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CAPE FEAR MEMORIAL BRIDGE: Updates, resources, and context

Deep Dive: In heated, three-day court battle, NHCS tries to block Kelly's victims from suing

The Rhine and Lea/Schultz Law Firms preparing for the first day of hearings.
Rachel Keith
The Rhine and Lea/Schultz Law Firms preparing for the first day of hearings. The teal ribbons represent support for sexual assault victims.

The hearing was part of one of the biggest cases to affect the Cape Fear region — the civil lawsuit filed against the New Hanover County Schools district (NHCS) by the victims and alleged victims of former teacher and convicted child abuser Michael Earl Kelly. The suit has been going for almost three years but now — at the request of the district — Superior Court Judge Phyllis Gorham could dismiss many, or even all, of the plaintiffs.

The lawsuit was initially filed in late July of 2019, just a month after Kelly pleaded guilty in June to 59 felony sexual offenses, all involving students. During the sentencing hearing, prosecutor Connie Jordan dropped a bombshell: after being arrested Kelly had told investigators that the district had previously investigated him for allegations of child abuse but didn't contact law enforcement, an apparent violation of the state-mandated reporting rule.

The case has since grown increasingly complicated, through a series of filings adding more complaints, presenting new evidence — including one damning document the district had previously claimed not to have any knowledge of— and additional plaintiffs. There are now 14 plaintiffs, whose anonymity are protected as John Does 1-14, with ages ranging from 18 to 34.

That age range is key to this week's hearing. When the case was first filed, some of the plaintiffs were 'time-barred' by the state's statute of limitations on civil suits. That changed several months after the suit was filed when the 'SAFE Child Act' — which opened a two-year window for suits after Kelly's criminal conviction, and expanded the regular statute — was passed with broad bi-partisan support.

In December, a three-judge panel struck down the 2019 law as unconstitutional while ruling on a civil suit against the school district in Gaston County. Attorney Deborah Stagner and the Tharrington Smith law firm, which also represent NHCS, handled the defense for that case.

The SAFE Child Act's constitutionality is expected to be decided, ultimately, by the North Carolina Supreme Court. But in the meantime, NHCS is arguing that with the 2019 law struck down, 10 of the 14 John Does are once again time-barred, just as they were prior to the law's passage. But NHCS is also going further, reiterating claims it has been making, that the lawsuit as a whole should be thrown out. As part of that argument, Stagner effectively argued that Kelly's victims have waited too long, saying they had the information — referring to their experience of sexual abuse — they needed to file suit long before 2019.

Plaintiffs' attorneys from the Rhine and Lea/Shultz law firms, who filed the case in 2019 along with a similar suit on behalf of the victims of former NHCS teacher Peter Michael Frank, argue that the case should continue to a jury trial if NHCS cannot offer an equitable settlement to Kelly's victims.

After three days of intense, and complicated, legal arguments in front of Superior Court Judge Phyllis Gorham the fate of the case remains unknown — Gorham could rule to allow the case to continue, send the issue to the appeals court, or dismiss some, or all, of the plaintiffs, from the case.

To understand how Gorham will eventually rule, it helps to understand what happened in this week's hearing.

Day One

On Tuesday, March 8, two attorneys from the Rhine Law Firm, Joel Rhine and Martin Ramey, and two from the Lea/Schultz Law Firm, James Lea and Mary Charles Amerson, sat in a conference room participating in a virtual court hearing called to decide whether Superior Court Judge Phyllis Gorham will dismiss some of the plaintiffs in the ongoing civil suit filed by John Does 1-14 – the survivors of former New Hanover County Schools teacher Michael Earl Kelly’s sexual abuse.

This comes after attorneys from Tharrington Smith, namely Deborah Stagner, who represent the school board, and former superintendent Dr. Tim Markley, asked for a majority of the John Does’ cases to be dismissed. The motion was put forward after a three-judge panel struck down parts of the state’s 2019 ‘SAFE Child Act’ that temporarily lifted the statute of limitations for those who were both sexually abused and allegedly sexually abused by Kelly.

Defense Arguments – Day One

During the first day of the hearing, Stagner spent about 30 minutes outlining her case verbally. Daniel Mullins of the Hartzog Law Group, who represents former Deputy Superintendent Dr. Rick Holliday, spent about five minutes asking for his client to be removed from the civil lawsuit.

