Thomas H. Segars

Most of the cases we write about are contested; two (or more) parties with conflicting views on the propriety of a section 75-1.1 claim present their arguments and let a Court decide who’s right.  But what happens when the defending party doesn’t even show up?  Does the plaintiff automatically prevail on a section 75-1.1 claim?

The answer is “no.”  And a recent decision from the United States District Court for the Western District of North Carolina, Citadel Brands v. Teespring, illustrates this point.

Citadel Brands manufactures apparel.  Teespring wanted to buy Citadel’s apparel, so the two entered into a sales contract.  For several months, Citadel sent apparel to Teespring and issued invoices.  But Teespring failed to pay for nearly $500,000 worth of apparel.  What’s more, Citadel learned that Teespring was in the process of selling its assets during this time and, according to Citadel, knew that it would be unable to pay for Citadel’s goods.

Citadel sued Teespring and brought claims for breach of contract, unjust enrichment, and unfair and deceptive trade practices.  But Teespring failed to show up, so Citadel had default entered.  The effect of Teespring’s default was to deem all of the well-pleaded allegations of Citadel’s complaint admitted.  From this favorable procedural posture, Citadel asked the court to enter default judgment on each of its claims. It sought not only the nearly $500,000 owed on the parties’ contract, but also sought treble damages and attorneys’ fees on its section 75-1.1 claim.  With no one arguing for Teespring, this would be a cakewalk, right?  Wrong.

The court entered default judgment in favor of Citadel on its breach of contract claim.  Before it could enter judgment on the section 75-1.1 claim, though, it needed to satisfy itself that the complaint—now deemed admitted by virtue of the default—established an unfair and deceptive trade practice as a matter of law.  The court held that Citadel’s complaint failed to do this.

The court recognized that (1) “a UDTP count is included as a boilerplate claim in most all commercial disputes because proof of unfair and deceptive trade practices entitles a plaintiff to treble damages and the possibility of an award of attorneys’ fees,” and (2) North Carolina courts have tried to reign in this practice by consistently holding that a breach of contract alone—even if intentional—will not give rise to a section 75-1.1 claim.  To bring a section 75-1.1 claim in the context of a breach of contract case like this one, Citadel needed to plead “substantial aggravating circumstances attending the breach.”  Citadel argued that Teespring’s pending asset sale and knowledge that it would not be able to pay constituted such a circumstance.  The court rejected this argument, noting that these circumstances showed, at most, an intentional breach of contract but not a section 75-1.1 claim.

What does Citadel Brands teach us? 

• First, it is a reminder that the elements of a section 75-1.1 claim must be determined by the court—even when the complaint is not contested.
• Second, it adds to the already large body of caselaw holding that “substantial aggravating circumstances attending the breach” means something more than a mere intentional breach of contract.
• Finally, it provides a lesson about the importance of pleading as many varieties of section 75-1.1 liability as possible and as many facts to support those varieties as possible. Perhaps Citadel Brands pleaded all of the facts it could to support its section 75-1.1 claim.  If, however, a general unfairness or misrepresentation-based claim had been available to Citadel Brands, then pleading those varieties might have given the court a way to find liability.