In recent years, local governments have increasingly used nonprofit organizations established at their behest to do things that local government has traditionally done. One question that comes with this is to what degree the nonprofits are subject to North Carolina’s public records and open-meeting laws. The answer, according to the N.C. Court of Appeals, is the laws may not apply.

In 1982, the city of Wilmington’s Housing Authority incorporated the nonprofit Wilmington Housing Authority Development to help it achieve its aims. Any monies the WHAD made reverted to the housing authority, which also had to approve changes to the WHAD’s articles of incorporation and oversaw the nonprofit’s books.

In 1987, WHAD was renamed the Wilmington Housing Finance and Development, Inc. The purpose of WHFD was amended to also include “such other functions as are authorized or are requested by [the WHA] by and through its Board of Commissioners and/or the City of Wilmington by and through its City Council.”

Approval of the WHA was no longer required for changes to the WHFD’s articles of incorporation and residual profits no longer went to the WHA. Two members each to the WHFD’s board of directors were appointed by the city of Wilmington, New Hanover County, and the WHA. The three remaining board members were determined by the WHFD board itself.

WHFD removed the “other functions as are authorized or are requested” language in August 2002, and eliminated the authority of the city, county, and WHA to inspect its books. All future board members would be determined by the board itself. These actions likely came in response to a lawsuit by former WHFD contractors.

In 1997, Kent Chatfield and Christianna Noe were hired to help WHFD and Cape Fear Community College renovate a school. Chatfield and Noe became concerned about what they regarded as questionable employment practices at the site and sought to share their concerns with WHFD’s board and obtain records. The board refused to hear them and the request for documents largely went unfilled. On May 20, 2002, they sued under the state’s public records and open-meeting laws, arguing that the WHFD “was founded by the [WHA] and the City of Wilmington as an agency of government, and its fundamental purpose has not changed since the time of its founding.”

The Court of Appeals did not agree and upheld a lower-court ruling in favor of WHFD.

“Our Public Record Laws are only applicable to government agencies,” Judge Eric Levinson wrote for the court. “Pursuant to this Court’s decision in News & Observer, the government must exercise ‘supervisory responsibilities and control’ over a corporate entity for such an entity to qualify as a government agency and fall within the ambit of the Public Records Law. Neither our Legislature nor our appellate courts have indicated that a corporate entity that has previously been subject to the Public Records Law must remain subject to it. Likewise, we are aware of no rule making the Public Records Law applicable to an entity that was founded by governmental actors but subsequently has evolved into a private corporation. Moreover, we conclude that an entity’s stated purpose of performing a function that is of use to the general public, without more, is insufficient to make the Public Records Law applicable.”

Using much the same analysis, the appeals court also found that the Open Meetings Law does not apply to WHFD.

The case is Chatfield v. Wilmington Housing Fin. & Dev., Inc., (04-44).