Stagner opened the hearing by going through the list of reasons why the case should be dismissed for about 10 of 14 the John Does, mainly that most of them are barred from filing suit because of the statute of limitations.

But first, she tackled claims about ‘official capacity’ for former superintendent Dr. Tim Markley. She said the claims against him are “duplicative” and that “nothing is gained” from having Markley separate from the New Hanover County Board of Education. She mentioned that he is no longer superintendent and no longer in a position of authority. Holliday’s attorney argued the same. It’s up to Judge Gorham to determine whether Markley and Holliday are going to stay named in the civil suit.

After the ‘official capacity’ arguments, Stagner moved on to address whether the board of education has a clear ‘fiduciary duty’ to students. She claimed that the state of North Carolina has never officially recognized a ‘breach of fiduciary duty’ for K-12 school officials.

She furthered this argument by citing Daniel v. City of Morganton, The Burke County Board of Education, and Deborah Gober which she said outlines that there has never been “a recognized claim for a ‘breach of fiduciary duty’ in the context of a student and either a school official or a school board,” said Stagner.

She also said that the board cannot be held “vicariously liable” for incidents of sexual abuse in the schools, specifically those committed by Michael Earl Kelly. Stagner cited Stanley v. Brooks to make this point.

Stagner argued that this negligence isn’t outlined in the statute the John Doe lawyers are referencing for this negligence (115C-288G, which covers the legal responsibilities of school principals) — and that this is not a public safety statute that ensures the liability of those who fail to report sexual abuse.

When Stagner argued that the plaintiffs should not be allowed to file a state constitutional challenge, alleging that students were denied a sound, basic education (Leandro v. State of North Carolina, 1997, 2004), against the board and Markley, groans of disbelief were heard from the plaintiffs’ lawyers. Attorney Mary Charles Amerson told WHQR that Judge Gorham had already granted the right for them to sue on this basis in December when the fourth amended complaint was filed; hence, when Stagner brought it up, they were taken aback.

Stagner also argued that there is a remedy for the plaintiffs by bringing negligence claims against other individual defendants, as shown by the Taylor v. Wake County case. In other words, the victims could sue Kelly. Plaintiffs’ lawyers argue that no such remedy exists, since their allegations are not just about Kelly's crimes but the district's role in allowing and perpetuating them.

Stagner’s final plea — which is at the heart of the case — was that the plaintiffs are wrong about the application of the statutes of limitations and that plaintiffs lack standing in suing for a constitutional breach of rights, namely the right to a sound, basic education.

Stagner finished her argument by saying that the plaintiffs — that is, the victims and alleged victims of Kelly — had direct knowledge about their claims against the board as early as 2001 or 2005. Based on this, Stagner argued that to claim that they didn’t have the facts to file a claim until 2019 “is simply not believable."

"Each plaintiff's cause of action arose when he was abused by Mike Kelly. And there’s no supportable argument for setting the accrual date for those claims in 2019 — we would ask Your Honor to reject that argument," Stagner said.

Plaintiffs' Arguments – Day One

Martin Ramey started by outlining the content of their ‘Fourth Amended Complaint’ filed in December 2021. This detailed all the incidents of Kelly’s sexual assaults and battery against John Does 1-14.

Ramey said the evidence he and his legal team have gathered over the nearly three years has been massive — over 100 pages of the complaint, 70,000 pages plus of discovery, and about 41 depositions, some of which are still ongoing or forthcoming.

The main springboard for Ramey’s arguments comes from the claims that “no reasonable investigations” were ever conducted on behalf of the district into Kelly’s behavior, allowing him to offend for up to 25 years. Ramey also cited nine different reports of Kelly’s behavior that were known to school officials, namely three separate principals in the district, after which nothing was done.

A cornerstone of this case for the plaintiffs is the statements made by the judge in the criminal case State of North Carolina v. Michael Earl Kelly, who said during the June 25, 2019, sentencing hearing for Kelly that the court “didn’t have a problem with condemning the school.” Ramey argued that since the court made this designation in 2019 that is a reasonable time for the statute of limitations to start because the plaintiffs did not know they were failed by the school board, Markley, and Holliday until this date.

