STATE EMPLOYEES ASSOCIATION OF NORTH CAROLINA, INC.,
Plaintiff,
v
.
STATE OF NORTH CAROLINA; MICHAEL F. EASLEY, Governor of North
Carolina; EDWARD RENFROW, State Controller of North Carolina; and
DAVID T. McCOY, State Budget Officer of North Carolina,
Defendants.
State Employees Association of North Carolina, Inc., by
General Counsel Thomas A. Harris, for plaintiff appellant.
Attorney General Roy Cooper, by Special Deputy Attorneys Norma
S. Harrell and Alexander McC. Peters and Assistant Attorney
General Robert M. Curran, for defendant appellees.
Blanchard, Jenkins, Miller & Lewis, P.A., by E. Hardy Lewis,
Amicus Curiae North Carolina Conference of the American
Association of University Professors.
McCULLOUGH, Judge.
Plaintiff State Employees Association of North Carolina, Inc.,
(SEANC) appeals from an order denying its motion for a temporary
restraining order and dismissing its complaint for declaratory
judgment against defendants the State of North Carolina, Governor
Michael Easley, State Controller Edward Renfrow, and State Budget
Officer David McCoy, entered 29 May 2001.
SEANC is a nonprofit corporation that, according to its
complaint, has approximately 58,000 active members, of whom
approximately 46,000 are current employees of the State of NorthCarolina and approximately 12,000 are retired State employees.
Active members of SEANC are defined as being limited to current
and retired employees of the State of North Carolina and/or persons
having membership in or eligibility for membership in the following
systems, Teachers' and State Employees' Retirement System of North
Carolina, Consolidated Judicial Retirement System of North
Carolina, and Legislative Retirement System. Plaintiff alleges
that they are bringing this lawsuit on behalf of its vested
members. Vested members are those active members who have five (5)
years of state service and have a vested right in their retirement
account. See Bailey v. State of North Carolina, 348 N.C. 130, 500
S.E.2d 54 (1998).
In pursuing this lawsuit, plaintiff SEANC is seeking to enjoin
the State and certain of its officials from redirecting funds
allocated to the State's retirement systems. The North Carolina
General Assembly has statutorily created retirement systems for
respective State employees. Three in particular are involved here.
Created in 1941 and located in N.C. Gen. Stat. §§ 135-1 to
-18.8, the Retirement System for Teachers and State Employees was
established for the purpose of providing retirement allowances and
other benefits under the provisions of this Chapter for teachers
and State employees of the State of North Carolina. N.C. Gen.
Stat. § 135-2 (2001).
Codified in N.C. Gen. Stat. §§ 135-50 to -76 in 1973, the
Consolidated Judicial Retirement Act was established for the
purpose of improving the administration of justice by attractingand retaining the most highly qualified talent available within the
State to the positions of justice and judge, district attorney and
solicitor, and clerk of superior court, within the General Court of
Justice[,] N.C. Gen. Stat. § 135-50(b) (2001), by providing
retirement allowances and other benefits under the provisions of
this Article for justices and judges, district attorneys, and
clerks of superior court of the General Court of Justice of North
Carolina, and their survivors. N.C. Gen. Stat. § 135-54 (2001).
The Legislative Retirement System was created in 1983 and is
located in N.C. Gen. Stat. §§ 120-4.8 to -4.31 (2001).
These retirement systems are funded by both employee and
State, or employer, contributions. See N.C. Gen. Stat. §§ 135-8;
135-68, -69; 120-4.19, -20 (2001). As plaintiff alleges, these
systems provide for a systematic method of funding of the
respective retirement system with employee contributions computed
as a set percentage . . . of the employees' salaries, and with
systematic employer contributions in accordance with formulas
mandated by the Retirement Statutes, which include calculations by
an actuary based on the actuarial valuation of liabilities of the
Retirement Systems.
It was with respect to these State contributions that the
Appropriation Act of 2000 purported to set aside certain
percentages of the covered salaries for the 2000-2001 fiscal year.
