State Supreme Court Ruling Protects Whistleblowers in Government Agencies

The North Carolina Supreme Court in June overturned a lower court ruling limiting the conduct protected by the state’s Whistleblower Act. The ruling is significant. Had the Supreme Court let stand a December 2008 decision by the state Court of Appeals, state employees largely would have lost protections provided by the act — which protects state workers from retaliation by their employers when reporting misuse of public funds or other misconduct.

Jane Helm became the vice chancellor for business affairs at Appalachian State University in 1994. In 2004, Kenneth Peacock became the school’s sixth chancellor.

According to Helm’s complaint, in early May 2006 Peacock asked her to write a $10,000 check to Michael Cash from the school’s endowment fund for an option to purchase a 10.9-acre tract of land that Cash owned in Boone. Cash originally had approached university trustee James M. Deal Jr. in 2005 about the university acquiring the property. Cash and Deal, according to Helm, had a pre-existing business or personal relationship.

The option would have allowed the university to buy the property for $475,000 on or before Sept. 1, 2006. If ASU didn’t buy the land, Cash would keep the $10,000.

Helm refused to issue a check for the option, saying she knew the school wouldn’t have the money to exercise it.
Peacock then asked her again, stating that it was OK for the university to take out the option because Cash needed the money to pay his mortgage. Helm again refused, because, as her complaint says, “paying $10,000 to Mr. Cash under these circumstances would be an inappropriate use of state funds.”

On June 2, 2006, Helm abstained from voting as the endowment committee of ASU’s Board of Trustees approved the option.

Peacock met with Helm later that day. According to Helm, Peacock said that he had been uncomfortable working with her for the past year and a half. Helm asked how she could improve their working relationship; Peacock relayed that there was nothing she could do and that she was “not a team player.” He then asked her to resign. Helm chose early retirement — she was 63 at the time — instead.

The university did not exercise the option to buy Cash’s property.

But can she sue?

On May 31, 2007, Helm filed suit against the university and Peacock in his official capacity as ASU’s chancellor, contending that she had been forced out in violation of the state’s Whistleblower Act.

Superior Court Judge Mark Powell dismissed the case in August 2007, finding that even if the facts where as Helm alleged, her actions were not protected by the Whistleblower Act.

Helm asked the Court of Appeals, the state’s second highest court, to review Powell’s ruling.

A three-judge panel of the appeals court sided with Powell. ”Because the option was not ‘worthless,’ we cannot agree that its pursuit or purchase constituted a protected activity under the Whistleblower Act,” Judge Rick Elmore wrote for the court.

North Carolina case law has established that options to buy or sell land have an inherent, intrinsic value regardless of the purchaser’s ability to exercise the option, Elmore wrote. Even if the university did not anticipate having the funds to exercise the option, it still had value. In Elmore’s view, Peacock was not misappropriating public funds, and Helm’s actions were not protected by the Whistleblower Act.

Judge Ann Marie Calabria dissented from the majority, and Helm appealed.

The high court was not persuaded by Elmore’s reasoning. Instead, without comment, it adopted Calabria’s dissent. “The (Court of Appeals) majority holds that as a matter of law the formation of an option contract, or the receipt of any value at all, precludes a finding that defendant Peacock violated state law, committed fraud, misappropriated state resources, committed gross mismanagement or a gross waste of public funds,” Calabria wrote.

“However, contrary to the holding of the majority, a contract with a corresponding value to the state does not, by law, make that contract an appropriate use of state resources and public funds.”

Calabria offered an analogy involving a hammer.

“If we were presented facts showing that the administrator had asked plaintiff to purchase a hammer from Michael Cash for $10,000, instead of an option contract to purchase land, the majority’s reasoning would still mandate a dismissal of plaintiff’s Whistleblower Act claim.

In exchange for the State’s $10,000, the State would receive the legally enforceable right to possess a hammer that has some value, even though spending $10,000 for a hammer would be a misappropriation of state resources and a gross waste of public funds.”

Likewise, Calabria wrote, though the option contract had some theoretical value, spending $10,000 for an option that couldn’t be exercised was a waste of state funds.

“Furthermore, the majority reasoning is at odds with the intent of the Whistleblower Act, and in effect prohibits its application to employees reporting the mismanagement of public funds,” Calabria wrote.

The case is Helm v. Appalachian State University (08-30).

Michael Lowrey is an associate editor of Carolina Journal.