Express Student-Fee and Parking-Permit Contracts Waive Sovereign Immunity at the Pleading Stage: Lannan v. Board of Governors of the University of North Carolina

Introduction

In Lannan v. Board of Governors of the University of North Carolina (No. 316PA22, filed 21 March 2025), the Supreme Court of North Carolina addressed whether sovereign immunity bars students’ breach-of-contract claims seeking partial refunds of mandatory fees and parking permit fees after North Carolina State University (NCSU) and the University of North Carolina at Chapel Hill (UNC–CH) moved to remote instruction and significantly closed campus operations during the Fall 2020 semester. The plaintiffs—students at NCSU and UNC–CH—alleged that the Board of Governors (the Board), acting through its constituent institutions, entered into contracts to provide fee-funded services and on-campus parking, which the institutions failed to provide after COVID-19–related operational changes.

The trial court denied the Board’s motion to dismiss the contract claims but dismissed the plaintiffs’ state constitutional claim (a “Corum claim”). The Court of Appeals affirmed, concluding that sovereign immunity did not bar the breach claims because the plaintiffs had alleged contracts implied in fact, and that the plaintiffs adequately pleaded breach. The Supreme Court modified and affirmed: it agreed sovereign immunity is no defense at this stage, but held the plaintiffs alleged express contracts, not implied-in-fact contracts. The Court declined to resolve whether implied-in-fact contracts can waive sovereign immunity outside the employment context and refused to entertain a new “statutory mandate” argument presented for the first time in the Supreme Court.

Summary of the Opinion

The Court held that the amended complaint adequately alleges express contracts between the students and the UNC Board (through NCSU and UNC–CH) for fee-funded services and for parking permits. Alleging an express contract sufficiently alleges a waiver of sovereign immunity under Smith v. State, 289 N.C. 303 (1976).
Because express contracts were adequately pleaded, the Court did not decide whether a contract implied in fact can waive sovereign immunity in this context. It expressly left that question open.
The Court declined to consider the Board’s argument that fees imposed under N.C.G.S. § 116‑143 are governmental assessments akin to taxes and thus cannot be contractual; that argument was not preserved below (“no swapping horses” on appeal).
At the Rule 12(b)(6) stage, the Court accepted the complaint’s factual allegations as true. While recognizing that some fee descriptions sound like general funding mechanisms rather than personal service promises, the Court concluded the complaint still alleges express offers and acceptance sufficient to form contracts. Challenges based on website disclaimers or the nature of certain fees are issues for later stages.
The Court did not reach whether breach was adequately pleaded because the Board did not properly present and argue that issue in its Supreme Court briefing. The Court of Appeals’ conclusion that breach was adequately alleged therefore stands.
Plaintiffs’ Corum claim remained dismissed and was not before the Court; a post-argument conditional certiorari petition was dismissed as moot.

Background and Parties

Plaintiffs Joseph Lannan (NCSU graduate student) and Landry Kuehn (UNC–CH undergraduate), on behalf of themselves and a putative class, sued the Board of Governors of the University of North Carolina seeking refunds of:

Mandatory student fees (e.g., education and technology, student center operations and programming, recreational sports, student health services, transit operations, union programming) required as a condition of registration; and
Parking permit fees for on-campus parking (Lannan for Fall 2020; Kuehn for the 2020–2021 academic year).

The complaint alleged the universities’ websites and itemized billing communications offered specified services and access to identified facilities in exchange for payment of fee amounts; students accepted by paying. After campuses were largely closed and services curtailed during Fall 2020, the universities allegedly failed to provide (or significantly reduced) the fee-funded services and rendered parking permits essentially worthless, without issuing proportionate refunds (partial, limited refunds were given for parking).

