Wednesday, July 18, 2007, 9:49 AM

COA Expands Ch. 75 Exception For "Overlapping Statutory Schemes"

Yesterday the Court of Appeals (COA) expanded the judge-made exception to Chapter 75 for overlapping statutory schemes. The case is State v. Ridgeway Brands Mfg., LLC.

The case falls in the Lindner/Skinner/Hajmm line of cases.

In Lindner (1985) the Fourth Circuit held that 75-1.1 doesn't apply to securities transactions. The court reasoned that the General Assembly wouldn't have intended the statute, with its treble damages provision, to apply to securities transactions which were already subject to pervasive and intricate regulation under the NC Securities Act and federal acts.

In Skinner (1985) the NC Supreme Court cited Lindner as persuasive authority.

In Hajmm (1991) the NC Supreme Court expanded the exception by holding that the statute didn't apply to a corporation's refusal to redeem revolving fund certificates issued by the corporation. The court reasoned that the application of 75-1.1 in this context would "create overlapping supervision, enforcement, and liability in [an] area [that] is already pervasively regulated by state and federal statutes and agencies."

Yesterday's case deal with a statute, N.C.G.S. 66-291, which regulates tobacco manufacturers who choose not to become participating manufacturers in the so-called Master Settlement Agreement. The statute imposes on them an escrow obligation (requiring them to deposit in escrow a percentage of monies from cigarettes sold), and it provides a remedy for failure to comply with the statute: a civil action by the Attorney General and a civil penalty fixed as a percentage of monies withheld from escrow.

The COA held that 66-291 is analogous to the regulations in Lindner, Skinner, and Hajmm, because the statute "itself provides an extensive remedy for failure to comply with the escrow obligation." The COA held that these cases stand for the proposition that 75-1.1 is inapplicable in "the presence of other statutory schemes" with "enough legislative apparatus already in place" and "overlapping supervision, enforcement, and liability."

Under this reasoning, there surely are many other areas where 75-1.1 liability should be foreclosed (preempted, as it were) by "the presence of other statutory schemes."


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