Local Government Counsel Newsletter (April 2000)

In This Issue
	Recent Cases Define the Parameters of Closed Sessions
	U.S. Supreme Court Relaxes Requirements For Citizen Challenges to Environmental Violations
	N.C. Local Governments Given Greater Flexibility In Performance Contracting
	Involuntary Annexations

By Nancy Bentson Essex

Two recent Court decisions in North Carolina interpreting provisions of the state's Open Meetings Act show that local government officials need to act cautiously in going into closed sessions to confer with an attorney.

In the first case, Multimedia Publishing of North Carolina, Inc., v. Henderson County, the Asheville Citizen Times sued the Henderson County Board of Commissioners for going into closed session to discuss a proposed moratorium on the construction of racetracks and speedways while a new noise ordinance was under consideration. The board justified the closed session based on a statutory provision that allows closed sessions "to consult with an attorney employed or retained by the public body in order to preserve the attorney-client privilege." However, the newspaper contended that the statute only allows closed sessions with attorneys when the discussion concerns an actual or threatened claim against the governmental body. The newspaper based this argument on a statement in the statute that in a closed session, "the public body may consider and give instructions to an attorney concerning the handling or settlement of a claim, judicial action, mediation, arbitration, or administrative procedure."

The Court of Appeals held that the statute did not limit closed sessions with an attorney to situations where there is a claim against the governmental body. Rather, closed sessions are permitted whenever the discussion deals with matters falling within the attorney-client privilege. For the attorney-client privilege to apply, the communication at issue must have been made: 1) during the existence of an attorney-client relationship; 2) in confidence; and 3) in relation to the obtaining or giving of legal advice.

Notwithstanding this less restrictive view of the statute by the Court, government officials still need to be careful that discussions with attorneys do meet the requirements of the statute. As the Court of Appeals stated, the burden will be on the government body to demonstrate that the attorney-client exception applies. The Court said, "government bodies may not simply treat the words ‘attorney-client privilege’ or ‘legal advice’ as some talisman, the mere utterance of which magically casts a spell of secrecy over their meetings." Rather, the government body will have to produce evidence proving the exception applies. Further, the Court said statements by attorneys in Court pleadings would not constitute the needed proof. The Court suggested that the "easiest" way for the government body to demonstrate the closed session was warranted would be to allow the judge to review the minutes of the session.

This reference to the minutes makes the second recent decision dealing with the open meetings statute important: Pamlico News, Inc. v. Hyde County Board of Commissioners (Hyde County Superior Court). In that case, the newspaper sued the commissioners for going into closed session to discuss concerns an accountant had that the board had acted improperly in awarding a construction contract which ultimately benefited a board member. The board presented the minutes of the session, but the minutes simply stated the times the closed session began and ended and the names of the participants and then stated, "no action taken."

This lack of detail in the minutes evidently did not sit well with the Judge, because he ordered the board henceforth must keep a "verbatim record of the entirety of all of its closed sessions." The statute does not require a verbatim record and the Judge did not hold that it did. His order was thus probably a result of his irritation over the board's actions. However, his ruling emphasizes that the statutory requirement for "minutes" of closed sessions cannot be met by very summary and general statements that provide no meaningful information.

Despite the Judge's ruling in Hyde County, there is no reason to think that other boards must keep verbatim accounts of their closed sessions. However, local boards should pay close heed to the Judge's statement in the Hyde County order that a board "is obliged to keep a general account of the closed session so that a person not in attendance would have a reasonable understanding of what transpired during said closed session."

It is important to read the above two cases together in conducting meetings in closed session. In Multimedia Publishing, the Court of Appeals discussed that courts may look to the minutes of closed sessions to see if a closed session was justified on the grounds of the attorney-client privilege. Pamlico News, although not an appellate court ruling, mandates that closed session minutes be detailed. Thus, it appears that if a board expects to retain its attorney-client privilege in closed session, its minutes must be specific enough for a court to determine whether the privilege does in fact apply. If not, the privilege could be lost, as could the benefits of going into closed session in the first place. Again, the lesson to local governments is, take detailed minutes in closed session, particularly when conferring with legal counsel.

By T. Richard Kane

In a surprising reversal in the direction of its handling of citizen suits under federal environmental protection statutes, the U.S. Supreme Court has held that a citizen suit claiming civil penalties is not rendered moot by the target facility's coming into compliance after litigation begins. Friends of the Earth, Inc., et al. v. Laidlaw Environmental Services (TOC), Inc. No. 98-822 (January 12, 2000). The case has breathed new life into the practical possibility that interest groups and individual citizens can successfully sue facilities to force changes in environmental practices beyond those required by regulatory agencies.

This decision affects local governments, because citizens may use the provisions in certain environmental laws to sue local governmental entities. For example, citizens have frequently filed suits against local governments to enforce compliance and seek penalties and attorneys' fees based on alleged National Pollutant and Discharge Elimination System (NPDES) permit violations at wastewater treatment plants owned or operated by local governments.

