Meinck v. City of Gastonia
Meinck v. City of Gastonia
Opinion
*355
Here we consider whether the trial court erred in granting a motion for summary judgment in favor of defendant, the City of Gastonia, based upon the doctrine of governmental immunity. The Court of Appeals concluded that governmental immunity did not apply and reversed the trial court's order granting summary judgment in favor of defendant.
Meinck v. City of Gastonia
, --- N.C. App. ----,
Background
In 2011 defendant purchased from Gaston County a historic building located at 212 West Main Avenue in downtown Gastonia. According to an affidavit and deposition testimony from defendant's city manager, Edward C. Munn, defendant had determined that this vacant building was in a "strategic location" for defendant's effort to redevelop and revitalize the downtown area, which was rife with vacant and deteriorating properties. According to Munn, "your downtown is your face. It is how you project your image to the rest of anyone who wants to do commerce or if you want to live there." Defendant's intent in purchasing the building was to preserve it "but also to put it into use" and "not [ ] allow it to be vacant and deteriorate." Defendant had further determined that, based on other successful examples throughout the country, one of the "key pieces" necessary for revitalization was "bringing artists into the downtown" and into the older buildings with the idea that the downtown area would thus become more attractive for businesses and people.
To that end, defendant began leasing the property to "nonprofit arts groups," first to the Gaston County Arts Council, Inc. from 2011 to 2013, and then, beginning in mid-2013, to the Gaston County Art Guild (the Art Guild). As with the nearly identical first lease agreement, the lease agreement between defendant and the Art Guild (the lease) provided that the Art Guild was to sublease portions of the building to individual artists (the subtenants) to use as studios-a cooperative enterprise 1 referred to as "Arts on Main." Under the lease defendant was responsible for maintaining the exterior of the premises and also had the right to inspect the property at any time. 2 The lease required the Art Guild to use the property "only for purposes of an art gallery and artists' studios and a gift shop" and required the subtenants to use the property only for creating and selling works of art. The lease fixed the rents to be paid by subtenants for the studio spaces at a range of $90.00 to $375.00 per month and provided that all art sales made at the property were subject to a 30% commission.
Under the lease defendant received 90% of all rents paid by the subtenants and 15% of "the gross receipts from all sales or commissions occurring on" the property. 3 In addition, the lease required the subtenants to provide as consideration a minimum of fifteen hours per month of volunteer time tending the gallery and gift shop, and subtenants were expected to provide additional volunteer time necessary for the operation of Arts on Main as a "viable operation." In the 2013 fiscal year, defendant's revenues received from the rents and sales or commissions amounted to $21,572.98. Defendant's expenditures for that year totaled $33,062.01, which netted a loss of $11,489.03 for 2013. In the 2014 fiscal year, defendant's revenues from *356 the rents and sales or commissions totaled $21,935.57 and its expenditures totaled $40,008.13, netting defendant a loss of $18,072.56. Additionally, Munn testified that defendant spent money on labor and overhead but did not include those items in its financial spreadsheet. According to Munn, the city did not seek to make a profit from the lease with the Art Guild and "there's no profit in this operation."
On 11 December 2013, plaintiff, who was one of the subtenants of the Art Guild, was leaving the building through a rear exit carrying a stack of large pictures when she lost her balance on a set of steps and fell. Evidence tended to show that part of the concrete steps had eroded. Plaintiff suffered a broken hip and other injuries as a result of her fall, and she "required emergency medical treatment, surgery, hospitalization, and substantial rehabilitation." On 4 February 2015, plaintiff filed a complaint against defendant alleging that defendant was negligent in failing to maintain the building's exit in a reasonably safe condition and failing to warn of the dangerous and hazardous condition of the exit. Plaintiff's complaint alleged that defendant had waived any claim of governmental immunity by purchasing liability insurance and also that defendant's tortious conduct occurred while defendant was engaged in a proprietary function, thereby depriving defendant of governmental immunity.
