The following is a summary of several notable cases that were decided in the last year by the North Carolina federal and state courts interpreting North Carolina's Unfair Trade Practices Act, N.C. Gen. Stat. Section 75-1.1.
RECENT STATE CASES
Sunset Beach Development, LLC v. AMEC, In., et al., No. COA08-324, 2009 WL 910166 (N.C. App. Apr. 7, 2009).
The plaintiff purchased a 453-acre tract of property containing wetlands that it intended to develop. Before plaintiff could develop the property, environmental regulations required the developer to delineate all wetlands and not develop those areas. Prior to closing, the seller represented to the plaintiff that the tract contained approximately 25 acres of wetlands. Under the terms of the purchase agreement, the seller was required to provide plaintiff with a wetlands delineation that was approved by the U.S. Army Corps of Engineers at the closing. Further, if the delineation showed that the property contained more than 28 acres of wetlands, there would be a price adjustment.
The seller hired an environmental consultant to prepare the wetlands delineation. If the delineation showed that there were less than 28 acres of wetlands, the seller agreed to pay the consultant $90,000.00. If, however, there were more than 28 acres of wetlands, the seller would only have to pay the consultant approximately $15,000.00. Ultimately, the consultant prepared a wetlands delineation showing that there were less than 28 acres of wetlands. Rather than have the delineation approved by the U.S. Army Corps of Engineers, however, he forged the signature of a former U.S. Army Corps of Engineers employee.
Based on these allegations, the plaintiff sued the seller and the environmental consultant for, among other things, unfair trade practices. The trial court granted summary judgment in favor on the defendants, and the plaintiff appealed. In affirming the trial court's decision, the North Carolina Court of Appeals held that plaintiff could not reasonably relied upon the representations of the seller or the environmental consultant. In particular, plaintiff admitted that it knew the employee who purportedly signed the wetlands delineation no longer worked for the U.S. Army Corps of Engineers. Moreover, the plaintiff knew that the wetlands delineation it received did not meet the requirements for approval by the U.S. Army Corps of Engineers. Accordingly, the North Carolina Court of Appeals reasoned that the plaintiff, a sophisticated business entity, should have made an independent investigation and could not have reasonably relied on the defendants' misrepresentations.
Schlieper v. Johnson, et al., -- N.C. App. --, 672 S.E.2d 548 (2009).
The plaintiffs entered into "letters of understanding" with their employer in 2002 in which which they were granted a percentage share of their employer's net profits. Neither of the plaintiffs, however, obtained an equity interest in their employer. At the end of 2005, their employer was sold to a third-party. As a condition of keeping their employment, the new owner required the plaintiffs to sign agreements terminating "letters of understanding." Neither of the plaintiffs received their share of net profits for the 2005 year. Subsequently, the plaintiffs sued their employer for the share of net profits to which they were entitled under the "letters of understanding," asserting claims for fraud, unfair and deceptive trade practices, negligent misrepresentation, and breach of contract.
The trial court dismissed plaintiffs' unfair and deceptive trade practices claim on the grounds that the North Carolina Unfair Trade Practices Act does not apply to general employment relationships. On appeal, the plaintiffs argued that the "letter of understanding" demonstrates that they were business partners rather than mere employees. The North Carolina Court of Appeals disagreed, holding that the plaintiffs were compensated through a combination of salary and incentives which were tied to the company's net profits. The plaintiffs did not have an equity interest in their employer and were simply employees. The Court, therefore, ruled that the plaintiffs had failed to state a claim for a violation of North Carolina's Unfair Trade Practices Act.
Medical Staffing Network, Inc. v. Ridgway, et al., -- N.C. App. --, 670 S.E.2d 321 (2009).
The plaintiff, a medical staffing company that places per diem nurses with healthcare providers, sued its former manager and competitor after the former manager went to work for the competitor and began recruiting the plaintiff's other employees and nurses. The plaintiff alleged that the former manager had breached a non-competition and non-solicitation agreement that she had signed with the plaintiff. Plaintiff asserted claims against the former manager and the competitor for breach of contract, misappropriation of trade secrets, unfair and deceptive trade practices, and tortious interference with contract. Following a bench trial, the trial court entered judgment in favor of the plaintiff.
On appeal, the former manager argued that her conduct did not rise to the level of unfair or deceptive conduct. The North Carolina Court of Appeals, however, found that a violation of the North Carolina Trade Secrets Protection Act constitutes a per se violation of the Unfair Trade Practices Act.
Hospira, Inc. v. Alphagary Corp., -- N.C. App. --, 671 S.E.2d 7 (2009).
The plaintiff, a manufacturer of medical devices, contracted with the defendant to "pelletize" a specially formulated compound known as Ashland Dry-Blend ("ADB"), a radiation-grade resin used in sight chambers for IV administration kits, and to provide the pellets to its contract manufacturer. The defendant, however, did not use ADB. Instead, the defendant used its own proprietary resin, which was not radiation-grade. The plaintiff alleged that the manufacturer made misrepresentations to the contract manufacturer in an attempt to cover-up the fact that it had not used ADB. Ultimately, the plaintiff learned that, over time, the sight chambers were defective the resin that was used was not radiation-grade.
