Considering whether to add a Chapter 75 claim to your breach of contract dispute? If you don’t have substantial aggravating circumstances, resist the urge and don’t assert the Chapter 75 claim. In a recent order, Judge McGuire made clear that asserting an unjustified Chapter 75 claim may get you sanctioned.
More snow leopard than unicorn, attorney fee sanctions in North Carolina are rarely seen. Everyone knows that UDTPA claims under Chapter 75 come with enhanced remedies (treble damages and attorney’s fees). It’s easy to miss, however, that attorney’s fees are available to both a prevailing plaintiff and a defendant forced to deal with a “frivolous” and “malicious” Chapter 75 claim. Likewise, there is an even broader fee shifting provision in G.S. § 6-21.5, which allows a Court to award fees incurred in defending pleadings that raise “nonjusticiable” issues.
The defendants in W&W Partners, Inc. v. Ferrell Land Co., LLC spotted these fee-shifting provisions. After successfully moving to dismiss the Chapter 75 claim and fending off a motion to amend (to reassert the dismissed Chapter 75 claim), the defendants moved for fees. Judge McGuire granted the motion.
W&W Partners involved a disagreement over the parties’ obligations under a land development contract. In simple terms, if the defendants purchased certain land, the plaintiffs would develop it in exchange for a fee. The more land the defendants bought, the more development fees the plaintiffs could earn. A dispute arose, however, when the defendants refused to purchase a particular parcel. The plaintiffs claimed that defendants were required to purchase it (so plaintiffs could develop it and earn their fee), and the defendants claimed that land purchases under the contract were discretionary.
The dispute, therefore, appeared to be purely contractual: Did the contract require the defendants to purchase the parcel or not?
The plaintiffs’ multiple complaints (initial, first amended, and second amended) each included breach of contract claims. Each time, the plaintiffs also tacked on a UDTPA claim under Chapter 75—despite the defendants’ warnings not to assert a Chapter 75 claim since the dispute was purely contractual.
The defendants moved to dismiss the Chapter 75 claim, arguing that the dispute was contractual and the Chapter 75 claim was duplicative. Judge McGuire agreed: “The Parties’ competing interpretations of the [contract], which underlies Plaintiffs’ claim for breach of contract, is also the basis of the UDTPA claim.” And since “a mere breach of contract, even if intentional, is not an unfair and deceptive act under Chapter 75,” Judge McGuire dismissed the UDPTA claim with prejudice. [Order 5/22/2018] The plaintiffs did not seek reconsideration.
Months later, the plaintiffs, citing “new evidence,” sought leave to file a third amended complaint. Plaintiffs again sought to include the previously dismissed Chapter 75 claim. Since the prior dismissal of the Chapter 75 claim was with prejudice (and reconsideration was never sought), Judge McGuire denied the motion for leave to amend under res judicata principles. [Order 4/23/2019]
Thereafter, the defendants moved for attorney’s fees incurred in (i) defending the Chapter 75 claim and (ii) responding to plaintiffs’ motion for leave to amend to reassert it. In a pointed order, Judge McGuire granted the defendants’ motion for fees on both grounds.
As to the Chapter 75 claim, Judge McGuire concluded that the plaintiffs knew or should have known that the original Chapter 75 claim was frivolous and asserted the claim maliciously. As Judge McGuire explained, the Chapter 75 and the breach claims were both grounded in the same facts and the same conduct. Plaintiffs had not alleged fraudulent inducement, and the only supposedly deceptive conduct was the defendants’ differing interpretation of the contract. Judge McGuire also noted that the plaintiffs ignored defendants’ repeated pre-litigation warnings that the dispute was purely contractual. With this backdrop, Judge McGuire awarded the defendants’ attorney’s fees for having to defend against the Chapter 75 claim.
As to the motion to amend, Judge McGuire concluded that the motion failed to raise a justiciable issue, which, as Judge McGuire noted, was the bare minimum standard for all pleadings. Attempting to assert the previously dismissed Chapter 75 claim (from which the plaintiffs had not sought reconsideration) was, according to Judge McGuire, “almost the very definition of asserting a nonjusticiable claim.”
W&W Partners thus serves as a cautionary tale to litigants who may think that adding a Chapter 75 claim makes their case stronger. If all you have is a contract claim, tacking on a duplicative Chapter 75 claim could get you sanctioned.