N.C. Gen. Stat § 75-1.1: Unfair & Deceptive Trade Practices Under North Carolina Law

Introduction

N.C. GEN. STAT. § 75-1.1. Methods of competition, acts and practices regulated; legislative policy

(a) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.

(b) For purposes of this section, “commerce” includes all business activities, however denominated, but does not include professional services rendered by a member of a learned profession.

(c) Nothing in this section shall apply to acts done by the publisher, owner, agent, or employee of a newspaper, periodical or radio or television station, or other advertising medium in the publication or dissemination of an advertisement, when the owner, agent or employee did not have knowledge of the false, misleading or deceptive character of the advertisement and when the newspaper, periodical or radio station, or other advertising medium did not have a direct financial interest in the sale or distribution of the advertised product or service.

(d) Any party claiming to be exempt from the provisions of this section shall have the burden of proof with respect to such claim.

N.C. Gen. Stat. § 75-1.1 is one of the most important causes of action under North Carolina law as it allows for treble damages and attorneys' fees under certain circumstances. From the outset, it should be noted courts have applied this statute liberally. North Carolina enacted the Unfair and Deceptive Trade Practices Act (“UDTPA”) to benefit consumers, but “its protections extend to businesses in appropriate situations.” Creating a private cause of action for consumers was the Act’s primary purpose. Also, the statute was enacted “to provide a civil means to maintain ethical standards of dealings between persons engaged in business and the consuming public” within North Carolina because “other legal remedies were inadequate or ineffective.” It applies to dealings between buyers and sellers at all levels of commerce.

An action under § 75-1.1 is a creation of statute. It exists independently and is usually tacked on to a common law cause of action. It sits on top of, and is distinct from actions of fraud, breach of contract, and breach of warranty. The statute is applicable to sales transactions covered by the Uniform Commercial Code and may afford relief even when the U.C.C. does not. These claims tend to involve buyer and seller relationships although actions based on other types of commercial relationships are recognized. Furthermore, only those “engaged in business, a commercial or industrial establishment or enterprise” can be held liable under the statute.

Standing

Under the North Carolina statute, both individuals, through a private cause of action, and the State, through the Attorney General, can raise a claim for unfair and deceptive trade practices. The Attorney General is responsible for investigating all corporations or persons in North Carolina doing business in violation of the law. Persons or corporations that violate any of the provisions of Chapter 75 may be subject to criminal sanctions in prosecutions brought by the state Attorney General, remedies through civil actions brought and prosecuted by the Attorney General, damages in private causes of action by injured persons, or any permissible combination.

Federal Law

Federal decisions under the Federal Trade Commission Act may be used as guidance by North Carolina courts in determining the scope and meaning of North Carolina’s UDTPA. And, as with all federal laws, where applicable, the FTCA will preempt the state law on unfair and deceptive trade practices.

Prima Facie Case

Three-Part Test

A claim under this statute requires proof of three elements: (1) an unfair or deceptive act or practice; (2) in or affecting commerce; (3) which proximately caused the injury to the claimant. A court will first determine if the act or practice was “in or affecting commerce” before determining if the act or practice was unfair or deceptive.

Unfair and Deceptive Definition

A practice is unfair when it offends established public policy or when the act or practice is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” A party is guilty of an unfair act or practice when it engages in conduct which amounts to an inequitable assertion of its power or position. For an act or practice to be deceptive it must have “the capacity or tendency to deceive” but proof of actual deception is not required.

Deliberate acts of deceit or bad faith do not have to be shown, rather, the claimant must demonstrate that the act or practice possessed the tendency and capacity to mislead or created the likelihood of deception. Additionally, it is not required that the claimant actually relies on the deception in order to prevail; actual reliance is not a factor to be considered. While bad faith is not required to prevail under the statute, good faith will still not be a defense. Because an act or practice still has the capacity to deceive, regardless of the presence or absence of good faith on the part of the offending party, the intent of the actor is irrelevant.

