Racetrack Can Sue Alleging COVID Shutdown Enforcement Targeted Speech, Violated "Fruits of Their Labor Clause"

That’s the Fruits of Their Labor Clause of the North Carolina Constitution.

From Friday's unanimous decision by the North Carolina Supreme Court in Kinsley v. Ace Speedway Racing, Ltd., written by Justice Richard Dietz:

In the early days of the COVID-19 pandemic, Governor Roy Cooper declared a state of emergency and issued an executive order affecting outdoor venues such as stadiums, concert arenas, and racetracks. The executive order permitted these venues to stay open but limited attendance to only twenty-five people, regardless of the venue's size.

Robert Turner, who operated a racetrack in Alamance County known as Ace Speedway, spoke out against these restrictions and told the public that his racetrack would remain open for all attendees. This led to the series of events at issue in this lawsuit….

[T]he claims at issue allege that Governor Cooper took a series of "unusual steps" to single out and shut down Ace Speedway—first by pressuring the local sheriff to arrest Turner and, when the sheriff refused, ordering public health officials to shut down Ace Speedway as a health hazard. The claims also allege that Governor Cooper took these actions not because there was an actual health hazard at the racetrack, but to punish Turner for speaking out, and that health officials did not take similar actions against other large outdoor venues whose owners did not openly criticize the Governor.

We emphasize that these allegations remain unproven. After all, the case has barely begun. Still, as explained below, these allegations assert colorable claims under the North Carolina Constitution for which there is no alternative remedy. As a result, at this stage of the case, the trial court properly denied the State's motion to dismiss….

We begin with Ace Speedway's claim that the State deprived the speedway and its owners of their inalienable right to earn a living guaranteed by the provision of Article I, Section 1 of the North Carolina Constitution known as the "Fruits of Their Labor Clause."

Article I, Section 1 provides as follows: "We hold it to be self-evident that all persons are created equal; that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, the enjoyment of the fruits of their own labor, and the pursuit of happiness."

This language, added in our state's 1868 constitution, "borrowed certain phraseology from the Declaration of Independence." State v. Ballance, 229 N.C. 764, 768 (1949). But the framers also added something new, described in Ballance as an "interpolation"—the people's inalienable right to "the enjoyment of the fruits of their own labor."

We explained in Ballance that this added constitutional right protects people "engaging in any legitimate business, occupation, or trade."  It bars state action burdening these activities unless "the promotion or protection of the public health, morals, order, or safety, or the general welfare makes it reasonably necessary."

Thus, to survive constitutional scrutiny under this provision, the challenged state action "must be reasonably necessary to promote the accomplishment of a public good, or to prevent the infliction of a public harm." This test involves a "twofold" inquiry: "(1) is there a proper governmental purpose for the statute, and (2) are the means chosen to effect that purpose reasonable?"

The first step in this inquiry requires the reviewing court to identify the State's actual purpose for the constraint on private business activity. Initially, the State may simply assert that purpose, without the need to "come forward with evidence" proving that it is, indeed, the true purpose.  But the plaintiff may rebut that assertion with evidence demonstrating that the State's asserted purpose is not the true one, and instead the State is pursuing a different, unstated purpose.

For example, in Roller v. Allen (N.C. 1957), the State defended licensing requirements for ceramic tile installers by asserting that they were necessary to combat consumer fraud by unqualified workers. After reviewing the evidence, this Court rejected that assertion, holding that the statute's "main and controlling purpose" was "not health, not safety, not morals, not welfare, but a tight control of tile contracting in perpetuity by those already in the business."  Simply put, courts assess Fruits of Their Labor Clause claims based on the actual purpose of the state action, and that may not always be the purpose initially put forward by the State.

Once the actual purpose of the challenged state action is identified, the reviewing court must then assess whether that purpose is a "proper governmental purpose." Proper purposes are those that "promote the accomplishment of a public good, or to prevent the infliction of a public harm." It is, of course, impossible to enumerate every public good or public harm. But our case law offers guidance on how to determine if a purpose is broad enough that it addresses public welfare generally, rather than private interests.

