CEDARBROOK RESIDENTIAL CENTER, INC. аnd FRED LEONARD v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, ADULT CARE LICENSURE SECTION
No. 36A22
IN THE SUPREME COURT OF NORTH CAROLINA
Filed 16 December 2022
2022-NCSC-120
Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 281 N.C. App. 9, 2021-NCCOA-689, affirming an order entered on 6 November 2020 by the North Carolina Industrial Commission denying defendant’s motion to dismiss pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the North Carolina Rules of Civil Procedure. Heard in the Supreme Court on 4 October 2022 in the Historic 1767 Chowan County Courthouse in the Town of Edenton pursuant to N.C.G.S. § 7A-10(a).
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Joseph A. Ponzi and Howard L. Williams, for plaintiff-appellees.
Robinson, Bradshaw & Hinson, P.A., by Adam K. Doerr and Demi Lorant Bostian; and Joshua H. Stein, Attorney General, by Amar Majmundar, Special Deputy Attorney General, for defendant-appellant.
Disability Rights North Carolina by Lisa Grafstein and Kristine Sullivan, for Disability Rights North Carolina, Friends of Residents in Long Term Care, AARP, and AARP Foundation, amici curiae.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP, by John E. Harris and James C. Wrenn, Jr., for North Carolina Senior Living Association and North Carolina Assisted Living Association, amici curiae.
CEDARBROOK RESIDENTIAL CTR., INC. V. N.C. DEP’T OF HEALTH & HUM. SERVS.
2022-NCSC-120
Opinion of the Court
¶ 1 This case arises from a dispute between plaintiffs Cedarbrook Residential Center, Inc., an adult care home, and its owner, Fred Leonard, on the one hand, and defendant North Carolina Department of Health and Human Services, on the other hand, arising from certain regulatory actions taken by the department in response to deficiencies that the employees of the department’s Adult Care Licensure Section had identified during inspections of plaintiffs’ facility. After plaintiffs contested the department’s actions by initiating a contested case before the Office of Administrative Hearings, the parties reached a settlement pursuant to which the department agreed to withdraw its allegations in exchange for plaintiffs’ agreement to take certain remedial steps that were intended to address the alleged deficiencies. Subsequently, plaintiffs filed a claim with the Industrial Commission pursuant to the North Carolina State Tort Claims Act in which they alleged that departmental employees had been negligent in the course of inspecting and exercising regulatory authority over plaintiffs’ facility and sought to recover damages arising from increased operating expenses, decreased revenue, and lost profits from a planned sale of the facility that, in plaintiffs’ view, had been proximately caused by the department’s negligence. Although the department sought dismissal of plaintiffs’ claims on the grounds that they were barred
that plaintiffs sought to assert against the department were not cognizable under the State Tort Claims Act, that plaintiffs had failed to plead a valid negligence claim against the department, and that plaintiffs’ claims were foreclosed by the public duty doctrine, the Commission denied the department’s dismissal motion, a decision that a divided panel of the Court of Appeals affirmed. Cedarbrook Residential Ctr., Inc. v. N.C. Dep’t of Health & Hum. Servs., 281 N.C. App. 9, 2021-NCCOA-689. The department noted an appeal to this Court based upon a dissenting opinion at the Court of Appeals. After careful consideration of the parties’ arguments in light of the record and the applicable law, we reverse the decision of the Court of Appeals and remand this case to that court for further remand to the Commission for additional proceedings not inconsistent with this opinion.
I. Factual Background
A. Substantive Facts
¶ 2 Cedarbrook is an adult care home located in Nebo that is owned and operated by Mr. Leonard. Cedarbrook “provid[es] a place of residence for disabled adults, including those with historic mental illness who are primarily stable in their recovery, though occasionally volatile,” and who “are a challenging population with a distinct culture, for whom few housing options exist in North Carolina.” As an adult
care home,1 Cedarbrook is subject to oversight by the department’s Adult Care Licensure Section pursuant to Chapter 131D of the North Carolina General Statutes,
¶ 3 The General Assembly has delegated numerous regulatory powers to the department, including the authority to license and inspect adult care homes,
Assembly’s desire “to promote the interests and well-being of residents in adult care homes and assisted living residences” so that “every resident’s civil and religious liberties, including the right to independent personal decisions and knowledge of available choices, shall not be infringed” and so that “the facility shall encourage and assist the resident in the fullest possible exercise of those rights,”
¶ 4 In November 2015, the department conducted an inspection of Cedarbrook, during which it identified numerous concerns about the manner in which the facility was being operated, and reported those deficiencies to Cedarbrook in a “Statement of Deficiencies.” As a result of these alleged deficiencies, the department suspended new admissions at Cedarbrook on 19 November 2015 and issued a notice of its intent to revoke Cedarbrook’s license on 17 December 2015. After a follow-up inspection conducted in March 2016, the department
which totaled more than 400 pages, the department described the problems that it had identified at Cedarbrook, including, but not limited to,
- i. Supervision and staffing issues, including a resident who went missing and was later found near I-40, around five miles away from Cedarbrook;
- ii. Reports of residents performing sex acts for money or sodas from the Cedarbrook commissary;
- iii. Admitting and failing to discharge residents exhibiting dangerous and aggressive behavior, including physical aggression and arson;
- iv. Smoking inside the facility;
- v. Hoarding behaviors creating a safety hazard;
- vi. Failing to protect residents’ privacy when administering medication; and
- vii. Issues with maintenance of medical equipment, such as walkers and wheelchairs.
As a result of these two inspections, the department concluded that Cedarbrook had committed five Type A1 violations, one Type A2 violation, and eight Type B violations.2
¶ 5 Based upon these findings, on 18 March 2016, the department issued a “Directed Plan of Protection,” which it believed to be necessary “to ensure the health, safety, and welfare of the residents.” The Directed Plan of Protection required Cedarbrook to address the problems that had been identified in the Statements of Deficiencies by, among other things, increasing on-site staffing levels, assessing all residents who had been diagnosed with a mental illness or an intellectual developmental disability for the purpose of ensuring that they received appropriate care and supervision, providing additional staff training, and reviewing and, to the extent necessary, revising Cedarbrook’s policies concerning the use and suspected use of illicit drugs and alcohol by Cedarbrook residents. On 16 May 2016, the department withdrew its notice of intent to revoke the facility’s operating license and issued a provisional license based upon its determination, in accordance with
¶ 6 Cedarbrook disputed the department’s regulatory findings and filed a petition with the Office of Administrative Hearings in which it formally challenged the validity of those findings and the lawfulness of the regulatory actions that the department had taken. On 6 July 2016, the Office of Administrative Hearings stayed
the department’s decision to suspend further admissions at Cedarbrook, a sanction that the department formally lifted on 12 August 2016. Prior to the holding of a formal contested case hearing before an administrative law judge, the parties reached a settlement pursuant to which the department agreed to withdraw all the violations that it had identified in the Statements of Deficiencies in return for Cedarbrook’s agreement to take certain remedial actions.3
¶ 7 On 25 October 2018, plaintiffs filed an affidavit and verified claim for damages with the Commission pursuant to the State Tort Claims Act,
More specifically, plaintiffs alleged that the department “owed [plaintiffs] a duty of reasonable care in the exercise of its authority to investigate the facility and take licensure action against [Cedarbrook]” and that the department had breached that duty by “(1) conducting the [inspections] of Cedarbrook; (2) writing and publishing the Statements of Deficiencies; (3) issuing the Directed Plan of Protection against Cedarbrook and leaving it in place for nearly five months; and (4) issuing the [suspension of admissions], and leaving it in place for nearly eight months.” Plaintiffs further alleged that, “[a]s a direct and proximate result of [the department’s] negligence,” plaintiffs had suffered damages in the form of lost revenue stemming from a decreased facility population, an increase in operating expenses stemming from the Directed Plan of Protection, and the cancellation of an agreement to sell Cedarbrook into which Mr. Leonard had entered prior to the suspension of admissions.
¶ 8 On 8 January 2019, the department filed a motion seeking to have plaintiffs’ claim dismissed for lack of subject matter jurisdiction pursuant to
were barred by the public duty doctrine. On 13 March 2019, Deputy Commissioner James C. Gillen entered an order denying the department’s dismissal motion. After the department sought an immediate appeal from the Deputy Commissioner’s order to the Commission, the Commission authorized the department to take such an appeal on the grounds that its invocation of the doctrine of sovereign immunity implicated a substantial right, citing Viking Utils. Corp. v. Onslow Water & Sewer Auth., 232 N.C. App. 684, 686 (2010), and Green v. Kearney, 203 N.C. App. 260, 266 (2010).
¶ 9 Following a hearing held on 10 September 2019, the Commission entered an order on 6 November 2020 in which it affirmed the Deputy Commissioner’s decision to deny the department’s dismissal motion. First, the Commission rejected the department’s subject matter and personal jurisdiction arguments on the grounds that the State Tort Claims Act worked a partial waiver of the State’s sovereign immunity and that plaintiffs had complied with the statutory requirements for asserting a claim against the department pursuant to the State Tort Claims Act by filing an affidavit with the Commission and identifying multiple departmental employees who had allegedly acted in a negligent manner. Second, the Commission concluded that the department was not entitled to rely upon the public duty doctrine in responding to plaintiffs’ claims on the grounds that the General Assembly had amended the State Tort Claims Act in 2008 to limit the availability of the public duty doctrine for the
purposes of the State Tort Claims Act to situations involving injuries resulting from an allegedly negligent failure
[t]aking the allegations as true, the Commission finds and concludes [that] there is sufficient showing that [the department] breached its “duty of reasonable care in the exercise of its authority to investigate the facility and take licensure actions” and that [the department] negligently issued statements of deficiencies, causing the suspension of admissions and reducing the value of Cedarbrook and causing loss of funds through the collapse of a prospective sale and prospective income. Thus, [plaintiffs’] argument is not that it is pursuing claims on behalf of the residents. Rather, [plaintiffs’] standing argument is that it was harmed by the loss of the prospective sale and income caused by [the department’s] allegedly negligent issuance of [a] statement of deficiencies.
Finally, the Commission rejected the department’s argument that plaintiffs were not entitled to relief under the State Tort Claim Act on the grounds that the department’s
agents had acted intentionally, rather than negligently, reasoning that “[p]laintiffs did not allege that [the department had] intended to cause [p]laintiffs harm in undertaking the various licensure actions against them” and that they had, instead, “alleged that [the department’s] conduct was negligent in the inspection and surveying process,” so that “[p]laintiffs’ claims under the Tort Claims Act are not barred by the intentional nature of [the department’s] actions,” citing Crump v. N.C. Dept. of Env’t & Nat. Res., 216 N.C. App. 39, 40 (2011). The department noted an appeal to the Court of Appeals from the Commission’s order.
C. Court of Appeals Decision
¶ 10 In seeking relief from the Commission’s order before the Court of Appeals, the department argued that the Commission had erred by failing to dismiss plaintiffs’ claims and “effectively recognizing a claim for ‘negligent regulation’ that permits a regulated entity to sue its state regulator under the [State] Tort Claims Act[.]” Among other things, the department contended that (1) the limited waiver of sovereign immunity worked by the State Tort Claims Act did not allow the assertion of plaintiffs’ claims against the department since the State Tort Claims Act only permits a party to sue the State “where the State of North Carolina, if a private person, would be liable” and “[p]rivate persons cannot be held liable for regulatory actions;” (2) the Commission’s interpretation of the State Tort Claims Act authorized an “end-run” around the process that the General Assembly created for the purpose
of allowing aggrieved parties to challenge allegedly unlawful regulatory actions using the North Carolina Administrative Procedure Act; (3) the public duty doctrine operated to bar plaintiffs’ claims; and (4), even if the State Tort Claims Act did apply to claims like the one that plaintiffs sought to assert, they had failed to plead a valid negligence claim. (emphasis in original). In addition, the department argued that plaintiffs’ claims should not be permitted to proceed as a matter of public policy given that allowing a regulated entity to assert a claim sounding in tort against the entity responsible for regulating its activities “could dissuade regulators from performing their statutorily mandated dut[ies]” in an effective manner.
