Sunday, December 09, 2007, 7:35 PM

Supreme Court: Violation of Licensing Regulation Is Not Per Se Unfair/Deceptive Trade Practice

On Friday, in Walker v. Fleetwood Homes of N.C., Inc., the NC Supreme Court held that a judgment had to be vacated because it was based on the trial court’s erroneous conclusion that a violation of a licensing regulation is a per se unfair or deceptive trade practice.

By statute, it’s unlawful for any manufactured home manufacturer or dealer to conduct business without first obtaining a license. Another statute provides that a license may be denied, suspended, or revoked if a licensee uses “unfair methods of competition or commit[s] unfair or deceptive acts or practices.”

To implement the enabling statute, the relevant state agency (the Dept of Insurance) promulgated a regulation which delineates unfair methods of competition or unfair or deceptive commercial acts or practices that are used to deny, suspend, or revoke a licenses. These include “Failure to perform repairs, alterations and/or additions completely or in a workmanlike or competent manner,” and “Repeated failure to respond promptly to consumer complaints and inquiries.”

In Walker the jury was given special interrogatories that tracked the foregoing regulation. The jury was asked, “Did the defendant fail to perform repairs completely and in a workmanlike and competent manner?” and “Did the defendant repeatedly fail to respond promptly to the plaintiff’s complaints regarding the manufactured home?” The jury answered yes to both. So the trial court concluded that the defendant was liable under Chapter 75 (G.S. 75-1.1 and 75-16) for treble damages based on unfair/deceptive trade practices. The Court of Appeals affirmed.

The Supreme Court reversed in a unanimous opinion written by Justice Edmunds. (Justice Hudson didn’t participate, because she authored the Court of Appeals opinion under review.) After observing that violations of some statutes can constitute unfair and deceptive trade practices (UDTP) as a matter of law, the Court “decline[d] to hold that a violation of a licensing regulation is a UDTP as a matter of law.” The Court reasoned that because a violation of the enabling statutes in question (regarding licensure of manufactured homes manufacturers/dealers) wouldn’t constitute a UDTP as a matter of law, a violation of a regulation based on those statutes isn't necessarily a UDTP.

In a second significant holding, in response to a separate question on which the Court granted discretionary review, the Court held that the facts found by the Walker jury in response to the special interrogatories (that defendant (1) failed to perform repairs completely and in a workmanlike and competent manner, and (2) repeatedly failed to respond promptly to the plaintiff’s complaints regarding the manufactured home) were not sufficient to support a Chapter 75 violation. “On these limited findings of fact, the [trial] court had an insufficient basis on which to reach conclusions of law required under § 75-1.1 as to whether defendant’s actions were deceptive, immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” To be sure, the Court said that “a regulatory licensure violation may be evidence of a UDTP”; that violations of the regulations “are potentially relevant to any claim that defendant violated § 75-1.1”; and that the jury’s findings “in combination with other facts, might be sufficient to prove a UDTP claim.” But standing alone the jury's findings were not sufficient. This ruling confirms that claims that, at their core, are in the nature of warranty claims shouldn't be actionable under Chapter 75.

Finally, the Supreme Court held that one of the plaintiffs (Staten) had standing to bring a Chapter 75 claim even though she wasn't a purchaser of the mobile home. (The standing issue had drawn a dissent from Judge Jackson in the Court of Appeals.) Plaintiff Walker had purchased the mobile home for his daughter, Staten, pursuant to a "buy-for" arrangement. The Supreme Court held that even though Staten didn't purchase the mobile home, she nonetheless had standing under G.S. 75-16 to bring a UDTP claim, because she fell within the scope of G.S. 75-16, which provides a cause of action to "any person . . . injured" by a UDTP.


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