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1. Appeal and Error--appealability--interlocutory order--denial of motion to dismiss--
sovereign immunity defense--substantial right
Although the denial of a motion to dismiss is generally not immediately appealable based
on the fact that it is an interlocutory order, the Court of Appeals allowed an immediate appeal
because the denial of defendants' motions to dismiss based upon the defense of sovereign
immunity affects a substantial right.
2. Immunity--sovereign--contract claim
The trial court did not err in concluding that plaintiff-contractor followed the statutory
procedures provided under N.C.G.S. § 143-135.3 in order to have defendants' sovereign
immunity waived in an action involving contract claims against the State and its agencies,
because: (1) the statute provides that the contractor must first submit its claim to the director of
the Office of State Construction and await the director's decision, which plaintiff did; (2) if a
contractor is displeased with the director's decision, it may then appeal that decision by either
instituting a contested case hearing before an ALJ, or in lieu of that option, by filing a complaint
in superior court; and (3) in the instant case, plaintiff initially chose the contested case option but
never availed itself of any of those proceedings before it then opted to proceed in superior court
instead, as allowed by the statute.
3. Process and Service--state agency--registered agent receiving service
Although the long-standing rule in this State is that a summons should direct service upon
defendant itself and not upon its process agent, the trial court did not err in denying defendant-
UNC-CH's motions to dismiss for insufficient service of process based on the summons directing
service only upon the state agency's registered agent, because: (1) N.C.G.S. § 1A-1, Rule 4(b) is
leniently applied in the context of corporations and state agencies when the caption listed on the
summons, together with the complaint attached to that summons, clearly demonstrates that it is
the corporate defendant, not its agent, that is being sued; and (2) the fact that the summons does
not state that the person listed is the process agent is immaterial.
Judge McGEE dissenting.
Wilson & Waller, P.A., by Brian E. Upchurch and Betty S.
Waller, for plaintiff-appellee.
Attorney General Michael F. Easley, by Associate Attorney
General Thomas J. Pitman, for defendant-appellant University
of North Carolina-Chapel Hill.
Attorney General Michael F. Easley, by Assistant Attorney
General D. David Steinbock, for defendant-appellant North
Carolina Department of Administration.
LEWIS, Judge.
RPR & Associates, Inc. ("RPR") entered into a written
construction contract with the State of North Carolina ("State"),
through the University of North Carolina at Chapel Hill ("UNC-CH"),
to construct the George Watts Hill Alumni Center ("Alumni Center")
on the UNC-CH campus. Following the completion of the Alumni
Center, on 22 November 1994, plaintiff filed a verified claim
against UNC-CH with the Office of State Construction ("OSC")
pursuant to N.C. Gen. Stat. § 143-135.3(c), seeking to recover
costs incurred and an extension of time for completion associated
with the delayed construction of the Alumni Center. The Director
of the OSC held an informal hearing on 21 March 1995 on plaintiff's
claim. By letter dated 14 July 1997, the Director issued his
decision awarding plaintiff an additional payment of $104,468 and
an eighty-day extension for completion.
On 12 September 1997, pursuant to N.C. Gen. Stat. § 143-
135.3(c) and (c1), plaintiff filed a petition with the Office of
Administrative Hearings ("OAH") for a contested case hearing
against defendants UNC-CH and the Department of Administration
(“DOA”), seeking review of the decision of the OSC. But before anyhearing or other action had occurred before the OAH, plaintiff
decided to proceed in superior court, pursuant to N.C. Gen. Stat.
§ 143-135.3(d), instead. Thus, on 15 January 1998 plaintiff filed
a complaint in Wake County Superior Court, alleging breach of
contract and breach of warranty. The following day, plaintiff
filed a motion with the OAH seeking "an Order of the Administrative
Law Judge allowing it to voluntarily dismiss its pending contested
case herein without prejudice to its right to proceed in a civil
action pursuant to N.C. Gen. Stat. § 143-135.3 in Wake County
Superior Court." The administrative law judge ("ALJ") then
dismissed plaintiff's petition for a contested case hearing
"without prejudice to [plaintiff's] right to proceed in accordance
with N.C. Gen. Stat. § 143-135.3 in Wake County Superior Court."