¶ 11 A divided panel of the Court of Appeals filed an opinion affirming the Commission’s order, with a majority of the Court of Appeals having agreed that plaintiffs should be allowed to pursue a claim against the department pursuant to the State Tort Claims Act for acting negligently in the course of performing its regulatory duties. Cedarbrook, ¶ 16; id., ¶ 35 (Dietz, J., concurring). According to Judge Arrowood, writing for the court, the Commission had appropriately determined that plaintiffs had complied with the requirements for invoking the State Tort Claims Act by filing an affidavit with the Commission that contained the required information. Id. ¶ 11. The Court of Appeals rejected the department’s contention that “private persons cannot be held liable for regulatory actions” in an action brought pursuant to the State Tort Claims Act on the grounds that the department’s
argument “misconstrues the meaning of ‘private person’ under the [State Tort Claims Act],” that the relevant legislation must “ ‘be construed so as to effectuate its purpose of waiving sovereign immunity so that a person injured by the negligence of a State employee may sue the State as he would any other person,’ ” and that “the ‘private person’ language within the [State Tort Claims Act] pertains to the nature of the proceedings but does not operate to bar waiver of sovereign immunity,” with the department’s argument to the contrary resting upon a “fail[ure] to acknowledge that many cases presented to the Commission and to [the Court of Appeals] on appeal involve regulatory action.” Id. ¶ 12 (quoting Zimmer v. N.C. Dep’t of Transp., 87 N.C. App. 132, 136 (1987)).
¶ 12 In addition, the Court of Appeals held that, “[a]lthough the General Assembly has provided several remedies under the Administrative Procedure Act, the availability of an administrative remedy does not preclude plaintiff[s] from seeking a remedy under the [State Tort Claims Act].” Id. ¶ 14. In support of this proposition, the court cited Nanny’s Korner Day Care Center, Inc. v. North Carolina Department of Health and Human Services, 264 N.C. App. 71, appeal dismissed, disc. rev. denied, 372 N.C. 700 (2019), in which the department had taken regulatory action against a daycare center and required the daycаre center to notify its clients of an allegation of sexual abuse of one of its children by a staff member, resulting in a loss of business for the daycare center and its eventual closure. Id. at 73–75. The daycare center
sought relief from the department under the State Tort Claims Act and, subsequently, instituted a civil action in superior court in which it alleged that it had been injured as the result of a deprivation of its due process rights. Id. at 75. Although the Court of Appeals concluded that the daycare center’s claim under the State Tort Claims Act was barred by the applicable statute of limitations, it also held that the daycare center had no right to assert a direct constitutional claim against the department on the grounds that it “had an adequate state remedy in the form of the Industrial Commission through the [State] Tort Claims Act,” with the fact that the daycare center had failed “to comply with the applicable statute of limitations not render[ing] its remedy inadequate.” Id. at 79–80. In this case, the Court of Appeals held that, in light of its prior decision in Nanny’s Korner, it was required to hold that “a regulated entity has a state remedy under the [State Tort Claims Act].” Cedarbrook, ¶ 16.
¶ 13 Moreover, the Court of Appeals agreed with the Commission that the 2008 amendments to the State Tort Claims Act relating to the availability of the public duty doctrine as a defense in proceedings initiated pursuant to State Tort Claims Acts precluded the department from invoking the public duty doctrine as an affirmative defense in this case, id. ¶¶ 19–20, with the Court of Appeals having reached this result based upon this Court’s decision in Ray v. North Carolina Department of Transportation, in which we recognized that, even though the new statute
“incorporated much of our public duty doctrine case law,” the General Assembly had “also made clear that the doctrine is to be a more limited one than the common law might have led us to understand,” 366 N.C. 1, 7 (2012). The Court of Appeals held that, in light of the plain statutory language, the public duty doctrine is only available as a defense in a proceeding held pursuant to the State Tort Claims Act if the alleged injury “is the result of (1) a law enforcement officer’s negligent failure to protect the plaintiff from actions of others or an act of God, or (2) a State officer’s, employee’s, involuntary servant’s, or agent’s negligent
¶ 14 The Court of Appeals also rejected the department’s contention that plaintiffs had failed to state a claim against the department sounding in negligence, concluding that this aspect of the department’s argument was “intertwined with its interpretation of the public duty doctrine” and that, since the department was not entitled to invoke the public duty doctrine in bar of plaintiffs’ claims, its challenge to the sufficiency of plaintiffs’ negligence claims necessarily failed as well. Id. ¶ 25. In
addition, the Court of Appeals noted that “[the department’s] argument that it should not be held liable for acting intentionally pursuant to authority granted by the General Assembly ‘overlooks the fact that the focus is not on whether [the department’s] actions were intentional, but rather whether [it] intended to injure or damage [plaintiffs],’ ” id., ¶ 26 (quoting Crump, 216 N.C. App. at 44–45), so that, “[i]n order for [the department’s] argument to succeed,” “a showing that [the department’s] employees intended to cause harm to plaintiffs would be required,” with “[n]othing in the record” tending to “suggest that [they] intended to” do so, id. ¶ 26.
¶ 15 Finally, the Court of Appeals observed that “[o]ur Courts have repeatedly affirmed the Commission’s authority to make determinations of negligence where a party alleges harm caused by an agency’s regulatory actions” and that it was “not persuaded by [the department’s] concern that affirming the Commission here will encourage regulators to abandon their statutorily mandated duties.” Id. ¶ 31. The Court of Appeals pointed out that the General Assembly served as the policy-making body in state government and that the department’s public policy concerns “would be more appropriately directed to the General Assembly,” particularly given that “the General Assembly [had] limited the applicability of the public duty doctrine through legislative action.” Id. ¶ 32.
¶ 16 Judge Dietz filed a separate opinion in which he concurred in the logic adopted by the court while emphasizing the binding nature of Nanny’s Korner and attempting
to refute arguments that were advanced in the dissenting opinion by Judge Tyson. Id. ¶¶ 35–37 (Dietz, J., concurring). Among other things, Judge Dietz observed that, while the policy considerations raised by the department and in Judge Tyson’s dissent “might be reasons for our Supreme Court to exercise its discretion to take this case and examine the holding in Nanny’s Korner,” the Court of Appeals was required to follow its own existing precedent. Id. ¶ 38.
¶ 17 In his dissenting opinion, Judge Tyson asserted that plaintiffs had “failed to show any legal duty owed or breach thereof, or proximate cause in their putative negligence action”; that “[c]laims challenging an agency’s regulatory actions are properly heard under the North Carolina Administrative Procedure Act”; and that the Court of Appeals’ decision “will lead to a stampede of nonjusticiable suits against regulatory state agencies which are clearly barred by sovereign immunity except for the limited waiver of that immunity under the [State Tort Claims Act].” Id. ¶ 39 (Tyson, J., dissenting). According to Judge Tyson, “[i]t has long been established that an action cannot be maintained against [a state agency] unless it consents to be sued or upon its waiver of immunity, and that this immunity is absolute and unqualified.” Id. ¶ 47 (quoting Guthrie v. N.C. St. Ports Auth., 307 N.C. 522, 534 (1983)) (emphasis in Guthrie, alterations added by Judge Tyson). As a result, Judge Tyson explained, “[t]he State is immune from suit unless and until it has expressly consented to be sued.” Id. ¶ 48 (quoting Guthrie, 307 N.C. at 534).
¶ 18 Although Judge Tyson agreed with his colleagues that the State Tort Claims
¶ 19 In addition, Judge Tyson concluded that plaintiffs had failed to properly plead a viable negligence claim given their failure to establish that the department owed them a “duty not to ‘negligently regulate’ ” Cedarbrook, that any breach of such a duty had occurred, or that “the purported breach was the proximate cause of their harm.” Id. ¶ 62. Judge Tyson distinguished this case from an earlier, unpublished Court of Appeals decision in which the estate of an elderly adult care home resident filed a claim against the department under the State Tort Claims Act after the resident disappeared from the facility and was later declared deceased. Tang v. N.C. Dep’t of Health & Hum. Servs., 2021 WL 5071898, 2021-NCCOA-611, ¶¶ 8–11 (unpublished). In that case, the Court of Appeals upheld the Commission’s determination that the department owed a statutory duty of care to adult care home
residents to ensure that the facilities in which they were living were operated safely, that “[t]here was competent evidence for the Commission to find that [the department] breached its duty to plaintiff in failing to properly assess [safety] violations at [the facility] and in failing to take reasonable steps to address the deficiencies,” and that the department’s violations of this duty proximately resulted in the resident’s death. Id. ¶ 27. In reaching this result, the Court of Appeals noted that the Commission had found that “it was foreseeable that [the department’s] failure to exercise its regulatory authority to address [nonoperational alarms on the facility’s exit doors]—at a facility known for past deficiencies and non-compliance—would result in [the resident’s] injury.” Id. ¶ 28.
¶ 20 After considering the Court of Appeals’ decision in this case in comparison with the approach adopted in Tang, Judge Tyson concluded that his colleagues were holding the department and other state regulatory agencies to “an impossible standard” under which they would be “(1) liable for enforcing the statutory mandates; and, (2) also liable for failing to enforce those very same statutory mandates with the Industrial Commission sitting in judgment of their ‘reasonableness.’ ” Cedarbrook, ¶ 66. For this reason, Judge Tyson would have concluded that “[t]he limited waiver of sovereign immunity under the [State Tort Claims Act] simply does not recognize or permit plaintiff[s’] claim.” Id.
560, 2021-NCSC-163, ¶ 23
B. Sovereign Immunity and the State Tort Claims Act
¶ 23 In seeking relief from the decisions of the lower courts before this Court, the department begins by arguing that it is shielded by sovereign immunity from tort liability arising from the actions that it took in regulating Cedarbrook and that the State Tort Claims Act does not effect even a partial waiver of its sovereign immunity defense to such a claim. We find the department’s argument to be persuasive.
¶ 24 The common law doctrine of sovereign immunity is well-established in North Carolina and “prevents a claim for relief against the State except where the State has consented or waived its immunity.” Kinston Charter Acad., ¶ 21 (quoting Harwood v. Johnson, 326 N.C. 231, 238 (1990)). Sovereign immunity is “absolute and unqualified,” Guthrie, 307 N.C. at 534, and “so firmly established that it should not and cannot be waived by indirection or by procedural rule” and can only be foregone “by plain, unmistakable mandate of the lawmaking body,” Orange Cnty. v. Heath, 282 N.C. 292, 296 (1972). As a result, the State and its agencies are “immune from suit unless and until [the State] has expressly consented to be sued,” Guthrie, 307 N.C. at 534 (quoting Great Am. Ins. Co. v. Gold, 254 N.C. 168, 173 (1961)), with statutes “that permit suit in derogation of sovereign immunity [to] be strictly construed,” Stone v. N.C. Dep’t of Lab., 347 N.C. 473, 479 (1998); see also Guthrie, 307 N.C. at 538.
¶ 25 The General Assembly enacted the State Tort Claims Act in 1951, in which it constituted the Commission as “a court for the purpose of hearing and passing upon tort claims against the State Board of Education, the Board of Transportation, and all other departments, institutions and agencies of the State.”
