Under a legal principal called “sovereign immunity,” the state may be sued only when it has consented to be sued. North Carolina courts have held since the 1970s that the state waives its sovereign immunity when it enters into a contract authorized by law. A recent case before the N.C. Court of Appeals shows, however, that it is at times unclear exactly when the state exactly waives immunity. This is especially true when it enters into a partnership agreement with a private business.
Brier Creek Associates Limited Partnership owned a large piece of land in Wake County that it wanted to develop. In 1999, the company and the N.C. Department of Transportation entered into an agreement to build a four-lane divided highway on the property that would connect Aviation Parkway and U.S. 70. Under the deal, the state would obtain the right-of-way before construction, pay half the cost of the road, and approve of the company’s choice of contractors. The road would be turned over to the state upon completion.
Rifenburg Construction won the contract to build the highway. Work was complete by spring 2001. The company was still owed more than $1 million, which Brier Creek refused to pay. Rifenburg then sued Brier Creek and the N.C. DOT.
The DOT argued that sovereign immunity protected it from the lawsuit. Superior Court Judge Leon Stanback disagreed, but his ruling was overturned by a divided panel of the Court of Appeals.
The DOT can either contract directly to have a road built under provisions of N.C. Gen. Stat. § 136-28.1 or participate in private engineering and construction agreements with private developers. Such private engineering and construction agreements are covered in N.C. Gen. Stat. § 136-28.6. In a construction agreement, the developer provides the right-of-way for roadway, awards the contract, and manages the project. The N.C. DOT shares in construction costs and approves the awarding of the construction contract.
Judge John Tyson, writing for a majority of the appeals court, wrote, “We will not imply a contract in law in derogation of sovereign immunity… We emphasized, however, that “[t]he State is liable only upon contracts authorized by law. When it enters into a contract it does so voluntarily and authorizes its liability.
“Consistent with the reasoning of Smith, we will not first imply a contract in law where none exists in fact, then use that implication to support the further implication that the State has intentionally waived its sovereign immunity and consented to be sued for damages for breach of the contract it never entered in fact. Only when the State has implicitly waived sovereign immunity by expressly entering into a valid contract… may a plaintiff proceed with a claim against the State upon the State’s breach.”
Judge James A Wynn, Jr. dissented strongly from the majority holding. “In conclusion, the majority opinion allows NCDOT to make a contract with a developer under N.C. Gen. Stat. § 136-28.6 and reap the benefits that it could have under a contract with a road contractor under N.C. Gen. Stat. § 136-28.1 with complete immunity from liability for any breach of the construction contract,” he wrote.
“Thus, while NCDOT controls the developer, oversees the project, attains land for a new road free of cost, benefits from the developers contribution of costs, tailors the project to meet its desires, and reaps substantial benefits from the construction, the majority nonetheless holds that under the doctrine of sovereign immunity, NCDOT should be completely absolved from any liability for a breach of the construction contract that arises under its G.S. 136-28.6 contract with the developer, Brier Creek. In short, the majority allows NCDOT to use sovereign immunity as a ‘shield’ to escape contractual duties and responsibilities while it enjoys at half the cost, the benefits it would gain by contracting directly with the road contractor under G.S. 136-28.1. Since I do not believe this to have been the legislative intent, I respectfully, dissent.”
The divided ruling by the appeals court requires the N.C. Supreme Court to hear the case if Rifenburg challenges the ruling.
The case is Rifenburg Constr, Inc. v. Brier Creek Assocs., Limited P’ship, (02-1391).
Michael Lowrey is an associate editor of Carolina Journal.