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The Origins of N.C. Gen. Stat. § 75-1.1

Ellis Winters

Ellis & Winters

Summer is the time for movies about superheroes. Often, after a couple of episodes in a movie franchise come out, the producers make a film about the origins of the protagonist, so the audience can better understand the hero’s motivations and origins.

Like a movie superhero, N.C. Gen. Stat. § 75-1.1 has super powers: it can triple a verdict and generate an attorney-fee award in a single bound. Like a superhero’s backstory, the history of section 75-1.1 is key to an understanding of these powers. In honor of the summer blockbusters, here is a brief history of section 75-1.1.

Where did section 75-1.1 come from?

Antitrust concepts have been a part of North Carolina law since colonial times. North Carolina’s constitution of 1776 declared that “perpetuities and monopolies” are “contrary to the genius of a free state and ought not to be allowed.” In 1889, North Carolina enacted its first antitrust statute.

It was not until the 1960s, however, that the General Assembly enacted a general-purpose statute that promotes litigation (as opposed to competition) as a way of protecting consumers. During that decade, the Federal Trade Commission, seeking to extend its own consumer protection efforts, encouraged states to enact consumer protection statutes. In 1969, section 75-1.1 emerged from those efforts.

For the text of section 75-1.1, the drafters of the statute made an intentional choice to copy the text of section 5 of the FTC Act. Both statutes declare “unfair or deceptive acts or practices” and “unfair methods of competition” to be unlawful.

(As an aside, a direct prohibition of unfair or deceptive acts and practices did not appear in the original FTC Act. Congress added this scope to section 5 in 1938. It added this language in reaction to Supreme Court decisions that had held that a section 5 violation requires an injury to the competitive process. By the time the North Carolina General Assembly copied the text of section 5, the FTC Act’s direct prohibition of unfair or deceptive acts and practices was already well known and in active use.)

By enacting statutes like section 75-1.1, states vastly expanded the resources available for consumer protection litigation. Section 5 contains no private right of action. The FTC enforces section 5, but its resources are not unlimited. Section 75-1.1 and most other “Little FTC Acts,” in contrast, allow private parties to sue. Indeed, many of these statutes use expanded remedies—like the treble damages and attorney fees available in North Carolina—to encourage private parties to act as private attorneys general.

In 1977, the North Carolina General Assembly broadened section 75-1.1 by deleting the word “trade” from the statutory text and by inserting a statement that the statute covers “all business activities, however denominated.”

Neither the original version of section 75-1.1 nor the 1977 amendment, however, offers a definition of what qualifies as an unfair or a deceptive act or practice. That lack of definition is what makes section 75-1.1 so challenging to apply (and so interesting to discuss).

For more detailed histories of section 5 and section 75-1.1, see pages 2037-38 and 2056-70 in Matt Sawchak’s and Kip Nelson’s 2012 article in the North Carolina Law Review.

How the history of section 75-1.1 affects today’s law

What does the history of section 75-1.1 mean for today’s law? This history most often comes into play when there is no binding authority on how section 75-1.1 applies to a particular fact pattern. Although there are over 2000 published opinions on section 75-1.1, courts often have to improvise when they apply the open-ended concepts of unfairness and deception.

In these situations, the historical link between section 5 and section 75-1.1 becomes especially important. The North Carolina Supreme Court has recognized this point. As recently as 1997, the court has stated that courts should look to authorities under section 5 “for guidance in construing the meaning of Section 75-1.1.”

To be sure, using section 5 standards to help apply section 75-1.1 is not a cure for every problem. Recent commentators, including FTC Commissioner Joshua Wright, have urged the FTC to add detail to its standards for unfairness and deception. But even if this further detail never arrives, the standards under section 5 are still far more developed than the standards under section 75-1.1.

In short, section 75-1.1 has super powers, but it suffers from a lack of predictable standards. The law under section 5 of the FTC Act can come to the rescue for courts that face uncertainty under section 75-1.1.

Author: George Sanderson

August 26, 2014
Posted in  Overview and Orientation