¶ 26 According to the department, the fact that the State Tort Claims Act operates in partial derogation of the State’s sovereign immunity means that its provisions must be strictly construed, citing Stone, 347 N.C. at 479. First, the department argues that the “plain language and legislative history of the [State] Tort Claims Act show that the General Assembly intended to waive sovereign immunity from traditional tort claims, not regulatory action by the State.” Second, the department contends that it cannot be sued by Cedarbrook based upon the regulatory actions that it took against the facility given that the State Tort Claims Act “only permits parties to sue state agencies ‘where the [agency], if a private person, would be liable,’ ” with private persons being unable to exercise regulatory authority, quoting
¶ 27 Finally, the department argues that Nanny’s Korner “cannot support the weight the Court of Appeals majority placed on it” given that Nanny’s Korner arose from a trial court’s decision to dismiss a constitutional due process claim rather than a decision by the Commission under the State Tort Claims Act and given that the Court of Appeals in that case “did not analyze the ‘private person’ standard under the [State] Tort Claims Act, the elements of a negligence claim involving regulatory action, or the public duty doctrine.” According to the department, the issue before the Court of Appeals in this case “was simply not the focus of Nanny’s Korner, and the [Court of Appeal’s] indirect and unnecessary comments in that case, without benefit of full briefing and argument, did not provide a sufficient basis for the Court of Appeals to create a new cause of action against the State” that had not previously been recognized. In any event, the department argues, this Court is not bound by Nanny’s Korner.
¶ 28 In response, plaintiffs assert that “the [State] Tort Claims Act contains no carve-out for agency exercise of regulatory authority” and, instead, “expressly provides that a claim is available as a result of the negligence of any agency employee ‘acting within the scope of his office, employment . . . or authority,’ ” quoting
¶ 29 A careful consideration of the record in light of the applicable law persuades us that the department has the better of this dispute. As an initial matter, plaintiffs have not cited, and our own research has not identified, any decision of either this Court or the Court of Appeals in the more than seventy years since the enactment of the State Tort Claims Act that suggests that an entity subject to regulation by a state agency is entitled to assert a claim for damages against that agency predicated on the theory that the agency regulated the entity in question in a negligent manner. The absence of such authority is telling given that thousands of businesses, nonprofits, and other entities have been subject to regulatory actions by state agencies, many of which undoubtedly believe that they have suffered reputational and financial harm as the result of misguided regulatory decisions. See, e.g., Ocean Hill Joint Venture v. N.C. Dep’t of Env’t, Health & Nat. Res., 333 N.C. 318 (1993) (addressing a developer’s administrative challenge to the imposition of civil penalties by the Department of Environment, Health and Natural Resources stemming from alleged violations of the Sedimentation Pollution Control Act); Parkway Urology, P.A. v. N.C. Dep’t of Health & Hum. Servs., 205 N.C. App. 529 (2010) (addressing a hospital’s challenge to a decision by the Department of Health and Human Services to award a certificate of need to a nearby hospital allowing it to purchase a piece of equipment used for cancer treatment, in which the challenger alleged that the department’s decision would reduce the number of patients that it could serve and substantially and adversely affect its revenues). The absence of any authority indicating that the legal theory upon which plaintiffs rely has any viability strongly suggests that it does not.
¶ 30 In the lengthy period prior to the enactment of the State Tort Claims Act, the General Assembly addressed claims advanced by private citizens seeking compensation for personal injuries arising from State action by enacting case-specific pieces of legislation or delegating authority to various state agencies to adjudicate the validity of such claims. See A Survey of Statutory Changes in North Carolina in 1951, 29 N.C. L. Rev. 351, 417 (1951). For example, in 1935, the General Assembly enacted legislation authorizing the State Board of Education to settle personal injury and wrongful death claims arising from accidents involving school buses, regardless of the extent to which those actions stemmed from negligent conduct. Id. (citing
¶ 31 With the passage of the State Tort Claims Act in 1951, the General Assembly created a “permanent machinery . . . to handle future negligence claims against the state.” Id. As one contemporaneous law review article explained, the State Tort Claims Act
provides for both administrative and judicial settlement of claims against all departments, institutions[,] and agencies of the
state, resulting from a negligent act of a state employee while acting within the scope of his employment and without contributory negligence on the part of the claimant. If not expressly, clearly by implication [the Act] contemplates both personal injury and wrongful death claims. Whether a claim may be filed for property injury is not so clear.
Id. (emphasis added). As a result, the legislative history of the State Tort Claims Act suggests that the General Assembly intended to create a formal mechanism to address personal injury and wrongful death claims asserted against the State by private citizens stemming from alleged negligence on the part of the relevant state employees in lieu of the ad hoc method for addressing such claims that had existed until that point in time.6
¶ 32 At the time that it enacted the State Tort Claims Act, the General Assembly “incorporated the common law of negligence,” Stone, 347 N.C. at 479, meaning that, when such claims are brought before the Commission, “negligence is determined by the same rules as those applicable to private parties,” Bolkhir v. N.C. State Univ., 321 N.C. 706, 709 (1988); accord Barney v. N.C. State Highway Comm’n, 282 N.C. 278, 284 (1972). As we noted in Bolkhir, “[t]he essence of negligence is behavior creating an unreasonable danger to others,” so that, in order to establish negligence for purposes of the State Tort Claims Act, “[a] plaintiff must show that: (1) [the] defendant failed to exercise due care in the performance of some legal duty owed to [the] plaintiff under the circumstances; and (2) the negligent breach of such duty was the proximate cause of the injury.” Bolkhir, 321 N.C. at 709.
¶ 33 The history of litigation under the State Tort Claims Act clearly indicates that it was intended to address traditional kinds of negligence claims, with this Court and the Court of Appeals having routinely considered cases involving traditional negligence-based torts under the rubric of the State Tort Claims Act. In Bolkhir, for example, the plaintiff’s son was injured when he fell through the glass paneling of a screen door at the entrance of the university-owned apartment in which the plaintiff and his family were living. Id. at 708. The plaintiff sued under the State Tort Claims Act, with the Commission ultimately “conclude[ing] that [the] defendant’s employee negligently created an unsafe condition” by replacing the screen door’s mesh paneling with glass paneling. Id.; see also Lyon & Sons, Inc. v. N.C. State Bd. of Educ., 238 N.C. 24, 25 (1953) (holding that a school bus driver employed by the State negligently backed a bus into the plaintiff’s automobile); Brewington v. N.C. Dep’t of Corr., 111 N.C. App. 833, 834 (1993) (holding that an inmate incarcerated in a state correctional facility had been injured in a fall resulting from negligent maintenance by the staff of the facility in which the inmate was housed).
¶ 34 The claim that plaintiffs have asserted against the department in this case bears no resemblance to the types of negligence claims for which the State Tort Claims Act has traditionally provided a means for obtaining a recovery against a state agency. A careful reading of the claim that plaintiffs have asserted against the department indicates that it rests entirely upon discretionary actions that were taken in pursuit of the department’s statutory authority to regulate adult care homes. As a result, even though their claim is not couched in such terms,
¶ 35 In addition, the plain language of the State Tort Claims Act forecloses claims like those that plaintiffs have attempted to assert in this case. As has already been noted, the Act only permits private parties to bring claims under the State Tort Claims Act in situations in which “the State of North Carolina, if a private person, would be liable to the claimant in accordance with the laws of North Carolina.”
¶ 36 In allowing plaintiffs’ claims under the State Tort Claims Act to proceed, the Court of Appeals concluded that “the ‘private person’ language within the [State Tort Claims Act] pertains to the nature of the proceedings but does not operate to bar waiver of sovereign immunity.” Cedarbrook, ¶ 12. The Court of Appeals did not cite any authority in support of this statement, and it is not entirely clear to us what the court meant in making it. If the Court of Appeals intended to suggest that the State Tort Claims Act is merely intended to allow State agencies to be held liable under the same procedures that could be used to hold private persons liable in tort, we are unable to accept that logic for two reasons. First, tort claims against the State are heard by the Commission, while tort claims against private persons are adjudicated in the General Court of Justice. Compare
¶ 37 In addition, the Court of Appeals’ understanding of the “private person” provision cannot be squared with the relevant canons of statutory construction. According to well-established North Carolina law, “when construing legislative provisions, this Court looks first to the plain meaning of the words of the statute itself” and, “when the language of a statute is clear and without ambiguity, it is the duty of this Court to give effect to the plain meaning of the statute.” State v. Morgan, 372 N.C. 609, 614 (2019) (cleaned up). As we have already explained, the State Tort Claims Act permits an individual to sue the State when an agent or employee of the State acts in a negligent manner and under circumstances in which liability in tort would arise under North Carolina law if that agent or employee were acting in his or her private capacity. See Frazier, 135 N.C. App. at 48 (observing that “[t]ort liability for negligence attaches to the state and its agencies under the [State] Tort Claims Act only ‘where the State of North Carolina, if a private person, would be liable to the claimant in accordance with the laws of North Carolina’ ”) (quoting
¶ 38 In the event that, contrary to our reading of the relevant statutory language, the “private person” provision contained in
civil actions on claims against the United States, for money damages . . . for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurrеd.
¶ 40 In Jayvee Brand, a children’s sleepwear manufacturer sued the Consumer Product Safety Commission under the Federal Tort Claims Act seeking monetary damages that the manufacturer alleged to have been negligently caused by the Commission’s regulatory actions. 721 F.2d at 387. After agreeing that the Commission had acted unlawfully by failing to follow proper procedures in the course of taking the challenged regulatory action and that these “wrongful acts” had been committed by an “ ‘employee of the Government while acting within the scope of his office or employment,’ ” the United States Court of Appeals for the District of Columbia Circuit concluded that, since these actions were “of the type that private persons could not engage in and hence could not be liable for under local law,” the federal courts lacked “jurisdiction to entertain a suit against the federal government” under the Federal Tort Claims Act. Id. at 390 (quoting
[a]ppellants ask us to make a major innovation in the law by holding that the [Federal Tort Claims Act] provides damage actions as an additional means of policing the internal procedures of governmental agencies. They have not, however, given us particularly good reasons for such an extraordinary step, and everything we have seen counsels against it. There is, in the first place, absolutely no evidence that in enacting the [Federal Tort Claims Act] Congress intended to police internal governmental law-making procedures with damage actions. Appellants’ theory of governmental liability because of the [Commission’s] failure to follow the procedures specified by section 371(e) of the Federal Food, Drug, and Cosmetic Act would seem to impose liability for any agency’s failure to follow procedures prescribed by any regulation or statute, including the Administrative Procedure Act. Congress has provided elaborate mechanisms of judicial review so that rules adopted by improper
procedures may be declared nullities. Nowhere, so far as we are aware, has Congress stated that, in addition, the affected parties could сollect damages from the government. Surely, so striking a mode of policing procedural regularity as the use of damage actions for millions or hundreds of millions of dollars would have been mentioned. Appellants have drawn our attention to no language in any statute or any legislative history that suggests a conscious intention by any member of Congress to accomplish such a result. That in itself would appear nearly conclusive of the issue before us. It may also be significant that no plaintiffs before those here have ever advanced such a theory. These are negative reasons to doubt that Congress intended the government to be liable in damages for adopting a rule through defective procedures.
¶ 41 Similarly, in analyzing the legislative intent underlying the enactment of the Federal Tort Claims Act, the Supreme Court of the United States observed that “it was not intended that the constitutionality of legislation, the legality of regulations, or the propriety of a discretionary administrative act should be tested through the medium of a damage suit for tort.” Dalehite v. United States, 346 U.S. 15, 27 (1953) (cleaned up) (emphasis added). Instead, the Court concluded, the legislative history of the Federal Tort Claims Act revealed that “[u]ppermost in the collective mind of Congress were the ordinary common-law torts.” Id. at 28.
