Wake Forest Law Review

By Kyle Brady

Known for clever cheers and creative school spirit, high school cheerleaders rarely garner national attention, spark protests, or tap into the highly polarized political fabric of our country. One North Carolina squad, however, managed to accomplish this incredible feat with one photo. What was so scandalous and controversial about this photo? The North Stanly County High School cheer team was pictured posing with a flag that read: “Trump 2020 Make America Great Again.”[1]

Putting aside the modern reality that student participation in the political process can cause such a reaction, the school district faced a PR nightmare after the photo was posted online forcing it to toe the line between respecting student speech and enforcing school policy.[2] The day after the photo surfaced on Facebook, the school released a statement claiming that the photo “was not . . . planned or endorsed by the school or its staff” and that “[t]he picture was taken prior to the event starting.”[3] Nevertheless, the North Carolina High School Athletic Association (NCHSAA) placed the cheer team on probation for violating a district policy prohibiting the distribution of political campaign materials at school events.[4] The probation prompted a group of citizens to organize a protest, and elicited a response from U.S. Congressman Rich Hudson (R-NC) who wrote the NCHSAA to voice his discontent over students being punished for “exercising their First Amendment right to free speech.”[5] North Stanly High School even cancelled its next home game due to unspecified student safety concerns.[6]

In a time where the spark of our polarized politics so often meets the jet fuel of social media addiction, a review of First Amendment jurisprudence as it applies to public schools may be in order. First Amendment issues in schools often emerge in times of increased attention to hyper-polarized issues,[7] so naturally this issue has reemerged in the age of Trump. Unsurprisingly, there have been other controversial topics in our Nation’s history that have led to student protests in our schools. In fact, students’ First Amendment rights have been at issue for several decades.

Tinker v. Des Moines Indep. Cmty. Sch. Dist. (1969)

In December of 1965, three students decided to wear black armbands to school to protest U.S. involvement in the Vietnam War.[8] A few days before the students participated in the demonstration, administrators discovered their plan and adopted a policy to suspend any student who refused to remove their armband after being asked.[9] The students wore the armbands anyways, did not remove them when asked, and were suspended from school.[10] Eventually, the students sued. The result? Justice Fortas and the Supreme Court authored a landmark opinion addressing the question of student symbolic speech.[11]

The Court held that “where there is no finding and no showing that engaging in the forbidden conduct would ‘materially and substantially interfere with the requirements of appropriate discipline in the operation of the school,’ the prohibition cannot be sustained.”[12] It reasoned that “in our system, undifferentiated fear or apprehension of disturbance is not enough to overcome the right to freedom of expression.”[13] In subsequent cases, lower courts have used Tinker’s language to bar actual or potentially disruptive student speech from the classroom.[14] Such an analysis seems simple enough, but as time progressed, the Supreme Court added several exceptions to the Tinker doctrine to give schools more control over speech.[15]

Bethel Sch. Dist. No. 403 v. Fraser (1986)

The Supreme Court’s first deviation from the Tinker doctrine came in Fraser. In Fraser, a student was suspended after delivering a sexually charged speech supporting a candidate for student government at a school gathering.[16] The student sued the school under the First Amendment. The Court limited its ruling in Tinker by allowing schools to regulate “offensively lewd and indecent speech.”[17] It held that “[t]he schools, as instruments of the state, may determine that the essential lessons of civil, mature conduct cannot be conveyed in a school that tolerates lewd, indecent, or offensive speech and conduct. . . .” Lower courts have struggled to apply this rule consistently.[18] Some courts find its language to apply narrowly to sexually charged speech, while others take the opposite approach and apply the rule broadly.

However the rule is applied, display of a flag supporting the President reelection is not “offensively lewd and indecent speech” because the Fraser court recognized a “marked distinction between the political ‘message’ of the armbands in Tinker and the sexual content of [Fraser’s] speech.”[19] This brings us to the next exception the Supreme Court adopted.

Hazelwood Sch. Dist. v. Kuhlmeier (1988)

In Hazelwood, student members of a student-run newspaper brought suit after the school deleted two pages exploring student struggles with the issues of pregnancy and divorce from the paper.[20] The school disapproved of the articles because they would potentially allow affected students to be identified and the school thought the topics were inappropriate for some of the younger students.[21] The Court differentiated its decision from Tinker by exploring “whether the First Amendment requires a school affirmatively to promote particular student speech” rather than “whether the First Amendment requires a school to tolerate particular student speech.”[22] The Court found that schools are entitled to greater control over “school-sponsored publications, theatrical productions, and other expressive activities that students, parents, and members of the public might reasonably perceive to bear the imprimatur of the school.”[23] Additionally, the Court ruled that “[a] school must also retain the authority to refuse . . . to associate the school with any position other than neutrality on matters of political controversy.”[24] The Court reasoned that such control is necessary so that schools may fulfill their duties to the students.[25] The Court employed similar reasoning to create the next, and final, exception to the Tinker doctrine 19 years later.

Morse v. Frederick (2007)

In Morse, a school principal permitted students to watch the 2002 Winter Olympic Torch Relay when it passed by a road in front of the high school.[26] During the event, a student was suspended for unfurling a large banner that read “BONG HiTS 4 JESUS.”[27] The Court held that a school may restrict student speech at a school event that is reasonably viewed as promoting illegal drug use.[28] It reasoned that because of the seriousness of the issue of drug abuse, the government has a compelling interest to regulate its promotion within schools.[29] While such a bright line rule is refreshing in First Amendment jurisprudence, the Court did little to clear up the ambiguities and confusion left in the wake of its former opinions. In fact, the Court refused to extend Fraser “too far” and claimed that “[t]he concern here is not that [the student]’s speech was offensive, but that it was reasonably viewed as promoting illegal drug use.”[30]

  • Considering these cases, how would the current situation play out?

Since the cheerleaders were not promoting the use of illegal drugs and a flag supporting the President of the United States is not “offensively lewd and indecent speech,” Morse and Fraser will not come into play. That leaves Tinker, which broadly protects political speech as long as it is not disruptive, and Hazelwood, which expressly limits speech which can reasonably be interpreted as being sponsored by the school.

Clearly, Hazelwood lends the most support for NCHSAA’s decision to place the North Stanly High School cheer team on probation. Presumably recognizing this, the school district even incorporated the Hazelwood analysis into its public statements.[31] If the circumstances were different and the cheerleaders were not wearing school uniforms as representatives of the school, Tinker would most likely apply to protect their First Amendment rights to political expression. However, since students, parents, and members of the public could certainly “reasonably perceive” that the expression “bears the imprimatur of the school,” and since the photo was taken at a school event, it would seem that the NCHSAA operated within its authority to put the students on probation.[32] Currently, there is no indication that this incident will result in litigation. For now, it acts as a small reminder of a decades-old debate that will not be resolved any time soon.


[1] Caitlin O’Kane, Cheerleaders Held Up a “Trump 2020” Sign During a Football Game. They Were Put on “Probation” for the Rest of the Season, CBS News (Sept. 17, 2019), https://www.cbsnews.com/news/cheerleaders-put-on-probation-for-trump-2020-sign-during-north-stanly-high-school-football-game-north-carolina/.

[2] See Marc Nathanson, North Carolina School Officials Cancel Football Game After Cheerleaders’ Trump 2020 Banner, ABC News (Sept. 21, 2019), https://abcnews.go.com/US/north-carolina-school-officials-cancel-football-game-cheerleaders/story?id=65765969.

[3] Kristy Kepley-Steward, North Carolina Cheerleading Squad on Probation for ‘Political Message’ at Game, WLOS (Sept. 16, 2019), https://wlos.com/news/local/north-carolina-cheerleading-squad-on-probation-for-political-message-at-game.

[4] O’Kane, supra note 1.

[5] Andrea Blanford (@AndreaABC11), Twitter, (Sept. 17, 2019, 1:05 PM), https://twitter.com/AndreaABC11/status/1174006406753783808.

[6] Nathanson, supra note 2.

[7] See generally Morse v. Frederick, 551 U.S. 393 (2007); Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260 (1988); Bethel Sch. Dist. No. 403 v. Fraser, 478 U.S. 675 (1986) Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503 (1969).

[8] Tinker, 393 U.S. at 504.

[9] Id.

[10] Id.

[11] Ronna G. Schneider, General Restrictions on Freedom of Speech in Schools, 1 Educ. L. § 2:3 (2018).

[12] Tinker, 393 U.S. at 509.

[13] Id. at 508.

[14] See Matthew M. Pagett, A Tinker’s Damn: Reflections on Student Speech, 2 Wake Forest J.L. & Pol’y 1, 19 (2012).

[15] See id. at 4.

[16] Bethel Sch. Dist. No. 403 v. Fraser, 478 U.S. 675, 677–78 (1986).

[17] Id. at 685.

[18] Pagett, supra note 14, at 10.

[19] Fraser, 478 U.S. at 680.

[20] Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 263 (1988).

[21] Id.

[22] Id. at 270–71 (emphasis added).

[23] Id. at 273.

[24] Id. at 271.

[25] Id.

[26] Morse v. Frederick, 551 U.S. 393, 397 (2007).

[27] Id. at 397–98.

[28] Id. at 403.

[29] Id. at 407.

[30] Id. at 409.

[31] See O’Kane, supra note 1.

[32] Hazelwood Sch. Dist. v. Kuhlmeier, 484 U.S. 260, 273 (1988).

By Katharine Batchelor

On August 20, 2019, the North Carolina House passed its version of Senate Bill 315, the North Carolina Farm Act of 2019, sending it to the North Carolina Senate for a vote.[1] The bill, intended originally to expand the industrial hemp industry in North Carolina, revises the definition of “hemp product” to exclude smokable hemp, effectively banning smokable hemp.[2] That one revision is currently the source of great debate, with the state’s farmers and agriculture industry on one side and law enforcement on the other.[3] Before explaining the significance of this particular controversy, let me take two steps back and explain the root cause of the conflict.

A Quick Background on Hemp Legislation

In 2014, the 113th Congress passed a bill permitting state departments of agriculture to establish pilot programs for growing industrial hemp, if state law allowed.[4] In 2015, the N.C. General Assembly passed Senate Bill 313 which created the Industrial Hemp Commission to oversee the licensing and regulation of hemp farmers.[5] Since the creation of the Commission, industrial hemp production has boomed, with 634 licensed farmers currently growing on over 8000 acres and 3.4 million square feet of greenhouse space, at a time when the state’s farmers need the bump.[6] The declining demand for tobacco and trade issues with China have hurt North Carolina farmers, who currently produce half of all tobacco in the United States.[7] Hemp production has received another boost on a national-level when President Trump signed the 2018 Farm Bill into law, which reclassified hemp products from a controlled substance to an agricultural commodity.[8]

Is the THC less than 0.3%? Hemp v. Marijuana

Taking one more step back, it is important to understand the difference (and the similarities) between hemp and its closely-related cousin, marijuana. Hemp and marijuana are both part of the cannabis plant family, they are simply two different varieties.[9] There are a few types of hemp, one grown predominately for its seeds, another for its fiber, and another for its floral buds from which CBD is extracted.[10] The latter variety is the kind used for smokable hemp and thus where the problem lies. As the North Carolina State Bureau of Investigation (SBI) put it, “This type looks just like marijuana, including the leaves and buds, and it smells the same as marijuana. In fact, there is no way for an individual to tell the difference by looking at the plant; one would need a chemical analysis to tell the difference.”[11] Indeed, the only difference between hemp and marijuana is the amount of tetrahydrocannabinol, or THC, which is the psychoactive chemical in marijuana that produces a high when smoked.[12] Hemp products must contain 0.3% or less THC; anything greater and it is considered illegal.[13] While the N.C. Department of Agriculture utilizes private labs to test for the percentage of THC, the SBI crime lab currently only tests for the presence of THC and not the percentage of THC.[14] Why does that matter? Two words: probable cause.

The Impact of Hemp on Probable Cause

Under existing North Carolina case law, probable cause only requires law enforcement officers to reasonably believe that there is a “probability or substantial chance” of criminal activity.[15] To seize an item, an officer simply has to believe that it is evidence of a crime.[16] The existence of legal, smokable hemp thus creates a huge issue for the way marijuana is currently policed, investigated, and prosecuted.[17] In State v. Fletcher, the North Carolina Court of Appeals upheld a marijuana conviction based on an officer identifying marijuana visually using her experience and training.[18] Now, however, if an officer cannot distinguish on sight between hemp and marijuana, then that officer does not have probable cause to seize evidence or make an arrest, because the cannabis plant material an officer sees or smells could very well be smokable hemp – a legal commodity people are free to use whenever and wherever.[19]

Law enforcement agencies across the state have acknowledged the impact of smokable hemp on marijuana enforcement.[20] In fact, the SBI stated that at least one district attorney’s office has stopped prosecuting marijuana possession because officers can no longer distinguish hemp from marijuana; thus there is no evidentiary grounds for a conviction.[21] Many have even forecasted that the continued legality of smokable hemp could lead to the legalization of marijuana in North Carolina.[22] While there are tests to determine the amount of THC in a substance, there currently is no field test available to North Carolina law enforcement to use on site and again, the SBI currently only tests for the presence of THC.[23] The visual identification evidence by which so many marijuana cases are prosecuted is no longer available to law enforcement and prosecutors.

Senate Bill 315

In response to law enforcement’s concerns, a Senate subcommittee revised SB 315 to ban smokable hemp on June 6.[24] “Hemp product does not include smokable hemp.”[25] That version of the bill passed the Senate on June 18. Almost immediately, the state’s farmers spoke out in protest with the Industrial Hemp Commission calling on the N.C. General Assembly to keep smokable hemp legal.[26] The smokable hemp bud is more lucrative for farmers and many have already invested in new equipment and seed because the state has been loosening hemp laws since 2015.[27] That single revision, which would go in effect on May 1, 2020, could diminish farmers’ ability to obtain the necessary crop insurance and to compete with other states where smokable hemp is legal.[28]

Nevertheless, SB 315 made its way to the N.C. House where representatives went one step further in response to the impact of smokable hemp on probable cause. Before voting to pass the bill as a whole, the House passed the following amendment to the section titled, “Exclusion or suppression of unlawfully obtained evidence:”[29]

(a1) If evidence was obtained as the result of a search that was supported by probable cause at the time of the search, no evidence obtained as a result of that search shall be suppressed solely on the basis of either of the following:
(1) A subsequent determination that a substance believed to be a controlled substance at the time of the search was not a controlled substance.
(2) A subsequent determination that the presence of a controlled substance at the time of the search was not a violation of law.

In essence, the amendment returns probable cause based on visual identification to law enforcement and allows officers to search and arrest for suspected marijuana using sight and smell alone.[30] Furthermore, the amendment explicitly states that even if officers later determine a substance is a legal hemp product, any evidence found through a search can be used as evidence for other charges: the evidence is not fruit of the poisonous tree.[31] This amendment raises significant constitutional questions regarding legal search and seizure, which at least two Republican representatives highlighted before the House voted on the bill.[32]  The bill was sent to the Senate Committee on Rules and Operations on August 22, which has to approve the current edition before it is sent to the governor.[33]

Whether the current edition[34] of the bill is signed into law remains to be seen. With two of the state’s most influential groups, law enforcement and farmers, on opposing sides, it’s likely that this debate isn’t over quite yet, and SB 315 could evolve once again before it passes into the hands of Roy Cooper.


[1] Dawn Baumgartner Vaughan, NC House Votes for Ban on Smokable Hemp, Reacting to Police Concern Over Pot Arrests, Charlotte Observer (Aug. 21, 2019, 12:12 PM), https://www.charlotteobserver.com/news/politics-government/article234178387.html (quoting Fen Rascoe, a North Carolina Industrial Hemp Commission member and hemp farmer).

[2] S.B. 315 – 10th Ed., Gen. Assemb., 2019 Sess. (N.C. 2019), https://www.ncleg.gov/Sessions/2019/Bills/Senate/PDF/S315v10.pdf.

[3] Vaughan, supra note 1.

[4] Industrial Hemp Pilot Program in North Carolina, N. C. Dep’t of Agric. & Consumer Serv., https://www.ncagr.gov/hemp/index.htm (last visited Sept. 19, 2019).

[5] S.B. 313, Gen. Assemb., 2015 Sess. (N.C. 2015), https://www.ncleg.net/Sessions/2015/Bills/Senate/PDF/S313v5.pdf.

[6]  Matthew Burns, NC Sees Hemp as Next Big Cash Crop, WRAL (Mar. 20, 2019), https://www.wral.com/nc-sees-hemp-as-next-big-cash-crop/18273125/.

[7] Heather Wilkerson, North Carolina Farmers Embrace Hemp as the Market for Tobacco Dwindles, Green Entrepreneur (June 11, 2019), https://www.greenentrepreneur.com/article/334739; Will Doran, NC Lawmakers See Hemp as the State’s Next Big Cash Crop. But Police are Opposed., Raleigh News & Observer (June 11, 2019, 8:19 PM), https://www.newsobserver.com/news/politics-government/article231439078.html.

[8] John Hudak, The Farm Bill, Hemp Legalization and the Status of CBD: An Explainer, Brookings (Dec. 14, 2018), https://www.brookings.edu/blog/fixgov/2018/12/14/the-farm-bill-hemp-and-cbd-explainer/.

[9] Industrial Hemp Pilot Program in North Carolina: Frequently Asked Questions, N. C. Dep’t of Agric. & Consumer Serv., https://www.ncagr.gov/hemp/FAQs.htm (last visited Sept. 19, 2019).

[10] Id.

[11] N.C. State Bureau of Investigation, Memo on Industrial Hemp/CBD Issues (May 2019), https://www.sog.unc.edu/sites/www.sog.unc.edu/files/doc_warehouse/NC%20SBI%20-%20Issues%20with%20Hemp%20and%20CBD%20Full.pdf.

[12] Id.

[13] Id.

[14] Id.

[15] State v. Riggs, 328 N.C. 213, 219 (1991).

[16] N.C. State Bureau of Investigation, supra note 11.

