H.B.S. Contractors, Inc. v. Cumberland County Board of Education

Citations: 468 S.E.2d 517; 122 N.C. App. 49; 1996 N.C. App. LEXIS 207Docket: COA95-898

Court: Court of Appeals of North Carolina; March 19, 1996; North Carolina; State Appellate Court

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Cumberland County Board of Education (Board) appeals a trial court ruling that it violated the Open Meetings Law (N.C.Gen. Stat. 143-318.9 et seq.), while H.B.S. Contractors (HBS) appeals the court's refusal to declare the Board's termination of their contract null and void. HBS entered a construction contract with the Board on June 25, 1993, for building an elementary school. An emergency meeting was scheduled for November 23, 1994, after the Board's legal counsel prohibited HBS's attorneys from communicating with the Board about the project. During the closed session, the Board received critical updates regarding project delays, staffing issues, regulatory citations, and potential damage claims, leading to a unanimous vote to terminate HBS's contract.

HBS filed a declaratory judgment action on January 4, 1995, arguing the termination violated the Open Meetings Law. The trial court ruled that the Board had indeed violated the law but declined to void the termination order after a plenary hearing. Both parties raised several issues on appeal, specifically focusing on whether the Board's closed session termination was lawful, the appropriateness of not voiding the termination, the admissibility of an affidavit from HBS's attorney, and HBS's entitlement to attorney's fees.

The court acknowledges that while it cannot question findings of fact backed by competent evidence, it is not bound by the trial court's conclusions or inferences. If a finding of fact serves as a conclusion of law, it is subject to full review on appeal. The central issue is whether the Board's decision to terminate a contract in a closed session violated the Open Meetings Law, which mandates that public bodies hold official meetings in open session, promoting transparency in governmental processes. Closed sessions are only permitted when necessary to protect the public interest, such as preserving attorney-client privilege during consultations. The Board claims the closed session was to maintain this privilege regarding attorney Regan's instructions related to an administrative procedure. However, the termination order does not qualify for attorney-client privilege, as it must be disclosed to affected parties, and communications intended for disclosure to others are not protected. The court will also assess whether issuing a termination order constitutes an "administrative procedure," adhering to established statutory construction principles. Clear statutory language should be interpreted plainly, and context is crucial for understanding ambiguous terms. The Board argues that "administrative procedure" should encompass even minor clerical or managerial actions.

The interpretation of "administrative procedure" in section 318.11(a)(3) is clarified to refer only to proceedings under the North Carolina Administrative Procedure Act, excluding mere clerical or managerial actions, such as terminating a contract. The Board's practice of holding closed sessions to discuss sensitive matters does not create an exception to the Open Meetings Law, which aims to prevent secrecy in public body actions. The trial court's ruling that the Board violated the Open Meetings Law by terminating its contract with HBS in secret is affirmed. The court has the discretion to void actions taken in violation of the law, guided by statutory factors. HBS contested the trial court's consideration of the fifth factor regarding reliance on the validity of the action, arguing it should be limited to certain entities. However, the broader interpretation that includes all citizens aligns with the legislative intent of the Open Meetings Law. The trial court's decision not to void the Board's action was not deemed an abuse of discretion. Additionally, the Board's objection to the admission of an affidavit from HBS's counsel, pertaining to professional conduct rules, is noted for consideration.

A remedy for the Board is unavailable unless it demonstrates that any trial court error was prejudicial and could have led to a different outcome, referencing Boyd v. L.G. DeWitt Trucking Co. The trial court admitted the Thorp affidavit before ruling in favor of the Board, and excluding this affidavit would not have changed the ruling, indicating no prejudicial error occurred. Regarding attorney's fees awarded to HBS under N.C.Gen. Stat. 143-318.16B, the court must determine if HBS is a "prevailing party" after establishing a violation of the Open Meetings Law, despite the trial court not declaring the Board's action void. HBS's success on some claims, but not all, necessitates applying the "merits test" established by the Fourth Circuit, which requires a party to prevail on at least some claims to qualify for attorney's fees. This approach aligns with previous North Carolina case law, which emphasizes the importance of achieving significant benefits from the litigation. The court will compare what HBS sought in its complaint with what was actually obtained to assess if there was success on significant issues. In contrast, in the case of Hillhaven, the plaintiffs failed to succeed on any substantial issues despite bringing multiple claims.

HBS sought a declaration that the Board violated the Open Meetings Law and that the Board's termination order was null and void. The trial court granted HBS' motion for summary judgment, finding a violation of the Open Meetings Law, and issued a permanent injunction preventing the Board from discussing or voting on independent contractors' performance in closed sessions. However, the court decided not to declare the termination order null and void. HBS was deemed to have succeeded in its primary legal claim by proving the violation, which constituted a significant success, thus qualifying HBS as a "prevailing party." Consequently, the trial court's award of reasonable attorney's fees to HBS was affirmed. The court reviewed additional claims and found them without merit. The decision was affirmed by Judges Eagles and John C. Martin.