¶ 42 The same observations can be made about the State Tort Claims Act. As we have already noted, plaintiffs have provided no support for a conclusion that the General Assembly “intended to police internal governmental law-making procedures with damage actions.” Jayvee Brand, 721 F.2d at 391. On the contrary, the General Assembly enacted the Administrative Procedure Act, which provides a mechanism for challenging allegedly unlawful actions taken by regulatory agencies such as the department, for that purpose. Considering the existence of this remedy for unlawful regulatory actions provided by the Administrative Procedure Act, it is difficult for us to believe the General Assembly also intended for a plaintiff to be able to bring what amounts to a damage claim for “negligent regulation” against a regulatory agency.
Had it intended to make both such remedies available to parties adversely affected by the regulatory actions taken by state agencies, we believe that the General Assembly would have more clearly indicated that such suits were available than is evident from an examination of the relevant existing statutory provisions.9 This is especially true given the general principle that a waiver of sovereign immunity must be explicit rather than implied. See Heath, 282 N.C. at 296. As a result, our review of the relevant federal precedent and significance of that precedent for North Carolina law strongly counsels against acceptance of the theory that plaintiffs have espoused in this case.
¶ 43 In support of its decision to allow plaintiffs’ claim against the department to proceed, the Court of Appeals relied upon its prior decision in Nanny’s Kornеr. Cedarbrook, ¶ 16; see also id., ¶ 38 (Dietz, J., concurring). In Nanny’s Korner, a daycare center filed an affidavit under the State Tort Claims Act against the department’s Division of Child Development and Early Education in which it sought to recover damages as the result of the department’s alleged failure to conduct an independent investigation into the allegations of child sexual abuse that had been
made against one of the daycare center’s staff members. 264 N.C. App. at 75. After
the Commission dismissed the daycare center’s claim pursuant to N.C.G.S. § 1A-1,
Rule 12(b)(6), on the grounds that the center’s claim was barred by the three-year
statute of limitations applicable to claims asserted under the State Tort
¶ 44 Aside from the fact that Nanny’s Korner is not binding on this Court, we agree with the department that the Court of Appeals did not fully examine the extent, if any, to which the State Tort Claims Act permits the type of claim that the daycare center pursued in that case and that is before us now. Instead, after concluding that
any claim that the center might have been able to assert pursuant to the State Tort Claims Act was time-barred, the Court of Appeals stated, without explaining or citing any supporting authority, that the State Tort Claims Act would have provided the daycare center with an adequate remedy sufficient to preclude the availability of a direct action under the state constitution. In other words, while the holding in Nanny’s Korner speaks for itself, the legal analysis that the Court of Appeals conducted regarding the availability of the State Tort Claims Act under the circumstances presented in that case was merely cursory. Although we do not fault the Court of Appeals for relying upon Nanny’s Korner as binding precedent in the present case, we also do not, following a more rigorous analysis of the pertinent legal questions, find Nanny’s Korner to be persuasive, and for that reason overrule it to the extent it conflicts with this opinion.10
C. Negligence
¶ 45 In addition, the department contends that, even if plaintiffs’ claims are not barred by the doctrine of sovеreign immunity, they have failed to state a claim for relief sounding in negligence as required by the State Tort Claims Act. According to the department, “[p]laintiffs must plead duty, breach, causation, and damages—the foundational elements of every tort claim—to survive a motion to dismiss,” but “[d]espite over 250 paragraphs of allegations,” have failed to do so, citing Stone, 347 N.C. at 477. After careful consideration of the record in light of the applicable law, we conclude that plaintiffs have failed to allege the existence of the sort of legal duty necessary to support a negligence claim.
¶ 46 First, the department argues that plaintiff’s “allegations that [the department]
owes it a duty are conclusory assertions of law, unsupported by fact.” In the
department’s view, the Court of Appeals erred in determining that, by “fil[ing] an
affidavit containing five components required for all claimant affidavits asserting
liability under the [State] Tort Claims Act,” plaintiffs sufficiently stated a claim for
negligence given that mere compliance with the filing requirements
bearing upon the extent to which the department owed plaintiffs a duty of care sufficient to support the assertion of a negligence claim.
¶ 47 In the department’s view, the Court of Appeals’ decision “creates dueling tort duties that [the department] cannot satisfy consistent with the statutory obligations the General Assembly imposed on it.” According to the department, the Court of Appeals’ decision in this case, when read in conjunction with its decision in Tang, “would create an ‘impossible standard’ where [the department] would be liable for both ‘enforcing [ ] statutory mandates’ and ‘for failing to enforce those very same mandates,’ ” quoting Cedarbrook, ¶ 66 (Tyson, J., dissenting). The department contends that, rather than placing it in “an untenable position that could endanger the residents that [the department] is charged with protecting,” it “should be free to hold adult care homes responsible for properly supervising residents . . . without concern that a facility like Cedarbrook or its owner will sue [the department] in tort if it disagrees.” The department claims that allowing the Court of Appeals’ decision to stand “would be an unprecedented expansion of the [State] Tort Claims Act” given that departmental employees charged with regulating adult care homes “have only ever been charged with protecting the residents of those facilities, not the companies that operate them,” and have never been held to “owe[ ] a duty to the owners of those comрanies, such that Mr. Leonard could attempt to hold [the department] liable for his lost profits on a planned sale of Cedarbrook.” (emphasis in original).
¶ 48 Second, the department argues that plaintiffs’ claim rests upon “intentional regulatory actions” in which its employees engaged and that “intentional, discretionary acts taken pursuant to regulatory authority do not give rise to a tort claim,” citing Williams v. N.C. Dep’t of Just., Crim. Standards Div., 273 N.C. App. 209, 212 (2020); Frazier, 135 N.C. App. at 48. According to the department, the regulatory actions that its employees took in this case are similar to those at issue in Williams and Frazier in that, “[a]lthough [plaintiffs] label[ ] them as negligence, they are intentional actions by a state agency taken to administer and enforce laws passed by the General Assembly.” In light of that fact, the department asserts that any “attempt to apply tort concepts like breach in the regulatory context” would be inappropriate given that constructs like the “reasonable person” standard are “ill-suited to analyzing [plaintiffs’] proposed claim of negligent regulation.” As a result, the department contends that “the issues in this case, and the exercise of regulatory authority in general, present regulatory and policy questions that tort law was not designed to answer,” with such questions being “best left to proceedings before an administrative law judge with specialized expertise, as the legislature intended.”
¶ 49 Finally, the department argues that “[r]egulations do not proximately cause damages to a regulated entity in tort, and a regulated entity’s compliance costs are not recoverable as damages.” In the department’s view, plaintiffs’ alleged damages, which take the form of increased operating expenses associated with compliance with
the Directed Plan of Protection, lost revenue resulting from the suspension of further
admissions to Cedarbrook, and lost profits from a failed attempt to sell Cedarbrook,
“bear no resemblance to the kinds of damages recoverable in tort.” The department
argues that “it is the financial responsibility of business owners to run their
businesses in accordance with state health and safety laws” and that, “if there is any
question as to whether a certain cost should qualify as a business expense or a
misapplication of regulatory action, the legislature has designated an administrative
law judge as the arbiter of this decision.” In addition, the department claims that,
“[i]f individuals and businesses can bring tort actions against these agencies in
¶ 50 Plaintiffs respond that both this Court and the Court of Appeals have held that agency personnel owe a duty of care in exercising their regulatory authority, citing Multiple Claimants v. N.C. Dep’t of Health & Hum. Servs., 361 N.C. 372, 378 (2007); Gammons v. N.C. Dep’t of Hum. Res., 344 N.C. 51, 63 (1996); Tang, ¶¶ 27–28; Haas v. Caldwell Sys., Inc., 98 N.C. App. 679, 682–83 (1987); Zimmer v. N.C. Dep’t of
Transp., 87 N.C. App. 132, 132 (1987). In plaintiffs’ view, an agency’s duty of care “extends to the regulated party,” which is “the party most directly affected by that exercise of authority,” in cases in which “it is reasonably foreseeable that an agency’s negligence in the exercise of regulatory authority could harm the parties the agency exercises that authority against.” According to plaintiffs, both this Court and the Court of Appeals have endorsed awarding damages under the State Tort Claims Act in situations involving claims “arising from the negligent exercise of regulatory authority against the regulated party,” citing Watts v. N.C. Dep’t of Env’t & Nat. Res., 182 N.C. App. 178, 181–85 (2007), aff’d 362 N.C. 497 (2008); Nanny’s Korner, 264 N.C. App. at 80; Crump, 216 N.C. App. at 46; Russell v. N.C. Dep’t of Env’t & Nat. Res., 227 N.C. App. 306, 309 (2013); Strickland v. UNC-Wilmington, 213 N.C. App. 506, 511 (2011); Husketh v. N.C. Dep’t of Corr., No. COA09-411, 2010 WL 157557, at *3 (N.C. Ct. App. Jan. 19, 2010) (unpublished).
¶ 51 In addition, plaintiffs argue that the statutory scheme governing the operation of adult care homes imposes a legally enforceable duty on the department in favor of both the facility and the facility’s residents. According to plaintiffs, “the statutory scheme recognizes that [adult care] homes provide important services in their local communities,” with the General Assembly having “appropriately and necessarily balanced the needs of all actors in the adult care home industry—the residents; adult care homes, their staff, supervisors, and administrators; local departments of social
services; local management entities; physicians and other medical professionals; and [the department].” As a result, plaintiffs claim, “the rights of residents do not displace the rights of adult care homes themselves,” with the statutory scheme “recogniz[ing] that [the department] owes duties to adult care homes like Cedarbrook.”
¶ 52 Plaintiffs further contend that the intentional nature of the department’s regulatory actions does not preclude the assertion of a negligence claim against the department on the theory that, even though the department “is correct that [plaintiffs’] claims are based—at least in part—on intentional conduct of [departmental] employees, the [c]omplaint does not allege that those employees intended to cause harm to [plaintiffs].” (emphasis in original). According to plaintiffs, the same argument upon which the department relies in this case was rejected in Crump, in which the Court of Appeals explained that “the focus is not on whether [the employee’s] actions were intentional, but rather on whether he intended to injure or damage the [plaintiffs],” quoting Crump, 216 N.C. App. at 44–45. “In other words,” plaintiffs explain, “ ‘[o]ne who undertakes to do something and does it negligently commits a negligent act,’ ” quoting Jackson v. N.C. Dep’t of Crime Control & Pub. Safety, 97 N.C. App. 425, 432 (1990) (emphasis added in brief).
¶ 53 Finally, plaintiffs argue that they are entitled to recover “direct and indirect damages suffered as a result of [the department’s] negligence.” According to plaintiffs, “[t]he harms suffered by [plaintiffs]—including what [the department]
euphemistically terms ‘compliance costs’—are squarеly within the sort of direct and indirect damages allowed in tort,” citing Champs Convenience Store, Inc. v. United Chem. Co., 329 N.C. 446, 463 (1991), including tort claims brought under the State Tort Claims Act, citing Phillips v. N.C. State Univ., 206 N.C. App. 258, 266–67 (2010). Plaintiffs contend that the damages that they seek to recover in this case represent “the natural and probable result of [the department’s] actions against it,” making the department “liable under the plain language of the [State] Tort Claims Act for the compensatory and consequential damages caused by its negligence.” Plaintiffs dismiss the department’s concerns about the “unprecedented and untenable” liability that will allegedly result from the Court of Appeals’ decision by claiming that this argument fails to recognize that the State Tort Claims Act waives sovereign immunity for negligence claims, that recovery under the State Tort Claims Act is limited to $1,000,000 arising from a single occurrence, and that “the State’s liability for its negligence has not yet been so enormous that the General Assembly has seen fit to revoke that waiver in the nearly 70 years the [State] Tort Claims Act has been in existence.” On the contrary, plaintiffs argue, the General Assembly’s recent decision to limit the availability of the public duty doctrine in proceedings brought pursuant to the State Tort Claims Act may reflect a legislative determination that “the risk of tort liability promotes better agency conduct and that the relatively rare
occurrence of actionable (and thus compensable) agency negligence is a ‘price’ well worth paying for improved agency accountability.”