Analysis

Precedents Cited and Their Influence

Smith v. State, 289 N.C. 303 (1976): The cornerstone for contractual waivers of sovereign immunity. Smith holds that when the State, through authorized officers or agencies, enters a valid contract, it implicitly consents to be sued for damages for breach. The Court relied squarely on Smith to conclude that alleging an express contract sufficiently pleads a waiver of sovereign immunity. Smith also limits the waiver “to the extent of the contract” and notes that satisfaction of any judgment ultimately depends on legislative appropriations.
Wray v. City of Greensboro, 370 N.C. 41 (2017): Reinforces that a waiver is implied and “effectively alleged” when a plaintiff pleads a contract claim; and the waiver extends only to the scope of the contract. The Court invoked Wray’s articulation to confirm that pleading offer, acceptance, and consideration suffices to allege waiver.
Guthrie v. N.C. State Ports Authority, 307 N.C. 522 (1983): Cautions against lightly inferring waivers of sovereign immunity. The Court acknowledged this caution while explaining that Smith provides a settled and limited contractual waiver framework that respects separation of powers.
Corum v. University of North Carolina, 330 N.C. 761 (1992): Recognizes that sovereign immunity cannot bar direct constitutional claims when no adequate alternative remedy exists. Although the Corum claim was not before the Supreme Court, the opinion reiterates that contract remedies can be an adequate alternative, as the Court of Appeals held here.
Orange County v. Heath, 282 N.C. 292 (1972): Confirms the State (and its units) enjoy sovereign immunity absent clear waiver—framing the background against which Smith’s contract-waiver principle applies.
Cooper v. Berger, 376 N.C. 22 (2020): Cited to underscore the appropriations clause and the General Assembly’s constitutional control of the State’s purse. The Court uses this to explain why the judiciary construes waivers carefully and limits contract remedies’ impact on state fiscal policy.
Dodds v. St. Louis Union Trust Co., 205 N.C. 153 (1933); Yeager v. Dobbins, 252 N.C. 824 (1960); Carolina Helicopter Corp. v. Realty Co., 263 N.C. 139 (1964): These cases supply the elements of a valid contract—offer, acceptance, and consideration—and the requirement that an offer be intended to create binding obligations.
Creech v. Melnik, 347 N.C. 520 (1998); Snyder v. Freeman, 300 N.C. 204 (1980); Warren v. Dixon & Christopher Co., 252 N.C. 534 (1960): Explain that implied-in-fact contracts can be as enforceable as express contracts, arising from the parties’ conduct and ordinary course of dealing. The Court cites these to distinguish implied-in-fact contracts, only to hold they are not what was alleged here.
Morganton Mfg. & Trading Co. v. Andrews, 165 N.C. 285 (1914): Foundational rule that an express contract precludes an implied contract on the same subject. This principle is decisive in correcting the Court of Appeals’ framing: because express contracts were alleged, there is no need (and no room) to resort to implied-in-fact theories covering the same subject matter.
Weil v. Herring, 207 N.C. 6 (1934); N.C. R. App. P. 28(a): Issue preservation. The Court refused to entertain the Board’s argument that statutorily mandated fees are akin to taxes and thus non-contractual, because the argument was not raised below.
Irving v. Charlotte‑Mecklenburg Board of Education, 368 N.C. 609 (2016); Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C. 440 (2015); Ladd v. Estate of Kellenberger, 314 N.C. 477 (1985): Standards for de novo review and liberal notice pleading—critical to the Court’s approach at the Rule 12(b)(6) stage.

Legal Reasoning

Issue preservation bars new “fee-as-tax” argument. The Board’s contention that mandatory fees under N.C.G.S. § 116‑143 are governmental exactions analogous to taxes and thus cannot be contractual was not argued in the trial court or Court of Appeals. Relying on Weil and Rule 28(a), the Supreme Court refused to consider it.
Contractual waiver under Smith controls; the question is: what kind of contract was pleaded? The parties agreed that valid contracts waive sovereign immunity. The Court framed the central pleading question: do the allegations describe implied-in-fact agreements or express agreements?
Express, not implied-in-fact. Parsing the complaint’s allegations and quoted language, the Court held the plaintiffs pleaded express offers and acceptances:
- For fees: universities “promised to provide” identified “services, benefits, and opportunities” in exchange for payment, conveyed through websites and itemized billing; plaintiffs accepted by paying.
- For parking: universities “offered to sell” permits conferring on-campus parking privileges; plaintiffs accepted by purchasing.
Because express contracts were pleaded on these subjects, Morganton forecloses reliance on implied contracts covering the same ground. This modification to the Court of Appeals’ framing allowed the Court to avoid opining on whether implied-in-fact contracts waive sovereign immunity outside the employment context.
Notice pleading suffices at Rule 12(b)(6). Under North Carolina’s liberal notice pleading, alleging offer, acceptance, and consideration is enough to survive dismissal. The Court reiterated that at this stage it accepts factual allegations as true and does not weigh competing evidence.
Sovereign immunity is therefore not a bar to the contract claims. Because express contracts were alleged, Smith and Wray dictate that sovereign immunity is waived to the extent of those alleged contracts. The case proceeds; whether the evidence will substantiate the allegations remains to be seen.
Board’s merits arguments are for later stages. The Board asserted that website materials disclosed non-refundability upon transition to remote instruction and that some fees were for debt service or capital purposes rather than personal services. The Court noted that these contentions may carry weight later, but at the pleadings stage the allegations of express promises and consideration control. Moreover, the record did not clearly establish that the cited webpages were the same as those referenced in the complaint.
Breach not decided by the Supreme Court. Although the Court of Appeals held breach adequately pleaded, the Supreme Court did not address breach because the Board did not properly brief that issue—deeming it abandoned under Rule 28(a).

Impact and Implications

1) Clarifies how students can plead around sovereign immunity

Lannan’s most immediate effect is practical: it confirms that students can survive a sovereign immunity defense by alleging express contracts formed through university communications—such as itemized fee bills and parking-permit offers—that promise specific services or access in exchange for payment. Universities’ outward-facing representations and billing practices can create contractual obligations.

