             IN THE COURT OF APPEALS OF NORTH CAROLINA

                                  No. COA15-472

                              Filed: 16 February 2016

Wake County, No. 13 OSP 20268

WANDA RENFROW, Petitioner,

            v.

NORTH CAROLINA DEPARTMENT OF REVENUE, Respondent.


      Appeal by respondent from final decision entered 16 January 2015 by Judge

Fred G. Morrison Jr. in the Office of Administrative Hearings. Heard in the Court of

Appeals 5 November 2015.


      Attorney General Roy Cooper, by Assistant Attorney General Peggy S. Vincent,
      for respondent-appellant.

      Bailey & Dixon, LLP, by Sabra J. Faires, for petitioner-appellee.


      DIETZ, Judge.


      The North Carolina Department of Revenue has an employment policy that

many North Carolinians no doubt view as perfectly reasonable: employees working

at the agency—which is responsible for administering the tax laws and collecting

state taxes—must comply with the tax laws themselves or risk immediate dismissal.

      Petitioner Wanda Renfrow is a long-time employee of the Department of

Revenue. In 2011, the Department audited Renfrow’s tax returns from 2008 to 2010

and discovered a number of unsupported itemized deductions.         In March 2012,
                          RENFROW V. N.C. DEP’T OF REV.

                                  Opinion of the Court



Renfrow acknowledged the errors, which she maintained were unintentional, and

entered into a payment plan to address her accrued tax liability.

      Had the Department of Revenue promptly taken disciplinary action at that

time, this may have been a very different case. But the Department failed to do so.

More than nineteen months passed before Renfrow’s division director first informed

her that the agency would recommend she be dismissed for unacceptable personal

conduct based on her tax filing errors. Renfrow resigned under threat of dismissal

and ultimately filed a grievance with the Office of Administrative Hearings alleging

that her resignation was involuntary and compelled by the threat of dismissal, and

that the Department lacked just cause to dismiss her.

      As explained in more detail below, we affirm the Office of Administrative

Hearings’ final decision. The Department of Revenue could dismiss Renfrow only if

her tax errors were “a current incident of unacceptable personal conduct.” 25 N.C.

Admin. Code 1J.0608.     There is no bright-line rule defining what is a “current

incident” but, in this case, the Office of Administrative Hearings properly concluded

that the Department’s nineteen-month delay in taking any action against Renfrow

rendered her tax filing errors no longer current. Accordingly, we affirm the final

decision of the Office of Administrative Hearings.




                                         -2-
                            RENFROW V. N.C. DEP’T OF REV.

                                  Opinion of the Court



                          Facts and Procedural History

        The North Carolina Department of Revenue employed Petitioner Wanda

Renfrow for almost 25 years. Renfrow worked as a Returns Processing Supervisor in

a division that processed tax payments.

        Because of the role the Department of Revenue plays in the collection and

processing of state taxes, the Department has a strict policy for its employees that

requires full compliance with all tax laws. The policy states that failure to comply

with the tax laws will result in disciplinary action including possible dismissal.

        In September 2011, the Department of Revenue audited Renfrow’s 2008 to

2010 tax filings. That audit concluded that Renfrow had no documentation to support

several itemized deductions in those tax years. As a result of this audit, Renfrow

owed the State $7,107.00.

        On 29 February 2012, the Department issued a notice of assessment against

Renfrow for the unpaid tax liability. On 23 March 2012, after meeting with her

division director to discuss the erroneous tax returns, Renfrow agreed to a payment

plan.

        More than nineteen months later, on 5 November 2013, Renfrow’s then-acting

division director met with her and informed her that the Department of Revenue

would recommend that she be dismissed for unacceptable personal conduct based on

“violation of the Department’s tax compliance policy.”       In the nineteen months



                                          -3-
                           RENFROW V. N.C. DEP’T OF REV.

                                  Opinion of the Court



between the meeting with her supervisor and entry into the payment plan, and the

later meeting with the division director, no one at the Department of Revenue

discussed the tax violations with Renfrow or indicated that she would be disciplined

for those tax errors.

      On 12 November 2013, at Renfrow’s pre-disciplinary conference, Renfrow

submitted evidence supporting her position. She also submitted a letter and note

addressing her desire to resign rather than be dismissed for cause. The letter stated,

“I do not want to be dismissed from my job. I intend to go through the internal review

of the decision . . . Before any decision to dismiss me becomes final, I would like the

opportunity to have my records reflect that I retired rather than I was dismissed.”

