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September 27, 2016 in 75-1.1 Exemptions by

Crash into Me? Not If You Want to Sue Me for Unfair Trade Practices

Does N.C. Gen. Stat. § 75-1.1 allow a lawsuit by a remote user of a product—a user who had no involvement in buying the product? A federal court in North Carolina recently answered no.

An unusual fact pattern for a 75-1.1 case

Early one morning, Danielle Washington was driving to work. She fell asleep at the wheel and crashed into a guardrail, suffering serious injuries. Ms. Washington later discovered that she hit an ET Plus® guardrail. Trinity Industries, the manufacturer of this guardrail system, describes it as “a federally accepted energy-absorbing guardrail end terminal system used on roadways.”

Ms. Washington sued Trinity, alleging that the guardrail was defective and dangerous. Indeed, she alleged that Trinity had changed the design of the guardrail in a way that made it more dangerous, while concealing the effects of these changes from federal regulators. Based on this alleged concealment, in 2014, a jury in the U.S. District Court for the Eastern District of Texas held Trinity liable under the federal False Claims Act.

Unsurprisingly, Ms. Washington sued Trinity in the Eastern District of Texas—the same federal court where Trinity had been held liable for false claims. That court, however, transferred the case to the Middle District of North Carolina, the location of Ms. Washington’s home and the site of the accident. The case was assigned to District Judge Loretta Biggs and Magistrate Judge Patrick Auld.

After the transfer, both sides saw potential benefits from applying North Carolina law, at least on points of their choosing. The defendants argued that North Carolina’s contributory-negligence rule barred Ms. Washington’s claims.

Ms. Washington, on the other hand, sought to amend her complaint to add a claim under section 75-1.1. Trinity opposed the motion to amend, arguing that the proposed amendment would be futile. In an opinion on that motion, Judge Auld held that the proposed 75-1.1 claim failed at the threshold.

Ms. Washington’s proposed 75-1.1 claim raises several interesting questions, including these:

  • Are violations of the federal False Claims Act per se violations of section 75-1.1?
  • Are false statements to government regulators—whether or not they support a deception claim—inherently unfair?
  • Is it ever possible for a remote “user” of a regulated product to rely on undisclosed statements to government regulators? If so, when?
  • Can a plaintiff recover personal-injury damages—times three—through a 75-1.1 claim?

On Ms. Washington’s motion to amend, some, but not all, of these questions arose. In the end, though, the court found other questions dispositive:

  • In a case like Washington (as opposed to a business-vs.-business case), must one be a “consumer” to sue a product manufacturer? The court answered yes.
  • If so, does a remote user of a product qualify as a consumer? The court answered no.

Consumers only, please

The court began its analysis by reviewing section 75-16, the main remedial statute for section 75-1.1. That statute allows a claim by “any person [who] shall be injured.” Reviewing earlier decisions, the Washington court stated that courts have generally interpreted “any person” to mean “consumers.” The court defined a consumer as someone who has “participate[d] in an exchange of value as a purchaser of some item.”

To try to broaden the set of eligible plaintiffs, Ms. Washington relied on two earlier decisions that arguably expanded the range of 75-1.1 plaintiffs beyond buyers and sellers. 

In Hyde v. Abbott Laboratories, Inc., the North Carolina Court of Appeals held that indirect purchasers of products—not just customers who deal directly with a defendant—might be able to recover damages under section 75-16. The Hyde court concluded that the legislature intended to extend recovery to “any person who suffers an injury,” whether or not “that person purchased directly from the wrongdoer.”

The Washington court distinguished Hyde because Ms. Washington never bought the guardrail at issue—directly or indirectly. Because she never “exchange[d] value” for the guardrail, she was a far more remote plaintiff than the Hyde plaintiffs were.

Ms. Washington also cited the North Carolina Supreme Court’s 2007 decision in Walker v. Fleetwood Homes of North Carolina, Inc. That case involved an allegedly defective mobile home. The plaintiff planned to live in the mobile home and make the monthly payments. Even so, it was the plaintiff’s father who made the initial down payment—the only money that had exchanged hands at the time of the complaint. 

The defendant in Walker argued that only the father had suffered an injury that allowed him to sue under section 75-1.1. The North Carolina Supreme Court, however, disagreed. According to the court, the daughter was injured by the defendant’s alleged misdeeds, because she was the intended owner of the home and she intended to make monthly payments on the home. 

In Washington, the court distinguished Walker as another case that involved a “purchase scenario.” Unlike the daughter in Walker, Ms. Washington did not “select, transact for, or plan to make payments” for the guardrail that allegedly harmed her.

By distinguishing these decisions, the Washington court underscored its conclusion that, to sue under section 75-1.1, a non-business plaintiff must be a consumer.

A downstream user is not a consumer

That conclusion doomed Ms. Washington’s proposed 75-1.1 claim.

Ms. Washington admitted that she did not buy the guardrail in question. Even so, she alleged that that she fell within the intended scope of recovery under section 75-1.1 because the defendants “anticipat[ed] and fore[saw]” that their products “would be impacted by members of the driving public.” Implicitly rejecting this theory, the court held that Ms. Washington “does not qualify as a ‘consumer.’”

Washington continues a trend of unsuccessful 75-1.1 claims by plaintiffs who are remote from a defendant’s alleged wrongdoing. We will watch to see whether any of the court’s reasoning migrates into business-vs.-business cases under section 75-1.1—a category that the court’s reasoning did not explicitly cover.

Author: Jeremy Falcone