I. BEVERLY LAKE, JOHN B. LEWIS, JR., EVERETTE M. LATTA, PORTER L. McATEER, ELIZABETH S. McATEER, ROBERT C. HANES, BLAIR J. CARPENTER, MARILYN L. FUTRELLE, FRANKLIN E. DAVIS, THE ESTATE OF JAMES D. WILSON, BENJAMIN E. FOUNTAIN, JR., FAYE IRIS Y. FISHER, STEVE FRED BLANTON, HERBERT W. COOPER, ROBERT C. HAYES, JR., STEPHEN B. JONES, MARCELLUS BUCHANAN, DAVID B. BARNES, BARBARA J. CURRIE, CONNIE SAVELL, ROBERT B. KAISER, JOAN ATWELL, ALICE P. NOBLES, BRUCE B. JARVIS, ROXANNA J. EVANS, and JEAN C. NARRON, and all others similarly situated, Plaintiffs,
STATE HEALTH PLAN FOR TEACHERS AND STATE EMPLOYEES, a corporation, formerly Known as the North Carolina Teachers and State Employees' Comprehensive Major Medical Plan, TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM OF NORTH CAROLINA, a corporation, BOARD OF TRUSTEES TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM OF NORTH CAROLINA, a body politic and corporate, DALE R. FOLWELL, in his official capacity as Treasurer of the State of North Carolina, and the STATE OF NORTH CAROLINA, Defendants.
in the Court of Appeals 29 November 2018.
by defendants from order entered 19 May 2017 by Judge Edwin
G. Wilson, Jr. in Gaston County No. 12 CVS 1547 Superior
Layton, Kersh, Solomon, Furr & Smith, P.A., by Michael L.
Carpenter, Christopher M. Welchel, Marcus R. Carpenter, and
Marshall P. Walker; Tin, Fulton, Walker & Owen, PLLC, by
Sam McGee; and The Law Office of James Scott Farrin, by Gary
W. Jackson, for plaintiff-appellees.
Attorney General Joshua H. Stein, by Solicitor General
Matthew W. Sawchak, Deputy Solicitor General Ryan Y. Park,
Special Deputy Attorney General Marc
Bernstein, Special Deputy Attorney General Joseph A. Newsome,
and Assistant Solicitor General Kenzie M. Rakes, for
appeal from an order granting Plaintiffs' motion for
partial summary judgment and entry of judgment for liability
and permanent injunction in favor of Plaintiffs. The
judgment: (1) ordered Defendants to provide premium-free
80/20 "Enhanced" or Base Medicare Advantage Plan
health benefits for the remainder of Plaintiffs'
retirements; (2) enjoined Defendants from charging Plaintiffs
for health insurance premiums; (3) required Defendants to
determine monetary damages to reimburse Plaintiffs who had
paid premiums since 1 September 2011, and to deposit the
money into a common fund; (4) entered a declaratory judgment
finding retirement health benefits are contractual and a part
of Plaintiff's deferred compensation; and, (5) concluded
Defendants had breached this contract with Plaintiffs. We
reverse and remand.
General Assembly extended health care insurance benefits
("State Health Plan") to retired state employees
and their dependents in 1974 under an indemnity plan. Act of
April 11, 1974, ch. 1278, sec. 1, 1973 N.C. Sess. Laws 454.
The State Health Plan previously had been provided only to
active state employees. Act of July 20, 1971, ch. 1009, sec.
1, 1971 N.C. Sess. Laws 1588. From the outset of coverage,
retirees were required to pay "the established
applicable premium for the plan[.]" Act of April 11,
1974, ch. 1278, sec. 1, 1973 N.C. Sess. Laws 454. In 1981,
the General Assembly amended the statutes related to the
State Health Plan and provided for active employees and
retirees to receive health insurance benefits "on a
noncontributory basis." Act of June 23, 1982, ch. 1398,
sec. 6, 1981 N.C. Sess. Laws 276, 295. Over the next thirty
years, the State Health Plan's levels of benefits and
coverage, deductibles, co-insurance rates, and out-of-pocket
maximums were amended, and fluctuated, but retirees'
benefits were provided without contribution from them.
2005, the General Assembly authorized the State Health Plan
to introduce preferred provider organization
("PPO") plans for all active and retired State
employees. Act of August 11, 2005, ch. 276, sec. 29.33(a),
2005 N.C. Sess. Laws 688, 1003-04. In 2006, the State Health
Plan offered participants a choice of three PPO plans, with
varying rates of co-insurance. Active and retired employees
could choose the 70/30 PPO plan, the 80/20 PPO plan, or the
90/10 PPO plan. The 70/30 PPO and the 80/20 PPO were
non-contributory. The contributory premium 90/10 PPO plan was
discontinued in 2009.
2011, the General Assembly again amended the State Health
Plan to require active employees and retirees to contribute a
premium to receive benefits under the 80/20 PPO plan. Act of
May 11, 2011, ch. 85, sec. 1.2(a), 2011 N.C. Sess. Laws 119,
120. The 70/30 PPO plan was, and still remains, premium-free
for retirees, but not for active employees. Id.
2014, the State began to offer a premium-free Medicare
Advantage plan, to age-eligible members, and a
Consumer-Directed Health Plan ("CDHP"). Three
"Wellness Activities" were also introduced,
completion of which would reduce the premium for the CDHP,
and would make that plan premium-free upon the completion of
all three. The "Wellness Activities" required
selecting a primary care physician, completing a health
assessment questionnaire, and attesting to not using tobacco
products or being enrolled in a tobacco-cessation program.
