Preemption can be a powerful defense to an unfair and deceptive trade practice claim. Preemption of a claim brought under N.C. Gen. Stat. § 75-1.1 can deprive a putative plaintiff of potential treble damages remedies and potential recovery of attorneys’ fees.

Attorneys have raised preemption as a defense with increasing frequency. They have argued that a number of state and federal statutes, or regulatory schemes, either explicitly or implicitly preempt section 75-1.1.

(Federal court mavens, you may argue that “preemption” is a term of art that only applies when federal law displaces state law. You may also argue that the proper term when two state statutes are involved is “replacement” or “exclusion.” We are going to use “preemption” to cover both competing federal and state law. This is a blog post, so just relax.)

This month, two separate North Carolina federal courts have issued decisions holding that consumer-protection statutes preempt section 75-1.1. In Musenge v. Smartway of the Carolinas, LLC, Western District Court Judge Robert Conrad held that the North Carolina Debt Collection Act preempts section 75-1.1. In McLaughlin v. Nationstar Mortgage, LLC, Middle District Court Judge Catherine Eagles held that the federal Fair Credit Reporting Act preempted a section 75-1.1 claim.

This post examines the similarities and differences in the two preemption holdings and the significance of the decision in a broader context.

State-consumer-protection law preempts UDTPA claims

In Musenge, the plaintiff alleged the following: The plaintiff leased a set of tires from the defendant. The plaintiff fell behind on the payments for the tires. The defendant then started sending payment demands by text message. The defendant continued sending text messages even after plaintiff revoked her consent to be contacted by text message. Besides texts, the defendant also sent several letters to the plaintiff. Some of the letters threatened criminal action.

The plaintiff also alleged that representatives of the defendant appeared at plaintiff’s residence several times. At least once, the defendant’s representative attempted to enter the plaintiff’s residence when she did not answer the door. The defendant also allegedly sent a representative to plaintiff’s place of work.

The plaintiff brought claims under multiple state- and federal-consumer-protection statutes, in addition to other state common law claims. Most importantly for our purposes, the plaintiff brought a claim under the NCDCA and section 75-1.1.

The defendant brought a motion for judgment on the pleadings to dismiss all claims. Judge Conrad declined to dismiss the NCDCA claim. The judge determined that the plaintiff sufficiently plead injury and damages to maintain the claim.

As for the section 75-1.1 claim, Judge Conrad held that the NCDCA preempted it. Citing prior federal court precedent, and the text of the statute itself, the judge found that “[t]he NCDCA constitutes the sole remedy for unfair and deceptive trade practices in the context of debt collection.”

Because the plaintiff’s complaint solely focused on the defendant’s debt collection practices, the court determined that the sole Chapter 75 remedy available to her was under the NCDCA.

Federal consumer protection law preempts UDTPA claims

In McLaughlin, the plaintiff refinanced her mortgage. After refinancing, the plaintiff alleged that the defendant, her mortgage lender, began sending past-due balances that were false and inaccurate and began charging “unlawful” and “fictitious” fees and charges. The plaintiff further alleged that the defendant furnished inaccurate credit information to credit reporting agencies. The plaintiff alleged that she asked the lender to stop on several occasions.

Eventually, the plaintiff fell behind on her mortgage payments. Ultimately, the defendant sent a notice of foreclosure, which included additional fees that the plaintiff alleges were improper. The plaintiff also alleges that the defendant continued to improperly report a negative credit status on her account.

The plaintiff sued the lender. Among the claims she raised, she alleged that the defendant’s negative reporting of her credit status violated both FCRA and section 75-1.1.

The defendant moved to dismiss all claims in the complaint. Although the plaintiff didn’t oppose the dismissal, the court issued a detailed opinion in conjunction with granting the defendant’s motion to dismiss.

Applying 4th Circuit precedent, Judge Eagles determined that, to the extent that the section 75-1.1 claim rested on the defendant’s misreporting of her credit information, FCRA’s express preemption provisions barred the section 75-1.1 claim. The court went on to dismiss the FCRA claim as well on the basis that the plaintiff failed to meet the statutory predicates to allow the plaintiff to bring a private right of action under the statute.

Judge Eagles granted the plaintiff leave to amend her complaint. The plaintiff has not filed an amended pleading, but the time to do so has not yet expired.

Conclusion

Musenge and McLaughlin both illustrate how important it is to consider preemption issues when bringing or defending against a section 75-1.1 claim. In Musenge, the court denied the plaintiff’s request to maintain the preempted section 75-1.1 claim to allow the plaintiff to take discovery as to whether all of defendant’s conduct was preempted. In McLaughlin, the court dismissed the section 75-1.1 claim, even though the court also dismissed the claim that the court determined preempted it. Plaintiffs and defendants alike should carefully examine the conduct that allegedly supports a section 75-1.1 claim and research whether another state or federal statute (or regulatory scheme) preempts the claim.