Court Ruling Leaves Smithfield Agreement Intact
North Carolina's attorney general can keep distributing millions of dollars paid by the world's largest pork producer as environmental grants after a state Supreme Court decision that leaves the two-decade-old agreement intact.
The 6-1 decision by the justices, which focused on the constitutional definition of the payments, means the arrangement reached in 2000 between Smithfield Foods, several subsidiaries and then-Attorney General Mike Easley can continue. The Virginia-based company is providing up to $2 million annually over 25 years to protect and restore the state's environment. Subsequent attorneys general — now-Gov. Roy Cooper and current Attorney General Josh Stein — have selected the recipients based on a panel's recommendations.
A conservative activist challenged the agreement in court in 2016, saying the North Carolina Constitution requires that money stemming from civil penalties, forfeitures and fines belongs to the public schools. The lawsuit was later taken over by the New Hanover County school board.
A state Court of Appeals panel resurrected the lawsuit in 2018 after a trial court judge threw it out. A majority on the appeals panel had determined there were material issues on whether the agreement was motivated by Smithfield's efforts to delay or eliminate potential environmental enforcement claims by the attorney general.
Writing for the Supreme Court majority on Friday, Associate Justice Sam Ervin IV said plentiful evidence presented in the case, particularly several affidavits, showed the payments aren't penalties. He cited Alan Hirsch, the chief negotiator from Easley's office, who said the agreement was designed "to demonstrate good corporate citizenship" and make additional environmental enhancements given that the "image of the industry was under intense scrutiny."
"The language in which the agreement is couched clearly demonstrates that the payments at issue in this case were not intended to punish Smithfield and its subsidiaries for any specific environmental violation or to deter them from committing any future environmental violation," Erwin wrote. He also directed that the case be dismissed.
Associate Justice Paul Newby wrote a dissenting opinion, saying the agreement was clearly a settlement drafted to circumvent the constitution's requirement on fines and penalties going to the public schools. The majority, he said, failed to consider the payments in the context of Smithfield's environmental troubles at the time.
The 2000 deal came a year after Hurricane Floyd caused dozens of hog waste pits to overflow. Smithfield also had paid one of the largest water-quality fines in state history after waste spills at two hog operations.
"The function of the agreement viewed objectively is to secure leniency by the regulators in favor of ... Smithfield," Newby wrote, adding that the "agreement appears artfully drafted based on this court's precedent on penalties."
Newby is the lone registered Republican on the Supreme Court. Stein, Cooper and Easley are all Democrats.
Erwin emphasized that his opinion didn't consider whether an attorney general had the authority to enter into such an agreement.
A spokeswoman for Stein, a defendant in the case, didn't immediately respond Monday to an email seeking comment. Two environmental groups also fought in court to preserve the agreement.
Civitas Institute President Donald Bryson, whose predecessor at the job filed the initial lawsuit as Cooper ran for governor, called the decision "incredibly disappointing" and "gives state government broad authority to create special slush funds with little to no oversight."
The 2000 agreement directed the company to pay another $15 million to help develop waste-handling methods that could replace hog lagoons. Lagoons remain a routine method to store waste today.