In Ballance, for example, this Court rejected the notion that it was a public good to reduce "fire risk incident to the practice of photography on account of combustible materials employed."  That purpose was too narrow to serve the public welfare generally. It addressed only "the interests of a particular class rather than the good of society as a whole."

Put another way, reducing fire risks for all members of the public is a proper governmental purpose. And, if a particular business activity poses a heightened risk of fire hazards, regulating that specific activity may be a reasonable means of advancing the broader purpose, even if it only impacts a subset of the public. But a proper governmental purpose must address the "public interest." Protecting the public from fire hazards is in the public interest. Protecting only photography businesses from fire hazards, with no concern for anyone else, is merely a regulation of "a private business unaffected in a legal sense with any public interest."  If the reviewing court determines that the challenged state action serves a proper governmental purpose, the inquiry then reaches the second stage: "are the means chosen to effect that purpose reasonable?" This is a fact-intensive analysis. "The means used must be measured by balancing the public good likely to result from their utilization against the burdens resulting to the businesses being regulated."

This requires assessing two fact-specific questions—first, how effective is the state action at achieving the desired public purpose and, second, how burdensome is that state action to the targeted businesses. The analysis then becomes "a question of degree"—given all the options available to the state to advance the governmental purpose, was it reasonable for the state to choose this approach, with its corresponding benefits and burdens? …

The State contends that there "can be little question that the order seeks to achieve 'a proper governmental purpose'" because "protecting North Carolinians from a novel virus—a virus that would eventually kill over one million Americans" is a proper governmental purpose.

But this ignores the central allegation in Ace Speedway's claim—that the purpose of the abatement order was not to protect public health, but to retaliate against Ace Speedway for criticizing the Governor. Ace Speedway alleges that it was "singled out by the Governor for enforcement" because it spoke out against the Governor's emergency order, and that other businesses violating the emergency order were not subjected to similar enforcement action by the State. This allegation, if true, would establish that the State did not pursue a proper governmental purpose because its purpose was not to protect the public interest, but to punish a private business for standing up to the government.

At the motion to dismiss stage, we must accept Ace Speedway's allegation as true. Accordingly, Ace Speedway sufficiently alleged that the State's actions did not serve a proper governmental purpose.

We next turn to the second step of the test. Even if the State had a proper governmental purpose, we must assess whether the means chosen to achieve that purpose were reasonable. The State argues that the abatement order was reasonably necessary to protect the public health because "large mass gatherings at places like racetracks presented an elevated risk for spreading COVID-19." The State further argues that the need to use the abatement order to shut down Ace Speedway stemmed from "the best scientific and medical knowledge available at the time" to prevent the spread of COVID-19.

But again, the State ignores the allegations in this constitutional claim. Ace Speedway alleges that other racetracks and similar businesses violated the same emergency order, yet none of those speedways faced similar enforcement action. Even if we accept the State's asserted purpose for the abatement order—protecting the public by stopping the spread of COVID-19—this would mean that the State sought to achieve this governmental purpose by issuing an abatement order shutting down a single business while choosing to ignore many others presenting identical risks to the public. This is a particularly ineffective means of achieving the asserted governmental interest, while simultaneously imposing a tremendous burden on Ace Speedway. In other words, balancing the benefits and the burdens of the State's approach, the State's decision to target Ace Speedway but ignore other businesses posing identical risks is not reasonable.

Again, these are merely allegations. But, at this stage, [for the purposes of determining whether the complaint can survive a motion to dismiss,] we must accept those allegations as true….

The court also concluded that the complaint adequately alleged a violation of the North Carolina Constitution's Equal Protection Clause, because it adequately claimed that the government selectively targeted Turner for enforcement because he "exercised his First Amendment rights by openly criticizing Governor Cooper's emergency order" and "[o]ther, similarly situated racetracks did not face enforcement action even though the State knew that they, too, were violating the emergency order."

S.C. Kitchen (Kitchen Law, PLLC) represents the challengers.