Roll Tide: Why Alabama’s Interests Caused a Tennessee Court to Dismiss a Claim for Unfair Trade Practices against a North Carolina Defendant
The case, styled McLendon v. North Carolina Mutual Life Insurance Company, involves allegedly unfair insurance practices. The defendant insurer has its headquarters in North Carolina, but the case was filed in Tennessee, because the plaintiff lives there.
The case concerns a whole life policy issued in 1984 to insure the life of the plaintiff’s brother. The policy required the payment of a monthly premium.
But there were problems. The plaintiff’s mother—who bought the policy—took out a loan on the policy in 1995. Then a dispute arose about the amount that was repaid to reduce the loan balance. The insurance company also charged an enhanced premium for policy riders that had expired. And, on top of these issues there was a dispute about the benefit due under the policy when the plaintiff’s brother died in 2016.
These problems prompted a lawsuit—a putative class action, no less. It included a claim for unfair and deceptive trade practices.
Choosing the relevant choice-of-law regime
Which state’s law controlled the claim for unfair and deceptive trade practices?
The plaintiff is from Tennessee and brought the case in Tennessee. The policy was issued in Alabama by an Alabama insurer. The defendant insurer, North Carolina Mutual, has its headquarters in (no surprise) North Carolina; it bought the policy in 2009 from the Alabama insurer that issued the policy.
Which law controlled mattered. Alabama’s little FTC act has an express exclusion for any activity that’s subject to the Alabama Insurance Code. North Carolina law, in contrast, permits certain claims about insurance conduct to be asserted as violations of N.C. Gen. Stat. § 75-1.1.
The answer turned on the relevant choice-of-law regime. When a federal court sits in diversity, the choice-of-law rules of the forum state govern. Thus Tennessee’s choice-of-law regime applied.
Under Tennessee’s regime, the most significant relationship test determines the law that applies to a claim for unfair and deceptive trade practices.
The most significant relationship test has a relatively elastic application. In Tennessee, the test looks to four factors: (1) where the alleged injury occurred; (2) where the wrongful conduct occurred; (3) the domicile and/or place of business of the parties; and (4) where the parties centered their relationship.
These factors gave the plaintiff a fighting chance. The allegedly wrongful conduct, after all, occurred in North Carolina, where the insurer was located. The allegedly wrongful conduct involved the miscalculation of the loan repayment and policy benefit, as well as charging premiums for expired policy riders.
Other factors favored Alabama. The relevant policy was signed, issued, and delivered in Alabama. The insured was located in Alabama. The payments toward policy premiums and loans were made in Alabama. Judge William L. Campbell, Jr., therefore concluded that the parties’ relationship—a relationship that was all about the relevant insurance policy—was centered in Alabama.
The court then examined the respective regulatory interests of Tennessee and North Carolina. Alabama’s interest was easy to spot: the policy was governed by the Alabama Insurance Code, and Alabama is where the alleged harm occurred. But North Carolina has its own regulatory interest. It doesn’t want businesses within its borders to engage in unfair or deceptive trade practices.
Weighing these competing interests, Judge Campbell concluded that Alabama had a stronger interest than North Carolina in regulating the relevant practices because the alleged harm from those practices occurred in Alabama.
That conclusion, combined with the fact that the parties’ relationship was centered in Alabama, was more than North Carolina could bear. Alabama had the most significant relationship. And its law foreclosed the plaintiff’s claim for unfair and deceptive trade practices. Alabama triumphed again.
Pull out the choice-of-law playbook for multistate conduct
The analysis required in McLendon is only becoming more and more common. Interstate transactions regularly form the basis for claims of unfair or deceptive conduct. If your fact pattern includes multistate conduct, then figuring out the governing choice-of-law regime—and then figuring out how that regime will apply—is an essential threshold question.
To be clear, though, answering that question at the outset can be tricky, especially for cases filed in North Carolina, where the choice-of-law regime is unsettled.
We looked recently at the strategic advantages of raising procedural arguments at the outset of a case. Raising a choice-of-law question is a textbook example of this strategy. The defendant in McLendon followed this playbook.
In sum: as many in Alabama deeply believe, it’s important to trust the process.
Authors: Stephen Feldman and Jamie Weiss