N.C. Court of Appeals Affirms Dismissal of Public Records Action against State Treasurer
Posted in Public Records

The North Carolina Court of Appeals earlier this week affirmed in a 2-1 decision the dismissal of a public records action brought by the State Employees Association of North Carolina ("SEANC") against the North Carolina Department of the State Treasurer ("Treasury Department"). The decision, which held that SEANC failed to state a claim under the North Carolina Public Records Act, N.C. Gen. Stat. s. 132-1, et seq., is troubling in how the court approached both the substantive and procedural issues presented in the case.

The long-brewing dispute traces back to correspondence between SEANC and the Treasury Department from March 2007.  At that time, the North Carolina State Treasurer was Richard Moore, who later fell short in a bid to become the Democratic nominee for North Carolina Governor during the 2008 election cycle.

After an investigative piece appeared in Forbes concerning investment decisions made with respect to the $73 billion state retirement system, SEANC's executive director submitted a written public records request to the Treasury Department.  In response to that request, the Treasury Department provided approximately 700 pages of documents to SEANC.

In October 2007, SEANC wrote again to the Treasury Department, asserting that its response to the March records request was incomplete, and requesting disclosure of additional categories of documents.  SEANC apparently received no response, and a month-and-a-half later threatened legal  action if the Treasury Department did not fully comply with the March and October records requests.  The parties exchanged correspondence in which the Treasury Department made statements about its production and asked in what ways SEANC believed the production was incomplete, and SEANC outlined what it believed were deficiencies in the Treasury Department's disclosure.

SEANC instituted a public records action in February 2008, alleging in its complaint that "defendants have failed to provide copies of a significant portion of the public records requested in Dana S. Cope's March 1, 2007, letter (Exhibit B) and practically all of the public records requested in Dana S. Cope's October 16, 2007, letter (Exhibit C)." 

The Treasury Department filed an answer in response to the complaint, affirmatively alleging that "except insofar as any documents may be exempted from Plaintiff's public records request as 'trade secrets' within the meaning of N.C. Gen. Stat. ss.132-1.2(1)a and 66-152(3), all responsive records have been provided, and that to date well over 2,000 pages of documents have been produced."  The Treasury Department also moved to dismiss SEANC's complaint under Rule 12(b)(6) on the grounds that all responsive documents, with the exception of any statutory trade secrets, had been produced.

The trial court granted the Treasury Department's motion, which SEANC appealed.  On appeal, the North Carolina Court of Appeals affirmed the dismissal in a decision that is troubling in at least two respects.

First, despite the fact that the case was at the Rule 12(b)(6) stage, at which point the allegations of the plaintiff's complaint must be taken as true, the court recited material affirmatively alleged (without affidavit or verification) in the Treasury Department's answer.  In particular, the court noted that the Treasury Department contended in its answer that it had produced all responsive documents in its possession (exceeding 2,000 pages) that were not trade secrets.  From this allegation in the answer, the court concluded:

After Defendants reviewed their records to determine which records were public, it was reasonable for Defendants to deny Plaintiff's request regarding the public records that were not in their possession and records which contained trade secrets and therefore were within the public records exception.

This statement assumes the truth of facts not evident from the allegations on the complaint -- indeed that are directly contrary to the allegations of the complaint -- including whether the Treasury Department had sufficiently reviewed its records, whether it had produced all responsive  documents in its possession, and whether any documents withheld in fact constitute trade secrets under North Carolina law.  In short, the court assumed as true matters alleged in the answer rather than matters alleged in the complaint.

Second, from this flawed procedural foundation the court drew a questionable legal conclusion as to the substantive matter before it, namely whether SEANC had stated a claim under the public records act.  The court stated that the Treasury Department "met its burden" under the public records act by asking SEANC to specifically identify what documents it contended the Treasury Department had failed to produce.  Setting aside the question of whether SEANC in its correspondence had in fact provided such specificity to the Treasury Department, the court concluded that

The complaint did not allege that Defendants were in possession of any particular public records that were being wrongfully withheld from Plaintiff, but merely alleged that Defendants had failed to provide portions of the requested public records.

The court does not provide any statutory citation for this purported pleading requirement, nor did it cite any prior appellate decision finding one.  Section 132-9 of the public records act straightforwardly provides:

Any person who is denied access to public records for purposes of inspection and examination, or who is denied copies of public records, may apply to the appropriate division of the General Court of Justice for an order compelling disclosure or copying, and the court shall have jurisdiction to issue such orders.

There is no suggestion that a person who believes a state agency has failed to comply with a public records request need specify in the complaint or otherwise those particular documents he or she believes have been withheld.  And the court offered no explanation for how a requesting party, particularly one seeking categories of documents, would be in a position to set out with precision what documents had not been provided.

The court concluded as follows:

We hold that although Plaintiff did not have the burden of showing Defendants' possession of the requested public records, Defendants correctly reviewed their records, determined which which public records were in their possession, and produced the responsive public records.

The bottom line is that the record before the court -- with only the allegations of the complaint, which must be taken as true, and an answer -- simply does not provide a basis from which the court could reach such a determination at the initial pleadings stage of the case.

Judge Elmore dissented from the majority decision, which means under North Carolina law that SEANC has an automatic right of appeal to the North Carolina Supreme Court.  We will follow closely any further developments in this case.

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