Contract – Governmental Immunity – Negligence

As to Plaintiffs’ tort claims, the City’s activity over its small business loan program constituted a governmental function, thus entitling the City to governmental immunity.

We affirmed the trial court’s order granting summary judgment in the City’s favor.

In 2019, Plaintiffs applied for a $100,000 loan via the City’s small business loan program. Flomeh-Mawutor allegedly received verbal confirmation from Steven Harrison, a small business development specialist for the City, that Plaintiffs’ loan request had been approved and that a written letter of approval would be sent the following week. Plaintiffs alleged “Harrison was . . . in routine communication” with Plaintiffs over the ensuing months and repeatedly promised that the loan would close soon. In 2020, Harrison sent Plaintiffs a letter stating the City had “conditionally approved” Plaintiffs’ loan, providing the preliminary terms for the loan, and requiring that the loan be closed within 90 days. The loan eventually closed on July 2, 2020, when Plaintiffs signed a loan agreement with the City. On August 14, 2020, the City disbursed the loan proceeds to Plaintiffs. However, Plaintiffs claimed to have lost significant business opportunities and goodwill as a result of the delay in their receipt of the funds. Accordingly, on August 9, 2022, Plaintiffs filed a complaint against the City, advancing claims for breach of contract, negligent misrepresentation, and negligent hiring and retention. The City raised the affirmative defense of governmental immunity and advanced counterclaims for breach of contract and unjust enrichment. The trial court granted the City’s motion and dismissed Plaintiffs’ claims.

Plaintiffs argued on appeal that the trial court erred by granting the City’s motion for summary judgment and dismissing their claims. We disagreed. As contract claims raise unique issues regarding the doctrine of governmental immunity, we began with Plaintiffs’ tort claims, each of which involves allegations of the City’s negligent operation of its small business loan program. In recent years, our Supreme Court has “adopted a three-step method of analysis for use in determining whether a municipality’s action was governmental or proprietary in nature.” After carefully considering the three steps established by our Supreme Court, we concluded that each step favors a determination that the City’s activities in this case constitute governmental, rather than proprietary, activity. This left one remaining issue with respect to Plaintiffs’ tort claims: whether the City waived its claim of governmental immunity. As to Plaintiffs’ tort claims, the City’s activity constituted a governmental function, thus entitling the City to governmental immunity absent a waiver of that immunity. However, Plaintiffs did not allege such a waiver by the City, and moreover, nothing in the record indicates that the City in fact waived its immunity. Therefore, the trial court properly granted summary judgment in the City’s favor as to Plaintiffs’ tort claims.

We next addressed Plaintiffs’ breach of contract claim. We began by assessing Plaintiffs’ allegation of a valid contract. The City persuasively argued the Letter does not constitute a valid contract. For example, the City explains that “Harrison did not have the actual authority to bind the City to a contract[.]” Therefore, Plaintiffs are “charged with notice of all limitations upon the authority of [Harrison]” to enter into a contract binding the City. This argument, one among several raised in the City’s appellate brief, definitively supports the trial court’s grant of summary judgment on Plaintiffs’ contract claim. Given that Plaintiffs failed to prove that the Letter was a valid contract, the City has not waived its governmental immunity from suit, and Plaintiffs cannot overcome the City’s affirmative defense. Accordingly, the trial court properly granted the City’s motion for summary judgment with regard to Plaintiffs’ contract claim as well.

Affirmed.

Flomeh-Mawutor v. City of Winston-Salem (Lawyers’ Weekly No. 011-200-24, 16 pp.) (Valerie Zachary, J.) Appealed from Forsyth County Superior Court (Robert A. Broadie, J.) TLG Law, by Sean A. McLeod and Ty K. McTier, for plaintiffs-appellants; Womble Bond Dickinson (US) LLP, by James R. Morgan, Jr., and City of Winston-Salem, by City Attorney Angela I. Carmon, for defendant-appellee. North Carolina Court of Appeals