Chapter 35 UNFAIR & DECEPTIVE TRADE PRACTICES ACT VIOLATIONS

• Jurisdiction: North Carolina

35 UNFAIR & DECEPTIVE TRADE PRACTICES ACT VIOLATIONS

A. Definition

The North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) is found in article 1 of chapter 75 of the North Carolina General Statutes. A claim under the Act is brought under § 75-1.1, known as the "unfair trade practices" statute¹ and also referred to as the "consumer protection statute" or a "little FTC Act." It is based on the Federal Trade Commission Act (FTCA).² The statute is so commonly employed in commercial litigation³ that one North Carolina federal district court judge called it "a boilerplate claim in most every complaint based on a commercial or consumer transaction in North Carolina."⁴ Because of its connections to the FTCA, federal decisions interpreting that Act may be used as guidance in determining the scope and meaning of the state law.⁵

It is not difficult to see why the UDTPA has become so popular; it provides for treble damages⁶ and attorney's fees.⁷ The basic prohibition is simple:

It declares "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce" to be unlawful.⁸ It also forbids monopolies⁹ and any "act, contract, combination in the form of trust, or conspiracy in restraint of trade or commerce which violates the principles of the common law"¹⁰ The purpose of the legislation was to create a private cause of action for consumers¹¹ and it was designed to supplement common-law remedies that often proved ineffective to redress unfair or deceptive practices.¹²

Since the UDTPA is in derogation of common law, it is to be strictly construed.¹³

The UDTPA's protections may extend to businesses.¹⁴ The entire chapter is said to prohibit unfair acts that undermine ethical standards and good faith between persons engaged in business dealings.¹⁵ Claims under the statute typically involve buyer and seller;¹⁶ however, neither the language of the UDTPA nor case law requires proof of any contractual relationship between the parties,¹⁷ although some business relationship between the parties may be necessary for the plaintiff to have standing.¹⁸

Many transactions that might be unfair or deceptive trade practices would be governed by the Uniform Commercial Code (UCC). Therefore, if the UCC were the exclusive source of regulation for those transactions, the UDTPA would be all but eviscerated. However, the North Carolina Court of Appeals has held that chapter 75 is applicable to commercial transactions that are also regulated by the UCC.¹⁹

Typically, an unfair trade practices claim is brought by a plaintiff, but it can be a counterclaim brought by a defendant.²⁰

B. Elements

There are actually two prongs to the statutory prohibition:

(1) Unfair methods of competition, and
(2) Unfair or deceptive acts or practices.

Courts, when reciting the elements of the action, sometimes state the first element in the disjunctive, including both prongs,²¹ but often include only the second and more commonly raised prong.²² The broader statement of elements is that the plaintiff, to prove a violation of the Act, must show:

(1) An unfair or deceptive act or practice, or unfair method of competition;
(2) In or affecting commerce; and
(3) That proximately caused actual injury to the plaintiff or his or her business.²³

C. Elements Defined

1. Unfair/Deceptive Act/Practice or Unfair Method of Competition

The first element concerns two broad categories of offense: (1) an unfair or deceptive act or practice, and (2) an unfair method of competition. For the most part, federal courts employ the latter to address antitrust issues.²⁴ Unfortunately, North Carolina courts often fail to make a clean distinction between the two categories.²⁵Additionally, there is authority — criticized by one commentator²⁶ — for the proposition that "unfair competition" applies to competitors, not consumers.²⁷ For these reasons, and because most cases seem to concern unfair or deceptive acts or practices, this chapter doesn't attempt to make that distinction either, although practitioners need to be aware of it.

When attempting to make a case for an unfair or deceptive act or practice, the plaintiff must show it was the defendant who committed the unfair or deceptive acts or practices,²⁸ but does not need to show intent.²⁹ The statute prohibits unfair or deceptive acts or practices. That language contemplates two distinct grounds for relief. While an act or practice that is unfair may also be deceptive, or vice versa, it need not be so for there to be a violation of the statute.³⁰ An act does not need to be both unfair and deceptive, as either unfairness or deception may bring conduct within the purview of the statute.³¹

The terms "unfair" and "deceptive" are not defined in the statute.³² Determination of whether there is an unfair or deceptive practice that violates the statute usually depends on the particular facts of each case³³ and is a question of law for the court.³⁴ The courts have found the duty difficult and have struggled to define unfair and deceptive acts or practices and unfair methods of competition.³⁵ Indeed, one court conceded no precise definition is possible, and added that one may not even be desirable because the acts to which the term should properly be applied change as social and business conditions change.³⁶ The federal Fourth Circuit Court of Appeals has said that what constitutes an unfair or deceptive trade practice is "a somewhat nebulous concept."³⁷ Nonetheless, North Carolina courts have attempted to give meaning to the terms "unfair" and "deceptive."

