Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Pa. Sup. Ct.: Strict liability correctly applied for Pennsylvania law involving deceptive sales practices, (Feb 18, 2021)

By Colleen M. Svelnis, J.D.

The Pennsylvania Unfair Trade Practices and Consumer Protection Law does not require a finding of fraudulent misrepresentation or negligent misrepresentation—proof of state of mind is not necessary.

A company employing a financial advisor and insurance salesperson was correctly found to have violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law (CPL) for engaging in deceptive sales practices for the sale of insurance policies. The court held that a plain language analysis of the statute led to the conclusion that deceptive conduct under the CPL is not dependent in any respect upon proof of the actor’s state of mind; a Pennsylvania state appellate court properly held that the test for deceptive conduct under the CPL is whether the conduct has the tendency or capacity to deceive. The appellate court’s holding was also consistent with Pennsylvania Supreme Court precedent holding that the CPL is a remedial statute that "should be construed broadly in order to comport with the legislative will to eradicate unscrupulous business practices" (Gregg v. Ameriprise Financial, Inc., February 17, 2021, Wecht, D.).

Factual background. Kovalchik, a financial advisor and insurance salesperson for Ameriprise Financial, made material misrepresentations to a married couple, Gary and Mary Gregg, to induce them to buy certain insurance policies. Meeting with his new clients, Kovalchik offered a review of the Greggs’ financial worth, investment goals, and insurance products. Kovalchik encouraged the Greggs to rely upon his advice and counsel, and to trust him to achieve their financial goals. This included delegating investment decisions to Kovalchik. Kovalchik advised the Greggs to liquidate their 7 insurance policies and place the assets into IDS Life Insurance. 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 that they could use to fund their retirement. Unbeknownst to the Greggs, Kovalchik divided their $300 payment between the policy and two IRAs. Each IRA transaction increased Kovalchik’s commission via a surcharge of 5.75%.

Further, upon Kovalchik’s advice, the Greggs declined to enroll Mrs. Gregg in an Air Force benefits plan that would have paid military benefits to Mrs. Gregg if Mr. Gregg died.

The Greggs alleged that Kovalchik misrepresented that the initial lump-sum payment and a one-time payment of $300 would fund the insurance policy for its term, and that the policy would accrue significant cash value based upon an initial payment and annual payments thereafter.

The trial court ruled in favor of the Greggs on the Pennsylvania CPL claim, entering a verdict in the Greggs’ favor for $52,431.29. Ameriprise filed a motion for post-trial relief which argued that the Greggs failed to establish that Kovalchik’s misrepresentations were, at the very least, negligent, a finding that Ameriprise asserted was required to establish deceptive conduct under the CPL. The trial court denied relief, and the appellate court affirmed. Like the trial court, the appeals court concluded that the Greggs were not required to prevail on the common law claims of fraudulent misrepresentation or negligent misrepresentation in order to succeed on their CPL claim.

The trial court found that no state of mind was required to sustain a private cause of action under the catchall provision of the CPL and that the Greggs had proven all elements of a CPL claim by a preponderance of the evidence. 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. Additionally, the Greggs relied upon Ameriprise to their financial detriment when they elected to forego the purchase of the survivor benefit option for Mr. Gregg’s military pension and instead cashed in their whole life policies to purchase the variable life insurance policy recommended by Kovalchik.

State of mind requirement. At issue was whether the appellate court properly held that a strict liability standard applies to a claim under the "catch-all" provision of the CPL. The court reviewed the case de novo. The appellate court correctly rejected the argument that the Greggs needed to establish negligent misrepresentation in order to establish liability under the catchall provision of CPL. If the legislature had wanted to add a state of mind requirement to the CPL, it would have done so. The court pointed out that, within the CPL itself, numerous provisions require intend or knowledge before a violation will be found. the majority found that the absence of an intent requirement imposes a strict liability standard. The absence of any reference to the actor’s state of mind in the catch-all provision "demonstrates that the legislature did not intend to require proof of the actor’s state of mind."

The state Supreme court disagreed with Ameriprise’s argument that "deceptive conduct" as used in the catch-all provision is the act of intentionally giving a false impression or recklessly making a false representation with the intent that the other person should rely on it. Ameriprise argued that the court should construe "deceptive" in the catch-all provision to depend upon the actor’s intent to mislead and that the Greggs were required to prove more than mere confusion or misunderstanding. The Pennsylvania Supreme Court agreed with the appellate court that what the statute requires is a likelihood of confusion or misunderstanding by the consumer.

This case is No. 29 WAP 2019.

Attorneys: Kenneth Robert Behrend (Behrend Law Group LLC) for Gary L. Gregg. Kathy Kay Condo (Babst Calland Clements and Zomnir PC) for Ameriprise Financial, Inc., Ameriprise Financial Services, Inc. and Riversource Life Insurance Co.

Companies: Ameriprise Financial, Inc.; Ameriprise Financial Services, Inc.; Riversource Life Insurance Co.

Cases: ConsumerProtection PennsylvaniaNews StateUnfairTradePractices