All three defendants thereafter filed motions to dismiss
plaintiff's complaint in superior court pursuant to North CarolinaRules of Civil Procedure 12(b) (1), (2), (4), (5) and (6). After
a hearing on the motions, the trial court entered an order granting
the State's motion to dismiss pursuant to Rule 12(b)(5) for
insufficient service of process because a summons was never served
upon the Attorney General or a deputy or assistant attorney general
as required by Rule 4(j)(3). The trial court, however, denied UNC-
CH's and the DOA's motions to dismiss. From this order denying
their motions to dismiss, UNC-CH and the DOA now appeal.
[1]At the outset, we must determine whether this appeal is
properly before us. Generally, the denial of a motion to dismiss
is not immediately appealable because it is an interlocutory order.
Fraser v. Di Santi, 75 N.C. App. 654, 655, 331 S.E.2d 217, 218,
disc. review denied, 315 N.C. 183, 337 S.E.2d 856 (1985). However,
when that denial affects some substantial right of the appellant,
this Court will entertain an immediate appeal. N.C. Gen. Stat. §
7A-27(d) (1999).
Here, defendants' motions to dismiss were based, in part, on
the doctrine of sovereign immunity. Although our Supreme Court has
never specifically addressed the issue, this Court has held that
the denial of a motion to dismiss based upon the defense of
sovereign immunity affects a substantial right and is thus
immediately appealable. Anderson v. Town of Andrews, 127 N.C. App.
599, 601, 492 S.E.2d 385, 386 (1997); Faulkenbury v. Teachers' &
State Employees' Retirement System, 108 N.C. App. 357, 365, 424
S.E.2d 420, 423, aff'd per curiam, 335 N.C. 158, 436 S.E.2d 821
(1993). The rationale for such an exception derives from thenature of the immunity defense. Slade v. Vernon, 110 N.C. App.
422, 425, 429 S.E.2d 744, 746 (1993). "A valid claim of immunity
is more than a defense in a lawsuit; it is in essence immunity from
suit." Id. In other words, immunity would be effectively lost if
the case were erroneously allowed to proceed to trial. Id.
Because the trial court's denial of the motions to dismiss affected
a substantial right of defendants, we hold that their appeal is
properly before this Court. We therefore turn to the merits of
their appeal.
It is well settled in North Carolina that the State is immune
from suit unless it has expressly consented to be sued. Smith v.
State, 289 N.C. 303, 309, 222 S.E.2d 412, 417 (1976). This
immunity extends not only to suits where the State is a named
defendant but also to suits against departments, institutions, and
agencies of the State. Jones v. Pitt County Mem. Hospital, 104
N.C. App. 613, 616, 410 S.E.2d 513, 514 (1991).
Our legislature has adopted a limited waiver of the sovereign
immunity doctrine for actions involving contract claims against the
State and its agencies. N.C. Gen. Stat. § 143-135.3 (1999).
However, just because a statute provides for suit against the State
or one of its agencies, a plaintiff may not proceed with his suit
in any manner it pleases. The State's sovereign immunity is only
waived to the extent that the procedures prescribed by the statute
are strictly followed. Guthrie v. State Ports Authority, 307 N.C.
522, 539, 299 S.E.2d 618, 628 (1983). Our Supreme Court has
explained, “'The right to sue the State is a conditional right, andthe terms prescribed by the Legislature are conditions precedent to
the institution of the action.'" Id. (quoting Insurance Co. v.
Gold, Commissioner of Insurance, 254 N.C. 168, 173, 118 S.E.2d 792,
795 (1961)). Furthermore, because any such statute is in
derogation of the sovereign right to immunity, its terms must be
strictly construed. Id. at 537-38, 299 S.E.2d at 627. But see
Shipyard, Inc. v. Highway Comm., 6 N.C. App. 649, 652-53, 171
S.E.2d 222, 224-25 (1969) (discussing the origins of the strict
construction rule and questioning whether it is in fact the rule in
North Carolina).
