                            NO. COA13-1006

                   NORTH CAROLINA COURT OF APPEALS

                          Filed: 17 June 2014


I. BEVERLY LAKE, JOHN B. LEWIS,
JR., EVERETTE M. LATTA, PORTER L.
McATEER, ELIZABETH S. McATEER,
ROBERT    C.    HANES,    BLAIR    J.
CARPENTER, MARILYN L. FUTRELLE,
FRANKLIN    E.   DAVIS,    JAMES   D.
WILSON, BENJAMIN E. FOUNTAIN, JR.,
FAYE IRIS Y. FISHER, STEVE FRED
BLANTON, HERBERT W. COOPER, ROBERT
C. HAYES, JR., STEPHEN B. JONES,
MARCELLUS    BUCHANAN,    DAVID    B.
BARNES, BARBARA J. CURRIE, CONNIE
SAVELL, ROBERT B. KAISER, JOAN
ATWELL, ALICE P. NOBLES, BRUCE B.
JARVIS, ROXANNA J. EVANS, and JEAN
C.   NARRON,     and    all    others
similarly situated,

     Plaintiffs,

     v.                                 Gaston County
                                        No. 12-CVS-1547
STATE HEALTH PLAN FOR TEACHERS AND
STATE EMPLOYEES, a corporation,
formerly   Known   as    the North
Carolina    Teachers    and  State
Employees’    Comprehensive  Major
Medical Plan, TEACHERS’ AND STATE
EMPLOYEES’ RETIREMENT SYSTEM OF
NORTH CAROLINA, a corporation,
BOARD OF TRUSTEES TEACHERS’ AND
STATE EMPLOYEES’ RETIREMENT SYSTEM
OF NORTH CAROLINA, a body politic
and corporate, JANET COWELL, in
her official capacity as Treasurer
of the State of North Carolina,
and the STATE OF NORTH CAROLINA,

     Defendants.
                                          -2-


       Appeal by    Defendants from order            entered 23       May 2013      by

Judge Edwin G. Wilson, Jr.                in    Gaston County Superior Court.

Heard in the Court of Appeals 6 March 2014.


       Attorney General Roy A. Cooper, III, by Special Deputy
       Attorney General Marc Bernstein, for the Defendants-
       appellants.

       Gray, Layton, Kersh, Solomon, Furr & Smith,                        P.A.,    by
       Michael L. Carpenter, for Plaintiffs-appellees.


       DILLON, Judge.


       The State Health Plan for Teachers and State Employees, et

al., (the “Defendants”) appeal from the denial of their motion

to dismiss pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1),

(2),    and   (6)   in    favor    of     I.    Beverly    Lake,   et    al.,     (the

“Plaintiffs”).       For the foregoing reasons, we affirm in part,

and dismiss in part.

                                   I. Background

       On 20 April 2012, Plaintiffs filed a complaint alleging,

inter   alia,   that     they     are   all     former    employees     and    current

retirees with the State of North Carolina with at least five

years of contributory service; as part of their employment, they

were offered certain benefits, including a health benefit plan

after   retirement       through    the    State    Health    Plan;     this   health
                                          -3-
benefit      plan   provided       the    option     to       each   Plaintiff        to

participate on a        non-contributory 80/20 basis or                  on a      90/10

basis with a contribution; they had vested by working at least

five years and were eligible upon retirement to receive these

health insurance benefits from the State Health Plan; Defendants

stopped     providing    a   non-contributory        80/20     health    benefit      in

2011 and the 90/10 plan for retirees in 2009, respectively; and

that    these    actions     by    Defendants      constituted       a    breach      of

contract.1

       On   23   July   2012,     Defendants    filed     a    motion    to    dismiss

pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1), (2), and (6),

arguing that the trial court lacked jurisdiction based, in part,

on Defendants’ sovereign immunity defense and that the complaint

should otherwise be dismissed because the allegations therein

failed to state a claim upon which relief could be granted.                           On

23   May    2013,   Judge    Edwin   G.    Wilson,    Jr.2,     entered       an   order

denying Defendants’ motion to dismiss in its entirety.                             On 14

June 2013, Defendants filed notice of appeal from the trial

court’s denial of their motion to dismiss.

