STATE OF NORTH CAROLINA EX REL RUFUS L. EDMISTEN, ATTORNEY GENERAL v. J. C. PENNEY COMPANY, INC.
No. 75
Supreme Court of North Carolina
Filed 14 April 1977
292 N.C. 311 | 233 S.E.2d 895
The debt collection activities of a department store chain do not come within the purview of the statute prohibiting unfair or deceptive acts or practices “in the conduct of any trade or commerce,” G.S. 75-1.1, since the statute applies only to unfair and deceptive acts or practices involved in the bargain, sale, barter, exchange or traffic.
Justice HUSKINS dissenting.
Justice EXUM joins in the dissenting opinion.
APPEAL by defendant pursuant to
Defendant is a Delaware corporation having its principal place of business in New York City. Defendant is the second largest retailer in the United States, operating a large chain of retail stores throughout the country. A number of its stores are located in North Carolina.
Many of defendant‘s customers are offered the opportunity to buy merchandise on credit. North Carolina residents who purchase merchandise from defendant on one of its credit plans, and who become delinquent in fulfilling their repayment obligations, are contacted by defendant‘s regional collection office in Atlanta, Georgia. These contaсts, by letter and telephone, are for the purpose of encouraging the credit customer to pay his delinquent account.
The complaint alleged that telephone calls made by defendant‘s collection agents to delinquent credit customers were “repeated, harassing, abusive, demeaning, and threatening“; that calls were placed to the credit customer at his place of employment even after the customer repeatedly requested that he be contacted only at home; that calls were placed to credit customers’ employers, “informing the employer of the debt and attempting to use the employer‘s influence and pоsition to force payment of the debt,” and that these calls were placed even if the credit customer had made regular payments toward his debt.
On 26 November 1975, the court entered an order temporarily restraining the defendant from making any abusive, annoying, threatening, harassing or embarrassing contact with its credit customers, contacting its credit customers at work after being instructed not to do so, and contacting any person other
At the hearing on the motion for a preliminary injunction, plaintiff submitted fourteen affidavits of various credit customers and their employers concerning telephone calls they received from defendant‘s collection agents. These affidavits tended to support the allegations of the complaint. In response, defendant filed an affidavit of the operations manager of its Atlanta credit office that tended to show that defendant has issued a credit manual and guide cards describing the manner in which telephone contacts should be made by collectors and forbidding threats, harassment and abusive telephone calls; that collectors’ calls are supervised and standards regularly reviewed; that accounts must be delinquent by at least 60 days before telephone contact is made, and that “special exceptions are made for [debtors with] legitimate hardship cases.”
On 9 December 1975, the trial judge issued an order denying the State‘s request for a preliminary injunction and dissolving the temporary restraining order. Defendant then answered the complaint denying its material allegations.
On motion of the State, the trial court amended its order on 23 December 1975 to include findings of fact and conclusions of law. In its amended order, the court found that “there is ample evidence to support a [f]inding that the conduct complained of did occur.” However, the court concluded that it was not proper to enter a preliminаry injunction because the conduct complained of did not fall within the purview of
Rufus L. Edmisten, Attorney General, by Alan S. Hirsch, Associate Attorney for the State.
Smith, Anderson, Blount & Mitchell by John H. Anderson and Henry A. Mitchell, Jr., and Alston, Miller & Gaines (Atlanta, Georgia) by Sidney O. Smith, Jr., for defendant appellant.
David M. Fitzgerald for the Federal Trade Commission as amicus curiae.
Johnson, Gamble & Shearon by Samuel H. Johnson for the North Carolina Merchants Association, Inc. as amicus curiae.
COPELAND, Justice.
The question before the court on this appeal is whether the activities of merchants attempting to collect funds allegedly owed them were intended to be, and constitutionally can be, subject to
The statute, enacted by the legislature in 1969, provides in relevant part:
“Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”
G.S. 75-1.1(a) . (Emphasis supplied.)
Initially, the most striking aspect of the statutory language is its resemblance to Section 5 (a) (1) of the Federal Trade Commission Act (hereinafter FTC Act) which provides as follows:
“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.”
