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What’s NOT Unfair: Claims Outside the Scope of North Carolina’s Unfair and Deceptive Trade Practices Act

Given the potential for enhanced damages and attorneys’ fees, it’s easy to understand why you’d be hard-pressed to find a business-related lawsuit filed in North Carolina without a claim for unfair and deceptive trade practices included. However, the claim is often plead inappropriately, apparently as either some sort of intimidation technique or an effort to manufacture more value than the case is worth, even where the facts plead and relied on fall outside the scope of the Unfair and Deceptive Trade Practices Act (“the Acts”). This article sets out some, but not all, common instances where a common business-related claim falls outside the scope of the Act.

Breach of Contract, Without Something More

A breach of contract, on its own, is not a violation of the Act. Simply stated, a simple breach of contract is neither unfair, nor deceptive, and it would not serve North Carolina’s interest in consumer protection by pegging every non-performing party with treble damages, and the potential for attorneys’ fees. However, a breach of contract with “substantial aggravating circumstances” can constitute a violation of the Act. Generally, there would need to be deception either in the formation of the contract or in the circumstances of the breach to meet this requirement. Most circumstances constituting a breach of contract do not meet these requirements.

Securities Fraud

A civil claim for securities fraud under Chapter 78A of the North Carolina General Statutes does not fall within the scope of the Act. Courts have held that applying the Act to securities transactions “would create overlapping supervision, enforcement, and liability in this area, which is already pervasively regulated by state and federal statutes and agencies.” Hajmm Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 593, 403 S.E.2d 483, 493 (1991).

Internal Business Acts, Disputes

The Act only regulates “a business’s regular interactions with other market participants[,]” not “internal conduct of individuals within a single market participant.” White v. Thompson, 364 N.C. 47, 51, 53, 691 S.E.2d 676, 679-80 (2010). Accordingly, when the alleged unfair or deceptive acts only pertain to relationships within a single business or market participant, that conduct is not within the scope of the Act.

Fraudulent Acts Without Reasonable Reliance

Acts that would otherwise be considered fraudulent will fail to state a claim for fraud, and also fall outside the scope of the Act, if the person making the claim fails to show actual reliance and, more importantly, reasonable reliance, on the fraudulent conduct or misrepresentations, to their detriment. Therefore, if the person making the claim did not rely, or could not have reasonably relied, on the conduct or misrepresentation, there cannot be a claim under the Act.

Professional Services

The Act specifically excludes professional services rendered by a member of a learned profession, i.e., lawyers, doctors, etc. The most significant impact of this exclusion is to treat debt collection agencies and debt collection lawyers differently. However, lawyers are not excluded from the federal Fair Debt Collection Practices Act, so don’t expect debt collecting lawyers to act any more fraudulently or unfairly than a normal debt collection agency.

State or Government Agencies

The State of North Carolina or any agency thereof, including cities, may not be sued under the Act. Rea Constr. Co. v. City of Charlotte, 121 N.C. App. 369, 465 S.E.2d 342 (1996). However, the State may sue others under the Act. State ex rel. Cooper v. NCCS Loans, Inc., 624 S.E.2d 371 (N.C. Ct. App. 2005).

A lawsuit making a claim under the Act for any of these circumstances is inappropriately filed and is ripe for dismissal or summary judgment. Often they are included in “kitchen sink” pleading, i.e., including any possible or plausible legal claim you can think of and letting the Court sort out what sticks. However, an argument could be made that with all of these exceptions out there, the existence of which should be known by any attorney bringing a claim under the Act, the filing of a claim under any of these circumstances may be grounds for sanctions.

But, of course, attorneys aren’t the only ones filing lawsuits in North Carolina. It is important to assess all of your options and claims prior to moving forward with business litigation, especially claims involving the Act. Take the time to meet with a competent business litigation attorney.