[17] Paul A. Specht, Some NC Lawmakers Want to Ban Smokable Hemp. It Looks Too Much Like Marijuana, They Say., Charlotte Observer (July 23, 2019, 7:36 PM), https://www.charlotteobserver.com/news/politics-government/article233012142.html.

[18] State v. Fletcher, 92 N.C. App. 50, 56 (N.C. Ct. App. 1988).

[19] Phil Dixon, Hemp or Marijuana?, U.N.C. Sch. of Gov’t: N.C. Crim. Law (May 21, 2019, 10:14 AM), https://nccriminallaw.sog.unc.edu/hemp-or-marijuana/.

[20] Specht, supra note 17.

[21] N.C. State Bureau of Investigation, supra note 11.

[22] Specht, supra note 17.

[23] N.C. State Bureau of Investigation, supra note 11.

[24] N.C. Senate Comm. on Agric./Env’t/Nat. Resources, PCS 15357 (2019) https://webservices.ncleg.net/ViewBillDocument/2019/4790/0/S315-PCS15357-TQf-5.

[25] Id.

[26] Specht, supra note 17.

[27] Id.

[28] Id.

[29] N.C. House, Amendment A1 to S.B. 315 (2019)  https://webservices.ncleg.net/ViewBillDocument/2019/6292/0/S315-ASA-85-V-1.

[30] Vaughan, supra note 1.

[31] Id.

[32] Id.

[33] Id.

[34] S.B. 315 – 10th Ed., Gen. Assemb., 2019 Sess. (N.C. 2019), https://www.ncleg.gov/Sessions/2019/Bills/Senate/PDF/S315v10.pdf.

by Paul Fangrow

Loss of chance is a hot topic in recent American medical malpractice law. In states where it is accepted, loss of chance is a cause of action in medical malpractice cases that asserts a physician’s negligence reduced a patient’s chance for a better outcome or increased their risk of future harm, when the patient’s existing chance is below 50%.[1] Oregon recently changed sides and accepted loss of chance in 2017.[2] Hawaii, one of the last states remaining where loss of chance had not been addressed, just heard oral argument in the Hawaii Supreme Court on Estate of Frey v. Mastroianni[3] involving loss of chance doctrine.[4] Today, nearly every state has either accepted or rejected the doctrine.[5] North Carolina is now one of only three states that have yet to finally rule on the admissibility of loss of chance claims,[6] but that may change very soon.

Parkes v. Hermann[7] is a North Carolina Court of Appeals case involving loss of chance doctrine with a petition for discretionary review pending before the North Carolina Supreme Court.[8] A patient under the care of Defendant doctor died from a stroke that was misdiagnosed.[9] Proper protocol for a stroke is to administer a type of drug within three hours, which Defendant doctor did not do.[10] Issuing the drug within three hours of a stroke results in a 40% chance of a better outcome.[11] Under current North Carolina law, a patient must have a greater than 50% chance of a better outcome to prove that Defendant doctor more likely than not caused the patient’s injury.[12] The North Carolina Court of Appeals rejected loss of chance as a recognized claim,[13] marking Parkes v. Hermann as the first time a North Carolina court explicitly ruled on the admissibility of a loss of chance claim.[14]

In states that have accepted loss of chance doctrine, an injury resulting in a less than a 50% chance of recovery is still a valid cause of action.[15] Two distinct theories have arisen in the state courts: a causation approach first adopted in Pennsylvania,[16] and an injury approach popularized by professor Joseph King, Jr.[17] This is the approach adopted by Oregon[18] and is under consideration in both Hawaii[19] and North Carolina.[20] The causation approach takes cues from Section 323(a) of the Second Restatement of Torts,[21] and lowers the threshold of proof required to submit the question of proximate cause to the jury.[22] The jury is then called on to decide whether the defendant’s negligence was a substantial factor in bringing about the eventual harm.[23] By contrast, the injury approach recharacterizes the harm that recovery is sought for as the loss of chance itself, not the eventual harm.[24] Under this approach, a plaintiff seeks to prove by a preponderance of evidence that the defendant’s negligence resulted in the plaintiff’s loss of chance for a better outcome, or increased their risk of future harm.[25] In almost all states that have adopted loss of chance in some form, a proportional damages formula is used where if the claim is successful, the plaintiff recovers the percentage of chance lost multiplied by the value of what a full recovery would be.[26] That way, the plaintiff only recovers for the harm that the defendant’s negligence actually caused.[27]

The central reasoning for adopting loss of chance doctrine is to alleviate the harshness of the traditional approach.[28] Under the traditional approach currently followed by North Carolina, a plaintiff cannot recover anything unless they prove a doctor’s negligence more likely than not caused the eventual harm suffered.[29] Put into loss of chance terms, a plaintiff does not recover unless the loss of chance suffered is greater than 50%.[30] Thus, even though the patient in Parkes v. Hermann would have had a 40% chance of a better outcome had Defendant doctor correctly diagnosed the patient’s stroke and followed protocol, the patient is categorically barred from any recovery. If this arrangement seems unfair, many states agree that it is.[31] At present, twenty-five states have accepted loss of chance in either theory.[32] Hawaii may very well make it twenty-six.[33]

North Carolina has the opportunity to become the twenty-seventh[34] state to adopt loss of chance as a compensable claim in medical malpractice cases, but there are troublesome rumblings that suggest an uphill battle for loss of chance advocates. The sheer brevity of the Parkes v. Hermann opinion is one indicator. While the court in Estate of Frey v. Mastroianni took care to analyze both loss of chance theories, debate their merits, and cite case law from dozens of other jurisdictions,[35] the court in Parkes v. Hermann issued a very short and curt opinion comprised of only six paragraphs of analysis.[36] The court only cited a single case with reference to the various approaches adopted in each state.[37] The reasoning given for rejecting loss of chance was that no North Carolina case was cited that recognized such a claim, but this is to be expected when North Carolina courts have never taken any position regarding loss of chance until Parkes v. Hermann, rendering this reasoning entirely circular. While the court points to Gower v. Davidian[38]—a North Carolina Supreme Court case from 1937—to support a broad claim that “[t]he rights of the parties cannot be determined upon chance,”[39] this seems a thin reed upon which to hang the resolution of the loss of chance issue in light of the Gower court’s explicit statement that there was no evidence that loss of chance even occurred.[40] Besides, advances in medical technology made in the last eighty years have enabled expert witnesses to testify to reasonable medical certainty about the chances of recovery are in a wide variety of scenarios, and courts already rely wholly on chance to determine whether a patient had a 51% or more chance of making a recovery to establish proximate cause.

It seems like the court has no desire to seriously engage with the merits of the debate on loss of chance. Both the majority opinion and the concurrence written by Judge Berger cite dicta from Curl v. American Multimedia, Inc.[41] for the proposition that “recognition of a new cause of action is a policy decision which falls within the province of the legislature.”[42] While this is not a new idea even where loss of chance is concerned, [43] the underlying reason given for requiring legislative action is usually the presence of a conflict between loss of chance and a current medical malpractice statute.[44] The Parkes v. Hermann opinion contains no discussion of any conflict with existing North Carolina medical malpractice law.

In the absence of any statutory conflicts, there is no reason for the judiciary to paralyze itself regarding its own common law. Ever since the founding of the country, courts across the United States have interpreted statutes and maintained their common law without legislative handholding. In the wake of rapid technological progress that puts the legal community in a constant state of catch-up, courts cannot afford to tentatively wait for the legislature on every difficult question of evolving legal doctrine. A substantial majority of states that have both accepted and rejected loss of chance did so without any prior legislative direction.[45] Further, nothing stops the legislature from stepping in after the fact and reverting the law back to the traditional approach should it want to. Lord v. Lovett,[46] Jorgenson v. Vener,[47] and Falcon v. Memorial Hospital[48]are all state supreme court decisions that adopted loss of chance and were subsequently superseded by statutes passed by their respective state legislatures.

Parkes v. Hermann is a case of first impression in the North Carolina courts. Hopefully, the North Carolina Supreme Court considers the issues presented with greater care.


[1] See Joseph H. King, Jr., “Reduction of Likelihood” Reformulation and Other Retrofitting of the Loss-of-a-Chance Doctrine, 28 U. Mem. L. Rev. 491, 508–511 (1998).

[2] Smith v. Providence Health & Servs.-Or., 393 P.3d 1106, 1121 (Ore. 2017).

[3] No. CAAP-14-0001030, 2018 Haw. Ap. LEXIS 327 (Haw. Ct. App. June 29, 2018), cert. granted, No. SCWC-14-0001030, 2018 Haw. LEXIS 255 (Haw. Nov. 29, 2018).

[4] Oral Argument, Estate of Frey v. Mastroianni, No. SCWC-14-0001030 (Haw. argued Feb. 12, 2019), http://oaoa.hawaii.gov/jud/oa/19/SCOA_022119_SCWC_14_1030.mp3.

[5] See Lauren Guest et al., The “Loss of Chance” Rule as a Special Category of Damages in Medical Malpractice: A State-by-State Analysis, 21 J. Legal Econ. 53, 59 (2015).

[6] Id.

[7] 828 S.E.2d 575 (N.C. Ct. App. 2019).

[8] Petition for Discretionary Review, Parkes v. Hermann, No. 241P19 (N.C. filed July 5, 2019), https://www.ncappellatecourts.org/show-file.php?document_id=250145.

[9] Parkes, 828 S.E.2d at 576.

[10] Id.

[11] Id.

[12] Id. at 577.

[13] Id. at 578.

[14] Bennett v. Hospice & Palliative Care Ctr. of Alamance Caswell, 783 S.E.2d 260, 261–62 (N.C. Ct. App. 2016) (pro se plaintiff did not attach Rule 9(j) certification to complaint, among other errors); Curl v. Am. Multimedia, Inc., 654 S.E.2d 76, 80–81 (N.C. Ct. App. 2007) (loss of chance not asserted in the complaint); Franklin v. Britthaven, Inc., No. COA05-1603, 2006 N.C. App. LEXIS 2119, at *12–13 (loss of chance not considered because plaintiff did not raise it at trial).

[15] See Joseph H. King, Jr., Causation, Valuation, and Chance in Personal Injury Torts Involving Preexisting Conditions and Future Consequences, 90 Yale L.J. 1353, 1364 (1981).

[16] Hamil v. Bashline, 392 A.2d 1280, 1286–90 (Pa. 1978).

[17] See King, supra note 14, at 1365–76 (for an in-depth explanation of the injury approach to loss of chance).

[18] Smith v. Providence Health & Servs.-Or., 393 P.3d 1106, 1112–17 (Ore. 2017) (discussing and rejecting the causation approach while adopting the injury approach).

[19] Estate of Frey v. Mastroianni, No. CAAP-14-0001030, 2018 Haw. Ap. LEXIS 327, at *13–15 (Haw. Ct. App. June 29, 2018) (agreeing with courts that have adopted the injury approach).

[20] Parkes v. Hermann, 828 S.E.2d 575, 577 (N.C. Ct. App. 2019) (“The question presented is whether her loss of this 40% chance, itself, is a type of injury for which Ms. Parkes can recover.”).

[21] Restatement (Second) of Torts § 323(a) (Am. Law Inst. 1965).

[22] Hamil, 392 A.2d at 1286 (“We agree . . . that the effect of § 323(a) is to relax the degree of certitude normally required of plaintiff’s evidence in order to make a case for the jury as to whether a defendant may be held liable . . . .”).

[23] Id. at 1288 (“[S]uch evidence furnishes a basis for the fact-finder to go further and find that such an increased risk was in turn a substantial factor in bringing about the resultant harm . . . .”).

[24] Parkes, 828 S.E.2d at 575 (“[Plaintiff] argues, however, that she has suffered a different type of injury for which she is entitled to recovery; namely, her “loss of chance” of a better neurological outcome.”).

[25] Smith v. Providence Health & Servs.-Or., 393 P.3d 1106, 1114 (Ore. 2017) (“[T]reating loss of chance as a theory of injury does not dispense with causation requirements, but instead shifts the causation inquiry to whether a defendant caused the opportunity of a better outcome to be lost . . . .”).

[26] See, e.g., King, supra note 14, at 1382 (“The value placed on the patient’s life would reflect such factors as his age, health, and earning potential, including the fact that he had suffered the heart attack and the assumption that he had survived it. The 40% computation would be applied to that base figure.”).

[27] See, e.g., Estate of Frey v. Mastroianni, No. CAAP-14-0001030, 2018 Haw. Ap. LEXIS 327, at *14 (Haw. Ct. App. June 29, 2018) (“As such, damages are then limited only to those proximately caused by the medical provider’s breach of duty.”).

[28] See, e.g., King, supra note 14, at 1381 (“In summary, the all-or-nothing approach to the loss of a chance irrationally and unfairly denies the reality of chance as an appropriately cognizable interest in the torts system.”).

[29] Parkes, 828 S.E.2d at 577 (“To establish proximate cause, the plaintiff must show that the injury was more likely than not caused by the defendant’s negligent conduct.”).

[30] Id. at 578 (“Under the “traditional” approach, a plaintiff may not recover for the loss of less than 50% chance of a healthier outcome.”).

[31] See Guest, supra note 4, at 59 (note all the states in the “accepted” category).

[32] Id. (note that since this article was written, Oregon accepted loss of chance doctrine to make 25 states).

[33] See generally Oral Argument, supra note 4.

[34] Assuming Hawaii also adopts the doctrine.

[35] Estate of Frey v. Mastroianni, No. CAAP-14-0001030, 2018 Haw. Ap. LEXIS 327, at *8–18 (Haw. Ct. App. June 29, 2018).

[36] Parkes v. Hermann, 828 S.E.2d 575, 577–78 (N.C. Ct. App. 2019).

[37] Id. at 577 (the cited case is Valadez v. Newstart, No. W2007-01550-COA-R3-CV, 2008 Tenn. App. LEXIS 683 (Tenn. Ct. App. Nov. 7, 2008)).

[38] 193 S.E. 28 (N.C. 1937).

[39] Id. at 30.

[40] Id. at 30–31 (“The evidence discloses that the use of modern equipment and methods by trained and skillful surgeons . . . has availed nothing. . . . Unfortunately, upon this record as it now appears, the plaintiff has suffered an injury that could not then and cannot now be relieved by the medical profession.”)

[41] 654 S.E.2d 76 (N.C. Ct. App. 2007).

[42] Id. at 81. (quoting Ipock v. Gilmore, 354 S.E.2d 315, 317 (N.C. Ct. App. 1987)).

[43] Smith v. Parrott, 833 A.2d 843, 848 (Vt. 2003) (“[W]e are persuaded that the decision to expand the definition of causation and thus the potential liability of the medical profession in Vermont “involves significant and far-reaching policy concerns” more properly left to the Legislature . . . .”).

[44] Id. (“Plaintiff urges us nevertheless to depart from the strict statutory requirements, noting that they were codified in 1976, well before “loss of chance” became a recognized as a viable theory of recovery.”) (emphasis added).

[45] See Guest, supra note 4, at 63–103 (tables showing authority from each state jurisdiction and the reason behind adoption or rejection of loss of chance doctrine).

[46] 770 A.2d 1103 (N.H. 2001) (superseded by a 2003 amendment to N.H. Rev. Stat. Ann. § 507-E:2 (2019)).

[47] 616 N.W.2d 366 (S.D. 2000) (abrogated by S.D. Codified Laws § 20-9-1.1 (2019)).

[48] 462 N.W.2d 44 (Mich. 1990) (superseded by a 1993 amendment to Mich. Comp. Laws. § 600.2912a (2019)).

By Michael Johnston

When Shawn Ellis extended his middle finger while riding in the passenger seat of a vehicle on U.S. Highway 52, he likely did not know that he would become involved in the latest of a string of appellate cases on the First Amendment.

