S. Power Co. v. Cleveland Cnty.

24 F.4th 258

SOUTHERN POWER COMPANY, Plaintiff – Appellant,

v.CLEVELAND COUNTY, Defendant – Appellee.

No. 21-1449

United States Court of Appeals, Fourth Circuit.

Argued: December 9, 2021

Decided: January 14, 2022

ARGUED: Christopher G. Smith, SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, LLP, Raleigh, North Carolina, for Appellant. Grant B. Osborne, WARD & SMITH, PA, Asheville, North Carolina, for Appellee. ON BRIEF: Michael J. Parrish, Christopher S. Edwards, WARD & SMITH, PA, Asheville, North Carolina; Timothy K. Moore, TIM MOORE, ATTORNEY AT LAW, P.A., Kings Mountain, North Carolina; Martha R. Thompson, OFFICE OF THE COUNTY ATTORNEY, Shelby, North Carolina, for Appellee.

Before WILKINSON, MOTZ, and HARRIS, Circuit Judges.

Affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Wilkinson and Judge Harris joined.

DIANA GRIBBON MOTZ, Circuit Judge

A power company brought this action seeking a declaration that its agreement with a North Carolina county constituted an enforceable contract. Because the county never waived its governmental immunity from suit, we must affirm the judgment of the district court holding that the county enjoys immunity from the company's claims.

I.

This case could be the subject of a law school examination. It arises from an "Incentive Development Agreement" ("the Agreement") that Southern Power Co. and Cleveland County, North Carolina, signed on July 24, 2007.¹ The Agreement provided that if Southern Power built and operated a natural gas plant — a decision left in the Company's sole discretion — the County would make substantial cash payments to the Company. On August 30, 2007, thirty-seven days after the parties signed the Agreement, the North Carolina legislature enacted a new law. See N.C.G.S. § 158-7.1(h) ; 2007 N.C.S.L. 515 § 7 (hereinafter "Subsection H"). That law imposes more stringent requirements on such agreements, including a mandate that they include a recapture provision allowing a municipality to recover cash incentives already paid if the private entity breaches the agreement.

In November and December of 2008, Southern Power secured contracts to supply utility companies with electricity produced at the plant. Am. Compl. at 10. Southern Power then asked the County to reaffirm its commitment to the Agreement. Id. at 10–11. In response, the County adopted a resolution at its January 6, 2009, meeting stating that Southern Power's proposed plant "falls under the terms of that [July 24, 2007,] incentive agreement and contractually the County is committed to the incentive grants set forth in that agreement." Id.

Southern Power broke ground on the plant in October 2009 and began commercial operations in December 2012. Id. at 11. The County, however, refused to pay Southern Power any cash incentives, arguing that the Agreement failed to comply with Subsection H. Then, Southern Power brought this diversity action in the Western District of North Carolina. The district court, adopting the magistrate judge's recommendation, dismissed the case as barred by North Carolina governmental immunity. See Southern Power Co. v. Cleveland County , No. 1:20-cv-00013, 2021 WL 1108590 (W.D.N.C. Mar. 23, 2021). Southern Power now appeals.

We review the district court's judgment de novo. AGI Assocs., LLC v. City of Hickory , 773 F.3d 576, 578 (4th Cir. 2014). And sitting in diversity, we apply North Carolina law. Id. at 579. In North Carolina, a municipality generally enjoys immunity from suit. Meinck v. City of Gastonia , 371 N.C. 497, 819 S.E.2d 353, 357 (2018). But "[t]his immunity, often referred to as governmental immunity, can be waived by a municipality in three discrete ways: (1) by entering into a valid contract; (2) by acting in a proprietary capacity; and (3) by purchasing liability insurance." AGI Assocs. , 773 F.3d at 578. The first two — contractual waiver and proprietary waiver — are at issue in this case.

II.

We first consider contractual waiver. In North Carolina, a county waives governmental immunity when it "enters into a valid contract." Smith v. State , 289 N.C. 303, 222 S.E.2d 412, 423–24 (1976) (emphasis added). But if a contract is invalid because it violates a state statute, there is no contractual waiver. Data Gen. Corp. v. County of Durham , 143 N.C.App. 97, 545 S.E.2d 243, 247–48 (2001) (Wynn, J.). Here, the County argues that Subsection H constitutes a statute rendering its Agreement with Southern Power invalid; Southern Power maintains that the County waived governmental immunity by entering into the Agreement, a contract that assertedly (A) predates Subsection H, such that the legislation's requirements do not apply; or (B) postdates Subsection H but complies with that statute's terms.

