JAMES H. POU BAILEY, A. PILSTON GODWIN, HARRY L. UNDERWOOD,
HENRY L. BRIDGES, ROSALIE T. ADAMS, JESSE M. ALMON, HELEN L.
ANDREWS, WORTH B. ASKEW, BILLY A. BAKER, PARKER N. BARE,
ARTHUR C. BEAMAN and GRACE G. BEAMAN, JOSEPH G. BINKLEY,
ROBERT L. BLEVINS, ELLIE L. BOYLES, CHANCEL T. BROWN and JOAN W.
BROWN, ELIZABETH S. BUTLER, DOROTHY T. CARMICHAEL, JOHN
CARRICKER, HAROLD D. COLEY, SR., ANNA L. COOPER, CHARLES C.
COOPER and BERTIE S. COOPER, T.J. DUNCAN and ESTHER P. DUNCAN,
DAN R. EMORY, MARTIN W. ERICSON, FRED W. GENTRY, IVEY B. GORDON
and IZORIA S. GORDON, LOUIS N. GOSSELIN, EARL T. GREEN, BOB
HAMMONS, DARIUS B. HERRING, RAY F. HOLCOMB, TILLIE M. HOLCOMB,
KAY C. HURT, JOHN I. KIGER and MARIE K. KIGER, CLARENCE T.
LEINBACH, WALTER G. LEMING and BARBARA C. LEMING, YATES LOWE,
HARRIETTE B. MCCORMICK, VIRGINIA H. MICKEY, WILLIAM F. MORGAN,
HARRIETTA B. MCCORMICK, EARL RAY PARKER, CALVIN C. PEARCE,
MICHAEL PELECH, DIANE S. PEOPLES, MILDRED R. POINDEXTER,
WINNIE D. POTTS, PATSY M. REYNOLDS, GLENN D. RUSSELL, BLANCHE S.
SHIPP, CLYDE R. SHOOK, HAROLD E. SIMPSON, SONNIE B. SIMPSON,
LENORA S. SMITH, FRANCES J. SNOW, CHARLES A. SPEED, JUSTUS M.
TUCKER, WALTER P. UPRIGHT, RALPH B. WALKER and MARTHA M. WALKER,
JEAN A. WATSON, ROBERT I. WEATHERSBEE, RUBY WEBSTER, HARRY LEE
WILLIAMS, DANIEL W. WILLIAMS, ELIZABETH H. WILSON, WILBUR G.
WILSON, ERNEST B. WOOD, THOMAS S. WORSHAM, individually for the
benefit and on behalf of all others similarly situated,
Petitioner-Plaintiffs,
and
W.K. AUBRY, JR., JAMES BRYAN BARRETT, NORMAN W. CASH, ROBERTA M.
COOK, JOHN ED DAVIS, DANIEL M. DYSON, EDWIN C. GUY, SAMUEL L.
HARMON, JOHN MARSHALL HARTLEY, DONALD ELLIOTT HARTLE, MARTHA M.
LAWING, DOUGLAS LAMAR MASON, DELMA DALTON REPASS, JR., WILLIAM
ELMER RIGGS, PAUL L. SALISBURY, JR., RICHARD A. SHARPE, NELSON
LEROY SHEAROUSE, FRANCIS C. SIMMONS and MARY E. SIMMONS, NED
RAEFORD SMITH, G. VANCE SOLOMON and EULALIA T. SOLOMON, THOMAS
LASH TRANSOU and WILBUR EUGENE YOUNG,
Additional Petitioner-Plaintiffs
v.
STATE OF NORTH CAROLINA, THE NORTH CAROLINA DEPARTMENT OF
REVENUE, JANICE FAULKNER, in her capacity as SECRETARY OF THE
NORTH CAROLINA DEPARTMENT OF REVENUE, THE NORTH CAROLINA
DEPARTMENT OF STATE TREASURER, HARLAN E. BOYLES, in his capacity
as TREASURER OF THE STATE OF NORTH CAROLINA
Respondent-Defendants
v.
STATE OF NORTH CAROLINA, THE NORTH CAROLINA DEPARTMENT OF
REVENUE, JANICE FAULKNER, in her capacity as SECRETARY OF THE
NORTH CAROLINA DEPARTMENT OF REVENUE, THE NORTH CAROLINA
DEPARTMENT OF STATE TREASURER, HARLAN E. BOYLES, in his capacity
as TREASURER OF THE STATE OF NORTH CAROLINA, and officer ex
officio of the RETIREMENT SYSTEMS, the TEACHERS AND STATE
EMPLOYEES RETIREMENT SYSTEMS OF NORTH CAROLINA, and the LOCAL
GOVERNMENT EMPLOYEES RETIREMENT SYSTEMS OF NORTH CAROLINA,
Defendants
v.
