Latest legal fight over hog farm slush fund could return to court in June

A lawsuit challenging state Attorney General Josh Stein’s ability to pull millions of dollars out of North Carolina’s treasury for his grant priorities could head to a Wake County courtroom in June.

The money is connected to a multimillion-dollar deal former Attorney General Mike Easley negotiated with Smithfield Foods in 2000. The agreement called for Smithfield to pay the state $2 million each year through 2026.

Easley’s successors as attorney general have used the money to fund environmental grants. Critics have labeled the arrangement a “slush fund.”

Randolph County pastor Jonathan Burris sued Stein in July 2023 on behalf of the local school board. A Superior Court judge transferred the case from Asheboro to Raleigh on April 15.

The suit argues that Stein violated the state constitution when he “requisitioned” more than $5.1 million from the state treasury from July 2019 to November 2023. Stein requested that money after the General Assembly approved a law in 2019 treating future Smithfield payments as gifts to the state.

A unanimous state Supreme Court ruled in 2022 in favor of Stein in an earlier suit targeting the Smithfield funds. At the time, the author of the high court’s opinion noted that a new lawsuit could challenge funds that reached state government after the 2019 law took effect.

Lawyer Paul “Skip” Stam, a former Republican state House leader, is representing Burris. Stam is a board member of the John Locke Foundation, which oversees Carolina Journal.

Burris is a “citizen and taxpayer of Randolph County who made a demand on the Randolph County Board of Education to file this action. The Randolph County Board of Education wrongfully refused to file this action,” according to the case’s amended complaint.

The lawsuit originally targeted Stein, Gov. Roy Cooper, state Controller Nels Roseland, and two other state employees. Burris voluntarily dismissed his complaint against the final two defendants this week.

Easley’s original deal with Smithfield Foods required the company “to pay each year for 25 years an amount equal to one dollar for each hog in which the Companies … have had any financial interest in North Carolina during the previous year, provided, however, that such amount shall not exceed $2 million in any year,” according to the lawsuit.

“From 2000 [through] 30 June 2019 the Attorney General deposited funds directly into an account solely within the Attorney General’s control,” the suit continued. “The Attorney General then disbursed the Agreement funds from his account to grant recipients selected in the Attorney General’s sole discretion.”

The General Assembly approved a law in 2019 — NC General Statute 147-76.1 — requiring “all funds received by the State, including cash gifts and donations, shall be deposited into the State treasury.”

After the law took effect, Stein “began depositing the Agreement funds into the State treasury a total of more than $8,150,000.00 through June of 2023,” according to the lawsuit.

A later court filing indicated total deposits topped $10.2 million by November 2023.

“Although the Attorney General began depositing Agreement funds into the State treasury, the Attorney General continued to ‘requisition’ Agreement funds from the Treasury to the Department of Justice for payments to his selected grant recipients,” the lawsuit alleged. “From 1 July 2019 to June 2023, the Attorney General has consistently requisitioned Agreement Funds without legal authority to do so.”

Burris argues that Stein’s actions violated the state constitution.

“Article V of the North Carolina Constitution provides that ‘[nJo money shall be drawn from the State treasury but in consequence of appropriations made by law,’” according to the lawsuit. “There are no ‘appropriations made by law’ for the drawing of Agreement funds from July 1, 2019 to the present.”

If the judge determines that an appropriation has occurred, the money should go to North Carolina’s civil penalty forfeiture fund, the suit argued. That fund benefits local school systems.

“The purpose of Article V is to ensure that the people, through their elected representatives in the General Assembly, have full and exclusive control over the allocation of the state’s expenditures. ‘The power of the purse is the exclusive prerogative of the General Assembly,’” according to the lawsuit.

“By drawing or abetting the drawing of Agreement funds from the State treasury without an appropriation, Defendants have violated Article V of the North Carolina Constitution and Chapter 143C of the General Statutes,” the plaintiffs argued.

