Can Extensive Regulations Bar a Claim for Unfair Trade Practices?
Jun 20, 2017 | Raleigh, NC
Stephen D. Feldman
This article was originally published in the June 2017, Section Vol. 37, No. 3, of The Litigator, which is published by the Litigation Section of the North Carolina Bar Association.
An alleged violation of N.C.G.S. Section 75-1.1 is a staple of business litigation in North Carolina.
A recent decision by the U.S. Court of Appeals for the Fourth Circuit addresses an important question about the law on Section 75-1.1: Can a claim for unfair and deceptive trade practices under Section 75-1.1 fail as a matter of law because the allegedly wrongful conduct is already subject to an extensive regulatory regime?
This article reviews the reasoning—and consequences—of this new decision, Champion Pro Consulting Group, Inc. v. Impact Sports Football, LLC, 845 F.3d 104 (4th Cir. 2016).
A Six-Figure Payment, and a Change in Agents
The Champion case arose from a decision by Robert Quinn, a former football standout at the University of North Carolina, to switch agents.
In December 2010, Quinn signed a contract with Champion. Half a year later, Quinn terminated that contract and instead signed with Impact Sports. Quinn also received $100,000 from Impact.
In January 2012, Champion’s founder, Carl Carey, filed a grievance with the NFL Players Association. Carey alleged that Quinn breached the contract between Quinn and Champion. The case went to arbitration, and Carey received an award of $17,500.
Carey and Champion then sued Impact in federal court. The lawsuit raised multiple claims, including an alleged violation of Section 75-1.1.
After discovery, Impact filed a motion for summary judgment. The district court granted the motion.
Regulatory Regimes, Unfair-Trade-Practice Claims, and Policy Considerations
In its appeal, Champion argued that Impact violated Section 75- 1.1 in three ways.
First, Champion contended that Impact illegally used “runners” to recruit Quinn. A “runner” is someone who offers money or other benefits to a player to secure the player as an agent’s client.
Second, Champion argued that Impact’s $100,000 payment to Quinn induced Quinn to breach his contract with Champion.
Third, Champion said that Impact’s conduct constituted unlawful retaliation.
The Fourth Circuit rejected each of these arguments. In doing so, the Fourth Circuit relied on a broad principle: Section 75-1.1 does not apply to matters that are already subject to pervasive and intricate regulation.
In this case, the record reflected that the NFLPA regulates conduct of agents like Champion and Impact. In particular, the NFLPA’s regulations prohibit dishonest and fraudulent conduct in agents’ dealings with players. The regulations also permit monetary damages and require the arbitration of disputes.
In the Fourth Circuit’s view, Section 75-1.1 does not reach conduct that is subject to regulations like those of the NFLPA. The court listed three policy reasons to support its conclusion.
First, the Fourth Circuit suggested that public policy does not favor conduct being subject to “overlapping” regulation—though the court did not clarify whether its concern was inconsistent regulations, duplicative regulations, or both.
Second, the Fourth Circuit voiced concern that the standards of Section 75-1.1 could disrupt “the practical workings of th[e] industry.” Here, the Fourth Circuit pointed out that payments like the $100,000 payment from Impact to Quinn are an accepted part of doing business in the industry.
Third, the Fourth Circuit opined that Section 75-1.1 was not needed here to correct any imbalance of power among the parties. In stating this opinion, the Fourth Circuit cited to one of its earlier decisions, Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505 (4th Cir. 1999) for the proposition that the fundamental purpose of Section 75-1.1 “is to protect the consumer.”
Asserting a ‘Regulatory Regime’ Defense
The decision in Champion is potentially an important one for businesses and business litigators alike.
Perhaps most importantly, Champion instructs that, when conduct is already subject to regulation, the existing regulations might support dismissal of a Section 75-1.1 claim as a matter of law. In Champion, the existing regulations were found in a private code of conduct. Given that conduct is often subject to multiple standards (whether private, public, or both), Champion might well embolden defendants to mount an aggressive “extensive regulatory regime” defense when facing Section 75-1.1 claims.
Defendants who raise this defense might be well served to measure whether and how the policy considerations enunciated in Champion apply to their cases. In particular:
How significant is the overlap between the existing regulatory regime and Section 75-1.1?
Might the application of Section 75-1.1 change a key feature of the industry — a feature not proscribed by the existing regulatory regime?
Does the case involve any consumer-like behavior?
As Champion illustrates, a business must surmount a high bar to prove a Section 75-1.1 claim against a competitor. This is especially true when the parties compete in an extensively regulated market.
Stephen Feldman practices complex business litigation, antitrust, and appeals at Ellis & Winters LLP, a litigation boutique in Raleigh. He is a member of the section council for both the Appellate and Antitrust & Complex Business Litigation sections of the North Carolina Bar Association. He also serves on the leadership of the American Bar Association Sections of Antitrust Law and Litigation, and he is co-chair of the ABA’s Appellate Practice Committee.