State v. Kinston Charter Academy

268 N.C.App. 531

836 S.E.2d 330

STATE of North Carolina, ex rel. Roy Cooper, Attorney General, Plaintiff,

v.KINSTON CHARTER ACADEMY, a North Carolina non-profit corporation; Ozie L. Hall, Jr., individually and as Chief Executive Officer of Kinston Charter Academy; and Demyra McDonald Hall, individually and as Board Chair of Kinston Charter Academy, Defendants.

No. COA18-688

Court of Appeals of North Carolina.

Filed: December 3, 2019

Attorney General Joshua H. Stein, by Assistant Attorney General Matthew L. Liles, for the State.

Ozie L. Hall, Jr., pro se, defendant-appellant.

Ragsdale Liggett PLLC, by Mary M. Webb, Raleigh, Edward E. Coleman, III, and Amie C. Sivon, Raleigh, for defendant-appellant Kinston Charter Academy.

BERGER, Judge.

Plaintiff filed an action against Defendants Kinston Charter Academy ("Kinston Charter") and Ozie L. Hall ("Hall") for, among other things, violations of North Carolina's False Claims Act. On March 21, 2018, the trial court denied motions to dismiss filed by Kinston Charter and Hall (collectively, "Appellants"). Appellants now appeal the interlocutory orders denying their respective motions to dismiss. In addition, Appellants have filed petitions for writs of certiorari seeking review of the sufficiency of the State's pleadings under Rule 9 of the North Carolina Rules of Civil Procedure. For the reasons discussed below, we reverse the trial court's order denying dismissal for Kinston Charter, affirm the trial court's order denying dismissal for Hall, and deny Appellants’ petitions for certiorari review.

Factual and Procedural Background

Kinston Charter is a non-profit corporation located in Kinston, North Carolina. From January 2004 to September 2013, Kinston Charter operated a public school pursuant to a charter from the North Carolina State Board of Education as provided for by Section 115C-238.29 of the North Carolina General Statutes.¹ Hall served as Kinston Charter's CEO from 2007 until 2013. Demyra McDonald-Hall served as the chairwoman of Kinston Charter's board of directors for roughly the same period of time.

In North Carolina, charter schools receive operating funds from the State on a per pupil basis. In the spring of each year, a charter school is required to provide an estimate to the Department of Public Instruction ("DPI") of its anticipated average daily membership ("ADM") for the upcoming school year. This estimate is determined by the school's current ADM plus or minus any estimated losses or increases in the student population for the upcoming year ("Estimated ADM"). During the time period relevant to this case, charter schools were permitted to submit estimated growth in student enrollment of up to twenty percent in their Estimated ADM without prior approval from the State; an increase of more than twenty percent in any given year required approval from the State Board of Education.² N.C. Gen. Stat. § 115C-238.29D(f)(1) (2013).

After the school year begins, charter schools must provide an average total enrollment from the first and twentieth days of the school year ("Actual ADM"). If the Estimated ADM does not align with the Actual ADM, the charter school's funding allotment is adjusted to recapture the excess funds paid to the charter school at the beginning of the school year based on its Estimated ADM.

On April 26, 2013, Hall reported to DPI an estimated enrollment for Kinston Charter of 366 students for the 2013-2014 school year. This estimate was within the statutory twenty percent growth range and did not require prior approval from the State Board of Education. However, when Kinston Charter opened for the 2013-2014 school year, the school only had 189 students in attendance—177 students less than the estimate provided by Hall, despite efforts by the school to advertise and attract additional students.

On September 4, 2013, Kinston Charter surrendered its charter to the State Board of Education. Due to the timing of the surrender, excess operating funds provided to Kinston Charter as a result of the difference between the school's Estimated ADM and Actual ADM were not recaptured by the State.

On April 26, 2016, the State of North Carolina, by and through then-Attorney General Roy Cooper, initiated this action against Kinston Charter, Hall, and McDonald-Hall. The complaint alleged violations of the North Carolina False Claims Act ("NCFCA"), Chapter 55A of the North Carolina General Statutes ("Chapter 55A"), and the Unfair and Deceptive Trade Practices Act ("UDTPA"). Pursuant to Rule 2.1 of the General Rules of Practice for Superior and District Courts, the case was designated "exceptional."

On July 3, 2017, the trial court heard arguments on Hall and McDonald-Hall's motions to dismiss pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. On August 9, 2017, the trial court granted dismissal of the Chapter 55A and UDTPA claims against Hall in his individual capacity and denied dismissal of the NCFCA claim. The court granted dismissal of all claims against McDonald-Hall in her individual capacity.