A.

i.

Because "the general rule is that the law at the time of the making of the contract governs," we need first to determine the "time of the making of the contract." Rockwell v. Rockwell , 77 N.C.App. 381, 335 S.E.2d 200, 202 (1985). Like any other contract, the parties could not have formed this asserted contract until the moment that all of its elements — including consideration, offer, and acceptance — were present.

Southern Power contends that the parties formed a contract on July 24, 2007, when the parties signed the Agreement. But as the Company alleges in its Amended Complaint, the Agreement is "structured as a common unilateral contract." Am. Compl. at 4. And the defining feature of a unilateral contract is that "it is accepted by performance," rather than a promise to perform. White v. Hugh Chatham Mem. Hosp., Inc. , 97 N.C.App. 130, 387 S.E.2d 80, 81 (1990). Therefore, Southern Power could only accept the County's offer by performance. No performance, no acceptance, no contract.²

So when the parties signed the Agreement on July 24, 2007, they were simply agreeing about what the terms of the offer were. We know the Agreement was just an offer because it required nothing from Southern Power. The parties explicitly so stated in the Agreement: "the Company is not obligated to construct any Generating Facilities on the Site or invest any funds in the Site. Any construction or investment in the Site shall be at the Company's sole discretion." Moreover, also consistent with the Agreement's character as just an offer, the County could have "withdraw[n the offer] at any time before it [was] accepted by performance." White , 387 S.E.2d at 81. Thus, both Southern Power and the County could have torn up the Agreement the day after they signed it without any repercussions; in sum, the July 24, 2007, Agreement does not constitute a binding contract, only an offer.

But if not July 24, 2007, when did the unilateral Agreement assertedly become a binding contract? (We will return to the question of whether any contract complied with applicable law.) More specifically, when were all the elements of a contract — consideration, offer, and acceptance — present? As a unilateral contract, the Agreement could only be "accepted by performance." Id. Southern Power argues that it performed under the Agreement in December 2012 ("[t]he commercial operations date").³ Oral Argument at 49:35–50:18, Southern Power Co. v. Cleveland County , (4th Cir. Dec. 9, 2021) (No. 21-1449), https://www.ca4.uscourts.gov/OAarchive/mp3/21-1449-20211209.mp3. If that is the case, then the Company accepted, and thus formed a contract, in December 2012.

To sum up: The Agreement was "structured as a common unilateral contract," Am. Compl. at 4, and a unilateral contract is accepted by performance. Southern Power accepted the County's offer in the Agreement by performance well after Subsection H took effect. Because acceptance is crucial to the formation of any contract, including a unilateral contract, the parties could not have formed a contract before Subsection H took effect. And thus, the relevant time for evaluating the Agreement's terms and legality is after the legislature enacted Subsection H.⁴

ii.

Southern Power resists this conclusion on three grounds.

First, the Company points to the "effective date" clause in the Agreement. The Agreement provides that "[t]he laws, ordinances, development policies, practices, procedures and standards applicable to the development of the Project are those in force at the time of the execution of this Agreement," i.e. , as of July 24, 2007. From this, Southern Power argues that even if all the elements of a contract were present only after the passage of Subsection H, we should apply state law as it stood when the parties signed the Agreement — weeks before the legislature enacted that statute. We cannot do so.

Ordinarily, parties may contract for a different effective date than the date of a contract's formation. See McCallum v. Old Republic Life Ins. Co. , 259 N.C. 573, 131 S.E.2d 435, 438 (1963). But as explained in McCallum , a case on which Southern Power heavily relies, parties may contract for a different date "provided, of course, that ... the terms and conditions [of the contract] are not in violation of legal rules and requirements. " Id. (emphasis added).

Because Subsection H was in effect "at the time of the making of the [alleged] contract," Rockwell , 335 S.E.2d at 202, if that alleged contract, the Agreement, violates Subsection H, it was void as violative of state law at its inception. And if the Agreement was illegal at the time it became a contract, the parties cannot avoid that illegality by picking a different effective date.

The rationale behind this rule is clear. Allowing parties to enter illegal contracts and then backdate the contract to avoid that illegality would effectively negate the state's power to regulate private contractual relationships. We think it plain, for example, that Southern Power could not hire someone to burn outdated machinery, backdate the agreement to the day before North Carolina outlawed such behavior, and then seek to enforce the agreement. Indeed, North Carolina courts have held that parties may not waive...