15 USC § 45 (a) (1) . (Emphasis supplied.)
The similarity in language was apparently not accidental. See Aycock, Antitrust and Unfair Trade Practice Law in North Carolina—Federal Law Compared, 50 N.C. L. Rev. 199, 246 (1972) [hereinafter cited as Aycock]; Morgan, The People‘s Advocate in the Marketplace—The Role of the North Carolina Attorney General in the Field of Consumer Protection, 6 Wake Forest Intra. L. Rev. 1, 18 (1969) [hereinafter cited as Morgan]; Comment, Consumer Protection and Unfair Competition
No protracted analysis of dictionary and judicial definitions is needed to arrive at the conclusion that at least one definition of the word “commerce,” which appears in both acts, is expansive enough to encompass all business activities, including the collection of debts. Indeed, the Federal Trade Commission (hereinafter FTC) and the federal courts construing the FTC Act have so held. See, e.g., Spiegel, Inc. v. FTC, 540 F. 2d 287 (7th Cir. 1976); Floersheim v. FTC, 411 F. 2d 874 (9th Cir. 1969), cert. denied, 396 U.S. 1002, 24 L.Ed. 2d 494, 90 S.Ct. 551; Slough v. FTC, 396 F. 2d 870 (5th Cir. 1968), cert. denied, 393 U.S. 980, 21 L.Ed. 2d 440, 89 S.Ct. 448; In re Floersheim, 316 F. 2d 423 (9th Cir. 1963); Mohr v. FTC, 272 F. 2d 401 (9th Cir. 1959), cert. denied, 362 U.S. 920, 4 L.Ed. 2d 739, 80 S.Ct. 672; William H. Wise Co. v. FTC, 246 F. 2d 702 (D.C. Cir. 1957), cert. denied, 355 U.S. 856, 2 L.Ed. 2d 64, 78 S.Ct. 84; Dejay Stores v. FTC, 200 F. 2d 865 (2d Cir. 1952); Bernstein v. FTC, 200 F. 2d 404 (9th Cir. 1952); Bennett v. FTC, 200 F. 2d 362 (D.C. Cir. 1952); Rothschild v. FTC, 200 F. 2d 39 (7th Cir. 1952), cert. denied, 345 U.S. 941, 97 L.Ed. 1367, 73 S.Ct. 832; Silverman v. FTC, 145 F. 2d 751 (9th Cir. 1944) (all of the cases cited involved abuses in the collection of credit accounts by creditors, collection agencies, or companies selling “skip tracing” forms to creditors or collection agents).
“Commerсe” under federal decisions “is a term of the largest import. It comprehends intercourse for the purposes of trade in any and all its forms....” Welton v. Missouri, 91 U.S. 275, 280, 23 L.Ed. 347, 349 (1876); accord, Adair v. United States, 208 U.S. 161, 177, 52 L.Ed. 436, 443, 28 S.Ct. 277, 281 (1908); Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 189-90, 6 L.Ed. 23, 68 (1824). The federal courts have properly assigned the broadest possible definition to the word “commerce,” since in defining the word, they define the limits of federal power to regulate activities under the commerce clause.
The federal court decisions, however, are not controlling in construing the North Carolina Act. See Horton v. Gulledge,
“[W]ords used in the statute must be given their natural or ordinary meaning.” Seminary, Inc. v. Wake County, 251 N.C. 775, 782, 112 S.E. 2d 528, 533 (1960). By inserting the word “trade” in
Just as in one sense the word “trade” has a limiting effect on the wоrd “commerce,” in another sense the word “commerce” enlarges the meaning of the word “trade.” The two words, when used in conjunction, “include practically every business occupation carried on for subsistence or profit, and into which the elements of bargain and sale, barter, exchange, or traffic, enter.” Black‘s Law Dictionary (4th Ed. 1968). Thus, a host of occupations would be covered by
We believe the unfair and deceptive acts and practices forbidden by
“The purpose of this section is to declare, and to provide civil legal means to maintain, ethical standards of dealings between persons engaged in business, and between persons engaged in business and the consuming public within this State, to the end that good faith and fair dealings between buyers and sellers at all levels of commerce be had in this State.” (Emphasis supplied.)