2000 N.C. Sess. Laws ch. 67, § 26.19(a).
It is worth noting Article V, Section 6 of the North Carolina
Constitution, titled Inviolability of sinking funds and retirementfunds. Subsection 2 of this provision provides:
Retirement funds. Neither the General Assembly
nor any public officer, employee, or agency
shall use or authorize to be used any part of
the funds of the Teachers' and State
Employees' Retirement System or the Local
Governmental Employees' Retirement System for
any purpose other than retirement system
benefits and purposes, administrative
expenses, and refunds; except that retirement
system funds may be invested as authorized by
law, subject to the investment limitation that
the funds of the Teachers' and State
Employees' Retirement System and the Local
Governmental Employees' Retirement System
shall not be applied, diverted, loaned to, or
used by the State, any State agency, State
officer, public officer, or public employee.
N.C. Const. art V, § 6(2). This version of Section (2) was adopted
in 1969, but is similar to the provisions of Article II, Section
31, of the 1868 North Carolina Constitution, as adopted in 1950.
On the other hand, the North Carolina Constitution in Article
III, Section 5 details the duties of the Governor. As to the
budget of the State, it provides the following:
Budget. The Governor shall prepare and
recommend to the General Assembly a
comprehensive budget of the anticipated
revenue and proposed expenditures of the State
for the ensuing fiscal period. The budget as
enacted by the General Assembly shall be
administered by the Governor.
The total expenditures of the State for
the fiscal period covered by the budget shall
not exceed the total of receipts during that
fiscal period and the surplus remaining in the
State Treasury at the beginning of the period.
To insure that the State does not incur a
deficit for any fiscal period, the Governor
shall continually survey the collection of the
revenue and shall effect the necessary
economies in State expenditures, after first
making adequate provision for the promptpayment of the principal of and interest on
bonds and notes of the State according to
their terms, whenever he determines that
receipts during the fiscal period, when added
to any surplus remaining in the State Treasury
at the beginning of the period, will not be
sufficient to meet budgeted expeditures. This
section shall not be construed to impair the
power of the State to issue its bonds and
notes within the limitations imposed in
Article V of this Constitution, nor to impair
the obligation of bonds and notes of the State
now outstanding or issued hereafter.
N.C. Const. art. III, § 5(3) (emphasis added). Pursuant to this
power, defendant Governor Easley issued Executive Order No. 3,
entitled Budget Administration, to insure that the State did not
incur a deficit for the 2000-2001 fiscal year. This order detailed
the distinct possibility that a deficit was impending in the fiscal
year. It also commanded the Office of State Budget, Planning and
Management (OSBPM) to take certain actions to insure that the State
did not suffer a deficit. One of the commands was as follows:
Section 8. The Office of the State
Controller, as advised by the State Budget
Officer, is directed to receive the employer
portion of retirement contributions for all
State funded retirement systems and to escrow
such funds in a special reserve as established
by OSBPM. Before taking such action, OSBPM is
directed to confirm with the State Treasurer
that such action will not impair the actuarial
integrity of the state retirement system.
Return of all such receipts shall be made to
the retirement system, if possible, after
determination that such funds are not
necessary to address the deficit.
The amount that OSBPM actually put in escrow is estimated to be
$151,000,000.00.
As it became apparent to plaintiff SEANC that defendants wereindeed going to use the appropriated employer contributions held in
escrow to attempt to balance the budget rather than to fund the
retirement systems, plaintiff filed this action on 22 May 2001. In
its verified complaint, plaintiff sought a declaratory judgment on
four possible grounds: (1) that contracts exist between defendants
and the members of the retirement systems to fund those systems in
accordance with the systematic funding methods mandated by the
retirement systems, and that defendants' actions had breached those
contracts; (2) that the Executive Order and other actions of
defendants, both taken and threatened, violate Article V, Section
6(2) of the North Carolina Constitution; (3) defendants lack
authority under Article III, Section 5(3) of the North Carolina
Constitution to withhold the appropriated retirement funds; (4) the
contractual rights of the members of the retirement systems to have
the systems funded are property rights, and the Executive Order and
other actions of defendants constitute a taking of property from
those members without due process of law in violation of the
Fourteenth Amendment to the U.S. Constitution and other than by the
law of the land in violation of Article I, Section 19 of the North
Carolina Constitution.
