The suit claims Kitty Hawk has unlawfully denied access to records that would show which lawyers are billing the town and at what rates.
Both sides say they're looking out for the public interest.
"We believe that the public has a right to these records," said Sandy Semans, editor of the Outer Banks Sentinel.
Kitty Hawk officials say they have given the newspaper documents that show the total each lawyer has been paid. Mayor William A. Harris said the town waived its attorney-client privilege to make the records available.
"We're not hiding anything," he said.
Harris says the town withheld only some information, such as the identity of people consulted by the attorneys on cases. Releasing that information would reveal the attorney's strategy on legal matters and harm the public, he said.
Town attorney Norman W. Shearin Jr. said Kitty Hawk, which has an annual budget of $4.6 million, has substantial legal fees from land condemnation cases and at least two pending lawsuits.
He said the newspaper wanted information about consultants in cases involving sizable claims against the town.
Shearin believes the withheld information is exempt from disclosure under the state's public records law.
The newspaper, which has a circulation of about 9,600 and two news reporters, began reviewing Kitty Hawk's legal costs in May after the town board voted to add $100,000 to its legal budget.
By the end of the 2003-04 fiscal year, the newspaper reported, costs totaled $310,000.
Semans said the town eventually provided 467 pages of financial information, but much of it was blacked out. She said the records do not show how many hours were billed or the rate.
Material also was withheld on cases that are not in litigation, she said.
The Outer Banks Sentinel has asked the North Carolina Press Foundation for financial assistance.
By: (AP) A biweekly newspaper on the Outer Banks of North Carolina is suing the town of Kitty Hawk over access to the town's growing legal bills.