Section 75-1.1 and Out-of-State Injuries Based on In-State Conduct

by Ellis & Winters LLP

In earlier posts, we have discussed the two-part test that courts use to assess whether section 75-1.1 applies to out-of-state conduct. First, the plaintiff must suffer an injury in North Carolina. Second, the in-state effect on the plaintiff must be “substantial.” This test was first announced in a decision of the U.S. District Court for the Middle District of North Carolina: The ‘In’ Porters, S.A. v. Hanes Printables, Inc..

Does this two-part test still apply when an out-of-state plaintiff suffers an out-of-state injury, but the conduct that gives rise to the 75-1.1 claim occurs within North Carolina?

No, according to Hometown Publishing, LLC v. Kidsville News! Inc., a recent decision by the U.S. District Court for the Eastern District of North Carolina.

A Kids’ Magazine Sparks a Fully Grown Lawsuit

Kidsville News describes itself as a family newspaper that promotes education, reading, and good character in children. Kidsville is a North Carolina company with headquarters in Fayetteville.

In 2010, Kidsville entered into a licensing agreement with New Jersey-based Hometown Publishing. About four years later, Hometown Publishing sued Kidsville in the Eastern District for violations of section 75-1.1. Hometown’s claim alleges that Kidsville is a franchisor under federal law and that Kidsville failed to disclose key information in connection with the parties’ agreement. (To this day, Kidsville says that it is not a franchise.)

Kidsville moved to dismiss. It argued that a 75-1.1 claim requires “a substantial detrimental impact on the plaintiff’s in-state operations.” Kidsville cited The ‘In’ Porters for this proposition.

Location Matters

The Kidsville case, however, differs materially from The ‘In’ Porters. The conduct that gave rise to the 75-1.1 claim in The ‘In’ Porters took place outside North Carolina. Hometown Publishing, in contrast, alleged that Kidsville’s conduct that gave rise to the alleged 75-1.1 violation occurred within North Carolina.

Why is this a material difference? Part of the answer lies in North Carolina’s long-arm statute.

In The ‘In’ Porters, the court held that the North Carolina General Assembly intended for the coverage of section 75-1.1 to extend to the limits of section 1-75.4(4) of the North Carolina long-arm statute. Section 1-75.4(4) asserts personal jurisdiction over a party when foreign acts cause a local injury. The ‘In’ Porters court held that when personal jurisdiction is premised on section 1-75.4(4), a 75-1.1 claim requires an in-state injury. The court went on to hold that the in-state injury must be “substantial.”

None of this reasoning, however, applied to the 75-1.1 claim against Kidsville. That is because Hometown didn’t allege a local injury based on an out-of-state act.

Instead, Hometown alleged an injury arising out of act or omission within North Carolina. Thus, personal jurisdiction over Kidsville was based on section 1-75.4(3) (“Local Act or Omission”) of the long-arm statute, not section 1-75.4(4) (“Local Injury; Foreign Act”). When a claim is based on section 1-75.4(3), the due-process concerns that motivated The ‘In’ Porters court don’t arise, because section 75-1.1 has always covered in-state conduct.

Both Judge Jones’s recommendation and Judge Flanagan’s order adopting the recommendation denied Kidsville’s motion for these reasons. Both opinions cited two Eastern District decisions, Ada Liss Group v. Sara Lee Corp. and Verona v. U.S. Bancorp, which agreed that The ‘In’ Porters does not apply when a 75-1.1 claim is premised on in-state conduct. Those decisions are worth reading.

Hometown can now proceed with its 75-1.1 claim, although the complaint does not make entirely clear whether the claim alleges a misrepresentation, a per se violation, or direct unfairness.

Pinpointing Conduct and Injury

The Hometown Publishing decision underscores why, at the outset of any case with a 75-1.1 claim, it’s important to figure out (a) where the relevant conduct occurred, and (b) where the relevant injury occurred. Conduct and injury are different concepts, and where they occurred might not be the same. Pinpointing these locations is essential to analyzing whether and how the law on section 75-1.1’s extraterritorial reach might apply.

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.

© Ellis & Winters LLP | Attorney Advertising

Written by:

Ellis & Winters LLP

Ellis & Winters LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.