The trial court granted the defendant's motion for summary judgment on the plaintiff's unfair trade practices claim on the grounds that there was no evidence that the plaintiff relied on any of the alleged misrepresentations made by the defendant to the contract manufacturer. In fact, the evidence presented to the court established that the documents the defendant provided to the contract manufacturer revealed that they were not using ADB. Moreover, an employee of the plaintiff testified that, had he seen the documents that were provided to the contract manufacturer, he would have known that the defendant was not using ADB.
On appeal, the North Carolina Court of Appeals stated that "where an unfair or deceptive trade practice claim is based upon an alleged misrepresentation by the defendant, the plaintiff must show 'actual reliance' on the alleged misrepresentation in order to establish that the alleged misrepresentation 'proximately cause' the injury of which plaintiff complains." In this case, because the plaintiff could not show that it relied on the alleged misrepresentations, or even that it knew about them, the North Carolina Court of Appeals held that the trial court had properly granted summary judgment to the defendant on plaintiff's unfair trade practices claim.
Jones v. Harrleson & Smith Contractors, LLC, et al., -- N.C. App. --, 670 S.E.2d 242 (2008).
In an effort to rebuild after Hurricane Floyd, Pamlico County, using funds provided the state and federal governments, bought out landowners whose property was located in flood plains and whose homes had been destroyed by the hurricane. The County then contracted with the defendant to either demolish the homes or, if salvageable, to arrange to have them moved outside of the flood plain.
One of the homes that was salvageable was purchased by the plaintiff for $500.00 and showed the defendant the lot where she wanted the home moved. Although it was apparent that the lot where she wanted the home moved was inside the flood plain, the defendant did not tell her that the home would have to be moved outside of the flood plain. Ultimately, the plaintiff had the home moved to that lot.
Thereafter, Pamlico County learned that the house was still located in the flood plain and informed the defendant that it had violated the terms of the contract. The County further threatened legal action against the defendant if the homes were not moved out of the flood plain by December 10, 2002. The defendant told plaintiff about the problem, informed her that there was a lot for sale for $12,000.00 outside of the flood plain, and offered to move the home there at its expense. The plaintiff declined this offer and instead began to make arrangements to find and purchase a different lot. However, with the December 10 deadline approaching, the defendant went ahead and moved the home to the lot it had originally proposed she buy without obtaining her consent. Approximately two months later, because the plaintiff had not yet been able to find a suitable lot, the defendant demolished the home. Based on this conduct, the plaintiff brought claims against the defendant for fraud, negligent misrepresentation, conversion, and unfair and deceptive trade practices.
At trial, the trial court granted the defendant's motion for directed verdict on plaintiff's unfair and deceptive trade practices claim but stated that it would allow the plaintiff to argue, during the punitive damages stage of the bifurcated trial, that her damages should be trebled if the jury found that the defendant was liable for fraud.
On appeal, the North Carolina Court of Appeals found that the trial court's ruling reflected a misunderstanding of the nature of a claim under the Unfair Trade Practices Act. According to the Court, a plaintiff can assert claims for both fraud and unfair trade practices based on the same conduct. Moreover, a finding of fraud necessarily establishes a violation of the unfair trade practices act. Accordingly, both claims should have been allowed to go to the jury and the plaintiff should have then been able to elect between punitive and treble damages.
Defeat the Beat, Inc. v. Underwriters at Lloyd's London, et al., -- N.C. App. --, 669 S.E.2d 48 (2008).
The plaintiff is a corporation that was organized to host an annual band in Charlotte, NC for historically black colleges. In connection with the competition, the plaintiff contacted an insurance broker to procure insurance coverage to protect the expenses it incurred in organizing the competition. The plaintiff also indicated on its insurance application that it was interested in obtaining coverage for "loss of net income." In response, Lloyd's London sent plaintiff a "Proposal for Event Cancellation Insurance" that would cover all of its non-refundable costs and expenses. The proposal expressly stated that the policy would not provide coverage for lost profits. Plaintiff then paid the premium and Lloyd's London issued the policy. A copy of the policy was never sent to the plaintiff.
On the night of the band competition, a severe storm caused the competition to be suspended for approximately 35 minutes. As a result, a number of attendees who had been waiting in line decided not to go to the competition. As a result, attendance at the band competition was down 35%.
Shortly thereafter, the plaintiff contacted her broker and requested a copy of the insurance policy. After reviewing the policy, the plaintiff submitted a claim for lost revenue in the amount of $357,128.00. Lloyd's London determined that the plaintiff did not have coverage and denied her claim. The plaintiff then brought suit for, among other things, unfair trade practices.
