Antitrust & Complex
Business Dispute News
Published by the Antitrust & Complex Business Disputes Law Section of the North Carolina Bar Association • Section Vol. 24, No. 1 • October 2013
The Chair’s Comments
I am honored to follow the
distinguished lawyers who have
served as chair of this section—
now in its second year as the Antitrust & Complex Business Disputes
Law Section. We look forward to
building on our successful year last
year, when the new name and expanded focus were accompanied
Moore
by an increase in membership and
a well-attended CLE seminar. Our goals for the year include (i) to continue the growth of the section and to gain
visibility for its coverage of complex business disputes
while (ii) maintaining the section’s role in serving North
Carolina’s antitrust practitioners, and (iii) reaching out
to the community through pro bono work and our law
school relations efforts.
Our editors Bailey King and Tom Segars have put together the first of the three newsletters that the section
will publish this year. We are continuing our examination of issues that arise in complex business disputes
with an article on the 2011 attorney fees statute, “Incorporating N.C.G.S. Section 6-21.6 into Case Evaluations
and Strategy” from Allan Trask at Ward and Smith. The
article includes useful discussions of the how the new
attorney fees statute should be taken into consideration
in contract formation, in settlement discussions, and in
the use of offers of judgment pursuant to Rule 68. Antitrust and trade regulation matters are also covered with
“Chapter 75 Case Update: Recent Decisions” from Kenzie Rakes, who has just started a clerkship with Chief
Judge John C. Martin of the North Carolina Court of Appeals. Rakes’ article includes a discussion of the In re
Refrigerant Compressors Antitrust Litigation federal
district court decision from earlier this year dismissing a
Chapter 75-1 claim in an indirect purchaser class action
alleging bid rigging. Finally, we have “FTC Lands OneTwo Healthcare Punch in Supreme Court” from Nathan
Incorporating N.C.G.S
Section 6-21.6 into Case
Evaluations and Strategy
By Allen N. Trask III
Prior to Oct. 1, 2011, it was very difficult to recover attorneys’ fees in a business contract case. There were narrow exceptions, including exceptions for
cases involving the North Carolina Unfair or Deceptive Trade Practices Act or
collections under an “evidence of indebtedness,” such as a Note or Conditional
Sales Contract. See N.C.G.S. §§ 75-16.1 and 6-21.2, respectively. The general
public policy of North Carolina, however, did not allow for the recovery of fees
by a prevailing party. That changed with the passage of Section 6-21.6 of the
North Carolina General Statutes (the “Statute”) in June of 2011. Subject to many
conditions and requirements, the Statute makes reciprocal attorneys’ fees provisions enforceable in business contracts executed after Oct. 1, 2011.
While the Statute fits the basic mold of previous narrow statutory exceptions
to the general public policy of North Carolina disfavoring the recovery of attorneys’ fees, the Statute has broad application and will most certainly have a profound effect on commercial litigation. This broad application, taken together
with the often onerous expense associated with commercial litigation, means
that attorneys should consider the Statute not only when evaluating and valuing
their business litigation cases early in a dispute, but also throughout the litiga-
Continued page 3
Inside this Issue...
6 | Chapter 75 Case Updates: Recent Decisions
By Kenzie M. Rakes
8 | FTC Lands One-Two Healthcare Punch in
Supreme Court By Nathan Standley
Continued page 2
October is JPE Month! |
See page 5 for details!
Chapter 75 Case Update
Recent Decisions
By Kenzie M. Rakes
For section 75-1.1 purposes, the Fourth Circuit treated a
breach-of-warranty claim as a breach-of-contract claim that
lacked substantial aggravating circumstances.
In Ellis v. Louisiana-Pacific Corp., 699 F.3d 778 (4th Cir. 2012),
the plaintiffs filed multiple claims over Trimboard, a construction
product sold by Louisiana-Pacific. Trimboard was allegedly defective
because it “prematurely deteriorate[d], rot[ted], swell[ed], buckle[d],
delaminate[d], absorb[ed] water, warp[ed], and/or bulge[d] under
normal conditions and natural, outdoor exposure.” Id. at 781.