1
     Plaintiffs also raised a number of other claims which are
not at issue in Defendants’ appeal.
2
     On 26 November 2012, the Chief Justice of the North
Carolina Supreme Court designated this case as “exceptional”
under Rule 2.1 of the General Rules of Practice for the Superior
and District Courts, and assigned Judge Wilson to the case.
                                    -4-
                       II. Interlocutory Appeal

     On 19 December 2013, Plaintiffs filed a motion to dismiss

Defendants’ appeal with this Court, arguing that “the appeal is

an impermissible interlocutory appeal and Defendant-Appellants

do   not   have   a   substantial     right   to    immediate   review[.]”

Plaintiffs raised similar arguments in their brief on appeal.

     We have recently stated that

           “[a]s a general rule, interlocutory orders
           are    not   immediately    appealable.”   Id.
           (citation    omitted).   However,   “immediate
           appeal    of   interlocutory   orders      and
           judgments is available in at least two
           instances: when the trial court certifies,
           pursuant to N.C.G.S. § 1A-1, Rule 54(b),
           that there is no just reason for delay of
           the appeal; and when the interlocutory order
           affects a substantial right under N.C.G.S.
           §§   1-277(a)    and    7A-27(d)(1).”      Id.
           (quotation omitted).

Jenkins v. Hearn Vascular Surgery, P.A., ___ N.C. App. ___, ___,

719 S.E.2d 151, 153-54 (2011).            Defendants admit that their

appeal is interlocutory, and we agree.             Since there is no Rule

54(b)   certification,    we   must    determine     whether    Defendants’

appeal affects a substantial right.

     In North Carolina, “appeals raising issues of governmental

or sovereign immunity affect a substantial right sufficient to

warrant immediate appellate review.”          McClennahan v. N.C. Sch.

of the Arts, 177 N.C. App. 806, 808, 630 S.E.2d 197, 199 (2006),
                                         -5-
disc.    review   denied,      361     N.C.    220,   642   S.E.2d   443   (2007).

However, as stated by our Supreme Court, “[t]he denial of a

motion to dismiss for failure to state a claim upon which relief

can be granted, made pursuant to Rule 12(b)(6), Rules of Civil

Procedure, G.S. 1A-1, is an interlocutory order from which no

immediate appeal may be taken.”                Teachy v. Coble Dairies, Inc.,

306     N.C.   324,   326,     293     S.E.2d    182,   183    (1982)   (citation

omitted).      Therefore, we dismiss Defendants’ appeal as to any

issues     related    to     the     trial    court’s   Rule   12(b)(6)    ruling

regarding the validity of the alleged contract as interlocutory,

and address only those issues related to sovereign immunity and

Rule 12(b)(2)3, as those issues relate to a substantial right and



3
     Our Supreme Court has stated that an order denying a motion
to dismiss for lack of subject-matter jurisdiction, pursuant to
Rule 12(b)(1) is not immediately appealable, but that an order
denying a motion for lack of personal jurisdiction, pursuant to
Rule 12(b)(2) is immediately appealable.    Teachy, 306 N.C. at
327-28, 293 S.E.2d at 184. The Court in Teachy also noted that
there is a split in authority around the country as to whether a
motion to dismiss based on sovereign immunity is properly a
motion under Rule 12(b)(1) or under Rule 12(b)(2) and that the
determination of this issue is relevant in North Carolina in
situations involving an interlocutory appeal denying a motion to
dismiss based on sovereign immunity. Id. However, our Supreme
Court did not ultimately resolve the issue in Teachy, deciding
rather to review that       appeal based on     its  supervisory
jurisdiction.   Id.  Though our Supreme Court has not resolved
the issue as to whether a motion to dismiss based on sovereign
immunity is a motion under Rule 12(b)(1) or under Rule 12(b)(2),
our Court has determined that the denial of a motion to dismiss
based on sovereign immunity can be based on Rule 12(b)(2), and
                                       -6-
are immediately appealable.            See McClennahan, 177 N.C. App. at

808, 630 S.E.2d at 199.            We next turn to address Defendants’

appeal and their arguments regarding sovereign immunity.

