Void-for-Vagueness Challenges to Section 75-1.1
Ellis & Winters
This month’s Clark v. Toyota decision from the U.S. District Court for the Western District of North Carolina has a number of interesting features, as we noted in our last post. Today, we’ll look at another one of those features: the court’s groundbreaking decision that an unfairness claim under N.C. Gen. Stat. § 75-1.1 was not unconstitutionally vague.
A statute violates the Due Process Clause of the Fourteenth Amendment if “men of common intelligence must necessarily guess at its meaning and differ as to its application.” Because section 75-1.1 has such broad and vague elements, the statute has faced a number of void-for-vagueness challenges.
No court has ever invalidated section 75-1.1 on vagueness grounds. In the early years of litigation under section 75-1.1, however, several courts stated in dicta that the statute might be unconstitutionally vague. For example:
- In 1980, the North Carolina Court of Appeals wrote that section 75-1.1 is “so broad and vague . . . as to render the triple damage penalty provided by [section 75-16] in a private action brought for violation of the vague language of [section 75-1.1] at least of questionable validity.”
- In 1983, the U.S. District Court for the Eastern District of North Carolina wrote that section 75-1.1 “is vague, has been the subject of widely varying judicial interpretations, and is of questionable constitutionality.”
In 1986, a court announced an actual holding on the vagueness issue. The court issued this decision, however, only in a narrow context. Olivetti Corp. v. Ames Business Systems, Inc. involved a manufacturer’s lies about the goods that it could make available to a dealer—facts that established common-law fraud. Because the case involved fraud, the North Carolina Court of Appeals had no trouble rejecting a vagueness challenge to the section 75-1.1 claim in that case. The court wrote: “Clearly, the language of G.S. § 75-1.1 provides adequate notice that conduct constituting fraud is prohibited. Therefore, we do not agree that the statute is unconstitutional as applied in this case” (emphasis added).
In the 29 years after Olivetti, vagueness challenges to 75-1.1 became nearly extinct. Defendants held their fire even when plaintiffs pursued less conventional claims under section 75-1.1—for example, pure unfairness claims.
Defendants held their fire, that is, until Clark v. Toyota.
Clark v. Toyota
In Clark, Southeast was a distributor of Toyota industrial equipment. Toyota pressured Southeast to end its budding distribution relationship with Clark, a competitor of Toyota.
Clark sued Toyota for tortious interference and violations of section 75-1.1, among other claims. After an eight-day trial, a jury largely agreed with Clark’s account of the facts.
In post-trial briefing, Toyota argued that the court could not award treble damages under section 75-1.1, because section 75-1.1 is unconstitutionally vague as applied to this case. Toyota argued that it “could not know—based on the vague, standardless statute—that it would be ‘unfair’ and subject to multi-million[-dollar], punitive-type treble damages, to honestly answer questions from a dealer and to direct a dealer . . . to focus on meeting [its] contractually required sales goals” with Toyota.
In response, Clark called Toyota’s vagueness challenge to section 75-1.1 “desperate” and “baseless.” Clark argued that the North Carolina courts “squarely addressed and rejected Toyota’s constitutional argument” in Olivetti. Clark went on to argue that section 75-1.1 has become even less vague since Olivetti, because “Toyota now enjoys the benefit of three decades of intervening jurisprudence demarcating the metes and bounds of the statute.”
U.S. District Judge Max Cogburn agreed with Clark and awarded $9 million in treble damages. He stressed that in Olivetti, the court of appeals had “flatly rejected” a vagueness challenge to section 75-1.1.
Note, however, the differences between Clark and Olivetti.
Olivetti was an especially straightforward 75-1.1 case—a case in which the facts established common-law fraud. If section 75-1.1 is vague in a case like that, the Olivetti court reasoned, fraud and other common-law torts might violate due process as well. Understandably, the court of appeals saw such a sweeping due-process theory as a bridge too far.
Clark, in contrast, involved a more easily questioned 75-1.1 claim: a claim based solely on the “unfairness” aspect of the statute. As Kip Nelson and I pointed out in a 2012 article, the case law on unfairness is especially opaque. Under that case law, the standard for unfairness is only a list of adjectives. Courts have had a hard time explaining why any particular case does or doesn’t satisfy these adjectives. As a result, clients and lawyers have almost no way to tell whether their facts, which will never match earlier fact patterns precisely, will qualify as unfair.
Even so, the Clark court rejected the argument that the unfairness theory under section 75-1.1 is unconstitutionally vague. The court wrote: “The contours of the meaning of ‘unfair’ have been sharpened by over three decades of cases interpreting the meaning of the word as used in [section 75-1.1], particularly as applied to the facts of this case.” To support this statement, the court cited seven 75-1.1 decisions—several departing-employee cases and a few manufacturer-dealer disputes.
In response to this reasoning in Clark, one might question whether fact-matching with seven earlier cases will give clients sufficient notice of what conduct could expose them to treble damages and attorney fees. One might even question whether all of the decisions cited in Clark are really unfairness cases.
But in any event, we now have a first-impression decision that rejects a vagueness challenge to a section 75-1.1 unfairness claim. We’ll see whether other federal and state courts agree. At the current tempo of case law on this issue, it might take another thirty years to find out.
Scottie Beth Forbes contributed to this post.
Author: Matt Sawchak