A Superior Court judge on Tuesday denied a motion to dismiss a case against the state Attorney General’s Office over environmental program funding that the plaintiffs say should go to the public school fund, in a legal action stemming from a $65 million agreement in 2000 between hog farmers in the state and the AG’s Office. The court also ruled that the attorney general could not spend any more of the funds until the case is decided.
Civitas President Francis De Luca is suing the state attorney general over the 2000 agreement between Smithfield Foods, and its subsidiaries, and the Attorney General’s Office, under which the companies were to pay $65 million for environmental grants to be used at the attorney general’s discretion. The lawsuit says the funds should go to the state public school fund.
Joining De Luca in the suit is the New Hanover County Board of Education, of which Chairman Edward Higgins and the school board’s attorney were present at the hearing.
In a release following the decision De Luca said, “We are confident we have a good case and the court’s favorable decisions this week have validated that. The North Carolina Constitution and previous Supreme Court rulings are abundantly clear about how these funds should be allocated and the North Carolina attorney general will be held accountable to the law.”
In July of 2000, Smithfield Foods, and its subsidiaries, entered into the agreement to pay $15 million to North Carolina State University up front for research into technologies for more efficient, environmentally friendly disposal of hog waste, and agreed to pay $2 million annually for 25 years to a fund that the state attorney general, then Mike Easley, would control for the purpose of funding what the suit calls supplemental environmental programs.
For the last 16 years the fund has been administering grants at the discretion of the state attorney general – Easley and then Roy Cooper, who of course is now governor.
Though the suit was filed while Cooper was still attorney general, the suit has changed to name Attorney General Josh Stein, in his official capacity, as the defendant.
Being heard before the court on Tuesday were two motions, one to dismiss the suit from the Attorney General’s Office, and another from the plaintiff, Francis De Luca, president of the Civitas Institute, to put a stop to the disseminating of the funds from the account, and to begin recovery efforts on the 2014 allocations, as the statute of limitations for recovering funds based on the case law is three years.
Faison Hicks, a special deputy attorney general representing Stein, opened with his argument as to why the case should be dismissed, arguing that the facts of the current case do not match a suit in which the North Carolina School Boards Association successfully sued over funds that were being paid to supplemental environmental programs in lieu of fines, funds that should have gone to the public school fund, as per the state constitution.
“The allegations contained in Mr. De Luca’s amended complaint can be summarized fairly quickly, as follows,” Hicks said. “In paragraph two of his amended complaint Mr. De Luca alleges that the payments, which have been made by these hog farm operators to various attorneys general, since the year 2000, pursuant to the July 25, 2000 agreement, should have been remitted to the public school fund, pursuant to the constitution, article 9 sec. 7, rather than being paid to the attorney general.”
Hicks went on to argue that the Moore case (NC Schools Boards Association v. Moore) does not apply to the current case because the hog farmers paid the money voluntarily, and not in response to any violations, making the payments not a fine or forfeiture.
“Mr. De Luca’s ultimate allegation is that the payments made by these hog farming companies to attorneys general Easley and Cooper each year since 2000 were made for Supplemental Environmental Programs and that under the Supreme Court’s decision in North Carolina School Boards Association against Moore … all of these payments should have instead been remitted to the state’s public school fund. Now, importantly, Mr. De Luca’s amended complaint does not allege that (the Department of Environment and Natural Resources (DENR)) had assessed any civil penalties against any of the hog farming companies which signed the July 25, 2000 agreement prior to the date of that agreement, or that any of the payments made by these hog farming companies, under the July 25, 2000 agreement, were made in settlement of any civil penalty assessments made by DENR against any of these hog farming companies.”
Hicks said that the complaint filed by De Luca only alleged that there were some “unspecified, unidentified, legal violations at some point prior to entering into the agreement” and that those constituted fines.
Hicks argued that was not the case, and that the hog farming companies willingly agreed to pay $65 million – $15 million up front and an additional $50 million over the course of 25 years – out of their own self-interest, and not to make up for any violations.
“The July 25, 2000 agreement shows that a group of hog farmers in Eastern North Carolina recognized that in view of the then-current state of technology for disposing of hog waste, it was in the vital business interest of these hog farm operators to immediately put together $15 million of capital, and turn that money over to experts and scientists at North Carolina State University to … over time to develop many new technologies, but to promptly develop five specific technologies to allow for the disposal of hog waste in a way that is environmentally appropriate.
“This agreement, the reading of this agreement, also shows very clearly that the hog farm operators, in this case people who signed this agreement, they believed that it was in their interests to voluntarily fund, not in exchange for any deal with DENR, not in exchange for being released from liability from anything, but it was in their interest to voluntarily fund environmental grants that would occur over the next 25 years.”
Paul “Skip” Stam, an attorney representing De Luca, responded to Hicks’ claims that there were no violations by pointing out two binders containing violation notices sent to the companies leading up to the 2000 agreement.
“These two books right here are documents that were subject to requests for admissions, and we put in there we would bring them to court but not load up the court file with them,” he said. “They’re just loaded with notices of violations up to the years 2000 of Smithfield Foods itself and its subsidiaries.”
Stam explained what the plaintiff was seeking in the hearing: “Why the attorney general continued receiving that money and passing it out is what it is, but we came here asking that it’s stopped, [that] the money go to the county school fund where the constitution says that it should go to, and the school board case says it’s a three-years statute of limitations to recover this stuff, and we ask that the attorney general seek to recover it.”
Hicks replied by saying that the language of the agreement, which says that the payments are not a fine or paid in lieu of a fine, means that the Moore case does not apply in the current case. Stam in turn brought up another case, in which the Craven County Board of Education successfully sued the then-state treasurer over an agreement with the same language, in which it was ruled that the payment was a fine, even if the agreement said it was not.
“They knew they were violating the law. It’s just like Moore, it’s just like Craven County, putting in a provision saying ‘now this isn’t a fine, it’s not a forfeiture.’ The court says it doesn’t matter what you call it, if you’re paying it because you violated the penal laws of the state, and you get caught, and you pay money, the money goes to the school fund,” Stam said.
Hicks also called into question the relevancy of the notices of violation produced by Stam, saying that according to his memory, “every one of these penalty assessments comes months or years after this agreement was entered into, not simultaneously, not beforehand.” But Stam showed that at least three of the notices were from the same year as the agreement, a couple in May and one from June right before the agreement was signed in July.
Stam also said that all of the notices of violations in the two binders were from before the agreement was signed.
The court denied the motion to dismiss, granted the temporary injunction on the attorney general spending any more of the money while the case is decided, but did not order that a recovery effort start for the 2014 funds.
The case will likely go to summary judgment in August.