The City of Charlotte’s Gold Line Streetcar extension, that brought the system to a 4-mile, 17-stop line, opened to the public in August 2021. But disputes about its construction (and payment for it) that stretched back to 2018 didn’t get the same ribbon-cutting closure.

In Johnson Bros. v. City of Charlotte, 2024 NCBC 11, the Business Court analyzed the City’s motion to dismiss its contractor’s claims based on governmental immunity and statute of limitations bases. Judge Bledsoe’s decision centered upon whether the City’s acts in contracting to build the transportation line were proprietary, and if a compulsory mediation process in the contract impacted the time within which the contractor had to file suit.

Johnson Brothers argued that even if the City’s aim – to operate a public transportation system – was a governmental function, when it contracted with engineers and construction companies to build it, the City nonetheless engaged in a “proprietary” function. Id. ¶ 33. The Business Court relied on the North Carolina Supreme Court’s recent resolution of a closely analogous issue in Providence Volunteer Fire Dep’t, Inc. v. Town of Weddington, 382 N.C. 199, 211-12 (2022) to reject plaintiff’s hair-splitting immunity doctrine.

In Providence, the Supreme Court declined to separate the town’s decision to build a fire station to provide service to the public from its contracts which “set out the manner in which the needed fire station would be provided.” Id. ¶ 39. As the Court noted:

“[W]e are unable to divorce the provisions of the [contract] from the remainder of the overall transaction between the parties, which was clearly intended to ensure that the residents of the [t]own received fire protection services.”

Providence rejected the contrary conclusion reached by the Court of Appeals nine years earlier, upon which Johnson Brothers relied, in Town of Sandy Creek v. E. Coast Contracting, Inc., 226 N.C. App. 576 (2013) (finding that “regardless of whether the project under construction will be a governmental function once it is completed,” entering contracts to make it happen was proprietary).

But even though the City’s contracts with Johnson Brothers were deemed a governmental function, at the Rule 12 stage they also served as a waiver of Charlotte’s immunity because a government unit “implicitly consents to be sued for damages on the contract in the event it breaches[.]” Id. ¶ 41 (quoting Smith v. State, 289 N.C. 303, 320 (1976). As the Business Court noted, “an allegation of a valid contract is an allegation of waiver of governmental immunity.” Id. (quoting Wray v. City of Greensboro, 370 N.C. 41, 48 (2017). Further, Judge Bledsoe noted that the contractor’s breach of implied warranty claim also could withstand an immunity challenge because it “arises under the contract.” Id. ¶ 49.

Statute of Limitations

The City fared better in its argument that portions of plaintiff’s complaint should fall because they were barred under the applicable two-year limitations period in N.C.G.S. § 1-53(1). Because the lawsuit was filed on January 31, 2023, the Court observed that plaintiff’s claims had to have accrued in the two years before that date. Johnson Brothers contended, though, that this normal application of the statutory window did not apply because it didn’t have a right under the contract to initiate a lawsuit until the parties had completed a required mediation process which had impassed on January 27, 2023.

The Business Court noted that “this argument improperly conflates ripeness and accrual” because “the moment a claim becomes ripe for judicial review and the moment a claim accrues” do not always coincide. Id. ¶ 66. The Court found that Johnson Brothers was on notice of the breach claims as pled in its complaint between 2018 and 2020 and that those claims had accrued and could “only be commenced within the periods prescribed” by statute. Where compliance with an ADR clause was required pre-filing, “it is incumbent upon the parties to initiate [mediation] promptly to ensure that, if the claims are unresolved . . . they will be timely when brought in court.” Id. ¶ 62.

Takeaways

• Given the common inclusion of ADR clauses in construction contracts, the Business Court’s guidepost is clear that they do not serve as a tolling agreement. Instead, they “merely provide[] a mechanism for resolution of claims that [a party] must follow prior to filing its claims in court; it does not alter the fact that whatever claims [a party] brings in court must be timely.” Id. ¶ 62.

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