Appeal by plaintiffs from order entered 22 September 2005 by
Judge J.B. Allen, Jr. in Wake County Superior Court. Heard in the
Court of Appeals 13 September 2006.
Kilpatrick Stockton LLP, by Gregg E. McDougal, David C.
Lindsay, Robert G. Hensley, Jr., Jim Kelly, and Adam Charnes,
and North Carolina Justice Center, by Jack Holtzman, for
Attorney General Roy Cooper, by Special Deputy Attorney
General Norma S. Harrell and Special Deputy Attorney General
Lars F. Nance, for defendants-appellees.
State Employees Association of North Carolina, Inc., by Thomas
A. Harris, General Counsel, for Amicus Curiae State Employees
Association of North Carolina.
Plaintiffs, who worked for the State for more than 12 months
as "temporary" employees, assert that they have been wrongfully
denied employment benefits and seek relief under the state
constitution, for breach of contract, and under 25 N.C. Admin. Code
1C.0405 (2006). The trial court allowed defendants' motion to
dismiss under Rule 12(b)(1) of the Rules of Civil Procedure,
concluding that each of the claims was barred by sovereign
immunity. Because sovereign immunity does not preclude claims
under the state constitution and for breach of contract, we reverse
the order as to those two claims. We hold that there has been no
waiver of sovereign immunity with respect to the cause of action
based on the administrative regulation and, therefore, affirm the
superior court's order as to that claim.
The named plaintiffs are individuals who have worked for state
agencies under the classification of "temporary" employee for
periods exceeding 12 months.
(See footnote 1)
Defendants in this action are stateadministrative subdivisions, certain state officials, and the State
itself. Plaintiffs contend that their extended employment in
"temporary" posts has given rise to a right to the status and
benefits of permanent state employees. According to plaintiffs,
they have been unlawfully denied the leave, service credit,
retirement benefits, and health insurance benefits accorded to
permanent employees of the State in violation of (1) 25 N.C. Admin.
Code 1C.0405, a regulation promulgated by the State Personnel
Commission; (2) their contracts of employment with the State; and
(3) article I, sections 1, 19, and 35, of the North Carolina
On 22 July 2005, defendants filed a motion to dismiss pursuant
to Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the North Carolina
Rules of Civil Procedure. The trial court entered an order on 22
September 2005 dismissing plaintiffs' claims "pursuant to N.C.G.S.
1A-1, Rule 12(b)(1) and/or (2), on the grounds of sovereign
immunity." Plaintiffs timely appealed this order, arguing that the
trial court erred in concluding that sovereign immunity shielded
defendants from suit.
 Plaintiffs first contend that sovereign immunity is not
available as a defense to their claims under the North Carolina
Constitution, citing Corum v. Univ. of N.C.
, 330 N.C. 761, 413
S.E.2d 276, cert. denied sub nom. Durham v. Corum
, 506 U.S. 985,
121 L. Ed. 2d 431, 113 S. Ct. 493 (1992). We agree. In Corum
, our Supreme Court specifically held: "The doctrine
of sovereign immunity cannot stand as a barrier to North Carolina
citizens who seek to remedy violations of their rights guaranteed
by the Declaration of Rights." Id.
at 785-86, 413 S.E.2d at 291.
The Court emphasized that "when there is a clash between these
constitutional rights and sovereign immunity, the constitutional
rights must prevail." Id.
at 786, 413 S.E.2d at 292.
Defendants, however, point to the statement in Corum
direct claim under the state constitution is available only "in the
absence of an adequate state remedy." Id.
at 782, 413 S.E.2d at
289. Defendants argue that if an adequate state remedy exists,
then a constitutional claim is barred by sovereign immunity. This
Court has, however, previously rejected precisely this contention:
"[O]ur Supreme Court in Corum
never links sovereign immunity and
causes of action under the North Carolina Constitution in the
manner defendants presume." McClennahan v. N.C. Sch. of the Arts
177 N.C. App. 806, 808, 630 S.E.2d 197, 199 (2006), disc. review
, 361 N.C. 220, __ S.E.2d. __ (2007). As McClennahan
the defense of sovereign immunity is distinct from a defense
asserting that a specific constitutional cause of action is barred
by the existence of other adequate state remedies.