On 12 January 2016, defendant filed a motion for summary judgment asserting that the city was entitled to governmental immunity, that defendant was not negligent as a matter of law, and that plaintiff was contributorily negligent as a matter of law. The trial court determined that defendant's liability insurance policy "contained an express non-waiver provision" and therefore, defendant had not waived any claim of governmental immunity. The trial court further concluded that "the City leased the property to the Art Guild as part of its governmental function to revitalize the downtown area, preserve a historical structure, and prevent deterioration of the downtown area" and accordingly, was "entitled to governmental immunity regarding Plaintiff's claims." On that basis, the trial court granted summary judgment for defendant. Additionally, the trial court determined that, although the issue was moot in light of the court's ruling on immunity, the court would deny defendant's motion for summary judgment based on plaintiff's contributory negligence. Plaintiff appealed this order to the Court of Appeals.
At the Court of Appeals plaintiff argued that defendant's ownership and maintenance of the building leased to the Art Guild as part of defendant's downtown revitalization efforts was a proprietary function and not a governmental function; therefore, defendant was not entitled to governmental immunity. The Court of Appeals agreed, noting first that governmental immunity applies only if a municipality is engaging in a governmental function, as opposed to a proprietary function.
Meinck
, --- N.C. App. at ----,
The Court of Appeals then addressed additional factors, including "whether the service is traditionally a service provided by a governmental entity, whether a substantial fee is charged for the service provided, and whether that fee does more than simply cover the operating costs of the service provider."
Additionally, the court addressed the parties' arguments on negligence and contributory negligence.
On 20 April 2017, defendant filed a petition for discretionary review seeking review of the decision of the Court of Appeals that concluded that governmental immunity did not apply and that plaintiff was not contributorily negligent as a matter of law. Plaintiff filed a conditional petition for discretionary review on 28 April 2017 also seeking review of the issue of plaintiff's contributory negligence. This Court allowed both petitions on 8 June 2017.
Analysis
Defendant argues that the Court of Appeals erred in reversing the trial court's order granting summary judgment for defendant on the basis of governmental immunity. We agree.
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C.G.S. § 1A-1, Rule 56(c) (2017). We review a trial court's order denying a motion for summary judgment de novo.
E.g.
,
Bynum v. Wilson County.
,
"Under the doctrine of governmental immunity, a county or municipal corporation 'is immune from suit for the negligence of its employees in the exercise of
governmental functions
absent waiver of immunity.' "
Williams
,
*358
When, however, a county or municipality is engaged in a "
proprietary function
," governmental immunity does not apply.
Id. at 199,
In Williams we addressed this distinction between governmental and proprietary functions, noting that:
We have long held that a "governmental" function is an activity that is "discretionary, political, legislative, or public in nature and performed for the public good in behalf of the State rather than for itself." Britt v. City of Wilmington ,236 N.C. 446 , 450,73 S.E.2d 289 , 293 (1952). A "proprietary" function, on the other hand, is one that is "commercial or chiefly for the private advantage of the compact community."Id. [ at 450,73 S.E.2d at 293 ]; see also Evans ,359 N.C. at 54 ,602 S.E.2d at 671 (describing the test set forth in Britt as our "one guiding principle").
Our reasoning when distinguishing between governmental and proprietary functions has been relatively simple, though we have acknowledged the difficulties of making the distinction. Evans ,359 N.C. at 54 ,602 S.E.2d at 671 ("The difficulties of applying this principle have been noted." (citations omitted) ). "When a municipality is acting 'in behalf of the State' in promoting or protecting the health, safety, security, or general welfare of its citizens, it is an agency of the sovereign. When it engages in a public enterprise essentially for the benefit of the compact community, it is acting within its proprietary powers." Britt ,236 N.C. at 450-51 ,73 S.E.2d at 293 .
Id.
at 199-200,
First, we concluded that "the threshold inquiry ... is whether, and to what degree, the legislature has addressed the issue."
when the particular service can be performed both privately and publicly, the inquiry involves consideration of a number of additional factors, of which no single factor is dispositive. Relevant to this inquiry is whether the service is traditionally a service provided by a governmental entity, whether a substantial fee is charged for the service provided, and whether that fee does more than simply cover the operating costs of the service provider. We conclude that consideration of these factors provides the guidance needed to identify the distinction between a governmental and proprietary activity. Nevertheless, we note that the distinctions between proprietary and governmental functions are fluid and courts must be advertent to changes in practice. We therefore caution against overreliance on these four factors.