The First Amendment provides that “Congress shall make no law . . . abridging the freedom of speech . . . .”[1] Freedom of speech under the First Amendment was incorporated against the states via the Fourteenth Amendment, limiting the ability of the states to restrict freedom of speech under the United States Constitution.[2] Expressive conduct outside of verbal speech can also merit First Amendment protections if there is an intent to convey a particularized message and there is a great likelihood that the message will be understood by those who view it in the surrounding circumstances.[3]

The extension of one’s middle finger, colloquially known as shooting or flipping the bird,[4] has a long history of being used to express emotions ranging from anger and protest to comfort and familiarity.[5] While this gesture can be used to express contempt, several courts have been reluctant to conclude that the middle finger gesture falls into a category of unprotected speech that can be prosecuted.[6] For example, the Sixth Circuit recently determined that a police officer did not have reasonable suspicion or probable cause of criminal activity to stop plaintiff a second time simply because she extended her middle finger after the first stop.[7] The court reasoned that the plaintiff violated no identified law and that “[a]ny reasonable officer would know that a citizen who raises her middle finger engages in speech protected by the First Amendment.”[8]

Fighting words, however, are one exception to the First Amendment; they are words “which by their very utterance inflict injury or tend to incite an immediate breach of the peace.”[9] The Supreme Court further explained that fighting words are not essential to the discussion of ideas, and any benefit to the social discourse derived from them is outweighed by society’s interest in morality and order.[10] Despite the expressive value of extending one’s middle finger, courts are more willing to conclude that the gesture can support a disorderly conduct charge if there are other disruptive circumstances or if a third party can testify that they felt offended or threatened.[11] For example, the Third Circuit held that a police officer had probable cause to charge plaintiff with disorderly conduct under the totality of the circumstances, namely the plaintiff’s display of his middle finger and aggressive driving directed at another driver on the road.[12] With additional disruptive circumstances, a court is more likely to conclude that the speech constitutes fighting words and that the person using such speech can be charged with disorderly conduct.[13] For expressive purposes, disorderly conduct statutes have been limited by the Supreme Court to the proscription of fighting words.[14]

In State v. Ellis,[15] the defendant was stopped by a police officer after the officer observed the defendant extending his middle finger in the officer’s general direction.[16] The defendant was initially using a waving gesture as his vehicle drove past the stopped officer, but after the defendant’s vehicle passed the officer, the defendant changed his gesture to an extended middle finger.[17] There were other vehicles moving down the highway near the defendant’s vehicle.[18] In its initial opinion, the North Carolina Court of Appeals concluded that this conduct was sufficient for an officer to have reasonable suspicion of disorderly conduct.[19] The panel then withdrew its initial opinion and substituted it with another opinion; the panel majority clarified that the officer had reasonable suspicion of disorderly conduct because there was an objective basis to believe that the defendant’s gesture could have been directed at a third party and that the changing gestures suggested that the potential disorderly conduct was escalating.[20] While the court noted cases concluding that giving a middle finger to law enforcement is protected by the First Amendment, the court distinguished them by concluding that the possibility that defendant’s middle finger could have been directed at a third party was a sufficient basis for reasonable suspicion for disorderly conduct.[21] According to the court, this reasonable suspicion justified the stop and later justified the defendant’s charge and conviction of resisting, delaying, or obstructing a public officer for failing to provide his identification.[22]

The standard for a police officer to conduct a traffic stop is reasonable suspicion of criminal activity,[23] which is a lower standard than probable cause of criminal activity.[24] For reasonable suspicion, the police officer must, under the totality of the circumstances, have specific and articulable facts supporting a suspicion of criminal activity.[25] An innocent explanation for suspicious conduct does not defeat reasonable suspicion,[26] and innocent conduct can contribute to reasonable suspicion under the totality of the circumstances.[27]

However, as the dissenting opinion notes, the majority’s opinion in Ellis seems to disregard the First Amendment protections for defendant’s speech.[28] There is a sizeable amount of authority from around the United States concluding that extending one’s middle finger in the presence of third parties does not constitute disorderly conduct under the First Amendment.[29] Furthermore, there is also authority concluding that simply displaying one’s middle finger is insufficient for reasonable suspicion of criminal activity under the First Amendment.[30] In both Cruise-Gulyas v. Minard[31] and Ellis, for example, an officer stopped someone after they displayed their middle finger in the direction of the officer.[32] While the Sixth Circuit concluded that the officer in Cruise-Gulyas lacked reasonable suspicion to stop the plaintiff in response to the gesture under the First Amendment, the court of appeals in Ellis distinguished Cruise-Gulyas on the basis that it was unclear whom the gesture was directed at in Ellis, even though it seems unlikely that there were no other drivers on the street who might have seen the gesture in Cruise-Gulyas.[33] Just as there was no reasonable suspicion of criminal activity and “[a]ny reasonable officer would know that a citizen who raises her middle finger engages in speech protected by the First Amendment” in Cruise-Gulyas,[34] the same should be true in Ellis. Furthermore, other courts have viewed the middle finger as sufficient for reasonable suspicion or probable cause of criminal activity only when there are other disruptive circumstances associated with the conduct or a third party can testify that they felt offended or threatened.[35] Unlike in Favata v. Seidel,[36] there were no other disruptive circumstances in Ellis, such as reckless driving, to justify reasonable suspicion or probable cause of disorderly conduct.[37] The Ellis opinion does find some support in North Carolina case law, but one of the more helpful cases for the Ellis opinion is also likely inconsistent with other authorities interpreting the First Amendment.[38]

On a practical note, the Ellis opinion will give law enforcement broader discretion to stop people, even if the stops are only motivated by personal animus. While the motivation of an officer might not be legally relevant when determining whether the officer had reasonable suspicion,[39] such stops can undermine community faith in law enforcement.[40] To justify such a stop, an officer would only need to claim that the offensive conduct of the defendant occurred in the presence of a third party. As in Ellis, the State would not need to provide evidence that the third party was actually offended by the gesture or even observed the gesture.[41] If the analysis of this question focused purely on reasonable suspicion standards under North Carolina law, this outcome might be logical due to the lower standard required for reasonable suspicion. However, in light of the protections for expressive conduct under the First Amendment, law enforcement officers stopping someone simply for using expressive, albeit distasteful, conduct in the presence of others is inconsistent with our constitutional freedoms and history.[42] Given our nation’s long history of protecting dissident speech under the First Amendment even when it happens to be offensive, extending a middle finger should not be a criminal offense, and it should not be treated as reasonable suspicion of a criminal offense simply because a third party might have seen it.

Mr. Ellis is in the process of appealing the panel’s decision.[43] In light of this appeal, the North Carolina Supreme Court should establish that the First Amendment protects expressive conduct in the form of extending a middle finger in public.


[1] U.S. Const. amend. I.

[2] U.S. Const. amend XIV, § 1; see Stromberg v. California, 283 U.S. 359, 368–70 (1931); Gitlow v. New York, 268 U.S. 652, 666 (1925).

[3] See Texas v. Johnson, 491 U.S. 397, 404 (1989) (quoting Spence v. Washington, 418 U.S. 405, 411–12 (1974)).

[4] See Ira P. Robbins, Digitus Impudicus: The Middle Finger and the Law, 41 U.C. Davis L. Rev. 1403, 1405–06 (2008).

[5] See id. at 1407–10.

[6] See Cruise-Gulyas v. Minard, 918 F.3d 494, 497 (6th Cir. 2019) (holding that plaintiff’s extension of middle finger did not justify officer stopping her a second time because the gesture was protected under the First Amendment and the gesture itself did not create probable cause or any reasonable suspicion of any criminal act); Swartz v. Insogna, 704 F.3d 105, 110 (2d Cir. 2013) (holding that traffic stop was not lawful because plaintiff giving officer middle finger while riding in vehicle did not create a reasonable suspicion of criminal activity); Sandul v. Larion, 119 F.3d 1250, 1255 (6th Cir. 1997) (holding that, despite defendant directing his middle finger and profane language at protestors while driving, “a reasonable officer should have known that the words and gestures employed by Sandul amounted to protected speech” because they were not likely to incite an immediate breach of the peace when Sandul’s vehicle was traveling quickly on the opposite side of the street from the protestors, the incident only lasted a few seconds, there was no evidence that any protestor was offended or even acknowledged the conduct except for the officer, and there was no face-to-face contact between Sandul and protestors), cert. dismissed, 522 U.S. 979 (1997); Duran v. City of Douglas, 904 F.2d 1372, 1378 (9th Cir. 1990) (holding that vehicle passenger’s use of profanity and display of middle finger to police officer protected by the First Amendment); Youngblood v. Qualls, 308 F. Supp. 3d 1184, 1190, 1195–97 (D. Kan. 2018) (holding that plaintiff’s display of middle finger and use of profanity directed at neighbor’s house was insufficient for probable cause for disorderly conduct under Kan. Stat. Ann. § 21-6203 and the First Amendment); Brown v. Wilson, No. 1:12-CV-1122-DAE, 2015 U.S. Dist. LEXIS 88871, at *8–14 (W.D. Tex. July 9, 2015) (holding that plaintiff’s middle finger to police officer while driving was not in violation of Texas’s disorderly conduct statute and did not fall under the fighting words exception to the First Amendment because there was no indication of actual or threatened violence tending to incite an immediate breach of the peace); Corey v. Nassan, No. 05-114, 2006 U.S. Dist. LEXIS 68521, at *23–37 (W.D. Pa. Sept. 25, 2006) (holding that plaintiff’s alleged raising of his middle finger to police officer while driving was protected by the First Amendment in part because of the absence of “some particularized showing that the gesture in the specific factual context constitutes ‘fighting words’ or is otherwise illegal”); Perkins v. City of Gahanna, No. C2-99-533, 2000 U.S. Dist. LEXIS 23209, at *5–11 (S.D. Ohio Sept. 21, 2000) (holding that plaintiff’s display of middle finger to police officer as he was leaving a police station was protected by the First Amendment and not disorderly conduct); Nichols v. Chacon, 110 F. Supp. 2d 1099, 1101, 1110 (W.D. Ark. 2000) (holding that officer improperly charged plaintiff with disorderly conduct after officer observed plaintiff display his middle finger while driving because the disorderly conduct statute, Ark. Code Ann. § 5-71-207(a)(3), was limited to fighting words and the display of one’s middle finger did not constitute fighting words); United States v. McDermott, 971 F. Supp. 939, 942–43 (E.D. Pa. 1997) (holding that defendant’s use of profanity with only officers and two other people present insufficient for fighting words exception under disorderly conduct statute); Cook v. Bd. of the Cty. Comm’rs, 966 F. Supp. 1049, 1052 (D. Kan. 1997) (holding that “the Court cannot infer that a reasonable police officer would necessarily believe that plaintiff was engaged in disorderly conduct or that — in light of clearly established law and the information known to Officer Drake — a reasonable police officer would have had probable cause to arrest plaintiff and charge him with disorderly conduct in violation of Kansas Law” when plaintiff displayed his middle finger while driving past officer’s parked patrol car); Freeman v. State, 805 S.E.2d 845, 849–51 (Ga. 2017) (holding that defendant’s disorderly conduct conviction based on his display of his middle finger in church was improper because the statute Ga. Code Ann. § 16-11-39(a)(1), as applied to expressive conduct under the First Amendment, only criminalized fighting words and there was no evidence that defendant engaged in any other threatening conduct or intended anything other than protest against secular education); In re Fechuch, No. 2005 AP 02 0012, 2005 Ohio App. LEXIS 3941, at *3–9 (Ohio Ct. App. Aug. 16, 2005) (holding that there was insufficient evidence to support defendant’s conviction for disorderly conduct because defendant’s use of profanity and her middle finger did not constitute fighting words under the First Amendment as they were not inherently likely to provoke a violent reaction from the ordinary citizen); Coggin v. State, 123 S.W.3d 82, 87–88, 91–92 (Tex. App. 2003) (holding that the evidence at trial was legally insufficient to uphold defendant’s conviction of disorderly conduct after defendant in car displayed his middle finger to driver of another car because the interaction was brief, there was no actual or threatened violence, and the interaction was not face-to-face).

[7] See Cruise-Gulyas, 918 F.3d at 497.

[8] See id.

[9] See Chaplinsky v. New Hampshire, 315 U.S. 568, 571–72 (1942) (footnote omitted).

[10] See id.

[11] See Favata v. Seidel, 511 F. App’x. 155, 159–60 (3d Cir. 2013) (holding that there was probable cause for disorderly conduct because plaintiff was driving recklessly in addition to displaying his middle finger); City of Akron v. Lorenzo, No. 20475, 2001 Ohio App. LEXIS 4327, at *8 (Ohio Ct. App. Sept. 26, 2001) (holding that it was not a manifest miscarriage of justice for a trial court to find defendant guilty of disorderly conduct under fighting words exception because defendant repeatedly shouted profanities at officers and displayed his middle finger); State v. Wood, 679 N.E.2d 735, 739–40 (Ohio. Ct. App. 1996) (holding that defendant’s conviction for disorderly conduct was proper after concluding that defendant’s actions, namely approaching university police officers and then repeatedly using profanities against them and displaying his middle finger to them, constituted fighting words); In re S.J.N-K., 647 N.W.2d 707, 711–13 (S.D. 2002) (holding that there was sufficient evidence to justify a guilty jury verdict for disorderly conduct under the fighting words exception after defendant repeatedly displayed middle finger and mouthed profanity to school principal while following principal in car); Estes v. State, 660 S.W.2d 873, 874–75 (Tex. App. 1983) (holding that there was sufficient evidence to justify a guilty jury verdict for disorderly conduct after defendant displayed his middle finger to high school principal and principal resisted “animal instinct to retaliate” because the gesture could have constituted fighting words to an average person).

[12] See Favata, 511 F. App’x at 156–57, 159–60.

[13] See, e.g., Wood, 679 N.E.2d at 739–40 (holding that defendant’s conviction for disorderly conduct proper after concluding that defendant’s actions, namely approaching university police officers and then repeatedly using profanities against them and displaying his middle finger to them, constituted fighting words).

[14] See Gooding v. Wilson, 405 U.S. 518, 527–28 (1972); State v. Summrell, 192 S.E.2d 569, 574–76 (N.C. 1972), overruled in part on other grounds in State v. Barnes, 380 S.E.2d 118, 119 (N.C. 1989).

[15] No. COA18-817, 2019 N.C. App. LEXIS 713 (N.C. Ct. App. Aug. 20, 2019) petition for writ of supersedeas filed, motion for temporary stay allowed, No. 340A19-1, 2019 N.C. LEXIS 848 (N.C. Aug. 29, 2019). While this case was officially filed for publication by the North Carolina Court of Appeals on August 20, 2019, it has not been given an official reporter designation at the time of this publication.

[16] Id. at *7–8.

[17] Id.

[18] Id. at *6.

[19] N.C. Gen. Stat. § 14-288.4(a)(2) (2017); State v. Ellis, No. COA18-817, 2019 N.C. App. LEXIS 628, at *6–8 (N.C. Ct. App. Aug. 6, 2019), withdrawn (Aug. 13, 2019), modified, No. COA18-817, 2019 N.C. App. LEXIS 713 (N.C. Ct. App. Aug. 20, 2019), petition for writ of supersedeas filed, motion for temporary stay allowed, No. 340A19-1, 2019 N.C. LEXIS 848 (N.C. Aug. 29, 2019).

[20] Ellis, 2019 N.C. App. LEXIS 713, at *9–11.

[21] Id.

[22] See id. at *9–12.

[23] See State v. Barnard, 658 S.E.2d 643, 645 (N.C. 2008).

[24] See State v. Johnson, 803 S.E.2d 137, 139 (N.C. 2017).

[25] See Terry v. Ohio, 392 U.S. 1, 20–22 (1968); State v. Styles, 665 S.E.2d 438, 443–40 (N.C. 2008).

[26] See United States v. Arvizu, 534 U.S. 266, 277 (2002); State v. Williams, 726 S.E.2d 161, 167 (N.C. Ct. App. 2012).

[27] See United States v. Sokolow, 490 U.S. 1, 9–11 (1989); Terry, 392 U.S. at 22.

[28] See State v. Ellis, No. COA18-817, 2019 N.C. App. LEXIS 713, at *22 (N.C. Ct. App. Aug. 20, 2019) (Arrowood, J., dissenting), petition for writ of supersedeas filed, motion for temporary stay allowed, No. 340A19-1, 2019 N.C. LEXIS 848 (N.C. Aug. 29, 2019).

[29] See Sandul v. Larion, 119 F.3d 1250, 1255 (6th Cir. 1997) (holding that, despite defendant directing his middle finger and profane language at protestors while driving, “a reasonable officer should have known that the words and gestures employed by Sandul amounted to protected speech” because they were not likely to incite an immediate breach of the peace when Sandul’s vehicle was traveling quickly on the opposite side of the street from the protestors, the incident only lasted a few seconds, there was no evidence that any protestor was offended or even acknowledged the conduct except for the officer, and there was no face-to-face contact between Sandul and protestors), cert. dismissed, 522 U.S. 979 (1997); Youngblood v. Qualls, 308 F. Supp. 3d 1184, 1190, 1195–97 (D. Kan. 2018) (holding that plaintiff’s display of middle finger and use of profanity directed at neighbor’s house was insufficient for probable cause for disorderly conduct under Kan. Stat. Ann. § 21-6203 and the First Amendment); United States v. McDermott, 971 F. Supp. 939, 942–43 (E.D. Pa. 1997) (holding that defendant’s use of profanity with only officers and two other people present insufficient for fighting words exception under disorderly conduct statute); Freeman v. State, 805 S.E.2d 845, 849–51 (Ga. 2017) (holding that defendant’s disorderly conduct conviction based on his display of his middle finger in church was improper because the statute Ga. Code Ann. § 16-11-39(a)(1), as applied to expressive conduct, only criminalizes fighting words and there was no evidence that defendant engaged in any other threatening conduct or intended anything other than protest against secular education); Coggin v. State, 123 S.W.3d 82, 91–92 (Tex. App. 2003) (holding that the evidence at trial was legally insufficient to uphold defendant’s conviction of disorderly conduct after defendant in car displayed his middle finger to driver of another car because the interaction was brief, there was no actual or threatened violence, and the interaction was not face-to-face).

[30] See, e.g., Cruise-Gulyas v. Minard, 918 F.3d 494, 497 (6th Cir. 2019) (holding that plaintiff’s extension of middle finger did not justify officer stopping her a second time because the gesture was protected under the First Amendment and the gesture itself did not create probable cause or any reasonable suspicion of any criminal act); Sandul, 119 F.3d at 1255.

[31] 918 F.3d 494 (6th Cir. 2019).

[32] See id. at 497; Ellis, 2019 N.C. App. LEXIS 713, at * 7–8.

[33] See Cruise-Gulyas, 918 F.3d at 495–97; Ellis, 2019 N.C. App. LEXIS 713, at *6–10.

[34] See Cruise-Gulyas, 918 F.3d at 497.

[35] See, e.g., Favata v. Seidel, 511 F. App’x. 155, 159–60 (3d Cir. 2013) (holding that there was probable cause for disorderly conduct because plaintiff was driving recklessly in addition to displaying his middle finger); State v. Wood, 679 N.E.2d 735, 739–40 (Ohio. Ct. App. 1996) (holding that defendant’s conviction for disorderly conduct was proper after concluding that defendant’s actions, namely approaching university police officers and then repeatedly using profanities against them and displaying his middle finger to them, constituted fighting words).

[36] 511 F. App’x. 155 (3d Cir. 2013).

[37] See id. at 156–57, 159–60; Ellis, 2019 N.C. App. LEXIS 713, at *6–10.

[38] See In re V.C.R., 742 S.E.2d 566, 568, 570–71 (N.C. Ct. App. 2013) (holding that officer had reasonable suspicion to seize teenage defendant for disorderly conduct under N.C. Gen. Stat. § 14-288.4(a)(2) after officer began driving away and defendant said, “What the fuck, man?”). It is unlikely that a reasonable person would sincerely believe that a teenager’s use of what was likely rhetorical profanity amongst friends would be plainly likely to provoke violent retaliation and thereby cause a breach of the peace. Furthermore, such speech is likely protected by the First Amendment. Compare id., with Cruise-Gulyas, 918 F.3d at 497 (holding that officer’s second stop of plaintiff after plaintiff extended her middle finger was not based on reasonable suspicion of any criminal act and that plaintiff’s gesture was protected under the First Amendment).

