Munger v. State

• Decision Date: 16 February 2010
• Docket Number: No. COA09-375.,COA09-375.
• Citation: 689 S.E.2d 230
• Court: North Carolina Court of Appeals
• Parties: Michael C. MUNGER, Barbara Howe, and Mark Whitely Cares, Plaintiffs, v. STATE of North Carolina; James T. Fain III, Secretary of the North Carolina Department of Commerce, in his official capacity; Reginald Hinton, Acting Secretary of the North Carolina Department of Revenue, in his official capacity; David T. McCoy, State Budget Officer for the Office of State Budget and Management, in his official capacity; Michael F. Easley, Governor of the State of North Carolina, in his official capacity; Google Inc.; and Madras Integration, LLC, Defendants.

689 S.E.2d 230

Michael C. MUNGER, Barbara Howe, and Mark Whitely Cares, Plaintiffs, v. STATE of North Carolina; James T. Fain III, Secretary of the North Carolina Department of Commerce, in his official capacity; Reginald Hinton, Acting Secretary of the North Carolina Department of Revenue, in his official capacity; David T. McCoy, State Budget Officer for the Office of State Budget and Management, in his official capacity; Michael F. Easley, Governor of the State of North Carolina, in his official capacity; Google Inc.; and Madras Integration, LLC, Defendants.

No. COA09-375.

Court of Appeals of North Carolina.

February 16, 2010.

Appeal by plaintiffs from order entered 14 November 2008 by Judge Paul C. Ridgeway in Wake County Superior Court. Heard in the Court of Appeals 26 October 2009.

North Carolina Institution for Constitutional Law, by Robert F. Orr, Asheville, and Jeanette K. Doran, for Plaintiffs.

Womble Carlyle Sandridge & Rice, PLLC, by Burley B. Mitchell, Jr., Pressly M. Millen, and Sean Andrussier, Raleigh, for Defendants Google, Inc., and Madras Integration, LLC.

Attorney General Roy Cooper, by Special Deputy Attorney General Norma S. Harrell and Special Deputy Attorney General I. Faison Hicks, for Defendants State of North Carolina, James T. Fain, III, Reginald Hinton, David T. McCoy, and Governor Michael F. Easley.

ERVIN, Judge.

The present appeal stems from another in a series of challenges to economic incentive legislation enacted by the General Assembly as violative of various provisions of the North Carolina Constitution. After careful consideration of the record in light of the applicable law, we conclude that Plaintiffs lack standing to assert the only claims that have been brought forward for our consideration on appeal and that the trial court correctly dismissed those claims pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1).

I. Factual Background

A. Substantive Facts

According to the allegations of the amended complaint, a series of meetings involving, at different times, representatives of Google; representatives of Burke, Caldwell, and McDowell Counties; various State officials, including employees of the Department of Commerce and the Department of Revenue; representatives of the City of Lenoir; and representatives of Duke Energy Carolinas, were held relating to the proposed project beginning in December, 2005. On or about 8 February 2006, the Caldwell County Commission and the Lenoir City Council made "an enhanced grant proposal" to Google relating to the construction of a proposed data center.

On 24 May 2006, a bill was introduced in the North Carolina House of Representatives that would, if enacted, have exempted internet data centers from certain sales and use taxes. On 25 May 2006, a substantially similar bill was introduced in the North Carolina Senate. On 10 July 2006, the Governor signed into law 2006 N.C. Sess. L. c. 66, which was entitled An Act to Modify the Current Operations and Capital Appropriations Act of 2005 (2006 Current Operations Appropriations Act). Among the components of the 2006 Current Operations Appropriations Act were certain amendments to Chapter 105 of the General Statutes, which had the effect of exempting entities defined as "eligible internet data centers" from certain sales and use taxes. The General Assembly defined an "eligible Internet data center" in that legislation as:

A facility that satisfies each of the following conditions:

a. The facility is used primarily or is to be used primarily by a business engaged in Internet service providers and Web search portals industry 51811, as defined by NAICS.

b. The facility is comprised of a structure or series of structures located or to be located on a single parcel of land or on contiguous parcels of land that are commonly owned or owned by affiliation with the operator of that facility.

c. The facility is located or to be located in a county that was designated, at the time of application for the written determination required under sub-subdivision d. of this subdivision, either an enterprise tier one, two, or three area or a development tier one or two area pursuant to [N.C. Gen.Stat. § ] 105-129.3 or [N.C. Gen.Stat. § ] 143B-437.08, regardless of any subsequent change in county enterprise or development tier status.

d. The Secretary of Commerce has made a written determination that at least two hundred fifty million dollars ($250,000,000) in private funds has been or will be invested in real property or eligible business property, or a combination of both, at the facility within five years after the commencement of construction of the facility.

