RPR & ASSOCIATES, INC. v. State, No. COA98-1581.

• Decision Date: 15 August 2000
• Docket Number: No. COA98-1581.
• Citation: 139 NC App. 525,534 S.E.2d 247
• Parties: RPR & ASSOCIATES, INC., a South Carolina Corporation, Plaintiff, v. The STATE of North Carolina, The University of North Carolina-Chapel Hill and The North Carolina Department of Administration, Defendants.
• Court: North Carolina Court of Appeals

534 S.E.2d 247

139 NC App. 525

RPR & ASSOCIATES, INC., a South Carolina Corporation, Plaintiff, v. The STATE of North Carolina, The University of North Carolina-Chapel Hill and The North Carolina Department of Administration, Defendants.

No. COA98-1581.

Court of Appeals of North Carolina.

August 15, 2000.

Wilson & Waller, P.A., by Brian E. Upchurch and Betty S. Waller, Raleigh, for plaintiff-appellee.

Attorney General Michael F. Easley, by Associate Attorney General Thomas J. Pitman, for defendant-appellant University of North Carolina-Chapel Hill.

Attorney General Michael F. Easley, by Assistant Attorney General D. David Steinbock, for defendant-appellant North Carolina Department of Administration.

LEWIS, Judge.

RPR & Associates, Inc. ("RPR") entered into a written construction contract with the State of North Carolina ("State"), through the University of North Carolina at Chapel Hill ("UNC-CH"), to construct the George Watts Hill Alumni Center ("Alumni Center") on the UNC-CH campus. Following the completion of the Alumni Center, on 22 November 1994, plaintiff filed a verified claim against UNC-CH with the Office of State Construction ("OSC") pursuant to N.C. Gen. Stat. § 143-135.3(c), seeking to recover costs incurred and an extension of time for completion associated with the delayed construction of the Alumni Center. The Director of the OSC held an informal hearing on 21 March 1995 on plaintiff's claim. By letter dated 14 July 1997, the Director issued his decision awarding plaintiff an additional payment of $104,468 and an eighty-day extension for completion.

On 12 September 1997, pursuant to N.C. Gen.Stat. § 143-135.3(c) and (c1), plaintiff filed a petition with the Office of Administrative Hearings ("OAH") for a contested case hearing against defendants UNC-CH and the Department of Administration ("DOA"), seeking review of the decision of the OSC. But before any hearing or other action had occurred before the OAH, plaintiff decided to proceed in superior court, pursuant to N.C. Gen.Stat. § 143-135.3(d), instead. Thus, on 15 January 1998 plaintiff filed a complaint in Wake County Superior Court, alleging breach of contract and breach of warranty. The following day, plaintiff filed a motion with the OAH seeking "an Order of the Administrative Law Judge allowing it to voluntarily dismiss its pending contested case herein without prejudice to its right to proceed in a civil action pursuant to N.C. Gen. Stat. § 143-135.3 in Wake County Superior Court." The administrative law judge ("ALJ") then dismissed plaintiff's petition for a contested case hearing "without prejudice to [plaintiff's] right to proceed in accordance with N.C. Gen.Stat. § 143-135.3 in Wake County Superior Court."

All three defendants thereafter filed motions to dismiss plaintiff's complaint in superior court pursuant to North Carolina Rules of Civil Procedure 12(b)(1), (2), (4), (5) and (6). After a hearing on the motions, the trial court entered an order granting the State's motion to dismiss pursuant to Rule 12(b)(5) for insufficient service of process because a summons was never served upon the Attorney General or a deputy or assistant attorney general as required by Rule 4(j)(3). The trial court, however, denied UNC-CH's and the DOA's motions to dismiss. From this order denying their motions to dismiss, UNC-CH and the DOA now appeal.

At the outset, we must determine whether this appeal is properly before us. Generally, the denial of a motion to dismiss is not immediately appealable because it is an interlocutory order. Fraser v. Di Santi, 75 N.C.App. 654, 655, 331 S.E.2d 217, 218,disc. review denied, 315 N.C. 183, 337 S.E.2d 856 (1985). However, when that denial affects some substantial right of the appellant, this Court will entertain an immediate appeal. N.C. Gen.Stat. § 7A-27(d) (1999).

Here, defendants' motions to dismiss were based, in part, on the doctrine of sovereign immunity. Although our Supreme Court has never specifically addressed the issue, this Court has held that the denial of a motion to dismiss based upon the defense of sovereign immunity affects a substantial right and is thus immediately appealable. Anderson v. Town of Andrews, 127 N.C.App. 599, 601, 492 S.E.2d 385, 386 (1997); Faulkenbury v. Teachers' & State Employees' Retirement System, 108 N.C.App. 357, 365, 424 S.E.2d 420, 423, aff'd. per curiam, 335 N.C. 158, 436 S.E.2d 821 (1993)

. The rationale for such an exception derives from the nature of the immunity defense. Slade v. Vernon, 110 N.C.App. 422, 425, 429 S.E.2d 744, 746 (1993). "A valid claim of immunity is more than a defense in a lawsuit; it is in essence immunity from suit." Id. In other words, immunity would be effectively lost if the case were erroneously allowed to proceed to trial. Id. Because the trial court's denial of the motions to dismiss affected a substantial right of defendants, we hold that their appeal is properly before this Court. We therefore turn to the merits of their appeal.