¶ 54 After carefully evaluating the parties’ arguments, we hold that plaintiffs have failed to show that the department owed them a legally recognized duty sufficient to support a negligence claim under the State Tort Claims Act. According to well-established North Carolina law, “[t]o establish actionable negligence, [a] plaintiff must show that: (1) [the] defendant failed to exercise due care in the performance of some legal duty owed to [the] plaintiff under the circumstances; and (2) the negligent breach of such duty was the proximate cause of the injury.” Bolkhir, 321 N.C. at 706 (emphasis added) (citing Hairston v. Alexander Tank & Equip. Co., 310 N.C. 227, 232 (1984)); accord Wood, 355 N.C. at 166; Mattingly v. N.C. R.R. Co., 253 N.C. 746, 750 (1961). “A duty is defined as an ‘obligation, recognized by the law, requiring the person to conform to a certain standard of conduct, for the protection of others against unreasonable risks.’ ” Davis v. N.C. Dep’t of Hum. Res., 121 N.C. App. 105, 112 (1995) (emphasis added) (quoting W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 30, at 164–65 (5th ed. 1984)). The extent to which a particular defendant owes a duty to a particular plaintiff constitutes a question of law, subject to de novo review. Connette v. Charlotte-Mecklenburg Hosp. Auth., 382 N.C. 57, 2022-NCSC-95, ¶ 7.
¶ 55 In the affidavit that they filed with the Commission in this case, plaintiffs’ allegation that the department owed them a legally recognized duty of care consisted of nothing more than the following:
245. [The department] owed Cedarbrook a duty of reasonable care in the exercise of its authority to investigate the facility and take licensure actions against it.
. . . .
249. [The department] owed Mr. Leonard, as President and owner of Cedarbrook, a duty of reasonable care in the exercise of its authority to investigate the facility and take licensure actions against it.
The allegations that plaintiffs have advanced in support of their contention that the
department owned them a duty of care sufficient to support a negligence claim are
completely conclusory in nature. See Sutton v. Duke, 277 N.C. 94, 95 (1970) (noting
that, for purposes of evaluating the validity of a motion to dismiss, “the well-pleaded
material allegations of the complaint are taken as admitted,” but “conclusions of law
or unwarranted deductions of fact are not admitted”). Despite the fact that plaintiffs
have failed to allege any facts or to cite any legal authority in support of their
contention that the department owed them a legally recognized duty of care, the
Court of Appeals appears to have failed to consider the extent, if any, to which such
a duty of
department owed a legally recognized duty to plaintiffs was “intertwined with its interpretation of the public duty doctrine.”11 Cedarbrook, ¶ 25.
¶ 56 A careful review of the decisions upon which plaintiffs rely in support of their contention that the department owed them a duty of care sufficient to support their “negligent regulation” claim shows that each of those cases clearly indicate that the relevant duty of care runs to the person or persons whom the agency’s regulatory actions were intended to protect rather than to the entity being regulated. In Multiple Claimants, for example, the estates of several inmates who died in a fire at the Mitchell County jail filed suit against the department under the State Tort Claims Act on the basis of allegations that a departmental employee had negligently failed to inspect the fire safety equipment utilized in the jail. 361 N.C. at 373. The duty of care upon which this Court relied in allowing the plaintiff’s claim to proceed was not to the jail or the county that operated it, but rather to the prisoners whom such fire safety regulations were designed to protect.12 Id. at 379; see also Gammons, 344 N.C. at 63 (concluding that the department, by means of its relationship with the
Cleveland County Director of Social Services, owed a duty to the residents of Cleveland County to respond to reports of child abuse and could be held liable for negligence in the event that it failed to do so); Tang, ¶ 28 (holding that the department had breached its duty of care to the residents of a senior care facility with a history of violations when the department failed to address certain deficiencies in external door security and resident supervision); Haas, 98 N.C. App. at 682–83 (concluding that the Department of Human Resources and the Department of Natural Resources and Community Development could be held liable to residents living near a county-operated incinerator as the result of their allegedly negligent exercise of “permitting, supervision, inspection and monitoring authority” that resulted in the emission of harmful and noxious gasses from the incinerator); Zimmer, 87 N.C. App. at 135 (holding that the fact that decisions made by employees of the Department of Transportation regarding the selection, design, and maintenance of detour routes associated with a highway construction project were “discretionary governmental functions” did not preclude a finding that the department was liable under the State Tort Claims Act for injuries sustained by a truck driver who had been injured in an accident that allegedly resulted from a negligently designed detour route). Simply put, neither this Court nor the Court of Appeals has ever found that a state agency owed a duty of care sufficient to support a claim sounding in negligence to an entity that was subject to the agency’s discretionary regulatory authority (e.g.,
the jail operator in Multiple Claimants, the senior living center in Tang, or the waste disposal facility in Haas). This distinction is critical given that “the duty owed by each defendant to [a] plaintiff is determined by the relationship subsisting between them.” Kientz v. Carlton, 245 N.C. 236, 240 (1957).13
¶
4.5B,
¶ 58 Although plaintiff has argued that the Court of Appeals’ decision in Watts supports a determination that an agency can be held liable for the “negligent exercise of regulatory authority against the regulated party,” we do not find this argument to be persuasive. In Watts, the plaintiff filed an affidavit with the Commission in which it alleged that an agent of the North Carolina Department of Environment and Natural Resources had negligently inspected and issued an improvement permit for a parcel of land that was subsequently deemed to be unsuitable for the plaintiff’s house construction plans. 182 N.C. App. at 180. Although the Department of Environmental and Natural Resources sought dismissal of the plaintiff’s claim on the basis of the public duty doctrine, the Court of Appeals held that the plaintiff’s claim
was entitled to proceed under the “special duty exception” given that the employee who had performed the inspection had “made a promise to [the] plaintiff by issuing the improvement permit warranting that [the] plaintiff could construct a three-bedroom home on the property as described in the site plan,” that the plaintiff had “relied on the permit in negotiating the purchase of the property,” and that the Department of Environment and Natural Resources had subsequently revoked the permit, “causing [the] plaintiff to incur additional expenses in order to use the lot as he had planned.” Id. at 180–84. As a result, the Court of Appeals affirmed the Commission’s decision to award compensatory damages to the plaintiff. Id. at 189.
¶ 59 We are not persuaded that Watts has any bearing upon the proper resolution
of the issues that are before us in this case. Aside from the fact that the specific issue
that was before the Court of Appeals in Watts was the availability of the public duty
doctrine as an affirmative defense to the claims that plaintiff had asserted rather
than whether the Department of Environment and Natural Resources owed a legally
recognized duty to the plaintiff, the claim at issue in Watts bears no resemblance to
the “negligent regulation” claim that plaintiffs have asserted in this case, which rests
upon a
regulatory agency owes a duty of care sufficient to support a negligence claim in favor of the entities that are subject to its regulation.15
¶ 60 The other decisions upon which plaintiffs rely are equally irrelevant to the proper resolution of the issue that is before us in this case. See Crump, 216 N.C. App. at 42 (recognizing the validity of a claim that had been asserted against the Department of Environmental and Natural Resources by property owners who alleged that the agency had negligently issued a permit authorizing the construction of a septic system upon property that was not suitable for the installation of such a system); Russell, 227 N.C. App. at 309 (same); Strickland, 213 N.C. App. at 511 (recognizing the validity of a wrongful death claim that had been asserted against the University of North Carolina at Wilmington based upon an allegation that university police officers had “negligently provided false, misleading, and irrelevant information” to the New Hanover County Sheriff’s Office in connection with the service of an arrest warrant upon the decedent, whom the officers accidentally killed during the execution of the arrest warrant); Husketh, 2010 WL 157557, at *1 (upholding a claim asserted by inmate against the Department of Correction on the
grounds that its employees had been “negligent in failing to apply the appropriate sentencing statutes for his convictions”).16
As with Multiple Claimants and other cases previously discussed, these cases all involved plaintiffs whose interests the relevant regulatory regimes were designed to protect, rather regulated entities impacted by the kind of complex, discretionary administrative decisions that are at issue in this case.
¶ 61 Finally, we conclude that the public policy concerns raised by Judge Tyson and the department, while by no means dispositive, counsel against a holding that regulated entities are entitled to sue the agencies responsible for exercising discretionary regulatory authority over those entities under the State Tort Claims Act unless we are clearly required to do so. As Judge Tyson observed, upholding the Court of Appeals’ decision in this case would subject those agencies to the risk of liability for both overly aggressive and insufficiently aggressive exercise of their regulatory authority, see Cedarbrook, ¶ 66 (Tyson, J., dissenting).17
such conflicting duties of care is inherently problematic, see Koch v. Bell, Lewis & Assocs., 176 N.C. App. 736, 740 (2006) (declining to recognize the existence of a duty between an insurance adjuster and a claimant on the grounds that the recognition of such a duty would “subject the adjuster to conflicting loyalties” given that the adjustor “owes a duty to the insurer who engaged him,” so that the creation of “[a] new duty [to the claimant] would conflict with that duty, and interfere with its faithful performance” (quoting Sanchez v. Lindsey Morden Claims Servs., Inc., 72 Cal. App. 4th 249, 253 (1999))), and it is particularly troublesome in situations like this one, in which the principal concern motivating the creation of the relevant regulatory regime was the protection of the residents of adult care homes rather than the entities that own and operate them.