Citizen suits are authorized by a number of federal environmental statutes, which typically provide for enforcement by any "citizen" who is "adversely affected" by violations of the statute or of rules or permits promulgated under the statute. However, a citizen suit may be barred if, during a mandatory pre-filing notice period, appropriate regulatory enforcement agencies initiate and diligently prosecute the alleged violations. Nevertheless, citizen suits present special interest groups with an attractive opportunity to supplement government enforcement of environmental laws, in that a successful plaintiff may be awarded its attorneys' fees.

For a number of years, the Supreme Court appeared to be tightening the requirements for bringing citizen suits. This result occurred most commonly through application of the doctrine of standing. As set forth in the 1971 case of Sierra Club v. Morton, in order to have standing, an advocacy group was required to show that its members, or at least some of them, were concretely disadvantaged by the governmental decision under attack. A "special interest" in environmental conservation alone would not be sufficient. In the early days of environmental regulation, this requirement was minimal and special interest group standing could be somewhat conjectural. In the 1973 case of United States v. Students Challenging Regulatory Agency Procedures, for example, the Supreme Court allowed law students to challenge federal railroad rates as harmful to recycling on the basis that the students used the outdoors for recreation and that the outdoors was being adversely impacted by low recycling rates.

The tide began to turn against advocacy group standing in the Supreme Court's 1990 decision in Lujan v. National Wildlife Federation, in which it reversed a federal court's holding that the plaintiff's claim that its members’ "recreational use and aesthetic enjoyment" of threatened lands conferred standing on the organization. After Lujan I, as it became known, "general averments" and "conclusory allegations" of injury were to be judged inadequate to allow a case to continue. The route appeared complete in the 1992 case of Lujan v. Defenders of Wildlife (Lujan II), which held that the Constitution requires a prospective claimant to demonstrate three things: (1) that it has suffered "injury in fact;" (2) causation, or that the injury "fairly can be traced to the challenged action;" and (3) redressability, or that the injury "is likely to be redressed by a favorable decision" in the case. In addition to these constitutional requirements, the Court declared, a claimant under a federal statute must demonstrate its claim was within the "zone of interests" the statute sought to protect. Finally, and more recently, in 1998 the Court ruled in the case of Steel Co. v. Citizens for a Better Environment that an organization of citizens living near an industrial plant lacked standing to challenge the plant's hazardous waste recordkeeping practices because the plant corrected those practices before the case was filed.

Although since 1990 standing has emerged as a powerful bar to citizen suits, the doctrine of mootness also helped limit judicial access to environmental special interest groups. Mootness is related to standing; it can be understood as a requirement that the plaintiff's injury continue to exist for the litigation to go forward. As such, the Court has characterized it as "the doctrine of standing set in a time frame."

Mootness typically has barred citizen suits when, for example, a facility has resolved its environmental troubles and brought itself completely into compliance during the 60-day "notice" period required before a citizens' suit may be filed under the Clean Water Act. Mootness is also imposed under statutes such as the Clean Water Act if, before the expiration of the 60-day period, either EPA or state environmental authorities file and diligently prosecute an enforcement action.

In Laidlaw, the defendant company sought refuge in both standing and statutory mootness. Laidlaw bought its Roebuck, S.C., facility in 1986, and obtained a discharge permit under South Carolina's NPDES program. However, Laidlaw was unable to control its discharges under the permit and violated its limits, particularly for mercury, early and often. By 1995, the facility had committed an alleged 489 mercury violations. Its NPDES noncompliance did not escape the attention of environmental advocacy groups, and in 1992, Friends of the Earth, Inc., and Citizens Local Environmental Action Network, Inc., filed a 60-day notice. Laidlaw's lawyer convinced South Carolina to file an enforcement action to bar the oncoming citizen suit. In fact, Laidlaw drafted the complaint against itself and paid the state's filing fee. On the 60th day, Laidlaw and the South Carolina Department of Health and Environmental Control reached a settlement in which Laidlaw agreed to pay civil penalties of $100,000 and to make "every effort" to comply with its NPDES permit in the future.

When the citizen suit was filed, Laidlaw responded that the interest groups were suffering no injury needing redress, or if they had, their case was now barred by the state's enforcement action. The District Court disagreed, finding that the state's case was not diligently prosecuted. Moreover, during the litigation, the mercury violations, as well as monitoring and recordkeeping violations, began to recur. The District Court eventually ordered Laidlaw to pay an additional civil penalty of $405,800.

The U.S. Court of Appeals for the Fourth Circuit vacated the District Court’s order. However the Supreme COurt reversed the Court of Appeals and has now determined: (1) that the plaintiffs successfully established standing through members' affidavits that Laidlaw's violations directly affected their recreational, aesthetic, and economic interests; (2) that the possibility of further civil penalties for Laidlaw's continuing future violations provided additional support for the plaintiffs' standing, even if such penalties were to be paid entirely to the state, in that higher penalties might ultimately require Laidlaw to cease its violations; (3) that the case did not automatically become moot when the company initially came into substantial compliance with its NPDES permit, and that to moot the case the company was required to bear the heavy burden of making it absolutely clear that the violations could not reasonably be expected to recur; and (4) that even Laidlaw's subsequent closure of the Roebuck facility did not necessarily moot the case, in that the owners retained their NPDES permit, and on remand the owners could seek to prove that further violations could not reasonably be expected to occur.

