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August 23, 2016 in 75-1.1 Exemptions by

High Prices = Unfair Trade Practices?

Does N.C. Gen. Stat. § 75-1.1 ever support liability simply because the price of a good or service is too high?

To our surprise, a recent decision from the U.S. District Court for the Eastern District of North Carolina answers “maybe so.”

In Respess v. Crop Production Services, Inc., Senior District Judge W. Earl Britt denied a motion to dismiss a section 75-1.1 claim that involved, in the words of the complaint, “the practice of overcharging.”

If “overcharging” sounds familiar in this context, it’s because the North Carolina Supreme Court addressed that issue in Bumpers v. Community Bank of Northern Virginia. In Bumpers, the Supreme Court rejected the argument that fees charged in connection with a mortgage refinancing were so high as to violate section 75-1.1.

Although Bumpers did not categorically reject 75-1.1 claims based on “overcharging,” the decision made clear that a 75-1.1 claim about high prices would be hard to prove—especially if the claimant paid the allegedly excessive price by choice.

Given Bumpers, how did the “overcharging” claim in Respess survive a motion to dismiss? This post answers that question.

Finding Normal

The Respess plaintiffs own and operate farms in and around Beaufort County. Their complaint alleges that, over the last four years, Crop Production Services, Inc., sold the plaintiffs agriculture supplies. The plaintiffs bought these supplies at CPS’s store in Belhaven. CPS has stores throughout North Carolina.

The Respess complaint accuses CPS of charging the plaintiffs “excessive amounts” for the farm supplies. The complaint lists six different products that the plaintiffs bought from CPS at prices that were 53 percent to 86 percent “higher than normal pricing.”

The complaint, however, does not explain what “normal pricing” means.

The complaint also does not define other concepts that appear significant. In particular, the complaint calls CPS’s “overcharging” “systematic,” but does not say what “systematic” means. The complaint also says that the plaintiffs “have relied” on CPS to provide supplies, but it does not elaborate on the nature of the reliance.

The plaintiffs sued CPS in North Carolina state court. CPS removed the case to federal court and filed a motion to dismiss.

In the motion, CPS argued that charging different prices to different customers does not violate section 75-1.1. CPS mainly relied on a single decision: the 1999 decision by the North Carolina Court of Appeals in Van Dorn Retail Management Inc. v. Klaussner Furniture Industries. In Van Dorn, the Court of Appeals held that a supplier of goods does not violate section 75-1.1 by charging different prices to different customers. CPS argued that Van Dorn required the dismissal of the plaintiffs’ 75-1.1 claim.

CPS also argued that the plaintiffs’ theory would hamstring CPS’s ability to consider multiple factors when it sets prices at each of its stores. These factors include (1) the type of customer who frequents a particular store, (2) the product volume purchased at the store, (3) whether CPS provided services along with supplies at the store, and (4) competitors’ prices.

Notably, CPS’s motion and brief did not cite or refer to Bumpers.

A Matter of Perspective

On July 13, Judge Britt denied CPS’s motion to dismiss. His order, like CPS’s papers, made no mention of Bumpers.

Instead, Judge Britt’s order centered on Van Dorn. He concluded that Van Dorn did not control the case because, in his view, the plaintiffs’ 75-1.1 claim was not about price discrimination. Instead, Judge Britt characterized the claim as being “premised on the notion that [the plaintiffs] were routinely charged prices higher than the amount of money they owed.”

What, then, was “the amount of money they owed”?

Judge Britt answered that question by pointing to the complaint. The complaint alleges that the plaintiffs paid greater than “normal pricing” for CPS’s supplies. Judge Britt interpreted “normal pricing” to refer to CPS’s prices at stores other than the Belhaven store. However, neither the complaint nor Judge Britt’s order actually says whether CPS’s prices are the same at all stores statewide. The complaint merely alleges (on information and belief) that CPS sets “the pricing of products . . . for its various locations throughout North Carolina.”

Rather than viewing these allegations through a lens of price discrimination, Judge Britt described the allegations as involving “systematic overcharging.” He cited Sampson-Bladen Oil Co. v. Walters for the proposition that section 75-1.1 outlaws “systematic overcharging.” He denied CPS’s motion to dismiss on this basis.

Understanding Overcharging

Respess draws a distinction between price discrimination and “systematic overcharging.” But how sharp is that distinction, at least in Respess?

CPS would argue that the distinction is hazy at best. For an “overcharging” claim to have legs, the claimant must have paid a price over and above some other price. In Respess, the Belhaven CPS store allegedly charged prices higher than CPS charged to customers at other stores.

In other words, the complaint alleges that CPS charged different prices to different customers. CPS would argue that that’s the very definition of price discrimination—and that Van Dorn therefore applies squarely.

CPS might also argue that, whatever the complaint means by “systematic overcharging,” the allegations in Respess bear no resemblance to the facts in Sampson-Bladen.

In Sampson-Bladen, a seller of oil charged a buyer for more oil than the seller actually delivered. The Respess plaintiffs, in contrast, have not alleged that CPS charged the plaintiffs for supplies that CPS didn’t deliver. Instead, the plaintiffs allege that CPS sold the plaintiffs exactly what they ordered, but at prices that the plaintiffs believe are too high.

Which takes us back to Bumpers. In Bumpers, the plaintiffs alleged that fees that they paid in connection with refinancing transactions were just too high. The Supreme Court concluded that that claim, as a matter of law, did not violate section 75-1.1. The Supreme Court pointed to the fact that the plaintiffs entered into their loan transactions freely and knew that other closing agents for the transactions might charge lower fees.

After Bumpers, section 75-1.1 is unlikely to condemn the sale of a good or service  in a free-market transaction. Do the purchases of farm supplies in Respess fit this description?

That question might frame a future summary-judgment motion.

Author: Stephen Feldman