New England Leather Co. v. Feuer Leather Corp.

• Decision Date: 08 August 1991
• Docket Number: No. 90-2694,90-2694
• Parties: NEW ENGLAND LEATHER COMPANY, Plaintiff-Appellant, v. FEUER LEATHER CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 253

942 F.2d 253

NEW ENGLAND LEATHER COMPANY, Plaintiff-Appellant, v. FEUER LEATHER CORPORATION, Defendant-Appellee.

No. 90-2694.

United States Court of Appeals Fourth Circuit.

Argued March 5, 1991.

Decided Aug. 8, 1991.

J. Richardson Rudisill, Jr., argued (Harding K. Crowe, on brief), Rudisill & Brackett, P.A., Hickory, N.C., for plaintiff-appellant.

Douglas George Eisele, Eisele & Ashburn, P.A., Statesville, N.C., for defendant-appellee.

Before HALL and WILKINSON, Circuit Judges, and BOYLE, District Judge for the Eastern District of North Carolina, sitting by designation.

OPINION

WILKINSON, Circuit Judge:

This case presents a choice of law issue: which state's law governs a deceptive trade practice claim arising from a multi-state sale of goods. Appellant, a seller of leather hides, alleges that appellee supplier deceived it by charging for top quality hides while providing appellant's customers with low grade hides. The seller contends that North Carolina law controls its claim, while the supplier points to the law of New York as controlling. The district court ruled that New York law governed and that under that state's law appellant was not entitled to recover.

We are unpersuaded by appellant's arguments that North Carolina law should govern this suit. The fact that some of appellant's dissatisfied customers were located in North Carolina is not sufficient to make North Carolina law controlling when the relationship between appellant seller and appellee supplier was centered in New York. We therefore affirm the district court's judgment.

I.

Appellant New England Leather Company ("NELC") was a partnership formed to sell leather hides to the furniture industry for use as upholstery. The partnership was formed under the laws of Massachusetts and had its principal place of business in that state. David Rubin and Kenneth Gussion possessed controlling interests in NELC. Rubin managed the partnership's financial affairs and Gussion was its chief salesman. Gussion sold hides supplied to the partnership by appellee Feuer Leather, a New York corporation.

Feuer originally supplied NELC with side leather only, but sometime in 1982 or 1983 NELC approached Feuer about supplying whole leather hides. NELC had observed that whole leather was in demand particularly among manufacturers of top quality furniture. Although Feuer had not previously produced whole leather hides, it arranged with NELC to attempt to meet its needs.

Under their arrangement, Feuer provided NELC with sample hides. According to NELC, these sample hides were of the highest quality, namely ABC quality. Gussion traveled the country with the samples hoping to interest furniture makers in NELC's leather. From October 1984 to December 1985, Gussion entered into approximately 100 sales transactions for ABC quality whole hides in at least eleven different states including North Carolina. Interested customers typically ordered leather from NELC in sample packs containing hides that a customer could then evaluate to determine if they met its needs for leather upholstery.

After Gussion received an order for a sample pack, he generally transmitted the order to Rubin who passed it along to Feuer in New York. Feuer would fill the order, bill NELC, and arrange to have the merchandise shipped directly to NELC's customers. NELC alleges, however, that Feuer did not execute the orders in the way that it had agreed. Instead of shipping ABC quality hides, NELC contends that Feuer shipped lower quality (DEF) hides yet charged NELC for ABC quality goods. When NELC received complaints from its customers about the quality of hides, it alerted Feuer to the problem. When the parties could not resolve their differences, NELC eventually switched suppliers.

NELC later brought suit in North Carolina superior court contending that Feuer had violated North Carolina's unfair trade practices statute by intentionally misrepresenting the quality of goods it shipped to NELC's customers. Section 75-1.1 of the North Carolina General Statutes prohibits "unfair methods of competition ... and unfair or deceptive acts or practices in or affecting commerce." Chapter 75 provides for treble damages and the possibility of attorneys fees for successful plaintiffs. N.C.Gen.Stat. §§ 75-16, -16.1 (1988).

In its complaint, NELC alleged three ways that its business interests in North Carolina had been harmed by Feuer's practices: (1) overcharges for lower quality hides, (2) lost profits on goods returned by some of its customers, and (3) lost customer confidence in its ability to supply top quality hides. Feuer responded that although it may have been unsuccessful in some of its attempts to provide top quality hides, none of the aggravating circumstances necessary to sustain a deceptive trade practices claim were present in the case. Feuer also argued that it was unclear whether NELC had actually been damaged by the shipment of any nonconforming goods since there was little evidence of any monetary loss resulting from the return of goods.

Feuer had the suit removed to federal court where a trial was held. After NELC had presented its case, Feuer moved for a directed verdict arguing that North Carolina law should not be applied because the state lacked an adequate nexus to the challenged transactions. The district court agreed that North Carolina law should not be applied and looked instead to the law of New York because the events giving rise to any injury to NELC had occurred in that state. The court further determined that under applicable New York law only transactions involving consumers could be challenged as deceptive trade practices. The court accordingly granted a directed verdict for Feuer. NELC now appeals.

II.

The parties dispute which state's law should govern NELC's claim. NELC contends that North Carolina law controls this suit, while Feuer argues that New York law governs. We conclude that New York law controls NELC's claim and that it is not entitled to recover for a deceptive trade practice under the laws of that state. ^*

A.

To decide the choice of law issue, we apply the choice of law rules of the forum state, North Carolina. Santana, Inc. v. Levi Strauss and Co., 674 F.2d 269, 272 (4th Cir.1982). Under North Carolina law, two different methods have been used to assess which state's law governs a deceptive trade practice claim. See Simms Inv. Co. v. E.F. Hutton & Co., 688 F.Supp. 193, 198-99 (M.D.N.C.1988) (compiling cases). Under one approach, the law of the state where the injuries were sustained governs the claim. The second approach seeks to apply the law of the state with the most significant relationship to the transaction.

The place of injury rule has at times been considered advantageous because it can enable a court to discern quickly the law governing a dispute. However, in a triangular commercial relationship involving seller, supplier, and customers, the place of injury will often be unclear and the advantages to business practice of a bright-line rule disappear. NELC contends, for example, that its ability to do business in North Carolina was injured and that North Carolina, therefore, was the place of injury. Yet NELC also alleges that its ability to do business in general was injured by the defendant, and NELC was doing business in at least eleven states. Courts have differed over whether injury occurs where business is lost (in the customer's state) or where the profits are lost (in the state of plaintiff's place of business). American Rockwool, Inc. v. Owens-Corning Fiberglass Corp., 640 F.Supp. 1411, 1429 n. 8 (E.D.N.C.1986). The former approach would point to any of eleven states while the latter approach would point to Massachusetts as the place of injury. It could also be argued that New York is the place of injury because that is where the allegedly deceptive representations were made, where the nonconforming goods were packaged, and where Feuer charged NELC for the goods. See Santana, Inc., 674 F.2d at 273.

Where the place of injury is so open to debate, the most significant relationship test seems appropriate. A principal advantage of this test is that it enables a court to assess the strength of a state's relationship to a transaction before its laws are applied. In contrast, the traditional choice of law approach as embodied in the place of the injury rule may often dictate that the laws of a state with only a minor connection to a transaction should govern. See Allstate Ins. Co. v. Hague, 449 U.S. 302, 308 n. 11, 101 S.Ct....