The plaintiffs alleged that Louisiana-Pacific violated section 75-1.1
by “(1) failing to give adequate warnings and notices about the allegedly defective quality of Trimboard, and (2) failing to insure that
[building owners] were provided with an express warranty.” Id. at 787.
The Fourth Circuit interpreted the plaintiffs’ allegations as a breachof-contract claim without substantial aggravating circumstances. The
court therefore affirmed the dismissal of this section 75-1.1 claim.
The court decided that the first allegation quoted above was simply another way of stating the plaintiffs’ breach-of-warranty claim.
The court then noted that a breach-of-contract claim, in the absence
of substantial aggravating circumstances, would not state a section
75-1.1 claim. Id. at 787–88. Through this reasoning, the court seemed
to equate a warranty claim with a contract claim. The court, however,
did not address the fact that the plaintiffs and Louisiana-Pacific were
never in privity of contract. The plaintiffs did not buy Trimboard
from Louisiana-Pacific. Rather, they bought houses in which Trimboard had been installed. Id. at 781.
The court then considered whether the plaintiffs’ second allegation—that Louisiana-Pacific should have provided end users with a
copy of the express warranty—stated a substantial aggravating circumstance. Substantial aggravating circumstances, after all, can turn
a breach of contract into a section 75-1.1 claim. See, e.g., Branch
Banking & Trust Co. v. Thompson, 107 N.C. App. 53, 62, 418 S.E.2d
694, 700 (1992). Here, however, the court found no substantial aggravating circumstance. It reasoned that in North Carolina, a “‘failure to perform an administrative act’ is not a substantial aggravating circumstance.” Ellis, 699 F.3d at 788 (quoting Ford v. All-Dry
of the Carolinas, Inc., No. COA10-931, 2011 WL 1483726 *5 (N.C.
Ct. App. Apr. 19, 2011) (unpublished)). The court decided that a requirement that Louisiana-Pacific get a copy of the express warranty
to every consumer who owns a building with Trimboard would be
equivalent to performing an administrative act. Ellis, 699 F.3d at 788.
The court therefore concluded that omitting this act was not a substantial aggravating circumstance. Id.
The Eastern District of North Carolina held that the law-of-thesitus test determines whether section 75-1.1 applies.
In Martinez v. National Union Fire Insurance Co., No. 5:12-CV170-D, 2012 WL 5993754 (E.D.N.C. Nov. 30, 2012), Martinez was
a citizen and resident of Brazil who managed AAIPharma Brazil, a
subsidiary of AAIPharma, a North Carolina corporation. After AAI-
Since January 2012, state and federal courts have collectively decided over 300 cases under N.C. Gen. Stat. § 75-1.1. The four most
noteworthy cases, which address a range of issues under section 751.1, are summarized below. These cases consider:
• Whether a contractually set limitations period applies to a
section 75-1.1 claim,
• Whether a section 75-1.1 claim based on a breach of warranty is
analyzed similarly to a claim based on a breach of contract,
• What choice-of-law test under North Carolina’s choice-of-law
regime governs claims of unfair and deceptive practices, and
• Whether section 75-1.1 applies when there is neither a
substantial injury nor wrongful conduct in North Carolina.
The North Carolina Court of Appeals held that a contractually set
limitations period applies to a section 75-1.1 claim.
In Steele v. Safeco Insurance Co. of America, No. COA12-266,
2012 WL 5857393 (N.C. Ct. App. Nov. 20, 2012) (unpublished),
Steele brought a section 75-1.1 claim against a contractor, MHH Enterprises. MHH destroyed some of Steele’s personal property while it
repaired his fire-damaged house.
MHH argued that a one-year limitations period stipulated in
Steele’s and MHH’s repair contract barred Steele’s section 75-1.1 claim
as well. Although the opinion on appeal does not quote the contract,
the relevant provision (which appears in the record on appeal) stated:
“No action regardless of form, relating to the subject matter of this
contract may be brought more than one (1) year after the claiming
party knew or should have known of the cause of action.”
