In a decision rendered in October 2009, the North Carolina Business Court dismissed a claim brought under North Carolina’s Unfair and Deceptive Trade Practices Act, finding that the conduct alleged was a “securities transaction” and beyond the scope of Chapter 75. Charlotte-Mecklenburg Hospital Authority v. Wachovia Bank, National Association, 08 CVS 27739 (Oct. 6, 2009).

In that case, Charlotte-Mecklenburg Hospital brought a series of claims against Wachovia Bank related to a Securities Lending Agency Agreement. It was alleged that under that Agreement, Wachovia was to manage cash collateral investments on the Plaintiff’s behalf pursuant to specific investment guidelines governing the investment activity. It was further alleged that Wachovia made an imprudent investment as part of this securities lending program. The Plaintiff alleged that the investment was too risky and that Wachovia failed to liquidate the investment timely, resulting in a loss of $14 million.

In moving to dismiss the complaint, Wachovia challenged the Unfair and Deceptive Trade Practices claim on the basis that securities transactions are exempted. Citing Skinner v. E.F. Hutton & Co., Inc., 333 S.E.2d 236, 241 (1985), Wachovia argued the Plaintiff’s allegation related to a security transaction and therefore was outside the reach of Chapter 75. In response, the Plaintiff acknowledged that the statute does not govern securities transactions but tried to escape dismissal, arguing that the subject of the claim involved “investment advice” and an “investor/investment advisor relationship,” not “securities transactions.” In advancing this argument, however, the Plaintiff failed to rely on any controlling authority that was apposite to the issues at hand. The Business Court rejected the Plaintiff’s attempt to reclassify its claim.

While correctly noting that the commerce element of Chapter 75-1.1 encompasses a broad range of business activity, the Business Court stated that “it does not cover ‘all wrongs’ in a business setting.” Id. citing Sterner v. Penn, 159 N.C. App. 626, 632-33, 583 S.E.2d 670, 675 (2003). The Business Court went on to cite North Carolina case law that has excluded securities transactions, beyond conventional securities, from the reach of the statute. See e.g. Oberlin Capital, LP v. Slavin, 147 N.C. App. 52, 62, 554 S.E.2d 840, 848 (2001) (Chapter 75 claim dismissed in case involving a loan agreement). Noting that courts have previously held that “transactions entered into for purposes of raising capital also qualify as a ’securities transaction’,” Id., the Business Court found the “securities lending program” at issue in the case to be similar to “raising capital” and therefore beyond the statute’s definition of “in or affecting commerce.”

Ultimately, the Business Court was not persuaded by the Plaintiff’s creative labeling. Reading Plaintiff’s argument, one is reminded of Shakespeare: “A rose by any other name would smell as sweet.” The Plaintiff’s argument was certainly not made any easier by the fact that, while at the same time it argued its claim did not involve securities transactions, it brought a separate claim against Wachovia for a violation of North Carolina Securities Act and relied on the same basic facts for both of these claims.