[39] See Whren v. United States, 517 U.S. 806, 813 (1996); State v. Nicholson, 813 S.E.2d 840, 846 (N.C. 2018).

[40] See Albert J. Reiss, Jr., The Police and the Public 175–76 (1971).

[41] See State v. Ellis, No. COA18-817, 2019 N.C. App. LEXIS 713, at *2–3 (N.C. Ct. App. Aug. 20, 2019); id. at *22 (Arrowood, J., dissenting).

[42] See, e.g., Texas v. Johnson, 491 U.S. 397, 414 (1989); Cohen v. California, 403 U.S. 15, 25–26 (1971).

[43] See State v. Ellis, No. COA18-817, 2019 N.C. App. LEXIS 713 (N.C. Ct. App. Aug. 20, 2019), petition for writ of supersedeas filed, motion for temporary stay allowed, No. 340A19-1, 2019 N.C. LEXIS 848 (N.C. Aug. 29, 2019).

By Samuel Gilleran

In a sweeping, 357-page ruling released yesterday afternoon, a three-judge panel of North Carolina Superior Court judges unanimously held that partisan gerrymandering violates multiple provisions of the North Carolina Constitution,[1] including the Equal Protection Clause,[2] the Free Elections Clause,[3] and the Freedom of Speech and Freedom of Assembly Clauses.[4]

The panel then proceeded to enjoin the use of the maps in the 2020 primary and general elections, ordered the General Assembly to enact new maps within two weeks, and forbade the use of “[p]artisan considerations and election results data.”[5] The panel further decreed that the General Assembly could not use the current map “as a starting point for drawing new districts, and no effort may be made to preserve the cores of invalidated 2017 districts.”[6] The panel forbade the use of outside consultants without Court approval and demanded that “the entire remedial process” must occur “in full public view. At a minimum, this requires all map drawing to occur at public hearings, with any relevant computer screen visible to legislators and public observers.”[7] Finally, the panel “retain[ed] jurisdiction” to adjust the dates of the 2020 primary elections in the event that such an adjustment was “necessary to provide effective relief in this case.”[8]

The panel noted that the allegations of partisan gerrymandering were essentially uncontested.[9] After all, in the related redrawing of the congressional district lines, Rep. David Lewis (R-Harnett), a leader in the Republican redistricting effort, plainly stated his belief that a “political gerrymander [was] not against the law” in urging the adoption of a map that would “give a partisan advantage to 10 Republicans and 3 Democrats because I do not believe it’s possible to draw a map with 11 Republicans and 2 Democrats.”[10] The real question at issue was whether such gerrymandering was both proscribed under the North Carolina Constitution and justiciable by the North Carolina courts. The panel answered both questions affirmatively.

Before the panel expounded its holdings under the state constitution, it first explained why the Supreme Court’s opinion in Rucho v. Common Cause[11] did not control. As the panel noted, the Supreme Court explicitly reserved the issue of partisan gerrymandering for state review. It quoted the high court’s assertion that its opinion in Rucho did “not condone excessive partisan gerrymandering” and did not “condemn complaints about districting to echo into a void.”[12] “Rather, the Supreme Court held, ‘[t]he States . . . are actively addressing the issue on a number of fronts,’ and ‘[p]rovisions in state statutes and state constitutions can provide standards and guidance for state courts to apply.’”[13] The panel held that such provisions were present in North Carolina’s constitution.

First, the panel examined the Free Elections Clause. It noted that this clause “is one of the clauses that makes the North Carolina Constitution more detailed and specific than the federal Constitution in the protection of the rights of its citizens.”[14] The panel traced the evolution of the Free Elections Clause throughout the history of North Carolina’s legal system and concluded that it provides a justiciable right to North Carolinians; it is not merely hortatory or aspirational language.[15] It specifically pointed to a 1971 revision of the state constitution in which the wording of the clause was changed from “all elections ought to be free” to “all elections shall be free.”[16] “This change was intended to ‘make [it] clear’ that the Free Elections Clause and the other rights secured to the people by the Declaration of Rights ‘are commands and not mere admonitions’ to proper conduct on the part of the government.”[17]

The panel went on to hold that “[t]he partisan gerrymandering of the 2017 Plans strikes at the heart of the Free Elections Clause. . . . Elections are not free when partisan actors have tainted future elections by specifically and systematically designing the contours of the election districts for partisan purposes and a desire to preserve power. In doing so, partisan actors ensure from the outset that it is nearly impossible for the will of the people—should that will be contrary to the will of the partisan actors drawing the maps—to be expressed through their votes for State legislators.”[18]

In holding that North Carolina’s Free Elections Clause proscribed partisan gerrymandering, the panel’s logic tracked that of the Pennsylvania Supreme Court, which in 2018 held that a similar clause in that state’s constitution forbade partisan gerrymandering.[19] In that case, the court overturned a Republican gerrymander of Pennsylvania’s congressional districts; in the ensuing election, Democrats flipped three seats and came within 11,239 votes in three more.[20] Were it not for Pennsylvania’s political geography, in which there are 260,000 excess Democratic votes in the 3rd Congressional District (Philadelphia), Democrats could have won even more seats.[21]

Second, the panel examined North Carolina’s Equal Protection Clause.[22] The panel noted that the state version of the clause has been interpreted more broadly than the federal courts have interpreted the federal clause.[23] And so the panel relied on previous state supreme court precedents to explicate that North Carolina’s Democratic voters were being treated unequally and that because the fundamental right to vote was implicated, strict scrutiny applied.[24]

Third, the panel turned to the Free Speech and Free Assembly claims. The panel held that “the 2017 Plans discriminate[d] against . . .  Democratic voters based on their protected expression and association” and that “[d]iscriminating against citizens based on their political beliefs does not serve any legitimate government interest.”[25] The panel also held that the 2017 plans were unconstitutional under a retaliation theory of the Free Speech and Free Assembly Clauses; because Democratic voters had past protected political activity (i.e., voting for Democratic candidates) and because Republican mapmakers had chosen Democrats for negative treatment based on their protected activity, a retaliation claim was successful.[26]

Finally, the panel had to decide whether the claims were justiciable. After all, the Supreme Court had essentially held just a few months prior that while partisan gerrymandering was bad behavior, it was powerless to stop it due to a lack of judicially manageable standards. The panel held that the question of partisan gerrymandering did not fall within the political question doctrine; it is justiciable.[27] The panel specifically noted that one of the main purposes of the judicial branch of government was to be a check on the legislature’s desire to aggrandize power to itself. Citing a case from 1787, dating all the way back to the founding of the Republic, the panel declared:

“If unconstitutional partisan gerrymandering is not checked and balanced by judicial oversight, legislators elected under one partisan gerrymander will enact new gerrymanders after each decennial census, entrenching themselves in power anew decade after decade. When the North Carolina Supreme Court first recognized the power to declare state statutes unconstitutional, it presciently noted that absent judicial review, members of the General Assembly could ‘render themselves the Legislators of the State for life, without any further election of the people.’ Those legislators could even ‘from thence transmit the dignity and authority of legislation down to their heirs male forever.’ Extreme partisan gerrymandering reflects just such an effort by a legislative majority to permanently entrench themselves in power in perpetuity.”[28]

Notably, the panel rejected the argument that because gerrymandering had a long history, it was therefore constitutional. Citing to the seminal voting rights case Reynolds v. Sims, the panel stated that “widespread historical practices does not immunize governmental action from constitutional scrutiny.”[29] Merely because a practice was longstanding – and even, as in this case, engaged in by one of the Plaintiffs (i.e., the North Carolina Democratic Party) during the many years when it was in power – does not somehow eliminate the rights reserved by North Carolinians under the state constitution. The panel also rejected the idea that it needed to find a bright-line rule for how much partisan gerrymandering was too much, the question that so plagued the Supreme Court in Rucho. Instead, the panel stated the obvious: “[t]his case is not close.”[30] In essence, the panel held that, wherever the line is, this set of facts is so far past that line that Plaintiffs’ entitlement to relief is indisputable.

The reaction to the panel’s decision was swift. Sen. Jeff Jackson (D-Mecklenburg) tweeted that the ruling was “the single best news [he] ha[d] ever heard” during his time in the legislature,[31] while Rep. Graig Meyer (D-Orange) called the ruling “a big win for democracy and a game changer for 2020.”[32] But the biggest news came from Republican Senate Majority Leader Phil Berger (R-Rockingham), who announced that Republicans would not appeal the decision to the state Supreme Court. Although castigating the panel’s decision, Sen. Berger stated that “[n]early a decade of relentless litigation has strained the legitimacy of this state’s institutions, and the relationship between its leaders, to the breaking point. It’s time to move on. To end this matter once and for all, we will follow the court’s instruction and move forward with adoption of a nonpartisan map.”[33] Election law scholar Rick Hasen suggested a few reasons why Republicans elected not to appeal, including the simple facts of sure loss in the North Carolina Supreme Court and the greater precedential value of the inevitable negative decision from that court.[34]

What are the practical ramifications of this decision? For the first time in a long time, Democrats truly believe they can win back majorities in each house of the legislature.[35] Republicans currently maintain a 65-55 margin in the state house, and given the sheer number of districts identified in the decision as unconstitutionally gerrymandered, Democrats have to feel good about the prospects of taking back at least that chamber. Democrats carried a majority of the two-party vote in 2018,[36] and it is historically likely that the electorate in 2020, a presidential year, will be younger and more racially diverse than in 2018, a midterm year.[37]

Judging from the simulations run by political scientists and adjusting for a 2020 political environment, Democrats have a strong chance at flipping House seats in Columbus County,[38] Cumberland County,[39] Franklin County,[40] Pitt County,[41] Guilford County,[42] Forsyth County (possibly two)[43], New Hanover County,[44] Onslow County,[45] Anson County,[46] and Alamance County.[47] If Democrats were able to flip even six of these eleven targets, it would give them a 61-59 majority in the state house, all other things being equal.

Similarly, on the Senate side, Republicans retain a 29-21 majority, so the Democrats would have to flip five seats. The panel’s ruling gives Democrats a reasonable chance at flipping seats in Mecklenburg County[48] and Wake County,[49] but in other gerrymandered districts that would be unwound by the ruling, such as in Guilford County and New Hanover County, Democrats managed to defeat the gerrymander in 2018. That said, unwinding the gerrymander makes the playing field different and, in a good year, could allow Democrats to take Senate seats that they ordinarily would not. In addition, when decennial redistricting occurs in 2021 after the 2020 census, it could be that a few seats will shift from rural to suburban and urban areas, thereby helping Democratic chances moving forward.


[1] Common Cause v. Lewis, No. 18-cv-14001, slip op. at 352–53 (N.C. Super. Ct. [Wake] Sep. 3, 2019), https://big.assets.huffingtonpost.com/athena/files/2019/09/03/5d6ec7bee4b0cdfe0576ee09.pdf.

[2] N.C. Const. art. I, § 19.

[3] N.C. Const. art. I, § 10.

[4] N.C. Const. art. I, §§ 12, 14.

[5] Common Cause, slip op. at 353–55.

[6] Id. at 355.

[7] Id. at 356.

[8] Id. at 357.

[9] Id. at 23.

[10] Hearing Before the J. Comm. on Redistricting, Extra Sess. 48, 50 (N.C. Feb. 16, 2016) (statement of Rep. David Lewis, Co-Chair, J. Comm. on Redistricting), redistricting.lls.edu/files/NC%20Harris%2020160216%20Transcript.pdf.

[11] 139 S. Ct. 2484 (2019) (holding partisan gerrymandering non-justiciable under the federal Constitution).

[12] Common Cause, slip op. at 299 (quoting Rucho, 139 S. Ct. at 2507).

[13] Id. (emphasis added in Common Cause).

[14] Id.

[15] Id. at 303–04.

[16] Id. at 304 (emphasis added in Common Cause) (quoting N.C. Const.  art I, § 10) (comparing 1868 version to 1971 version).

[17] Id. (quoting N.C. State Bar v. DuMont, 304 N.C. 627, 635, 639, 286 S.E.2d 89, 94, 97 (1982)).

[18] Id. at 305.

[19] See League of Women Voters of Pa. v. Commonwealth, 178 A.3d 737, 804 (Pa. 2018).

[20] Pennsylvania Election Results, N.Y. Times (last updated Dec. 19, 2018, 5:12 PM), https://www.nytimes.com/interactive/2018/11/06/us/elections/results-pennsylvania-elections.html.

[21] Id.

[22] Common Cause, slip op. at 307.

[23] Id. at 308–09.

[24] Id. at 315–16.

[25] Id. at 328.

[26] Id. at 329–31.

[27] Id. at 334.

[28] Id. at 333 (quoting Bayard v. Singleton, 1 N.C. 5, 7 (1787)).

[29] Id. (citing Reynolds v. Sims, 377 U.S. 533, 582 (1964) (invalidating Alabama’s malapportioned legislative districts despite a history of malapportionment that dated back to the founding). North Carolina itself engaged in such malapportionment, which has been documented as early as 1792. See Thomas Rogers Hunter, The First Gerrymander?: Patrick Henry, James Madison, James Monroe, and Virginia’s 1788 Congressional Districting, 9 Early Am. Stud. 781, 819 (2011) (discussing a 1792 map that “severely overpopulated” congressional districts in the northeast corner of the state).

[30] Common Cause, slip op. at 341.

[31] Jeff Jackson (@JeffJacksonNC), Twitter (Sep. 3, 2019, 4:40 PM), https://twitter.com/JeffJacksonNC/status/1168987115637682176.

[32] Graig Meyer (@GraigMeyer), Twitter (Sep. 3, 2019, 4:44 PM), https://twitter.com/GraigMeyer/status/1168988126200705026.

[33] Nick Ochsner (@NickOchsnerWBTV), Twitter (Sep. 3, 2019, 5:27 PM), https://twitter.com/NickOchsnerWBTV/status/1168998919885508608.

[34] See Rick Hasen, North Carolina Republicans Won’t Appeal Gerrymandering Ruling, Promise “Nonpartisan” Map. What’s the End Game?, Election L. Blog (Sep. 3, 2019, 3:13 PM), https://electionlawblog.org/?p=107179.

[35] See Jeff Jackson (@JeffJacksonNC), Twitter (Sep. 3, 2019, 7:03 PM), https://twitter.com/JeffJacksonNC/status/1169023123938824194 (“With fair maps, we have a genuine shot at electing a state legislature that actually reflects the political will of our state.”).

[36] Common Cause, slip op. at 233.

[37] See, e.g., Matthew Yglesias, The 2018 Electorate Was Older, Whiter, and Better Educated Than in 2016, Vox (Nov. 12, 2018, 10:00 AM), https://www.vox.com/policy-and-politics/2018/11/12/18083014/2018-election-results-turnout

[38] Common Cause, slip op. at 153.

[39] Id. at 157–58.

[40] Id. at 161–64.

[41] Id. at 164–69.

[42] Id. at 170–75.

[43] Id. at 181–85.

[44] Id. at 194–99.

[45] Id. at 199–203.

[46] Id. at 203–08.

[47] Id. at 209–15.

[48] Id. at 109–17.

[49] Id. at 117–23.

By Matt Deorocki

As the 2020 census and election cycle draws ever closer, some North Carolinians are looking to the state’s court system to provide guidance on the constitutionality of partisan gerrymandering in Common Cause v. Lewis. Since filing its original complaint on November 13, 2018, Common Cause, a non-profit, “nonpartisan democracy organization with over 1.2 million members and local organizers in 35 states” has sought a ruling striking down partisan gerrymandering within North Carolina’s state legislative districts.[1] While North Carolina has a rather illustrious history regarding gerrymandering, the state’s most recent controversies spur from what Common Cause defines as ill-intended Republican efforts in 2010 and 2017 to solidify power through partisan redistricting.[2]

Common Cause asserts that national Republican leaders targeted North Carolina in a concerted effort with the Republican State Leadership Committee (RSLC) to redraw North Carolina’s state congressional districts to ensure greater Republican representation.[3] Using a plan codenamed “REDMAP,” Common Cause claims that four Republican operatives, including the famed Republican strategist Thomas Hofeller, set forth redistricting maps in 2011 that were completely devoid of any committee or subcommittee influence from either branch of the state legislature[4] After passing party-line votes in the House and Senate, subsequent litigation was brought, ultimately leading to Republican leaders in the General Assembly admitting that “[p]olitical considerations played a significant role in the enacted plans and all alternatives.”[5]

Further challenges on Republican-drawn districts came into light in 2017. Ultimately, anti-gerrymandering enthusiasts emerged with a short-lived victory in Covington v. North Carolina, a case in which 19 House districts and 9 Senate districts were found to be in violation of the federal Equal Protection Clause due to racially motivated redistricting schemes. Nevertheless, victory was short-lived, as Republicans, including Hofeller, found themselves at the helm of remedial redistricting.[6] With racial gerrymandering violations fresh in the redistricting strategists’ minds, Hofeller and the redistricting committee set forth a 2017 plan seeking to maximize Republican partisan advantage.[7] In fact, Republican leaders in the General Assembly plainly admitted they were seeking to maximize Republican advantage. In relation to the similarly gerrymandered congressional map, one leader stated that he wanted to “give a partisan advantage to 10 Republicans and 3 Democrats because I do not believe it’s possible to draw a map with 11 Republicans and 2 Democrats.”[8]

Accordingly, the main question in Common Cause v. Lewis is not whether North Carolina Republicans engaged in partisan gerrymandering, but whether partisan gerrymanders violate North Carolina’s Constitution. Given the United States Supreme Court’s recent ruling in Rucho v. Common Cause, a case regarding partisan gerrymandering in federal congressional districts, Common Cause is likely facing an uphill battle in Superior Court, North Carolina’s trial court.[9] In Rucho, the Supreme Court defined the scope of judicial action in partisan gerrymandering controversies, ultimately holding that “[P]artisan gerrymandering claims present political questions beyond the reach of the federal courts. Federal judges have no license to reallocate political power between the two major political parties, with no plausible grant of authority in the Constitution, and no legal standards to limit and direct their decisions.”[10] Despite indicating that “such gerrymandering is ‘incompatible with democratic principles,’” Chief Justice Roberts, writing for the 5-4 majority, gave the resounding answer: it’s not our job.[11]

Given this significant precedent, a key question remains: why is Common Cause getting a second chance? In reality, the United States Supreme Court’s overall ruling is binding on all courts interpreting the United States Constitution. In addition, The Supreme Court’s holding on justiciability likely binds any federal court interpreting a state constitution via supplemental jurisdiction. However, a North Carolina court may interpret North Carolina’s Constitution to provide greater rights than are seen in the United States Constitution because its holding would be based solely on state constitutional protections. Thus, because the North Carolina Superior Court has adequate and independent grounds under the North Carolina Constitution to evaluate partisan gerrymandering, Common Cause is free to launch its attack once again under the state constitution. Nevertheless, in order to overcome the significant persuasive authority set forth by the Supreme Court, Common Cause has honed in on three specific counts, each drawing light to “increased” protections held within North Carolina’s Constitution.[12]

Common Cause launched its attack by arguing that partisan gerrymandering violates North Carolina’s Equal Protection clause.[13] The basis of the argument relies on the clause, “[n]o person shall be denied the equal protection of the laws,” extending protection beyond that of the Federal Constitution.[14] While the clause has been interpreted to protect the right of “substantially equal voting power,” it is unclear whether the clause has applicability to partisan concerns.[15] Accordingly, Common Cause reasoned that the argument fits because Republicans purposefully diluted the voting power of Democrats, thereby making it “more difficult for Democratic candidates to be elected across the state, and . . . rendering it virtually impossible for the Democratic Party to achieve a majority of either chamber of the General Assembly.”[16] However, Common Cause’s argument should face significant skepticism, as Democrats are not a suspect class and are not entitled to increased judicial protections.

