eNotes: Liability – December 2022 – North Carolina

SIGNIFICANT CASE SUMMARIES

North Carolina Case Summary

Farmer v. Troy Univ.
North Carolina Supreme Court
No. 457PA19-2

Decided: November 4, 2022

Sovereign immunity can be waived by the “sue and be sued” clause of the North Carolina Nonprofit Corporation Act.

Background

Troy University, an Alabama state institution, opened an office in Fayetteville, North Carolina in 2006 to recruit military personnel stationed at Fort Bragg to take online courses. Troy registered as a nonprofit corporation with the North Carolina Secretary of State prior to opening its office. The Plaintiff was subjected to various acts of sexual harassment and retaliation and filed suit against Troy University asserting claims of wrongful discharge, negligent retention or supervision, and violation of his rights under the North Carolina Constitution.

The University and its employees moved to dismiss the suit for failure to state a claim pursuant to Rule 12(b)(6). The Motion was denied under the applicable law at the time. On May 13, 2019, the United States Supreme Court issued its opinion in Franchise Tax Board of California v. Hyatt, 139. S. Ct. 1485 (2019), holding that states retain their sovereign immunity from private suits brought in the courts of other states. The University Defendants filed another Motion to dismiss, citing the Supreme Court’s ruling in Hyatt, and the Trial Court granted the Motion.

Holding

The North Carolina Nonprofit Corporation Act provides in pertinent part that every corporation – unless its articles of incorporation provide otherwise – has the power to sue, and be sued, in its corporate name. The Hyatt decision did not involve a “sue and be sued” statute; rather, the applicable case is Thacker v. Tennessee Valley Authority, 139 S. Ct. 1435 (2019), which held that sue and be sued clauses should be liberally construed and can operate as a waiver of sovereign immunity. After concluding that Troy University was engaged in commercial activity as opposed to governmental activity, the Court held that Troy University waived its sovereign immunity by registering as a nonprofit corporation and is therefore subject to civil liability.

Questions about this case can be directed to Patrick O’Grady at (804) 566-3570 or pogrady@tthlaw.com.