involved two separate holdings: (1) a holding that a
direct cause of action exists under the state constitution in the
absence of adequate alternative state remedies, and (2) a holding
that such a constitutional cause of action is not barred by
sovereign immunity. Thus, in arguing that adequate alternativeremedies exist, the State is contending that no cause of action
under the constitution is available. Such an argument could be the
subject of a motion to dismiss for failure to state a claim for
relief under Rule 12(b)(6), but it does not involve a question of
In this case, the trial court dismissed the action purely on
the grounds of sovereign immunity and declined to address
defendants' motion to dismiss pursuant to Rule 12(b)(6). Since
defendants did not cross-assign error with respect to the 12(b)(6)
motion, the question of the availability of state constitutional
claims is not before us. See
N.C.R. App. P. 10(d) ("Without taking
an appeal an appellee may cross-assign as error any action or
omission of the trial court which was properly preserved for
appellate review and which deprived the appellee of an alternative
basis in law for supporting the judgment, order, or other
determination from which appeal has been taken."); Harllee v.
, 151 N.C. App. 40, 51, 565 S.E.2d 678, 685 (2002) ("In the
instant case, the additional arguments raised in
plaintiff-appellee's brief, if sustained, would provide an
basis for upholding the trial court's determination
that the premarital agreement is invalid and unenforceable.
However, plaintiff failed to cross-assign error pursuant to Rule
10(d) to the trial court's failure to render judgment on these
alternative grounds. Therefore, plaintiff has not properly
preserved for appellate review these alternative grounds."). In sum, sovereign immunity is not available as a defense to a
claim brought directly under the state constitution. We,
therefore, reverse the trial court's order to the extent it
dismissed plaintiffs' constitutional claims based on sovereign
immunity. See also Peverall v. County of Alamance
, 154 N.C. App.
426, 430, 573 S.E.2d 517, 519 (2002) ("It is well established that
sovereign immunity does not protect the state or its counties
against claims brought against them directly under the North
Carolina Constitution."), disc. review denied
, 356 N.C. 676, 577
S.E.2d 632 (2003).
 With respect to their breach of contract claim, plaintiffs
rely upon Smith v. State
, 289 N.C. 303, 320, 222 S.E.2d 412, 423-24
(1976), in which the Supreme Court held: "[W]henever the State of
North Carolina, through its authorized officers and agencies,
enters into a valid contract, the State implicitly consents to be
sued for damages on the contract in the event it breaches the
contract." Defendants, however, argue that plaintiffs' claim for
relief based on a breach of contract cannot overcome sovereign
immunity, as held by Smith
, because the alleged contract is
"implied," "imaginary," and in no way "an authorized and valid
contract." We disagree.
With respect to a motion to dismiss based on sovereign
immunity, the question is whether the complaint "'specifically
allege[s] a waiver of governmental immunity. Absent such an
allegation, the complaint fails to state a cause of action.'" Fabrikant v. Currituck County
, 174 N.C. App. 30, 38, 621 S.E.2d 19,
25 (2005) (quoting Paquette v. County of Durham
, 155 N.C. App. 415,
418, 573 S.E.2d 715, 717 (2002) (internal citations omitted), disc.
, 357 N.C. 165, 580 S.E.2d 695 (2003)). Fabrikant
explains further that "precise language alleging that the State has
waived the defense of sovereign immunity is not necessary," but,
rather, the complaint need only "contain sufficient allegations
to provide a reasonable forecast of waiver." Id.
In this case, the sole material before this Court is
plaintiffs' amended complaint. The question is, therefore, whether
that complaint contains sufficient allegations to support a finding
of waiver of sovereign immunity. In the amended complaint,
plaintiffs allege that the State entered into employment contracts
with the plaintiffs, incorporating state personnel regulations,
pursuant to which they were entitled to certain benefits as a
result of their employment for more than 12 months. These
allegations are materially indistinguishable from those found
sufficient in several opinions of this Court to survive claims of
, the plaintiff "alleged that defendant breached
its employment contract by denying plaintiff the disability
retirement benefits it agreed to provide in exchange for five years
of continuous service when plaintiff originally contracted for
employment with defendant." 154 N.C. App. at 430, 573 S.E.2d at
520. This Court relied upon Smith
and held: "Because defendant
does not enjoy immunity from suits arising from damages incurreddue to breach of contract, we reject defendant's argument that the
trial court should have dismissed this claim based on sovereign
at 431, 573 S.E.2d at 520.