In their Post-Trial Brief filed August 7, 2019, Defendants in Common Cause v. Lewis addressed these accusations by reasoning that by delegating district map drawing to a political branch, the branch naturally could “consider partisan advantage and incumbency protection in the application of its discretionary redistricting decision.”[17] Furthermore, defendants returned an ill-willed jab stating: “Plaintiffs do not belong to a suspect class. Nor do they suffer an injury to ‘a constitutionally protected right to vote, and to have their votes counted.’ Instead, they complain of the political impact of district lines that will, in all events, have political consequences.”[18]

Given the Supreme Court’s refusal to act on equal protection grounds in Rucho, it would seem unlikely that a North Carolina Superior Court would take the opposite stand. Yet the three-judge panel appointed to hear the case is made up of two Democrats and one Republican, perhaps better odds than the 5-4 Supreme Court split.[19]

Common Cause also attacks Republican redistricting by claiming its partisan considerations violate the Free Elections Clause of the North Carolina Constitution, which provides “All elections shall be free.”[20] Despite this rather ambiguous language, Common Cause has supported its contention by arguing that on February 7, 2018, the Pennsylvania Supreme Court held that a partisan gerrymander of Pennsylvania congressional districts violated Art. I, Sec. 5 of the Pennsylvania Constitution, which provides for elections that are “free and equal.”[21] The Pennsylvania Supreme Court ultimately ruled that Pennsylvania’s Free and Equal Elections Clause requires voters to “have an equal opportunity to translate their votes into representation” and that said requirement is ultimately violated by “extraneous considerations such as gerrymandering for unfair partisan political advantage.”[22] As is easily done when arguing over semantics, the defense answered the attack by pointing to the notion that the Pennsylvania Constitution requires “free and equal” elections while the North Carolina Constitution merely indicates that elections must be “free.”[23] Accordingly, the defense articulates that there simply is nothing violating the North Carolina clause, as there is nothing impeding voting and each vote is being counted.

Finally, Common Cause argues that the Defendants have violated North Carolina’s Freedom of Assembly and Free Speech Clauses “by intentionally burdening the protected speech and/or expressive conduct of Plaintiffs and other Democratic voters, including members of Common Cause and the NCDP based on their identity, their viewpoints, and the content of their speech.”[24] However, the Defendants responded by stating that Plaintiffs’ viewpoints are not being restricted in any manner and there is no prohibition on speaking or associating with one another.[25] Here, it is likely that Common Cause has taken a more abstract view of speech and association by arguing that Republican redistricting techniques have deprived them of being able to assert the political philosophies in an adequate manner. Today, it remains uncertain whether such an argument can stand.

Given the Supreme Court’s ruling in Rucho v. Common Cause and North Carolina Constitution’s limited variance from the federal Constitution, I believe that a ruling in Common Cause’s favor is highly unlikely, despite the partisan makeup of the panel (two Democrats and one Republican). The persuasive authority of the United States Supreme Court may be a significant deterrent for any judge thinking about ruling in Common Cause’s favor. With the Supreme Court already ruling on a similar, albeit different constitution, North Carolina’s Superior Court could readily defer their opinion to the language expressed in Rucho, limiting their political liability. Either way, the Superior Court’s ruling will be short-lived, as the loser will surely appeal the case to the North Carolina Supreme Court in the immediate aftermath.


[1] Amended Complaint at 3, Common Cause v. Lewis, No. 18-cv-14001 (N.C. Super. Ct. [Wake] filed Dec. 7, 2018) [hereinafter Amended Complaint]

[2] Id. at 17

[3] Id.

[4] Id. at 19.

[5] Defendants-Appellees’ Brief on Remand at *16, Dickson v. Rucho, 781 S.E.2d 404 (N.C. 2015) (No. 201PA12-3), 2015 WL 4456364.

[6] Covington v. North Carolina, 316 F.R.D. 117 (M.D.N.C. 2016), aff’d, 137 S. Ct. 2211 (2017)

[7] Amended Complaint, supra note 1, at 28, (citing Covington, ECF No. 187-3 at 2)

[8] Hearing Before the J. Comm. on Redistricting, Extra Sess. 48, 50 (N.C. Feb. 16, 2016) (statement of Rep. David Lewis, Co-Chair, J. Comm. on Redistricting), redistricting.lls.edu/files/NC%20Harris%2020160216%20Transcript.pdf.

[9] See Rucho v. Common Cause, No. 18-422 slip op. at 30 (U.S. June 27, 2019)

[10] Id.

[11] Id. (citing Arizona State Legislature, 576 U.S. at ____ (slip op., at 1)).

[12] Amended Complaint, supra note 1, at 67–74.

[13] Id. at 67.

[14] N.C. Const. art. I, § 19.

[15] Stephenson v. Bartlett, 562 S.E.2d 377, 394 (N.C. 2002)

[16] Amended Complaint, supra note 1, at 68.

[17] Defendant’s Post-Trial Brief at 4, Common Cause v. Lewis, No. 18-cv-14001 (N.C. Super. Ct. [Wake] (Aug. 7, 2019) [hereinafter Defendant’s Post-Trial Brief] (citing Stephenson v. Bartlett, 562 S.E.2d at 390 (N.C. 2002)).

[18] Id. at 7 (citing Reynolds v. Sims, 377 U.S. at 554–55 (1964)).

[19] Order, Common Cause v. Lewis, No. 18-cv-14001 (N.C. Super. Ct. [Wake] (Nov. 27, 2018); Kari Travis, In Common Cause v. Lewis, Courts Will Again Take on Partisan Gerrymandering. Carolina J. (July 15, 2019), https://www.carolinajournal.com/news-article/in-common-cause-v-lewis-courts-will-again-take-on-partisan-gerrymandering/.

[20] N.C. Const. art I, § 10.

[21] Pa. Const. art I, § 5; League of Women Voters v. Commonwealth, 178 A.3d 737, 804 (Pa. 2018).

[22] League of Women Voters, 178 A.3d at 814, 817.

[23] Defendant’s Post-Trial Brief, supra note 16 at 19 (citing Pa. Const. art I, § 5; N.C. Const. art I, § 10).

[24] Amended Complaint, supra note 1, at 72.

[25] Defendant’s Post-Trial Brief, supra note 16 at 19.

man-886601_1920

By Mikhail Petrov

On July 23, 2015, in the criminal case of United States v. Parral-Dominguez, the Fourth Circuit issued a published opinion vacating the sentence of foreign national Edgar Parral-Dominguez (“Dominguez”) and remanding the case back to the district court. This case examined whether Edgar Parral-Dominguez, a Mexican citizen, was properly subject to a sentencing guidelines enhancement. After Dominguez plead guilty to illegally reentering the country, the district court applied the enhancement because, in its view, Dominguez’s previous conviction in North Carolina for discharging a firearm into an occupied building is a requisite “crime of violence.” The Fourth Circuit found this decision was in error.

The Facts

In 2000, at the age of 14, Edgar Parral-Dominguez left Mexico with his father and entered the United States. Although his father went back, Dominguez remained. On New Year’s Day, a firearm was discharged toward a woman’s residence in Winston-Salem, North Carolina. A year later, Dominguez was arrested and charged for the incident. He was convicted for an aggravated felony–discharging a firearm into a building under N.C.G.S.A. § 14-34.1(a) (“the State Offense”).

During his post-arrest processing, state authorities found that Dominguez was unlawfully present in the country. Thus, after he plead guilty to the State Offense he was deported to Mexico. Within months, however, Dominguez returned to North Carolina, and settled in Wilmington.

Three years after his deportation, Dominguez was arrested with more than an ounce of cocaine. He was convicted for trafficking and state authorities again discovered that Dominguez was previously deported and was unlawfully present in the country. In December 2013, a federal grand jury sitting in the Eastern District of North Carolina indicted Dominguez under 8 U.S.C. §§ 1326(a) for illegally reentering the United States after being convicted of an aggravated felony.

Before Dominguez’s sentencing, U.S. Probation prepared a presentence investigation report (PSR), which found that Dominguez was a Category IV criminal, that his base offense level was eight, and that he earned a three-point reduction for accepting responsibility. The PSR then proposed a sixteen-level enhancement to Dominguez’s offense level for having been previously convicted of a “crime of violence” under U.S.S.G. § 2L1.2(b)(1)(A)(ii). Applying this enhancement, the PSR calculated an offense level of twenty one, resulting in fifty-seven to seventy-one months of imprisonment. Dominguez argued that, as a matter of law, the State Offense did not constitute the requisite crime of violence under § 2L1.2(b)(1)(A)(ii).

The district court overruled Dominguez’s objection after concluding that the occupant of a building would feel threatened by the physical force when a defendant shoots at the building. The court then imposed a sixty-five month sentence. The day after sentencing, the district court issued a nine-page memorandum opinion which argued, without binding precedent, that Dominguez’s offense was a crime of violence as anyone would be inherently threatened if their building was shot at. Dominguez appealed.

The Rule of the Case

This appeal centers on whether the state offense of discharging a firearm into an occupied building under N.C.G.S.A. § 14-34.1(a) constitutes a crime of violence for federal sentencing purposes under U.S.S.G. § 2L1.2. The Fourth Circuit first compared the contours of a “crime of violence” under § 2L1.2 with the breadth of conduct proscribed by N.C.G.S.A. § 14-34.1(a). The court applied the so called “categorical approach” set forth in Taylor v. United States, 495 U.S. 575 (1990) (finding that the elements of a statute, not the actual conduct, dictate its interpretation for sentencing purposes). Under the Taylor approach, the court considers only the elements of the statute of conviction rather than the defendant’s conduct underlying the offense.

Reasoning of the Fourth Circuit

Section 2L1.2 states that a 16-level enhancement applies if “the defendant previously was deported . . . after . . . a conviction for a felony that is . . . a crime of violence.” Although the text of § 2L1.2 does not expressly define the phrase “crime of violence,” the application note clarifies that the phrase contemplates any offense under federal, state, or local law that has, as an element, the use, attempted use, or threatened use of physical force against a person. The so-called “use-of-force clause” was the sole basis with which the Government argued that the State Offense is a crime of violence under § 2L1.2. Still, the use of force clause is limited because first, the plain language of the clause does not encompass acts involving the use of force against property. Second, unlike other sections of the Guidelines, the use-of-force clause does not include “acts that merely pose a risk of harm to another person.”

Although not listed as an element in the statute, the Supreme Court of North Carolina has read a knowledge element into the State Offense which requires the defendant to have had “reasonable grounds to believe that the building might be occupied by one or more persons.” Thus, the State Offense does not require that an offender use, attempt to use, or threaten to use force against another person. Instead, the crime is complete when a person (1) intentionally (2) discharges a firearm (3) toward an occupied building (4) when the shooter knows or has reasonable grounds to believe that the building might be occupied. Therefore, the State Offense cannot be construed as a crime of violence under § 2L1.2’s use-of-force clause and the district court committed procedural error by concluding that Dominguez’s offense under the State Offense is a crime of violence.

Finally, the Fourth Circuit reasoned that the error was not harmless. While in many cases, a judge is unequivocal about what effect any Guidelines miscalculation would have on the ultimate sentence, no such words exist here. It is not clear that Dominguez’s sentencing was unaffected by the court’s error. The Fourth Circuit, looking at the amount of time devoted to calculating the sentence, reasoned that the Guidelines played a large role in the sixty-five month sentence.

Holding

The Fourth Circuit vacated and remanded Dominguez’s sixty-five month sentence. The court held that the State Offense is not a crime of violence, and thus that the district court committed procedural error. Additionally, the procedural error was not harmless. The dissent by Circuit Judge Wilkinson argues that the decision should be upheld because the State Offense is not a crime against property, but a crime against people who occupy the property and is therefore a crime of violence.

By Taylor Ey

On April 15, 2015, the Fourth Circuit issued its published opinion in United States v. Flores-Granados.  The appellant, Marlon Flores-Granados, appealed the decision of the lower court, alleging that he was improperly given a 16-level enhancement based on a prior conviction.  The Fourth Circuit sided with the appellee, the United States government, holding that under North Carolina law, second degree kidnapping constitutes a “crime of violence,” thus affirming the district court’s enhanced sentencing of Flores-Granados based on his prior conviction.

Origin of “Crime of Violence”

Under the United States Sentencing Guidelines (“Sentencing Guidelines”), a defendant previously deported after a conviction for a “crime of violence,” and having unlawfully returned to the United States, is subject to an enhancement of either 12 or 16 levels depending on whether the conviction receives criminal history points.  U.S.S.G. § 2L1.2(b)(1)(A)(ii).  The Application notes to the Sentencing Guidelines refer to kidnapping as a crime of violence.

On appeal, Flores-Granados argued that, under North Carolina law, his prior conviction for second degree kidnapping did not constitute a “crime of violence.”  Applying the categorical approach outlined by the Supreme Court in Taylor v. United States, 495 U.S. 575 (1990), the Fourth Circuit held that second degree kidnapping is a crime of violence within the meaning of the Sentencing Guidelines.

Applying Supreme Court Precedent to Second Degree Kidnapping Under NC Law

Under the categorial approach, courts must identify the generic contemporary meaning of the crime and then compare the generic definition to the definition given in the state statute of the state where the defendant was previously convicted.  Then, if the state has adopted the generic meaning, or a narrower definition included in the generic meaning, there is no conflict, and the defendant has necessarily been convicted of the crime under the generic meaning.  Thus, the drafters of the Sentencing Guidelines meant to include the crime within its crime of violence definition.

According to the Fourth Circuit, the district court misapplied the analysis of Taylor to Flores-Granados’ previous conviction in determining whether second degree kidnapping is a crime of violence by looking to the specific facts of the case.  However, the Fourth Circuit looked at the record anew to determine whether theories not considered or rejected by the district court could still support the district court’s sentencing decision.

The Fourth Circuit considered commonalities amongst the Model Penal Code (“MPC”), the laws of the states, and sister circuits, to determine the generic definition of kidnapping.  The MPC defines kidnapping as either unlawful removal from a place of business or residence or unlawful confinement in isolation for a prolonged period for one of four enumerated purposes.  See Model Penal Code § 212.2.  Ultimately, drawing from other state and circuit law, the Fourth Circuit concluded that “[t]o be within generic kidnapping, in addition to unlawful restraint by force, threat or fraud, a statute must contain as an element an additional aggravating factor such as nefarious purposes or substantial interference with the victim’s liberty, but need not require both.”

Upholding the District Court’s Decision

Because the generic meaning “substantially corresponds” with the North Carolina statute defining second degree kidnapping, Flores-Granados’ prior conviction was a crime of violence, and thus it was proper for the district court to apply enhanced level sentencing in Flores-Granados’ case.

By: Carson Smith

Today, in League of Women Voters of North Carolina v. North Carolina, the Fourth Circuit overturned the district court by partially granting a preliminary injunction as to certain provisions of North Carolina’s controversial voting law. In reaching its decision, the Court followed the lead of the Sixth Circuit in applying Section Two of the Voting Rights Act to state voting restrictions.

The case centered on NC House Bill 589, which greatly restricts voting opportunities for North Carolina citizens. The bill, passed in August of 2013, added provisions (1) reducing early-voting days; (2) eliminating same-day registration; (3) prohibiting the counting of out-of-precinct ballots; (4) expanding the potential number of poll observers and voter challenges; (5) eliminating the necessity of keeping polls open an additional hour in “extraordinary circumstances”; and (6) eliminating pre-registration of sixteen and seventeen year olds. On the day of its passage, the plaintiffs filed suit in the Middle District of North Carolina alleging that the bill provisions violate the Voting Rights Act and the U.S. Constitution. Soon thereafter, the plaintiffs moved for preliminary injunction. The district court determined that the plaintiffs failed to prove every preliminary injunction element as to the six challenged provisions and thus denied the motion.

In partially overturning the ruling, the Fourth Circuit held that the district court abused its discretion and misapplied the Voting Rights Act to the facts of the case. The Court granted the preliminary injunction as to (1) the elimination of same-day registration and (2) the prohibition on counting out-of-precinct ballots. Conversely, the Court affirmed the denial of preliminary injunction as to the other four provisions, including the reduction of early-voting days. The Court was quick to note that the affirmation was significantly predicated on the degree of hardship North Carolina would undergo if required to alter the voting infrastructure less than five weeks before statewide elections.

