North Carolina Supreme Court Rules on Two Exemptions to Section 75-1.1 Liability – Corporate/Commercial Law

It’s not every day that our state’s highest court has the opportunity to rule on the scope of NC Gen. Stat. § 75-1.1. Last month, the North Carolina Supreme Court issued an important opinion on two well-known exemptions from liability under the law: the Securities Exemption and the Internal Commercial Disputes Exemption.

As mentioned above, disputes involving securities or the internal affairs of a company generally fail the “in or affecting commerce” test under Article 75-1.1.

In Nobel v. Foxmoor Group, LLC, the Supreme Court ruled that these two exemptions precluded a plaintiff’s claim under article 75-1.1 for a promissory note and money she lent to an outside business. The decision highlights two essential – and sometimes counter-intuitive – limits to the scope of application of article 75-1.1.

Context of nobel

We have previously discussed the context of nobel. The plaintiff, Loretta Nobel, sued a trucking company named Foxmoor Group and its owners when they failed to repay money Nobel loaned the company in exchange for a promissory note. Nobel alleged that the owners – Nobel’s friends and business acquaintances – enticed her to lend money to Foxmoor by misrepresenting the company’s financial position. She claimed that the owners presented Foxmoor as a thriving business, but in reality they were draining all of Foxmoor’s money for personal use.

Although the parties referred to Nobel’s loan as an “investment”, Nobel was unwilling to acquire a stake in Foxmoor in exchange for a loan to the company.

The North Carolina Court of Appeals ruled that the securities exemption excluded Nobel’s claim under section 75-1.1. For the purposes of “in or affecting commerce”, Article 75-1.1 defines “commerce” to include “all commercial activities, however denominated”. Courts have ruled that capital-raising arrangements are not “commercial activities”. Based on this case law, the Court of Appeal concluded that the promissory note was a means of raising capital and emphasized that the solicitation of funds to raise capital was not a commercial activity.

Judge John Arrowood wrote a dissenting opinion. He disagreed with the majority’s characterization of the promissory note as a security for the purposes of the securities exemption. Based on Justice Arrowood’s dissent, the case went to the Supreme Court.

The Supreme Court says for two reasons

In a split opinion, the Supreme Court upheld the dismissal of Nobel’s claim under article 75-1.1.

First, the majority opinion, written by Justice Philip Berger Jr., agreed with the majority of the Court of Appeals that the securities exemption applied to Nobel’s claim. The court relied on its 1991 opinion in HAJMM Co. c. House of Raeford Farms, Inc.where the court extended the exemption to capital-raising devices beyond traditional securities.

the nobel the court explained that, as in HAJMM, the defendants’ relationship with Nobel did not involve Foxmoor’s normal business activities. Instead, the underlying conduct in both HAJMM and nobel relates to the acquisition of capital by a company. It is the purpose of that conduct – not the type of capital-raising arrangement at issue – that determined whether Article 75-1.1 applied. The court explained that this was true despite the defendants’ “morally suspicious” conduct.

Second, the court explored another exemption that barred Nobel’s claim: the exemption for internal business disputes. This exemption, born in White v. Thompsonexcludes from the scope of application of article 75-1.1 internal commercial disputes between members of a company.

You may be wondering how Nobel’s claim against Foxmoor and its owner could be considered an internal business dispute between members of a company. After all, Nobel had no stake in Foxmoor; she was only a friend and business acquaintance of the owners of the company.

To answer this question, the nobel The court focused on whether the conduct at issue was limited to a single company. In
White, the Supreme Court explained that Article 75-1.1 was enacted to regulate two types of business transactions: (1) business-to-business interactions and (2) business-to-consumer interactions. Nobel did not belong to either of the two categories of market players.

The court explained that Nobel was not a consumer of Foxmoor and had not “engaged[] in any commercial transaction with the company. Instead, she was an investor, and her section 75-1.1 claim related only to her investment in Foxmoor. That investment took place within a single market participant – Foxmoor.

Note that the majority opinion of the Court of Appeals did not address the exemption for internal company disputes. Arrowood J. addressed the exemption in his dissent, but concluded that the exemption did not apply because Nobel did not own Foxmoor, i.e. the conduct at issue did not involved no internal conflict.


The Supreme Court’s majority opinion prompted a dissent from Justice Anita Earls, joined by Justice Robin Hudson.

Justice Earls called the majority’s position inconsistent with the General Assembly’s purpose in enacting broad remedial legislation “to protect the public from unscrupulous dealings in commercial interactions”.

With respect to the securities exemption, Earls J. viewed the majority opinion as an extension of HAJMM“beyond the circumstances of [section 75-1.1’s text]the structure and purpose of animation.” She pointed out that
HAJMM concerned a share certificate issued to a limited partnership, whereas nobel concerned a promissory note offered to a non-professional retail investor. Justice Earls saw this as an important distinction between HAJMM and

Earls J. also disagreed with the majority’s reliance on
White. She found it “difficult to discern how a company receiving funding from a fully independent investor” is a transaction involving a single market player. After all, Nobel was not the owner, director, manager or employee of Foxmoor.

In summary, in Justice Earls’ view, s. 75-1.1 applied to the conduct of the defendants and the majority opinion expanded both the wording of the statute and the precedents of the courts interpreting the statute.

Take away food

nobel is an important decision on the limits of article 75-1.1.

First, the notice confirms that the securities exemption is broader than its name suggests. nobel applied the exemption to an ordinary promissory note. The key point is that the purpose of the transaction in question, and not the technical nature of the capital-raising arrangement, determines whether the securities exemption applies.

Second, nobel extends the internal commercial dispute exemption to disputes that, on the face of it, might appear external. If you are one of our regular readers, you know that article 75-1.1 does not affect disputes between business owners. This is true even when the dispute includes the tangential involvement of third parties.

Under nobel, the threshold question is whether the dispute involves either (1) business-to-business interactions or (2) business-to-consumer interactions. Nobel, as an investor in Foxmoor who only loaned money to the company, did not fall into any of the categories of market participants. The conduct at issue was limited to a single company.

Although the exemptions for securities and domestic commercial disputes are interpreted broadly, the Supreme Court’s decision in
nobel will likely make it more difficult for litigants to circumvent the exemptions.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.