Likewise, in Hubbard v. County of Cumberland
, 143 N.C. App.
149, 150-51, 544 S.E.2d 587, 589, disc. review denied
, 354 N.C. 69,
553 S.E.2d 40 (2001), the plaintiffs (deputy sheriffs) "alleged
that defendants had manipulated and otherwise improperly
administered the [county's] longevity pay plan such that plaintiffs
were wrongfully deprived of rightfully earned compensation." This
Court observed that the defendant county had a statutory duty to
provide salaries to which it had committed itself and that those
salaries provided the necessary consideration for the deputy
sheriffs' employment contracts. Id.
at 153, 544 S.E.2d at 590.
The Court then concluded that "[d]efendant County, after having
availed itself of the services provided by the law enforcement
officers, may not claim sovereign immunity as a defense to its
statutory and contractual commitment." Id.
at 153-54, 544 S.E.2d
factual contentions parallel those in
this case. Plaintiffs allege that defendants are manipulating
State personnel policies and benefit plans, which govern the terms
of state employment, to avoid providing plaintiffs benefits that
they rightfully earned as a result of the tenure of their
employment. Plaintiffs' complaint sufficiently alleges that
defendants accepted plaintiffs' services and, therefore, "may not
claim sovereign immunity as a defense" to their alleged commitmentto provide the benefits provided by the personnel policies setting
forth the terms of employment. Id.
at 154, 544 S.E.2d at 590.
Defendants' argument that the alleged contract is "imaginary"
and not "an authorized and valid contract" goes to the merits of
plaintiffs' breach of contract claim. This Court has previously
pointed out, in considering the applicability of sovereign immunity
to allegations of breach of a governmental employment contract,
"that we are not now concerned with the merits of plaintiffs'
contract action. . . . [W]hether plaintiffs are ultimately entitled
to relief are questions not properly before us." Archer v.
, 144 N.C. App. 550, 558, 548 S.E.2d 788, 793
(2001), disc. review denied
, 355 N.C. 210, 559 S.E.2d 796 (2002).
See also Smith
, 289 N.C. at 322, 222 S.E.2d at 424 ("We are not now
concerned with the merits of the controversy. . . . We have no
knowledge, opinion, or notion as to what the true facts are. These
must be established at the trial. Today we decide only that
plaintiff is not to be denied his day in court because his contract
was with the State.").
also addresses defendants' contention that any contract
was only "implied" and, therefore, no waiver of sovereign immunity
has occurred. In Archer
, the plaintiffs alleged that they were
wrongfully deprived of overtime and underpaid compensatory time.
In holding that plaintiffs' breach of contract claims were not
barred by sovereign immunity, this Court reasoned:
"[T]he existence of the relation of
employer and employee . . . is essentially
contractual in its nature, and is to be
determined by the rules governing theestablishment of contracts, express or
implied." Hollowell v. Department of
Conservation and Development
, 206 N.C. 206,
208, 173 S.E. 603, 604 (1934). Guided by this
principle, as well as the reasoning in Smith
we hold that the County may not assert the
defense of sovereign immunity in this case . .
. . We agree with plaintiffs' assertion that
the employment arrangement between the County
and plaintiffs was contractual in nature,
although the contract was implied. Employment
contracts may be express or implied. An
implied contract refers to an actual contract
inferred from the circumstances, conduct, acts
or relations of the parties, showing a tacit
understanding. . . . We do not limit Smith
written contracts; its reasoning is equally
sound when applied to implied oral contracts.
, 144 N.C. App. at 557, 548 S.E.2d at 792-93. The Court
further held that plaintiffs could assert their claims because they
were "in the nature of a contractual obligation." Id.
