental agency could engage, it is a governmental function.  However, if the service can be performed by governmental or private entities, then the court must consider 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.  The Court cautioned that no single factor is dispositive, and emphasized that the governmental-vs.-proprietary question is a fact-sensitive analysis that may vary from case to case.

The Court determined that remand was necessary because the COA had not sufficiently addressed North Carolina's Recreation Enabling Law, N.C. Gen. Stat. § 160A-351, which was relevant to determining whether the defendants' maintenance and operation of the Swimming Hole was a governmental or proprietary function.  The Court explained that even if, under the statute, the operation of parks and recreation programs is generally a governmental function, the question remains whether the specific operation of the Swimming Hole at Fun Junktion, under the circumstances particular to this case, is a governmental function.  Accordingly, the Court expressed no opinion on whether the defendants are ultimately entitled to governmental immunity, but remanded to the COA for further remand to the trial court to consider the application of N.C. Gen. Stat. § 160A-351 to this case.

Related links: Parties' and amicus briefs; COA opinion.

COA Discusses Legal Duty of Parents of Violent Repeat Offender Who Lived In Their Home (With Their Guns)

In an interesting case this week, the COA held that dismissal of negligence claims against the parents of a convicted criminal with a "pattern of violent behavior towards women" was proper because the harm to Plaintiff was not reasonably foreseeable and Defendants had no duty to guard against it. The case is Bridges v. Parrish. Plaintiff's sometime boyfriend, Bernie, was Defendants' son. Bernie had a checkered past that included numerous drug and weapon charges. He also "exhibited a pattern of violent behavior toward women," including a conviction for first degree kidnapping, assault with a deadly weapon with intent to kill or inflict serious injury, and possession of a firearm by a felon. Defendants were aware of Bernie’s criminal history and violent conduct toward women and did not reveal it to Plaintiff. Plaintiff ended her relationship with Bernie in 2010 due to his “controlling, accusatory, and risky” behavior, but continued to see him occasionally. Plaintiff claimed Bernie's mother assured her that Bernie was not a threat. In 2011, Bernie drove Defendants' vehicle to Plaintiff's office and shot her with a handgun, seriously injuring her. The handgun was registered to Bernie's dad and was used by both Defendants. Plaintiff argued that Defendants owed her a legal duty because the harm she suffered was a foreseeable result of their actions (providing Bernie with assistance and shelter, "downplaying" his behavior, and failing to secure their guns). The majority affirmed the trial court's dismissal of Plaintiff's negligence claims, finding that Defendants owed Plaintiff no such duty. While Plaintiff alleged that she would not have been shot if Defendants had not provided assistance to Bernie, attempted to downplay his behavior, told Plaintiff he posed no threat, and failed to take steps to secure their guns, the Court found that Plaintiff did not allege that Bernie’s violent behavior was “in any way associated" with Defendants’ conduct or that Defendants were "on notice" that their conduct could cause Bernie to act violently. Plaintiff's allegations did not support any "nexus of foreseeability" between Defendants' actions and Plaintiff's injuries. The COA also found that Plaintiff did not sufficiently allege negligent entrustment of the handgun because she acknowledged in her brief that “[i]t is not yet known exactly how Bernie obtained the firearm from [d]efendants" and "[b]ecause plaintiff failed to allege that defendants expressly or impliedly consented to the use of the handgun." A majority (Judges Hunter and Beasley)further found that NC courts have not recognzed a duty to secure firearms. Judge Geer dissented with regard to Plaintiff's claim for negligent storage of a firearm, finding that other jurisdictions recognize such a claim under circumstances similar to those alleged in the complaint, and that Plaintiff's allegations were sufficient to survive a motion to dismiss that claim.

COA: Participating in Discovery May Waive Right to Arbitration

In HCW Retirement and Financial Services, LLC v. HCW Employee Benefit Services, LLC, COA11-1479, the North Carolina Court of Appeals recently held that asking a deponent about facts and circumstances relating to a claim potentially subject to an arbitration clause may waive the right to have that claim submitted to arbitration.

In that case, Plaintiffs HCW Retirement & Financial Services, LLC and HCWRFS, LLC were limited liability companies and Plaintiff Wilton Drake was a financial planner who offered retirement planning services. Defendants Frank S. Woody, III and Todd T. Yates were financial advisers who offered investment and insurance services. Between the late 1990s until 2010, the parties were involved in various collaborative ventures focusing on the provision of financial or investment advice. In 2003, Defendants and Drake formed Prescott Office Management, LLC, for the purpose of entering into an office sharing arrangement pursuant to which Prescott would purchase part of an office condominium. At the time they organized Prescott, the parties executed and signed an Operating Agreement that governed their rights and responsibilities with respect to Prescott and included an arbitration provision.

In 2011, Plaintiffs filed suit against Defendants seeking damages for, among other things, breach of fiduciary duty and breach of the duty of good faith and fair dealing. Defendants filed an answer and then a motion to stay the litigation and refer the claims of breach of good faith and fair dealing and breach of fiduciary duty to arbitration pursuant to the Operating Agreement. The trial court denied the motion to compel arbitration, holding that these claims fell outside the substantive scope of the arbitration provision, and further, that Defendants had impliedly waived any right to arbitration by participating in discovery procedures which would not have necessarily been available in arbitration.

On appeal, the Court of Appeals held that although the trial court had incorrectly concluded that the claims were outside the scope of the arbitration provision, the trial court had correctly held that Defendants had waived their right to arbitration by utilizing discovery procedures that would not necessarily have been available in arbitration. The Court explained that although public policy favors arbitration clauses, arbitration is a contractual right that may be waived by the conduct of the party seeking to enforce its right. A party must show prejudice to defeat an attempt to compel arbitration on the grounds of waiver. A party may be prejudiced by its opponent's delay in seeking arbitration if (1) it is forced to bear the expense of a long trial, (2) it loses helpful evidence, (3) it takes steps in litigation to its detriment or expends significant amounts of money on the litigation, or (4) its opponent makes use of judicial discovery procedures not available in arbitration.

The Court then held that Plaintiffs had sufficiently demonstrated the prejudice required to defeat Defendants’ motion to compel arbitration. The trial court found that Defendants had asked Drake in his deposition about facts relating to the claims for breach of fiduciary duty and breach of good faith and fair dealing, that Plaintiffs had incurred expenses in connection with that deposition, that this discovery would be available in arbitration only if permitted by the arbitrator, and that Defendants had refused to respond to Plaintiffs’ discovery requests relating to those claims on the grounds that they were subject to arbitration. The Court of Appeals agreed that the record contained facts to support each of these findings, and that these findings supported the conclusion that Defendants had waived the right to arbitration. The Court’s decision affirming the lower court can be found here.