On March 19, 2018, the trial court heard Kinston Charter's motion to dismiss pursuant to Rules 12(b)(1), 12(b)(3), and 12(b)(6). The trial court also heard arguments on Hall and McDonald-Hall's 12(b)(6) motions to dismiss all charges against them in their official capacities. Additionally, the trial court heard arguments on Hall's 12(b)(1) motion to dismiss the NCFCA claim against him in his individual capacity.

On March 21, 2018, the court granted dismissal of the Chapter 55A and UDTPA claims against Kinston Charter and denied dismissal of the NCFCA claim. The court granted dismissal of all claims against Hall and McDonald-Hall in their official capacities. Additionally, the trial court denied Hall's 12(b)(1) motion to dismiss the NCFCA claim against him in his individual capacity.

Appellants now seek interlocutory review, arguing that the trial court erred in denying their motions to dismiss pursuant to Rules 12(b)(1) and 12(b)(6). In addition, Appellants have filed petitions for writs of certiorari seeking interlocutory review regarding the sufficiency of the State's pleadings under Rule 9 of the North Carolina Rules of Civil Procedure. For the reasons set forth herein, we reverse the trial court's order denying dismissal for Kinston Charter, affirm the trial court's order denying dismissal for Hall, and deny Appellants’ petitions for certiorari.

Scope of Review

As an initial matter, we must address the scope of this Court's jurisdiction over Appellants’ interlocutory appeals.

An order is either interlocutory or the final determination of the rights of the parties .... An appeal is interlocutory when noticed from an order entered during the pendency of an action, which does not dispose of the entire case and where the trial court must take further action in order to finally determine the rights of all parties involved in the controversy.

Beroth Oil Co. v. N.C. Dep't of Transp ., 256 N.C. App. 401, 410, 808 S.E.2d 488, 496 (2017) (citations and quotation marks omitted).

Ordinarily, an interlocutory order is not immediately appealable.

Davis v. Davis , 360 N.C. 518, 524, 631 S.E.2d 114, 119 (2006). However, a party may seek immediate appellate review when an interlocutory order affects a substantial right. N.C. Gen. Stat. §§ 1-277(a), 7A-27(b)(3)(a) (2017). "[T]he appellant has the burden of showing this Court that the order deprives the appellant of a substantial right which would be jeopardized absent review prior to a final determination on the merits." Jeffreys v. Raleigh Oaks Joint Venture , 115 N.C. App. 377, 380, 444 S.E.2d 252, 254 (1994).

An appeal from an interlocutory order raising issues of sovereign immunity affects a substantial right sufficient to warrant immediate review. Hinson v. City of Greensboro , 232 N.C. App. 204, 209, 753 S.E.2d 822, 826 (2014). "However, this only applies for denial of a motion to dismiss under Rules 12(b)(2), 12(b)(6), and 12(c), or a motion for summary judgment under Rule 56. We cannot review a trial court's order denying a motion to dismiss under Rule 12(b)(1)." Id. at 209, 753 S.E.2d at 826 (citation and quotation marks omitted). Accordingly, only Appellants’ challenges to the trial court's denial of their motions to dismiss under Rule 12(b)(6) based on sovereign immunity are properly before this Court.

Standard of Review

We review a trial court's denial of a motion to dismiss under Rule 12(b)(6) de novo . Wray v. City of Greensboro , 370 N.C. 41, 46, 802 S.E.2d 894, 898 (2017). "Dismissal of an action under Rule 12(b)(6) is appropriate when the complaint fails to state a claim upon which relief can be granted." Id. at 46, 802 S.E.2d at 898 (purgandum ). When ruling on a motion to dismiss, the well-pleaded material allegations of the complaint are deemed admitted for purposes of the motion. Arnesen v. Rivers Edge Golf Club & Plantation, Inc. , 368 N.C. 440, 448, 781 S.E.2d 1, 7 (2015). A complaint should only be dismissed where it affirmatively appears that the plaintiff is not entitled to relief under any set of facts presented in support of the claim. Wray , 370 N.C. at 46, 802 S.E.2d at 898.

Analysis

Appellants contend that the trial court erred by denying their motions to dismiss under Rule 12(b)(6) because they are entitled to immunity from liability, and neither falls within the contemplated meaning of the term "person" under the NCFCA. We agree that Kinston Charter is entitled to sovereign immunity, and it is not a "person" subject to liability under the Act. However, while Hall qualifies as a "person" under the NCFCA, the record is insufficient to determine, at this stage, whether Hall is entitled to immunity in his individual capacity. Therefore, we affirm in part and reverse in part.

The North Carolina False Claims Act provides that any "person" who violates the statute by making or presenting a false claim for payment to the State "shall be liable to the State for three times the amount of...