When a North Carolina superior court judge ruled in Maready v. City of Winston-Salem that § 158-7.1 economic development incentives were unconstitutional, did that ruling immediately bind every other county in the state, and were Guilford County commissioners personally on the hook for honoring an existing 1993 reimbursement contract for developer-built water and sewer lines?
Plain-English summary
In August 1995, Forsyth County Superior Court Judge Julius A. Rousseau, Jr. ruled in Maready v. City of Winston-Salem that N.C.G.S. § 158-7.1, the statute authorizing cities and counties to provide economic development incentives, was unconstitutional. The ruling sent shockwaves through North Carolina's economic-development community. Guilford County had a 1993 reimbursement contract with a developer for water and sewer lines that, when built and dedicated to adjacent municipalities, would open new areas for development. Representative Alma S. Adams asked the AG: could Guilford County keep honoring that contract after Judge Rousseau's ruling, and were the Guilford County Commissioners personally on the hook?
Chief Counsel John R. McArthur, Assistant AG Jane T. Friedensen, and Assistant AG W. Wallace Finlator, Jr., gave clear answers.
First, on the scope of Judge Rousseau's ruling: a superior court decision binds only the parties to that case. Judge Rousseau had decided a Forsyth County case involving the City of Winston-Salem. His ruling was not binding on other city or county governments engaged in similar economic-development projects under § 158-7.1. It would have statewide effect only if affirmed (or reversed) by the North Carolina Court of Appeals or Supreme Court. Until those appellate decisions came down, Guilford County could continue to operate as before.
Second, Judge Rousseau's ruling, by its terms, did not apply to expenditures made pursuant to contracts entered into before August 10, 1995, the date of the trial-court ruling. The Guilford County contract dated to a September 30, 1993 open meeting; it predated the ruling and would not have been affected even if the ruling did bind Guilford County. The AG also noted that the Guilford County contract was structurally distinguishable from the Maready projects. The county was reimbursing a developer for water and sewer lines that had been built on the developer's property, dedicated to adjacent municipalities, and would serve previously unserved areas. That was not the kind of direct cash-incentive to a private firm that Maready had challenged; it was a contractor reimbursement for public works.
Third, on commissioner personal liability: North Carolina law gives public officials, including county commissioners, strong protection against personal liability for governmental acts. The leading case was Smith v. Hefner, 235 N.C. 1 (1951), which held that "a public official, engaged in the performance of governmental duties involving the exercise of judgment and discretion, may not be held personally liable for mere negligence in respect thereto. The rule in such cases is that an official may not be held liable unless it be alleged and proved that his act, or failure to act, was corrupt and malicious, or that he acted outside of and beyond the scope of his duties." County commissioners are public officers under Harris v. Watson, 201 N.C. 661 (1931). Continuing to honor existing pre-August 10 contracts was within the scope of the commissioners' duties; it was not corrupt or malicious. So no personal liability attached.
The AG's bottom line for Guilford County was practical: keep paying the developer under the existing contract. Judge Rousseau's ruling did not stop you, and your commissioners are not personally exposed.
Currency note
This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Maready litigation produced a notable North Carolina Supreme Court decision in 1996 (Maready v. City of Winston-Salem, 342 N.C. 708) upholding the constitutionality of § 158-7.1. So the trial-court ruling that triggered this AG opinion was reversed shortly after the opinion issued. North Carolina's economic-development incentive framework has evolved substantially since 1995, and any current incentive package should be reviewed against the current statutory and case-law framework rather than against the 1995 question.
Background and statutory framework
Maready was a high-profile constitutional challenge to the practice, common in North Carolina in the 1980s and 1990s, of cities and counties offering cash incentives, infrastructure reimbursements, and tax-rebate-like arrangements to attract private companies to locate or expand within their jurisdictions. The plaintiff argued that these incentives violated the state constitution's public-purpose clause and prohibition on certain types of gifts of public credit.
Judge Rousseau's August 1995 ruling, the focus of the AG's analysis, agreed with the plaintiff. The ruling left local governments wondering whether they had to pull back existing incentive programs immediately. The AG's intervention provided clarity: ruling-of-a-single-judge legal effects are narrow, and other counties did not have to halt economic-development activity in response to a non-final, non-appellate-court ruling.
The personal-liability analysis is one of the cleanest applications of North Carolina public-officer immunity case law. Smith v. Hefner and the Harris line establish that officials engaged in discretionary governmental duties are protected from personal liability for ordinary judgments and decisions made in good faith. The high bar is "corrupt and malicious" conduct, or action "outside of and beyond the scope of his duties." Continuing performance of an existing pre-ruling contract clearly fell within the scope of duty and could not be characterized as corrupt or malicious.
The AG was also careful to note the limit of its conclusion. The appeal of Judge Rousseau's ruling was pending. If the Court of Appeals or Supreme Court ultimately upheld the ruling, the statewide picture would change. But that had not happened yet, and the question for Guilford County's commissioners was about their immediate conduct in the autumn of 1995.
Common questions
Could other counties keep entering into new § 158-7.1 incentive contracts after the trial-court ruling?
Yes, under the AG's analysis. The trial-court ruling bound only the parties to that case; other counties could continue to use § 158-7.1 unless and until an appellate court invalidated it.
What if Guilford County had wanted to cancel its 1993 contract because of the ruling?