Unfair and deceptive claim settlement practices are enumerated and prohibited by N.C. Gen. Stat. § 58-63-15. A plaintiff's remedy for such an unfair and deceptive claim settlement practice, however, is governed by North Carolina's Unfair Trade Practices statute. In this case, the plaintiff claimed that because Lloyd's London failure to deliver a copy of the insurance policy in violation of North Carolina law, Lloyd's London had committed a per se unfair trade practice. The North Carolina Court of Appeals reasoned, however, that the failure to deliver a policy to an insured was not listed as one of the unfair claim settlement practices enumerated in N.C. Gen. Stat. § 58-63-15. For this reason, the North Carolina Court of Appeals held that Lloyd's London had not committed a per se unfair trade practice.
Shepard v. Bonita Vista Prop., L.P., et al., -- N.C. App. --, 664 S.E.2d 388 (2008).
Plaintiffs rented lots in the defendant's RV campground, where they were "monthly tenants." All of the plaintiffs used their lot as their primary residence. At some point, plaintiffs began complaining about the conditions in the campground's bath house and eventually reported the defendant to the county health department. Shortly thereafter, the defendant disconnected the plaintiff's electricity. Plaintiffs subsequently filed a lawsuit alleging unfair trade practices. At trial, the plaintiffs prevailed on their claims and were awarded treble damages.
On appeal, the defendant argued that the plaintiffs could not establish that it had committed an unfair trade practice as a matter of law because they could not establish that they were residential tenants entitled to protection under North Carolina's landlord and tenant laws because the lot was a campground. The North Carolina Court of Appeals disagreed. Instead, the Court found that the evidence supported the plaintiffs' unfair trade practices claim regardless of whether they were entitled to protection under the landlord/tenant laws. According to the Court, the acts of the defendant "undoubtedly constituted business activities" in or affecting commerce and were, "at a minimum," unfair.
Gress v. Rowboat Co., Inc. et al., -- N.C. App. --, 661 S.E.2d 278 (2008).
The defendant was a corporation engaged in the business of building piers, docks, boathouses, boat slips, and other waterfront structures. At some point, the plaintiff approached the defendant about purchasing the companies' assets. Eventually, the plaintiff and the defendant company's owner entered into a letter of intent for the plaintiff to purchase all of the company's assets within ninety days. In the interim, the plaintiff and the defendant agreed that the plaintiff would be permitted to observe the operations of the business and to conduct due diligence measures on the business premises prior to the closing of the deal. In an attempt to maintain the continuity of the business and to keep the potential sale confidential, the parties agreed that the plaintiff would enter into a fictitious employment agreement that would make him appear to be an employee. The parties further agreed that any compensation paid to the plaintiff would be recouped when the plaintiff purchased the company's assets.
After the parties reached this agreement, the plaintiff continuously induced the defendant company to extend the closing deadline for the purchase so that he could continue to draw a salary. Eventually, it became clear that the plaintiff was not going to purchase the company, and the defendant terminated the fictitious employment agreement and banned the plaintiff from its premises. The plaintiff then brought suit to recover the earnest money he had deposited, and the defendant brought a counterclaim for unfair and deceptive trade practices.
The trial court granted the plaintiff's motion to dismiss the defendants' counterclaim for unfair trade practices on the grounds that North Carolina's Unfair Trade Practices Act does not govern employment disputes. On appeal, however, the Fourth Circuit Court of Appeals reversed this decision, holding that the general presumption against unfair trade practices in the employment context did not apply in this case because there was no real employment relationship. Instead, the true relationship was that of a buyer and seller, which was governed by North Carolina's Unfair Trade Practices Act.
RECENT FEDERAL CASES
PCS Phosphate Co., Inc. v. Norfolk Southern Corp., 559 F.3d 212 (4th Cir. 2009).
The plaintiff, who was the owner of one of the world's largest phosphate mines, sued Norfolk Southern Railway Corporation after it refused to relocate the rail line servicing the mine when the plaintiff determined it needed to mine under the existing rail line. According to the plaintiff, Norfolk Southern Railway Corporation was contractually obligated to pay for the relocation of the rail line. The Plaintiff asserted claims against Norfolk Southern Railway Corporation for, among other things, breach of contract and unfair trade practices.
The United States District Court for the Eastern District of North Carolina granted summary judgment to the railway on its claim for unfair and deceptive trade practices on the grounds that it was preempted by the Interstate Commerce Commission Termination Act, but allowed the breach of contract claim to go forward. On appeal, Norfolk Southern Railway Corporation argued that the breach of contract claim was also preempted by the Interstate Commerce Commission Termination Act. Similarly, on cross-appeal, the plaintiff argued the unfair and deceptive trade practices claim was not preempted by the act.
The Court of Appeals for the Fourth Circuit found that the Interstate Commerce Commission Termination Act did not preempt the plaintiff's breach of contract claim. With respect to the unfair trade practices claim, however, the Court found that such a claim was "simply an attempt to multiply the damages for an ordinary breach of an agreement by recharacterizing the breach as a violation" of the Unfair Trade Practices Act. Moreover, because this was a contract between two sophisticated business entities, it was not within the reach of the Unfair Trade Practices Act because it was "wholly divorced from the context of consumer transactions" that the Act was "intended to benefit."
Article originally appeared in the July 2009 issue of North Carolina Bar Association's Anititrust News. Reproduced with permission.