What Does Section 75-1.1 Prohibit?

by Ellis & Winters LLP
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N.C. Gen. Stat. § 75-1.1 prohibits several different clusters of conduct. Thus, whether you’re bringing a 75-1.1 claim or defending against one, it’s crucial to identify, at the outset, what kind of 75-1.1 claim you’re dealing with.

You may ask yourself, why do these categories matter? (Apologies to David Byrne.) They matter because they affect the facts a 75-1.1 plaintiff has to prove and the case law she needs to fit her case within. If a party doesn’t identify the specific category that governs 75-1.1 claims, that party invites an adverse decision.

The standard elements of a section 75-1.1 claim, as stated in judicial opinions, do not help lawyers put claims into categories. They include only one element that addresses what the defendant has allegedly done. And that one element—“an unfair or deceptive act or practice”—is hardly self-defining.

By studying the case law closely, however, we can slice the standards under section 75-1.1 a good bit more finely. Indeed, we can divide section 75-1.1 claims into five categories:

Deception

This category reaches acts that have “the capacity or tendency to deceive.” The deception need not be intentional. Negligent misrepresentations, and even literally truthful statements, have sometimes triggered liability on a deception theory. After the North Carolina Supreme Court’s decision in Bumpers, however, a plaintiff must show that she actually and reasonably relied on the statements at issue.

Aggravated breaches of contract

Breaches of contract—even intentional ones—do not violate section 75-1.1. However, if a plaintiff can show “substantial aggravating circumstances” along with a breach of contract, he has a 75-1.1 claim. Even so, opinions that summarily reject claims on this theory are common, especially in the federal courts.

Unfair methods of competition

This category reaches acts that harm competition. The language of section 75-1.1 itself—“[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce”—marks this as a separate category. Even so, claims that explicitly mention this category are rare. That’s probably because 75-1.1 plaintiffs usually want to stay out of any category that resembles antitrust law.

Per se violations

Per se violations of section 75-1.1 resemble negligence per se. Under a per se theory, the fact that a defendant’s conduct violates a separate statute, tort doctrine, or regulation automatically creates a 75-1.1 violation as well. Forty or so North Carolina statutes say expressly that a violation of that statute is also a violation of section 75-1.1, but per se theories are not limited to these situations. Courts have sometimes held that per se 75-1.1 violations arise from violations of sources of law that don’t refer to section 75-1.1. In a forthcoming article in the September 2014 North Carolina Law Review, I analyze the law on per se violations and make proposals for reform.

Direct unfairness

The language of section 75-1.1 reaches “unfair or deceptive acts or practices.” As the “or” suggests, the statute allows claims of unfair practices that are not deceptive. The decisions on unfairness, however, struggle to explain why particular conduct is or is not unfair. As a result, unfairness is potentially the broadest category under section 75-1.1, but it’s also the most unpredictable category. Until a case is litigated to a conclusion, it’s hard for a plaintiff or a defendant to say with confidence whether a particular claim of unfairness will succeed. In a 2012 article in the North Carolina Law Review, Kip Nelson and I analyze the unfairness theory in depth.

What these categories mean in practice

As an example of why these categories matter, consider Porterfield v. JP Morgan Chase Bank, N.A., No. 4:13-CV-128-BO, 2013 WL 5755499 (E.D.N.C. Oct. 23, 2013), appeal dismissed by stipulation, No. 13-2412 (4th Cir. Feb. 18, 2014). The plaintiff made a variety of fraud claims, as well as a 75-1.1 claim, to attack a home foreclosure. The defendants moved to dismiss. In response, the plaintiff did not emphasize that she was pursuing a deception claim under section 75-1.1. In particular, she did not emphasize the differences between the elements of fraud and the elements of a 75-1.1 deception claim.

Judge Boyle granted the motions to dismiss. On the 75-1.1 claim, he stated that a 75-1.1 claim requires “substantial aggravating circumstances”—a concept that normally applies to claims that allege an aggravated breach of contract. He also stated that “a plaintiff cannot base a [75-1.1] claim on allegations that fail to state a claim for fraud.” If the plaintiff had emphasized that she was pursuing a deception claim, and had clearly briefed the requirements for a deception claim, perhaps the result would have been different.

As Porterfield illustrates, any party to a 75-1.1 claim who that treats the statute as an undifferentiated sea of claims, or who cedes the categorization battle to others, does so at her peril.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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