Of Outsiders and Knights-Errant: The History and Reach of Chapter 75-1.1
Summer is just about over, and we’re already missing our sunglasses and drink coolers. But even though summer reading season is ending, there’s still time before the Autumn Equinox to crack open that paperback you’ve been neglecting. And having a page-turner to keep you company during the long trip home from the beach makes sitting through traffic that much more bearable.
But as we get into the holidays, we can probably expect more activity taking place over state lines this travel season. That could mean more memories with your loved ones in far off destinations, but for better or worse, it could also mean an uptick in interstate litigation—which makes our blog team wonder: when can you raise a Chapter 75 claim for conduct that takes place or has effects outside of North Carolina? Whether you’ve been the victim (or perpetrator—we won’t judge) of unfair and deceptive business practices taking place over state lines, your favorite Chapter 75 blog will keep you informed so you can focus on spending time with your friends and family.
A Portrait of the Statute as a Young Law
N.C.G.S. § 75-1.1 is a “Little FTC Act,” a statute that mirrors Section 5 of the FTC Act prohibiting “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce[.]” 15 U.S.C. § 45. Little FTC Acts are meant to create state-level analogues to the federal law and allow for private rights of action because the federal law itself does not do so.
The first version of the Little FTC Act that we know and love was enacted in 1969, well after the Age of Innocence. That version, on top of declaring unfair methods of competition and unfair or deceptive acts unlawful, included a statement of purpose that it was intended to maintain “ethical standards of dealings between persons engaged in business, and between persons engaged in business and the consuming public within this State[.]” Act of June 12, 1969, ch. 833, sec. 1(b), § 75-1.1(b), 1969 N.C. Sess. Laws 930, 930 (emphasis added), repealed by Act of June 27, 1977, ch. 747, § 2, 1977 N.C. Sess. Laws 984, 984.
The explicit wording that the statute only applied to dealings within North Carolina necessarily limited the statute’s application to cases involving an in-state defendant. Indeed, the Eastern District of North Carolina observed in American Rockwool, Inc. v. Owens–Corning Fiberglas Corp., 640 F. Supp. 1411 (E.D.N.C. 1986), that “[o]f course, no North Carolina statute which by its own terms is limited to in-state conduct can be applied to conduct occurring outside the state.” But this understanding changed on June 27, 1977, when Chapter 75-1.1 was amended to the version we know today, removing the statute’s geographic limitation.
Chapter 75-1.1’s amendment, a few years shy of 1984, opened the possibility for broader application. However, the statute still presented an open question as to its extraterritorial reach. Courts have interpreted the amendment to mean that Chapter 75-1.1 was expanded to cover the full limits of North Carolina’s long-arm statute, N.C.G.S. § 1-75.4(4), which in turn “allows personal jurisdiction over defendants in a case involving foreign acts if an injury to person or property occurs within North Carolina and, at or about the time of the injury, the defendants were either working in North Carolina or had products in the North Carolina commerce through the ordinary course of business.” The In Porters, S.A. v. Hanes Printables, Inc., 663 F. Supp. 494, 501 (M.D.N.C. 1987) (emphasis in original). Accordingly, the In Porters court summarized that “section 1-75.4(4), as applied to defining the reach of 75-1.1, requires an in-state injury to plaintiff before plaintiff can state a valid unfair trade claim.”
The Supreme Court of North Carolina hasn’t (yet) weighed in on the In Porters analysis. However, the In Porters court argues, citing the N.C. Supreme Court, that because Chapter 75-1.1 stems from the Sherman Act, 15 U.S.C. § 1, the body of law applying that Act is “instructive in determining the full reach of [N.C.G.S. § 75-1.1].” The In Porters, S.A., 663 F. Supp at 501 (citing Rose v. Vulcan Materials Co., 282 N.C. 643, 655 (1973)). Considering that, the In Porters court recognized that because the Sherman Act does so, Chapter 75-1.1 “arguably extends to foreign conduct having a substantial effect on plaintiff’s business operation in North Carolina.” In Porters, 663 F. Supp. at 501. The Fourth Circuit, for its part, has held that Chapter 75-1.1 does not run afoul of the Dormant Commerce Clause because the statute is “an act designed to address primarily local concerns . . . [, so there is] no cause for constitutional concern.” ITCO Corp. v. Michelin Tire Corp., Comm. Div., 722 F.2d 42, 48 n.9 (4th Cir. 1983). ITCO suggests that if the statute were applied extraterritorially (i.e. in a manner that does not “address primarily local concerns”), the U.S. Constitution might take offense.
So where does this history leave us? Given the current scope of the law on this issue, we can deduce a couple of things about when Chapter 75-1.1 can apply:
- A local defendant may be sued under Chapter 75-1.1 for local damage. This scenario is straightforward—as logical as Crime and Punishment.
- A foreign defendant may also be sued under Chapter 75-1.1 for actions that have a substantial effect on North Carolina through application of North Carolina’s long-arm statute. However, only out-of-state conduct with a “substantial” effect on in-state operations can be brought to account under Chapter 75-1.1. In Porters, 663 F. Supp. at 502. Best to keep this in mind if any traveling knights-errant attack your windmill in North Carolina.
- However, cases in which there is a foreign harm—that is, harm outside of North Carolina—run into Hard Times with the U.S. Constitution and the Dormant Commerce Clause. So even if all the conduct leading to the harm occurred in North Carolina, Chapter 75-1.1 is inapplicable where there has only been harm to Outsiders.
Of course, these rules apply assuming that North Carolina law governs the underlying action. If you’re curious to know more about how choice-of-law rules apply to Chapter 75-1.1 claims, check out our other blog posts here, here, and here.