A wise person once said that you can’t please all of the people all of the time. Running a business with someone is no exception, whether as a partner, a member or manager of a limited liability company, or as a shareholder in a corporation.
Unfair or deceptive business practices are prohibited under the aptly named Unfair and Deceptive Business Practices Act, which is enacted at North Carolina General Statutes § 75-1.1 (which I will call Section 75-1.1, for short). For violating Section 75-1.1, the penalty is triple damages and attorney’s fees. It is a very powerful law. The question is, to what extent is this law applicable to disputes between owners of a business?
The short answer, as explained in a recent decision of the North Carolina Superior Court, is that Section 75-1.1 is not applicable – at all – to disputes between owners of the same business. That case is Brewster v. Powell Bail Bonding, decided earlier this year. Although Chapter 75 is a broad statute, and its power to prevent unfair and deceptive businesses is great, its purpose is only to address disputes with third parties, not what one might call intra-business disputes.
Nevertheless, because of the punitive damages and attorney’s fees available under Section 75-1.1, some business owners (and their attorneys) are inclined to try to bring such claims when they have a lawsuit against a co-owner of their business. This inclination is, as the court said in this case, “a regrettable trend in North Carolina business litigation.” The court explained that this statute “plays no role in resolving these internal corporate disputes. Yet, time and time again, [it] appears where it does not belong.” These disputes “[are] intra-company feuds about internal operations,” not claims under Section 75-1.1. In short, don’t even think about it.
So why isn’t the law applicable? The language of the statute itself is instructive. It states that it applies only to “trade or commerce”:
Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal.
Over the years, courts have consistently understood the term “trade or commerce” to mean commerce as it affects the public. It only regulates a business’s regular interactions with other market participant, not actions that are solely related to the internal operations of a company. Disputes between owners of the same business do not affect this the market or the stream of commerce.
Thus, if a business owner or their attorney were to go ahead and file a lawsuit under Section 75-1.1 anyway, it would surely be dismissed. In fact, that is exactly what happened in Brewster v. Powell Bail Bonding – case dismissed. Furthermore, this is (or should be) so clear to any attorney, it is very possible that the party or their attorney might be assessed with sanctions.
What can a business owner do if there is an intra-business dispute? The answer is simple: there are plenty of other claims available. The most common claim is for breach of fiduciary duty. When you are in business with someone, you have a duty of care, a duty of loyalty, and a duty of good faith – collectively referred to as a fiduciary duty. If these are breached, there is likely grounds for taking legal action.
DYE CULIK PC represents business owners, entrepreneurs, and franchisees in any type of legal dispute, whether with a partner, client, or vendor. If you are trying to decide how to handle a dispute, let us work with you to get your company back running at its peak performance. Give us a call at 980-999-3557.