[2]Defendants argue that plaintiff has failed to comply with
all the statutory requirements of N.C. Gen. Stat. § 143-135.3 and
that their sovereign immunity has thus not been waived. The
pertinent portion of N.C. Gen. Stat. § 143-135.3 provides:
(c) A contractor who has completed a contract
with a board for construction or repair
work and who has not received the amount
he claims is due under the contract may
submit a verified written claim to the
Director of the [OSC] of the Department
of Administration for the amount the
contractor claims is due. . . .
. . . The Director may allow, deny, or
compromise the claim, in whole or in
part. The Director shall give the
contractor a written statement of the
Director's decision on the contractor's
claim.
. . . .
(c1) A contractor who is dissatisfied with the
Director's decision on a claim submitted
under subsection (c) of this section may
commence a contested case on the claim
under Chapter 150B of the General
Statutes. The contested case shall becommenced within 60 days of receiving the
Director's written statement of the
decision.
(d) As to any portion of a claim that is
denied by the Director, the contractor
may, in lieu of the procedures set forth
in the preceding subsection of this
section, within six months of receipt of
the Director's final decision, institute
a civil action for the sum he claims to
be entitled to under the contract by
filing a verified complaint and the
issuance of a summons in the Superior
Court of Wake County or in the superior
court of any county where the work under
the contract was performed. The
procedure shall be the same as in all
civil actions except that all issues
shall be tried by the judge, without a
jury.
(Emphasis added).
The preceding provisions thus outline a two-tiered process for
recovering on contract claims against state agencies. The
contractor must first submit its claim to the director of the OSC
and await the director's decision. N.C. Gen. Stat. § 143-135.3(c).
Plaintiff did so here. If a contractor is displeased with the
director's decision, it may then appeal that decision in one of two
ways: (1) by instituting a contested case hearing before an ALJ; or
(2) "in lieu of" that option, by filing a complaint in superior
court. N.C. Gen. Stat. § 143-135.3(c1), (d). As pointed out
earlier, this process must be strictly followed before sovereign
immunity will be waived. Guthrie, 307 N.C. at 539, 299 S.E.2d at
628. Here, plaintiff initially chose the contested case route, but
then opted to proceed in superior court instead. Defendants
contend that because plaintiff had already initiated a contestedcase hearing when it filed a complaint in superior court, it did
not proceed in superior court "in lieu of" a contested case
hearing. Thus, according to defendants, plaintiff did not
strictly follow the statutory procedures in order to have sovereign
immunity waived. We do not believe strict adherence to the
provisions of N.C. Gen. Stat. § 143-135.3 necessitates such a
result.
Prior versions of section 143-135.3 only provided one avenue
for a dissatisfied contractor to appeal from the decision of the
Director of the OSC. That avenue was by filing a claim in superior
court. N.C. Gen. Stat. § 143-135.3 (amended 1983). The present
statute has now added a second avenue of appeal: commencing a
contested case hearing. N.C. Gen. Stat. § 143-135.3(c1) (1999).
Our legislature has thus expressed a desire to benefit contractors
and allow them increased options to proceed. In their suggested
application of the phrase "in lieu of," however, defendants have
essentially used this benefit to penalize the contractor.
Specifically, because there are now more potential procedures for
a contractor to follow in appealing its claim, and because these
procedures should be strictly followed, the non-compliance as to
one potential procedure forecloses the contractor's ability to
appeal via the other. In essence, defendants' interpretation would
engraft into the statute a provision to the following effect: "The
mere initiation of one avenue forever forecloses the right to
pursue the other." We do not believe that, by adding a second
avenue of appeal, our legislature intended to create such a result. Rather, through subsections (c1) and (d), our le
gislature was
simply trying to create alternate methods of appeal. By using the
phrase "in lieu of," our legislature is merely prohibiting a
contractor from appealing via a contested case hearing, waiting to
see whether it likes the decision handed down by the OAH, and then
initiating an appeal in superior court as well if it does not like
the decision. In other words, a contractor cannot use one avenue
of appeal as a "trial run" before proceeding with the other.
Here, plaintiff initially started the contested case hearing
process, but plaintiff never availed itself of any of those
proceedings. Rather, before any hearing or other action had
occurred before the OAH, plaintiff decided to proceed in superior
court instead. Plaintiff then immediately withdrew its claim
before the OAH. Under these facts, we hold that plaintiff complied
with the statutory procedures outlined, and defendants' sovereign
immunity has thereby been statutorily waived.