¶ 62 Admittedly, it is theoretically possible to find a middle ground between too much regulation and no regulation at all. However, this middle ground is one that the General Assembly, rather than the judicial branch, should be responsible for identifying. See Mann Media, Inc. v. Randolph Cnty. Plan. Bd., 356 N.C. 1, 16 (2002) (noting that, under the Administrative Procedure Act, a court reviewing an agency
their legislatively ordained functions in an effective manner. See State v. Jones, 359 N.C. 832, 837 (2005) (observing that, “[i]n construing statutes[,] courts normally adopt an interpretation which will avoid absurd or bizarre consequences, the presumption being that the legislature acted in accordance with reason and common sense and did not intend untoward results,” (quoting State ex rel. Comm’r of Ins. v. N.C. Auto Rate Admin. Office, 294 N.C. 60, 68 (1978)))).
decision “does not have authority to override decisions within agency discretion when that discretion is exercised in good faith and in accordance with law” (quoting Lewis v. N.C. Dep’t of Hum. Res., 92 N.C. App. 737, 740 (1989)). In this instance, at least, we believe that tort law principles are ill-suited to the identification of the proper scope of regulatory activity. See Myers, 360 N.C. at 468 (holding that, when the General Assembly “has vested [a state agency] with broad powers to protect the health and well-being of the general public,” the discretionary decisions that it is required to make in exercising that authority “are not generally the type of decisions for which the State is liable to private citizens in tort”); see also United States v. Varig Airlines, 467 U.S. 797, 820 (1984) (holding that “[j]udicial intervention in [discretionary] decisionmaking through private tort suits would require the courts to ‘second-guess’ the political, social, and economic judgments of an agency exercising its regulatory function”). In reaching this conclusion, we note that the exercise of regulatory authority by state agencies generally requires a level of expertise and the exercise of some amount of discretion that is difficult to evaluate using the “reasonable person” standard. See Martishius v. Carolco Studios, Inc., 355 N.C. 465, 473 (2002) (noting that, to prevail in a negligence action, a plaintiff must show that the defendant owed the plaintiff a legal duty and “fail[ed] to exercise the degree of care that a reasonable and prudent person would exercise under similar conditions”). Although the courts have had extensive experience applying the “reasonable person”
standard in establishing liability for injuries sustained in automobile accidents and other areas subject to traditional tort-based liability, in which the manner in which the “reasonable person” standard should be applied is well-established, see, e.g., Hobbs v. Queen City Coach Co., 225 N.C. 323, 331 (1945) (holding that, in the exercise of ordinary care, “it is incumbent upon the operator of a motor vehicle to keep [the] same under control, and to keep a reasonably careful lookout, so as to avoid collision with persons and vehicles upon the highway”), we are not aware of any precedent that could guide the Commission in determining how a “reasonable regulator” would have exercised its discretionary authority in dealing with investigations like those conducted at Cedarbrook.18
¶ 63 More importantly, however, the General Assembly has created a system for the
a source of independent administrative law judges to conduct administrative hearings in contested cases in accordance with
¶ 64 A decision on the part of this Court to allow an “aggrieved party” to challenge those exact same decisions by both seeking relief pursuant to the Administrative Procedures Act and by filing a tort claim with the Commission would subvert the legislative framework that the General Assembly has created for such disputes. As this Court held more than forty years ago:
[a]s a general rule, where the legislature has provided by statute an effective administrative remedy, that remedy is exclusive and its relief must be exhausted before recourse may be had to the courts. This is especially true where a statute establishes, as here, a procedure whereby matters of regulation and control are first addressed by commissions or agencies particularly qualified for the purpose. In such a case, the legislature has expressed an intention to give the administrative entity most concerned with a particular matter the first chance to discover and
rectify error. Only after the appropriate agency has developed its own record and factual background upon which its decision must rest should the courts be available to review the sufficiency of its process. An earlier intercession may be both wasteful and unwarranted. To permit the interruption and cessation of proceedings before a commission by untimely and premature intervention by the courts would completely destroy the efficiency, effectiveness, and purpose of the administrative agencies.
Presnell v. Pell, 298 N.C. 715, 721–22 (1979) (cleaned up). It seems incongruous to us to allow plaintiffs, who challenged the validity of the department’s regulatory decisions by seeking administrative relief from the Office of Administrative Hearings before reaching a settlement with the department that involved the withdrawal of the allegations that the department had made against plaintiffs, to have another bite at the proverbial apple by asserting a damage claim before the Commission under the State Tort Claims Act.19
¶ 65 After claiming that “[t]he remedies afforded under the Administrative Procedure[s] Act and the [State] Tort Claims Act are not mutually exclusive” and
noting that the Administrative Procedure Act does not permit an award of compensatory damages, plaintiffs argue that, unless they are also permitted to assert a damage claim against the department pursuant to the State Tort Claims Act, they will have been deprived of
¶ 66 According to the Administrative Procedure Act, if an administrative law judge finds that a regulatory action taken by a state agency has “substantially prejudiced the petitioner’s rights” and the state agency “has acted arbitrarily or capriciously,” the judge may order the agency to pay the petitioner’s attorney’s fees.
authority, that the monetary relief available in the event of a successful challenge to the lawfulness of a regulatory decision made by a state agency is limited to the recovery of attorney’s fees and that, in the event that the General Assembly had intended to make additional monetary relief available to a party that had successfully challenged the lawfulness of such a regulatory decision, it would have said so in more explicit terms. See Cabarrus Cnty. Bd. of Educ. v. Dep’t of State Treasurer, 374 N.C. 3, 14 (2020) (noting that the existence of proposed legislation addressing the subject of the case that was before the Court “shows that, in the event that the General Assembly wished to exempt the process of establishing a cap factor [for state employee retirement benefits] from the rulemaking provisions of the Administrative Procedure Act, it knows how to do so”). As a result of this set of circumstances and the General Assembly’s clear authority to determine the nature and extent of any non-constitutional remedies for unlawful actions by state agencies, we decline to infer the existence of a right to recover compensatory damages under the State Tort Claims Act arising from allegedly unlawful regulatory actions in the absence of explicit legislative authorization for such an award.20
¶ 67 Finally, our reluctance to endorse a claim for “negligent regulation” is reinforced by a concern that, if we were to recognize the existence of such a claim, the total dollar
damages under the State Tort Claims Act relating to injuries sustained as the result of the negligence of a State employee, with this Court opining that, “[i]f the Legislature intended to withdraw a prisoner’s right to pursue a tort claim, the logical procedure would be by amendment to the section of the [State] Tort Claims Act which gives that right.” Ivey, 252 N.C. at 617–19. The issue in Amos was whether the existence of a statutory remedy under the North Carolina Wage and Hour Act precluded the plaintiff from asserting a common law wrongful discharge claim against the employer, with this Court noting that, when “determining whether the state legislature intended to preclude common law actions, we first look to the words of the statute to see if the legislature expressly precluded common law remedies.” 331 N.C. at 358 (emphasis added). Nothing in Ivey or Amos suggests that the General Assembly’s failure to provide a statutory right to compensatory damages under the Administrative Procedure Act indicates that they intended such damages to be available under the State Tort Claims Act, particularly given that such a determination would result in a more expansive waiver of the State’s sovereign immunity than this Court has previously recognized. See Stone, 347 N.C. at 479 (noting that statutes “that permit suit in derogation of sovereign immunity should be strictly construed”).
rest on a respect for the positions of two coequal branches of government—the legislature and the judiciary,” and, therefore, “courts have deferred to the legislature the determination of those instances in which the sovereign waives its traditional immunity”).
¶ 68 In light of our determination that the department did not owe a legal duty to plaintiffs in light of the circumstances that are before us in this case, we need not address the parties’ arguments regarding breach and damages. See Stone, 347 N.C. at 482 (noting that, “[a]bsent a duty, there can be no liability”). Nothing in the applicable statutory provisions or prior caselaw recognizes the validity of a claim like the one that plaintiffs have asserted in this case, and we hold that no such claim exists. As a result, for all these reasons, we reverse the decision of the Court of Appeals and remand this case to the Court of Appeals for further remand to the Commission with instructions that plaintiffs’ claims against the department be dismissed.
D. Public Duty Doctrine
¶ 69 Finally, the department argues that plaintiffs’ claims are barred by the public duty doctrine “because [the department] owes a duty to the public, not adult care home owners or operators.” As a result of our determination that plaintiffs’ claims are barred by the doctrine of sovereign immunity and that plaintiffs have failed to identify a legal duty that the department owed to them sufficient to support a claim
for damages pursuant to the State Tort Claims Act, we need not address the extent, if any, to which the public duty doctrine serves as a barrier to the claims that plaintiffs have advanced in this case. On the other hand, we do believe that we need to clarify the relationship between the public duty doctrine and the duty element of a negligence claim to make it clear that the existence of a legal duty running from a state agency to a tort claimant does not turn on whether the public duty doctrine applies in a given case.
¶ 70 The public duty doctrine “provides that governmental entities and their agents owe duties only to the general public, not to individuals, absent a ‘special relationship’ or ‘special duty’ between the entity and the injured party.” Stone, 347 N.C. at 477–78. (citing Braswell v. Braswell, 330 N.C. 363, 370–71 (1991)). The public duty doctrine was designed “to prevent an overwhelming burden of liability on governmental agencies with limited resources,” id. at 481 (cleaned up), by making it clear that a “governmental entity is not liable for negligence for failure to carry out statutory duties,” Isenhour v. Hutto, 350 N.C. 601, 606–07 (1999). As a general proposition, the public duty doctrine has been deemed applicable in situations involving allegations arising from “the governmental entity’s negligent control of an external injurious force or of the effects of such force.” Strickland, 213 N.C. App. at 512. See e.g., Myers, 360 N.C. at 461–62 (allegations that the Department of Environment and Natural Resources had acted negligently in attempting to control
a forest fire that caused injury to the plaintiffs); Wood, 355 N.C. at 163 (allegations that Guilford County had negligently failed to provide adequate security at the county courthouse where the plaintiff had been assaulted by a third party); Stone, 347 N.C. at 476–77 (allegations that the
¶ 71 In Stone, we held that the common law public duty doctrine applied to claims brought against the State under the State Tort Claims Act. 347 N.C. at 482. In 2008, however, the General Assembly amended the State Tort Claims Act to formally codify the public duty doctrine in the tort claims act context and to limit its application to the following types of claims:
- (1) The alleged negligent failure to protect the claimant from the action of others or from an act of God by a law enforcement officer as defined in subsection (d) of this section.
- (2) The alleged negligent failure of an officer, employee, involuntary servant or agent of the State to perform a health or safety inspection required by statute.
¶ 72 The Court of Appeals in this case held that, because the department’s allegedly negligent conduct did not fit within the contours of one of the exceptions enumerated in
¶ 73 Unlike the duty of care, which is an element of any negligence claim that a plaintiff must establish regardless of whether the claim is against a state agency under the State Tort Claims Act or a private party under the common law, see Stone, 347 N.C. at 479, the public duty doctrine is an affirmative defense to an otherwise valid negligence claim against the State, see Ray, 366 N.C. at 8; see also Myers, 360
N.C. at 465 (describing the public duty doctrine as “a separate rule of common law negligence that may limit tort liability, even when the State has waived sovereign immunity”). For that reason, while the public duty doctrine protects governmental entities from liability based upon a failure to carry out a statutorily created duty that is designed to protect the public at large rather than a specific individual, Isenhour, 350 N.C. at 606–07, and “operates to prevent plaintiffs from establishing the first element of a negligence claim—duty to the individual plaintiff,” Ray, 366 N.C. at 5, the mere fact that the doctrine does not apply with respect to a particular set of facts does not, without more, determine whether the duty of care necessary to support the assertion of a negligence claim exists in the first place. Although the two legal doctrines are related, they are not identical, and the absence of one does not prove the existence of the other.
¶ 74 Assuming, without in any way deciding, that the Court of Appeals correctly determined that the 2008 amendments to the State Tort Claims Act precluded the department from successfully asserting the public duty doctrine in this case, that determination does not automatically establish that the department owed a duty of care to plaintiffs sufficient to support a negligence claim against the department under the State Tort Claims Act. Instead, plaintiffs were still required to identify a recognized legal duty owed to them by the department, see Pinnix v. Toomey, 242 N.C. 358, 362 (1955) (observing that “[a]ctionable negligence presupposes the existence of
a legal
III. Conclusion
¶ 75 Thus, for the reasons set forth above, we hold that the Commission erred in failing to dismiss plaintiffs’ claims given that plaintiffs’ claims are barred by sovereign immunity and that plaintiffs failed to assert a viable negligence claim against the department. As a result, we reverse the decision of the Court of Appeals and remand this case to the Court of Appeals for further remand to the Commission for additional proceedings not inconsistent with this opinion.
REVERSED.
Justice EARLS concurring in the result only.
¶ 76 Although I concur that “plaintiffs failed to assert a viable negligence claim against the department,” I arrive at that result in this case for a fundamentally different reason from my colleagues. In my view, the many allegations of the complaint in this matter all involve intentional, not negligent, acts. Thus, rather than engage in the judicial nullification of statutory rights by invoking an all-encompassing sovereign immunity for regulatory agencies, this case is most appropriately resolved by the normal function a court should perform in ruling on a motion to dismiss. The court should examine the allegations of the complaint to determine if they state a cause of action for negligence. Deminski v. State Bd. of Educ., 377 N.C. 406, 2021-NCSC-58, ¶ 12.