, 548 S.E.2d
at 793. In short, even if the existence of a contract must be
implied from the circumstances and relationship between the
parties, the analysis of Smith
Defendants, however, point to Whitfield v. Gilchrist
, 348 N.C.
39, 497 S.E.2d 412 (1998), as holding otherwise. In Whitfield
Supreme Court concluded that "sovereign immunity bars recovery on
the basis of quantum meruit
in an action against the State upon a
quasi contract or contract implied in law." Id.
at 42, 497 S.E.2d
at 414. As that decision noted, "'[a] quasi contract or a contract
implied in law is not a contract.'" Id.
, 497 S.E.2d at 415
(quoting Booe v. Shadrick
, 322 N.C. 567, 570, 369 S.E.2d 554, 556
(1988)). See also Thompson-Arthur Paving Co. v. Lincoln
Battleground Assocs., Ltd.
, 95 N.C. App. 270, 280, 382 S.E.2d 817,
823 (1989) (discussing difference between implied-in-fact contract,which "is an agreement between parties," and implied-in-law
contract, which "is not based on some actual agreement between the
parties, but is a contract implied by law to prevent the unjust
enrichment of a party").
Defendants have confused contracts implied from the facts _
which, as Archer
establishes, involve actual contracts _ with
contracts implied in law, which do not involve a contract. Because
plaintiffs do not seek to recover in quantum meruit
implied-in-law contract, but instead have alleged the breach of an
actual employment contract, Whitfield
is inapposite. Compare
Eastway Wrecker Serv., Inc. v. City of Charlotte
, 165 N.C. App.
639, 643, 599 S.E.2d 410, 412 (2004) ("dismissal of the quantum
claim was . . . appropriate because such a claim when
brought against an arm of the State is barred by sovereign
immunity), disc. review denied
, 359 N.C. 410, 612 S.E.2d 318, aff'd
, 360 N.C. 167, 622 S.E.2d 495 (2005).
Indeed, there is no dispute that plaintiffs were validly
employed by the State. Rather, the dispute between the parties
concerns only the actual terms of their contracts. Under Smith
because the State entered into a contract of employment with
plaintiffs, it now "occup[ies] the same position as any other
litigant." 289 N.C. at 320, 222 S.E.2d at 424. Accordingly,
plaintiffs should "not . . . be denied [their] day in court"
regarding the terms of their employment contract simply "because
[their] contract was with the State." Id.
at 322, 222 S.E.2d at
424. Defendants also argue that this case falls within the
limitation to Smith
recognized in Middlesex Constr. Corp. v. State
307 N.C. 569, 299 S.E.2d 640 (1983). Our Supreme Court held in
that "the Smith
decision was not intended to modify the
express language of prior statutory enactments providing limited
waiver of sovereign immunity in contract actions against the State
. . . ." Id.
at 574, 299 S.E.2d at 643. The Court added: "We hold
that with respect to that class of cases for which statutory relief
had been provided prior to Smith
, it is for the General Assembly to
determine when and under what circumstances the State may be sued."
at 575, 299 S.E.2d at 643 (emphasis added) (internal quotation
In contrast to the circumstances of Middlesex
, this case does
not present a situation in which the State has by statute waived
sovereign immunity for a specific type of claim, but set forth
procedural requirements as conditions precedent to any lawsuit.
Defendants have pointed to no statute specifically affording
plaintiffs relief for their breach of contract claims, but rather
refer only to generalized statutory and administrative provisions
allowing for declaratory _ but not monetary or injunctive _ relief
from administrative agencies. Middlesex
thus has no application to
plaintiffs' claims in this case. See Southern Furniture Co. of
Conover, Inc. v. Dep't of Transp.
, 122 N.C. App. 113, 115-16, 468
S.E.2d 523, 525 (1996) (holding that Smith
rather than Middlesex
applied when statute cited by State did "not provide a procedure
for plaintiff's breach of contract claim and defendant . . . citedno other statutory procedure which would control plaintiff's breach
of contract action"), disc. review improvidently allowed
, 346 N.C.
169, 484 S.E.2d 552 (1997).
