A federal district court recently granted a motion to dismiss a civil action for failure to meet the heightened pleading standards of Fed.R.Civ.P. 9.  Topshelf Management, Inc. v. Campbell-Ewald Company, 1:14cv1013 (M.D.N.C. August 3, 2015).  The parties were in a business relationship involving fulfilling a U.S. Navy contract for simulator machines to be used by the Navy for recruiting purposes.  Plaintiff alleged that defendant was trying to deprive it of a promised subcontract, in part by taking plaintiff’s technical specifications and providing them to a competitor subcontractor.  Plaintiff asserted claims for relief for fraud, negligent misrepresentation and unfair and deceptive practices under N.C. Gen. Stat. § 75-1.1. 

In dismissing the complaint for failure to plead with the specificity required by Rule 9, the District Court ruled that where the same set of facts are relied on for a claim under § 75-1.1 as for a claim of negligent misrepresentation, the complaint lacks the factual specificity to support the unfair and deceptive practices claim.  Ten years earlier, in CBP Res., Inc. v. SGS Control Servs., Inc., 394 F.Supp.2d 733 (M.D.N.C. 2005), the same court declined to apply a heightened pleading standard to a claim under § 75-1.1 for various reasons.   But the Court observed that several of those reasons are no longer applicable or can no longer be maintained, and other courts have not followed the reasoning in CBP.  The Court gave several reasons for its ruling.  The first was that while the CBP court found the elements required to be proved for fraud and under § 75-1.1 were dissimilar; “this facial comparison ignores the fact that where a plaintiff predicates his section 75-1.1 claim on the same fraud, he must meet the proof standards for fraud.”  Topshelf, at 15.  Secondly:

Heightened pleading was extended from fraud to negligent misrepresentation because both require detrimental reliance on false information. Section 75-1.1 claims founded on fraud distill to analogous elements: detrimental reliance on deceptive information. See Bumpers v. Cmty. Bank of N. Va., 747 S.E.2d 220, 227–28 (N.C. 2013) (holding that “deceptive” practices under section 75-1.1 are those having “the capacity or tendency to deceive,” upon which plaintiffs must have actually and reasonably relied to their detriment). Therefore, the analogy between fraud and negligent misrepresentation, which supported the extension of heightened pleading, extends to section 75-1.1 claims based on deceptive representations.

Topshelf, at 16.

It appears the Court may have been motivated, in part, to reach this decision so as to prevent plaintiff from bringing “a disguised fraud claim without putting [defendant] on notice of the “particular circumstances” of its claim and without having to show “substantial prediscovery evidence” of these circumstances.” Id, at 20, citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 77, 784 (4th Cir. 1999).  The Court observed that it is common practice for § 75-1.1 claims to be tacked on to complaints alleging contract violations and business torts.

Thus, when faced with a civil action containing a claim for unfair or deceptive practices under § 75-1.1 clients should look for an opportunity to seek a dismissal of the complaint.  Given the heightened pleading standard of Rule 9, the complaint must contain a minimum factual description “often referred to as the who, what, when, where and how of the alleged fraud.”  Topshelf, at 6, quoting Harrison, 176 F.3d at 784.