North Carolina Supreme Court Rejects “Excessive Pricing” Claim

The North Carolina Chamber asked Robinson Bradshaw to advocate the interests of its 35,000 members before the Supreme Court of North Carolina in a case with significant implications for the state’s business environment. Bumpers v. Community Bank of Northern Virginia, 747 S.E.2d 220 (2013). Bumpers addressed the scope of liability and burden of proof under the North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), which outlaws certain “unfair or deceptive” conduct. Due to its broad scope, lenient burden of proof, mandatory treble damages, and potential for an award of attorneys’ fees, the UDTPA can present significant risks for a business faced with a lawsuit brought under the statute. Bumpers presented the Supreme Court an opportunity to prevent judges from using the law as a tool to regulate prices in the marketplace and set limits on claims involving allegations of misrepresentation. The Supreme Court did both.

Bumpers arose from an allegedly deceptive and excessive fee charged for closing a second mortgage loan. The plaintiff, a college graduate, signed a contract which fully disclosed the amount of the fee. Some two years later, when he sued, the trial court granted summary judgment for him under the UDTPA. The trial court’s decision raised two issues. First, the plaintiff claimed that a “loan discount fee” was deceptive under the law because he did not actually receive a discount. Although the plaintiff did not claim that the loan discount fee made a difference in his decision—that he “relied” on the statement that the loan was discounted—the trial court allowed his claim to proceed.

Second, the trial court awarded the plaintiff damages based on the amount of the fee, even though he voluntarily paid the closing costs and signed a statement acknowledging that he was “free to shop around” for a lower fee. The court chose an amount that it viewed as the “maximum reasonable fee” for closing costs and awarded the plaintiff the difference between what he agreed to pay and the price fixed by the court. Notably the trial court trebled this amount of damages as the UDTPA allows. In our firm’s brief amicus curiae, we argued that the trial court had engaged in price fixing, a judicial measure unprecedented in North Carolina outside of extreme circumstances (for example, price gouging for emergency supplies following a natural disaster).

The Supreme Court addressed both prongs of the trial court’s ruling. The Court began with the premise that “in most cases, there is nothing unfair or deceptive about freely entering into a transaction on the open market,” even if the price is higher than others offering the same product or service. The Supreme Court then found that the plaintiff entered into the subject transaction “freely and without any compulsion,” concluding that an “excessive pricing claim” is “not recognized” by the UDTPA under such circumstances. The Supreme Court also ruled that a plaintiff must prove actual and reasonable reliance to maintain a claim for misrepresentation under the UDTPA.

This decision establishes the following rule in North Carolina law: claims for “excessive pricing” are generally not permitted under the UDTPA. Further, the decision provides clarity in articulating the standard of proof for misrepresentation claims.

Robinson Bradshaw is honored to have played a role in advocating for the North Carolina Chamber’s efforts to secure this decision.