Here it is undisputed that the activity out of which defendant's alleged tortious conduct arose was defendant's leasing of the property at 212 West Main Avenue to the Art Guild. It is further undisputed that defendant purchased this historic and vacant property and entered into the lease as part of its efforts at urban redevelopment and downtown revitalization. With regard to the "threshold inquiry" under
Williams
,
First, N.C.G.S. § 160A-272 authorizes a city to lease or rent any property it owns "but not for longer than 10 years ... and only if the council determines that the property will not be needed by the city for the term of the lease." N.C.G.S. § 160A-272(a) (2017). This statute requires the lease or rental agreement to be authorized by a resolution "adopted at a regular council meeting upon 30 days' public notice."
In Article 22 of Chapter 160A (the Urban Redevelopment Law), the legislature addressed the problem of "blighted areas" and authorized municipalities to engage in "redevelopment projects" in the interest of public health, safety, convenience, and welfare. N.C.G.S. §§ 160A-500 to -526 (2017). In N.C.G.S. § 160A-501 the legislature made the following findings:
(1) That there exist in urban communities in this State blighted areas as defined herein.
(2) That such areas are economic or social liabilities, inimical and injurious to the public health, safety, morals and welfare of the residents of the State, harmful to the social and economic well-being of the entire communities in which they exist, depreciating values therein, reducing tax revenues, and thereby depreciating further the general community-wide values.
(3) That the existence of such areas contributes substantially and increasingly to the spread of disease and crime, necessitating excessive and disproportionate expenditures of public funds for the preservation of the public health and safety, for crime prevention, correction, prosecution, punishment and the treatment of juvenile delinquency and for the maintenance of adequate police, fire and accident protection and other public services and facilities, constitutes an economic and social liability, substantially impairs or arrests the sound growth of communities.
(4) That the foregoing conditions are beyond remedy or control entirely by regulatory processes in the exercise of the police power and cannot be effectively dealt with by private enterprise under existing law without the additional aids herein granted.
(5) That the acquisition, preparation, sale, sound replanning, and redevelopment of such areas in accordance with sound and approved plans for their redevelopment will promote the public health, safety, convenience and welfare.
hereby declared [it] to be the policy of the State of North Carolina to promote the health, safety, and welfare of the inhabitants thereof by the creation of bodies corporate and politic to be known as redevelopment commissions, which shall exist and *360 operate for the public purposes of acquiring and replanning such areas and of holding or disposing of them in such manner that they shall become available for economically and socially sound redevelopment. Such purposes are hereby declared to be public uses for which public money may be spent, and private property may be acquired by the exercise of the power of eminent domain.
(1) That the cities of North Carolina constitute important assets for the State and its citizens; that the preservation of the cities and of urban life against physical, social, and other hazards is vital to the safety, health, and welfare of the citizens of the State, and sound urban development in the future is essential to the continued economic development of North Carolina, and that the creation, existence, and growth of substandard areas present substantial hazards to the cities of the State, to urban life, and to sound future urban development.
(2) That blight exists in commercial and industrial areas as well as in residential areas, in the form of dilapidated, deteriorated, poorly ventilated, obsolete, overcrowded, unsanitary, or unsafe buildings, inadequate and unsafe streets, inadequate lots, and other conditions detrimental to the sound growth of the community; that the presence of such conditions tends to depress the value of neighboring properties, to impair the tax base of the community, and to inhibit private efforts to rehabilitate or improve other structures in the area; and that the acquisition, preparation, sale, sound replanning and redevelopment of such areas in accordance with sound and approved plans will promote the public health, safety, convenience and welfare.