[3]Next, defendant UNC-CH argues the trial court erred in
denying its motions to dismiss for insufficient service of process.
Although this question again is interlocutory in nature, we choose
to address it, given that defendants' sovereign immunity argument
is properly before us. After all, to address but one interlocutory
or related issue would create fragmentary appeals. See generally
Colombo v. Dorrity, 115 N.C. App. 81, 84, 443 S.E.2d 752, 755 ("We
believe that allowing an immediate appeal only from the order
denying the City's motion for summary judgment on the grounds of
governmental immunity would create a fragmentary appeal. As such,we allow an immediate appeal from both orders denying the City's
motion for summary judgment."), disc. review denied, 327 N.C. 689,
448 S.E.2d 517 (1994). Accordingly, we consider the merits of this
argument as well.
Plaintiff attempted to serve defendant UNC-CH on 15 January
1998. On its civil summons, plaintiff listed the name and address
of the party to be served as follows:
Susan Ehringhaus, Esq.
103 S. Bldg., UNC Chapel Hill
Chapel Hill, NC 27599
Ms. Ehringhaus is the duly-appointed process agent for UNC-CH.
Defendant UNC-CH contends that, because plaintiff's summons is
directed to Ms. Ehringhaus (rather than to UNC-CH itself) and
nowhere states that Ms. Ehringhaus is being served as an agent of
UNC-CH, defendant UNC-CH was never properly served. We fully
acknowledge that it would have been better practice for plaintiff
to have directed service as follows:
University of North Carolina-Chapel Hill
c/o Susan Ehringhaus, Esq. (Registered Agent)
103 S. Bldg., UNC Chapel Hill
Chapel Hill, NC 27599
Nonetheless, we conclude plaintiff has adequately complied with the
service of process requirements outlined in Rule 4(b) and (j).
The long-standing rule in this State is that a summons should
direct service upon the defendant itself, not upon its process
agent. Wiles v. Construction Co., 295 N.C. 81, 83, 243 S.E.2d 756,
757 (1978). In the context of corporations, however, our Supreme
Court has expressed leniency in the application of this rule.
Specifically, when the caption listed on the summons, together withthe complaint attached to that summons, clearly demonstrate that it
is the corporate defendant, not its agent, that is being sued,
service is adequate. Id. at 85, 243 S.E.2d at 758. The Wiles
Court reasoned:
Since, under Rule 4, a copy of the complaint
must be served along with the summons, and the
corporate representative who may be served is
customarily one of sufficient discretion to
know what should be done with legal papers
served on him, the possibility of any
substantial misunderstanding concerning the
identity of the party being sued in this
situation is simply unrealistic. Under the
circumstances, the spirit certainly, if not
the letter, of N.C.R. Civ. P. 4(b) has been
met.
Id. (citation omitted). Although Wiles only dealt with Rule 4 in
the context of service upon corporations, we believe Wiles is
equally applicable in situations involving service upon state
agencies. After all, Rule 4(b) deals with the requirements for
summonses in general, not just for corporate defendants. Thus, so
long as the caption on the summons, together with the complaint
attached to the summons, clearly show that the state agency, as
opposed to its registered agent, is the party being sued, the fact
that the summons directs service only upon the agent will not
invalidate service upon the state agency. Here, both the complaint
and the caption on the summons clearly list UNC-CH as a party-
defendant. Neither Ms. Ehringhaus nor UNC-CH could have reasonably
been misled. We therefore conclude service upon UNC-CH was valid.
Defendant UNC-CH points out that in Wiles, "Registered Agent"
was listed next to the name of the person upon whom service was to
be directed. From this, defendant argues that plaintiff may notavail itself of the Wiles rule because it nowhere stated on the
summons that Ms. Ehringhaus is a process agent. This is simply a
distinction without a difference. Wiles focuses upon how the
defendant is listed in the caption on the summons and in the
complaint; how the agent is listed is immaterial.
Affirmed.
Judge JOHN concurs.
Judge McGEE dissents.
McGEE, Judge, dissenting.
