When Does Section 75-1.1 Reach Out-of-State Conduct? (Part I of a two-part series)

by Ellis & Winters LLP

[co-author: Ryan Lipes]

Imagine that an out-of-state company causes an injury to someone in North Carolina, but does so only through acts outside North Carolina. Can the plaintiff use N.C. Gen. Stat. § 75-1.1 to seek treble damages and attorney fees?

Two judges on the same federal court have recently given opposite answers to this question. This disagreement shows how important it is to understand the territorial reach of section 75-1.1.

The Territorial Limits of Section 75-1.1 

The original text of section 75-1.1 implied that the statute applied only to acts inside North Carolina. In 1977, however, the General Assembly replaced the language that seemed to limit section 75-1.1 based on where the defendant’s conduct occurred.

Thus, as a matter of statutory text alone, it now seems possible for a party to pursue a 75-1.1 claim based on out-of-state conduct. A claim could arise, for example, if a company’s out-of-state actions caused North Carolina consumers to pay an artificially high price for goods. A claim might also arise if a company made out-of-state false statements that North Carolina parties relied on to their detriment.

Of course, statutory language and constitutionality are two different things. In the years after the 1977 amendment, defendants began to argue that applying section 75-1.1 extraterritorially violates the dormant Commerce Clause, as well as due process.

The first major decision to take up these arguments was American Rockwool, Inc. v. Owens-Corning Fiberglas Corp. In that 1986 case, a North Carolina plaintiff sued an out-of-state defendant based on a multistate campaign of business disparagement.  In that context, the U.S. District Court for the Eastern District of North Carolina held that applying the substance of section 75-1.1 was not a constitutional violation of any kind.

The court went on to decide, however, that applying the treble-damages remedy for section 75-1.1 to out-of-state conduct would be unconstitutional. The court held that it could award treble damages only for “conduct occurring in North Carolina which occasioned damage to the plaintiff” (emphasis added).

A year later, the Middle District of North Carolina took these extraterritoriality concerns a big step further. The “In” Porters, S.A. v. Hanes Printables, Inc.  involved the converse of American Rockwool: An out-of-state plaintiff sought to apply section 75-1.1 to a North Carolina defendant over conduct that occurred entirely out of state—indeed, in Europe.

Applying section 75-1.1 under these circumstances troubled the “In” Porters court. The vague standards for liability under section 75-1.1 and the treble damages available under the statute meant only pain for the North Carolina parties in the case (the defendants). The party who would benefit from these features of section 75-1.1, in contrast, was a French company. Against this background, the court wrote, “Such a sweeping, punitive cause of action should not be given an extended extraterritorial reach, lest notions of fairness be clipped.”

Based on these fairness concerns, the “In” Porters court stated a two-part test to limit the extraterritorial use of section 75-1.1:

  • First, the plaintiff must suffer an injury in North Carolina.
  • Second, the in-state effect on the plaintiff must be “substantial.”

Unless both of these tests are satisfied, the court held, one cannot apply section 75-1.1 to out-of-state conduct. Note that this test bars applying any part of section 75-1.1, not just the treble-damages remedy, as in American Rockwool.

When later courts have considered applying section 75-1.1 to conduct outside North Carolina, they have generally followed the “In” Porters analysis. Interestingly, though, most of these later cases have not involved the “In” Porters lineup of parties. Instead, they have involved the American Rockwool lineup: North Carolina plaintiffs who sue out-of-state defendants over alleged in-state injuries.

Perhaps because of this dissonance, courts have had trouble applying the “In” Porters analysis consistently.

Tomorrow, we’ll discuss these inconsistent decisions in part II of this post.

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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.