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December 8, 2015 in 75-1.1 Exemptions by

Pleading Reliance in Unfair-Trade-Practices Claims

Two years ago, the North Carolina Supreme Court held that a plaintiff who sues under N.C. Gen. Stat. § 75-1.1 based on a misrepresentation must show actual and reasonable reliance on the misrepresentation.

Courts often say that the reasonableness of reliance is a question of fact. A recent decision from the U.S. District Court for the Eastern District of North Carolina, however, shows that courts can decide the unreasonableness of a party’s reliance as a matter of law—including at the pleading stage.

In Solum v. CertainTeed Corp., Chief Judge James Dever dismissed a section 75-1.1 claim by two homeowners against a vinyl-siding manufacturer. Judge Dever concluded that the complaint’s allegations of actual and reasonable reliance were insufficient as a matter of law.

This post examines Solum, a new and potent weapon for any seller charged with a 75-1.1 violation.

Mastery and Puffery

Timothy and Angela Solum wanted vinyl siding on their home. They considered various building contractors, including a company named Superior Home Improvement. Superior’s owner, Donald Follett, told the Solums that CertainTeed had named him a certified “Master Craftsman.” Follett invited the Solums to verify his Master Craftsman credential on CertainTeed’s website.

The Solums accepted Follett’s invitation. They went to CertainTeed’s website, which explains the company’s Master Craftsman Program. They verified Follett’s Master Craftsman certification, and—in reliance on the certification—hired Superior.

Superior’s performance, however, was inferior. The Solums had to hire a second contractor to fix Superior’s mistakes.

The Solums then sued CertainTeed for violating section 75-1.1. They alleged that CertainTeed’s “Master Craftsman” representations convinced them that Follett had more expertise than he really had.

CertainTeed filed a motion to dismiss. It argued that the Solums’ allegations, even if taken as true, did not state a plausible violation of section 75-1.1.

Siding with the Manufacturer

After noting that the Solums “must plausibly allege actual reliance and reasonable reliance,” Judge Dever outlined standards for the plausibility of a complaint in this context.

First, reasonable reliance on a misrepresentation requires a plaintiff to use reasonable care to ascertain the truth or falsity of the misrepresentation. Reasonable care, in turn, requires one of two showings: (1) the plaintiff could not have learned the true facts by exercise of reasonable diligence, or (2) the plaintiff could have discovered the truth by investigating, but was denied the opportunity to investigate.

Judge Dever then added another hurdle: reliance is unreasonable as a matter of law if the plaintiff relied on a representation that was directly contrary to the express terms of a written contract. A party can’t circumvent this rule by failing to read a contract that he signed.

Next, Judge Dever stated one more rule: a plaintiff can’t make out a misrepresentation claim under section 75-1.1 based on “mere puffery.” This standard, Judge Dever admitted, amounts to a prediction of what the North Carolina Supreme Court would hold.  To support this prediction, Judge Dever cited a 2014 decision by the North Carolina Business Court.

Judge Dever then applied these standards to the Solums’ 75-1.1 claim.

First, Judge Dever concluded that the Solums could have discovered the truth about the Master Craftsman designation by reading the clickwrap statement on CertainTeed’s website. That clickwrap statement says that “CertainTeed makes no guarantees or representations regarding the skills or representations of such service professional or the quality of the job that he or she may perform for you.” It also says that “CertainTeed does not endorse or recommend the services of any particular service professional.”

The CertainTeed website also would have told the Solums more about the Master Craftsman course requirements. The website shows that, to become certified, a professional must read a one-hundred-page workbook and pass a twenty-five-question, ninety-minute multiple-choice quiz. The Solums should have understood that CertainTeed was not making, and could not make, any endorsement of a “Master Craftsman” beyond certifying that the contractor passed the quiz.

Finally, Judge Dever concluded that the Master Craftsman certification is mere puffery. The complaint says that CertainTeed misrepresented the credential as a “prestigious” designation that is awarded only after completion of a “rigorous course.” These statements, Judge Dever explained, are vague and general opinions that “contain no meaningful substance upon which a reasonable person could rely.”

Reconstructing Allegations of Reliance

Solum creates a potent one-two punch that can be thrown—at least in federal court—by defendants who face section 75-1.1 claims based on misrepresentations. As we have discussed, the recent Topshelf decision from the Middle District holds that heightened pleading standards apply to misrepresentation-based claims under section 75-1.1. Solum ups the ante by rigorously enforcing the federal plausibility standard as applied to allegations of reliance. A 75-1.1 plaintiff in federal court might need to satisfy both of these standards.

The decision also sends a warning to plaintiffs who, like the Solums, file state-court complaints that are removed to federal court. After CertainTeed filed its motion to dismiss, the Solums could have filed, but did not file, an amended complaint with more robust allegations about the reasonableness of their reliance. Solum counsels future 75-1.1 plaintiffs to amend their complaints, if possible, to strengthen their allegations of actual and reasonable reliance.

Author: Stephen Feldman