    III. Rule 12(b)(2) Dismissal Based on Sovereign Immunity

    To     survive   a   Rule   12(b)(2)       motion    to    dismiss      based   on

sovereign immunity, “the complaint must specifically allege a

waiver of governmental immunity.             Absent such an allegation, the

complaint fails to state a cause of action.”                   Paquette v. County

of Durham, 155 N.C. App. 415, 418, 573 S.E.2d 715, 717 (2002)

(citations   omitted),     disc.      review    denied,       357    N.C.   165,    580

S.E.2d 695 (2003).          However, consistent with the concept of

notice pleading, “as long as the complaint contains sufficient

allegations to provide a reasonable forecast of waiver, precise

language    alleging     that   the   State     has   waived        the   defense    of

sovereign immunity is not necessary.”                   Fabrikant v. Currituck

County, 174 N.C. App. 30, 38, 621 S.E.2d 19, 25 (2005) (citation

omitted).




is, therefore, immediately appealable.     See, e.g., Data Gen.
Corp. v. City of Durham, 143 N.C. App. 97, 99-100, 545 S.E.2d
243, 245-46 (2001), explained in Atl. Coast Conf. v. Univ. of
Md., ___ N.C. App. ___, __, 751 S.E.2d 612, 617 (2013).
Therefore, we dismiss Defendants’ appeal to the extent that it
is based on the denial of their motion to dismiss for lack of
subject-matter jurisdiction, pursuant on Rule 12(b)(1).
                                         -7-
         Here,   Plaintiffs   argue   that     they   have   sufficiently      pled

that      sovereign    immunity    has    been    waived     by     alleging   the

existence of a valid contract; and, therefore, the trial court

properly     denied    Defendants’    Rule     12(b)(2)    motion    to   dismiss.

Specifically, Plaintiffs pled that they each had a contract of

employment with the State and that these contracts included a

promise to provide a guaranteed health benefit during retirement

on   a    non-contributory    80/20      basis   or   a   90/10   basis    with   a

contribution.         Our Supreme Court has held that “whenever the

State of North Carolina, through its authorized officers and

agencies, enters into a valid contract, the State implicitly

consents to be sued for damages on the contract in the event it

breaches the contract.”           Smith v. State, 289 N.C. 303, 320, 222

S.E.2d 412, 423-24 (1976) (emphasis added).                  We have held that

this waiver of immunity applies in the context of employment

contracts:

             “The existence of the relation of employer
             and   employee   .   .   .   is    essentially
             contractual in its nature, and is to be
             determined   by  the   rules   governing   the
             establishment   of   contracts,   express   or
             implied.”   Hollowell    v.   Department    of
             Conservation and Development, 206 N.C. 206,
             208, 173 S.E. 603, 604 (1934). Guided by
             this principle, as well as the reasoning in
             [Smith v State, 289 N.C. 303, 222 S.E.2d 412
             (1976)], we hold that the County may not
             assert the defense of sovereign immunity in
                                        -8-
            this case . . . . We agree with plaintiffs’
            assertion that the employment arrangement
            between   the   County   and  plaintiffs  was
            contractual in nature, although the contract
            was implied.     Employment contracts may be
            express or implied.       An implied contract
            refers to an actual contract inferred from
            the    circumstances,    conduct,   acts   or
            relations of the parties, showing a tacit
            understanding. . . . We do not limit Smith
            to written contracts; its reasoning is
            equally sound when applied to implied oral
            contracts.

Archer v. Rockingham Cty., 144 N.C. App. 550, 557, 548 S.E.2d

788,   792-93   (2001),      disc.    review    denied,     355    N.C.   210,     559

S.E.2d 796 (2002).

