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© 2013 American Bar Association, Section of Antitrust Law

Volume 9, Issue 3 Summer 2013

Inside this issue: Business Torts as Little 1 FTC Act Claims: Does the Difference Really Make a Difference?

By Robert M. Langer, Fallon DePina Banks & Matthew W. Saw-chak

If You Don’t Steal My 1 Employees, I Won’t Steal Yours: The Anti-trust Treatment of Non-Poaching and Non-Solicitation Agreements

By Nick Grimmer Better Know a 25 Committee: a Conversa-tion with BTCR Commit-tee Chair F. Joseph Gorm-ley

By Danielle S. Haugland Extending 28 Concepcion to Antitrust Claims in Arbitration

By Matthew J. Reynolds Case Notes 32

By Michael Bolos RICO Issue Index and 33 Grid

Business Torts as Little FTC Act Claims: Does the Difference Really Make a Difference?

By Robert M. Langer1 Fallon DePina Banks2 Matthew W. Sawchak3

Section 5(a)(1) of the Federal Trade Commission Act (the FTC Act), 15 U.S.C. § 45(a)(1), prohibits, among other offenses, “unfair or de-ceptive acts or practices.”

Twenty-eight states have en-acted FTC Act analogues, which are commonly referred to as “Little FTC Acts.” See chart appended as Exhibit A.

(Continued on page 3)

If You Don’t Steal My Employ-ees, I Won’t Steal Yours: The Antitrust Treatment of Non-Poaching and Non-Solicitation Agreements A Program Summary by Nick Grimmer1

This article summarizes the ABA Section of Litigation and ABA Section of Antitrust Law, Business Torts and Civil RICO Committee’s June 12, 2013 program “If You

Don’t Steal My Employees, I Won’t Steal Yours: The Anti-trust Treatment of Non-Poaching and Non-Solicitation Agreements.”

(Continued on page 17)

American Bar Association Section of Antitrust Law Business Torts & Civil RICO Committee

BUSINESS TORTS & RICO NEWS

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© 2013 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

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2 © 2013 American Bar Association, Section of Antitrust Law

Business Torts & RICO News is published four times a year by the American Bar Association Section of Antitrust Law Business Torts & Civil RICO Committee. The views expressed in Business Torts & RICO News are the authors’ only and not necessarily those of the American Bar Association, the Section of An-titrust Law, or the Business Torts & Civil RICO Committee (or its subcommittees). If you wish to com-ment on the contents of Business Torts & RICO News, please write to the American Bar Association, Sec-tion of Antitrust Law, 321 North Clark Street, Chicago, IL 60654.

Business Torts & RICO News 2012–13 Editorial Staff:

Danielle S. Haugland, Pangea3, Co-Editor ([email protected]) Matthew J. Reynolds, McGuireWoods LLP, Co-Editor ([email protected]) Michael F. Bolos, McGuireWoods LLP, Associate Editor ([email protected])

Business Torts & Civil RICO Committee Section of Antitrust Law

American Bar Assocation

Leadership

F. Joseph Gormley, Baldwin, Kagan & Gormley, LLC,

Chair

Carole E. Handler, Lathrop & Gage LLP,

Vice-Chair

Steven B. Malech, Wiggin and Dana LLP,

Vice-Chair

Angelo M. Russo, McGuireWoods LLP,

Vice-Chair

Daniel Alan Schiffer, Morgan, Lewis & Bockius LLP,

Vice-Chair

Irene Ayzenberg-Lyman, Dechert LLP,

Young Lawyer Representative COPYRIGHT NOTICE ©Copyright 2013 American Bar Association. All rights reserved. No part of this publication may be re-produced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. To request permission, contact the ABA’s Department of Copyrights and Contracts via www.americanbar.org/utility/reprint.