STATE OF NORTH CAROLINA, THE NORTH CAROLINA DEPARTMENT OF
REVENUE, JANICE FAULKNER, in her capacity as SECRETARY OF THE
NORTH CAROLINA DEPARTMENT OF REVENUE, THE NORTH CAROLINA
DEPARTMENT OF STATE TREASURER, HARLAN E. BOYLES, in his capacity
as TREASURER OF THE STATE OF NORTH CAROLINA,
Defendants
v.
STATE OF NORTH CAROLINA, THE NORTH CAROLINA DEPARTMENT OF
REVENUE, JANICE FAULKNER, in her capacity as SECRETARY OF THE
NORTH CAROLINA DEPARTMENT OF REVENUE, THE NORTH CAROLINA
DEPARTMENT OF STATE TREASURER, HARLAN E. BOYLES, in his capacityas TREASURER OF THE STATE OF NORTH CAROLINA, and officer ex
officio of the RETIREMENT SYSTEMS, the TEACHERS AND STATE
EMPLOYEES RETIREMENT SYSTEMS OF NORTH CAROLINA, and the LOCAL
GOVERNMENT EMPLOYEES RETIREMENT SYSTEMS OF NORTH CAROLINA,
Defendants
v.
STATE OF NORTH CAROLINA, THE NORTH CAROLINA DEPARTMENT OF
REVENUE, JANICE FAULKNER, in her capacity as SECRETARY OF THE
NORTH CAROLINA DEPARTMENT OF REVENUE, THE NORTH CAROLINA
DEPARTMENT OF STATE TREASURER, HARLAN E. BOYLES, in his capacity
as TREASURER OF THE STATE OF NORTH CAROLINA, and officer ex
officio of the RETIREMENT SYSTEMS, the TEACHERS AND STATE
EMPLOYEES RETIREMENT SYSTEMS OF NORTH CAROLINA, and the LOCAL
GOVERNMENT EMPLOYEES RETIREMENT SYSTEMS OF NORTH CAROLINA,
CONSOLIDATED JUDICIAL RETIREMENT SYSTEM and the LOCAL GOVERNMENT
EMPLOYEES RETIREMENT SYSTEM OF NORTH CAROLINA,
Defendants
v.
STATE OF NORTH CAROLINA, and HARLAN E. BOYLES, TREASURER OF THE
STATE OF NORTH CAROLINA,
Defendants
On discretionary review pursuant to N.C.G.S. § 7A-31, prior
to a determination by the Court of Appeals, of an order entered
by Thompson, J., on 23 April 1999 in Superior Court, Wake County.
Heard in the Supreme Court 14 December 1999.
G. Eugene Boyce; and Womble, Carlyle, Sandridge & Rice,
P.L.L.C., by Keith W. Vaughan, W. David Edwards, and
Alexander P. Sands, III, for plaintiff-appellees.
Michael F. Easley, Attorney General, by Norma S. Harrell and
Thomas F. Moffitt, Special Deputy Attorneys General, for
defendant-appellants.
FREEMAN, Justice.
In an opinion certified on 28 May 1998, this Court held that
state and local government retirees challenging the collection of
state income taxes on their retirement benefits from 1989 through
1991 were entitled to exemptions from state income taxes on those
benefits if they were “vested” in their respective retirement
systems as of 12 August 1989. Bailey v. State, 348 N.C. 130, 500
S.E.2d 54 (1998). On 11 June 1998, plaintiffs entered into a
Consent Order with the General Assembly and the State of North
Carolina, settling the consolidated cases for $799 million and
requiring the parties to create a Settlement Fund to return the
collected money to plaintiffs. The General Assembly enacted legislation stating that it
“established” the reserve fund for the Bailey/Emory/Patton
refunds, and at the same time it “appropriated” and “transferred”
funds from the General Fund to the reserve. Act of Sept. 30,
1998, ch. 164, sec. 2, 1998 N.C. Sess. Laws 534, 534. The
General Assembly specified the Act's effective date as 1 July
1998. On 9 October 1998, the trial court approved the proposed
settlement and concluded as a matter of law that “[t]his Order
shall be effective as of the effective date prescribed in the Act
of 1997 Session (1998 Special Session) of the General Assembly
making the initial appropriation as agreed to by the parties and
approved by the Court.” No appeal was taken from this order.
