The Business Court Takes A Narrow View Of When Claims Are "In Or Affecting Commerce" Under Chapter 75 Of The General Statutes
Chapter 75 claims have rarely fared well in the Business Court, though there is not much doubt about why they are included in almost every Complaint in the Court. The prospect of treble damages (per G.S. §75-16) and attorneys' fees (per G.S. § 75-16.1) is too tempting for many to pass up.
But this week in Powell v. Dunn, 2014 NCBC 3, Judge Gale provided some clear guidelines about when these claims don't fit in the business litigation context because they are not "in or affecting commerce," an essential element under the statute.
The Plaintiffs in the case were holders of the common stock of Engenious Software, based in Cary, North Carolina. The Defendants were former directors of the company who held preferred stock. The directors negotiated a sale of the company, which had involved two potential acquirers and the services of an investment banker, for $40 million. That sale apparently yielded nothing for the common shareholders. The Plaintiffs made a claim for unfair and deceptive practices per Section 75-1.1 over the way the sale was handled, alleging a breach of fiduciary duty.
Judge Gale dismissed the claim, holding that:
when the unfair or deceptive conduct alleged only affects relationships within a single business or market participant, and not dealings with other market participants, that conduct is not “in or affecting” commerce within the meaning of Section 75-1.1,
Op. Par. 17.
He based that ruling on two North Carolina Supreme Court decisions construing the statute: HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 403 S.E.2d 483 (1991) and White v. Thompson, 364 N.C. 47, 691 S.E.2d 676 (2010).
The White case was featured on this blog when it was decided, but the HAJMM case was decided before the idea of a blog was invented. In HAJMM, the Court said that the statute extended only to “the manner in which businesses conduct their regular, day-to-day activities, or affairs, such as the purchase or sale of goods, or whatever other activities the business regularly engages in and for which it is organized.” It affirmed the dismissal of 75-1.1 claims premised on unfair or deceptive acts related to the corporation's capital raising efforts.
The Powell decision is also noteworthy for its rejection of the Plaintiffs' argument that the involvement of an investment bank in the transaction, and that another potential buyer was involved, made the claim one "in or affecting commerce."
Is a breach of fiduciary duty a per se violation of Section 75-1.1? Judge Gale didn't reach that question because the claim was not "in or affecting commerce." Op. ¶ 20 & n.4.