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This month’s edition of the Legal Institute Sidebar features a case with substantive implications on North Carolina’s business legal climate, as well as a few intriguing procedural quirks. The case in question, Cheryl Lloyd Humphrey Land Investment Company v. Resco Products, Inc., and Piedmont Minerals Company, Inc., centered on whether an entity’s petitioning activity provides adequate justification for a lawsuit seeking damages for tortious interference with prospective economic advantage. (For brevity’s sake, I will refer to the plaintiff as Land Investment Company and the defendants, collectively, as Resco.)

The case was decided by the N.C. Supreme Court on June 11, 2021, when the Court reversed the unanimous opinion of an N.C. Court of Appeals panel, ruling that the First Amendment of the U.S. Constitution and Article 1, Section 12 of the North Carolina Constitution bar such a lawsuit based upon the defendant’s petitioning activity. In rendering this judgment, the Supreme Court reaffirmed an earlier ruling by the Orange County Superior Court, which the Court of Appeals had overturned. One notable procedural aspect of this case is that the Supreme Court rarely takes up unanimous decisions by the Court of Appeals. Such decisions do not have an appeal-of-right to the Supreme Court; since the Supreme Court took this case of its own discretion, they were likely interested in making a larger point.

The facts of the case involve an agreement between Land Investment Company and a third party, Braddock Park Homes, Inc. (hereinafter, Braddock Park), whereby Braddock Park would purchase property owned by Land Investment Company near the Town of Hillsborough, provided the town annexed and rezoned the property in question. Braddock Park intended to use the property for the development of multifamily housing units. The contract allowed Braddock Park, if it so chose, to sever from the obligation to purchase a parcel of the land adjacent to a mine operated by Resco.

During a hearing held by the Town of Hillsborough to solicit public comment on the rezoning proposal, Resco objected to the plan based upon the potential danger to homes built on land adjacent to its mining operations. Land Investment Company submitted comments in response, arguing that these alleged risks – including potential damage from blasting, ground vibration, and fly rock – were greatly exaggerated. The Town of Hillsborough, in apparent agreement with Land Investment Company, then approved the proposal to annex and rezone the land.

Notwithstanding the Town’s decision, Braddock Park exercised its right under the contract to sever from the transaction the parcel adjacent to the mine, citing the potential for foundational damage due to ground vibrations and the dangers to human health from fly rock. Land Investment Company then brought suit seeking damages from Resco, claiming that Resco’s testimony at the public hearing constituted an unlawful and tortious interference with Land Investment Company’s contract and its prospective economic advantage.

Each of the courts hearing this case conducted an analysis of the Noerr-Pennington doctrine, a doctrine arising from an antitrust context which provides that statements made in political proceedings, such as a rezoning or permit hearing, are protected from antitrust liability resulting from the potentially anticompetitive impacts of such statements. Subsequent case law expanded the doctrine beyond its original antitrust context, extending similar protections to statements made in non-judicial government forums.

The N.C. Supreme Court, in its ruling, noted that Article 1, Section 12 of the N.C. Constitution – entitled “Right of Assembly and Petition” – predates the First Amendment; it was, in fact, based on the fundamental right to petition a sovereign which first arose in the Magna Carta. It states:

“The people have a right to assemble together to consult for their common good, to instruct their representatives, and to apply to the General Assembly for redress of grievances; but secret political societies are dangerous to the liberties of a free people and shall not be tolerated.”

Because local governments in North Carolina are delegated their power and authority from the General Assembly, this right extends to governmental activities such as a public zoning process. Indeed, the right to petition the government is protected to the extent that “the maliciousness [or] falsity of the statements” made by Resco had “no bearing on [the Court’s] analysis.” Compare that to a public hearing for a state or municipal permit. Many of you may have witnessed public commenters make statements that are hyperbolic, at best, if not demonstrably false. The commenters may not know their statements are false, but even if they possess such knowledge, their right to comment remains protected.

The remedy for the maligned applicant in this case, the Court ruled, is to provide their own testimony showing the opposing commenter’s statements to be false. And, in fact, that is precisely what transpired. Land Investment Company provided statements, data, and information that contradicted the claims of Resco, and the Town of Hillsborough was persuaded to approve the annexation and rezoning. Braddock Park’s decision to sever from the contract the mine-adjacent parcel may well have been recognition of potential future issues as homeowners claimed damage due to vibration or other damages. It is likely this was the precise reason they negotiated the term to start with.

Let’s flip the script and examine Land Investment Company’s position. It made its deal with Braddock Park only to be faced with public comments it knew to be – and subsequently exposed as – false. Nevertheless, those comments diminished the value of its deal. Had there been no public process and the operators of the mine simply whispered their claims in the ear of Braddock Park, might they have been liable to Land Investment Company? With the proper proof, perhaps the answer would be yes. Land Investment might understandably complain that the public process provided cover for otherwise tortious conduct.

A SLAPP suit, or “Strategic Lawsuit Against Public Participation,” is defined by Merriam-Webster as “a lawsuit alleging defamation that is in reality brought for the purpose of intimidating, burdening, punishing, or harassing the defendant for speaking out against the plaintiff on matters of public interest.” Ostensibly, the final ruling in this case, bringing to bear the full protection of Article 1, Section 12, could eliminate such suits. However, one must be mindful of where and in what context statements are made. Even if these protections can be shown to apply broadly, defending a lawsuit is expensive; and those potential costs have an intimidating effect. SLAPP suits, relatively speaking, do not appear to be common in North Carolina, but opinions on that assertion may vary. The public relations damage caused by a perceived SLAPP suit may be an inhibiting factor.

These are matters yet to be addressed by North Carolina courts, but this case may well be widely cited as such cases arise. The NC Chamber Legal Institute (CLI) will continue to track this issue and update you when and if new case activity emerges that affects the application of Article 1, Section 12 and the practice of SLAPP suits in our state. In the meantime, it appears the N.C. Supreme Court is content on providing businesses with similar protections as those afforded to other participants in public hearing settings.

Sincerely,

Ray Starling
President
NC Chamber Legal Institute