      The note, which appears to have been submitted as a follow-up to the letter,

stated, “[i]f the agency is not going to reinstate my employment with the Department

. . . I’am [sic] turning in my letter of retirement from Returns Processing Supervisor

effective December 1, 2013.”

      Following this meeting, the Department decided to follow its previous

recommendation to terminate Renfrow. On 13 November 2013, the Department

informed Renfrow that, “[w]e are accepting your resignation of retirement effective

December 1, 2013 . . . Per your request we have stopped any further disciplinary

action.”




                                         -4-
                           RENFROW V. N.C. DEP’T OF REV.

                                  Opinion of the Court



      The next day, Renfrow responded with a letter stating that her retirement was

“conditional and the triggering condition is a decision by you that you considered all

other options and have made a determination to dismiss me”:

             I received your letter today stating that “We are accepting
             your resignation of retirement effective December 1, 2013”
             and I want to be sure there is no misunderstanding here.
             In my November 13, 2013 letter to you, I stated that I do
             not want to be dismissed from my job and that I intend to
             go through the internal review of the decision. I further
             stated that “Before any decision to dismiss me becomes
             final, I would like the opportunity to have my records
             reflect that I retired rather than I was dismissed.” My
             retirement is conditional and the triggering condition is a
             decision by you that you have considered all other options
             and have made a determination to dismiss me." As I stated
             in my letter, I love my job and I want to continue to work
             at the Department. Based on your letter, I can only
             conclude that you decided to dismiss me. If this conclusion
             is not correct, please advise me in writing I do not want to
             retire unless I absolutely have to in order to avoid
             dismissal.

The Department of Revenue did not respond to this letter.

      On 20 December 2013, Renfrow filed a petition for a contested case hearing in

the Office of Administrative Hearings arguing that her resignation was involuntary

and that the Department did not have just cause to dismiss her.

      The Office of Administrative Hearings granted Renfrow’s motion for summary

judgment and entered a final decision ordering the Department of Revenue to

reinstate Renfrow to her former position and provide her with back pay.           The

Department timely appealed.


                                         -5-
                               RENFROW V. N.C. DEP’T OF REV.

                                      Opinion of the Court



                                          Analysis

            “In reviewing a final decision in a contested case, the court shall determine

whether the petitioner is entitled to the relief sought in the petition based upon its

review of the final decision and the official record.” N.C. Gen. Stat. § 150B-51. When,

as here, a litigant appeals a final decision on grounds of errors of law we conduct a de

novo review. Id.

      I.       Subject Matter Jurisdiction

            The Department of Revenue first argues that the Office of Administrative

Hearings lacked subject matter jurisdiction over Renfrow’s contested case because

Renfrow failed to file her petition within the time required by N.C. Gen. Stat. § 126-

38.        We reject this argument because § 126-38 does not apply to this case. As the

Department of Revenue concedes, the General Assembly repealed § 126-38 “effective

August 21, 2013, and applicable to grievances filed on or after that date.” Renfrow

filed her contested case after 21 August 2013 therefore that statute does not apply.

            In its reply brief, the Department of Revenue asserts a new jurisdictional

argument—that under N.C. Gen. Stat. § 126-34.01 (the statute that replaced § 126-

38), Renfrow “was required to first discuss the matter with the supervisor, and then

follow the grievance procedure approved by the State Human Resource Commission.”

The agency does not explain why it believes Renfrow failed to comply with these

statutory requirements; it simply asserts that “[s]he did not do so.” Our review of the



                                             -6-
                            RENFROW V. N.C. DEP’T OF REV.

                                   Opinion of the Court



record reveals the opposite: Renfrow attended a pre-disciplinary conference with the

acting director of her division before filing her contested case and ultimately obtained

a final agency decision reviewed and approved by the Office of State Human

Resources as required by the newly enacted grievance procedures. Accordingly, we

reject this newly raised jurisdictional argument as well.

   II.     Voluntariness of Resignation

         The Department of Revenue next argues that Renfrow could not pursue her

just cause claim because she chose to resign rather than be dismissed. As explained

below, because the Department did not have good cause to believe grounds for

termination existed, Renfrow’s resignation under threat of dismissal was, in effect, a

dismissal.

         A state employee cannot pursue a claim for dismissal in the Office of

Administrative Hearings unless the employee actually was dismissed. Thus, an

employee who voluntarily resigns ordinarily cannot pursue a dismissal claim—after

all, a dismissal, by its nature, is an “involuntary separation for cause.” 25 N.C. Admin.

