Tuesday, April 17, 2007, 1:43 PM

COA Vacates Chapter 75 Judgment

Today the Court of Appeals vacated a judgment for unfair and deceptive acts under G.S. 75-1.1 ("Chapter 75"). The case is Business Cabling, Inc. v. Yokeley. The Chapter 75 judgment had been entered against Vitafoam Inc. The case: (1) casts doubt on the propriety of imposing Chapter 75 liability in the context of bidded work; and (2) reiterates that a Chapter 75 plaintiff advancing a deception-based claim must prove detrimental reliance, a point ignored or contested by many litigants and judges.

Facts

Plaintiff, Business Cabling, Inc., employed Barry Yokeley for several years. Yokeley served as an officer and director of plaintiff and was a shareholder. His duties included soliciting new customers, making business proposals to customers, and entering into contracts with customers on plaintiff's behalf. He didn't have a non-compete or non-solicitation agreement.

Vitafoam was one of plaintiff's customers through bidded contracts. While Yokeley was employed by plaintiff he submitted bids to Vitafoam on behalf of plaintiff.

Yokeley was asked to seek other employment, and he landed a new job with one of plaintiff's competitors, Fleet.

A month before he resigned, he prepared a bid proposal to Vitafoam in his own name--for a project for which he already had submitted a bid on behalf of plaintiff six months earlier (the first bid was still pending when Yokeley resigned). Vitafoam accepted his solo bid (the more recent one) after he became employed in his new job with Fleet, and that work went to Fleet.

Moreover, after Yokeley went to work for Fleet, he submitted other bids to Vitafoam on behalf of Fleet, in competition with plaintiff, and some those bids were accepted, benefiting Fleet.

At the time, plaintiff was unaware that Yokeley was doing this.

Vitafoam accepted the bids through its IT director Jim Bridges, who happened to be Yokeley's father-in-law.

A month after Yokeley left plaintiff for Fleet, plaintiff contacted Vitafoam's Bridges for an update on bidded projects, and Bridges's reply email failed to mention that the projects had been awarded to Fleet--even though Bridges of course was aware that Vitafoam had contracted with Fleet through Yokeley.

When plaintiff learned what happened, it not only sued its former employee Yokeley (for wrongful interference and a Chapter 75 violation), it also sued Vitafoam alleging a violation of Chapter 75.

The Trial Court's Judgment

Plaintiff settled with Yokeley. After a bench trial on its claim against Vitafoam (Judge Craig in Guilford County) the trial court entered a judgment against Vitafoam, concluding that Vitafoam engaged in unfair and deceptive acts by "knowingly participat[ing]" with Yokeley (1) to solicit Vitafoam's business, (2) to interfere with plaintiff's prospective advantage in connection with projects that plaintiff otherwise would've or might've obtained, and (3) to divert plaintiff's business opportunity with respect to those projects awarded to Fleet through Yokeley.

The Court of Appeals' Decision

The Court of Appeals reversed. As a factual matter, the Court emphasized that Vitafoam never entered a contract with plaintiff on those projects, that Vitafoam didn't accept Yokeley's bids until after he resigned from plaintiff, and that Yokeley wasn't bound by a non-compete or non-solicitation agreement. As a legal matter, the Court emphasized that an act is not unfair unless it offends established public policy or is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, with some type of egregious or aggravating circumstances present. Vitafoam simply accepted bids.

The trial court had also found deception in the email that Vitafoam's Bridges sent to plaintiff (after Yokeley resigned) omitting any mention of the fact that the bids already had been awarded to Fleet (and suggesting that either the bids remained open or might not be awarded to anyone). The Court of Appeals held, however, that there could be no liability based on the allegedly deceptive statement by Bridges, because no evidence showed that plaintiff detrimentally relied on it. Recovery under Chapter 75, the Court reiterated, "is limited to those situations when a plaintiff can show that plaintiff detrimentally relied upon a statement or misrepresentation and he or she suffered actual injury as a proximate result of defendant's deceptive statement or misrepresentation." (This point should be beyond dispute after the NC Supreme Court's decision in Howerton v. Arai Helmet Ltd., 358 N.C. 440, 597 S.E.2d 674 (2004).)

The Court of Appeals also concluded "that the trial court failed to find as fact, and no evidence tends to show, plaintiff 'suffered actual injury as a proximate result of defendant's deceptive statement or misrepresentation.'" Proximate cause, of course, is an essential element of a Chapter 75 case, and in the context of a bidded contract, it's exceedingly difficult for a plaintiff to prove that, but for the challenged act, the plaintiff would've won the bid. Thus, in this case the Court of Appeals observed, "No evidence tends to show defendant would have accepted plaintiff's bid . . . ."

As a matter of public policy, an amicus brief submitted by North Carolina Citizens for Business and Industry urged that the trial court's reasoning would "put all businesses at risk of being unwittingly snagged on the isosceles angle of disputes between employers and their alleged disloyal employees" and that "[b]usiness should not be placed at risk by accepting one competitor's bid over another," as "[s]uch risk is beyond what is required by the law and would seem to be contrary to the spirit, as well as the letter, of Chapter 75 of the North Carolina General Statutes." The Court of Appeals embraced this argument, concluding: "Defendant cannot be placed at risk for accepting one competitor's bid over another. Such risk is beyond what the law requires and is contrary to Chapter 75 of the North Carolina General Statutes."

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