In granting the preliminary injunction for same day registration and counting out-of-precinct ballots, the Court applied Section Two of the Voting Rights Act. Section Two “forbids any ‘standard, practice or procedure’ that ‘results in a denial or abridgment of the right of any citizen of the United States to vote on account of race or color.’” In applying this Section, courts look to the totality of circumstances to determine whether voting is “equally open to participation by citizens of protected races.” A plaintiff need not show discriminatory intent, discriminatory impact or burden alone is enough for a violation to exist.

Unlike the district court, the Fourth Circuit determined that the baseline for assessing discriminatory burden is the “preexisting voting standard, practice, or procedure.” Additionally, the restrictions must be evaluated as a whole, not separately, to determine whether a burden results. Finally, where a burden is found, it “must in part be caused by or linked to ‘social and historical conditions’ that have or currently produce discrimination against members of the protected class.”

In its analysis, the Court ruled that “[t]here can be no doubt that certain challenged measures in House Bill 589 disproportionately impact minority voters.” The Court cited the high percentage of African Americans who use same day registration versus the percentage of whites who use it. The Court also held that this difference is due to “social and historical conditions,” including “education, income, access to transportation, and residential stability.” Finally, the Court ruled that these restrictions cause irreparable injury to the plaintiffs and the hardship North Carolina will face in implementing the changes is not enough to tip the balance in its favor.

The Fourth Circuit’s decision in League of Women Voters of North Carolina v. North Carolina will likely have far reaching implications. Like the Sixth Circuit, the Fourth Circuit has made it clear that it will use Section Two of the Voting Rights Act to strike down racially burdensome voting restrictions. Prior to last year, Section Five of the Voting Rights Act was utilized primarily for this purpose; however, the Supreme Court ruled that section unconstitutional in Shelby County v. Holder. Also, as the dissent points out, a preliminary injunction is an extraordinary remedy, especially in the case of a “duly enacted statute.” Given the Court’s interpretation of Section Two and its decision to overturn the lower court, even in the face of the high “abuse of discretion” standard, it is unlikely that the remaining provisions of the bill will survive at trial.

By: Dave Rugani*

Introduction

The advent of the limited liability company (“LLC”) in the 1980s has had far-reaching implications for how individuals choose to form business entities.  Never before has there existed such a malleable legal entity that provides both limited liability and exemption from double taxation.[1]  Indeed, since the passage of the first LLC act in 1977, all fifty states and the District of Columbia have followed suit.[2]  The LLC is now viewed as the business entity of choice for small operations.[3]  However, while the flexibility offered by an LLC is the source of great appeal for members, it has also posed unique challenges for courts that are, in many cases, deciding issues of first impression in the LLC context.

One especially vexing issue facing the courts is determining just how limited “limited liability” ought to be.  In particular, courts are now determining whether, and to what extent, the equitable doctrine of veil piercing should be carried over from corporate law into the realm of the LLC.  In North Carolina, like in many other states, LLC litigation has been slow to materialize, and the case law is sparse in comparison to the plethora of material on corporate or partnership law.[4]  Nevertheless, it is now rather clear that North Carolina courts have followed every other state in permitting veil piercing in the LLC context, though they have failed to give special consideration to the peculiarities of the LLC, as have the courts of some other states.  This Comment will consider the nature and scope of LLC veil piercing in North Carolina with a particular emphasis on its ineffective implementation and questionable application in certain contexts.

Part I of this Comment will provide background information that is necessary before considering the central issue.  First it will examine the doctrine of corporate veil piercing and the general construction of the North Carolina Limited Liability Company Act’s (“LLC Act’s”) limited liability provision.  This examination will be followed by a short survey of how states and commentators are beginning to treat LLC veil-piercing issues.  Part II will discuss the case law in North Carolina regarding LLC veil piercing.  This discussion will begin with a review of the leading case on corporate piercing in North Carolina, followed by a consideration of the LLC case law.  Part III will critique the variety of factors the courts have used to pierce the veil, as well as the contexts in which the piercing has occurred.  Of central importance is examining how the rationale for piercing in corporate contexts may, or may not, carry over to LLCs.  This Comment will conclude with an argument that greater refinement of North Carolina case law is necessary in order to give effect to the equitable underpinnings of veil piercing in LLCs and to bring North Carolina law into accord with the emerging trends in other jurisdictions.

I.  Background

As has often been observed, the LLC is a hybrid creature that adopts traits of both corporations and partnerships.[5]  In order to encourage business formation, legislatures grafted onto the LLC two important characteristics.  The limited liability provision of corporate law was combined with the pass-through taxation scheme from partnerships to create a unique business entity.  These two features have made the LLC an irresistible option for many business incorporators.  However, it is manifestly clear that providing absolute immunity from liability would be deleterious to the public good.  The rationale underlying limited liability has always been to promote, or at least not punish, risk-taking behavior that is deemed vital to long-term economic prosperity.[6]  Thus, limited liability provides a shield against the misfortunes of enterprise that are all too common in a competitive world.  However, by not checking the reach of the statutory limited-liability provisions, the shield could become the sword of the unscrupulous.

A.     Overview of Piercing the Corporate Veil

Recognizing this peril, courts long ago endeavored to find ways to protect the innocent.  This response, piercing the corporate veil, provided the equitable check against abuse of the corporate form.  Two observations about corporate veil piercing are in order.  First, as an equitable remedy, it is purely a judicially created concoction without any basis in statutory law.[7]  Second, “[t]here is a consensus that the whole area of limited liability, and conversely of piercing the corporate veil, is among the most confusing in corporate law.”[8]

A cursory overview of the doctrine of piercing the corporate veil is necessary before proceeding to a discussion of its application to LLCs.  A leading treatise has observed:

[A]s a general rule, it is often said that the corporation will be viewed as a legal entity unless it is used to defeat public convenience or perpetrate or protect crime or fraud; when those situations occur, the courts will more carefully scrutinize the corporation and may regard it merely as an association of persons and extend liability to them.[9]

Therefore, a court may pierce the corporate veil—and subject the shareholder to personal liability—when there is both unity of interest such that no distinction exists between the corporation and the individual and when recognizing the corporate form would lead to injustice.[10]  This unity of interest necessarily requires a showing that the corporation is the alter ego of the individual or the corporation is a mere instrumentality of the individual.[11]  Almost always, this requires that a shareholder exercise domination or control over the corporation.[12]

The courts consider a litany of factors in determining what constitutes domination and control for the purposes of veil piercing, and these factors may change slightly from state to state.  The principal factors include failure to observe corporate formalities, fraud, inadequate capitalization, illegality and evasion of a duty or obligation, sole shareholder corporations, loans to corporations, tortious or criminal conduct, commingling of assets, insolvency or bankruptcy, and failure to issue stock.[13]  No factor is determinative, and the court must consider all of them holistically.  Again, the factors are used to determine domination and control such that the corporation is but an alter ego of the shareholder.  Moreover, absent an injustice, domination and control alone will never be enough to support a piercing claim.[14]

B.     North Carolina’s Limited Liability Company Act

A detailed examination of the features of an LLC is beyond the scope of this Comment, as is assessing the relative value of using an LLC over other business entities.  For the purpose of this Comment, it is sufficient to note that the limited liability characteristic of an LLC is one of the major benefits to members.  North Carolina’s LLC Act[15] provides:

A person who is a member, manager, director, executive, or any combination thereof of a limited liability company is not liable for the obligations of a limited liability company solely by reason of being a member, manager, director, or executive and does not become so by participating, in whatever capacity, in the management or control of the business.  A member, manager, director, or executive may, however, become personally liable by reason of that person’s own acts or conduct.[16]

This language is typical of other LLC statutes[17] that limit member liability “solely” on the basis of being a member.  The law also contains a fairly common exception that members can be “personally liable by reason of that person’s own acts or conduct.”[18]  It is on the basis of this language that the North Carolina courts have applied the corporate doctrine of veil piercing to the LLC.

At this juncture, it is useful to distinguish North Carolina’s limited liability provision from that of other states that specifically incorporate the doctrine of corporate veil piercing into the language of the statute.  For example, both the Minnesota and Colorado statutes state that the court should use corporate veil piercing case law for determining individual member liability for LLCs.[19]  Most states, including North Carolina, do not have such unequivocal statutory language, and it has fallen to the courts to pick up where the legislatures have left off.  As previously noted, North Carolina has joined every other state in transferring the veil-piercing doctrine from the corporate to the LLC setting.

C.     How Other States Treat LLC Veil Piercing

North Carolina is certainly not the first state to face the challenge of defining the contours of piercing the liability shield, and a cursory assessment of the views of other jurisdictions is helpful in understanding North Carolina’s current status.  In the birthplace of the LLC, the Supreme Court of Wyoming addressed the piercing issue in Kaycee Land & Livestock v. Flahive,[20] where the court held that, though piercing should be permitted, the factors considered would likely differ from factors used in the corporate setting.[21]  In particular, failing to follow formalities would be a poorly-suited factor in the LLC context, given how few formalities are required by statute.[22]  This view has been shared by numerous other legislatures and courts.[23]  Indeed, section 304(b) of the Uniform Limited Liability Act specifically provides that “[t]he failure of a limited liability company to observe the usual company formalities or requirements . . . is not a ground for imposing personal liability on the members or managers for liabilities of the company.”[24]  At least one court has opined that, while the same factors apply to both corporations and LLCs, the factors should be balanced differently.[25]

Another suspect factor seems to be whether domination and control of the LLC by its members should be considered.  This is because most LLC statutes, by their plain terms, specifically allow for a flexible approach to governance.  For example, members may be managers and authorized agents of the LLC—greatly blurring the line between management and ownership.[26]  A treatise on the subject notes that there seems to be a “legislative intent to allow small, one-person and family-owned businesses the freedom to operate their companies themselves and still enjoy freedom from personal liability.”[27]  One commentator has observed that in a member-managed LLC, the member is akin to a corporate shareholder who is also a director.[28]  Just as these shareholders are the most likely targets for a piercing claim in the corporate setting, member-managers have increased exposure.[29]  This would seem a curious result in an LLC.  As one court noted, “Lesser weight should be afforded the element of domination and control . . . because the statute authorizing limited liability companies expressly authorizes managers and members to operate the firm.”[30]

A third factor that is of questionable application to LLC piercing is inadequate capitalization.  Most LLC acts provide for a statutory remedy for creditors who are injured due to the LLC’s inadequate capitalization,[31] thus making undercapitalization as a piercing factor redundant.[32]  Others have taken a more restrained approach, with one court stating that “[u]ndercapitalization is another factor that should be weighed carefully in the L.L.C. context . . . .”[33]

Thus, the prevailing trend seems to be that an LLC should be pierced, but the factors to be considered may require modification from the corporate model.[34]  Nevertheless, there is still a significant body of law that has applied corporate veil-piercing factors to LLCs without modification.[35]  One commentator has gone so far as to suggest that piercing should not be permitted in the LLC context, though no court has adopted that view.[36]  Against this general backdrop the North Carolina law will now be examined.

II.  North Carolina Case Law

Turning to North Carolina, it is clear that LLC veil piercing is ongoing.  It is equally evident that the case law can be broadly divided into two groups: (1) cases that pierce while citing to section 57C-3-30 of the LLC Act[37] and (2) cases that pierce without referring to the statute.  Before considering either group, it will be beneficial to examine the leading corporate piercing case, as that provides the basis for piercing in the latter group of cases.

A.     Corporate Veil Piercing in North Carolina: The Instrumentality Rule of Glenn v. Wagner

North Carolina courts have long given effect to veil piercing in the corporate setting.  Though veil piercing has been recognized in North Carolina since 1899,[38] the leading case is Glenn v. Wagner.[39]  The Supreme Court of North Carolina explained the “instrumentality rule”[40] as “[a] corporation which exercises actual control over another, operating the latter as a mere instrumentality or tool, is liable for the torts of the corporation thus controlled.  In such instances, the separate identities of parent and subsidiary or affiliated corporations may be disregarded.”[41]  The three elements necessary to prevail under the instrumentality rule are:

Control, not mere majority of complete stock control, but complete domination, not only of finances, but of policy and business practice in respect to the transaction attached so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; and

Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of plaintiff’s legal rights; and

The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.[42]

Thus, in North Carolina, control and domination form the critical matter necessary to prevail on a piercing theory.

The court then went on to discuss the factors that are “considered inherent in the instrumentality rule.”[43]  These include inadequate capitalization, failure to follow corporate formalities, complete domination and control such that no independent identity exists, excessive fragmentation of an enterprise, nonpayment of dividends, insolvency of the debtor corporation, siphoning of funds, and the nonfunctioning of officers and directors.[44]  These factors are used to determine the first prong of the instrumentality test.[45]

The Glenn test has been applied in numerous contexts.  In the case itself, the instrumentality rule was used to pierce under a so-called enterprise theory.[46]  At issue were two corporations, one the parent and the other a subsidiary.[47]  The parent’s domination and control of the subsidiary, combined with unjust conduct, was enough to permit a piercing.[48]  In addition, Glenn has been used in the more traditional setting of allowing a third party to sue the individual shareholder of a corporation.[49]  Finally, courts have used Glenn to justify so-called reverse piercings whereby the third parties—usually creditors of the shareholder-debtor—are allowed to recover against the corporation of which the debtor is a shareholder.[50]  The question then becomes whether, and to what extent, Glenn and the subsequent case law on corporate piercings are relevant to LLC piercing.  As already noted, the case law is split between piercing claims that cite to the statute and those that cite to Glenn.

B.     Cases that Cite to Section 57C-3-30

It is less than ideal that the only North Carolina Supreme Court opinion on the issue is also one of the least helpful.  In Hamby v. Profile Products, L.L.C.,[51] the plaintiff was a purported tort victim who brought an action against his employer, Terra-Mulch Products, L.L.C., and Terra-Mulch’s sole member and manager, Profile Products, L.L.C.[52]  The complaint alleged that Profile “dominate[d] and control[ed] Defendant Terra-Mulch and [was] the alter ego of Defendant Terra-Mulch.”[53]  The court went on to state that “when a member-manager acts in its managerial capacity, it acts for the LLC, and the obligations incurred while acting in that capacity are those of the LLC.”[54]  Frustratingly, the court did not take the opportunity to examine the various piercing factors.  Instead, it merely held that Profile’s exercise of managerial control over Terra-Mulch, on its own, was not enough to subject Profile to liability.[55]

Hamby leaves much to be desired.  First, it merely states the obvious: member-managers cannot be held liable based purely on their exercise of managerial powers.[56]  Second, the court did not bother to dwell on what factors would be considered in a viable piercing situation.  Third, the court did not engage in a thorough analysis of the statute and how it contrasts with relevant corporate liability provisions.

In State ex rel. Cooper v. NCCS Loans, Inc.,[57] a case that preceded the Hamby decision, the North Carolina Court of Appeals provided a more substantial consideration of section 57C-3-30.  At issue there was an LLC that provided small loans to customers at rates in flagrant disregard of the state’s usury laws as well as numerous consumer protection statutes.[58]  In permitting the defendant-member to be held personally liable, the court concluded that “Section 57C-3-30(a) clearly anticipates that a member who is also a ‘manager, director, executive, or any combination thereof’ might be made a defendant and ‘become personally liable by reason of [his] own acts or conduct.’”[59]  The court emphasized the word “solely” in the text of the statute as providing a basis for this view.[60]

The court then elaborated on two factors that supported its conclusion that the member should be individually liable.  First, he “entirely owned and controlled” the company.[61]  Second, he used his position as a member to direct unlawful practices and create a number of shell organizations in a deliberate attempt to avoid liability.[62]  While seemingly rational, holding a member individually liable raises two issues.  First, how does complete ownership and control make sense as a piercing consideration in the wake of Hamby?[63]  Second, the court seems to be alluding to inequitable conduct as being a major consideration for piercing; does that mean the court is, at least implicitly, applying the second prong of the instrumentality test articulated in Glenn?[64]

The cases that have cited to section 57C-3-30 are few, and their holdings are unremarkable.  Section 57C-3-30 does not confer absolute immunity, and the courts will pierce the veil when justice so requires.  The finer details of piercing are left undiscussed, and there is no mention of the Glenn test.

C.     Cases that Apply Glenn to Piercing an LLC

Notwithstanding the lack of direction emanating from the Hamby opinion, North Carolina courts have pierced LLCs with zeal.  This is hardly surprising, as every other jurisdiction has done just that.[65]  What is truly remarkable is that the courts are disregarding limited liability without even mentioning section 57C-3-30.  In all of the following cases, the courts have allowed the plaintiff to pierce the liability shield on the basis of the corporate piercing factors discussed in Glenn.

Perhaps the most instructive case on the matter is the North Carolina Supreme Court’s decision in State ex rel. Cooper v. Ridgeway Brands Manufacturing, LLC.[66]  There, Ridgeway Brands Manufacturing, LLC was owned by member-manager James Heflin.[67]  The company produced tobacco and sold it to Ridgeway Brands, Inc., which was owned and managed by Fred Edwards and Carl White.[68]  Ridgeway Brands Manufacturing, LLC sold most of its products to the corporation.[69]  The problem was that, beginning in 2003, Ridgeway Manufacturing, LLC did not maintain a qualified escrow account as required by statute for cigarette producers.[70]  At the same time, Ridgeway Brands Manufacturing, LLC sold its products to the corporation at a cut rate.[71]  The result was that the corporation experienced disproportionately high revenue compared to its competitors, and Ridgeway Brands Manufacturing, LLC did not have enough money to pay into the mandatory escrow account.[72]  At some point in 2003, both the corporation and the LLC entered into a merger; corporate formalities were not observed, but the merger became de facto.[73]

The court began by restating the adage that the corporate form will be disregarded when it is used to “shield criminal wrongdoing, defeat the public interest, and circumvent public policy.”[74]  Next, the court reviewed the instrumentality rule from Glenn and applied it to the case at bar.[75]  Notably, the court did not distinguish between a corporation and an LLC.  The piercing factors cited by the court included directing money to individuals instead of the company, excessively fragmenting the company, destroying “corporate”[76] documents, and directing the movement of funds so as to avoid statutory obligations.[77]  Ultimately, the plaintiff was allowed to pierce the veil.