(3) That not only is it in the interest of the public health, safety, convenience and welfare to eliminate existing substandard areas of all types, but it is also in the public interest and less costly to the community to prevent the creation of new blighted areas or the expansion of existing blighted areas; that vigorous enforcement of municipal and State building standards, sound planning of new community facilities, public acquisition of dilapidated, obsolescent buildings, and other municipal action can aid in preventing the creation of new blighted areas or the expansion of existing blighted areas; and that rehabilitation, conservation, and reconditioning of areas in accordance with sound and approved plans, where, in the absence of such action, there is a clear and present danger that the area will become blighted, will protect and promote the public health, safety, convenience and welfare.
(3) To act as agent of the State or federal government or any of its instrumentalities or agencies for the public purposes set out in this Article;
(4) To prepare or cause to be prepared and recommend redevelopment plans to the governing body of the municipality and to undertake and carry out "redevelopment projects" within its area of operation;
....
(6) Within its area of operation, to purchase, obtain options upon, acquire by gift, grant, devise, eminent domain or otherwise, any real or personal property or any interest therein, together with any improvements thereon, necessary or incidental to a redevelopment project, except that eminent domain may only be used to take a blighted parcel; to hold, improve, clear or prepare for redevelopment any such property, and subject to the provisions of G.S. 160A-514, and with the approval of the local governing body sell, exchange, transfer, assign, subdivide, retain for its own use, mortgage, pledge, hypothecate or otherwise encumber or dispose of any real or personal property or any interest therein, either as an entirety to a single "redeveloper" or in parts to several redevelopers; provided that the commission finds that the sale or other transfer of any such part will not be prejudicial to the sale of other parts of the redevelopment area, nor in any other way prejudicial to the realization of the redevelopment plan approved by the governing body; to enter into contracts, either before or after the real property that is the subject of the contract is acquired by the Commission (although disposition of the property is still subject to G.S. 160A-514 ), with "redevelopers" of property containing covenants, restrictions, and conditions regarding the use of such property for residential, commercial, industrial, recreational purposes or for public purposes in accordance with the redevelopment plan and such other covenants, restrictions and conditions as the commission may deem necessary to prevent a recurrence of blighted areas or to effectuate the purposes of this Article; to make any of the covenants, restrictions or conditions of the foregoing contracts covenants running with the land, and to provide appropriate remedies for any breach of any such covenants or conditions, including the right to terminate such contracts and any interest in the property created pursuant thereto; to borrow money and issue bonds therefor and provide security for bonds; to insure or provide for the insurance of any real or personal property or operations of the commission against any risks or hazards, including the power to pay premiums on any such insurance; and to enter into any contracts necessary to effectuate the purposes of this Article;
....
(11) To make such expenditures as may be necessary to carry out the purposes of this Article; and to make expenditures from funds obtained from the federal government[.]
Also relevant to the activity at issue here is Article 23, the "Municipal Service District Act of 1973" (the Municipal Service District Act), N.C.G.S. §§ 160A-535 to -544 (2017), which allows cities to establish "service districts in order to finance, provide, or maintain for the districts one or more of the following services, facilities, or functions in addition to or to a greater extent than those financed, provided or maintained for the entire city,"
*362 improvements, services, functions, promotions, and developmental activities intended to further the public health, safety, welfare, convenience, and economic well-being of the central city or downtown area. Exercise of the authority granted by this Article to undertake downtown revitalization projects financed by a service district do not prejudice a city's authority to undertake urban renewal projects in the same area. Examples of downtown revitalization projects include by way of illustration but not limitation all of the following:
....
(7) Sponsoring festivals and markets in the downtown area, promoting business investment in the downtown area, helping to coordinate public and private actions in the downtown area, and developing and issuing publications on the downtown area.
In its analysis of the threshold inquiry, the Court of Appeals below briefly mentioned the Municipal Service District Act before concluding that "[n]owhere has the legislature deemed all downtown revitalization projects undertaken by a city within a service district to be activities[ ] which are exempt from suit through governmental immunity."
Meinck
, --- N.C. App. at ----,
For example, in
Williams
, while we reserved comment on whether a statute at issue there was "ultimately determinative in light of the facts at hand" and left that determination to the trial court upon remand, we did note that the statute at issue was, at a minimum, "clearly relevant" to whether the defendants' activity was governmental or proprietary.
in enacting the Housing Authorities Law at issue, the General Assembly provided
"that unsanitary or unsafe dwelling accommodations exist in urban and rural *363 areas throughout the State ...; that these conditions cannot be remedied by the ordinary operation of private enterprise; that the ... providing of safe and sanitary dwelling accommodations for persons of low income are public uses and purposes for which public money may be spent and private property acquired; ... and that the necessity for the provisions hereinafter enacted is hereby declared as a matter of legislative determination to be in the public interest."