The Court of Appeals first decided that the limitations period
stipulated in the contract applied to Steele’s section 75-1.1 claim, not
just his other claims. To reach this conclusion, the court pointed out
that Steele himself based his section 75-1.1 claim on his contract with
MHH. Id. at *3. (The language of the stipulated limitations period,
specifically the phrase “relating to the subject matter of this contract,”
reinforced the appellate court’s decision to apply the stipulation to
Steele’s section 75-1.1 claim.)
The court also found the one-year stipulation enforceable as a
matter of public policy. North Carolina courts usually uphold contractual limitations periods, see Beard v. Sovereign Lodge of Woodmen of the World, 184 N.C. 154, 157, 113 S.E. 661, 662 (1922), including one-year limitations periods, see Horne-Wilson, Inc. v. Nat’l
Sur. Co., 202 N.C. 73, 74–75, 161 S.E. 726, 726–27 (1932). To justify
this outcome in Steele, the court noted that North Carolina’s actual
statutes of limitations do not bar stipulations of shorter periods. See,
e.g., N.C. Gen. Stat. § 1-52 (2011). Those statutes include section 7516.2, which establishes a four-year limitations period for section 751.1 claims.
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Pharma closed AAIPharma Brazil, former AAIPharma Brazil employees sued Martinez in a Brazilian court. Those employees were
awarded a judgment of $523,333.45 based on violations of Brazilian
employment laws. Martinez sought indemnification from National
Union Fire Insurance Company, the insurers of AAIPharma, for the
Brazilian judgment and the legal costs she incurred in Brazil.
Martinez claimed that National Union’s refusal to indemnify her
violated section 75-1.1. To decide whether section 75-1.1 applied, the
district court had to determine the choice-of-law test that applies to
a section 75-1.1 claim.
The North Carolina Supreme Court has never directly addressed
the choice-of-law test that governs claims of unfair trade practices.
The North Carolina Court of Appeals has applied two different tests:
the law-of-the-situs test, see, e.g., United Va. Bank v. Air-Lift Assocs., Inc., 79 N.C. App. 315, 321, 339 S.E.2d 90, 94 (1986), and the
“most significant relationship” test, see, e.g., Andrew Jackson Sales v.
Bi-Lo Stores, Inc., 68 N.C. App. 222, 225, 314 S.E.2d 797, 799 (1984).
In Martinez, the district court applied the law-of-the-situs test for
three reasons:
competition and unfair or deceptive trade practices in violation
of section 75-1.1.
The court called the first claim an antitrust claim. It called the second claim a consumer protection claim.
The defendants moved to dismiss the section 75-1 claim, arguing that the indirect purchasers lacked Article III standing and that
their claim failed to allege an agreement in plausible terms. The court,
however, held that there was “at least one named [indirect-purchaser]
Plaintiff with constitutional standing to assert [a] claim[ ] under the
law of . . . North Carolina.” In re Refrigerant Compressors, 2013
WL 1431756, at *5. The court also held that the indirect purchasers’
complaint satisfied Twombly because it contained the same facts as
the direct purchasers’ complaint, which, the court had already held,
plausibly alleged an agreement. Id. at *6. For these reasons, the court
denied the defendants’ motion to dismiss the section 75-1 claim.
The plaintiffs’ claim under section 75-1.1, in contrast, did not survive. The court dismissed this claim because the plaintiffs did not allege a substantial injury in North Carolina or wrongful conduct in
North Carolina. Id. at *19. For these requirements, the court relied
on The “In” Porters, S.A. v. Hanes Printables, Inc., 663 F. Supp. 494
(M.D.N.C. 1987).
