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The North Carolina Supreme Court Weighs in on Two Exemptions to Section 75-1.1 Liability

It’s not every day that our state’s highest court gets an opportunity to weigh in on the scope of N.C. Gen. Stat. § 75-1.1. Last month, the North Carolina Supreme Court issued an important opinion on two familiar exemptions to liability under the statute: the securities exemption and the internal-business-disputes exemption.

As we’ve discussed before, disputes involving securities or a company’s internal business affairs typically fail the “in or affecting commerce” test under section 75-1.1.

In Nobel v. Foxmoor Group, LLC, the Supreme Court held that these two exemptions barred a plaintiff’s section 75-1.1 claim involving a promissory note and money that she had loaned to an outside business. The decision highlights two key—and sometimes counterintuitive—limits on the scope of section 75-1.1.

Background of Nobel

We previously discussed the background of Nobel. The plaintiff, Loretta Nobel, sued a trucking company named Foxmoor Group and its owners when they failed to repay money that Nobel had loaned the company in exchange for a promissory note. Nobel alleged that the owners—Nobel’s friends and business acquaintances—induced her to loan money to Foxmoor by misrepresenting the company’s financial status. She claimed that the owners had pitched Foxmoor as a thriving company but in reality, were draining all of Foxmoor’s money for their personal use.

Although the parties called Nobel’s loan an “investment,” Nobel did not stand to gain an ownership interest in Foxmoor in exchange for providing a loan to the company. 

The North Carolina Court of Appeals held that the securities exemption barred Nobel’s section 75-1.1 claim. For purposes of “in or affecting commerce,” section 75-1.1 defines “commerce” to include “all business activities, however denominated.” Courts have held that capital-raising devices are not “business activities.” Relying on this line of cases, the Court of Appeals concluded that the promissory note was a capital-raising device and stressed that soliciting funds to build capital is not a business activity.

Judge John Arrowood wrote a dissenting opinion. He disagreed with the majority’s characterization of the promissory note as a security for purposes of the securities exemption. Based on Judge Arrowood’s dissent, the case made its way to the Supreme Court.

The Supreme Court affirms on two grounds.

In a divided opinion, the Supreme Court affirmed dismissal of Nobel’s section 75-1.1 claim.

First, the majority opinion, authored by Justice Philip Berger Jr., agreed with the Court of Appeals majority that the securities exemption applied to Nobel’s claim. The court relied on its 1991 opinion in HAJMM Co. v. House of Raeford Farms, Inc., where the court extended the exemption to capital-raising devices beyond traditional securities.

The Nobel court explained that like in HAJMM, the defendants’ dealings with Nobel did not involve the normal business activities of Foxmoor. Instead, the underlying conduct in both HAJMM and Nobel concerned a business’s acquisition of capital. The purpose of that conduct—not the type of capital-raising device involved—determined whether section 75-1.1 applied. The court explained that this was true despite the defendants’ “morally suspect” conduct.

Second, the court explored another exemption that barred Nobel’s claim: the exemption for internal business disputes. That exemption, born in White v. Thompson, excludes internal business disputes among members of a business from the scope of section 75-1.1.

You might be wondering how Nobel’s claim against Foxmoor and its owner could possibly be considered an internal business dispute among members of a business. After all, Nobel had no ownership interest in Foxmoor; she was merely a friend and business acquaintance of the company’s owners.

To answer that question, the Nobel court focused on whether the conduct at issue was confined to a single business. In White, the supreme court explained that section 75-1.1 was enacted to regulate two types of business transactions: (1) interactions between business, and (2) interactions between businesses and consumers. Nobel did not fall under either category of market participants.

The court explained that Nobel was not a consumer of Foxmoor, and she did not “engage[] in any commercial transaction with the company.” Instead, she was an investor, and her section 75-1.1 claim related solely to her investment in Foxmoor. That investment occurred within a single market participant—Foxmoor.

Note that the Court of Appeals majority’s opinion did not address the internal-business-disputes exemption. Judge Arrowood addressed the exemption in his dissent, but he concluded that the exemption did not apply because Nobel was not an owner in Foxmoor—i.e., the conduct at issue did not involve an internal dispute.

The dissent

The Supreme Court majority’s opinion drew a dissent from Justice Anita Earls, joined by Justice Robin Hudson. 

Justice Earls characterized the majority’s position as inconsistent with the General Assembly’s purpose in enacting a broad remedial statute “to protect the public from unscrupulous dealings in business interactions.”

As to the securities exemption, Justice Earls viewed the majority’s opinion as an expansion of HAJMM “beyond the circumstances of [section 75-1.1’s text], structure, and animating purpose.” She emphasized that HAJMM involved a stock certificate issued to a limited partnership, while Nobel involved a promissory note offered to a non-professional individual investor. Justice Earls viewed this as a salient distinction between HAJMM and Nobel.

Justice Earls also disagreed with the majority’s reliance on White. She found it “difficult to discern how a company receiving funding from an entirely unaffiliated investor” is a transaction that involves a single-market participant. After all, Nobel was not an owner, director, manager, or employee of Foxmoor.

In sum, in Justice Earls’s view, section 75-1.1 applied to the defendants’ conduct, and the majority’s opinion expanded both the language of the statute and the courts’ precedents interpreting the statute.


Nobel is an important decision on the limitations of section 75-1.1.  

First, the opinion confirms that the securities exemption is broader than its name might indicate. Nobel applied the exemption to an ordinary promissory note. The key takeaway is that the purpose of the transaction at issue—not the technical nature of the capital-raising device—governs whether the securities exemption applies.

Second, Nobel extends the exemption for internal business disputes to disputes that, on their face, might seem external. If you’re one of our regular readers, you know that section 75-1.1 does not reach disputes among owners of a business. This is true even when the dispute includes the tangential involvement of third parties.  

Under Nobel, the threshold question is whether the dispute involves either (1) interactions between business, or (2) interactions between businesses and consumers. Nobel, as an investor in Foxmoor who merely loaned money to the company, did not fall under either category of market participants. The conduct at issue was confined to a single business. 

Although the exemptions for securities and internal business disputes are broadly construed, the Supreme Court’s decision in Nobel likely will make it more challenging for litigators to sidestep the exemptions.


Author: Scottie Forbes Lee

March 1, 2022 Scottie Forbes Lee
Posted in  75-1.1 Exemptions