Plaintiff's complaint sought a preliminary injunction to
preserve the status quo while the action was pending and ultimately
a permanent injunction compelling defendants to pay into the
retirement systems all employer contributions to the systems
withheld by them under the Executive Order or otherwise. In
addition to its complaint, plaintiff also filed a motion for atemporary restraining order (TRO) pursuant to Rule 65(b) of the
North Carolina Rules of Civil Procedure on the same day. This
motion alleged that [t]he threatened actions of Defendants will
cause immediate and irreparable injury to Plaintiff's members and
all other current and retired State employees.
A hearing on plaintiff's motion for TRO was held on 23 May
2001. As to the TRO, the trial court found as fact that plaintiff
had failed to demonstrate that it or its members will suffer any
irreparable harm if injunctive relief is not granted, and that they
had presented no allegation of actual harm to it or its members.
Accordingly, the trial court made conclusions of law to the same
effect holding that plaintiff could not prevail on the merits of
the action, and thus ordered that the TRO motion be denied.
The trial court also made findings of fact that plaintiff
SEANC was the only plaintiff to this action, that SEANC has neither
alleged nor shown by any evidence that it is a party to or third-
party beneficiary of the alleged contracts, and that all of the
parties to the contracts are not before the trial court in the
action. The trial court then made conclusions of law that plaintiff
lacked standing to bring its declaratory judgment action as the
relief sought was not available under the Act, that the suit lacked
the necessary parties to issue a declaration of rights, plaintiff
had failed to demonstrate that an actual and justiciable
controversy existed or is unavoidable, that the trial court lacked
subject matter jurisdiction because plaintiff had no standing, and
that this suit was subject to dismissal under Rule 12(b)(6). Thus,the trial court ordered that the entire complaint be dismissed
pursuant to Rule 12(b)(6) for failure to state a claim upon which
relief can be granted and pursuant to Rule 12(h)(3) for lack of
subject matter jurisdiction. These orders were entered on 29 May
2001. Plaintiff appeals.
Plaintiff argues on appeal that (1) the trial court lacked
jurisdiction to dismiss the lawsuit at the hearing on plaintiff's
motion for TRO; (2) the trial court's order of dismissal at the TRO
hearing violated plaintiff's right to proper notice and a fair
hearing; (3) the trial court had subject matter jurisdiction of the
action below because plaintiff's allegations demonstrate that its
members had suffered actual harm and plaintiff had standing to sue
on their behalf; (4) plaintiff's complaint states proper claims for
declaratory judgment or, in the alternative, proper claims under
other legal theories which the trial court should have recognized;
(5) plaintiff's verified complaint presents a justiciable
controversy; and (6) all necessary parties were present in the
action below.
For the reasons set forth herein we affirm the actions of the
trial court and the dismissal of this suit.
TYSON, Judge concurring in part, dissenting in part.
I concur with Part I of the majority's opinion holding that
the trial court had proper jurisdiction to dismiss the lawsuit in
its entirety at the hearing on plaintiff's motion for a temporary
restraining order (TRO). I respectfully dissent from Part II of
the majority's opinion which affirms that portion of the trial
court's order which held that plaintiff State Employees Association
of North Carolina (SEANC) did not have standing to bring an action
and which dismissed plaintiff's action.
River Birch, 326 N.C. at 130, 388 S.E.2d at 555 (quoting Hunt v.
Washington State Apple Advertising Comm'n, 432 U.S. 333, 343, 53 L.
Ed. 2d 383, 394 (1977)). Justice Meyer stated, [t]o have standing
the complaining association or one of its members must suffer some
immediate or threatened injury. Id. at 129, 388 S.E.2d at 555.