Ridgeway is a very difficult case to analyze.  The crux of the problem is that the court did not state, and it is by no means clear, whether the plaintiff was piercing an LLC or a corporation.  Both Ridgeway Brands Manufacturing, LLC and Ridgeway Brands, Inc. were named as defendants (along with Heflin, Edwards and White), yet at some point the LLC and the corporation had merged, albeit without observing the statutory strictures for a proper merger.  Throughout the opinion, the court specifically distinguished between “Ridgeway” the LLC, and “Brands” the corporation, but it made clear that the two combined at some point in 2003.[78]  Did the court permit the plaintiff to pierce the veil of the LLC, the corporation, both, or the combined entity that resulted from the merger?[79]

Three possible conclusions may be drawn from Ridgeway.  First, the entity in question was actually a corporation, and thus the application of Glenn was perfectly logical.  Second, the entity was an LLC, and the court intended to apply Glenn to LLCs without modification.  Third, the entity was an LLC, but the court failed to consider the differences between the corporate form and an LLC.  The first and third propositions are certainly plausible and would go a long way toward alleviating the confusion.  The second proposition seems difficult to accept; did the court really intend to allow piercing on the basis of, for example, failing to adhere to corporate formalities?[80]

What is left, then, is a series of lower court decisions that have applied the Glenn factors to LLCs without ever discussing the specific LLC context or section 57C-3-30.  For example, in Anderson v. Dobson,[81] the United States District Court for the Western District of North Carolina quoted the instrumentality test from Glennverbatim and then applied the four factors necessary to show control: inadequate capitalization, failure to follow corporate formalities, lack of an independent identity, and excessive fragmentation.[82]  The court concluded that having no assets, employees, or stock and having one person fill the position of officer, director, and registered agent was not enough to establish control within the meaning of Glenn.[83]

An illustrative case is Bear Hollow, L.L.C. v. Moberk, L.L.C.,[84] decided by the same district court.  At issue there was the sale of real estate from the defendant-LLC to the plaintiff.[85]  The plaintiff was induced to complete the sale on the advice of his confidant and agent.[86]  Unbeknownst to the plaintiff, his agent was actually in the employ of the defendant.[87]  After the completion of the sale, the plaintiff learned of his agent’s conduct and of the unfair price at which he purchased the land.[88]  The plaintiff’s suit included nine causes of action, including fraud and conspiracy, and sought to pierce the veil of the LLC.[89]

In permitting the veil-piercing theory to go forward,[90] the court immediately cited to Glenn and its three-part test and went on to recite all of the corporate factors that are considered in a piercing claim.[91]  Ultimately, the court found the plaintiff’s allegation to be sufficient to withstand dismissal, namely because the defendant-LLC “was inadequately capitalized, failed to comply with corporate formalities, and was completely dominated and controlled by [the two individual members] such that it has no separate mind, will or existence of its own . . . .”[92]

Though decided on a motion to dismiss, the court’s position is still rather remarkable.  The three factors cited by the court—inadequate capitalization, failure to comply with formalities, and complete domination and control—are precisely the three factors that have questionable application to LLCs.[93]

Another particularly vexing problem arises when the courts exclaim that LLC veil piercing is clearly permitted under North Carolina case law and then go on to cite to purely corporate authority for support.  Such was the case in White v. Collins Building, Inc.,[94] where the North Carolina Court of Appeals stated, “It is well settled that an individual member of a limited liability company or an officer of a corporation may be individually liable for his or her own torts, including negligence.”[95]  The court then cited to five cases that all involved corporations, not LLCs.[96]

Similarly, the court in L’Heureux Enterprises, Inc. v. Port City Java, Inc.[97] stated, “It is well established that in certain circumstances North Carolina will disregard the separate and independent existence of a corporation or limited liability company to hold a shareholder or member liable[.]”[98]  The court then cited to American Jurisprudence[99] for support;[100] the cited material does not contain even a single reference to LLCs.  After considering the “well-established” situations in which piercing is permitted, the court applied Glenn and denied the plaintiff’s piercing claim.[101]

In a slightly different setting, the courts are equally muddled about the application of piercing factors in a reverse pierce situation.  For example, in In re AmerLink, Ltd.,[102] the bankruptcy court allowed the plaintiff to pierce through the LLC to reach the assets of the individual member.  What transpired was a myriad of transactions between numerous corporations and LLCs all owned and controlled by the same person.[103]  These transactions had the effect of removing assets from the various entities and enriching the individual defendant to the detriment of creditors.[104]  At the outset, the court, citing Strategic Outsourcing, Inc. v. Stacks,[105] noted that “North Carolina law also recognizes ‘reverse piercing,’ where one entity is the alter ego of another entity, shareholder, or officer, so that the two entities may be treated like one-in-the-same.”[106]  In applying Glenn, the court found that the individual member had “complete control”[107] over AmerLink and used this control to force AmerLink into a series of transactions in “furtherance of wrongs and breaches of duty . . . .”[108]

North Carolina law is thus split along an axis whereby some courts cite to the statute and others to Glenn.  In no case has any court engaged in a meaningful discussion about tailoring piercing claims to an LLC.

III.  Analysis of North Carolina Case Law as Applied to Limited Liability Companies

A synthesis of North Carolina law is in order.  Glenn establishes the instrumentality test for piercing the corporate veil.  Among the many factors listed by the court, four are especially probative: inadequate capitalization, noncompliance with corporate formalities, complete domination and control of the corporation so that it has no independent identity, and excessive fragmentation.[109]  In applying these factors, the central consideration is whether the shareholder exercised such complete domination over the corporation that it had no separate existence, and such domination resulted in inequitable conduct.[110]

Cases that interpret section 57C-3-30 provide few details as to how courts should pierce the veil of an LLC.  Only two things can be determined for certain.  First, as should be obvious from reading the statute, the liability shield provided to an LLC is not absolute under North Carolina law and can be disregarded under certain conditions.  For example, courts have held members liable on at least two occasions where the members used the LLC to violate positive statutory law.[111]  Second, a member can be held liable if he assumes an independent duty separate and apart from that of the company.[112]  No court has engaged in an analysis of the relevant piercing factors under section 57C-3-30.

Numerous courts have allowed a plaintiff to pierce the veil of an LLC without considering section 57C-3-30.  These courts have generally applied the instrumentality test articulated in Glenn, as well as the corporate piercing factors considered therein.  In applying Glenn to LLCs, courts have considered inadequate capitalization,[113] complete and total control of the company,[114] failure to follow corporate formalities,[115] excessive fragmentation, and siphoning of funds.[116]  No court has assessed whether these corporate factors are appropriate in the LLC setting.  Similarly, no court has examined the interplay between Glenn and section 57C-3-30.

It would be a fair assessment to say that the courts have thus far failed to view an LCC as fundamentally different from a corporation, notwithstanding their many similar traits.  It is folly to suggest, as the North Carolina courts have implied, that all factors relevant to a corporate piercing analysis should be imported to a discussion on LLC piercing.  When the North Carolina General Assembly passed the Limited Liability Company Act, it created an entity that is different in kind, and not merely degree, from a corporation.  The LLC in North Carolina, like everywhere else, essentially combines the limited liability of a corporation with the flexibility of a partnership.  The result is a highly flexible entity that is not burdened by the confines of corporate formalism and procedure.  The rationale for creating such an entity, and the wisdom in doing so, is not relevant to a court’s analysis.  It is sufficient that the General Assembly has created such an entity, and the courts must tailor their holdings to give effect to the peculiar traits of the LLC.  The applicability of the various Glenn factors will now be considered in turn.

A.     Inadequate Capitalization

It is not difficult to see why courts are concerned with a business entity being deliberately undercapitalized: it allows the individual to engage in nefarious conduct without meaningful consequence.[117]  If courts did not consider this, an individual could engage in any sort of behavior, and the plaintiff’s relief would be limited to the corporate coffers that were deliberately left bare in anticipation of just such an event.  An alternative conceptualization is that limited liability is a privilege created by the legislature, and as a privilege, it should not be abused.[118]

Of particular relevance to the question of undercapitalization is section 57C-4-06 of the North Carolina LLC Act,[119] which provides that an LLC may not make a distribution if doing so would render the company unable to satisfy its debts as they come due or would make assets less than the sum of liabilities and preferential rights of members if dissolution resulted.[120]  The statute then goes on to impose personal liability on any member who votes for a distribution that would violate section 57C-4-06.[121]

As mentioned previously, commentators and courts are divided about whether undercapitalization is a relevant factor for piercing the veil of an LLC.[122]  Nevertheless, this statutory section provides a strong justification for not extending that factor to LLCs in North Carolina.  There is simply no reason to rely on an equitable remedy when there is a statutory remedy for the same wrong.  Veil piercing was created by the courts to prevent the unscrupulous from using the corporate form to abuse innocent third parties.  This justification for piercing, with respect to inadequate capitalization, is greatly undermined when the legislature has set forth its own form of relief.

That said, there are issues that need mentioning.  First, no North Carolina court has given careful consideration to section 57C-4-06.  This raises the spectacle that a court might constrain the language of the statute to provide a lesser remedy than would be the case in a traditional veil-piercing claim.  Second, and more importantly, section 57C-4-06(a) seems to only provide protection to contract creditors, as opposed to tort victims.  The case history is rife with examples of individuals abusing limited liability to the detriment of a third party.[123]  Thus, inadequate capitalization may be a valid factor in certain cases but not others.

B.     Domination and Control by an Individual

In the corporate setting, complete control and domination can occur in two situations.  The first is the case of a dominant shareholder, while the second is the parent-subsidiary relationship.[124]  In either case, the rationale for imposing liability is that the dominant party has disregarded the statutorily required degree of separation from the controlled corporation.[125]  This problem is especially acute when there is a very small number of shareholders who may also occupy a management position.  An empirical study by Professor Robert Thompson is particularly illuminating.[126]  His survey of 297 cases indicated that when the defendant was both a shareholder and a manager, the court pierced the corporate veil in 46.46% of the cases.[127]  Further, the same data revealed that in 186 of those 297 cases there were three or fewer shareholders in total.[128]  Thus, courts are more likely to pierce when the shareholder is also an active manager and when there are few shareholders.

For LLCs, the LLC Act specifies that “[o]ne or more persons may form an LLC . . . .”[129]  Moreover, the organization of an LLC “requires one or more initial members and any further action as may be determined by the initial member or members.”[130]  The LLC Act also provides that, by default, all members are managers.[131]  It seems clear that the LLC Act allows a single individual to own an LLC completely and to simultaneously exercise full control over its management.

On the one hand, it is seemingly logical that an LLC completely controlled by a single member is exactly the sort that is likely to have no separate existence apart from the member and harm third parties.  On the other hand, the statutory language is unequivocal in permitting a single individual to control an LLC.[132]  This distinction cannot be overstated.  A corporation, almost by definition, separates ownership from management.  The active investor is the exception, not the rule.  LLCs do away with this and instead allow a single individual to not only own the enterprise completely but also exert full managerial control.

C.     Excessive Fragmentation

Of particular concern for corporate creditors is the possibility that incorporators will divide the business into multiple entities that serve no useful business purpose but rather are created so as to frustrate creditors’ recovery.[133]  Using multiple corporations creates the specter of lengthy litigation for creditors and thus higher costs.  An individual might, for example, create two corporations in connection with a single business activity.  One corporation would contain the assets, while the other would be saddled with the liabilities.  A creditor of the liability corporation would have no recovery because the assets have all been segregated into the asset corporation.  To avoid this result, North Carolina courts consider fragmentation when confronted with a piercing claim.

The LLC Act provides no direction as to how courts should apply this factor to an LLC.  However, it is reasonable that the same concern present in the corporate realm exists with LLCs.  In order to protect creditors against inequitable results, it must surely be the case that the courts must consider excessive fragmentation.

D.    Failure to Observe Corporate Formalities

Corporate formalities, at least in theory, serve a variety of purposes.  For example, by maintaining segregation of corporate and personal assets, third parties can have greater confidence that they are contracting with the corporation and not the individual.[134]  Formalities may also protect shareholders from insider malfeasance.[135]  For example, by requiring a corporation to keep records of its dealings and minutes of its board meetings, a disgruntled shareholder has a basis for evaluating the directors’ performance.  This documentation will also be critical if the dispute results in litigation.  One commentator put the rationale more directly: if owners do not treat the corporation as a separate entity, why should the courts?[136]

Like most LLC statutes, North Carolina’s imposes very few formalities.  One is that the LLC file with the Secretary of State articles of organization that include the name of the company, life of the entity, address of each person executing the articles, address of the registered office, and address of the principal office, if any.[137]  Another requirement is that the company file with the Secretary of State an annual report, which must contain substantially the same information as the articles of organization, except the annual report must also include a “brief description of the nature of [the] business.”[138]  A third requirement is that the company maintain a registered agent and office that is subject to service.[139]  These few formalities aside, the statute provides great flexibility for members to operate free and clear of statutorily imposed procedures.

Commentators have almost universally maligned the transplant of this factor from the corporate world to the LLC.[140]  In the first instance, LLC statutes, including North Carolina’s, lack the formalism of corporate statutes.[141]  A more practical concern is that LLCs are likely to be small and closely held and thus unlikely to focus on formalities that do not affect the business operation.[142]  Moreover, by imposing corporate formalities on LLCs, courts would be frustrating the intent of the legislature to provide a flexible form of business organization.[143]  Given the paucity of formalities required by the General Assembly, it would seem unreasonable for North Carolina courts to impose them and thus run afoul of the clear will of the legislature.

A rigid application of Glenn would seem to be at odds with the statutory scheme of the LLC Act, and therefore the courts must endeavor to formulate a more appropriate test.  This is not to say that the central holding of Glenn is wrong; it is almost certainly correct.  Business entities should not be permitted to abuse their existence to the detriment of third parties.  The potential for using an LLC to circumvent public policy is just as great as with a corporation.  What is needed is a tailored approach for LLCs that acknowledges that not all factors relevant to a corporate piercing should be applied to an LLC.

Conclusion

An influential article on the subject once analogized piercing to lightning: it is rare, severe, and unprincipled.[144]  In order to ameliorate the tempest (at least with respect to LLC piercing), courts must be cognizant of three realities.  First, the legislature clearly did not intend to confer absolutely limited liability.  Second, the General Assembly has implicitly agreed with the notion of veil piercing in the LLC context.  The General Assembly could have prevented the use of the equitable remedy but chose not to do so, thus granting at least tacit approval for the practice.  Third, an LLC is not a rehashed corporation; it is a fundamentally different creation.  It has its own parlance, statute, forms, requirements, and procedures.  It is only natural that it needs its own independent body of law.

Accordingly, North Carolina courts should place special emphasis on the second element of the Glenn test—whether there was fraud, a violation of a statutory duty, or unjust conduct.[145]  This is, after all, what the legislature wanted to avoid in only providing limited (as opposed to absolute) limited liability.  The first part of the instrumentality test—control and domination such that there is no independent existence—should not be stressed to the same extent.

In evaluating this first prong, the factors need to be reconsidered in application to an LLC.  First, the failure to observe formalities should not be relevant given that the statute requires so few.  Second, allowing a plaintiff to pierce because a single individual completely owns and controls the company would seem odd in light of a statute that permits precisely that.  Lack of adequate capitalization is a more difficult question, but in light of section 57C-4-06 it would make sense to reevaluate its application.  In particular, lack of adequate capitalization should not be a factor in contract piercing actions but should remain a consideration for tort victims who might not have a statutorily created remedy.  Fragmentation of the company into any number of meaningless shells remains a concern, and the courts should be on guard.

It might well be the case that piercing factors become increasingly irrelevant, with the great emphasis being the second element of the test.  Indeed, this may already be the case.  In both Gunnings and NCCS Loans, the piercing was predicated, in large part, on the defendants’ gross violations of consumer protection acts and usury laws, with no treatment of the piercing factors.

Refining, or at least rebalancing, the piercing factors for LLCs would harmonize North Carolina’s law with that of several other states, including Wyoming, Minnesota, Colorado, and California.[146]  Other state courts may be moving in a similar direction, as evidenced by the courts’ thoughtful discussions in both In re Giampietro[147]  (Nevada) and D.R. Horton[148]  (New Jersey).

It seems clear that lower courts are going to continue to decide LLC veil-piercing issues in a haphazard manner unless and until the North Carolina Supreme Court revisits the issue in more a thorough way than it did in Hamby.  What is needed is a tailored approach to LLCs that recognizes their uniqueness and distinctiveness from corporations.  By reconsidering piercing factors in light of the LLC Act and the General Assembly’s intent in creating LLCs, a more sound principle of equity will be achieved to the benefit of all.


        [1].   See generally Larry E. Ribstein & Robert R. Keatinge, Ribstein and Keatinge on Limited Liability Companies § 1:2 (2d ed. 2011).

        [2].   Id.

        [3].   See David L. Cohen, Theories of the Corporation and the Limited Liability Company: How Should Courts and Legislatures Articulate Rules for Piercing the Veil, Fiduciary Responsibility and Securities Regulation for the Limited Liability Company?, 51 Okla. L. Rev. 427, 429 (1998) (discussing the significance of the LLC in Delaware).

        [4].   See William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations § 18 (2012).

        [5].   Russell M. Robinson, II, Robinson on North Carolina Corporate Law § 34.01 (7th ed. 2006) (noting that an LLC “combines characteristics of business corporations and partnerships”); Geoffrey Christopher Rapp, Preserving LLC Veil Piercing: A Response to Bainbridge, 31 J. Corp. L. 1063, 1066 (2006) (“An LLC is frequently described as a ‘hybrid’ entity . . . .”).

        [6].   For example, Judge Easterbrook and Professor Fischel argue that, in the corporate setting, limited liability provides six key benefits: it decreases the need to monitor, reduces the cost of monitoring, incentivizes manager efficiency, allows for the impounding of additional information about the value of the firm, allows for efficient diversification, and facilitates optimal investment decisions.  Frank H. Easterbrook & Daniel R. Fischel, Limited Liability and the Corporation, 52 U. Chi. L. Rev. 89, 94–97 (1985).

