United Roasters, Inc. v. Colgate-Palmolive Co.

• Decision Date: 23 January 1980
• Docket Number: No. 77-184-CIV-5.,77-184-CIV-5.
• Citation: 485 F. Supp. 1049
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: UNITED ROASTERS, INC., Plaintiff, v. COLGATE-PALMOLIVE COMPANY, Defendant.

485 F. Supp. 1049

UNITED ROASTERS, INC., Plaintiff, v. COLGATE-PALMOLIVE COMPANY, Defendant.

No. 77-184-CIV-5.

United States District Court, E. D. North Carolina, Raleigh Division.

January 23, 1980.

COPYRIGHT MATERIAL OMITTED

George W. House and L. P. McLendon, Jr., Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, N. C., for United Roasters, Inc.

J. Allen Adams and H. Hugh Stevens, Sanford, Adams, McCullough & Beard, Raleigh, N. C., for Colgate-Palmolive Co.

Memorandum of Decision and Order

MALETZ, Judge.^*

Upon consideration of the record, the findings of the jury, the memoranda of the parties and after oral argument, the court concludes for the reasons that follow (1) that N.C.G.S. § 75.1.1 does not apply to the contract termination transaction in issue; and (2) that even assuming that this statute is applicable, it has not been violated. Accordingly, the court holds that plaintiff's motion for treble damages and attorneys' fees should be denied.

The Statutes

N.C.G.S. § 75-1.1 provides in part:

Methods of competition, acts and practices regulated; legislative policy. — (a) Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

(b) The purpose of this section is to declare, and to provide civil legal means to maintain, ethical standards of dealings between persons engaged in business, and between persons engaged in business and the consuming public within this State, to the end that good faith and fair dealings between buyers and sellers at all levels of commerce be had in this State.

* * * * * *

(d) Any party claiming to be exempt from the provisions of this section shall have the burden of proof with respect to such claim.

N.C.G.S. § 75-16 provides:

Civil action by person injured; treble damages. — If any person shall be injured or the business of any person, firm or corporation shall be broken up, destroyed or injured by reason of any act or thing done by any other person, firm or corporation in violation of the provisions of this Chapter, such person, firm or corporation so injured shall have a right of action on account of such injury done, and if damages are assessed by a jury in such case judgment shall be rendered in favor of the plaintiff and against the defendant for treble the amount fixed by the verdict.¹

Applicability of Section 75-1.1

Our starting point in determining the scope of section 75-1.1 is State ex rel. Edmisten v. J. C. Penney Co., 292 N.C. 311, 233 S.E.2d 895 (1977). In that case, the Supreme Court of North Carolina held that debt collection activities by J. C. Penney following sales of merchandise by Penney to its credit customers were not within the purview of section 75-1.1 on the basis that the statute is limited to matters that have a reasonable nexus with the actual sales of the goods or services in question.² Thus the court in Penney stated (233 S.E.2d at 899-900):

* * * The use of the word "trade" interchangeably with the word "commerce" indicates that a narrower definition of commerce which comprehends an exchange of some type was intended. Emphasis in original.

* * * * * *

We believe the unfair and deceptive acts and practices forbidden by G.S. 75-1.1(a) are those involved in the bargain, sale, barter, exchange or traffic.

* * * * * *

The General Assembly thus, is concerned with openness and fairness in those activities which characterize a party as a "seller."

* * * * * *

* * * it is only those activities surrounding the "sale" that are regulated by G.S. 75-1.1.

* * * * * *

* * * the intent is to prohibit only unfair and deceptive practices affecting sales.

* * * * * *

* * * only acts or practices "designed to effect a sale" are covered.

Against this background in Penney, the jury in the present case found that:

1. The defendant acted in bad faith in exercising its right to terminate the agreement of February 1, 1973. (Special Verdict, Issue # 5).

2. The defendant decided in the first quarter of 1976 to discontinue performance of the agreement. (Interrogatory # 1).

3. The defendant did not intentionally deceive plaintiff by failing to advise plaintiff with reasonable promptness of its decision to discontinue performance of the agreement. (Interrogatory # 2).

4. The defendant unfairly failed to advise plaintiff with reasonable promptness of its decision to discontinue performance of the agreement. (Interrogatory # 3).