Thus, it became the law of the case and the effective date of the
court approval of the settlement is 1 July 1998.
Pursuant to an inquiry from the Department of the State
Treasurer, the Attorney General's Office informed the Treasurer's
Office in a letter dated 6 November 1998 that the interest on the
$400 million appropriated in Chapter 164 should commence “no
sooner than October 9, 1998, the date Judge Thompson's order was
entered approving the settlement of the Bailey/Emory/Patton
litigation.” On 8 January 1999, plaintiffs filed a motion for
determination of the effective date of the transfer of the first
payment.
On 23 April 1999, the trial court entered an order in which
it decreed that the effective date of the first installment was
1 July 1998, with interest accruing to the benefit of plaintiffs
from that date. The State appealed. On 6 October 1999, the
parties filed a joint petition for discretionary review prior todetermination by the North Carolina Court of Appeals, which was
allowed by this Court on 4 November 1999.
The sole issue presented on appeal is the determination of
the date interest began to accrue on the first payment of $400
million appropriated by the General Assembly. Plaintiffs assert
that the plain language of the pertinent legislation provides
that the money was transferred on 1 July 1998. In contrast,
defendants assert that interest could not begin to accrue any
sooner than 9 October 1998, the date defendants contend the money
was actually transferred after the trial court approved the
settlement, because the plain language of the Consent Order
provides that “[a]ll interest and earnings on the principal after
payment by the Treasurer to the Settlement Fund shall accrue to
the Settlement Fund.” Thus, defendants assert that interest did
not begin on 1 July 1998 because the Treasurer had not made the
payment to the Settlement Fund and the trial court had not
approved the settlement on that date.
We hold that the Consent Order, the pertinent legislation,
and the court order approving the settlement, when read together,
reveal that the effective date of the first installment is 1 July
1998, with interest accruing to the benefit of plaintiffs from
that date. The Consent Order provides that the settlement
becomes effective upon: (a) the enactment of legislation
appropriating the money necessary to make the payments called for
herein, and (b) court approval following notice to class members.
The General Assembly enacted legislation stating that it
“established” the reserve fund, and it also “appropriated” and
“transferred” funds from the General Fund to the reserve. TheGeneral Assembly specifically provided that the Act's effective
date was 1 July 1998, which was ninety-two days before the
legislation's actual enactment on 30 September 1998. Ch. 164,
sec. 2, 1998 N.C. Sess. Laws at 534. On 9 October 1998, the
trial court concluded as a matter of law that the effective date
of the approval of the settlement was 1 July 1998.
The Consent Order states that the first installment “shall
be paid within thirty (30) days of the entry of an order
approving the settlement after class notice or enactment of
legislation appropriating the funds necessary to make the
payments called for herein, whichever is later.” The effective
date for these two events is 1 July 1998. The only evidence of
record as to when the State actually made the payment is the
appropriation and transfer of the $400 million effective on that
date.
The legislative act establishing the reserve fund provides
that its effective date is 1 July 1998. The 9 October 1998 court
order approving the settlement allocates distribution of the
funds between principal and interest as of the effective date
prescribed in the legislative act, 1 July 1998. Thus, the
legislative act appropriating and transferring the funds for the
settlement and the order approving the settlement became
simultaneously effective on 1 July 1998.
Although legislation generally operates prospectively,
remedial legislation is presumed to operate retroactively. See
Smith v. Mercer, 276 N.C. 329, 338, 172 S.E.2d 489, 495 (1970).
The purpose of the pertinent legislation is to remedy a tax that
the legislature knew, from this Court's prior decision, had been
unconstitutionally collected seven to nine years earlier. Theselection of the 1 July 1998 date manifests the General
Assembly's commendable intent to remediate and make as near whole
as possible those whose money was so taken. Thus, the settlement
was effective on 1 July 1998, the retroactive date of the
legislative act appropriating the funds and the retroactive date
of court approval.
Since the settlement was effective on 1 July 1998,
defendants were obligated to pay the principal as of that date.
Under the centuries-old rule that “interest shall follow the
principal, as the shadow the body,” the trial court properly
provided that interest began accruing in the instant case on
1 July 1998. See Beckford v. Tobin, 27 Eng. Rep. 1049, 1051
(1749).
For the foregoing reasons, the decision of the trial court
is
AFFIRMED.
Justice MARTIN did not participate in the consideration or
decision of this case.
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