¶ 77 Plaintiffs have a cause of action under the State Tort Claims Act (STCA) to sue “departments, institutions and agencies of the State” when the claim “arose as a result of the negligence of any officer, employee, involuntary servant or agent of the State while acting within the scope of his office, employment, service, agency or authority.”
exercise due care in the performance of some legal duty owed to plaintiff under the circumstances; and (2) the negligent breach of such duty was the proximate cause of the injury.”).
¶ 78 The “overall goal” of the STCA was to “give greater access to the courts to plaintiffs . . . [that] were injured by the State’s negligence.” Ray v. N.C. Dep’t of Transp., 366 N.C. 1, 11 (2012). This Court previously has held that the STCA applies to cases involving state agencies. For example, we have held that the STCA applies to actions taken by an employee of the State Ports Authority, the North Carolina Department of Environment and Natural Resources, the Department of Labor, the Department of Transportation and the Department of Health and Human Services. See Guthrie v. N.C. State Ports Auth., 307 N.C. 522, 537 (1983) (determining the Industrial Commission had jurisdiction because the STCA applied to negligent actions taken by an employee of the State Ports Authority); Myers v. McGrady, 360 N.C. 460, 467 (2006) (“We hold that the public duty doctrine applies to negligence claims filed under the [STCA] against [the North Carolina Department of Environment and Natural Resources] for alleged mismanagement of forest fires.”); Stone v. N.C. Dep’t of Lab., 347 N.C. 473, 481–83 (1998) (determining the public duty doctrine applies to cases under the STCA and applying it to a case involving negligence by the Department of Labor for not inspecting a food plant); Teachy v. Coble Dairies, Inc., 306 N.C. 324, 331, 333 (1982) (determining that the trial court
did not err by denying motions to dismiss a complaint on grounds that Department of Transportation was immune under the doctrine of sovereign immunity
¶ 79 However, to bring a claim under the STCA, a party must prove the standard elements of negligence, which include duty, breach, causation, and damages. Bolkhir, 321 N.C. at 709 (“Under the [STCA], negligence is determined by the same rules as those applicable to private parties.”). “The [STCA] does not give [courts] jurisdiction to award damages based on intentional acts.” Frazier v. Murray, 135 N.C. App. 43, 48 (1999) (citing Jenkins v. Dep’t of Motor Vehicles, 244 N.C. 560 (1956)). Intentional acts are also legally distinguishable from negligent acts. Id.
¶ 80 Our Court has not decided a case involving intentional actions taken by regulatory agencies, but the Court of Appeals has done so twice. In Williams v. North Carolina Department of Justice, Criminal Standards Division, 273 N.C. App. 209, 212 (2020), the Court of Appeals held that the CEO of a company providing traffic control services that was subjected to regulatory action could not bring a claim against the agency. There, the court expressed that it was “well-settled” that the STCA does not permit recovery for intentional acts like the alleged regulatory action
at issue in that case. Id. (quoting Fennell v. N.C. Dep’t of Crime Control & Pub. Safety, 145 N.C. App. 584, 592 (2001)). Similarly, in Frazier, 135 N.C. App. 43, the Disciplinary Hearing Commission of the North Carolina State Bar pursued criminal contempt charges against a disbarred attorney who continued to practice law in violation of multiple orders. Id. at 45. The attorney was imprisoned and filed a tort claim against the Commission and its members for false imprisonment and intentional infliction of emotional distress. Id. at 46. There, the Court of Appeals concluded that “[i]njuries intentionally inflicted by employees of a state agency are not compensable under the [STCA].” Id. at 48. Both Williams and Frazier are instructive in determining the case at bar.
¶ 81 DHHS’s regulatory acts are analogous to those in Williams and Frazier because they involved intentional regulatory acts. These actions are not accidents, inadvertent, unintended, or the result of a failure to use reasonable care. See Yancey v. Lea, 354 N.C. 48, 53 (2001) (“Negligence, a failure to use due care, be it slight or extreme, connotes inadvertence.” (quoting Hinson v. Dawson, 244 N.C. 23, 28 (1956))). Rather, they were actions taken intentionally by a state agency to enforce laws passed by the General Assembly under
penalties should apply it acted pursuant to
¶ 82 It is unnecessary to reach the many other issues raised by the parties. Indeed, it is beyond the scope of this case to opine on the question of whether state employees engaged in regulatory actions are subject to the STCA for their negligence because in this case, the acts that allegedly caused plaintiffs’ injuries were intentional acts. It is also unnecessary to interpret the “private person” language of the STCA or overrule any portion of the Nanny’s Korner decision. See Nanny’s Korner Day Care Ctr., Inc. v. N.C. Dep’t of Health & Hum. Servs., 264 N.C. App. 71 (2019). Therefore, I do not join in any portion of the majority opinion in this matter and join in the result only,
Chief Justice NEWBY dissenting.
¶ 83 What is the remedy when a state actor negligently regulates a business causing significant operational and financial disruption or the business’s closure? Potential remedies include three approaches: (1) a constitutional tort under article I, section 1 of the North Carolina Constitution (fruits of their own labor)1; (2) an action for negligence under the State Tort Claims Act (STCA); or (3) an administrative review under the Administrative Procedure Act (APA). The majority’s decision removes the STCA as a potential option. Specifically, here we consider whether a state-regulated entity may bring a negligence claim against its state regulator under the STCA or whether the entity is limited to an administrative remedy under the APA and/or a constitutional tort claim. Because the STCA provides a limited waiver of the state’s sovereign immunity, this Court has previously allowed regulated claimants to bring certain negligence claims challenging the state’s regulatory activities under the STCA. Further, since state regulators are granted broad
regulatory authority, it is appropriate to require regulators to conduct investigations and use their authority in a non-negligent manner. As such, state regulators owe a duty of care to both the regulated entities subject to their authority and to the individuals whom the regulations are designed to protect. Additionally, the availability of an administrative remedy under the APA does not preclude a claimant from seeking a more adequate remedy under the STCA. Accordingly, the decision of the Court of Appeals should be affirmed. I respectfully dissent.
¶ 84 Plaintiff Cedarbrook Residential Center, Inc. (Cedarbrook) is a licensed adult care home in Nebo, North Carolina, that serves residents with disabilities and mental illnesses. Cedarbrook is owned by plaintiff Fred Leonard.2 Defendant North Carolina Department of Health and Human Services, Division of Health Service Regulation, Adult Care Licensure Section (DHHS) is the state agency charged with licensing, inspecting, and enforcing the provisions that govern adult care homes such as Cedarbrook. Specifically relevant to this case, Cedarbrook serves a “challenging disabled population” and works to provide a “safe and stable environment” that is supportive of its residents’ mental health challenges.
¶ 85 In November of 2015, DHHS conducted an extensive investigation of Cedarbrook and interviewed its residents and employees to ensure the facility was
operating in compliance with the governing regulations.3 At the time of the investigation, Cedarbrook was a Four Star facility, the highest rating available under DHHS’s rating system. Utilizing investigatory techniques inappropriate for the residents in plaintiffs’ type of facility, DHHS, however, found numerous alleged violations and recorded its findings in “Statements of Deficiencies” (statements) that exceeded 400 pages. The statements largely
¶ 86 In May of 2016, DHHS granted Cedarbrook a provisional operating license, but DHHS later found that Cedarbrook failed to present acceptable plans to cure the deficiencies. Accordingly, DHHS issued a Directed Plan of Protection requiring Cedarbrook to implement increased staffing and administrative measures. As a result of DHHS’s suspension order, provisional license, and regulatory actions, Cedarbrook’s occupancy dropped more than 50%, the facility incurred additional costs
to comply with the mandates of the Directed Plan of Protection, Cedarbrook’s revenues declined, and Mr. Leonard lost a potential sale of the facility.
¶ 87 Cedarbrook initially challenged DHHS’s regulatory actions by filing a contested case in the Office of Administrative Hearings (OAH). OAH entered a stay enjoining DHHS’s suspension order. DHHS, however, continued to issue proposed penalties against Cedarbrook exceeding $340,000. Prior to the hearing, the parties settled, and DHHS agreed to withdraw all of the agency actions it had taken against Cedarbrook.
¶ 88 On 25 October 2018, plaintiffs filed an Affidavit and Verified Claim for Damages against DHHS in the Industrial Commission asserting negligence claims based on DHHS’s investigative and regulatory actions.4 The Verified Claim for Damages alleges that:
[DHHS] breached the duty owed to [Cedarbrook and Mr. Leonard] in (1) conducting the surveys of Cedarbrook; (2) writing and publishing the Statements of Deficiencies; (3) issuing the Directed Plan of Protection against Cedarbrook, and leaving it in place for nearly five months; and (4) issuing the Erroneous Suspension, and leaving it in place for nearly eight months.
Plaintiffs’ Verified Claim for Damages specifically details that the manner in which
DHHS conducted the investigations, the methods DHHS used in performing the interviews, and the process the surveyors employed in drafting the statements were unreliable, aggressive, and harmful to the residents. Plaintiffs allege that the DHHS surveyors “double-teamed” residents, asked suggestive questions, and intruded on the residents’ privacy. Additionally, plaintiffs allege that the summary nature of drafting the statements was unreliable and resulted in mischaracterizations, conclusory statements, and unsupported allegations. As a result of DHHS’s alleged negligent regulatory activity, plaintiffs claim damages in excess of $1,000,000 for lost business income and the loss of a potential sale of the facility.
¶ 89 On 8 January 2019, DHHS filed a response and motion to dismiss pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the North Carolina Rules of Civil Procedure and a motion to stay discovery. The Deputy Commissioner denied DHHS’s motion to dismiss on 13 March 2019. DHHS appealed to the Full Commission, which approved DHHS’s request for an interlocutory appeal on 9 May 2019. The Full Commission held a hearing on 10 September 2019 and entered an order affirming the denial of DHHS’s motion to dismiss on 6 November 2020. The Full Commission concluded that the STCA “waived sovereign immunity, and [Cedarbrook] complied with the requirements of [invoking] the [STCA] in filing [its] Affidavit.” The Full Commission further concluded that the public duty doctrine did not bar plaintiffs’ claims and that plaintiffs pled a valid claim for negligence. DHHS appealed to the Court of Appeals.
¶ 90 On appeal, DHHS argued, in relevant part, that the Industrial Commission erred by denying DHHS’s motion to dismiss because the APA, rather than the STCA, provides
¶ 91 The dissenting judge disagreed that Cedarbrook could seek a remedy under the STCA. According to the dissenting judge, the “regulatory review function is clearly assigned under the [APA] to the [OAH]”; therefore, “[c]laims challenging an agency’s regulatory actions are properly heard under the [APA].” Id. ¶¶ 39, 41 (Tyson, J., dissenting). As such, because of the administrative avenue provided through the APA, the “Industrial Commission cannot waive North Carolina’s sovereign immunity under the STCA.” Id. ¶ 40. The dissenting judge thus would have held that the
relevant portion of Nanny’s Korner discussing the availability of a remedy under the STCA is dicta. Id. ¶¶ 68–69. DHHS appealed to this Court based on the dissenting opinion.