, and Archer
provide the controlling
authority in this case. Under those decisions, the trial court
erred in dismissing plaintiffs' breach of contract claims based on
 Finally, we consider plaintiffs' claim for relief based on
a regulation of the State Personnel Commission, which is the body
responsible for "establish[ing] policies and rules" relating to,
, position classification, compensation, qualification
requirements, and holiday, vacation, and sick leave. N.C. Gen.
Stat. § 126-4 (2005). The regulation at issue, 25 N.C. Admin. Code
(a) A temporary appointment is an
appointment for a limited term, normally not
to exceed three to six months, to a permanent
or temporary position. Upon request, the
Office of State Personnel shall approve a
longer period of time; but in no case shall
the temporary employment period exceed 12
consecutive months. (Exceptions for students
and retired employees: Students are exempt
from the 12-months maximum limit. If retired
employees sign a statement that they are not
available for nor seeking permanent
employment, they may have temporary
appointments for more than 12 months.
"Retired" is defined as drawing a retirement
income and social security benefits.)
(b) Employees with a temporary
appointment do not earn leave, or receive
total state service credit, health benefits,
retirement credit, severance pay, or priority
Plaintiffs focus on the statement that "in no case shall the
temporary employment period exceed 12 consecutive months" and
construe that provision as requiring the State to extend the
benefits and status of permanent employment to employees who work
longer than 12 months in a particular position. Plaintiffs are
asserting an implied right of action under the regulation.
For purposes of overcoming the State's sovereign immunity
defense with respect to this claim, plaintiffs rely upon Ferrell v.
Dep't of Transp.
, 334 N.C. 650, 655, 435 S.E.2d 309, 313 (1993).
The plaintiffs in Ferrell
had brought their action pursuant to N.C.
Gen. Stat. § 136-19 (1986), which granted them a right to
repurchase land previously taken by the Department of
Transportation ("DOT") through eminent domain. After noting that
"[o]ther jurisdictions have also found that statutory schemes
conferring rights to citizens imply a waiver of sovereign
immunity," the Court held that DOT was not shielded from suit in
this instance because "the legislature ha[d] implicitly waived the
DOT's sovereign immunity to the extent of the rights afforded in
N.C.G.S. § 136-19 (1986)." Id.
(emphasis added). See also Bell
Arthur Water Corp. v. N.C. Dep't of Transp.
, 101 N.C. App. 305,
310, 399 S.E.2d 353, 356 (holding that a statute requiring DOT to
pay certain costs of water and sewer line relocation "logically
implies waiver of sovereign immunity as to those costs the [DOT] is
obligated to pay"), disc. review denied
, 328 N.C. 569, 403 S.E.2d
507 (1991). Although plaintiffs in this case assert that 25 N.C. Admin.
Code 1C.0405 belongs to a "statutory and regulatory scheme," they
do not identify any statutory provision that would support an
implied waiver of sovereign immunity. Plaintiffs are instead
asking this Court to extend the Ferrell
implied waiver _ based on
statutory rights _ to regulations setting forth rights. Plaintiffs
do not cite any authority from this or any other jurisdiction
suggesting that a waiver may be implied from the text of an
administrative rule or regulation, and we have found none.
If we were to hold, as plaintiffs request, that the Executive
Branch's adoption of regulations bestowing rights on certain
parties constitutes an implied waiver of sovereign immunity, we
would in essence be allowing the Executive Branch to authorize suit
against the State. To do so would be inconsistent with the well-
established principle that "[i]t is for the General Assembly to
determine when and under what circumstances the State may be sued."
Great Am. Ins. Co. v. Gold
, 254 N.C. 168, 173, 118 S.E.2d 792, 795
(1961). We, therefore, hold that 25 N.C. Admin. Code 1C.0405 does
not give rise to an implied waiver of sovereign immunity for
purposes of plaintiffs' direct claim under that regulation.
We affirm the trial court's order dismissing plaintiffs' first
claim for relief (for violation of 25 N.C. Admin. Code 1C.0405)
based on sovereign immunity. We reverse that order as to
plaintiffs' second, third, and fourth claims for relief allegingbreach of contract and violations of the North Carolina
Affirmed in part; reversed in part.
Judges CALABRIA and JACKSON concur.