The General Assembly, thus, is concerned with openness and fairness in those activities which characterize a party as a “seller.” Debt collection is not an activity necessarily typical of nor unique to sellers. It is rather an activity descriptive of creditors. An individual or a company may conduct the activities of bоth seller and creditor, as does J. C. Penney Co., but it is only those activities surrounding the “sale” that are regulated by
Also, bolstering our view of the legislature‘s intent is
“In any suit instituted by the Attorney General to enjoin a practice alleged to violate
G.S. 75-1.1 , the presiding judge may, upon a final determination of the cause, order the restoration of any moneys or property and the cancellation of any contract obtained by the defendant as a result of such violation. (Emphasis added.)
Inherent in this remedy is the intent to prohibit only unfair and deceptive practices affecting sales. If the legislature had intended to cover the acts alleged in this suit, we believe it would have provided for the rescission of contracts not only where the contract is obtained as a result of a violation, but also where a violation occurs which is unrelated to the contract‘s formation.
Another factor bearing on our decision in this case is contemporary literature on the subject. Strictly speaking, North Carolina has no documented legislative history. However, the then Attorney General, Robert Morgan, was instrumental in the enactment of
“Cases involving unfair or deceptive practices include false advertising, misnaming and misrepresentation, misleading trade or products names, simulation of well known products or trade names, ‘free’ goods, deceptive nondisclosure (such as failure to reveal abridgement, condensation or title change of books and literary articles), false disparagement of competing products, misrepresentation of business status or connections, misuse of the term ‘guarantee,’ misuse of ‘seals of approval,’ fraudulent sales schemes, deceptive pricing and lottery merchandising.” Morgan, supra, 6 Wake Forest Intra. L. Rev. at 20.
While Attorney General Morgan‘s list was obviously not intended to be all inclusive, we think it significant not only that debt collection practices were not included, but also that no unfair or deceptive practices unrelated to the sale were mentioned. Likewise, other contemporary commentators failed to address practices unrelated to the sale in their discussions of the scope of
We note also that the North Carolina Legislature has in the past specifically exempted the collection activities of certain creditors, including this defendant, from specific regulation.
The State and the defendant both call our attention to various rules of construction that they deem controlling. Defendant contends the statute is penal in nature and, thus, must be strictly construed. Chadwick v. Salter, 254 N.C. 389, 119 S.E. 2d 158 (1961). The State, on the other hand, insists the statute is remedial and must, therefore, be broadly construed. Morris v. Staton, 44 N.C. 464 (1853). We find neither of these views persuasive.
“[T]he distinction between a remedial and penal statute necessarily lies in the fact that the latter is prosecuted for the sole purpose of punishment, and to deter others from acting in a like manner. A remedial statute, of course, is for the purpose of adjusting the rights of the parties as between themselves in respect to the wrong alleged.” 3 Sutherland, Statutes and Statutory Construction § 60.03 (4th Ed. C. D. Sands, 1974), citing, School Dist. of Omaha v. Adams, 147 Neb. 1060, 26 N.W. 2d 24 (1947) [hereinafter cited as Sutherland].
While the FTC Act has been held to be remedial, Sears, Roebuck & Co. v. FTC, 258 F. 307, 311 (7th Cir. 1919), the North Carolina statute appears to be a hybrid. See Sutherland, supra at § 60.04. It is not criminal,
Another state supreme court has held, in construing statutory language identical to that of
While the federal court decisions extending the FTC Act to debt collection activities appear proper in the context of the
Our holding that debt collection activities are not within the purview of
The Court of Appeals is
Reversed.
Justice HUSKINS dissenting.
The controlling question presented by this appeal is whether the debt collection activities of defendant Company fall within the purview of
“(a) Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.
(b) The purpose of this section is to declare, and to provide civil legal means to maintain, ethical standards of dealings between persons engaged in business, and between persons engaged in business and the consuming public within this State, to the end that good faith and fair dealings between buyers and sellers at all levels of commerce be had in this State.”