Unfairness is a broader concept than, and includes the concept of, deceptiveness. However, only one—either unfairness or deceptiveness—is required to bring the act or practice within the statute. There is no requirement that the act or practice be both unfair and deceptive.

North Carolina courts base their determination on what is unfair and deceptive on the circumstances of each case, and they acknowledge that no precise definition is possible. Whether something is unfair or not “is not an abstraction to be derived from logic” but should be “judged by viewing it against the background of actual human experience and by determining its intended and actual effects upon others.” The determination of whether the definition is met usually depends on the impact the practice has in the marketplace. Courts will also look to whether or not the act or practice violates public policy, and consider the act’s effect on the average consumer.

Commerce Definition

To prove a prima facie case it is required that the defendant’s actions were “in or affecting commerce.” Under the North Carolina statute a plaintiff must prove this element first before the question of whether an act was unfair or deceptive even arises. A plaintiff can prove that an act was “in or affecting commerce” by demonstrating that the parties were “engaged in an activity involving an exchange of some type in which a participant could be characterized as a seller.” However, the activity need only to “surround or affect a sale,” it does not need to meet a stricter standard of “inducing a sale.”

In its broadest sense, commerce includes “intercourse for the purposes of trade in any form.” The commerce definition “is intended to include all types of business activities,” but “does not apply to all wrongs in a business setting.” When determining if the commerce definition is met, the “proper inquiry is not whether a contractual relationship existed between the parties, but rather whether the defendants’ allegedly deceptive acts affected commerce.” Furthermore, there is no requirement of a contractual relationship between the parties.

Causal Requirement

A claimant must prove that a defendant’s unfair or deceptive acts were the cause of the injuries the claimant incurred. Proof of actual injuries can include: loss of the use of specific and unique property, the loss of any appreciated value of property, and other elements of damage shown by plaintiff’s evidence. Reliance on the defendant’s unfair or deceptive act is not necessary to show that the defendant was the proximate cause of the plaintiff’s injuries. It is important to note though, that no cases have permitted recovery without reliance. However, when a plaintiff’s reliance is the causal link between violative conduct and the damages he has occurred, the reliance need not be “reasonable.” An exception to the no reliance requirement is when an unfair or deceptive claim is based upon an alleged misrepresentation by a defendant. The plaintiff must show actual reliance on the alleged misrepresentation in order to establish that the alleged misrepresentation proximately caused plaintiff’s injury.

Caveats to the Prima Facie Case

The Burden Shifting Scheme

North Carolina’s UDTPA created a statutory burden-shifting scheme. At the outset, the Plaintiff bears the burden of proof, and must provide sufficient evidence to support his claim that he has suffered actual injury as a result of the defendant’s actions. Then the plaintiff must prove that the defendant’s actions “were in or affecting commerce,” and that they constituted an unfair or deceptive practice. Once a plaintiff has established his prima facie case, the burden shifts to the defendant to prove that he is exempt from the UDTPA.

The Professional Training Exception

The one major exception that excludes an individual from liability under the UDTPA is the Professional Training exception. It is a very narrow exception in which trained professionals are exempted from the statute based on their professional services as members of a learned profession. It has been interpreted to include members who are “physicians, attorneys, clergy and [other] related professions.” However, the exception will only apply “to the rendering of actual services and not to the rendering of other types of services not exclusively limited to those learned areas.” The burden of proof rests with the person asserting this exception to show that he is covered by it.

Questions of Law and Fact

An action under the UDTPA is a bifurcated process. First, a jury determines the facts as to what happened regarding the actions in question. Types of questions considered by the jury include: occurrence of alleged conduct, damages incurred because of the conduct, and whether proximate cause exists. After the jury decides these facts, a judge applies them under the statute to reach a conclusion of law as to whether or not the defendant engaged in an unfair or deceptive trade practice.

