NMSC: A Business Cannot Sue for Unfair Competition Under the Unfair Practices Act

The New Mexico Supreme Court issued an opinion late last week in GandyDancer, LLC v. Rock House CGM, LLC. GandyDancer and Rock House were competing for a contract from BNSF Railway. Rock House won, allegedly after making misleading statements that it was licensed to perform the work. GandyDancer sued Rock House under the New Mexico Unfair Practices Act (UPA), a consumer protection statute not ordinarily associated with disputes between businesses. In this opinion, the Court holds that the businesses cannot sue each other for unfair competition under the Unfair Practices Act.

The UPA is one of the most useful laws in New Mexico for plaintiffs–and one of the most dangerous for businesses. The UPA covers an extremely broad array of conduct, and it allows prevailing plaintiffs to recover treble damges and attorney fees. Over the years creative attorneys have pursued broad readings of the UPA, often successfully. Generally speaking, the UPA allows consumers to sue businesses. In this case, however, one business sued another under the UPA.

GandyDancer Sues Competitor Under UPA for Unfair Competition

GandyDancer and Rock House were business competitors. Each provided railway construction services to the BNSF. BNSF awarded a contract for railway services in New Mexico to Rock House. Apparently, however, Rock House was not properly licensed for some of this work. GandyDancer filed a complaint with the N.M. Construction Industries Division, which ultimately entered into a settlement agreement with Rock House regarding the licensing issues.

GandyDancer did not stop with the CID complaint. It also sued Rock House, alleging that Rock House had violated the UPA. Essentially, GandyDancer argued that Rock House knowingly made a misleading statement by failing to tell BNSF that it did not have the necessary licenses to perform the work. Rock House, alleging that the UPA did not provide business competitors standing to sue, moved to dismiss. The district court denied the motion, but certified the question to the New Mexico Court of Appeals, which affirmed.

Supreme Court Concludes Businesses Cannot Sue for Unfair Competition Under the UPA

Writing for a unanimous Court, Justice Thompson reversed the court of appeals. The Court acknowledged that the plain language of the UPA could be read to allow suits between businesses over competitive injuries. But the plain language must yield when it produces a result contrary to the legislative intent. In particular, courts must look to legislative intent to determine the “zone of interest” of the statute–essentially, the type of injury the legislature meant to be covered by the law.

In New Mexico, discerning legislative intent can be difficult. Here, however, the history of the UPA itself provided the necessary information. As originally written, the UPA included unfair competition as unlawful practice. However, in 1971, the legislature removed this language. The Court viewed this as strong evidence of the legislature’s intent to remove competitive injury from the zone of interest protected under the UPA. Accordingly, it reversed the court of appeals and remanded for the district court to dismiss the UPA claims.

The UPA is a powerful law for consumers. Over the years, the courts have interpreted the UPA broadly to protect consumers. For example, in some cases the consumer need not have purchased anything from the defendant. And at least one federal court has concluded that a consumer need not show that a misleading statement actually caused any harm. But the UPA is not without its limits, and in GandyDancer the courts place an outer limit on the UPA.

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