Ramey also said the statutes that they are suing under exist outside the parameters of the SAFE Child Act. That the suit should continue because of the evidence, not based on the plaintiffs’ ages. Mary Charles Amerson then took over to outline that despite Stagner's claim that there was ‘no breach of fiduciary duty’ — or that a fiduciary duty even applies to the board — there was, according to her, a clear breach of this responsibility.

Amerson argued that from the district’s mission, policy manual, and from statements from current superintendent Dr. Charles Foust to the press — they acknowledge this duty outright. Further, she argued the idea that the school board and district staff serve as ‘loco parentis’ — that district acts as the parental stand-in for students while they are at school since attendance is compulsory.

During her arguments, Amerson referenced that has an “attorney, mom, and resident” there is an expectation that students go to school to “learn, not to go to be sexually abused.” She finished by stating that a jury deserves to hear the case — a date that is set, for now, in September.

Jim Lea’s arguments for the plaintiffs tackled Stagner’s filing of a 12(b)(6), which essentially is a motion to dismiss the case. He said the only reason to file this was “the facts are not in their favor.” Stagner stated that they filed to dismiss because of the ruling of the three-judge panel in December.

Lea also said that NC General Statute (115C-288G) is a safety statute — and that the school board, Markley, and Holliday can be found liable for violating it. Stagner argued that the same rule doesn’t cover safety and liability.

At the close of the first hearing, Joel Rhine argued that the precedent for the plaintiffs to sue on constitutional grounds comes from a recent state Supreme Court case – Deminski v. State Board of Education. This 2021 case, according to Rhine, found that a child who was reportedly bullied and sexually assaulted by students at a school — and the failure of the school to intervene, Rhine's emphasis, was what prevented the student from receiving a sound, basic education outlined in the state constitution.

During this explanation by Rhine, Stagner objected twice that this argument is outside of the scope of her motion to dismiss. Judge Gorham allowed Rhine to continue. Rhine said that constitutional rights prevail over government immunity — that there is no adequate state remedy that Stagner had previously argued.

In an interview with WHQR, attorney Amerson said their position is that “a state entity, such as a school board is incapable of challenging the constitutionality of a statute put out by the [state] ... The state has said we can be sued for these things. So is it appropriate for the school board to now challenge that?”

Arguments - Day Two

In response to the plaintiffs’ lawyers, Stagner said they can file a 12(b)(6) because this is an appropriate time to amend the complaint, bringing up the fact that the plaintiffs have amended their complaint four times already. It is in their legal right, as Stagner stated, to test whether it is legally sufficient to dismiss the case.

She also said case law has upheld that K-12 schools are not “insurers of public safety.” That a breach of fiduciary duty is only between identifiable clients - not for general groups like students. Stagner argued that the courts have rejected “heightened fiduciary duties” in the case of universities – assuming the same would go for K-12 officials.

Attorney Mullins on behalf of Holliday said again that the plaintiffs are not suing him in an individual capacity, but in a capacity via a government entity; hence, he should be removed from the civil suit.

The plaintiffs’ lawyers addressed Stagner’s motion to dismiss. Joel Rhine argued the court can recognize that the legislature can waive the statute of limitations for the state and its political subdivisions (i.e. the New Hanover County Board of Education), as evidenced by B-C Remedy Co. v. Unemployment Compensation Commission (1946) and other case law.

This is important because the ruling striking down the SAFE Child Act came from a three-judge panel — reserved for constitutional issues — but not the appellate court, which has authority over lower courts. So, the status of the 2019 law could be seen as being in limbo — and without the ruling of a higher court, Judge Gorham could make her own decision.

Rhine also told Judge Gorham if this was sent to a three-judge panel, then they would proceed to send it back to her to decide the final outcome.

He also argued the plaintiffs were not time-barred by the SAFE Child Act when they filed their suit in December 2019, which means their claims should proceed.

Referencing Attorney General Josh Stein’s amicus briefs on the ‘revival window’ of the SAFE Child Act, Rhine stated the need for remedy in cases where “such terrible wrongs” are committed, implying John Does 1-14 need this remedy now.

Stagner’s response to Rhine was that the only substance to challenge is arguments over the three-judge panel ruling on the statute of limitations of the SAFE Child Act. Stagner argued there is no binding constitutional argument of the case, meaning she was not there to argue whether the board of education and Markley did not provide a sound, basic education.