These "Wellness Activities" can also significantly
reduce premiums under the 80/20 PPO plan. Over 75% of state
retirees are eligible to enroll in the Medicare Advantage
plan. Over 90% of retirees enrolled in either the CDHP or the
80/20 PPO plan completed all three "Wellness
filed a complaint against the State and related governmental
Defendants in 2012, challenging the 2011 amendments and
asserting the State and Plaintiffs had entered into a
non-amendable contract, which entitled Plaintiffs to
premium-free, non-contributory static health benefits under
an 80/20 health care plan for the remainder of their lives.
Plaintiffs' causes of action assert claims for: (1)
breach of contract, for removing the non-contributory 80/20
PPO plan and eliminating the optional 90/10 PPO plan; (2)
impairment of contract under the Constitution of the United
States and North Carolina Constitution; and, (3) deprivation
of property without due process and equal protection under
the North Carolina Constitution.
moved to dismiss the lawsuit in June 2012, under the theories
of: (1) lack of jurisdiction over Defendants; (2) lack of
subject matter jurisdiction due to the State's claim of
sovereign immunity; (3) Plaintiffs' failure to exhaust
all administrative remedies; and, (4) Plaintiffs' failure
to state a claim upon which relief may be granted.
trial court denied Defendants' motion to dismiss in May
2013. This Court affirmed the trial court's order,
denying Defendants' motion to dismiss based upon
sovereign immunity, and dismissed Defendants' appeal
regarding the other issues. Lake v. State Health Plan for
Teachers & State Emples., 234 N.C.App. 368, 375, 760
S.E.2d 268, 274 (2014).
filed a motion for partial summary judgment on the issue of
liability in September 2016. Plaintiffs also filed a motion
for partial summary judgment in September 2016 to resolve all
issues except the issue of damages for excess out-of-pocket
expenses. After a hearing, the trial court granted
Plaintiffs' motion for partial summary judgment and
denied Defendants' motion in an order filed 19 May 2017.
Defendants timely appealed.
appeal is from a grant of partial summary judgment. "A
grant of partial summary judgment, because it does not
completely dispose of the case, is an interlocutory order
from which there is ordinarily no right of appeal."
Liggett Grp., Inc. v. Sunas, 113 N.C.App. 19, 23,
437 S.E.2d 674, 677 (1993).
may appeal an interlocutory order if either: (1) the trial
court makes a final determination regarding at least one
claim and certifies there is no just reason to delay under
N.C. Gen. Stat. § 1A-1, Rule 54(b); or, (2) if delaying
the appeal would affect a substantial right. Id. at
23-24, 437 S.E.2d at 677. The record does not include the
trial court's Rule 54(b) certification. The only basis
upon which Defendants' interlocutory appeal may proceed
is to demonstrate a substantial right is impacted.
substantial right is a legal right affecting or involving a
matter of substance as distinguished from matters of form: a
right materially affecting those interests which [one] is
entitled to have preserved and protected by law: a material
right." Gilbert v. N.C. State Bar, 363 N.C. 70,
75, 678 S.E.2d 602, 605 (2009) (citation and internal
quotation marks omitted). In order for a party to appeal from
an interlocutory order based upon a substantial right, it
must show the right is substantial and "the deprivation
of that substantial right must potentially work injury . . .
if not corrected before appeal from final judgment."
Goldston v. Am. Motors Corp., 326 N.C. 723, 726, 392
S.E.2d 735, 736 (1990). Defendants assert the trial
court's ruling affects a substantial right in two ways:
(1) the decision prevents the State from enforcing its
statutes; and, (2) the decision imposes significant economic
impacts upon the state budget.
trial court granted a permanent injunction to enforce its
order. The order requires Defendants to provide to Plaintiffs
either the 80/20 PPO plan as it was offered in 2011, or the
Base Medicare Advantage Plan, as it was offered in 2014, or
their equivalents, for the remainder of their retirements.
Defendants were enjoined from collecting any premiums from
Plaintiffs for those plans. This order prevents the State
from enforcing the 2011 statutory amendments on premium rates
for contributory coverage. See Act of May 11, 2011,
ch. 85, sec. 1.2(a), 2011 N.C. Sess. Laws 119, 120.
Supreme Court of North Carolina has held a defendant's
right to carry out its statutory duties is substantial.
Gilbert, 363 N.C. at 77, 678 S.E.2d at 606. When a
public entity is prevented from carrying out its statutory
duties, the "continuance of the injunction in effect and
the denial of the motion to dismiss . . . do adversely affect
important rights" of that entity. Freeland v.
Greene, 33 N.C.App. 537, 540, 235 S.E.2d 852, 854
(1977). Further, the protection of the financial stability of
the state budget is also a substantial right, which carries
the potential injury of a budget crisis. Dunn v.
State, 179 N.C.App. 753, 757, 635 S.E.2d 604, 606
Defendants are enjoined from enforcing duly-enacted statutory
provisions requiring state retirees to pay premiums for
certain levels of health coverage, and the cost of this
premium-free health insurance at those higher levels could
severely impact the state budget, we allow this interlocutory
appeal pursuant to N.C. Gen. Stat. § 7A-27(b)(3)(a)
Standard of Review
the party bringing the cause of action moves for summary
judgment, he must establish that all of the facts on all of
the essential elements of his claim are in his favor[.]"
Steel Creek Dev. Corp. v. James, 300 N.C. 631, 637,
268 S.E.2d 205, 209 (1980). This rule requires the movant to
"show that there are no genuine issues of fact; that
there are no gaps in his proof; that no inferences
inconsistent with his recovery arise from his evidence; and
that there is no ...