(Continued from page 1)123 Because these state statutes are based on the FTC Act, states have long looked to precedent under the FTC Act for guidance when they have considered the meaning of unfairness.4 Sixteen states, see Exhibit A, have also adopted some ver-sion of the FTC’s “Cigarette Rule,” which sets forth the following three criteria to gauge whether an act or prac-tice is unfair:

(a) Whether the prac-tice, without necessarily having been previously declared unlawful, of-fends public policy as it has been established by statutes, the common law or otherwise—whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (b) Whether it is im-moral, unethical, op-pressive or unscrupu-lous; (c) Whether it causes substantial injury to consumers (or competi-tors or other business-men).5

In 1980, the FTC changed its unfairness analysis from the one outlined in the Cigarette Rule. In a statement to Con-

gress, the FTC stated that it would treat an act or practice as unfair only if “it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”6 Five states have expressly adopted the FTC’s current unfairness standards in those states’ un-fairness doctrines. See Exhib-it A. Overview of Per Se Theories and Related Theories under the Lit-tle FTC Acts Generally, Little FTC Act claims—at least claims by private litigants—involve three primary elements: (1) an unfair or deceptive act or practice, (2) within the Little FTC Act’s definition of “trade or commerce,” (3) which in-jures an eligible plaintiff.7 In some circumstances, a plain-tiff can satisfy the first ele-ment of a Little FTC Act claim by using a per se theory of liability. A per se violation of a Little FTC Act occurs when a violation of a different statute or regulation, or a common-law tort, automati-cally satisfies the conduct standard for a Little FTC Act claim. One can call the un-derlying statutory violation, regulatory violation, or tort the “predicate violation.” One can call the automatic

establishment of a Little FTC Act claim “upgrading.” Deci-sions on per se theories reflect several different approaches to upgrading. We discuss these approaches in the fol-lowing subsections. Explicit Upgrading First, a court will upgrade a predicate violation to a per se violation of a Little FTC Act if the predicate statute or reg-ulation expressly states that a violation of it is a violation of the state’s Little FTC Act. For example, a North Dakota statute on telecommunications services provides that “[a] telecommunications company that violates this section is deemed to have committed an unlawful practice in violation of [North Dakota’s Little FTC Act].”8 Conversely, a number of Lit-tle FTC Acts themselves name predicate violations that allow upgrading. For exam-ple, an Alaska statute states: “The terms ‘unfair methods of competition’ and ‘unfair or deceptive acts or practices’ include, but are not limited to, the following acts: . . . (34) violating AS 08.66.260–08.66.350 (motor vehicle buyers’ agents); (35) violating AS 45.63 (solicitations by tel-ephonic means); (36) violat-ing AS 45.68 (charitable so-licitations) . . . .”9


The benefit of explicit up-grading is that parties have express notice that certain predicate violations expose them to liability (and often, enhanced remedies) under a Little FTC Act. Semi-Explicit Upgrading When a predicate violation states that particular conduct is “unfair” and/or “decep-tive,” courts often rely on this statutory language to find a per se violation of a Little FTC Act. Following this ap-proach, for example, one court held that any act that qualifies as an unfair claim settlement practice under a Washington state statute is also a per se unfair trade prac-tice that (as Washington law requires) affects the public interest.10 Codified Standards for Up-grading

A handful of states have stat-utes or regulations that explic-itly define standards for up-grading. For example, in Massachusetts, the Little FTC Act allows the attorney gen-eral to make rules and regula-tions that interpret the stat-ute.11 Under this authority, the attorney general has made regulations on the relationship between predicate violations and the state’s Little FTC Act. One of these regulations states that an act or practice violates Massachusetts’s Lit-tle FTC Act if: (1) it is op-

pressive or otherwise uncon-scionable; (2) any party sub-ject to the act fails to disclose any fact that would have dis-suaded the consumer from entering into the transaction; (3) the act or practice fails to comply with existing state statutes, rules, regulations or laws, meant for the protection of the public’s health, safety, or welfare; or (4) the act or practice violates the FTC Act, the Federal Consumer Credit Protection Act, or other feder-al consumer protection stat-utes.12 Courts have some-times referred to these regula-tions when they have consid-ered per se violations.13 Discretionary Upgrading Some courts will upgrade predicate violations to viola-tions of a Little FTC Act even though no statute or regula-tion specifically calls for up-grading. Courts use judge-made standards to distinguish predicate violations that de-serve upgrading from predi-cate violations that do not. Many of these judge-made standards ask, in substance, whether a predicate violation implicates the goals of a Little FTC Act. For example, a federal court in New York held that “[a]s long as the un-derlying conduct is consumer-oriented, what is fraud will be a deceptive practice under [the Little FTC Act], although the converse cannot be

