Gregg v Ameriprise Fin., Inc.
In Gregg v Ameriprise Fin., Inc., No.29WAP2019 (Pa. Feb 17, 2021), the Pennsylvania Supreme Court held that a strict liability standard applies to Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (CPL).
Gary and Mary Gregg sought the expertise of Robert Kovalchik, a financial advisor and insurance salesperson for Ameriprise Financial, Inc. The Greggs followed Kovalchik’s advice to liquidate their Prudential Life Insurance policies and purchase a new Life Insurance Policy (the “Policy”) through IDS Life Insurance (IDS). Kovalchik also persuaded the Greggs to surrender their existing IRA accounts and use those funds to purchase new IRAs through IDS. Finally, Kovalchik advised the Greggs that if they also gave him $300 every month, that money would increase the savings portion of the Policy. Kovalchik’s sales pitch led the Greggs to believe that, if the Greggs purchased the new Policy and made annual payments, the Policy would accrue significant cash value they could use to fund their retirement.
Unbeknownst to the Greggs, Kovalchik divided their $300 payment between the Policy and two IRAs. When Prudential sent a check for $11,601.34 to the Greggs, Kovalchik promised to deposit approximately $9,500 from this check into the Policy. Instead, Kovalchik put $1,700 into each of the new IRAs. Kovalchik put the balance of these proceeds into a new AXP Growth Fund account that he opened for the Greggs. Despite his assertions, Kovalchik did not place any of the $9,500 into the Policy. Each IRA transaction increased Kovalchik’s commission via a surcharge of 5.75%. The Greggs also began sending Kovalchik an additional monthly check, which they believed was going toward the Policy. Instead, Kovalchik placed these funds into the AXP Growth Fund, again increasing Kovalchik’s commissions with a surcharge of 5.75%.
In January 2001, the Greggs received a class-action notice that led them to believe the insurance companies had broken the law. The Greggs sued Ameriprise, Kovalchik, and IDS Life Insurance Company under common law fraudulent and negligent misrepresentation and the catch-all provision of the Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“CPL”), 73 P.S. § 201-2(4)(xxi), which bars “engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.” The Greggs alleged that Kovalchik misrepresented that the initial lump-sum payment and a one-time payment of $300 would fund the Policy for its term, and that the Policy would accrue significant cash value based upon an initial payment and annual payments thereafter.
A jury returned a verdict in favor of the Defendants on the common law claims; however, during a bench trial on the CPL claim, the court entered a verdict in the Greggs’ favor for $52,431.29, which represented the premium the Greggs had paid to IDS plus interest. The court also granted the Greggs’ request for attorneys’ fees and costs under the CPL. Ameriprise appealed, arguing that the jury’s verdict on the common law misrepresentation claims required the trial court to dismiss the Greggs’ CPL claim in accord with the doctrines of res judicata and collateral estoppel. The trial court explained that there was no state of mind required to sustain a private cause of action under the catchall provision of the CPL. The trial court distinguished the absence of a state of mind requirement under the CPL from the common law claims of fraudulent or negligent misrepresentation, which required proof of intent to deceive or negligence, respectively. See Commonwealth v. TAP Pharm. Products, Inc., 36 A.3d 1197 (Pa. Cmwlth. 2011) (holding that a jury’s defense verdict on common law claims for fraudulent and negligent misrepresentation did not bar a public CPL enforcement action). Applying TAP, the trial court held that “the test for deceptive conduct under the [CPL] is ‘essentially whether the conduct has the tendency or capacity to deceive, which is a lesser, more relaxed standard than that for fraud or negligent misrepresentation.’” According to the trial court, the evidence demonstrated that Ameriprise’s conduct created a likelihood of confusion or misunderstanding in the Greggs’ dealings with Ameriprise. Even if Kovalchik did not directly misrepresent the cost of the Policy to the Greggs, the trial court found, Kovalchik failed to explain clearly and fully the cost and terms of the Policy. Kovalchik’s explanations left the Greggs with the reasonable belief that they would not have to pay any additional money to fund the Policy once their existing policies were transferred to Ameriprise.
On appeal, the Superior Court held that the Greggs could prevail on their CPL claim without proof of Ameriprise’s state of mind. The Superior Court reasoned that, by “eliminating the common law state of mind element (either negligence or intent to deceive),” the General Assembly “imposed strict liability on vendors who deceive consumers by creating a likelihood of confusion or misunderstanding in private, as well as public, causes of action.” TAP, 36 A.3d at 1253. Neither carelessness nor intent, which is required for negligent or fraudulent misrepresentation claims, respectively, are required for claims under the catch-all provision of the CPL. Rather, according to the Court, what the statute requires is, a likelihood of confusion or misunderstanding by the consumer. Id. at 939.
The Pennsylvania Supreme Court reviewed the legislative history and judicial precedent concerning the CPL. Ultimately, the Court determined the plain language of the current statute imposes liability on commercial vendors who engage in conduct that has the potential to deceive and which creates a likelihood of confusion or misunderstanding. “The legislature required neither carelessness nor intent when a cause of action is premised upon deceptive conduct.” Accordingly, under the plain meaning of the statute, the Court held deceptive conduct during a consumer transaction that creates a likelihood of confusion or misunderstanding and upon which the consumer relies to his or her financial detriment does not depend upon the actor’s state of mind. “Without a state of mind requirement, the amended catch-all provision fairly may be characterized as a strict liability offense…[l]ike other strict liability offenses, liability for deceptive conduct under the CPL cannot be excused if consumers rely upon that conduct to their financial detriment.”