Without question, the Laidlaw decision will encourage interest groups to pursue private enforcement of state and federal environmental regulations and permits. A secondary effect, however, may be to force state regulators, in particular, to prosecute environmental enforcement in a less cooperative and more adversarial fashion.

By Marvin D. Musselwhite, Jr.

In the 1999 Session of the North Carolina General Assembly Poyner & Spruill drafted and lobbied to passage a bill expanding the authority of North Carolina local governments to use performance contracting.

Performance contracting is a special kind of construction contract, usually used for installing energy-saving measures in existing buildings. For some years, performance contracting has gained popularity in both private and public settings. These contracts are unusual because the contractor guarantees the energy savings realized during the first few years will at least offset the costs of the contract, and agrees to pay the difference if the savings do not materialize.

In North Carolina, units of local government were first authorized to use performance contracting for energy-saving measures in 1993, codified as North Carolina General Statute § 143-64.17(1). However, this statute limited the use of performance contracts to projects that could be paid out of energy savings realized in the first eight years. While a number of local governments were able to use these limited performance contracts, most of the projects were limited to the installation of energy management systems or higher efficiency lighting.

Under the 1999 amendment, local governments may now enter into energy-saving, guaranteed performance contracts that use the first 12 years of energy savings to pay for the energy-saving measures. As a practical matter, this 50 percent increase in authorized contract size will make it possible to replace out-dated and inefficient boilers, chillers, air handlers and other items that previously could not be done. And, because these are performance contracts, the money saved through lower energy bills is guaranteed to fund the contracts, making budget increases unnecessary.

By Michelle L. Frazier

In the recent decision of Town of Spencer v. Town of East Spencer, the North Carolina Supreme Court held that a "resolution of intent" to annex by the Town of East Spencer was void because it failed to "substantially comply" with the description requirements of the North Carolina General Statutes. To successfully annex territory in North Carolina, a municipality must accurately and clearly describe the boundaries of the area under consideration. Such a description is void if it includes property that is already within the boundaries of another municipality. If this occurs, the attempted annexation has no effect, and can lose priority to another municipality's "intervening and competing valid resolution of intent." That is exactly what happened to the Town of East Spencer (hereinafter "East Spencer"). Although this issue was one of first impression in North Carolina, the Court was clear in its mandate: municipalities must very carefully and accurately describe the territory targeted for annexation or risk losing out to another municipality.

The facts of the East Spencer case are fairly simple. On July 22, 1996, East Spencer adopted a resolution of intent to annex an additional 133 acres in Rowan County. On September 9, 1996, East Spencer adopted an annexation services plan, changing slightly the description of the territory to be annexed from that in the July 22 resolution of intent. However, the description of the territory to be annexed in both the July resolution of intent and the September annexation services plan unintentionally included approximately two acres of property that was already within the corporate limits of another municipality, the Town of Spencer (hereinafter "Spencer").

On October 8, 1996, Spencer adopted its own resolution of intent to annex approximately 87 acres in Rowan County, part of which overlapped with the territory described in East Spencer's resolution. On October 23, 1996, Spencer sought a declaratory judgment in Superior Court holding that it had prior jurisdiction to annex the territory described in its resolution and, accordingly, that it had priority to annex all of the overlapping area.

In holding that Spencer had priority over East Spencer, the Court stated that, to have a valid resolution of intent, a municipality must substantially comply with the requirements for annexation established in North Carolina General Statute § 160A. The primary issue before the Court was whether the substantial compliance standard had been met when the annexation description included territory already within the boundaries of another municipality. The Court's answer to that question was no.

The Court first asked whether the General Statutes prohibited a resolution of intent to annex that included property already within another city or town. North Carolina General Statute § 160A-37 requires a clear description of the boundaries of the area to be annexed. Section 160A-36(b) further provides that "[n]o part of the area shall be included within the boundary of another incorporated municipality." Thus, a resolution of intent should not include territory within another town.

The Court then asked whether the inclusion of property within the boundaries of another municipality was fatal to the annexation description, and concluded that it was. The Court first noted that it is critical that involuntary annexations be extremely "detailed and deliberate," even more so than voluntary annexations, because of their "involuntary" nature. Accordingly, it would "defy logic and be contrary to the spirit and intent of the overall annexation scheme" to prohibit voluntary annexations from including an area within another municipality, but not to require the same of an involuntary annexation plan. The Court concluded that this requirement was an essential element of both types of annexations and that "any inclusion of another municipality's territory precludes a finding of substantial compliance and nullifies the resolution of intent." As noted above, the Court then held that East Spencer's resolution of intent was invalid, and, thus, Spencer had priority to annex the disputed territory pursuant to its October 8, 1996 resolution of intent.

This bulletin is published by Poyner & Spruill L.L.P. to provide general information about significant legal developments. Because the facts in each situation vary, the legal precedents noted herein may not be applicable to individual circumstances.