Can Am South, LLC v. State, North Carolina Department of Health & Human Services
234 N.C. App. 119
N.C. Ct. App.2014Background
- Can Am South, LLC (plaintiff) leased commercial premises in Raleigh to State agencies (DDS, ACTS, CSE) under three separate leases containing an "availability of funds" clause permitting termination if funding is unavailable.
- State renewed the DDS lease through July 2019 and included the availability-of-funds clause; State has not attempted to terminate the DDS lease.
- State terminated the ACTS lease effective June 30, 2011 and the CSE lease effective September 30, 2011 pursuant to the availability-of-funds clause and stopped paying rent on those leases.
- Plaintiff sued (breach of contract and declaratory relief) seeking damages for the terminated leases and a declaration preventing termination of the DDS lease; defendants moved to dismiss under Rules 12(b)(1), (2), and (6) invoking sovereign immunity and challenging justiciability of the declaratory-judgment claim.
- The trial court denied the motion to dismiss in full; defendants appealed. The Court of Appeals dismissed portions of the appeal as interlocutory and addressed only the immediate appeal from denial of the Rule 12(b)(2) motion based on sovereign immunity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff sufficiently pleaded waiver of sovereign immunity | Plaintiff alleged the State engaged in three valid contracts and expressly alleged sovereign immunity not applicable | Defendants argued plaintiff must plead (and show) an actual breach or a likelihood of breach to establish waiver | Held: Complaint sufficiently alleged waiver; specific phrasing not required and factual questions reserved for trial |
| Whether State impliedly waived sovereign immunity by entering leases | Plaintiff: Smith and successors mean the State waives immunity by entering valid contracts, allowing suit for contract claims (including declaratory relief) | Defendants: No waiver absent actual breach; declaratory claim regarding DDS is premature | Held: State impliedly waived immunity by entering valid leases; waiver does not depend on pleading an actual breach |
| Whether sovereign immunity bars declaratory relief about lease rights | Plaintiff: Declaratory relief to ascertain contractual rights is a contract cause of action covered by waiver | Defendants: Reliance on Petroleum Traders to argue declaratory relief not covered | Held: Declaratory relief seeking contract rights is within Smith waiver (ACC precedent); Petroleum Traders distinguishable |
| Whether appealable now from denial of motions to dismiss | Plaintiff: Many denials are interlocutory and not immediately appealable | Defendants: Claimed right to immediate appeal on sovereign-immunity grounds | Held: Appeal allowed only as to denial of Rule 12(b)(2) (personal jurisdiction/sovereign immunity) and dismissed as to Rule 12(b)(1) and Rule 12(b)(6) denials |
Key Cases Cited
- Smith v. State, 289 N.C. 303 (recognizes implied waiver of sovereign immunity when State enters a valid contract)
- Ferrell v. Dep’t of Transp., 334 N.C. 650 (reiterates policy that State implicitly consents to suit when it contracts)
- Meherrin Indian Tribe v. Lewis, 197 N.C. App. 380 (orders denying 12(b)(1) motions based on sovereign immunity are not immediately appealable)
- Data Gen. Corp. v. County of Durham, 143 N.C. App. 97 (denial of Rule 12(b)(2) premised on sovereign immunity is immediately appealable)
- Zimmer v. N.C. Dep’t of Transp., 87 N.C. App. 132 (same: immediate appeal lies from denial of 12(b)(2) motion based on governmental immunity)
- Stahl-Rider, Inc. v. State, 48 N.C. App. 380 (early appellate precedent treating sovereign immunity defense as personal-jurisdiction issue)