        [7].   This is true in the corporate context.  Some LLC statutes, however, specifically incorporate veil piercing.  See infra note 18.

        [8].   Easterbrook & Fischel, supra note 6, at 89.

        [9].   Fletcher, supra note 4, § 41.

      [10].   Id. § 41.30.

      [11].   Id. § 41.10.

      [12].   Id.

      [13].   Id. §§ 41.30, 41.34.  For a detailed discussion of each of these factors, see id. §§ 41.31–.60.

      [14].   See id. § 41.30.

      [15].   North Carolina Limited Liability Company Act, N.C. Gen. Stat. § 57C (2011).

      [16].   Id. § 57C-3-30.

      [17].   Professor Karin Schwindt groups North Carolina’s statute with Alaska, Kentucky, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Oregon, South Carolina, and Washington, D.C.  Karin Schwindt, Limited Liability Companies: Issues in Member Liability, 44 UCLA L. Rev. 1541, 1554 n.60 (1997).

      [18].   N.C. Gen. Stat. § 57C-3-30.

      [19].   Colo. Rev. Stat. § 7-80-107 (2011); Minn. Stat. § 322B.303(2) (2012); see also Jeffrey K. Vandervoort, Piercing the Veil of Limited Liability Companies: The Need for a Better Standard, 3 DePaul Bus. & Com. L.J. 51, 65 (2004) (discussing the various treatments that statutes give to the existing body of corporate veil-piercing case law with respect to LLCs).

      [20].   46 P.3d 323 (Wyo. 2002).

      [21].   The court stated:

Certainly, the various factors which would justify piercing an LLC veil would not be identical to the corporate situation for the obvious reason that many of the organizational formalities applicable to corporations do not apply to LLCs.  The LLC’s operation is intended to be much more flexible than a corporation’s.  Factors relevant to determining when to pierce the corporate veil have developed over time in a multitude of cases.

Id. at 328.

      [22].   Id.

      [23].   See, e.g., Cal. Corp. Code. § 17101(b) (West 2012) (stating that failure to follow formalities is not a ground for imposing individual liability); D.R. Horton Inc.–New Jersey v. Dynastar Dev., L.L.C., No. MER-L-1808-00, 2005 WL 1939778, at *36 (N.J. Super. Ct. Law Div. Aug. 10, 2005) (“It is sufficient for this court to conclude that in this case, [the defendant’s] failure to scrupulously identify the entity through which he was acting . . . should not loom as large as it might were the entity a corporation.”).

      [24].   Revised Unif. Ltd. Liab. Co. Act § 304(b) (2006).

      [25].   In re Giampietro, 317 B.R. 841, 848 n.10 (Bankr. D. Nev. 2004) (“It may very well be that while the same principles used in corporate alter ego cases may apply to limited liability companies, they may apply with different weight.”).

      [26].   Vandervoort, supra note 19, at 70 (“[G]enerally speaking, members are normally authorized agents and/or managers of LLC’s for the purpose of conducting its affairs.”).

      [27].   Stephen B. Presser, Piercing the Corporate Veil § 4:2 (2011).

      [28].   Schwindt, supra note 17, at 1559.

      [29].   Id.

      [30].   D.R. Horton Inc.–New Jersey v. Dynastar Dev., L.L.C., No. MER-L-1808-00, 2005 WL 1939778, at *31 (N.J. Super. Ct. Law Div. Aug. 10, 2005).

      [31].   Ribstein & Keatinge, supra note 1, § 12:3.

      [32].   Cf. Vandervoort, supra note 19, at 72 (“[U]ndercapitalization appears to be directly applicable to LLC’s with little or no modification.”).

      [33].   D.R. Horton Inc., 2005 WL 1939778, at *36.

      [34].   See, e.g., In re Giampietro, 317 B.R. 841, 848 n.10 (Bankr. D. Nev. 2004) (“It may very well be that while the same principles used in corporate alter ego cases may apply to limited liability companies, they may apply with different weight.”); Kaycee Land & Livestock v. Flahive, 46 P.3d 323, 328 (Wyo. 2002)(“Certainly, the various factors which would justify piercing an LLC veil would not be identical to the corporate situation . . . .”).

      [35].   See In re Giampietro, 317 B.R. at 847 n.9 (citing various cases that treat veil piercing the same in both the LLC and corporate context).

      [36].   Stephen M. Bainbridge, Abolishing LLC Veil Piercing, 2005 U. Ill. L. Rev. 77, 79 (2005).

      [37].   See supra note 16 and accompanying text.

      [38].   Robinson, supra note 5, § 2.10.

      [39].   329 S.E.2d 326 (N.C. 1985).

      [40].   Id. at 330.

      [41].   Id. (quoting B-W Acceptance Corp. v. Spencer, 149 S.E.2d 570, 575 (N.C. 1966)).

      [42].   Id.

      [43].   Id. at 332.

      [44].   Id. at 330–32.

      [45].   Id. at 332.

      [46].   Id. at 333.

      [47].   Id. at 329.

      [48].   Id. at 330.

      [49].   See, e.g., L’Heureux Enter., Inc. v. Port City Java, Inc., No. 06 CVS 3367, 2009 WL 4644629, at *8–9 (N.C. Super. Ct. Sept. 4, 2009).

      [50].   See, e.g., In re AmerLink, Ltd., No. 09-01055-8-JRL, 2011 WL 874140, at *3 (Bankr. E.D.N.C. Mar. 11, 2011).

      [51].   652 S.E.2d 231 (N.C. 2007).

      [52].   Id. at 232–33.

      [53].   Id. at 233.

      [54].   Id. at 236.  The Hamby court was applying the law of Delaware, but the analysis would be the same for North Carolina.  Importantly, the court stated:

North Carolina’s third-party liability statute, N.C.G.S. § 57C-3-30(a), is substantially similar to that of Delaware, Del.Code Ann. tit. 6, § 18-303(a).  Both statutes state that members or managers cannot be held liable for the obligations of an LLC “solely by reason of” being members or managers or participating in management of an LLC.  Del.Code Ann. tit. 6, § 18-303(a); N.C.G.S. § 57C-3-30(a).  The North Carolina statute also states that members or managers may be held personally liable for their “own acts or conduct.”  See N.C.G.S. § 57C-3-30(a).  However, this language appears to simply clarify the earlier principle: the liability of members or managers is not limited when they act outside the scope of managing the LLC.

Id. at 236 n.1.

      [55].   Id. at 236; see also Spaulding v. Honeywell Int’l, Inc., 646 S.E.2d 645, 649 (N.C. Ct. App. 2007) (“[I]n the absence of an independent duty, mere participation in the business affairs of a limited liability company by a member is insufficient, standing alone and without a showing of some additional affirmative conduct, to hold the member independently liable for harm caused by the LLC.”).  The failure of a member to investigate a fellow member for malfeasance is insufficient, absent actual knowledge of the malfeasance, to establish personal liability under section 57C-3-30.  Babb v. Bynum & Murphrey, PLLC, 643 S.E.2d 55, 57 (N.C. Ct. App. 2007).

      [56].   In an earlier case it was held that it was improper under Rule 11 of the North Carolina Rules of Civil Procedure to name a member of an LLC as a defendant in an action against the LLC without any evidence to support the claim.  Page v. Roscoe, L.L.C., 497 S.E.2d 422, 428 (N.C. Ct. App. 1998).  This case, the first to reference section 57C-3-30, arguably was the first to open the door to an LLC piercing claim because it seemingly limited the holding to instances where there is no evidence to support an individual claim.  It is implicit that, had there been appropriate evidence, the outcome would have been different.

      [57].   624 S.E.2d 371 (N.C. Ct. App. 2005).

      [58].   Id. at 373.

      [59].   Id. at 379–80.

      [60].   Id. at 379.  In a later case brought in federal court, the court, in applying the test from NCCS Loans, held that individual liability would attach to members who exerted control over the companies and who were “directly and personally involved in the fraudulent scheme.”  Gunnings v. Internet Cash Enter. of Asheville, No. 5:06CV98, 2007 WL 1931291, at *6 (W.D.N.C. July 2, 2007).  This court also noted that ownership of the LLC is enough; the defendant-member does not need to control the day-to-day operations to be held liable.  Id.

      [61].   NCCS Loans, 624 S.E.2d at 380.

      [62].   Id.

      [63].   Recall that the Hamby court did not think complete ownership and control was relevant in the LLC context because the statute clearly allowed member-managers to control the LLC.  Hamby v. Profile Prods., L.L.C., 652 S.E.2d 231, 236 (N.C. 2007).

      [64].   The NCCS Loans opinion never cites to Glenn.

      [65].   Rapp, supra note 5 (“[C]ourts have universally embraced veil piercing in the LLC context . . . .”).

      [66].   666 S.E.2d 107 (N.C. 2008).

      [67].   Id. at 109.

      [68].   Id.

      [69].   Id.

      [70].   Id. at 109–10.

      [71].   Id. at 109.

      [72].   Id.

      [73].   Id.

      [74].   Id. at 113.

      [75].   Id.

      [76].   Id. at 114.  Note that the court uses the phrase “corporate” even though it is referring specifically to Ridgeway Brands Manufacturing, LLC.

      [77].   Id.

      [78].   The court clarified:

In early 2003 Heflin, Edwards, and White announced the merger of Ridgeway and Brands.  Although the formalities were never concluded, the merger became a de facto reality.  In early 2003, Brands became the sole purchaser of cigarettes manufactured by Ridgeway.  Ridgeway allegedly became “a corporation without a separate mind, will or existence of its own[,] . . . operated as a mere shell to perform for the benefit of . . . [Brands], Edwards, White and Heflin.”

Id. at 109–10 (alterations in original).  Later, the court states, “[t]o support its effort to pierce the corporate veil, plaintiff alleged in the amended complaint that Heflin, Edwards, and White exhibited control over Ridgeway . . . .”  Id. at 110.  This is doubly confusing.  The court makes absolutely clear that “Ridgeway” refers to the LLC, yet also states that only Heflin was a member of the LLC.  Edwards and White were the shareholders in the corporation.

      [79].   Again, it is not clear what type of entity resulted from the merger.

      [80].   As previously mentioned, the court did not list failure to adhere to formalities as one of the factors.  However, it is a Glenn factor that was not explicitly disclaimed.

      [81].   No. 1:06CV2, 2006 WL 1431667 (W.D.N.C. 2006).

      [82].   Id. at *6.

      [83].   Id. at *7.

      [84].   No. 5:05CV210, 2006 WL 1642126 (W.D.N.C. 2006).

      [85].   Id. at *1.

      [86].   Id. at *2.

      [87].   Id.

      [88].   Id.

      [89].   Id.

      [90].   The issue was before the court on a motion to dismiss.  The court specifically noted that the complaint alleged enough facts to withstand the defendant’s Rule 12(b)(6) motion.  Id. at *13.

      [91].   Id. at *17.

      [92].   Id.

      [93].   As previously mentioned, there is significant debate about whether inadequate capitalization is a valid piercing factor in the LLC context.  See supra notes 30–32.

      [94].   704 S.E.2d 307 (N.C. Ct. App. 2011).

      [95].   Id. at 310.

      [96].   Id.  The proposition that a member may be held individually liable for his own tortious conduct is supported by the language of section 57C-3-30 itself.  What is problematic is that the court in this case failed to distinguish LLCs from corporations.

      [97].   No. 06 CVS 3367, 2009 WL 4644629 (N.C. Super. Ct. Sept. 4, 2009).

      [98].   Id. at *8.

      [99].   18 Am. Jur. 2d Corporations § 47 (2012).

    [100].   L’Heureux Enter., 2009 WL 4644629, at *8.

    [101].   Id. at *8–9.

    [102].   No. 09-01055-8-JRL, 2011 WL 874140 (Bankr. E.D.N.C. Mar. 11, 2011).

    [103].   Id. at *1–2.

    [104].   Id.

    [105].   625 S.E.2d 800 (N.C. Ct. App. 2006).

    [106].   In re AmerLink, 2011 WL 874140, at *3.

    [107].   Id. at *4.

    [108].   Id.

    [109].   Glenn v. Wagner, 329 S.E.2d 326, 330–31 (N.C. 1985).

    [110].   Id. at 330.

    [111].   See, e.g., Gunnings v. Internet Cash Enter. of Asheville, No. 5:06CV98, 2007 WL 1931291, at *6 (W.D.N.C. July 2, 2007); State ex rel. Cooper v. Ridgeway Brands Mfg., LLC, 666 S.E.2d 107, 116 (N.C. 2008).

    [112].   Spaulding v. Honeywell Int’l, Inc., 646 S.E.2d 645, 649–50 (N.C. Ct. App. 2007).

    [113].   Bear Hollow, L.L.C. v. Moberk, L.L.C., No. 5:05CV210, 2006 WL 1642126, at *17 (W.D.N.C. 2006).  Inadequate capitalization was considered inL’Heureux Enter., but the court concluded there was not a sufficient allegation by the plaintiff to merit further inquiry.  L’Heureux Enter., Inc. v. Port City Java, Inc., No. 06 CVS 3367, 2009 WL 4644629, at *9 (N.C. Super. Ct. Sept. 4, 2009).

    [114].   Bear Hollow, 2006 WL 1642126, at *17.  In Anderson, the company had one person who acted as the officer, director, and registered agent.  Anderson v. Dobson, No. 1:06CV2, 2006 WL 1431667, at *7 (W.D.N.C. 2006).  The court concluded that such a showing, without more, is insufficient to pierce the corporate veil.  Id.

    [115].   Bear Hollow, 2006 WL 1642126, at *17.

    [116].   Ridgeway, 666 S.E.2d at 114.

    [117].   See, e.g., Commonwealth Mut. Fire Ins. v. Edwards, 32 S.E. 404, 406 (N.C. 1899) (“One of [the] great dangers is the risk of insolvency arising from the want of any personal liability of their stockholders, and the uncertain, and perhaps fictitious, nature of their assets.  Some are afflicted with what may be called ‘congenital’ insolvency.  They are born insolvent, capitalized into insolvency at the moment of their creation, and eke out a precarious existence in an apparent effort to solve the old paradox of living on the interest of their debts.  Such corporations are not only intrinsically dangerous, but lay the foundation for an unjust suspicion of all other corporate bodies.”); Stephen B. Presser, Thwarting the Killing of the Corporation: Limited Liability, Democracy, and Economics, 87 Nw. U. L. Rev. 148, 165 (1992) (“If the shareholder or shareholders deliberately incorporate with initial capital they know to be inadequate to meet the expected liabilities of the business they intend to be doing, they are engaging in an abuse of the corporate form, and ought to be individually liable when those liabilities actually occur.”).

    [118].   Robinson, supra note 5, § 2.10(b).

    [119].   North Carolina Limited Liability Company Act, N.C. Gen. Stat. § 57C-4-06 (2011).

    [120].   The statute notes:

No distribution may be made if, after giving effect to the distribution:

(1) The limited liability company would not be able to pay its debts as they become due in the usual course of business; or

(2) The limited liability company’s total assets would be less than the sum of its total liabilities plus, unless the operating agreement provides otherwise, the amount that would be need, if the limited liability company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of members whose preferential rights are superior to the rights of the member receiving the distribution.

Id. § 57C-4-06(a).  A notable criticism of using undercapitalization as a piercing factor for LLCs is that it is difficult to determine what level of capitalization is adequate.  Vandervoort, supra note 19, at 73.  Section 57C-4-06(a) effectively provides the solution.

    [121].   N.C. Gen. Stat. § 57C-4-07.

    [122].   See supra notes 31–33 and accompanying text.

    [123].   See, e.g., State ex rel. Cooper v. NCCS Loans, Inc., 624 S.E.2d 371 (N.C. Ct. App. 2005) (explaining that the defendant was charging interest in excess of 400% while engaging in conduct in disregard of consumer protection laws).

    [124].   Robinson, supra note 5, § 2.10(b).

    [125].   Vandervoort, supra note 19, at 62.

    [126].   See generally Robert B. Thompson, The Limits of Liability in the New Limited Liability Entities, 32 Wake Forest L. Rev. 1 (1997).

    [127].   Id. at 10 tbl.1.

    [128].   Id. at 10 tbl.2.

    [129].   North Carolina Limited Liability Company Act, N.C. Gen. Stat. § 57C-2-20(a) (2011).

    [130].   Id.

    [131].   Id.

    [132].   See Presser, supra note 27 (“Most limited liability company statutes allow members to manage the LLC.  This provision illustrates a legislative intent to allow small, one-person and family-owned businesses the freedom to operate their companies themselves and still enjoy freedom from personal liability.”).

    [133].   Robinson, supra note 5, § 2.10(b).

    [134].   See id.

    [135].   See Vandervoort, supra note 19, at 60.

    [136].   Robinson, supra note 5, § 2.10(b).

    [137].   North Carolina Limited Liability Company Act, N.C. Gen. Stat. § 57C-2-21(a) (2011).

    [138].   Id. § 57C-2-23.

    [139].   Id. § 57C-2-40.

    [140].   Vandervoort, supra note 19, at 67.

    [141].   For example, there are usually requirements to hold annual meetings, elect directors and officers, maintain records, and issue stock certificates.  Eric Fox,Piercing the Veil of Limited Liability Companies, 62 Geo. Wash. L. Rev. 1143, 1162 (1994).

    [142].   John H. Matheson & Raymond B. Eby, The Doctrine of Piercing the Corporate Veil in an Era of Multiple Limited Liability Entities: An Opportunity to Codify the Test for Waiving Owners’ Limited-Liability Protection, 75 Wash. L. Rev. 147, 175 (2000).

    [143].   Vandervoort, supra note 19, at 68.

    [144].   Easterbrook & Fischel, supra note 6, at 89.

    [145].   Glenn v. Wagner, 329 S.E.2d 326, 330 (N.C. 1985).

    [146].   See supra notes 19–20.

    [147].   See supra notes 25, 34–35 and accompanying text.

    [148].   See supra notes 23, 30 and accompanying text.

      *   J.D. Candidate, May 2013, Wake Forest University School of Law.

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