said.”14 The court explained that “[s]uch practices do not seem far removed from the type of deceptive trade prac-tice [New York’s Little FTC Act] was intended to pre-vent.”15 Courts have also been per-suaded by predicate violations that provide detailed conduct standards. For example, a North Carolina court noted that a predicate statute “de-fined in detail unfair methods of setting claims and unfair and deceptive acts or practic-es in the insurance industry, thereby establishing the Gen-eral Assembly’s intent to equate a violation of that stat-ute with the more general provision of [North Carolina’s Little FTC Act].”16 Nearly Per Se Violations Courts sometimes hold that a predicate violation does not automatically satisfy the con-duct standard under a Little FTC Act, yet promotes a vio-lation to some degree. This pattern occurs, for example, when (a) the predicate viola-tion shows a violation of the “public policy” aspect of the Cigarette Rule, or (b) the predicate violation “contrib-utes” to a violation of a Little FTC Act. For example, a North Carolina court held: “The Ejectment of Residential Tenants Act . . . embodies the public policy of this state, as determined by the legislature,


that residential tenants not be evicted through self-help measures without resort to judicial process. . . . Accord-ingly, it is clear that conduct which violates the Ejectment of Residential Tenants Act may also constitute a viola-tion of the Unfair and Decep-tive Practices Act, thus giving rise to an award of treble damages and attorney’s fees under that Act.”17 Using similar intermediate reasoning, a federal court in Massachusetts concluded that a violation of the federal Per-ishable Agricultural Com-modities Act (PACA) is not a per se violation of the Massa-chusetts Little FTC Act. If a plaintiff, however, “can prove harm to consumers or to the public, it is possible that a vi-olation of PACA could lead to [Little FTC Act] liability.”18 Illusory Per Se Violations Courts sometimes state that a predicate violation “is a per se violation” of a Little FTC Act if the plaintiff also proves the usual elements of a violation of the Little FTC Act. One can call this pattern of reason-ing an illusory per se viola-tion, because the predicate violation does not reduce the plaintiff’s burden of proof from the one that would oth-erwise exist. For example, the North Carolina Court of Appeals has held that “[i]f a violation of the Trade Secrets

Protection Act satisfies the three prong test [under the Cigarette Rule], it would be a violation of [the Little FTC Act].”19 Reverse Per Se Reasoning In some cases, courts apply what one might call a reverse per se rule. This pattern aris-es when courts hold that a Lit-tle FTC Act claim fails simply because a predicate claim has failed. In these cases, courts seldom state explicitly wheth-er the failure of the predicate violation was independently sufficient to defeat the Little FTC Act claim. For example, one court held that “[b]ecause Plaintiffs do not allege any facts that suggest that De-fendant’s conduct is unlawful beyond the conduct that is the basis for their failed federal [antitrust] claims, Plaintiffs’ [Little FTC Act claim] fail[s] as well.”20 Some Specific Examples of the Interplay between Common-Law Business Torts and Little FTC Acts Parties who pursue claims for nonstatutory business torts often simultaneously pursue claims under Little FTC Acts. Parties add Little FTC Act claims in search of a more open-ended conduct standard, to sidestep tort defenses, to seek broader remedies than

tort law provides, or all of the above. Conduct that is actionable un-der Little FTC Acts does not necessarily satisfy the ele-ments for tort claims. In con-trast, conduct that makes out a business tort claim is often held to violate a Little FTC Act as well—on a per se basis or otherwise. This is because Little FTC Acts, having a more open-ended conduct standard, often apply to a broader range of business conduct than tort theories do. Cases involving both types of claims are discussed in further detail below. One court summarized the interaction between business tort claims and Little FTC Act claims in the following terms: “Conduct that might be ac-tionable under [a Little FTC Act] may not rise to a level sufficient to invoke tort liabil-ity. The reverse of that prop-osition, however, is seldom true. Provided a plaintiff shows that his or her claim is cloaked with the necessary public interest, it is difficult to conceive of a situation where tortious interference would be found but a [Little FTC Act] violation would not.”21 Several decisions illustrate the common pattern of a business tort also making out a viola-tion of a Little FTC Act. For example, in a case involving statutory theft and conversion, the court held that the ele-