Article IX of the state constitution focuses on education funding.

“This Court should declare that Defendants’ actions violated Article IX and deprived the public schools of these funds,” according to the lawsuit. “As part of that judgment, the Court should order all unappropriated funds placed in the State treasury after 1 July 2019 may only be appropriated to the public schools and require the Attorney General to return to the State treasury all the funds that it ‘requisitioned’ from 1 July 2019 to the present. The Court should order that such funds go to the Civil Penalty Forfeiture Fund to be used for environmental enhancement at K-12 public schools.”

Stam filed a motion Wednesday asking a judge to  grant summary judgment favoring Burris.

State lawyers representing Stein, Cooper, and Roseland filed a motion Friday to dismiss the case. “The grounds for dismissal include but are not limited to lack of standing, mootness, sovereign immunity, and failure to state a claim for relief. Plaintiff’s claims fail as a matter of law,” according to the court filing.

A calendar request indicates that a hearing in the case could take place as early as June 10.

Burris filed suit more than a year after the state Supreme Court’s 2022 decision in New Hanover County Board of Education v. Stein. The 6-0 decision allowed Stein to continue using the money to fund an environmental grant program he controls.

The Supreme Court’s decision overruled the N.C. Court of Appeals. That court had ruled in December 2020 that money connected to the Smithfield deal should head to the state treasury.

The Appeals Court’s decision followed an April 2020 state Supreme Court victory for Stein. With a 6-1 vote, the high court had rejected the New Hanover County school board’s argument that the Smithfield money should be considered a civil penalty.

A ruling in favor of the school board at that time would have sent all proceeds from the Smithfield deal to a state fund supporting public schools. Instead the court determined that the Smithfield funds amounted to a gift to the state.

When the Supreme Court returned the case to the Appeals Court in 2020, judges at that intermediate appellate court determined that a 2019 state law required shifting the money to the treasury. NCGS § 147-76.1 says cash gifts and donations to the state “shall be deposited into the State treasury.”

Justice Sam “Jimmy” Ervin IV wrote both the 2020 and 2022 Supreme Court opinions.

“We agree with the Attorney General that the Board of Education’s complaint did not suffice to state a claim for relief,” Ervin wrote in 2022.

Ervin noted that the Appeals Court addressed the impact of the 2019 law long after the case had gone to trial.

“In this case, … the trial court was never asked to consider whether the Board of Education’s complaint sufficed to state a claim pursuant to N.C.G.S. § 147-76.1 and could not have done so because the relevant statutory provision did not exist at the time that the trial court decided to grant summary judgment in the Attorney General’s favor,” Ervin wrote. “As a result, this case does not involve ‘mislabel[ing]’ or a ‘fail[ing] to label’ a claim properly; instead, the Board of Education could not have asserted a claim based upon § 147-76.1 before the trial court because the amended complaint was filed years before the relevant statutory provision was enacted.”

“In other words, the Court of Appeals lacked the authority to address and decide a wholly new claim,” he added.

Though the New Hanover County case was over, the school board could file a new lawsuit based on the 2019 law, Ervin wrote.

Smithfield and its subsidiaries made a $50 million deal in 2000 with Easley. Easley’s immediate successor, Cooper, set up the grant program that Stein has overseen since 2017.

The legal fight against the attorney general’s environmental grant fund started in October 2016. Francis De Luca, then-president of the Civitas Institute, went to court to have the proceeds of the fund declared a state penalty against Smithfield. As the case proceeded through the state’s legal system, courts ruled De Luca out as a plaintiff. The New Hanover County school board proceeded with the case after De Luca bowed out.

The Civitas Institute merged capabilities in 2021 with the John Locke Foundation.

Editor’s note: This article has been updated to include information about deposits and withdrawals related to the Smithfield funds through November 2023.

The post Latest legal fight over hog farm slush fund could return to court in June first appeared on Carolina Journal.


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