In a 6-1 ruling, the N.C. Supreme Court has upheld the state attorney general’s hog farm “slush fund.” The ruling reverses a decision from the State Appeals Court.

The New Hanover County school board had argued that proceeds from the $50 million fund should have gone to schools rather than to environmental grants controlled by Attorney General Josh Stein. The fund had originated from a 2000 agreement between then-Attorney General Mike Easley and Smithfield Foods, at a time when Smithfield was facing legal problems linked to hog farm operations. Easley’s successor, current Gov. Roy Cooper, used proceeds from the agreement in 2003 to set up an environmental grant fund he controlled. Stein has overseen the program since succeeding Cooper as attorney general in 2017.

Former Civitas Institute leader Francis De Luca first challenged that arrangement in court in 2016. De Luca eventually was dropped as a plaintiff in the case, but the New Hanover school board continued the legal fight.

Writing for the court’s majority, Justice Sam Ervin IV indicated that the challengers had failed to prove that payments linked to the original agreement amounted to penalties. Only penalties are required by state law to go to schools.

The undisputed evidence forecast by the Attorney General tends to show that no existing settlement actions were disposed of as a result of the decision of Smithfield and its subsidiaries to enter into the agreement and that no State agency or official, including the Department of Environmental Quality or the Attorney General, has refrained from seeking the imposition of a penalty for any environmental violation that occurred after the date upon which the agreement was entered into. In light of the language in which the agreement is couched, there is no evidence in the present record tending to show that Smithfield and its subsidiaries made the payments contemplated under the agreement in lieu of paying a penalty for specific violations of an environmental standard.

Justice Paul Newby dissented.

According to the Attorney General, the multi-million-dollar agreement reached with Smithfield is not a settlement, even though it references regulatory deficiencies for which the State presumably could have held Smithfield responsible. We are asked to believe instead that Smithfield regarded its potential payments totaling $50 million over twenty-five years as nothing more than a gift that the Attorney General would use in his sole discretion to fund grants to environmental groups. The undisputed facts of this case, especially when viewed in light of controlling legal precedent, reveal that the $50 million is not a gift. The agreement is a settlement, drafted to circumvent the North Carolina Constitution’s requirement that the money proceeds of fines and penalties go to the public schools. Furthermore, if the agreement is not a settlement, it violates our state constitution’s separation-of-powers principle by invading the General Assembly’s policymaking and budgetary prerogatives in a way that invites other constitutional officers to create and manage programs funded by “gifts” received from the very companies they police.