Id. at 55,602 S.E.2d at 672 (alterations in original) (citing N.C.G.S. § 157-2(a) (2003) ). We considered the emphasized language a significant "statutory indication that the provision of low and moderate income housing is a governmental function."Id.
Williams
,
In that regard, we note that certain language from the Urban Redevelopment Law is similar in significant respects to the emphasized language from the Housing Authorities Law in
Evans
.
Compare
N.C.G.S. § 160A-501 (providing that "the public purposes of acquiring and replanning [blighted] areas and of holding or disposing of them in such manner that they shall become available for economically and socially sound redevelopment .... are hereby declared to be
public uses for which public money may be spent
" (emphasis added) ),
with
Evans
,
Nonetheless, as the Court of Appeals correctly recognized, the legislature has not deemed all urban redevelopment and downtown revitalization projects governmental functions that are immune from suit. Moreover, in
Williams
we recognized that even when the legislature has designated a general activity to be "a governmental function by statute, the question remains whether the specific [activity at issue], in this case and under these circumstances, is a governmental function."
The first of these additional factors inquires "if the undertaking is one in which only a governmental agency could engage," in which event "it is perforce governmental in nature."
Because the particular activity here can be performed both publicly and privately, we consider "a number of additional factors," including "whether the service is traditionally a service provided by a governmental entity, whether a substantial fee is charged for the service provided, and whether that fee does more than simply cover the operating costs of the service provider."
We have evidence, however, of the fees charged and the costs incurred by defendant. Here the lease sets rental rates for the Art Guild's subtenants in a range of not more
*365
than $90.00 to $375.00 per month, of which 90% is paid to defendant. Furthermore, defendant receives 15% of all sales or commissions under the lease, and subtenants are required to provide additional consideration in the form of volunteer time, with a minimum of fifteen hours per month. For the 2013 fiscal year, defendant's revenues from the rent and sales or commissions amounted to $21.572.98. Defendant's expenditures for that year totaled $33,062.01, with the city's electric charges alone totaling $26,547.34. Thus, defendant netted a loss of $11,489.03 that year. Defendant's loss for the 2014 fiscal year was even greater, with defendant's revenues amounting to $21,935.57 and its expenditures totaling $40,008.13, netting defendant a loss of $18,072.56. In addition, Munn testified that defendant spent money on labor and overhead but did not include those items in its financial spreadsheet. Despite these losses, plaintiff asserts that defendant received "financial gain" and that defendant's financial spreadsheet reflects a "budget surplus," referring to the fact that defendant spent less than was budgeted for Arts on Main. But this "surplus" reflected in the spreadsheet would, if anything, seemingly support defendant's position because it demonstrates that defendant had budgeted for, and prepared to suffer, losses even greater than the considerable loss it actually incurred. As Munn testified, the city did not seek to make a profit from the lease with the Art Guild and "there's no profit in this operation." We conclude that the revenues received by defendant under the lease are not "substantial," particularly because such revenues were not designed even to "simply cover the operating costs of the service provider," nor did they do so in reality.
7
Recognizing that the additional factors listed in
Williams
are not exhaustive,
Plaintiff does not actually dispute that defendant's lease with the Art Guild for the purpose of promoting the arts was an earnest effort at redeveloping and revitalizing its downtown area or that defendant did not seek or obtain any profit from this activity. Rather, the thrust of plaintiff's argument is that case law dictates that the "lease of government property to third parties" is a proprietary function. This broad proposition is not supported by plaintiff's proffered authorities, none of which are binding on this Court. To the extent plaintiff relies upon this Court's decision in
Aaser v. City of Charlotte
, in which the Court held the activities at issue were proprietary, that case is easily distinguished.