       We   believe   that     Plaintiffs       sufficiently       pled   a    valid

contract.      For instance, Plaintiffs alleged in their complaint

that the State of North Carolina acted by offering specific

health plans when Plaintiffs were hired and made representations

to Plaintiffs while they were employed that if they worked five

years then those health plans would vest and be irrevocable upon

retirement.       Also,      Plaintiffs       alleged     that    they    acted     by

accepting employment based, in part, on these health plans and

working a set amount of time with the State of North Carolina so

that   those    health    plans      would    vest   or   be     irrevocable      upon

retirement.      We believe that our decision in Sanders v. State
                                   -9-
Pers. Comm’n, 183 N.C. App. 15, 644 S.E.2d 10, disc. review

denied, 361 N.C. 696, 652 S.E.2d 654 (2007), is instructive.

    In   Sanders,      the    plaintiffs,     who   were    employed     as

“temporary” employees by the State of North Carolina for more

than 12 consecutive months, filed their action alleging that a

rule promulgated by the State Personnel Commission prohibited

individuals    from   being   employed   by   the   State   as    temporary

employees for more than twelve consecutive months; that this

rule was part of their contracts of employment; that by working

for more than twelve consecutive months, they were entitled to

be treated as “permanent” State employees; and that the State

breached their contracts of employment by “wrongfully den[ying]”

the plaintiffs the employment benefits that permanent employees

are entitled to receive.        Id. at 16, 644 S.E.2d at 11.            The

State moved to dismiss the plaintiffs’ breach of contract claim

based on sovereign immunity, a motion which was granted by the

trial court.    Id. at 17, 644 S.E.2d at 11.         On the plaintiffs’

appeal, the State argued that the “plaintiffs’ claim for relief

based on a breach of contract cannot overcome sovereign immunity

. . . because the alleged contract is ‘implied,’ ‘imaginary,’

and in no way ‘an authorized and valid contract.’”               Id. at 19,

644 S.E.2d at 12.
                                            -10-
       In our opinion, we stated that the plaintiffs alleged “that

the State entered into employment contracts with the plaintiffs,

incorporating         state    personnel      regulations,         pursuant         to    which

they were entitled to certain benefits as a result of their

employment for more than 12 months.”                      Id. at 18-19, 644 S.E.2d

at 13.         We stated      that these “allegations [were]                    materially

indistinguishable           from     those     found       sufficient          in    several

opinions   of     this      Court[,]”       including      Peverall       v.    County       of

Alamance, 154 N.C. App. 426, 430-31, 573 S.E.2d 517, 519-20

(2002) (reversing the trial court’s dismissal based on sovereign

immunity   when       the     plaintiff      had    alleged    a    valid       employment

contract   in     which       the   defendant       had    agreed    to    provide          the

plaintiff “disability retirement benefits . . . in exchange for

five years of continuous service”), disc. review denied, 356

N.C.    676,    577    S.E.2d       632    (2003)    and    Hubbard     v.      County       of

Cumberland, 143 N.C. App. 149, 150-51, 544 S.E.2d 587, 589,

disc. review denied, 354 N.C. 69, 553 S.E.2d 40 (2001).                                  Id. at

19-20, 644 S.E.2d at 13.                  In further comparing these cases, we

held,

               [p]laintiffs allege that defendants are
               manipulating State personnel policies and
               benefit plans, which govern the terms of
               state   employment,  to   avoid  providing
               plaintiffs benefits that they rightfully
               earned as a result of the tenure of their
                                        -11-
             employment.       Plaintiffs’       complaint
             sufficiently    alleges    that    defendants
             accepted     plaintiffs’    services     and,
             therefore, “may not claim sovereign immunity
             as a defense” to their alleged commitment to
             provide   the   benefits  provided   by   the
             personnel policies setting forth the terms
             of employment.

Id. at 20, 644 S.E.2d at 13 (quoting Hubbard, 143 N.C. App. at

154, 544 S.E.2d at 590).

      In overruling the defendants’ argument “that any contract

was   only      ‘implied’    and,    therefore,     no    waiver        of   sovereign

immunity has occurred[,]” the Court relied on the holding in

Archer,    supra,    which     extended      the   holding   in     Smith,       supra,

regarding written contracts to oral implied contracts and also

noted    that    Archer     “held    that    plaintiffs     could       assert   their

claims    because     they    were    ‘in    the   nature    of     a    contractual

obligation[.]’”       Id. at 20-21, 644 S.E.2d at 13-14.

