by Mitch Kokai
Senior Political Analyst, John Locke Foundation
A 2-1 ruling from the N.C. Court of Appeals this morning revives a lawsuit challenging the N.C. attorney general’s control of money flowing from a major hog producer.
The court’s majority raised questions about whether the millions of dollars flowing into the hog fund should be considered penalties assessed against Smithfield Foods and its subsidiaries. If so, state law would require that money to head to N.C. schools, not to a fund controlled by the state attorney general.
“The question of why the Companies committed to undertake actions to remediate deficient conditions on their farms and operations, install equipment, and additionally pay up to $50 million raises the issue of whether the $50 million in additional payments was intended to penalize the Companies for non-compliance with environmental standards or to induce forbearance on the part of the Attorney General, or DEQ, in bringing future enforcement actions,” Judge John Tyson wrote for the majority. “This is especially pertinent in light of the Companies relinquishing any control over to whom and in what amounts the Attorney General distributes the environmental grants.”
“Another genuine issue of material fact concerning whether these payments were intended to be penalties is raised by two official and public communications issued by the Attorney General’s office in 2002 and 2013, respectively,” Tyson continued. “Both of these communications expressly refer to the Agreement as a ‘settlement.’ Whether the Agreement is, in fact, a ‘settlement’ is not ultimately determinative of whether the payments are penalties. However, the Attorney General’s reference to the Agreement as a ‘settlement’ in these press releases raises a genuine issue of material fact of whether the parties intended for the Agreement, and the payments thereunder, to be in lieu of any potential claims or enforcement actions the Attorney General or DEQ could have brought against the Companies.”
Former Civitas Institute President Francis De Luca filed the original 2016 suit against the fund, which started in 2000 under then-attorney general and future Gov. Mike Easley. The latest court ruling blocks De Luca from pursuing the case as an individual taxpayer. But the New Hanover County Board of Education, added to the case in 2017, can proceed to take the case to trial under the Appeals Court’s opinion.
Since judges issued a split ruling, the case automatically heads to the N.C. Supreme Court.