Top NC court delivers bad news to bureaucrats

Government bureaucrats had little reason to celebrate if they spent much time reviewing the latest batch of rulings from North Carolina’s Supreme Court.

Three opinions released on Oct. 17 delivered blows to the state’s bureaucracy. Each decision meant good news for those who challenged decisions made by unelected, unaccountable government workers.

First, the court’s 5-2 Republican majority attacked “agency deference.”

Back in August, the court had used the case of a fired state Department of Transportation worker to clarify that North Carolina judges should not defer to state agencies’ interpretations of state laws. A plaintiff challenging a government action deserves to have his legal arguments weighed fairly in any dispute.

Now, in Mitchell v. University of North Carolina Board of Governors, the case of a fired Winston-Salem State University professor helped the court eliminate another form of deference.

“[A] state agency’s interpretation of its own rules or regulations can inform a court’s judgment and aid in ascertaining the meaning of the law,” Justice Richard Dietz wrote for the court’s majority. “But the agency’s interpretation is never binding.”

“We expressly disavow any interpretive rule requiring courts to defer to a state agency’s interpretation of state rules and regulations, overrule any previous Court of Appeals case law to the contrary, and instruct all lower courts to apply traditional de novo review to the interpretation of state rules and regulations,” Dietz added.

A “de novo” review requires judges to examine a case without favoring an earlier ruling or interpretation.

In the second Oct. 17 case, North Carolina Department of Environmental Quality v. NC Farm Bureau Federation, the court ruled against state regulators. The Farm Bureau had challenged three conditions DEQ had added in 2019 to general animal-waste permits issued to 2,000 hog, cattle, and poultry farms.

The 5-2 conservative majority agreed with the Farm Bureau that regulators should have subjected the challenged requirements to North Carolina’s Administrative Procedure Act.

“The APA’s rulemaking process is not a pointless bureaucratic exercise,” Justice Trey Allen wrote. “It represents an important check on the regulatory power of administrative agencies. The public notice and comment requirements of the APA discourage the arbitrary use of regulatory power by exposing agency rulemaking to public scrutiny.”

Republican justices agreed “substantial compliance with the APA’s rulemaking requirements was necessary before the DEQ imposed the conditions on farmers.”

The decision offers more transparency and input for those subjected to state environmental rules.

The third Oct. 17 case pitted Pinnacle Health Services of North Carolina against Duke Health and the state Department of Health and Human Services.

Pinnacle had challenged DHHS’ decision in 2021 to award Duke the only available state certificate of need for a new magnetic resonance imaging scanner serving Wake County. An administrative law judge reversed regulators’ decision, and a split state Appeals Court panel upheld the ALJ’s ruling.

DHHS and Duke appealed, but the entire state Supreme Court agreed that Pinnacle should win the CON.

Justice Phil Berger Jr.’s majority decision expressed skepticism about the CON law, noting that it effectively means “health care providers cannot simply develop, acquire, or expand health care facilities or services based on market demand.”

“The CON law is essentially a form of market control premised on the idea that government restrictions on the unnecessary duplication of health service facilities can rein in increasing health care costs,” Berger added.

The high court took no action on CON restrictions. But the five conservative justices took one step that could help losing CON applicants in future court battles. The court ruled that a losing applicant has met the “substantial prejudice” standard required to win a CON court case.

“Where two eligible applicants compete for a CON, the denied applicant is inherently prejudiced because ‘but-for’ the denial, the CON would be theirs,” Berger wrote. “Pinnacle is a denied applicant. Pinnacle was statutorily eligible to receive the CON and did not do so only because Duke was approved instead.”

“In other words, Pinnacle is prejudiced by the denial of its own application, not merely the approval of a competitor’s,” Berger explained.

“The CON Act was enacted with laudable goals: to control healthcare costs, to facilitate access to health service facilities, and to prioritize the healthcare needs of rural North Carolinians,” he concluded. “But laudable intent can be easily manipulated by bureaucrats left unchecked. Judicial review serves as the necessary backstop, providing relief for parties wronged by bureaucratic overreach.”

All three Oct. 17 decisions upheld safeguards against government overreach. North Carolinians should benefit from their Supreme Court’s efforts to keep unaccountable bureaucrats in check.

Mitch Kokai is senior political analyst for the John Locke Foundation.