2) Leaves the implied-in-fact waiver question deliberately open

The Supreme Court did not adopt the Court of Appeals’ broader statement that implied-in-fact contracts can always waive sovereign immunity outside the employment context. That question remains unsettled at the Supreme Court level. Trial courts should therefore be cautious about relying on implied-in-fact theories for waiver when express contractual language is absent or ambiguous.

3) Signals limits on the scope of contract-based remedies

Waiver is “to the extent of the contract” (Wray). Damages are likely limited to the fees or charges paid for the promised services or access (e.g., specific fee components and parking fees), not broader consequential losses.
Smith’s “no execution” principle persists: satisfaction of any judgment depends on legislative appropriations, reflecting the appropriations clause and separation-of-powers concerns. Practically, however, the State often pays judgments; still, courts avoid remedies that would usurp budgetary control.

4) Preserves defenses for later stages

Universities may still assert substantive defenses at summary judgment or trial, including:

Contractual terms and disclaimers: If incorporated into the contract, terms stating fees are non-refundable, services may change, or operations may be altered for public health or other reasons could defeat breach or limit damages.
Nature of fees: Some fees may primarily fund infrastructure, debt service, or general operations and not constitute promises of personal services to any individual, weakening the premise of a breached exchange.
Impossibility/frustration/public law defenses: Depending on facts, closure decisions tied to public health orders or exigencies may support defenses excusing performance.
Proof issues: Plaintiffs must prove the specific promises made, their acceptance, the extent to which services/access were denied, and causation of damages.

5) Litigation strategy and institutional practice

Pleading for plaintiffs: Quote or attach itemized bills and communications that use promissory language; identify the particular services, facilities, and time periods; allege acceptance by payment and quantify damages component by component.
Drafting for universities: Align registration and billing materials with clear, incorporated terms of use; avoid promissory language where the fee funds general operations; expressly reserve flexibility for programmatic or operational changes; clearly disclose refund policies and force majeure/public health contingencies.

6) Constitutional claims constrained by adequate remedies

Although not before the Supreme Court, the Court of Appeals’ dismissal of the Corum claim reinforces the “adequate alternative remedy” doctrine: where an ordinary contract remedy (money damages) exists, a direct state constitutional claim typically will not lie.

Complex Concepts Simplified

Sovereign immunity: The State and its agencies generally cannot be sued without consent. It protects the public fisc and respects separation of powers. North Carolina recognizes a limited waiver when the State enters valid contracts.
Waiver by contract (Smith): By making a valid, authorized contract, the State consents to be sued if it breaches—but only within the scope of that contract. Courts will not allow execution on the State treasury; payment depends on legislative appropriations.
Express vs. implied-in-fact contracts: An express contract is formed by explicit words (oral or written) showing an offer and acceptance. An implied-in-fact contract arises from conduct that objectively indicates mutual assent. If an express contract covers a subject, courts do not imply another contract over the same subject.
Rule 12(b)(6) motion to dismiss: Tests whether the complaint states a legal claim on its face. Courts accept factual allegations as true and draw reasonable inferences for the plaintiff; they do not weigh evidence.
Issue preservation: Parties must raise arguments in the trial court and properly brief them on appeal. New arguments cannot be springboarded at the Supreme Court; issues not briefed are deemed abandoned.
Corum claim: A direct state constitutional claim is available when no adequate alternative remedy exists. If ordinary contract remedies are adequate, a Corum claim is usually barred.
Appropriations clause: The State cannot spend money absent legislative appropriation. This underpins the judicial caution in expanding state liability and limits remedies that would intrude on legislative budgetary control.

Key Takeaways

Pleading express contracts using universities’ itemized bills and communications can suffice to allege a waiver of sovereign immunity for student fee and parking-permit refund claims.
The Supreme Court left unresolved whether implied-in-fact contracts (outside employment cases) can waive sovereign immunity—keeping that doctrinal question open.
Arguments that statutory fee mandates negate contractual obligations must be preserved in the lower courts; new legal theories cannot be introduced for the first time in the Supreme Court.
Universities retain defenses for later stages, including reliance on non-refundability terms, the nature/purpose of specific fees, and public-law defenses tied to pandemic responses.
Contract remedies may preclude direct constitutional claims under Corum where money damages are an adequate remedy.

Conclusion

Lannan is an important clarification—and a pragmatic one. It does not expand the law of sovereign immunity; rather, it applies the longstanding Smith rule by recognizing that universities’ fee and parking communications can create express contracts with students. That recognition is sufficient to carry plaintiffs past a motion to dismiss on sovereign immunity grounds. At the same time, the Court exercises restraint: it leaves the implied-in-fact waiver issue open, preserves the General Assembly’s control over the fisc under the appropriations clause, and makes clear that later stages may test whether any promises were truly made and breached. For litigants and institutions alike, the opinion highlights the power—and the peril—of the words used in student-facing contracts, bills, and policies.

Modified and affirmed; Justice Barringer did not participate.