Got an article out on a recent N.C. Supreme Court decision limiting when people can claim that business engaged in unfair or improper business practices. The article in its entirety:
RALEIGH — In an August ruling, by a 5-2 vote the state’s highest court made it more difficult for consumers to prove claims that they had been victimized by companies using unfair or improper business practices. The ruling stated that plaintiffs must show that they relied on false statements when they decided to complete a commercial transaction.
One of the two dissenting justices said a “buyer beware” admonition does not protect consumers sufficiently, and that the majority would allow businesses to charge excessive fees that have nothing to do with the “fair cost” of the goods or services provided.
In 1999, Travis Bumpers and Troy Elliott each obtained second mortgage loans from Community Bank of Northern Virginia. Both responded to advertisements they received in the mail. Bumpers borrowed $28,450.00 at an interest rate of 16.99 percent and paid $4,827.88 in fees. Elliott borrowed $35,000 at an interest rate of 12.99 percent. He paid $5,650 in fees.
In 2001, Bumpers and Elliott filed a lawsuit jointly against Community Bank, alleging that it had engaged in unfair and deceptive practices. Specifically, they claimed that they paid fees to obtain discounted mortgages, but did not receive discounted rates. They also alleged that the fees they paid were unnecessary and unreasonable.
The case wended its way through North Carolina and federal courts for years before coming to trial. Finally, in 2008, a Superior Court judge ruled in favor of Bumpers and Elliott. The Court of Appeals sided with the consumers on the question of the discounted rates but did not agree that the title fees they paid were excessive.
All about reliance
When the appeal reached the N.C. Supreme Court, however, five of the court’s seven justices held that the lower courts were largely in error. Before the high court, Community Bank argued that Bumpers’ and Elliott’s claim about loan discount fees was irrelevant, since the plaintiffs had agreed to take the second mortgages based on the overall package of interest rate and fees, rather than merely the purported rate discount.
“We agree with Community Bank that a claim … stemming from an alleged misrepresentation does indeed require a plaintiff to demonstrate reliance on the misrepresentation in order to show the necessary proximate cause,” wrote Justice Paul Newby for the court.
As Newby defined it, showing “reliance” required the plaintiffs to prove that the bank intentionally misrepresented the cost of the mortgages, and “if it were not for the misrepresentation, the plaintiff would likely have avoided the injury altogether,” Newby wrote.
He also noted that reliance must be “reasonable:” “Reliance is not reasonable where the plaintiff could have discovered the truth of the matter through reasonable diligence, but failed to investigate.”
Because the Court of Appeals did not consider whether Bumpers and Elliott had made their decision to accept the mortgages based on the bank’s alleged misrepresentation, the Supreme Court returned the case to the lower court for further consideration.
The Supreme Court also flatly rejected Bumpers’ and Elliott’s claim that they were charged excessive closing cost fees.
“In most cases, there is nothing unfair or deceptive about freely entering a transaction on the open market,” wrote Newby, noting that Bumpers and Elliott could have opted to use a different, cheaper settlement agent than the one recommended by Community Bank.
Justices Robin Hudson and Cheri Beasley dissented from the majority for different reasons.
Hudson said the actual fees could “constitute an unfair or deceptive trade practice,” and that the “plaintiffs’ claims for excessive pricing should be allowed to proceed.”
Beasley’s dissent, meanwhile, broadly rejected the majority’s approach in analyzing the case. “The Court of Appeals correctly concluded that plaintiffs‘ unfair and deceptive practice claim was based on overcharging and that plaintiffs need not prove actual reliance,” she wrote.
Beasley also warned that the court’s logic of requiring reliance “opens the door to an array of new fees intended to pad a company‘s bottom line rather than to reflect the fair cost of a good or service provided to the consumer.” She offered up a hypothetical example of a bank charging a “paper statement fee” to a customer that gets his statements electronically.
“As long as the customer had some other reason that he might have chosen to do business with the bank, such as being an existing account holder, he can never show that, but for the misrepresentation, he would not have conducted business with the bank,” she contended.
The case is Bumpers v. Community Bank of Northern Virginia, (269PA09-2).