The opinion didn't address contractual cancellation specifically. Practically, the county had no obligation to cancel the contract, since Judge Rousseau's ruling didn't apply to pre-ruling contracts in any county. Whether the developer would have had a breach-of-contract claim if the county tried to cancel is a separate question.
Could the developer or the public sue the commissioners personally if the ruling later became statewide?
Only if they could allege and prove the commissioners acted corruptly and maliciously or outside the scope of their duties. The mere fact that the underlying statute was later invalidated by an appellate court would not automatically make personal liability attach, under Smith v. Hefner's protective rule for discretionary governmental conduct in good faith.
What ended up happening to § 158-7.1?
The North Carolina Supreme Court reversed Judge Rousseau in 1996 and upheld the constitutionality of § 158-7.1. The statute remained the framework for local economic-development incentives in North Carolina.
Source
Citations
- N.C.G.S. § 158-7.1
- Maready v. City of Winston-Salem, Forsyth Co. Civil Action No. 95 CVS 623 (trial court, Aug. 10 / Aug. 28, 1995)
- Harris v. Watson, 201 N.C. 661 (1931)
- Smith v. Hefner, 235 N.C. 1 (1951)
Original opinion text
September 7, 1995
The Honorable Alma S. Adams, Ph.D. North Carolina General Assembly House of Representatives Room 542, State Legislative Office Building Raleigh, North Carolina 27601-1086
RE: Request for Advisory Opinion, Maready v. City of Winston-Salem, et al. Forsyth Co. Civil Action No. 95 CVS 623
Dear Representative Adams:
We are writing in response to your 6 September 1995 request for an advisory opinion regarding the effect of the Honorable Julius A. Rousseau, Jr.'s ruling in Maready v. City of Winston-Salem, et al. upon certain economic development activities in Guilford County.
You have posed two specific inquiries: (1) May Guilford County honor an existing contract, entered into in good faith pursuant to an open meeting on 30 September 1993, to reimburse a developer for construction of water and sewer lines on the developer's property where the water and sewer lines in question would be owned by the adjacent municipalities and would open previously unserved areas of the county for development? (2) What personal liability do the Guilford County Commissioners have in honoring the above described contract, and other economic incentive contracts executed prior to 10 August 1995? We shall address these questions seriatim.
Judge Rousseau's judgment in the Maready case does not preclude Guilford County from honoring an existing contract, entered into in good faith pursuant to an open meeting on 30 September 1993, to reimburse a developer for construction of water and sewer lines on the developer's property where the water and sewer lines in question would be owned by the adjacent municipalities and would open previously unserved areas of the county for development. Judge Rousseau's ruling is binding only upon the parties to the case before him. His ruling accordingly is not binding upon other city or county governments engaged in economic development projects under the auspices of N.C.G.S. § 158-7.1. Moreover, Judge Rousseau's ruling is inapplicable to economic development initiatives authorized by statutes other than § 158-7.1, or pursuant to contracts executed prior to 10 August 1995. On the other hand, a ruling by the North Carolina Court of Appeals or the North Carolina Supreme Court affirming or reversing Judge Rousseau's ruling with respect to the constitutionality of § 158-7.1 would bind all city and county governments in North Carolina.
The facts set forth in your letter indicate that the water and sewer lines in question have been built by the developer, dedicated to a municipality, and the county has agreed to reimburse the developer for their construction. These facts appear to distinguish the project about which you have inquired from the incentive projects at issue in Maready. We are aware of nothing in Judge Rousseau's order which would preclude a city or county from entering into a contract for the construction of public works and reimbursing the contractor for the value received.
Your second question asks what personal liability the Guilford County Commissioners have in honoring the above described contract and other economic incentive contracts executed prior to 10 August 1995. It is settled law that county commissioners are public officers. Harris v. Watson, 201 N.C. 661, 664 (1931). It is also settled law that the personal liability of public officers engaged in the performance of their governmental duties is extremely narrow. In Smith v. Hefner, 235 N.C. 1, 7 (1951), the North Carolina Supreme Court held:
It is settled law in this jurisdiction that a public official, engaged in the performance of governmental duties involving the exercise of judgment and discretion, may not be held personally liable for mere negligence in respect thereto. The rule in such cases is that an official may not be held liable unless it be alleged and proved that his act, or failure to act, was corrupt and malicious [citations omitted], or that he acted outside of and beyond the scope of his duties.
As indicated, Judge Rousseau's 10 August 1995 ruling binds only the parties to Mr. Maready's suit, and of course the Guilford County Commissioners were not parties to that suit. In fact, Judge Rousseau's written order and judgment, which was entered on 28 August 1995 (copy attached), does not apply to expenditures made pursuant to contracts entered into by Forsyth County and Winston-Salem prior to 10 August 1995. It would seem difficult, if not impossible, to prove that the Commissioners of Guilford County acted corruptly and maliciously in honoring existing contracts when such contracts would not have been affected even if Guilford County and its Commissioners were bound by Judge Rousseau's ruling, which they are not. Continuing to honor such incentive contracts would appear to be clearly within the scope of the Commissioners' duties and responsibilities.
John R. McArthur Chief Counsel
Jane T. Friedensen
Assistant Attorney General
W. Wallace Finlator, Jr. Assistant Attorney General