After careful consideration of all the factors set forth in
Williams
, we conclude that-in light of the statutory indications that urban redevelopment activities undertaken to promote the health, safety, and welfare of North Carolina citizens are governmental functions, and the legislative determination that urban blight "cannot be effectively dealt with by private enterprise" alone, as well as the uncontroverted evidence: that defendant's lease of the historic property to the nonprofit Art Guild in order to promote the arts in the downtown area was a valid urban redevelopment and downtown revitalization activity; that defendant did not seek to make a profit; and that the fees charged by defendant were not substantial and did not cover its operating costs-defendant's activity here in leasing the property to the Art Guild so as to promote the arts for the purpose of redeveloping and revitalizing the downtown area was a governmental function. Our decision should not be construed as holding that every urban redevelopment activity is a governmental function or even that every lease of historic property to a nonprofit arts group for the purpose of promoting the arts is a governmental function. Urban redevelopment and downtown revitalization activities defy straightforward definition, and such projects could seemingly cast a wide net encompassing a number of local government endeavors, many of which may be more commercial in nature or less geared towards remedying blighted areas and promoting the public interest than defendant's cooperative enterprise here with the Art Guild. We again emphasize that "the proper designation of a particular action of a county or municipality is a fact intensive inquiry ... and may differ from case to case."
As a final matter, this Court allowed discretionary review of an issue raised by both parties-whether the Court of Appeals correctly determined that defendant is not entitled to summary judgment as a matter of law on the issue of plaintiff's contributory negligence. As to this issue, we hold that discretionary review was improvidently allowed.
REVERSED AND REMANDED; DISCRETIONARY REVIEW IMPROVIDENTLY ALLOWED IN PART.
While one attachment to the lease described Arts on Main as "a cooperative business," Munn testified that it was more accurately characterized as "a non-profit cooperative effort to promote the arts."
The subtenants' studio spaces were subject to inspection during normal business hours.
The Court of Appeals erroneously stated that the lease "guaranteed Defendant 30% of the gross sales receipts received for art the Art Guild sold on the premises."
Meinck
, --- N.C. App. at ----,
"No public notice ... need be given for resolutions authorizing leases or rentals for terms of one year or less, and the council may delegate to the city manager or some other city administrative officer authority to lease or rent city property for terms of one year or less." N.C.G.S. § 160A-272(b) (2017).
Again, the legislature made a declaration of policy, providing that
it is hereby declared to be the policy of the State of North Carolina to protect and promote the health, safety, and welfare of the inhabitants of its urban areas by authorizing redevelopment commissions to undertake nonresidential redevelopment in accord with sound and approved plans and to undertake the rehabilitation, conservation, and reconditioning of areas where, in the absence of such action, there is a clear and present danger that the area will become blighted.
N.C.G.S. § 160A-502.
A municipality may also "designate a housing authority created under the provisions of Chapter 157 [Housing Authorities and Projects] to exercise the powers, duties, and responsibilities of a redevelopment commission." N.C.G.S. § 160A-505(a).
In reaching a different conclusion with respect to the revenues received by defendant, the Court of Appeals relied on
Glenn v. City of Raleigh
. In
Glenn
, which considerably predates our decision in
Williams
, the plaintiff was injured by a rock launched from a lawn mower being operated at Pullen Park, which was maintained by the defendant.
The legislature also created the North Carolina Arts Council to assist the Department in this function, providing that the Council is to, inter alia , "advise the Secretary [of Natural and Cultural Resources] concerning assistance to local organizations and the community at large in the area of the arts" and "advise the Secretary in regard to bringing the highest obtainable quality in the arts to the State and promoting the maximum opportunity for the people to experience and enjoy those arts." N.C.G.S. § 143B-87(2), (5) (2017).
Reference
- Full Case Name
- Joan A. MEINCK v. CITY OF GASTONIA, a North Carolina Municipal Corporation
- Cited By
- 10 cases
- Status
- Published
- Syllabus
- Negligence action for a slip and fall on City-owned premises leased to a nonprofit entity summary judgment granted for defendant based on governmental immunity whether ownership and maintenance of the building was a governmental or proprietary function.