Further, Stagner said that it was not proper to strike her motion. Stagner only wanted to argue on challenging the revival statute of the SAFE Child Act, which according to her, had “already been extinguished and can’t be revived.”

Rhine responded that there was ‘fraudulent concealment’ committed by the district so the fiduciary duty arose during “discovery” — essentially arguing that the constitutional argument is fair game and not just the motion to dismiss.

Final Hearing Arguments – Day Three

Rhine started the final day of hearings by responding to Stagner’s claims that the school board isn’t an “arm of the state.” He then proceeded to say, “she’s [Stagner] making this up.”

Attorney Ramey then challenged the defense’s argument that the“facial challenge” or the legality of the repeal of the statute of limitations of the SAFE Child Act is what Judge Gorham should base her decision on. Ramey said to the judge, “You are not bound by the three-judge panel’s decision – it’s not an appellate court.”

Ramey argued that these three-judge panels exist only to determine if a law violates the state Constitution. Ramey reiterated that his team want the case heard based on the evidence against the board, Markley, and Holiday.

Ramey then moved to say the state has police power over its institutions and should allow the survivors of Kelly to have their day in court. Stagner responded that the discussion of state police powers is not applicable in the case.

Ramey closed by saying survivors’ constitutional rights must be protected — so that they can seek remedies through the court system.

At the end of the hearing, Stagner reiterated that these claims should be lodged at Mike Kelly and not at the board and Markley.

Mullins, the attorney for Holliday, finished by stating that (1) all claims against Holliday should be dismissed, (2) if he were to stay named in the suit, that those John Does who are dismissed would have their claims against Holliday dismissed, too, and (3) that there is a clear constitutional issue with the repeal of the statute of limitations in the SAFE Child Act.

What’s To Come

Amerson hopes the judge will be able to hear the evidence to support the claims in the fourth amended complaint and that their claims not to be dismissed.

“We would like to keep as many guys as we can in this lawsuit. We have theories on why many of them don't need the ‘revival law’ (the temporary repeal of the statute of limitations in the SAFE Child Act) to even stay in the case. Our goal is to keep as many individuals in this lawsuit as possible, and so they can have their day in court,” said Amerson.

If some of the John Does are removed from the suit — up to 10 of the 14 could be time-barred under the defense's argument — Amerson said, “This is going to be heard by the Supreme Court in North Carolina. And so we're going to push on up the chain until the state Supreme Court rules on this. The [plaintiffs] need help. They don't want this to happen, again, to any other child in our district. They're very adamant about seeing change.”

Judge Gorham could send this to a three-judge panel in Wake County but plaintiffs' lawyers want it to stay here locally. According to Amerson, they are going to work their way up to the state Supreme Court, “like several other folks are doing right now to get a ruling on the constitutionality of the SAFE Child Act.”

If the case continues, and there’s a jury trial in September, there’s a mechanism in the state statutes that allows the same judge to hear a case throughout its life; hence, Judge Gorham will most likely preside over the trial.

This could also be a precedent-setting case in September — if Judge Gorham rules that the K-12 school board has a “fiduciary duty” to their students — other school boards throughout the state could be held liable for students being harmed at school.

Amerson said the continuation of this case is important: “This case impacts everyone that has a student in New Hanover County Schools. And I just want to commend our victims for their bravery and their courage and their patience with this process. They didn't have to come forward. And many of them really wanted to see change, they were failed, and they don't want it to happen to anyone else.”

As for a settlement, it's still a possibility, but there are serious hurdles. The New Hanover County School Boardis in the midst of suing their insurance companies to pay up to $35 million in insurance claims should the plaintiffs win their suit. As of now, the companies are arguing to limit these claims to around $4 million. If insurance companies prevail, the district could also, in theory, find an alternative revenue source for a settlement.

Rachel is a graduate of UNCW's Master of Public Administration program, specializing in Urban and Regional Policy and Planning. She also received a Master of Education and two Bachelor of Arts degrees in Political Science and French Language & Literature from NC State University. She served as WHQR's News Fellow from 2017-2019. Contact her by email: rkeith@whqr.org or on Twitter @RachelKWHQR