In cases under N.C. Gen. Stat. § 75-1.1, it’s important to distinguish arguments under Rule 12(b)(1) from arguments under Rule 12(b)(6). On a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court generally must treat factual statements in complaints as true. In contrast, on a Rule 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction, a court can pierce the pleadings and review evidence.

Earlier this month, the North Carolina Business Court issued two related decisions that illustrate this important distinction.

The Charlotte Taxi Cases

In Khan Bros. v. City of Charlotte and Universal Cab Co. v. City of Charlotte, several cab companies sued the City of Charlotte, former Charlotte Mayor Patrick Cannon, and the Greater Charlotte Hospitality and Tourism Alliance after the city refused to renew its contracts with those cab companies. The contracts had allowed the cab companies to provide on-demand taxi service at the city-owned Charlotte Douglas International Airport. Without a contract with the city, cab companies could not offer airport taxi service.

In their complaints, the plaintiffs alleged that former Mayor Cannon conspired with the Tourism Alliance to award exclusive operating agreements to cab companies that contributed to the mayor’s political campaign or to the Tourism Alliance.

The plaintiffs pursued a long list of claims against the defendants, including section 75-1.1 claims. The 75-1.1 claims alleged that the defendants “conspired in a pay-to-play scheme” when the Tourism Alliance awarded contracts to its corporate sponsors and to former Mayor Cannon’s campaign funders. The defendants moved to dismiss.

In deciding that motion, Judge Bledsoe did not reach the substance of the plaintiffs’ 75-1.1 claims—or any of their claims, for that matter. Instead, he concluded that the plaintiffs lacked standing to sue.

12(b)(1) vs. 12(b)(6): Why it Matters

In Kahn and Universal Cab, the defendants argued that the plaintiffs lacked a specific aspect of standing: an actual injury that was fairly traceable to the defendants’ actions. The defendants made this standing argument under Rule 12(b)(1), not under Rule 12(b)(6).

The court stated that it granted the defendants’ motions to dismiss under both rules. When we study the court’s reasoning, though, we can see that the 12(b)(1) ruling was the pivotal one. Why?

When a North Carolina state court decides a Rule 12(b)(6) motion to dismiss, it generally looks only at the face of the complaint and takes most factual allegations in the complaint as true. On a Rule 12(b)(1) motion, however, the court can pierce the pleadings and test the factual soundness of the allegations that affect subject-matter jurisdiction.

Thus, if the defendants had made their standing argument under Rule 12(b)(6) alone, the court would have been limited to asking whether the facts alleged in the complaint negated the plaintiffs’ claims of causation and injury. In the taxi cases, the complaint probably would have survived this inquiry, because even speculative allegations of proximate cause often withstand a Rule 12(b)(6) motion to dismiss. (Grant v. High Point Regional Health System, for example, illustrates the modest allegations of injury and causation that can withstand a 12(b)(6) motion.)

The Rule 12(b)(1) motion made all the difference. Applying that rule, the court pierced the pleadings. When it did so, it found no causal connection between the plaintiffs’ alleged injury and the defendants’ actions.

For example, the plaintiffs’ conspiracy-based claims rested on their allegation that the city council deferred to former Mayor Cannon when it awarded taxi service contracts. Cannon, after all, was the chairman of the committee tasked with recommending cab companies for the contracts.

This allegation was not enough to convince the court that the plaintiffs had suffered an injury that could be traced to the defendants’ actions. Instead, the court looked behind this allegation and found the evidence of causation and injury deficient in two ways.

First, the court noted that the city has no power to enter contracts with cab companies without the approval of a majority of city council members. The plaintiffs, however, had sued only one city council member: former Mayor Cannon.

Second, the court noted another problem: the presence of other competitors in the market. As the court pointed out, the plaintiffs were competing not only against the three cab companies that won contracts, but also against five other companies that did not. Under these circumstances, only “speculation and conjecture” allowed the plaintiffs to say that but for the defendants’ actions, the plaintiffs—as opposed to their competitors—would have been awarded a new contract.

Because of these two gaps in the evidence of a traceable injury, the court granted the defendants’ motions to dismiss under 12(b)(1).

Because the court decided that the plaintiffs lacked standing to bring their claims, it did not reach the defendants’ immunity defenses to the 75-1.1 claim. As we have discussed in an earlier post, section 75-1.1 does “not create a cause of action against the State, regardless of whether sovereign immunity may exist.” This rule might well extend to municipalities and their officials. If the court had reached the defendants’ immunity defenses, those defenses probably would have been a difficult hurdle for the plaintiffs to clear. Because of Rule 12(b)(1), however, the plaintiffs never reached that hurdle.

Takeaways

Kahn and Universal Cab underscore important points for plaintiffs and defendants in 75-1.1 cases.

For defendants, a standing argument under Rule 12(b)(1) might give you the opportunity to use materials outside the pleadings. As Kahn andUniversal Cab illustrate, a successful 12(b)(1) argument can have powerful effects.

Plaintiffs can also take a lesson from Kahn and Universal Cab. If you represent a plaintiff, be ready at the outset of litigation with evidence that your client has suffered an actual, traceable injury, in case you need to oppose a Rule 12(b)(1) motion.

Scottie Beth Forbes