North Carolina Municipal Immunity Questioned Where County Acts Like a Business

At a time when businesses have taken on traditional government tasks, from running schools to space launches, North Carolina’s Supreme Court is being asked to decide what tasks a municipality can perform and still remain protected from lawsuits.

The court heard arguments this week in a lawsuit arguing that Pasquotank County shouldn’t enjoy government legal immunity because it was acting like a business when it charged $75 to rent a park pavilion for a high school graduation party. A friend of the twin boys celebrating their graduation drowned in a park swimming area during the June 2007 party, and Erik William’s family sought to sue the county.

A lower court ruled unanimously that because the county park generated revenue, it was acting like a business and the victim’s family can sue. The Supreme Court elected to hear the case, apparently to establish new rules for when local government actions are still delivered for the general welfare and so protected from private lawsuits. Things that local governments do as a money-making venture are labeled proprietary activities and aren’t protected from lawsuits.

The line has blurred since a 1945 state law found that adequate recreation programs are needed to stave off a “menace to the morals, happiness and welfare of the people” and that providing recreation was a function requiring action by both state and local government, said the county’s attorney Burley Mitchell. Operating parking garages, schools and even space blastoffs have been outsourced to private businesses, while municipalities and companies alike run golf courses and parks, he noted.

“If this case stands as it is and I were a risk manager, I would advise (local governments) not to operate public parks and maybe not public schools since they can be operated by public entities,” said Mitchell, a former Supreme Court chief justice. “It seems to me that every function counties or cities perform are proprietary functions.”

Though Pasquotank County’s Fun Junktion park charged some fees, its expenses so far outstripped revenues it could not be considered operated as a business, Mitchell said. The county said over the three years preceding Williams’ drowning, the park’s operating costs topped $469,000 while revenues from pavilion and paddle boat rentals, driving range fees, and concession stand sales totaled $16,624.

“The question is whether it’s operated as a business for the benefit of the county, or for the benefit of the public,” Mitchell said. “It operates at a loss and is not being run as a business.”

The lawyer representing Williams’ estate argued the park was acting like a private business that also rents facilities for graduation parties.

“This is the same type thing that you can rent from private purveyors,” attorney Sanford Thompson said.

The county not only charged a rental fee, it bought insurance coverage to protect itself from loss if something bad happened during the gathering, he said

“They chose, because they engaged in a proprietary activity, to insure,” Thompson said.