The short of the matter is that the breach of contract found by the jury — which is the basis of plaintiff's section 75-1.1 claim — was the failure by the defendant to notify the plaintiff with reasonable promptness of its decision to discontinue performance of the agreement. In that circumstance, the court must conclude that such breach by the defendant was not directed to matters "involved in the bargain, sale, barter, exchange or traffic" of goods and services or to activities surrounding or affecting a sale.

I am quite mindful that at a prior stage of this litigation, Judge Dupree in holding that the allegations of Count 4 of the original complaint in this action were sufficient to state a cause of action under section 75-1.1 stated in part (Memorandum of Decision, United Roasters, Inc. v. Colgate Palmolive Co., 485 F.Supp. 1041, pp. 1046-1047, 1979):

The acts of which UR complains center around (a) the failure of Colgate to give UR notice of termination of the contract, (b) Colgate's refusal to reconvey the assets originally purchased by Colgate from UR and (c) the secret decision by Colgate not to market BAMBEANOS. Colgate argues that these actions are clearly not "designed to effect a sale." Accordingly, Colgate, relying on Penney, contends that its acts are not covered by the statute. The court disagrees.

To begin with, the quotation from Penney is mere obiter dictum not binding on any court. This becomes more clear when the language is contrasted with other language in the Penney decision. The majority decision in Penney stresses that G.S. 75-1.1 covers activities "surrounding" or "affecting" a sale, or unfair and deceptive acts involved in the exchange of goods. Penney, 292 N.C. at 316-17, 233 S.E.2d at 899. The cogent dissents filed by Justices Exum and Huskins emphasize this. Id., 292 N.C. at 324, 233 S.E.2d at 903. In order for an activity to be covered by the Unfair Trade Practices Act, it need only "surround" or "affect" a sale; it need not meet the stricter standard of also inducing a sale.

Colgate's alleged activities "affected" or "surrounded" the sale in at least two respects. First, they caused a termination of all binding obligations under the sales contract save for various provisions regarding the return of assets and payment for improvements. Few things more "affect" a sale than the cessation of all legal obligations flowing from the sales contract.

Secondly, Colgate's termination of the sales contract would "affect" the original sale in that title to the assets, originally places in the name of Colgate by the sale, would revert to UR, thereby depriving the original sale of a prerequisite of its validity under the Uniform Commercial Code. N.C.G.S. § 25-2-106(1).

However, the breach of contract found by the jury which, as stated before, is the basis of plaintiff's section 75-1.1 claim (i. e., failure to notify plaintiff with reasonable promptness of its decision to discontinue performance of the agreement) did not cause a termination of all binding obligations under the sales contract and did not cause title to the assets to revert to plaintiff. It is to be observed in this regard that under paragraph 13(B) of the agreement, which was found by the jury to be applicable, defendant had the absolute right to terminate further performance of the agreement at any time upon 30 days written notice to the plaintiff.

In this setting, the particular breach of contract found by the jury did not cause the parties to cease performance under the agreement. The breach only concerned whether defendant gave notice that it was terminating performance.

Second, the contract provision itself specifically states that the parties will continue to have legal obligations under the contract. For example, defendant had the legal obligation to reconvey the assets to plaintiff under the provisions of paragraph 14 of the agreement.

It was also established that the particular breach found by the jury did not cause an automatic reversion to plaintiff of title in the assets. On the contrary, under paragraph 14 of the agreement defendant was required to reconvey the assets before plaintiff regained title thereto. Paragraph 14(A) of the agreement reads as follows:

Upon termination of this Agreement as set forth in Section 13(B), Purchaser shall reconvey to Seller all those assets agreed to be conveyed in this Agreement by Schedules A, B, and C hereinabove * *.

Further, the failure of defendant to give prompt notice of its decision to terminate performance did not affect the title to the assets.

Judge Dupree in his Memorandum of Decision (pp. 1046-1047) concluded that the debt collection procedure alleged to be unfair in Penney did not "affect a sale" because the legal obligations of the parties and title to property remained unchanged. As stated by Judge Dupree (ibid.):

* * * The defendant's actions in Penney did not "affect" a sale, much less induce a sale. Penney involved an attack by the Attorney General against various debt collection activities by J. C. Penney Company. Penney presumably sold consumer products to individual buyers on credit and would enforce payment under the terms of a retail installment sales contract or a title-retaining security instrument. Title to the goods involved in Penney remained in the Penney Company at all times by reason of the retail installment sales contract (or, in the alternative, was transferred to the buyer-debtor and by him back to the Penney Company by way of a security agreement). Therefore, any later debt

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