Smithfield's payments weren't penalties, but voluntary contributions to burnish its image by working toward better waste management solutions Click To TweetFrancis X. De Luca can’t sue the state of North Carolina over an 18-year-old Smithfield agreement, the NC Court of Appeals ruled yesterday, but the former head of the conservative think tank nonetheless might have achieved his goal: To use the state constitution to siphon future settlement money away from environmental projects and toward public schools.
In a 2-1 decision, the appellate court ruled that there are legitimate questions about whether Smithfield’s annual payments constitute penalties for past bad behavior or voluntary contributions to help the environment.
Penalties go to a fund that then is disbursed to public schools. Voluntary payments can fund other projects.
De Luca and the New Hanover County Board of Education were the plaintiffs, but the court ruled De Luca does not have legal standing to sue. The decision, though, also sends the case and its core constitutional questions back to Wake County Superior Court for a new trial.
Judges John Tyson and Phil Berger Jr., were in the majority; Judge Wanda Bryant dissented.
The Smithfield agreement was a deal brokered in 2000 among then-attorney general Mike Easley, the pork producer, and its subsidiaries to compensate for the environmental damage caused by industrialized hog farms. From 1995 to 2000 waste lagoons, not all of them Smithfield’s, “had spilled millions of gallons of waste into North Carolina waterways,” according to court documents, “contaminating surface waters and killing aquatic life, while seepage from waste lagoons impacted groundwater supplies.”
Under the terms of the agreement, Smithfield pays $1 per hog it owns in North Carolina each year, up to $2 million annually. The agreement is valid through 2025. The payments, testified several officials in affidavits, were not intended as penalties for wrongdoing, but rather “voluntary contributions” that the corporation paid in order to burnish its image by “working toward better waste management solutions.” (Smithfield has not made any meaningful progress toward those solutions. That issue is central to the hog nuisance lawsuits being heard in federal district court.)
The money goes into an escrow account, and from there the funds are distributed as Environmental Enhancement Grants to help remediate the state’s waterways. Nonprofits, government agencies and other groups can apply for the grants. While the applications are reviewed by a panel of representatives for state agencies, universities and environmental nonprofits, the attorney general has the sole authority to award choose the recipients and award the money.
Previous recipients include the Town of Wake Forest, East Carolina University and the Piedmont Conservation Council. Projects include dam and habitat restoration and wetlands restoration.
In 2016, De Luca filed a complaint against then-attorney general Roy Cooper (and now his successor, Josh Stein) over how millions of dollars from the agreement were being disbursed. De Luca, and his attorney, former lawmaker Paul Stam, argued that the payments were civil penalties disguised as voluntary contributions. Civil penalties and forfeitures, according to the state constitution, are required to be disbursed to public school districts.
In 2017, the New Hanover County Board of Education joined De Luca in the suit — fortuitous because as the court ruled this week, De Luca doesn’t have standing as merely an individual taxpayer — without real skin in the game — to sue. The Board of Education, though, does have standing because its schools could benefit from the funds — and conversely, are allegedly being harmed by not receiving them.
Sound Rivers and the NC Coastal Federation, both previous grant recipients, have also joined the case as intervenors on behalf of Attorney General Josh Stein.
Last year, the case went to Wake County Superior Court. Judge Paul Ridgeway found in favor of Stein and the state, by granting their request for summary judgment. That means no factual issues were in dispute and no trial is necessary. Such rulings can essentially stop a case unless there is an appeal — which De Luca and the New Hanover County school board filed.
(Ridgeway also dismissed the conspiracy theory, articulated by the American Spectator, that the agreement allowed foreign interference in elections. Money from Smithfield, which is owned by a Chinese company, was going to environmental groups, which in turn were supporting Cooper’s gubernatorial campaign. Ergo, China was paying to elect Cooper. That allegation was omitted from the appellate case.)
Judge Tyson wrote that since the attorney general — the state’s chief law enforcement officer — not Smithfield, instigated the agreement, the subtext was that the contributions were actually penalties. Tyson noted that in the 14 months leading up to the 2000 agreement, state environmental regulators assessed nine civil penalties against the hog industry for environmental violations. In the eight months after the agreement, regulators assessed nine additional penalties. However, all of the fines were levied for violations that occurred before the agreement. Tyson wrote that DEQ did not issue any notices of violations to the companies after the agreement was signed.
In her dissent, Judge Bryant wrote that the affidavits and other court statements supporting the contention that the payments are not penalties show that there are no genuine issues of fact in the case. “I submit the trial court did not err,” she wrote.
The attorney general’s office has awarded $24 million to grant recipients since the fund’s inception. If a lower court reverses its ruling, only future payments would be redirected.
The case contains parallels to the current disagreement between the legislature and Gov. Roy Cooper over who controls and distributes a voluntary $57.8 million payment from Duke Energy and Dominion Energy over the Atlantic Coast Pipeline. That money was to be deposited into an escrow account as well, and used for economic development, renewable energy and environmental mitigation in the eight counties along the pipeline’s route. Lawmakers passed legislation wresting that financial power from Cooper, also on constitutional grounds, and redirected the money to school districts in the affected area. However, it’s unclear if the utilities will still adhere to the voluntary agreement. The payments are not yet due.