Sunday, March 08, 2009, 6:09 PM

4th Circuit Reiterates: Don''t Transform Contract Actions Into UDTPA Claims, Particularly In Disputes Between Sophisticated Businesses

This past week the Fourth Circuit reiterated this principle: a case that at its core is a dispute over contractual performance shouldn't give rise to a claim under N.C.'s unfair and deceptive trade practices act, G.S. 75-1.1 ("UDTPA"). The case is PCS Phosphate Co. v. Norfolk S. Corp., and the opinion was written by Judge Wilkinson.

Plaintiff PCS is a mining company operating a phosphate mine. PCS relies on rail transportation to ship materials to and from the mine. The defendant, Norfolk Southern, is the railroad carrier that serves the mine. Years ago, Norfolk Southern had agreed to relocate the rail line to the mine at its own expense should that need arise. The need arose because PCS needed to mine under the rail line. But Norfolk Southern refused to relocate the line because it was unsuccessful in securing funding to do so. Not only did Norfolk Southern refuse to relocate the line, it told PCS that if PCS wouldn't fund the relocation itself, Norfolk Southern would seek permission from the Surface Transportation Board to abandon the line--knowing that abandonment would destroy PCS's ability to continue operating the mine, since rail access was necessary to ship raw materials and products to and from the mine. In an effort to mitigate its damages, PCS began constructing the relocated line at its own expense.

PCS then sued Norfolk Southern for breach of contract. PCS also asserted a UDTPA claim based on Norfolk Southern's threat to abandon the line. PCS prevailed on the contract claim. But the Fourth Circuit balked at the UDTPA claim, stating: "This claim is simply an attempt to multiply the damages for an ordinary breach of an agreement by re-characterizing the breach as a violation of the UDTPA. North Carolina law forbids this. It does not permit a party to transmute a breach of contract claim into a tort or UDTPA claim for extraordinary damages because awarding punitive or treble damages would destroy the parties' bargain and force the defendant to bear a risk it never took on. * * * The basis for PCS’s claim therefore is nothing more than two companies fighting over the enforceability of an agreement. Although we hold that the agreement is enforceable, we will not re-write the parties’agreement by awarding treble damages for the breach thereof."

The Court added that Norfolk Southern's relocation agreements "are far from the reach of the UDTPA because they are wholly divorced from the context of consumer transactions." The Court stressed that the UDTPA "'was intended to benefit consumers,' see Dalton v. Camp, 548 S.E.2d 704,710 (N.C. 2001), but this dispute is between two sophisticated business entities: a rail carrier and a mine owner." This passage is somewhat difficult to square with N.C. appellate decisions which routinely allow UDTPA claims to proceed in disputes between businesses.

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