Damages

Treble damages

N.C. GEN. STAT. § 75-16. Civil action by person injured; treble damages

If any person shall be injured or the business of any person, firm or corporation shall be broken up, destroyed or injured by reason of any act or thing done by any other person, firm or corporation in violation of the provisions of this Chapter, such person, firm or corporation so injured shall have a right of action on account of such injury done, and if damages are assessed in such case judgment shall be rendered in favor of the plaintiff and against the defendant for treble the amount fixed by the verdict.

In a successful action for unfair and deceptive trade practices a plaintiff may recover damages. Under N.C. GEN. STAT. § 75-16, if a violation under § 75-1.1 is found, the actual damages are trebled. Trebled damages are damages that, by statute, are three times the amount of actual damages awarded. Trebling of damages is automatic once a violation is shown because the award of trebled damages is a right of the prevailing plaintiff and is not subject to judicial review. However, the damages for the unfair or deceptive act are the only damages that must be trebled by statute; the damages for any other claims in the case will not be trebled.

The use of treble damages grew out of the realization that other remedies for fraud, breach of contract, and breach of warranty were often ineffective. The most basic rationale for trebling the damages is it acts as a means of deterrence to discourage unfair and deceptive trade practices. The punitive statute is meant to discourage guilty parties from engaging in future misconduct. However, trebling damages also serves non-punitive purposes by making it more economically feasible to bring an action where possible money damages are limited and thus, encourages private enforcement. Because trebling the damages greatly increases potential liability, it also encourages settlement. Predictably, in order for a plaintiff to receive treble damages he must be able to show actual damage resulted and that it can be reasonably calculated.

Though the recovery of treble damages is a right of the plaintiff, it is still subject to certain limitations. A plaintiff may not recover compensatory damages for his common law theory and statutory treble damages under § 75-16 for unfair and deceptive trade practice. This is based on the general rule that a party may not recover twice for the same conduct, or receive “double recovery.” Additionally because of the disfavor toward “double recovery” a plaintiff may not have his damages trebled twice by asserting a claim under Chapter 75 and N.C. GEN. STAT. § 20-348(a), which also allows for trebled damages.

The plaintiff must elect to pursue statutory treble damages because he will not receive the benefits of multiple theories of recovery. At what point during a lawsuit the plaintiff must choose to pursue statutory treble damages instead of common law compensatory damages can be a point of issue. A plaintiff might attempt to create an advantage by waiting to assert treble damages until he believes he will recover. However, because trebling damages greatly increases a defendant’s liability, courts have protected defendants from post-trial motions for treble damages. Courts do this because fundamental fairness requires a defendant to be notified of the possibility of unusual relief, such as treble damages, which may greatly increase his liability. After a jury has already rendered a verdict a plaintiff may not go back and amend the complaint to include treble damages. However, a post-trial motion before a verdict is given may be allowed. The determining factor is whether the defendant will be unfairly prejudiced by an amended complaint to include treble damages. To avoid this issue, it is best to motion for treble damages at the onset of the lawsuit or as soon as the plaintiff has decided to seek treble damages rather than compensatory damages under the common law claim.

Attorney’s fees

N.C. GEN. STAT. § 75-16.1. Attorney fee

In any suit instituted by a person who alleges that the defendant violated G.S. § 75-1.1, the presiding judge may, in his discretion, allow a reasonable attorney fee to the duly licensed attorney representing the availing party, such attorney fee to be taxed as a part of the court costs and payable by the losing party, upon a finding by the presiding judge that:

(1) The party charged with the violation has willfully engaged in the act or practice, and there was an unwarranted refusal by such party to fully resolve the matter which constitutes the basis of such suit; or

(2) The party instituting the action knew, or should have known, the action was frivolous and malicious.

