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Breach of Contract Claims Do Not Necessarily Constitute Unfair Trade Practice Violations

Louisiana, like many states, prohibits unfair trade practices. Because Louisiana law authorizes the recovery of treble damages and attorney’s fees for unfair trade practice violations, it is not unusual for plaintiffs to include claims for unfair trade practices in routine breach of contract cases. However, not all breaches of contract constitute unfair trade practices. “There is a great deal of daylight between a breach of contract and the egregious behavior the [LUTPA] statute proscribes.” Green v. Garcia-Victor, 248 So.3d at 454-455. In order to establish an unfair trade practice, the conduct must be more egregious than a simple failure to abide by the terms of the contract. There must be fraud, misrepresentation, deception or other unethical conduct.  Ghandi v. Sonal Furniture & Custom Draperies, L.L.C., 49,959 (La.App. 2 Cir. 7/15/15), 192 So.3d 783, 792.

If you are defending a claim of unfair trade practice in a routine breach of contract action, you should consider filing a motion to dismiss or for partial summary judgment. There is legal authority in Louisiana for dismissing claims under the Louisiana Unfair Trade Practices Act (“LUTPA”), La. R.S. 51:1401, et seq., where the plaintiff has alleged a breach of contract, but has not plead specific egregious conduct or cannot produce evidence of fraud, misrepresentation, deceit or other unethical conduct. See Noland Fine Art, Inc. v. Ducks Unlimited, Inc., 88 F. Supp. 3d 602 (E.D. La. 2015); Administrators of the Tulane Educational Fund v. Biomeasure, Inc., No. 08-5096, 211 WL 3268108 (E.D. La. 2011).

We recently handled a case in Louisiana state court in which our client was sued by the plaintiffs for breach of contract and violation of the LUTPA. The case arose out of our client’s purchase of the plaintiffs’ business. The purchase price for the sale was a fixed amount plus a contingent earn-out amount. Two years after the sale, a dispute arose between the parties regarding the calculation of the earnout. The plaintiffs sued for breach of contract alleging that our client breached the purchase and sale agreement by failing to pay contingent earnout payments. They also sued for violation of LUTPA and alleged that our client engaged in unfair, illegal, unethical and deceptive acts and practices, but did not allege specific facts showing egregious conduct.

After most discovery had been completed, we filed a motion for partial summary judgment, arguing that the plaintiffs’ claim against our client boiled down to a simple breach of contract claim. A breach of contract claim, we argued, does not become a LUTPA violation by simply adding the words “deceit” or “misrepresentation” to a contract claim. We submitted deposition testimony to the Court to show that the dispute between the parties concerned a difference of opinion as to the interpretation of the earnout provisions in the contract, not a situation where our client had falsified numbers or engaged in fraud or deceit. The plaintiffs were unable to produce any evidence of fraud, deception, misrepresentation or unethical conduct. For that reason, the district court granted our clients’ motion for partial summary judgment and dismissed the plaintiffs’ LUTPA claim. This ruling changed the whole complexion of the case. The exposure for our client dropped significantly.

The lesson to be learned is that it is not sufficient for a plaintiff in a breach of conduct action to merely allege that the defendant violated the LUTPA by engaging in unfair, illegal, unethical and deceptive acts. The plaintiff must allege specific facts to demonstrate such conduct, and must be prepared to demonstrate to the court with evidence that the defendant’s conduct is more offensive than a failure to live up to the terms of a contract.

The exposure to the defendant in a breach of contract claim is usually for damages, while the exposure in a LUTPA claim is three times damages plus attorney’s fees. You can greatly reduce the risk to your client by eliminating LUTPA claims in typical breach of contract lawsuits. As the cases demonstrate, judges are willing to consider whether the defendant’s conduct rises to the level of a LUTPA violation. The next time you are defending a routine breach of contract claim which includes a LUTPA claim, consider whether the petition/complaint alleges egregious conduct and whether the evidence actually demonstrates fraud, misrepresentation, deceit or unethical conduct. If not, it is certainly worth filing a motion to dismiss the LUTPA claim.