The state Supreme Court has said that a practice is unfair if it is "unethical or unscrupulous."³⁸ The following is a more specific interpretation often found in appellate decisions: "A practice is unfair when it offends established public policy as well as when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers."³⁹ Additionally, if a party engages in conduct "manifesting an inequitable assertion of power or position," that conduct constitutes an unfair act or practice.⁴⁰ Courts also say that to prevail on a claim, a plaintiff has to demonstrate some type of "egregious or aggravating circumstances."⁴¹

In general, a practice is deceptive if it has "a tendency to deceive."⁴² The North Carolina Supreme Court has said that "a practice is deceptive if it has the capacity or tendency to deceive; proof of actual deception is not required."⁴³ On the other hand, courts require actual detrimental reliance on the alleged misrepresentation.⁴⁴ Even though a statement is truthful, it may still be deceptive if it has the capacity or tendency to deceive.⁴⁵ The effect on the "average consumer" is considered when determining if a representation is deceptive.⁴⁶ In a business context, the court considers the likely effect on "the average businessperson."⁴⁷ The courts also agree that intent or bad faith are not relevant to the determination of whether a practice is unfair or deceptive.⁴⁸ An allegation that a defendant broke a promise, standing alone, does not constitute an unfair practice; generally, there must be evidence the defendant intended to break its promise at the time the defendant made that promise.⁴⁹

Courts have identified some specific conduct that may be considered unfair or deceptive. Proof of fraud "necessarily constitutes a violation of the prohibition against unfair or deceptive trade practices,"⁵⁰ although an action for unfair and deceptive trade practices is distinct and separate from fraud.⁵¹ Indeed, fraud is not an element of an unfair trade practices claim.⁵² Even a negligent misrepresentation — or misrepresentation by concealment⁵³ — may be the basis of an unfair or deceptive trade practices claim.⁵⁴ Breach of fiduciary duty,⁵⁵ libel or slander per se,⁵⁶ violation of a Federal Trade Commission Trade Regulation Rule,⁵⁷ and tortious interference with business or contractual relations⁵⁸ may all constitute a violation.⁵⁹ So may failure to maintain a residential rental property in a safe, fit and habitable condition while demanding payment of rent.⁶⁰

The North Carolina Supreme Court has said that while there may be circumstances when an unreasonably excessive price would constitute a violation of § 75-1.1, "when transacting parties willingly and honestly negotiate a transaction, generally the transaction is not said to be unfair or deceptive."⁶¹

Mere breach of contract standing alone is insufficient to establish an unfair or deceptive trade practice claim.⁶² As one court observed, chapter 75 is unlikely to be violated during the course of contractual performance, as breach of performance claims are best resolved by simply determining whether the parties properly fulfilled the contractual duties.⁶³ Curiously, it's possible for exercise of a contractual right, when it involves egregious and aggravating conduct, to constitute an unfair or deceptive trade practice.⁶⁴ An innocent and unintentional infringement of unregistered trademarks was not intended to be addressed by the statute.⁶⁵ Publishing an advertisement that is neither false nor misleading is not an unfair method of competition nor an unfair or deceptive act or practice.⁶⁶ Neither the failure to conduct an in-person interview before executing a mortgage⁶⁷ nor an amendment to community association documents by the project developer⁶⁸ was an unfair or deceptive act or practice. The intentional act of a tenant in causing a fire to be set on leased premises to make a fraudulent insurance claim did not constitute an unfair and deceptive trade practice.⁶⁹ And an objectively reasonable law suit does not constitute an unfair trade practice.⁷⁰

Some acts or practices are per se unfair or deceptive because the legislature has deemed the violation of certain statutes to be violations of the unfair trade practices statute.⁷¹ These are statutes that concern the following:

• Falsely obtaining, selling or soliciting telephone records⁷²
• Filing

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