I respectfully dissent. I disagree with the majority opinion's broad construction of N.C. Gen. Stat. §§ 143.135.3(c1) and (d).
I do not disagree with the majority opinion that the General Assembly provided a contractor an alternative appeal option under N.C.G.S. § 143-135.3(d) for a dissatisfied contractor to appeal from the decision of the OSC. However, once plaintiff contractor selected the option of "commenc[ing]" its case under N.C.G.S. § 143-135.3(c1) by filing a petition with the OAH, it could not then "institute" a complaint in superior court under N.C.G.S. § 143- 135.3(d) when the statute provides for the civil action in state court in lieu of a contested case. The benefit of an alternative appeal option does not warrant plaintiff offending the strict construction of N.C.G.S. § 143.135.3. See Construction Co. v. Dept. of Administration, 3 N.C. App. 551, 553, 165 S.E.2d 338, 340 (1969) ("[S]tatutes permitting suit, being in [derogation] of sovereign right of immunity, are to be strictly construed."); seealso In re Thompson Arthur Paving Co., 81 N.C. App. 645, 647-4 8, 344 S.E.2d 853, 855, disc. review denied, 318 N.C. 506, 349 S.E.2d 874 (1986) ("Waiver of sovereign immunity may not be lightly inferred and statutes waiving this immunity, being in derogation of the sovereign right to immunity, must be strictly construed."); see also 82 C.J.S. Statutes § 380 (1999) ("Among the statutes in derogation of sovereignty and subject to the rule requiring strict construction in favor of the state are those allowing suits against the state or its representative . . . or waiving its immunity from liability[.]").
The majority opinion emphasizes that plaintiff decided to proceed in superior court "before any hearing or other action had occurred before the OAH." Nonetheless, this overlooks the fact that the contractor both "commence[d]" its case by filing a petition with the OAH and also "institute[d]" a complaint in superior court, resulting in two actions pending at the same time in two different forums. N.C.G.S. § 143-135.3(c1) ("[a] contractor . . . may commence a contested case on the claim[.]"); N.C.G.S. § 143-135.3(d) ("the contractor may, in lieu of the procedures set forth in [subsection(c1)] . . . institute a civil action[.]") (emphasis added). By employing the verbs "commence" and "institute" in the respective subsections of the statute, I believe the General Assembly intended to measure the time of these procedures from the contractor's first act or commencement of the case, not the OAH's decision to hear the case, as the majority opinion suggests. See Burgess v. Your House of Raleigh, 326 N.C.205, 209, 388 S.E.2d 134, 136-37 (1990) (holding that legislative purpose is first ascertained from the plain language of the statute); see also Black's Law Dictionary 268, 800 (6th ed. 1990) (defining "commence" as "[t]o initiate by performing the first act or step" and defining "institute" as "[t]o inaugurate or commence[.]"). If the General Assembly intended that these procedures be measured by an OAH hearing of the contractor's case, not the contractor's action to "commence" or "institute" the action, it would have expressly so stated. It did not choose to do so.
Strictly construing N.C.G.S. §§ 143-135(c1) and (d), as we must, plaintiff's both commencing of its contested case in the administrative court and also instituting a complaint in superior court violated the provisions of the statute necessary to waive defendants' claim to sovereign immunity. See Construction Co., 3 N.C. App. at 553, 165 S.E.2d at 340; see also In Re Thompson, 81 N.C. App. at 647-48, 344 S.E.2d at 855. The majority opinion characterizes the strict construction of the two-tiered process available to plaintiff as essentially a "penalty." However unfortunate the result, the majority opinion has interpreted the waiver statute too broadly and failed to follow "the admonition to strictly construe statutes which waive the benefits of the doctrine of sovereign immunity." State v. Taylor, 85 N.C. App. 549, 557, 355 S.E.2d. 169, 175 (1987) (Eagles, J., dissenting), rev'd, 322 N.C. 433, 436, 368 S.E.2d 601, 603 (1988) (holding that the Court of Appeals erred in "broadening the scope of the waiver ofsovereign immunity[.]"). I would reverse the decision of the trial court and remand for entry of summary judgment for defendants UNC- CH and DOA.
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