Under § 75-16.1, a plaintiff may also receive attorneys’ fees. A court has discretion to award attorneys’ fees when the plaintiff prevails and where it determines that the party charged with the violation has willfully engaged in the unfair or deceptive act, and there was an unwarranted refusal by such party to fully resolve the matter which constitutes the basis of such suit. The burden of proof is on the plaintiff to show that the defendant’s refusal to settle the suit was unwarranted. The plaintiff must actually be awarded damages, which require the showing of an actual injury, to be awarded attorney’s fees. In addition, the trial court must make findings as to whether the amount of attorneys’ fees is reasonable. In determining what is reasonable the court looks to the time and labor extended by the attorney, the skill required to perform the services rendered, the experience and ability of the attorney, and the customary fee for like work.

Practical Application

To begin this section, here are a few red flags to look for that can amount to an unfair or deceptive trade practice: a mere breach of warranty or contract will not qualify unless the breach is particularly egregious or accompanied by aggravating circumstances; fraud is sufficient evidence of an unfair or deceptive act, including fraud in the inducement; the use of coercive tactics is also covered by the statute; negligent misrepresentation, including failure to disclose that amounts to misrepresentation; and, a broken promise can also qualify if the promisor had no intent to perform when he made the promise, which amounts to promissory fraud. Additionally, there are a number of statutes that provide their violation will be considered a violation of N.C. GEN. STAT. § 75-1.1. Even for those statutes that do not explicitly provide for a cause of action under § 75-1.1, courts have repeatedly held that “violation of regulatory statutes which govern business activities may also be a violation of § 75-1.1 whether or not such activities are listed specifically in the regulatory act as a violation of [the statute].”

A few examples of what will not amount to unfair or deceptive trade practices under the act include: decisions made by purely economic market forces; conversion, breach of contract, or breach of warranty without aggravating or egregious circumstances; and, failure to pay a debt will also not be enough. Furthermore, private sales transactions by persons not engaged in business or commercial enterprises are not covered, as well as alleged violations by health care institutions or those arising from the employer-employee relationship. Securities transactions are also not covered by the statute because they do not meet the “affecting commerce” requirement.

Un-prevailing Illustrative Cases

Hear from the Plaintiff in McLamb v. T.P. Inc.

No Damages Beyond Breach of Contract: McLamb v. T.P. Inc., 173 N.C. App. 586, 619 S.E.2d 577 (2005).

• Prospective purchasers of homes alleged unfair and deceptive acts against a subdivision’s developers relating to the developers returning deposits and not honoring reservations made by the purchasers. However, these acts did not damage the prospective purchasers beyond a mere breach of contract, so the unfair and deceptive trade practice claim failed.

Non-Payment on Promissory Note: Boyd v. Drum, 129 N.C. App. 586, 501 S.E.2d 91 (1998).

• Non-payment on the promissory note between Defendant and Plaintiff is not enough to amount to aggravating circumstances. Aggravating circumstances are required in addition to a breach of contract, even when the breach is intentional, to hold someone liable for an unfair or deceptive trade practice. In this case, the non-payment on a contract is a business deal gone sour, and therefore a mere breach of contract rather than an unfair or deceptive act.

Poor Business Judgment: Robb & Son Boatyard & Marina, Inc. v. Bristol, 893 F. Supp. 526 (E.D.N.C. 1994).

Hear from the Defendant in Robb & Son Boatyard & Marina, Inc. v. Bristol

• The repairs done on the Defendant’s Boat by Plaintiff were outlined in a work order and note, and were not unnecessary or unreasonable. Because the repairs were reasonable, Plaintiff did not commit an unfair or deceptive trade act by demanding payment for its services. Although Plaintiff was within his rights to demand the money, the manner in which it was requested was in poor business judgment. However, poor business judgment does not amount to an unfair or deceptive trade practice by itself.

Exercising Termination Clause: Tar Heel Indus., Inc. v. E.I. DuPont de Nemours & Co., 91 N.C. App. 51, 370 S.E.2d 449 (1988).

Hear from the Plaintiff in Tar Heel Indus., Inc. v. E.I. DuPont de Nemours & Co.

