Author Archives: Matt Sawchak

Passing the Torch

By the time you read this post, I will have begun my service as the Solicitor General of North Carolina. I’m excited to have this chance to work with Attorney General Stein and to serve the people of my adopted state. 

As part of my transition, I’m leaving What’s Fair in the able hands of my partners Stephen Feldman, George Sanderson, and Jeremy Falcone. Like you, I’ll look forward to reading this blog on the second and fourth Tuesdays of every month. 

Article I, section 35 of the North Carolina Constitution urges “frequent recurrence to fundamental principles.” In that spirit, let’s return to a fundamental question: Why does the law under section 75-1.1 deserve such close study? Because the statute combines two explosive ingredients—powerful private remedies and vague tests for the conduct that violates the statute. In recent years, a number of courts have worked hard to sharpen, or at least explain, these tests. We’ve outlined those efforts—for example, herehere, and here. I’m confident that courts will continue this process in the years ahead.

Let me conclude with thanks. I’m grateful to so many of you for offering me words of encouragement as I begin my season of public service. I’m grateful to all of you for reading this blog and sharing your comments and ideas (please keep them coming). Most of all, I’m grateful to Stephen, George, Jeremy, and all of my colleagues at Ellis & Winters for their tremendous support and friendship.

 I look forward to our further work together.

The Employment Exemption and Its Temporal Scope

Generally, N.C. Gen. Stat. § 75-1.1 does not apply to employer-employee disputes. Most courts have held that these disputes fail the “in or affecting commerce” test under the statute.

In a recent decision, however, the U.S. District Court for the Western District of North Carolina held that this rule did not apply to a lawsuit that alleged fraudulent inducement to enter an employment relationship. The decision highlights the scope problems with the so-called employment exemption under section 75-1.1.

The Origins of the Employment Exemption

The 75-1.1 employment exemption was born in Buie v. Daniel International Corp. The employer in that case fired the plaintiff after he sought workers’-compensation benefits. The North Carolina Court of Appeals affirmed the dismissal of the plaintiff’s 75-1.1 claim. The court held that employer-employee relationships fall outside the scope of section 75-1.1. It stated two reasons for this conclusion: (1) employment relationships are not like the buyer-seller relationships that were the original target of the statute, and (2) employment relationships are extensively regulated by other bodies of law.

Since Buie, however, courts have sometimes made case-specific carve-outs from the employment exemption. For example, courts have often reasoned that the employment exemption does not apply—and, thus, that section 75-1.1 can apply—when the acts in question happened before or after an employment relationship.

The Fusco Decision

In Fusco v. NorthPoint ERM, LLC, a husband and wife alleged that the defendant, NorthPoint, fraudulently induced them to work for the company. NorthPoint convinced the Fuscos to work for free, promising that they would be paid generously when revenue came in from new service contracts in the works.

After the Fuscos had been working without pay for a year, however, NorthPoint told them that the service contracts had fallen through. The Fuscos sued NorthPoint, asserting (among other claims) a deception claim under section 75-1.1.

U.S. District Judge Graham Mullen denied NorthPoint’s motion to dismiss. The court stressed that NorthPoint’s deceptive conduct occurred before the employment relationship began.

The court’s reasoning turned solely on timing. The court wrote: “When [NorthPoint’s] conduct allegedly occurred, there was no ‘employer-employee’ relationship.”

Fusco highlights several problems with a timing-based approach to the employment exemption.

First, a timing test can involve question-begging distinctions. Consider Fusco, for example. If NorthPoint was lying to the Fuscos before they began work, it no doubt continued the lies during the employment, to keep the Fuscos working for free. Whether the Fuscos alleged this common-sense point or not, it shows that the fact pattern had more of a connection with the employment relationship than the court’s analysis suggested.

Second, focusing on timing alone can lead to inconsistent outcomes. For example, decisions before Fusco have gone both ways on whether the employment exemption applies to pre-employment events.

Third, a timing-based analysis is unmoored from the policies that underlie the employment exemption. The court in Fusco did not ask whether NorthPoint and the Fuscos had anything like a buyer-seller interaction, or whether other statutes and regulations governed their relationship. These questions might not have changed the outcome of the motion to dismiss, but they would have allowed the parties and the court to compare the case more effectively with other cases on the employment exemption.

The timing aspects of the employment exemption are only one of several issues with the scope of that exemption. Most likely, it will take an opinion from the North Carolina Supreme Court to make the case law in this area more consistent and predictable.

Author: Matt Sawchak

Law student Kathleen O’Malley contributed substantially to this post.

Federal Opinion Lays Out Categories of Unfair-Trade-Practice Claims

In an earlier post, we laid out five categories of claims under N.C. Gen.
Stat. § 75-1.1.

That five-category structure has now appeared in a judicial opinion for the first time, thanks to a recent opinion from Judge Louise Flanagan of the U.S. District Court for the Eastern District of North Carolina.

In Sparks v. Oxy-Health, LLC, the court named five categories of section 75-1.1 violations (punctuation omitted):

  • “general unfair conduct that offends public policy or is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers,”
  • “deceptive misrepresentations that have the capacity or tendency to deceive the average person,”
  • “per se violations of § 75-1.1 established upon proof of a statutory or regulatory violation or the commission of certain torts,”
  • “a breach of contract accompanied by aggravating circumstances,” and
  • “anti-competitive conduct.”

I hope that other courts, too, will use this five-category analysis. On this blog, we have written before about the errors that can occur when lawyers and courts overlook the distinctions among types of 75-1.1 claims.

Some categories of section 75-1.1 claims—most notably, deception claims—involve requirements that might not apply to other categories. In addition, some of the categories have requirements in common. All in all, parties and courts benefit when decisions pay attention to these categories.

Sparks illustrates the special requirements that govern deception claims.

The plaintiffs’ son died when a critical part dislodged from a hyperbaric chamber in which he was sleeping. The plaintiffs sued Oxy-Health, the distributor of the chamber. They asserted several product-liability claims, plus a claim under section 75-1.1.

The 75-1.1 claim rested on alleged false statements by Oxy-Health. The plaintiffs alleged that Oxy-Health falsely stated that the hyperbaric chamber was FDA-approved, industry-certified, and suitable for home use.

This claim ran headlong into the reliance requirement announced in Bumpers. When Mrs. Sparks was deposed, Oxy-Health’s lawyers asked her what information she relied on when she bought the hyperbaric chamber. Her answer did not mention any of the above statements.

In response to Oxy-Health’s motion for summary judgment, Mrs. Sparks offered an affidavit in which she averred that she did rely on the statements in question. The court, however, struck this affidavit because it contradicted Mrs. Sparks’s earlier deposition testimony.

All in all, Sparks highlights the reliance requirement for deception claims under section 75-1.1—a requirement that would have applied in some categories of 75-1.1 claims, but not in others.

Note: Ellis & Winters represented a subpoena recipient in the Sparks case.

Author: Matt Sawchak