ments of the tortious activity also violated the Little FTC Act. The court explained: “The court [below] found that . . . ‘[t]he defendant’s theft of the plaintiff’s funds violates the statutes proscrib-ing conversion and theft and, by any standard, qualifies as “immoral, unethical, oppres-sive [and] unscrupulous.”’ . . . [W]e cannot conclude that the court erroneously relied on the same [conduct] as the ba-sis for its finding that the de-fendant had committed an un-fair or deceptive act as pro-scribed under [the Little FTC Act].”22 Applying the converse rea-soning, a court concluded that a Little FTC Act claim failed because related common-law claims and federal claims failed. The court stated: “The plaintiff acknowledges that the success of its [Little FTC Act] claim hinges on the success of its claims under the Lanham Act and state com-mon law. Because we affirm the trial court’s judgment re-jecting the plaintiff’s Lanham Act and common law claims, the plaintiff’s [Little FTC Act] claim also fails.”23 Although Little FTC Acts usually apply more broadly than business tort theories do, not every case follows this pattern. In one Connecticut case, for example, the court held that a claim that failed under the state’s Little FTC

Act nevertheless amounted to tortious interference. Noting the divergent standards for each claim, the court stated: “The defendant additionally argues that because the court did not find that her conduct amounted to a [Little FTC Act] violation, that same con-duct cannot be the basis of a tortious interference claim because the latter carries a lower burden of proof than the former. We disagree with the defendant’s assertion. . . . We may readily infer that the court did not hold the defend-ant liable under [the Little FTC Act] because it conclud-ed that the balance of [the Cigarette Rule] factors weighed against liability. No such balancing test is required for a claim of tortious inter-ference.”24 In a similar vein, a court re-fused to hold that tortious in-terference rose to the level of a Little FTC Act violation. The court concluded: “[A]lthough there may be cer-tain cases in which conduct is actionable under [Little FTC Act] but does not give rise to a claim of tortious interfer-ence, there was still no proba-ble cause to support a [Little FTC Act] violation in this case because the court did not find any conduct by the de-fendants that was ‘deceitful, unfair or unscrupulous.’”25 Distinctions among theories of liability are the norm in

many decisions. For exam-ple, in a case involving com-mercial disparagement, unjust enrichment, defamation, and tortious interference, the court analyzed each claim entirely separately from the Little FTC Act claim.26 As these decisions and others show, no single rule captures the interaction between busi-ness tort claims and claims under Little FTC Acts. Alt-hough Little FTC Acts gener-ally create a broader theory of liability than business torts do, courts sometimes perceive the difference between the theories as more subtle. Courts might be more apt to rely on doctrinal subtleties when the claimant is a busi-ness that stands to recover enhanced remedies if its Little FTC Act succeeds. Conclusion A large number of Little FTC Acts have been in existence for thirty to forty years. Courts construing many of these state laws still use the Cigarette Rule approach as they define unfairness. Par-ticularly in those states that allow businesses to sue under Little FTC Acts, parties some-times assert nonstatutory business torts as a basis for claiming unfairness. The law under Little FTC Acts pro-vides a structure that supports some of these claims.


1 Partner, Wiggin and Dana LLP, Hartford, CT; Chair, Janet D. Stei-ger Fellowship Project, ABA Sec-tion of Antitrust Law; co-author, ROBERT M. LANGER, JOHN T. MOR-

GAN & DAVID L. BELT, UNFAIR

TRADE PRACTICES, BUSINESS TORTS

AND ANTITRUST (2012–2013 ed.) (volume 12 of West’s CONNECTI-

CUT PRACTICE SERIES). 2 Litigation Associate, Wiggin and Dana LLP, New Haven, CT. 3 Partner, Ellis & Winters LLP, Ra-leigh, NC; Practitioner in Resi-dence, Campbell Law School; Vice-Chair, State Enforcement Commit-tee, ABA Section of Antitrust Law; co-author, Defining Unfairness in “Unfair Trade Practices,” 90 N.C. L. REV. 2033 (2012). 4 See, e.g., CONN. GEN. STAT. § 42-110b(b) (“It is the intent of the leg-islature that in construing subsec-tion (a) of this section, the commis-sioner and courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Com-mission Act (15 U.S.C. 45(a)(1)), as from time to time amended.”). Twenty-three states have substan-tially similar provisions or a judicial ruling to the same effect. See ABA

