A recent North Carolina Supreme Court decision clarifies when an Unfair and Deceptive Trade Practices claim is available in investor disputes. The key upshot from the Court’s decision in Nobel v. Foxmoor Group, LLC is, “if an alleged unfair or deceptive action remains confined within a single business, the Act is inapplicable.”

The facts of Foxmoor are fairly straightforward. Ms. Nobel loaned a total of $100,000.00 to Foxmoor Group, LLC, a trucking company. The trucking company defaulted on the loan. A New Hanover County Superior Court Judge conducted a bench trial, concluding that Foxmoor Group, LLC owed $493,500.00 to Ms. Nobel. It appears much of this award was for treble damages under North Carolina’s Unfair and Deceptive Trade Practices Act.
To recover under the Act, a plaintiff must establish that: “(1) defendant committed an unfair or deceptive act or practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused injury to the plaintiff.”

The Foxmoor decision hinges on whether the action complained of was in or affecting commerce. It is well settled law that, “[a]lthough th[e] statutory definition of commerce is expansive, the [Act] is not intended to apply to all wrongs in a business setting.”

The Court in Foxmoor explains, “Investments and other mechanisms associated with financing business entities are “unlike [the] regular purchase and sale of goods, or whatever else [an] enterprise was organized to do” and “are not ‘business activities’ as that term is used in the Act.” Instead, investments are “extraordinary events done for the purpose of raising capital” for a business entity to continue its business purpose and day-to-day activities.”

Many lawyers include unfair and deceptive trade practices claims in complaints where, for a variety of reasons, they should not be included. The Foxmoor decision serves as a further warning to lawyers and litigants alike that not all wrongs that occur within business settings are necessarily unfair and deceptive trade practices. Indeed, Foxmoor limits a broad category of cases where we frequently see unfair and deceptive trade practices claims asserted – namely in situations where a single business raises money from investors, runs into trouble, and the investors lose money. In such a scenario, it appears clear that a claim under North Carolina’s Unfair and Deceptive Trade Practices Act is squarely unavailable.

The facts in Foxmoor should be contrasted, though, with a situation where a business raises money, and then takes that money and starts a competitive business to the exclusion of the original investors. Under such a scenario, it seems the limitation articulated by the Supreme Court in Foxmoor would not apply, as in this scenario the bad actions are not limited to a single business. Rather there are two businesses: the first business in which the investors invested, and the second unfairly established competitive business. It would seem that under such a scenario. Foxmoor would allow the Unfair and Deceptive Trade Practices Claim to survive.

However, in the ordinary case of a single business which raised funds and failed, it is now more clear than ever under North Carolina law that such an unfortunate set of facts does not give rise to a claim for Unfair and Deceptive Trade Practices.

If you have questions about business disputes, and the applicability of North Carolina’s Unfair and Deceptive Trade Practices Act to your situation, one of our attorneys would be happy to speak with you.