Constitutional – Public-Purpose Clause – Exclusive Emoluments – Equal Protection – Standing

Listen to this article

Saine v. State. (Lawyers Weekly No. 11-07-0340, 25 pp.) (Robert C. Hunter, J.) Appealed from Wake County Superior Court. (Michael R. Morgan, J.). N.C. App. Click here for the full text of the opinion.

Holding: The session law allocating $1 million to Johnson and Wales University serves a public purpose by providing funds to a private, nonprofit university in order to assist in educating N.C. citizens, which will permanently enhance the infrastructure necessary to support long-term growth and prosperity in the state.

In order to put forth a claim for relief, plaintiffs were required to plead facts demonstrating that the motivation, aim or intent of the legislation was not a public one. Plaintiffs in this case have failed to establish a claim upon which relief may be granted under the public-purpose clause.

The trial court properly granted defendants’ motion to dismiss count two of plaintiffs’ complaint pursuant to Rule 12(b)(6).

Facts

In 2003, the General Assembly passed the first of five session laws allocating funds from the state’s One North Carolina Fund to Johnson and Wales University, a private, nonprofit university located in Charlotte.

The legislature granted $1 million to Johnson and Wales for the 2003-2004 fiscal year and an additional $1 million in succeeding years. No conditions were placed on the use of the funds allocated by the session laws.

The plaintiffs, tax-paying citizens of North Carolina, filed a complaint and petition for declaratory judgment alleging that the state had committed multiple constitutional violations by providing funds collected from the taxpayers of North Carolina to Johnson and Wales.

Count one alleged that the allocation of funds violated Article I, § 32 of the N.C. Constitution because the private financial benefit to Johnson and Wales constituted an exclusive and separate emolument.

Count two alleged that the allocation of funds violated Article IV, § 2(1) of the N.C. Constitution in that the benefits, grants and/or subsidies provided to Johnson and Wales were not for public purposes only.

Count three alleged that the allocation of funds violated Article I, § 19 of the N.C. Constitution.

Count four alleged that the grants are ongoing and that the plaintiffs are entitled to a declaration that all future grants to Johnson and Wales are unconstitutional and thus unlawful.

The defendants filed a motion to dismiss the plaintiffs’ claims pursuant to N.C. R. Civ. P. 12(b)(1) and 12(b)(6). After a hearing, the trial court granted the defendants’ motion to dismiss. The trial court dismissed counts one, two and four pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted. The trial court dismissed count three pursuant to Rule 12(b)(1) for lack of standing.

Plaintiffs timely appealed.

Public-Purpose Clause

Plaintiffs allege that the allocation of funds to Johnson and Wales did not serve a public purpose and, therefore, the session laws which provided such funds are unconstitutional. The trial court dismissed the claim pursuant to Rule 12(b)(6).

Article V, § 2(1) of the N.C. Constitution provides that the power of taxation shall be exercised in a just and equitable manner, for public purposes only and shall never be surrendered, suspended, or contracted away.

The initial responsibility for determining what constitutes a public purpose rests with the legislature, and its determinations are entitled to great weight.

The term “public purpose” is not to be narrowly construed, and each case to be determined by its own circumstances as from time to time it arises. Two guiding principles have been established for determining that a particular undertaking by a municipality is for a public purpose: (1) it involves a reasonable connection with the convenience and necessity of the particular municipality or the state; and (2) the activity benefits the public generally, as opposed to special interests or persons. This has been our traditional test, and we continue to adhere to it.

Whether an activity involves a reasonable connection to community needs may be evaluated by determining how similar the activity is to others which this court has held to be within the permissible realm of governmental action.

In the present case, the General Assembly sought to increase educational opportunities for North Carolinians in an effort to diversify the skills of the state’s workforce and thereby strengthen the state’s economy.

The session law establishes an educational purpose as well as a fiscal purpose, since institutions of higher education play an essential role in maintaining and strengthening the economic health of the state.

The General Assembly may enact laws whereby the state, any county, city or town, and any other public corporation may contract with and appropriate money to any person, association, or corporation for the accomplishment of public purposes only. The Supreme Court has stated that Article V, § 2(7) allows for disbursement of taxpayer funds to private entities.

Plaintiffs in the present case cite only Article V, § 2(1) in their complaint; however, in determining whether the funds given to Johnson and Wales were for a public purpose, we must take into account Article V, § 2(7) and the Supreme Court’s ruling in Hughey v. Cloninger, 297 N.C. 86 (1979). If the session laws at issue satisfy a public purpose, then they are constitutional under both Article V, § 2(1) and 2(7).

Education, even if provided by a private entity, may serve a public purpose.

It is declared in both our Constitution and our statutes that the education of our citizens to their maximum capacities is the goal of our educational system, for education of our citizens is essential to good government, morality and a good economy.

In addition to the educational benefits to North Carolinians, the first of the session laws sets out a direct connection between education and the economic prosperity of the state. The law has a reasonable connection to the convenience and necessity of the state. Further, the law benefits the public generally. Generally, if an act will promote the welfare of a state or a local government and its citizens, it is for a public purpose.

The two-prong test set out in Madison Cablevision v. City of Morganton, 325 N.C. 634 (1989), has been satisfied and that the session law serves a public purpose by providing funds to a private, non-profit university in order to assist in educating N.C. citizens, which will permanently enhance the infrastructure necessary to support long-term growth and prosperity.

The trial court properly granted defendants’ motion to dismiss count two of plaintiffs’ complaint pursuant to Rule 12(b)(6).

Exclusive Emoluments

Plaintiffs claim that the funds provided to Johnson and Wales via the five sessions laws constitute exclusive emoluments and are unconstitutional. Article I, § 32 provides that no person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services.

An emolument is defined as the profit arising from office, employment, or labor; that which is received as a compensation for services, or which is annexed to the possession of office as salary, fees, and perquisites.

In determining whether a benefit has been afforded in violation of article I, § 32, a court must determine whether the benefit was given in consideration of public services, intended to promote the general public welfare, or whether the benefit was given for a private purpose, benefitting an individual or select group.

In this case, since the session laws served a public purpose, they were not providing exclusive emoluments and were, therefore, not unconstitutional on that ground.

The trial court properly granted defendants’ motion to dismiss count one of plaintiffs’ complaint pursuant to Rule 12(b)(6).

Equal Protection

Plaintiffs argue that the session laws at issue violated their rights to equal protection. Article I, § 19 of the N.C. Constitution provides that no person shall be denied the equal protection of the laws.

Plaintiffs do not have standing to argue a violation of this constitutional provision. A taxpayer has standing to bring an action against appropriate government officials for the alleged misuse or misappropriation of public funds.

A taxpayer does not have standing to attack the constitutionality of any and all legislation. If a person is attacking the statute on the basis that the statute is discriminatory, the person has no standing for that purpose unless he belongs to the class which is prejudiced by the statute.

The decisions of the Supreme Court and of this court with respect to taxpayer standing differentiate between (1) actions challenging the constitutional validity of a statute on the grounds that it allows public funds to be dispersed for reasons other than a public purpose, in which a taxpayer generally has standing, and (2) actions challenging the constitutional validity of a statute on the grounds that the statute discriminates among classes of persons, in which a taxpayer must show that he belongs to a class that receives prejudicial treatment.

Plaintiffs have failed to identify any class to which they belong which could be prejudiced by the session laws other than their status as taxpayers. Consequently, plaintiffs do not have standing to bring a constitutional challenge under article 1, § 19, and the trial court properly dismissed count three pursuant to Rule 12(b)(1).

Affirmed.