N.C. Gen.Stat. § 105-164.3(8e). Furthermore, the 2006 Current Operations Appropriations Act amended N.C. Gen.Stat. § 105-164.13 by inserting new language providing that "[t]he sale at retail and the use, storage, or consumption in this State of the following tangible personal property and services are specifically exempted from the tax imposed by this Article: ..."

(55) Sales of electricity for use at an eligible Internet data center and eligible business property to be located and used at an eligible Internet data center. As used in this subdivision, "eligible business property" is property that is capitalized for tax purposes under the Code and is used either:

a. For the provision of Internet service or Web search portal services as contemplated by [N.C. Gen.Stat. § ] 105-164.3(8e)a., including equipment cooling systems for managing the performance of the property.

b. For the generation, transformation, transmission, distribution, or management of electricity, including exterior substations and other business personal property used for these purposes.

c. To provide related computer engineering or computer science research.

N.C. Gen.Stat. § 105-164.13(55). The General Assembly attempted to ensure that the level of investment contemplated by N.C. Gen.Stat. § 105-164.3(8e)d was actually made at the required location by mandating, in certain circumstances that are not relevant to this case, the forfeiture of the exemption and the repayment of avoided taxes with interest. N.C. Gen.Stat. § 105-164.13(55). Although Plaintiffs have alleged that these sales and use tax exemptions for eligible internet data centers were enacted for the specific purpose of providing incentives to facilitate the construction and operation of an internet data center in Caldwell County by Google, Inc., none of the statutory language in question makes any reference to Google or any Google affiliate and the same tax treatment is available to any other entity that meets the criteria specified in N.C. Gen.Stat. § 105-164.3(8e).¹

B. Procedural History

On 25 July 2007, Plaintiffs Michael Munger, Barbara Howe and Mark Whitley Cares acting in their capacities as individuals who pay state income taxes and state sales and use taxes, filed a complaint against James T. Fain, III, in his official capacity as Secretary of the North Carolina Department of Commerce; Reginald Hinton, in his official capacity as Acting Secretary of the North Carolina Department of Revenue; David T. McCoy, in his official capacity as State Budget Officer; Michael F. Easley, in his official capacity as Governor of the State of North Carolina (the State Defendants); Google; and Madras Integration, LLC., which is a subsidiary of Google (the Google Defendants). In their complaint, Plaintiffs sought a declaration that the various incentives provided for eligible internet data centers violated the exclusive emoluments, public purpose, fair and equitable taxation, and uniformity of taxation provisions of the North Carolina Constitution, and requested that the State Defendants be enjoined from providing any incentives to the Google Defendants and recoup any incentive amounts that had already been provided to the Google Defendants. On 16 August 2007, Plaintiffs amended their complaint as a matter of right in order to add a claim that the incentives provided for eligible internet data centers violated the law of the land provision of the North Carolina Constitution.

On 16 October 2007, the Google Defendants filed a motion to dismiss Plaintiffs' complaint pursuant to N.C. Gen.Stat. § 1A-1, Rules 12(b)(1) and 12(b)(6), on the grounds that Plaintiffs lacked standing to advance any of the claims asserted in their amended complaint and that Plaintiffs had failed to state a claim for which relief could be granted. On 18 October 2007, the State Defendants filed a motion to dismiss pursuant to N.C. Gen.Stat. § 1A-1, Rules 12(b)(1) and 12(b)(6), on the grounds that, even if the factual allegations of Plaintiffs' amended complaint were true, their claims would fail as a matter of law and that they had failed to allege sufficient facts to demonstrate that they had standing to bring the claims asserted in their amended complaint.

On 14 November 2008, the trial court entered an Order and Memorandum of Decision. The trial court dismissed Plaintiffs' Claims for Relief 4, 5, 6, 9 and 10, which alleged violations of the provisions of N.C. Const. art. V, §§ 2(1) and (7) requiring that the taxation and appropriation powers be exercised for "public purposes only," pursuant to N.C. Gen.Stat. § 1A-1, Rule 12(b)(6) on the grounds that "the challenged governmental activity in this case" was for a public purpose and that "the incentives offered to Google and those similarly situated, as a matter of law, benefit the public generally." The trial court dismissed Plaintiffs' Claims for Relief 1, 2 and 3, which alleged violations of the exclusive emoluments clause contained in N.C. Const. art. I, § 32, pursuant to N.C. Gen.Stat. § 1A-1, Rule 12(b)(6) on the grounds that, since the incentives in question have "been determined to `promote the public benefit' under the Public Purpose Clause, [they] necessarily [are] not an exclusive emolument." (emphasis in the original) (citing Blinson v. State, 186 N.C.App. 328, 342, 651 S.E.2d 268, 277-78 (2...