In order to apply the provisions of
The affidavit of Narcissus Marrow discloses that she and her husband applied for and received two J. C. Penney credit cards in 1973. A year later the Marrows separated. At that time Mrs. Marrow wrote to Penney advising that due to the change in her marital status she would be unable to pay the $190.00 balance of her credit account at the usual rate, but she intended to pay the balance due as soon as possible. Defendant did not acknowledge this letter. After missing two payments Mrs. Marrow began to receive letters from Penney concerning her delinquency, and during the next year she made payments as she could afford them. In September 1975 she received a call at her place of employment from a Mrs. Spence who represented herself to be employed by the Collection Department of J. C. Penney Company. Mrs. Marrow asked Mrs. Spence not to call her at her office again and apparently worked out a payment schedule for the balance of her account. Nevertheless, Mrs. Spence called her again a day or so later at her plаce of employment and demanded more money. Mrs. Spence threatened to garnish her wages or turn her account over to a collection agency if the new sum was not forthcoming. Mrs. Marrow again asked Mrs. Spence not to call her at work.
A few days later a Mrs. Morris from the Collection Department of Penney called her office eight times attempting to locate Mrs. Marrow. During this time Mrs. Morris called the employment office to verify Mrs. Marrow‘s employment, told
The affidavit of Judi Fenderson disclosed that Mrs. Fenderson is divorced, the mother of two small children, and that she receives no support from her former husband. In 1973 she opened a charge account with J. C. Penney. A year later she was forced to change jobs, leaving her with a $348 per month cut in salary and, as a result, she was unable to make proper payments to Penney. She did pay as much as possible but began to receive threatening letters from that company. On 14 July 1975 she received a phone call at work from a Ms. Brown, employed by Penney, and worked out a payment agreement. A week later she received a phone call from a Ms. Betanzos demanding that she pay all accounts in full. Ms. Betanzos threatened that if she did not pay, Penney could garnish her wages and contact her employer. In addition, Ms. Betanzos told her of other debtors “who had been fired from their jobs just because they didn‘t pay Penney‘s.” She received subsequent phone calls similar in nature.
Mr. Donald Poole, a delinquent debtor of J. C. Penney Company, received several calls at work concerning his debt and culminating with a call from a J. C. Penney employee to his supervisor, Mary Kay Creech. Ms. Creech‘s affidavit reveals that a Mr. Barrow from J. C. Penney called her and stated that Mr. Poole was uncooperative with Penney‘s, either on the phone or by mail, asked if North Carolina permitted Penney to garnish the wages of Mr. Poole, and finally stated that apparently Penney would have to take Poole to civil court. He then asked Ms. Creech to tell Mr. Poole of the conversation he had with her regarding this matter.
The affidavits of Sandra and William Wheeler reveal that when they became delinquent in their accounts, Penney continually harassed them with letters and phone calls threatening to garnish their wages, repossess the furniture, put liens on their house and car and talk to their employer and supervisor about “counselling” them in the matter of their delinquent accounts. None of these threats were acted upon.
These sworn affidavits of those who have dealt with the J. C. Penney Company reveal a nightmarish pattern of harassment and other unscrupulous and unethical tactics. In particular, the threat and, indeed, the actual practice of informing the debtor‘s employer, supervisors and fellow workers of the debtor‘s credit status is an intolerable practice, bordering on blackmail and serving only to coerce the payment of the debt through fear and intimidation of the debtor. In my opinion these tactics show that the J. C. Penney Company has engaged in unfair acts and practices.
The majority, however, never reaches thе question whether the acts, as alleged, are unfair. Rather, the majority has apparently decided that, regardless of whether the enumerated activities amount to unfair acts or practices, such acts are not “in the conduct of any trade or commerce.” This conclusion is reached through close and narrow construction of the term “trade and commerce” and, in my opinion, is erroneous.
As construed by the majority these words are read as an indivisible term having a single meaning different from the sum of its parts. Thus the majority states that “the two words, when used in conjunction, ‘include practically every business occupation carried on for subsistence or profit, and into which the еlements of bargain and sale, barter, exchange, or traffic, enter.’ Black‘s Law Dictionary (4th Ed. 1968).”