SECTION OF ANTITRUST LAW, CON-

SUMER PROTECTION LAW DEVEL-

OPMENTS 378 (2009). 5 FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 n.5 (1972); McLaughlin Ford, Inc. v. Ford Mo-tor Co., 473 A.2d 1185, 1191 (Conn. 1984). 6 Letter from the FTC to Sens. Ford & Danforth (Dec. 17, 1980), avail-able at http://www.ftc.gov/bcp/policystmt/ad-unfair.htm. In 1994, Congress codified this standard in a new sec-tion 5(n) of the FTC Act, 15 U.S.C. § 45(n). 7 See Walker v. Fleetwood Homes of N.C., Inc., 653 S.E.2d 393, 399 (N.C. 2007); CONN. GEN. STAT. § 42-110b(a).

8 N.D. CENT. CODE § 42-21-02.4(4); see also ROBERT M. LANGER, JOHN

T. MORGAN & DAVID L. BELT, UN-

FAIR TRADE PRACTICES, BUSINESS

TORTS AND ANTITRUST app. E (2012–2013 ed.) (volume 12 of West’s CONNECTICUT PRACTICE

SERIES) (more than seventy statutes are expressly incorporated by refer-ence in, and made violations of, the Connecticut Unfair Trade Practices Act (“CUTPA”)). 9 ALASKA STAT. § 45.50.471.

10 Rizzuti v. Basin Travel Servs. of Othello, Inc., 105 P.3d 1012, 1022 (Wash. Ct. App. 2005). 11

MASS. ANN. LAWS ch. 93A, § 2(c). 12 940 MASS. CODE REGS. 3.16. 13 See, e.g., Swenson v. Yellow Transp., Inc., 317 F. Supp. 2d 51, 56 (D. Mass. 2004). 14 M&T Mortg. Corp. v. White, 736 F. Supp. 2d 538, 573 (E.D.N.Y. 2010). 15 Id. 16 Walker v. Fleetwood Homes of N.C., Inc., 653 S.E.2d 393, 399 (N.C. 2007). 17 Stanley v. Moore, 454 S.E.2d 225, 228-29 (N.C. 1995) (emphasis added). 18 Friendly Fruit, Inc. v. Sodexho, Inc., 529 F. Supp. 2d 158, 165–66 (D. Mass. 2007). 19 Drouillard v. Keister Williams Newspaper Servs., Inc., 423 S.E.2d 324, 326 (N.C. Ct. App. 1992). 20 R.J. Reynolds Tobacco Co. v. Philip Morris Inc., 199 F. Supp. 2d 362, 396 (M.D.N.C. 2002), aff’d per curiam, 67 F. App’x 810 (4th Cir. 2003). 21 Sportsmen’s Boating Corp. v. Hensley, 474 A.2d 780, 786 (Conn. 1984). It bears noting that after the facts of Sportsmen’s Boating arose, the Connecticut General Assembly eliminated the public interest/public injury requirement under that state’s Little FTC Act. See Act of June 8, 1984, Pub. Act No. 84-468, § 2(a), 1984 Conn. Acts 794, 797 (amend-ing CONN. GEN. STAT. § 42-110g).

22 Rana v.Terdjanian, 46 A.3d 175, 190 (Conn. App. Ct.) (quoting deci-sion below), cert. denied, 47 A.3d 886 (Conn. 2012). 23 Mohegan Tribe of Indians v. Mohegan Tribe & Nation, Inc., 769 A.2d 34, 37 n.4 (Conn. 2001); see also Dulgarian v. Stone, 652 N.E.2d 603, 609 (Mass. 1995) (“Defamato-ry statements are actionable under G.L. c. 93A. However, where al-legedly defamatory statements do not support a cause of action for defamation, they also do not support a cause of action under G.L. c. 93A.”) (citation omitted). 24 Am. Diamond Exch., Inc. v. Alpert, 920 A.2d 357, 365 n.7 (Conn. App. Ct. 2007) (citation omitted). 25 Landmark Inv. Grp., LLC v. Calco Constr. & Dev. Co., 60 A.3d 983, 992 (Conn. App. Ct. 2013). 26 IN Energy Solutions, Inc. v. Re-algy, LLC, 969 A.2d 807, 815–16 (Conn. App. Ct. 2009).

Exhibit A (continued)


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