It is well settled in North Carolina that the State is immune from suit unless it has expressly consented to be sued. Smith v. State, 289 N.C. 303, 309, 222 S.E.2d 412, 417 (1976). This immunity extends not only to suits where the State is a named defendant but also to suits against departments, institutions, and agencies of the State. Jones v. Pitt County Mem. Hospital, 104 N.C.App. 613, 616, 410 S.E.2d 513, 514 (1991).

Our legislature has adopted a limited waiver of the sovereign immunity doctrine for actions involving contract claims against the State and its agencies. N.C. Gen.Stat. § 143-135.3 (1999). However, just because a statute provides for suit against the State or one of its agencies, a plaintiff may not proceed with his suit in any manner it pleases. The State's sovereign immunity is only waived to the extent that the procedures prescribed by the statute are strictly followed. Guthrie v. State Ports Authority, 307 N.C. 522, 539, 299 S.E.2d 618, 628 (1983). Our Supreme Court has explained, "`The right to sue the State is a conditional right, and the terms prescribed by the Legislature are conditions precedent to the institution of the action.'" Id. (quoting Insurance Co. v. Gold, Commissioner of Insurance, 254 N.C. 168, 173, 118 S.E.2d 792, 795 (1961)). Furthermore, because any such statute is in derogation of the sovereign right to immunity, its terms must be strictly construed. Id. at 537-38, 299 S.E.2d at 627. But see Shipyard, Inc. v. Highway Comm., 6 N.C.App. 649, 652-53, 171 S.E.2d 222, 224-25 (1969)

(discussing the origins of the strict construction rule and questioning whether it is in fact the rule in North Carolina).

Defendants argue that plaintiff has failed to comply with all the statutory requirements of N.C. Gen.Stat. § 143-135.3 and that their sovereign immunity has thus not been waived. The pertinent portion of N.C. Gen. Stat. § 143-135.3 provides:

(c) A contractor who has completed a contract with a board for construction or repair work and who has not received the amount he claims is due under the contract may submit a verified written claim to the Director of the [OSC] of the Department of Administration for the amount the contractor claims is due....

... The Director may allow, deny, or compromise the claim, in whole or in part. The Director shall give the contractor a written statement of the Director's decision on the contractor's claim.

....

(c1) A contractor who is dissatisfied with the Director's decision on a claim submitted under subsection (c) of this section may commence a contested case on the claim under Chapter 150B of the General Statutes. The contested case shall be commenced within 60 days of receiving the Director's written statement of the decision.

(d) As to any portion of a claim that is denied by the Director, the contractor may, in lieu of the procedures set forth in the preceding subsection of this section, within six months of receipt of the Director's final decision, institute a civil action for the sum he claims to be entitled to under the contract by filing a verified complaint and the issuance of a summons in the Superior Court of Wake County or in the superior court of any county where the work under the contract was performed. The procedure shall be the same as in all civil actions except that all issues shall be tried by the judge, without a jury.

(Emphasis added).

The preceding provisions thus outline a two-tiered process for recovering on contract claims against state agencies. The contractor must first submit its claim to the director of the OSC and await the director's decision. N.C. Gen.Stat. § 143-135.3(c). Plaintiff did so here. If a contractor is displeased with the director's decision, it may then appeal that decision in one of two ways: (1) by instituting a contested case hearing before an ALJ; or (2) "in lieu of" that option, by filing a complaint in superior court. N.C. Gen.Stat. § 143-135.3(c1), (d). As pointed out earlier, this process must be strictly followed before sovereign immunity will be waived. Guthrie, 307 N.C. at 539, 299 S.E.2d at 628. Here, plaintiff initially chose the contested case route, but then opted to proceed in superior court instead. Defendants contend that because plaintiff had already initiated a contested case hearing when it filed a complaint in superior court, it did not proceed in superior court "in lieu of" a contested case hearing. Thus, according to defendants, plaintiff did not strictly follow the statutory procedures in order to have sovereign immunity waived. We do not believe strict adherence to the provisions of N.C. Gen.Stat. § 143-135.3 necessitates such a result.

Prior versions of section 143-135.3 only provided one avenue for a dissatisfied contractor to appeal from the decision of the Director of the OSC. That avenue was by filing a claim in superior court. N.C. Gen. Stat. § 143-135.3 (amended 1983). The present statute has now added a second avenue of appeal: commencing a...