Ellis & Winters

You might remember my post from late last year about a case called Koch Foods v Pate Dawson involving the sale of poultry. The defendant moved for summary judgment, but got a fowl outcome.

I write today with the denouement.

The buyer in Koch Foods paid only a small fraction of the $3.6 million purchase price for products ordered. According to the seller, the buyer never intended to pay the full price when it placed the order.

The seller raised a claim for unfair trade practices against the now-defunct buyer’s officers and directors. At summary judgment, the court ruled that North Carolina law—N.C. Gen. Stat. § 75-1.1—controlled that claim.

The case went to trial. As it turns out, the plaintiff should not have counted its chickens before they hatched.

The plaintiff pursued the claim as one based on substantial aggravating circumstances attendant to a contract breach. After the plaintiff put on its evidence, the defendants (the officers and directors) moved for judgment as a matter of law.

The court harbored doubts that any of the plaintiff’s evidence reflected unfairness or deception. According to the court, that evidence showed only the deterioration of a once-cordial business relationship between two sophisticated entities. One of those entities fell on hard times and couldn’t pay a debt.

The court acknowledged the plaintiff’s frustration with what happened, but reasoned that “frustration is not a legal basis for imposing UDPTA liability.” The court further explained that, in view of its sophistication and bargaining power, the plaintiff could have negotiated a contract with better terms to deal with “the vagaries of the foodservice-distribution market.” These points compelled judgment in favor of the defendants on the plaintiff’s 75-1.1 claim.  

What are the takeaways here? At least three come to mind.

First, it’s one thing to make generalized accusations of deception and unfairness. It’s another thing to introduce persuasive, powerful trial evidence to prove that conduct. The plaintiff in Koch Foods didn’t put on that type of evidence, at least in the eyes of the trial court.

Second, some courts might perceive the standard for a sophisticated business to prove unfair or deceptive conduct to be especially high. Here, the court expressly said that the plaintiff, as a sophisticated party, could have negotiated a better deal.

Finally, as the Business Court emphasized in a significant decision one year ago, it’s much harder to show aggravating circumstances, for 75-1.1 purposes, in connection with the breach of a contract. As the court described it, the evidence in Koch Foods concerned the breach—the buyer’s failure to pay, because it fell on difficult times—rather than fraud in connection with the contract’s formation.

Author: Stephen Feldman