Code 1J.0608 (emphasis added). But courts have held that where “the employer

actually lacked good cause to believe that grounds for termination existed,” a

resignation under threat of dismissal is effectively the same as an involuntary

dismissal. Stone v. Univ. of Md. Med. Sys. Corp., 855 F.2d 167, 174 (4th Cir. 1988).

This is a high bar because it does not require the employer to show that there actually



                                          -7-
                               RENFROW V. N.C. DEP’T OF REV.

                                       Opinion of the Court



were grounds to terminate the employee. Rather, the employer need only show that,

at the time the decision was made, with the facts available to it, the employer had

good cause to believe termination was appropriate. So long as this good cause exists,

a resignation under threat of dismissal is not a dismissal because the resignation was

voluntary.

       Here, despite the high bar described above, Renfrow has established that her

resignation was involuntary because the Department lacked good cause to believe it

could terminate her. The Department relied on a provision of the administrative code

stating that an employee “may be dismissed for a current incident of unacceptable

personal conduct, without any prior disciplinary action.”                25 N.C. Admin. Code

1J.0608 (emphasis added). The Department of Revenue discovered Renfrow’s tax

filing errors on 22 February 2012.1 The Department sent Renfrow a notice of her tax

liability one week later. The following month, Renfrow agreed to a payment plan to

repay her tax liability.

       Then, nineteen months passed before the Department of Revenue chose to

pursue any disciplinary action. The Department argues that there should not be a

fixed time period defining “current” incidents. It argues that “[r]ather than a length




       1 In cases like this one, where employee misconduct is not readily discoverable, whether the
misconduct is a “current incident” depends on the amount of time that elapsed between the employer’s
discovery of the misconduct and the contested disciplinary action.

                                               -8-
                          RENFROW V. N.C. DEP’T OF REV.

                                   Opinion of the Court



of time certain, allowing a reasonable time under the circumstances would seem more

appropriate.” We agree. But nineteen months was not reasonable.

      The Department has not provided any explanation for why it waited so long

before pursuing disciplinary action. It argues that, in some cases, an employee

accused of tax errors may want to challenge that finding in an administrative

proceeding, forcing the Department to wait for the appeals process to end before

disciplining the employee. But that did not happen here. Renfrow acknowledged the

errors and entered into a payment plan within a month after the Department of

Revenue alerted her to them; she did not appeal or otherwise challenge the agency’s

decision. Simply put, in the absence of any explanation for its nineteen-month delay,

we hold that the Department did not have good cause to believe it could pursue

disciplinary action under 25 N.C. Admin. Code 1J.0608 because Renfrow’s tax errors

were no longer a “current incident.”         Accordingly, Renfrow’s resignation was

effectively an involuntary dismissal that was grievable through the administrative

process. Stone, 855 F.2d at 174.

   III.   Just Cause for Dismissal

      Our conclusion that Renfrow’s tax errors were no longer a “current incident”

when the Department of Revenue first pursued disciplinary action provides grounds

to affirm the decision of the Office of Administrative Hearings.        Because the

Department was not permitted to dismiss Renfrow for this alleged unacceptable



                                          -9-
                            RENFROW V. N.C. DEP’T OF REV.

                                  Opinion of the Court



personal conduct under 25 N.C. Admin. Code 1J.0608, it lacked just cause to do so.

We affirm the Office of Administrative Hearings’ decision on this basis and need not

address the other grounds on which that decision is based.

   IV.      Attorney’s Fees Award

         Finally, the Department of Revenue challenges the Office of Administrative

Hearings’ award of attorney’s fees to Renfrow. That award is based on an affidavit

submitted by Renfrow in the proceeding below, detailing the time spent on this action.

The Department did not challenge or respond to that affidavit in the Office of

Administrative Hearings, although it had the opportunity to do so. We thus decline

to consider these arguments because the Department failed to preserve them by

raising them before the Office of Administrative Hearings. See Phillips v. Brackett,

156 N.C. App. 76, 80, 575 S.E.2d 805, 808 (2003); Gray v. North Carolina Dep't of

Env't, Health & Nat. Res., 149 N.C. App. 374, 379, 560 S.E.2d 394, 398 (2002).

                                    Conclusion

         For the reasons discussed above, we affirm the decision of the Office of

Administrative Hearings.

         AFFIRMED.

         Judges MCCULLOUGH and TYSON concur.




                                         - 10 -