I agree with the quoted definition but think the meaning of the phrase “trade or commerce” is more clearly understood by examination of the longer statement in State v. Tagami, 195 Cal. 522, 234 P. 102 (1925), from which the abbreviated definition quoted by the majority is lifted. In that case the California Supreme Court, dealing with a 1911 international treaty, stated:
“... [W]hen so used in the conjunctive, they [“trade” and “commerce“] are held to impart to each other an enlarged signification which would include practically every business occupation carried on for the purpose of procuring subsistence or profit and into which, or any material part of which, the elеments of bargain and sale, barter, exchange, or traffic enter.” (Emphasis added.)
I am at a loss as to what position the majority adopts on this issue. At one point the opinion states that the “unfair and deceptive acts and practices forbidden by
Thе majority seems to envision some relationship—between the act or practice and the element of bargain and sale—as the touchstone for coverage under
By stating that the act must be “surrounding” or “related to” the bargain or sale element, the majority seems to adopt the same test that I expressed earlier; that is, that coverage extends to the whole of the business of which the bargain and sale element is a material part. If this is true, then the majority must have found that where a retail sales company permits customers to purchase goods on a time payment оr credit basis, final payment is not an integral part of the sales system.
Support for this position, if it is indeed the position adopted by the majority, may be found in the discussion of
“(b) The purpose of this section is to declare, and to provide civil legal means to maintain, ethical standards of dealings between persons engaged in business, and between persons engaged in business and the consuming public within this State, to the end that good faith and fair dealings between buyers and sellers at all levels of commerce be had in this State.”
The majority singles out the words “between buyers and sellers” and, on that basis, states that the Legislature is “concerned with openness and fairness in those activities which charactеrize a party as a seller.”
Language in the majority opinion suggests that once the promise to pay is made, the consumer and Penney change hats and become debtor and creditor rather than buyer and seller. In this vein the majority states that debt collection is not an activity necessarily typical or unique to sellers—a conclusion contrary to reality. Debt collection may not be unique to sellers, as indeed advertising (which is conceded to be under
Nevertheless, I do not quarrel with the concept that a company may be both a seller and a creditor and that these activities may be distinct businesses. J. C. Penney Company, Inc., for example, could be in the business of lending money for automobile purchases or home improvements as well as being a retail sales company; and, absent direct connection with those retail sales, the credit collection activities stemming from its lending would not be subject to the provisions of
It is possible, however, that the majority does not reach this question. Under certain language in the opinion the majority seems to adopt the position that the act must “affect,” “involve” or “effect” the sale or bargain—language which would require that the act induce the sale. For reasons already stated, I do not agree with this construction of the phrase “in the conduct of any trade or commerce.” Assuming for the moment, however, that this construction is proper, the majority leaves many questions unanswered.
Primarily the majority opinion does not resolve the issue whether the unfair or deceptive act or practice must itself induce the sale or bargain in order for
If this question is answered in the affirmative then, although there is no clear proof in the record that the J. C. Penney Company extends credit as an inducement to sales, it should be a simple matter for the State to allege and prove such inducement in future proceedings under
Judicial notice may be taken of “the general business methods of railway and other well-known or quasi-public corporations when these methods are universally practiced or commonly known to exist.” Furniture Co. v. Express Co., 144 N.C. 639,
In my opinion the use of credit by major retail sales corporations as a sales inducement is so commonplace and well known as to fall into that category of facts of which judicial notice may be taken. In this regard the majority opinion impliedly recognizes the sales inducement aspect of credit extension when it states in a footnote that “[a]s time passed, competition apparently required that credit be extended for sales made,”
If indeed the majority holds that
If the majority holds that the unfair act itself must induce the sale, then the Court today effectively deletes “unfair” practices from the purview of
For the reasons stated, I respectfully dissent from the majority opinion and vote to uphold the decision of the Court of Appeals.
Justice EXUM joins in this dissenting opinion.