The “In” Porters court addressed how the United States Constitution limits the extraterritorial reach of section 75-1.1. The court held
that the Commerce Clause and the Fourteenth Amendment’s Due
Process Clause require that there be a substantial injury in North
Carolina before a court can apply section 75-1.1. Id. at 502. The court
relied on the Commerce Clause requirement that the application of
state law be “justified by local concerns and not be excessively burdensome on interstate commerce,” as well as the due-process requirement that “North Carolina must have a sufficient state interest in the
litigation such that application of North Carolina’s law is ‘neither arbitrary nor [ ] unfair.’” Id. (quoting, in the second passage, Am. Rockwool, Inc., v. Owens-Corning Fiberglas Corp., 640 F. Supp. 1411,
1427 (E.D.N.C. 1986)).
Decisions after “In” Porters, however, have suggested that a substantial in-state injury is not necessary when the wrongful conduct
supporting a section 75-1.1 claim takes place in North Carolina.
See, e.g., Verona v. U.S. Bancorp, No. 7:09-CV-057-BR, 2011 WL
1252935, at *15 (E.D.N.C. Mar. 29, 2011); Ada Liss Grp. v. Sara Lee
Corp., No. 06-CV-610, 2010 WL 3910433, at *12–14 (M.D.N.C. Apr.
27, 2010). If wrongful conduct takes place in North Carolina, after all,
a court would not be applying section 75-1.1 extraterritorially at all,
at least from the defendant’s perspective. Under these circumstances,
the only due-process concern is likely to be personal jurisdiction over
the defendant. See, e.g., Ada Liss, 2010 WL 3910433, at *13.
Applying these principles in Refrigerant Compressors, the court
held that the allegations that retail customers paid a higher price for
products with hermetic compressors stated only an incidental instate injury, not a substantial in-state injury. In re Refrigerant Compressors, 2013 WL 1431756, at *19. The court held that the indirect
purchasers had not alleged any wrongful conduct that occurred in
North Carolina. Id. For both these reasons, the court dismissed the
section 75-1.1 claim. •
• “First, in United Virginia Bank, the North Carolina Court of
Appeals used the law of the situs test.” Martinez, 2012 WL
5993754, at *5.
• “Second, the United Virginia Bank court was influenced by a
Fourth Circuit case that also determined the law of the situs test
applied to a [section 75-1.1] claim.” Id.
• “Finally, after United Virginia Bank, the Supreme Court of North
Carolina has affirmed the continuing validity of the law of the situs
test.” Id.; see also Braxton v. Anco Elec., Inc., 330 N.C. 124, 12627, 409 S.E.2d 914, 915 (1991) (holding that the law of the situs
applies to tort claims); Boudreau v. Baughman, 322 N.C. 331,
335, 368 S.E.2d 849, 854 (1988) (same).
Applying the law-of-the-situs test, the court held that the situs of
Martinez’s claim was Brazil. The employment lawsuit, after all, was
filed in Brazil and went to judgment in Brazil. Martinez, 2012 WL
5993754, at *5; see also United Dominion Indus. v. Overhead Door
Corp., 762 F. Supp. 126, 128 (W.D.N.C. 1991) (noting that the relevant situs is the place of the plaintiff ’s injury). Because Brazilian
law governed Martinez’s claim for unfair trade practices, the district
court dismissed Martinez’s section 75-1.1 claim for failure to state a
claim. Martinez, 2012 WL 5993754, at *5.
For section 75-1.1 to apply to a claim, the claimant must allege
a substantial injury in North Carolina or wrongful conduct in
North Carolina.
In In re Refrigerant Compressors Antitrust Litigation, No. 2:09MD-02042, 2013 WL 1431756 (E.D. Mich. Apr. 9, 2013), a federal
district court considered indirect purchasers’ claims that manufacturers of hermetic compressors (the engines used in refrigerators) engaged in bid rigging. The indirect purchasers claimed that the manufacturers violated the state antitrust and consumer protection statutes
of 27 states, the District of Columbia, and Puerto Rico. The indirect
purchasers asserted the following claims under North Carolina law:
• That the manufacturers made an unlawful agreement to restrain
trade in violation of section 75-1.
Kenzie M. Rakes will began a clerkship with Chief Judge John
C. Martin of the North Carolina Court of Appeals in September.
She thanks Matt Sawchak for his expert advice.
• That the manufacturers engaged in unfair methods of
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