      Like Sanders, Defendants here essentially make an argument

that their Rule 12(b)(2) motion should have been granted because

Plaintiffs failed to allege an express agreement concerning the

retirement       health     benefits.        Specifically,        they       point   to

Plaintiffs’        allegations        that     Defendants         have,        through

representations,      policies,       and    statutes,    “avoid[ed]         providing

plaintiffs benefits that they rightfully earned as a result of

the tenure of their employment” and because of this alleged
                                    -12-
exchange, Defendants, “‘may not claim sovereign immunity as a

defense’ to their alleged commitment to provide the benefits

provided by the personnel policies setting forth the terms of

employment.”      See id. at 20, 644 S.E.2d at 13.           However, as in

Sanders, we believe that Plaintiffs have alleged something “in

the nature of a contractual obligation” which would still amount

to a valid contract under Archer, sufficient to survive a Rule

12(b)(2) motion to dismiss based on sovereign immunity.                  See

Sanders, 183 N.C. App. at 21, 644 S.E.2d at 13.

      We further held in Sanders that the defendants’ arguments

“that the alleged contract is ‘imaginary’ and not ‘an authorized

and   valid    contract’”   went   to   the   merits   of   the   plaintiffs’

breach of contract claims, pointing out that

              in   considering    the   applicability   of
              sovereign immunity to allegations of breach
              of a governmental employment contract, “that
              we are not now concerned with the merits of
              plaintiffs’ contract action. . . . [W]hether
              plaintiffs are ultimately entitled to relief
              are questions not properly before us.”
              Archer v. Rockingham County, 144 N.C. App.
              550, 558, 548 S.E.2d 788, 793 (2001), disc.
              review denied, 355 N.C. 210, 559 S.E.2d 796
              (2002). See also Smith, 289 N.C. at 322, 222
              S.E.2d at 424 (“We are not now concerned
              with the merits of the controversy. . . . We
              have no knowledge, opinion, or notion as to
              what the true facts are. These must be
              established at the trial.    Today we decide
              only that plaintiff is not to be denied his
              day in court because his contract was with
                                       -13-
              the State.”).

Id. at 20, 644 S.E.2d at 13-14.

       In the same way, Defendants here make a number of arguments

which go to the merits of Plaintiffs’ breach of contract claims.

However, “[t]his Court has consistently held that we are not to

consider the merits of a claim when addressing the applicability

of sovereign immunity as a potential defense to liability.”                      Cam

Am South, LLC v. State of North Carolina, ___ N.C. App. ___,

___, ___ S.E.2d ___, ___, 2014 N.C. App. LEXIS 558 at *16 (N.C.

App.   June    3,    2014).     Rather,   our   analysis       is   restricted   to

whether   Plaintiffs      have    sufficiently       alleged    that   Defendants

have   waived       sovereign   immunity.       As   Plaintiffs      sufficiently

alleged a valid contract between them and the State in their

complaint to waive the defense of sovereign immunity, we affirm

the trial court’s order denying Defendants’ motion to dismiss

pursuant to Rule 12(b)(2).             See Cam Am South, at *18 (holding

that “the State waives its sovereign immunity when it enters

into a contract with a private party, not when it engages in

conduct that may or may not constitute a breach”) (emphasis in

original).

                                 IV.   Conclusion
                                 -14-
    For   the   foregoing   reasons,    we   affirm   the   trial   court’s

order denying Defendants’ motion to dismiss this action based on

their sovereign immunity defense, pursuant to Rule 12(b)(2); and

we dismiss Defendants’ appeal of the trial court’s order denying

their motion to dismiss to the extent the order is based on

grounds other than Defendants’ sovereign immunity defense.

    AFFIRMED, IN PART, and DISMISSED, IN PART.

    Judge BRYANT and Judge CALABRIA concur.