• Defendant properly exercising a contract’s termination clause does not constitute an unfair or deceptive trade practice. Plaintiff asserted that Defendant’s failure to notify Plaintiff that it was looking for alternatives to the contract was unfair or deceptive. It does not amount to this because there was a termination clause in the contract that did not required Defendant to notify Plaintiff it was looking for alternatives. Rather, Defendant only needed to notify Plaintiff within sixty days if it planned to end the contract, which it did.

Prevailing Illustrative Cases

False Misrepresentation: Lapierre v. Samco Dev. Corp., 103 N.C. App. 551, 406 S.E.2d 646 (1991).

• A deck builder represented that he could build a specific deck for a house in a specific location and with certain dimensions even though the vendor knew it was impossible to build that size deck. Because of this impossibility, the deck the vendor built was of a smaller size than the dimensions represented. The misrepresentations occurred through the vendor’s salesmen, sales brochures, and blueprints. The false misrepresentation was sufficient evidence to hold the deck builder liable for an unfair or deceptive trade practice.

  Hear from the Plaintiff in Lapierre v. Samco Dev. Corp.

Intentionally and Knowingly Making False Statements: Torrance v. AS&L Motors, Ltd., 119 N.C. App. 552, 459 S.E.2d 67 (1995).

• A used car salesman told potential buyers a specific car had not been involved in an accident when asked by the buyers, even though the seller knew that statement was false. The buyer then relied on the statement that the car had never been in an accident and purchased the car. Because the car salesman knowingly lied to the buyers about the car’s accident history, the act was unfair or deceptive under the statute.

  Hear from the Plaintiff in Torrance v. AS&L Motors

Failure to Inspect: Huff v. Autos Unlimited, Inc., 124 N.C. App. 410, 477 S.E.2d 86 (1996).

• A used car salesman failed to conduct a simple visual inspection of a car that he knew had been in an accident. Even without the visual inspection, and with the knowledge that the car had been wrecked, the salesman sold the car with assurances of its reliability, subjecting him to liability for an unfair or deceptive trade practice.

Lying as an Aggravating Circumstance: Garlock v. Henson, 112 N.C. App. 243, 435 S.E.2d 114 (1993).

• In this case the Defendant lied to the Plaintiff about the sale of Plaintiff’s bulldozer under Defendant’s control multiple times. Additionally, the Defendant forged a bill of sale, and deprived the Plaintiff of the money from the sale of the bulldozer for three years. These facts amount to aggravating circumstances that make a breach of contract an unfair or deceptive trade act. Also, it does not matter that the facts of this case produce both an unfair or deceptive trade act and a breach of contract claim; where the same cause of conduct gives rise to a traditional cause of action and a cause of action for violation of § 75-1.1, the Plaintiff can elect to recover damages under either cause of action, but not both.

  Hear from the Plaintiff in Garlock v. Henson

Egregious Circumstances: McDonald Bros., Inc. v. Tinder Wholesale, LLC, 395 F. Supp. 2d 255 (M.D.N.C. 2005).

• After Plaintiff noticed defects in the lumber products supplied by Defendant wholesaler, the Defendant agreed to cover the damages under the provided warranty. However, after the Defendant was given an estimate for the repairs, it asserted that Plaintiff had waived any warranties and refused to cover the damages. Plaintiff had relied on Defendant’s assurance that it would cover the damages. Because Defendant only refused to honor the warranty after receiving a cost estimate, this was a bad faith denial of the warranty, which amounts to egregious circumstances. Therefore, it creates a cause of action for an unfair or deceptive trade practice.

Bad Faith Refusal to Honor Warranty: Barbee v. Atl. Marine Sales & Serv., 115 N.C. App. 641, 446 S.E.2d 117 (1994).

• When the Plaintiff attempted to have his boat repaired according to his warranty, the Defendant agreed up until it realized that the problem with the boat could not be remedied. Only at this point, and not before, did the Defendant attempt to avoid responsibility for the defective boat by an exception in the warranty. This bad faith refusal to honor a warranty makes the breach of warranty an unfair or deceptive trade act because it amounts to egregious circumstances.