(Emphasis supplied). The River Birch Court found the association
had standing for the declaratory judgment claim but not for thetort claim because individual members of the association may suffer
damages in differing amounts.
River Birch adopted the standard set forth in the case of
Warth v. Seldin, 422 U.S. 490, 45 L. Ed. 2d. 343 (1975). The U.S.
Supreme Court stated that for an association to have standing,
[t]he association must allege that its members, or any one of
them, are suffering immediate or threatened injury as a result of
the challenged action of the sort that would make out a justiciable
case had the members themselves brought suit. Warth, 422 U.S. at
511, 45 L. Ed. 2d. at 362 (emphasis supplied). The Court further
stated:
whether an association has standing to invoke
the court's remedial powers on behalf of its
members depends in substantial measure on the
nature of the relief sought. If in a proper
case the association seeks a declaration,
injunction, or some other form of prospective
relief, it can reasonably be supposed that the
remedy, if granted, will inure to the benefit
of those members of the association actually
injured.
Warth, 422 U.S. at 515, 45 L. Ed. 2d at 364.
The clear language of River Birch and Warth does not require
a threat of immediate injury to each and every individual member of
the association in order for the association to have standing.
The majority's opinion, relying upon Landfall Group v.
Landfall Club, Inc., 117 N.C. App. 270, 450 S.E.2d 513 (1994),
would require each and every member of an association to have
individual standing in order for the association to have standing. This requirement would obliterate associational standing and is
inconsistent with the plain language of River Birch. [O]ne of its
members must suffer some immediate or threatened injury. River
Birch, 326 N.C. at 129, 388 S.E.2d at 555 (citing Hunt, 432 U.S. at
342, 53 L. Ed. 2d at 393).
Landfall relied upon Valley Forge College v. Americans United,
454 U.S. 464, 488, 70 L. Ed. 2d. 700, 719 (1982) to hold that each
member of the association had to show a distinct and palpable
injury to have standing to sue. Landfall, 117 N.C. App. at 273,
450 S.E.2d at 515.
Valley Forge required a distinct and palpable injury to each
association member for the association to make an establishment
clause challenge and meet the requirements of Art. III of the U.S.
Constitution. Valley Forge, 454 U.S. at 488-89, 70 L. Ed. 2d at
719-20. The facts of Valley Forge were specific, and its holding
is narrow. Its rationale for Art. III standing is inapplicable to
the facts in Landfall.
The majority's assertion that Landfall controls the result
here is questionable in light of the more recent cases from this
Court of Northeast Concerned Citizens, Inc. v. City of Hickory, 143
N.C. App. 272, 545 S.E.2d 768 (2001) and Creek Pointe Homeowner's
Ass'n v. Happ, 146 N.C. App. 159, 552 S.E.2d 220 (2001), disc.
review denied, 356 N.C. 161, 568 S.E.2d 191 (2002).
The concurring opinion in Northeast expressed concern that the
majority's opinion overreached by stating that a corporation has
standing to challenge a zoning action only if 'all of the
members/shareholders of the corporation' would have individualstanding to bring the action. Northeast, 143 N.C. App. at 278,
545 S.E.2d at 772. To address the concerns of the concurrence, the
majority acknowledged in a footnote the holding of River Birch but
distinguished its applicability to the facts in Northeast which
dealt with zoning regulations. Id. at 277, 545 S.E.2d at 772.
(As North Carolina has created a specific test for standing that
is applicable to actions challenging zoning ordinances, . . . the
more general standing requirement for associations stated in River
Burch is not applicable to the case sub judice.)
More recently, this Court in Creek Pointe Homeowner's Ass'n v.
Happ, 146 N.C. App. 159, 552 S.E.2d 220 (2001), disc. rev. denied,
356 N.C. 161, 568 S.E.2d 191 (2002), reversed the trial court's
dismissal of a homeowner's association's claim for lack of standing
and held that the association ha[d] standing to pursue claims
against [the] defendant on its own behalf. Creek Pointe, 146 N.C.
App. at 169, 552 S.E.2d at 227-28.
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