¶ 92 The controlling question here is whether the STCA provides for a limited waiver of the state’s sovereign immunity that allows a regulated entity to challenge a state regulator’s negligent actions or whether the entity is limited to an administrative remedy and/or a constitutional claim. This Court reviews the denial of a motion to dismiss on the basis of sovereign immunity de novo. White v. Trew, 366 N.C. 360, 363, 736 S.E.2d 166, 168 (2013). Additionally, when reviewing a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted, this Court treats the “factual allegations contained in [the] affidavit before the Industrial Commission as true.” Hunt v. N.C. Dep’t of Lab., 348 N.C. 192, 194, 499 S.E.2d 747, 748 (1998) (citation omitted).
¶ 93 The doctrine of sovereign immunity “is firmly established in the law of North Carolina.” Lewis v. White, 287 N.C. 625, 642, 216 S.E.2d 134, 145 (1975). This Court has long held that “an action cannot be maintained against [a state agency] unless it consents to be sued or upon its waiver of immunity, and that this immunity is absolute and unqualified.” Guthrie v. N.C. State Ports Auth., 307 N.C. 522, 534, 299 S.E.2d 618, 625 (1983).
¶ 94 The STCA expressly provides a limited waiver of the state’s sovereign
immunity. It permits claims that arise:
as a result of the negligence of any officer, employee, involuntary servant or agent of the State while acting within the scope of his office, employment, service, agency or authority, under circumstances where the State of North Carolina, if a private person, would be liable to the claimant in accordance with the laws of North Carolina.
(1) The name of the claimant;
(2) The name of the department, institution or agency of the State against which the claim is asserted, and the name of the State employee upon whose alleged negligence the claim is based;
(3) The amount of damages sought to be recovered;
(5) A brief statement of the facts and circumstances surrounding the injury and giving rise to the claim.
As such, “negligence is determined by the same rules as those applicable to private parties.” Bolkhir v. N.C. State Univ., 321 N.C. 706, 709, 365 S.E.2d 898, 900 (1988).
¶ 95 The majority contends the STCA is inapplicable because private persons do not exercise regulatory power; therefore, the plain language of the STCA forecloses plaintiffs’ claims. The majority holds that plaintiffs’ negligence claim is not cognizable under the STCA and that a state regulator does not owe a duty of care to a regulated entity. Finally, the majority contends that the STCA is not the proper statutory avenue to challenge the state’s regulatory actions because the statutes governing adult care homes allow entities to seek reversal of the state’s regulatory actions under the APA through the OAH. According to the majority, because the APA provides for a remedy through the OAH, plaintiffs are precluded from seeking a remedy for DHHS’s negligent regulatory actions under the STCA.
¶ 96 In holding that a negligence claim by a regulated entity against its state regulator is not cognizable under the STCA, the majority misreads Nanny’s Korner and disregards its clear holding. In Nanny’s Korner, DHHS was notified of a substantiated sexual abuse allegation at a daycare. Nanny’s Korner, 264 N.C. App. at 72, 825 S.E.2d at 36. DHHS issued the daycare a written warning, and the daycare informed its customers of the allegation. Id. at 73–75, 825 S.E.2d at 37–38. As a result, the daycare lost business and was forced to close. Id. at 74–75, 825 S.E.2d at 38. After initially proceeding through the OAH, the daycare brought a negligence
claim against DHHS under the STCA for failing to conduct an independent investigation of the allegation. Id. at 73–75, 825 S.E.2d at 37–38. The Industrial Commission, however, dismissed the daycare’s negligence claim because the statute of limitations had run. Id. at 75, 825 S.E.2d at 38. Notably, in addressing the daycare’s constitutional claim against DHHS, the Court of Appeals concluded that the constitutional claim failed because the daycare “had an adequate state remedy in the form of the Industrial Commission through the Torts Claim Act.” Id. at 80, 825 S.E.2d at 41. Thus, the daycare could have pursued its negligent regulation claim against DHHS under the STCA had the claim been timely filed. See also Craig v. New Hanover Cnty. Bd. of Educ., 363 N.C. 334, 340, 678 S.E.2d 351, 355 (2009) (allowing the plaintiff to bring a constitutional claim when the plaintiff’s negligence claim did “not provide an adequate remedy at state law [because] governmental immunity [stood] as an absolute bar”); Helm v. Appalachian State Univ., 363 N.C. 366, 677 S.E.2d 454 (2009) (per curiam).
¶ 97 The majority here contends that the court in Nanny’s Korner “did not fully examine the extent, if any, to which the [STCA] permits the type of claim that the daycare center pursued.” However, in order to dispose of the daycare’s constitutional claim, the court had to first consider the alternative remedies and address the availability of the daycare’s negligence claim against DHHS under the STCA. The court explained that the STCA “explicitly grants authority to the North Carolina
Industrial Commission to hear tort claims against State agencies.” Nanny’s Korner, 264 N.C. App. at 80, 825 S.E.2d at 41. Pivotal to the court’s dismissal of the constitutional claim was its holding of a viable statutory remedy under the STCA had the negligence claim been timely filed. See Craig, 363 N.C. at 339–40, 678 S.E.2d at 355; Helm, 363 N.C. 366, 677 S.E.2d 454. The majority here discounts this important step and accordingly disregards that the court clearly expressed that the STCA is an available avenue for a regulated entity’s negligence claim.
¶ 98 This Court has similarly recognized that negligence claims against state regulators challenging the state’s regulatory activity are within the scope of the STCA. In Multiple Claimants v. North Carolina Department of Health and Human Services, for instance, the plaintiffs filed claims under the STCA alleging that DHHS was negligent in performing their duties of inspecting the jails. 361 N.C. 372, 373, 646 S.E.2d 356, 357 (2007). This Court held that DHHS had a duty of care to inspect the jails and ensure the facilities were complying with the regulatory requirements. Id. at 378, 646 S.E.2d at 361. As such, this Court allowed the plaintiffs to bring negligence claims challenging DHHS’s regulatory actions under the STCA. Id. at 379, 646 S.E.2d at 361; see also Ray, 366 N.C. at 2–3, 727 S.E.2d at 677–78 (concluding that the plaintiffs’ claims for negligent design and execution of narrowing a roadway and negligent failure to repair the road by the Department of Transportation are within the scope of the STCA); Gammons v. N.C. Dep’t of Hum. Res., 344 N.C. 51, 54,
472 S.E.2d 722, 724 (1996) (holding that the Industrial Commission had jurisdiction to hear a claim for the negligent investigation of child abuse by a state agency).5
¶ 99 Accordingly, these cases illustrate instances in which regulatory activities have been held to be included under the STCA. The “the State . . . , if a private person” language includes state regulators.
Here DHHS’s conduct and the manner in which it performed the inspections expose it to liability, rather than its status as a government actor.
¶ 100 Next, the majority holds that state regulators do not owe a duty of care to regulated entities. The majority emphasizes the “critical” distinction between the duty of care that state regulators owe to individuals, who benefit from the regulations, and entities, which are regulated. The law of negligence, however, makes no such distinction. State regulators owe a duty of care to those subject to the state’s regulatory authority and to those whom the state’s actions are designed to protect. Thus, state regulаtors owe a duty of care to regulated entities and to individuals. It is not exclusively one or the other. The Court of Appeals’ decision in Crump v. North Carolina Department of Environment and Natural Resources, 216 N.C. App. 39, 715 S.E.2d 875 (2011), is illustrative.
¶ 101 In Crump, the state negligently issued a septic tank permit, and the landowners recovered damages under the STCA. Crump, 216 N.C. App. at 39–40, 715 S.E.2d at 876–77.6 The state’s duty of care in properly inspecting and issuing the permit extended to the landowners, those directly subject to the state’s regulatory authority, as well as to the surrounding property owners, those who would be
impacted by an improper septic system. Similarly, here, the state’s duty arising from the inspection and regulation of Cedarbrook extends to the facility, the
¶ 102 The majority also contends that recognizing that state regulators owe a duty to regulated entities would create conflicting duties of care, which are “inherently problematic.”7 In support, the majority relies on Koch v. Bell, Lewis & Associates, 176 N.C. App. 736, 740, 627 S.E.2d 636, 638–39 (2006), which declined to recognize the existence of a duty because of the “conflicting loyalties” an insurance adjuster owes to both the claimant and the insurer. Here, however, the state owes the same duty of care to both Cedarbrook and the residents at the facility. DHHS can ensure Cedarbrook is complying with the governing regulations by conducting a fair investigation while also satisfying their duties to the residents. Thus, unlike in Koch, there are no conflicting duties or loyalties that prevent DHHS from extending a duty of care to both the facility and the individuals. The state’s duty to ensure that
regulated entities are complying with the governing regulations does not conflict with the state’s duty to perform the investigations in a non-negligent manner or treat the residents properly.
¶ 103 The majority concedes that “it is theoretically possible to find a middle ground between too much regulation and no regulation at all.” In other words, there can be state action that complies with the state’s duty to all parties involved. A non-negligent action ensures compliance with the duty to enforce regulations which protect those designed to be protected and is fair to the regulated entity. The majority contends that the General Assembly, rather than the judicial branch, should be responsible for identifying the “middle ground.” Maintaining a “middle ground” by requiring state regulators to conduct investigations and exercise their regulatory authority in a non-negligent manner, however, creates a level playing field. It ensures that state regulators treat all entities equally in the performance of their regulatory activity, while properly protecting those whom the statutes were designed to protect.
¶ 104 Because the General Assembly has granted the state significant regulatory authority over entities, state regulators, who can diminish or destroy a regulated business, should be required to conduct investigations and exercise their authority in a non-negligent manner. Proving negligence in the regulation of a business may be difficult given the discretiоn granted to the state agency. Nonetheless, in the extraordinary circumstance where the regulator is not justified in proceeding in the
manner adopted, the injury caused by the regulator’s negligence should be compensable. Thus, when a state agency is granted significant regulatory authority, the regulator should be held to exercise that power, over both the regulated entity and the individuals that the state’s actions are intended to protect, in a non-negligent manner.
¶ 105 Here DHHS owes a duty of care to Cedarbrook, as well as the individuals living at the adult care home. Viewing the factual allegations in the affidavit as true and in the light most favorable to plaintiffs, Cedarbrook incurred substantial costs, experienced a significant decrease in revenue, and was required to revise many of its operating procedures as a result of DHHS’s alleged negligent regulatory actions.8 Accordingly, as provided in Nanny’s Korner and as illustrated by our case law, the STCA’s limited waiver of the state’s sovereign immunity provides entities, such as Cedarbrook, with a statutory avenue under the STCA to bring a negligence claim against DHHS and seek
¶ 106 Further, the availability of an administrative remedy through the OAH does
not preclude claimants from seeking an adequate remedy under the STCA through the Industrial Commission. The statutory provisions governing adult care homes allow the facilities to challenge penalties and suspensions through an administrative hearing. See
¶ 107 Our state constitution, unlike the federal constitution, expressly provides that individuals are entitled to the fruits of their own labor as an inalienable right.
STCA, which was enacted to provide “greater access to the courts to plaintiffs . . . [who have been] injured by the [s]tate’s negligence.” Ray, 366 N.C. at 11, 727 S.E.2d at 683. As such, the majоrity’s decision also broadens the state’s regulatory authority. Now, state regulators, who possess significant regulatory power over businesses, may conduct investigations of regulated entities with limited accountability. The STCA provided such accountability.
¶ 108 In summary, the majority’s decision removes the STCA as a potential avenue for regulated entities contesting the state’s negligent actions and forces entities to pursue an administrative remedy and/or a constitutional challenge. Because of the broad regulatory authority granted to state agencies, regulators should be required to exercise that authority, over both the regulated entity and the individuals protected by the regulations, in a non-negligent manner. The Court of Appeals thus properly affirmed the Full Commission’s order denying DHHS’s motion to dismiss. Accordingly, I respectfully dissent.
Justice BERGER joins in this dissenting opinion.