Courts have sometimes concluded that the extensive regulation of a subject-matter by another source of law—such as a detailed statutory scheme—means that the General Assembly didn’t intend for N.C. Gen. Stat. § 75-1.1 to regulate that subject matter.

These decisions present the backdrop for a recent opinion by a federal court in New York. The decision, in a putative class action named Contant v. Bank of America, concerns alleged wrongdoing in the market for foreign exchange instruments. The defendants deal in that market.

One of the Contant plaintiffs was from North Carolina. She raised several claims, including an alleged 75-1.1 violation.

The defendants moved to dismiss that claim, relying on what they termed “the regulatory scheme exception.” They argued that this exception applies when applying section 75-1.1 would create unneeded or overlapping supervision, enforcement, and liability in view of existing regulatory schemes.

For support, the defendants noted that numerous authorities regulate foreign exchange instruments. Those authorities include the Office of the Comptroller of the Currency and the Federal Reserve Board of Governors. The defendants stressed that these regulators have asserted jurisdiction over alleged wrongdoing, conducted investigations, and imposed billions of dollars in fines and settlements.

On the law, the defendants cited decisions which hold that certain pervasively regulated subjects fall outside of the scope of section 75-1.1. These decisions include the North Carolina Supreme Court’s decisions in Skinner v. E.F. Hutton & Co. (securities transactions) and HAJMM Co. v. House of Raeford Farms, Inc. (revolving fund certificates).

The plaintiffs responded with two main arguments.

First, they turned to a different area of 75-1.1 jurisprudence: the law on per se violations. They argued that, in view of this law, a court should be hesitant to conclude that the existence of statutory regulation of a subject matter reflects legislative intent to except that subject matter from the scope of section 75-1.1.

Second, they argued that, when courts have concluded that conduct falls outside of section 75-1.1’s scope due to pervasive regulation, those courts have first ensured that the regulatory scheme provided a plaintiff with a meaningful remedy. The plaintiffs then argued that no other source of law on foreign exchange instruments gave them the chance to recover the treble damages available under section 75-1.1.

The defendants fiercely disputed these points, but that ferocity wasn’t enough.

Adopting the plaintiffs’ position, Judge Lorna Schofield first wrote that an overlapping regulatory scheme isn’t alone sufficient to preclude section 75-1.1’s application. For support, she cited the North Carolina Supreme Court’s decision in Walker v. Fleetwood Homes of North Carolina, Inc., a decision about per se violations.

The relevance of the law on per se violations, however, is unclear.

The per se doctrine considers whether a violation of one statute’s conduct standard might, in some cases, constitute an automatic violation of section 75-1.1. That issue concerns whether conduct is, in fact, unfair or deceptive.

The Contant defendants raised an entirely different issue: whether the subject-matter of the alleged violation falls within section 75-1.1’s scope in the first place.

Judge Schofield also emphasized the plaintiffs’ second point: an overlapping regulatory regime does not obviate section 75-1.1’s application if the regime doesn’t provide “an adequate remedy.”

One could reasonably disagree, however, with this reasoning.

For one, neither Skinner nor HAJMM (among other cases) refers to a private right of action as being relevant to the issue of whether a statutory scheme is sufficiently “pervasive” to show that the conduct falls outside of section 75-1.1’s reach.

The Contant opinion also cites decisions from 1977 and 1980 about whether the business of insurance—which is heavily regulated by statute—falls outside of section 75-1.1’s purview. But North Carolina’s insurance law has a specific section on unfair and deceptive practices related to insurance law.

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What can we take from all of this?

Most alleged violations of section 75-1.1 concern conduct that’s regulated by some other source of law. This dynamic raises at least two issues: (1) whether the existing regulation is so pervasive that the General Assembly didn’t intent section 75-1.1 to apply to it, and (2) if not, whether a violation of a conduct standard within that regulation is a per se violation of section 75-1.1.

These are distinct issues, but the issues can swirl together. And each issue can itself be complex to resolve. Given the potential for treble-damages, drilling down on this distinction—and on the resolution to these questions—is an investment that’s usually worth the cost.

Author: Stephen Feldman