Gregg v. Ameriprise Fin., Inc.

• Decision Date: 17 February 2021
• Docket Number: No. 29 WAP 2019,29 WAP 2019
• Citation: 245 A.3d 637
• Parties: Gary L. GREGG and Mary E. Gregg, Appellees v. AMERIPRISE FINANCIAL, INC., Ameriprise Financial Services, Inc., Riversource Life Insurance Company and Robert A. Kovalchik, Appellants
• Court: Pennsylvania Supreme Court

245 A.3d 637

Gary L. GREGG and Mary E. Gregg, Appellees v. AMERIPRISE FINANCIAL, INC., Ameriprise Financial Services, Inc., Riversource Life Insurance Company and Robert A. Kovalchik, Appellants

No. 29 WAP 2019

Supreme Court of Pennsylvania.

Argued: May 21, 2020

Decided: February 17, 2021

OPINION

JUSTICE WECHT

In 1999, Gary and Mary Gregg sought the expertise of Robert A. Kovalchik, a financial advisor and insurance salesperson for Ameriprise Financial, Inc. Engaging in what the trial court would later conclude to be deceptive sales practices, Kovalchik made material misrepresentations to the Greggs to induce them to buy certain insurance policies. The Greggs ultimately sued Ameriprise Financial, Inc., Ameriprise Financial Services, Inc., Riversource Life Ins. Co., and Kovalchik (collectively, Ameriprise) under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("CPL"), 73 P.S. § 201-2(4)(xxi). ¹ The Greggs’ complaint also asserted, inter alia , common law claims for negligent misrepresentation and fraudulent misrepresentation.

The case proceeded to a jury trial on the common law claims, resulting in a defense verdict. The CPL claim proceeded to a bench trial. After the trial court ruled in favor of the Greggs on that CPL claim, Ameriprise filed a motion for post-trial relief arguing (among other points) 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 Superior Court affirmed. Like the trial court, the Superior 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. Gregg v. Ameriprise Fin., 195 A.3d 930, 936 (Pa. Super. 2018). Applying Commonwealth v. TAP Pharm. Products, Inc. , 36 A.3d 1197 (Pa. Cmwlth. 2011), rev'd on other grounds , 626 Pa. 1, 94 A.3d 350 (2014), the Superior Court held that the test for deceptive conduct under the CPL is whether the conduct has the tendency or capacity to deceive, without regard to the actor's state of mind. Gregg , 195 A.3d at 939.

On appeal, this Court is tasked with determining whether, as the Superior Court held, a strict liability standard applies to the Greggs’ CPL claim. A plain language analysis of the relevant statutory provision leads inexorably to the conclusion that deceptive conduct under the CPL is not dependent in any respect upon proof of the actor's state of mind. The Superior Court's holding is consistent not only with the plain language of the CPL, but also with our 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. See Commonwealth by Creamer v. Monumental Props. , Inc ., 459 Pa. 450, 329 A.2d 812, 817 (1974). Accordingly, we affirm.

In 1999, Kovalchik held himself out as someone having skill, training, and expertise in insurance and investment products and solicited the Greggs to become his customers. 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. In the course of consulting with Kovalchik, the Greggs revealed that they owned seven Prudential Life Insurance policies with a combined value of $121,000. Kovalchik advised the Greggs to liquidate these policies and place the assets into IDS Life Insurance, a corporation that Riversource Life Insurance later acquired.

Kovalchik advised the Greggs to purchase a new Flexible Premium Variable Life Insurance Policy (the "Policy") for Mr. Gregg with a spousal rider for Mrs. Gregg. In addition, Kovalchik 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 that they could use to fund their retirement.

The Greggs followed Kovalchik's advice. The Greggs purchased the Policy; rolled over their existing IRAs into new IRAs with IDS; surrendered the proceeds of their seven Prudential Life Insurance policies; provided Kovalchik with a check for $300; and authorized an automatic monthly withdrawal of $300 from their checking account to cover the savings portion of the Policy. Accordingly, Prudential sent several checks to IDS from the liquidated insurance policies.

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%. 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 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 that the insurance companies had broken the law. The Greggs sued Ameriprise, Kovalchik, and IDS Life Insurance Company, asserting causes of action for negligent misrepresentation, fraudulent misrepresentation, violation of the catch-all provision of the CPL, breach of fiduciary duty, and negligent supervision. All claims related to the Greggs’ purchase of the Policy. 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.

In response to Ameriprise's motion for summary judgment, the trial court dismissed the Greggs’ negligent supervision claim. On September 16, 2014, the case proceeded to a jury trial on the Greggs’ common law claims for breach of fiduciary duty, fraudulent misrepresentation, and negligent misrepresentation. Following trial, the trial court granted Ameriprise's motion for directed verdict on the breach of fiduciary duty claim. The jury returned a verdict in favor of Ameriprise on the claims for fraudulent and negligent misrepresentation.

The CPL count, as the sole remaining claim, was submitted to the trial court based upon the evidence that had been introduced during the jury trial. Ameriprise argued that the jury verdict in its favor on the common law negligent misrepresentation claim barred a verdict in the Greggs’ favor on the statutory claim under principles of res judicata and collateral estoppel. The trial court disagreed. On December 17, 2014, the trial court entered a verdict in the Greggs’ favor for $52,431.29, which represented the premium the Greggs had paid to the insurance companies plus interest, with a deduction for the amount the insurance companies had already paid to the Greggs in September 2012. On January 6, 2015, the Court granted the Greggs’ request for attorneys’ fees and costs under the CPL.

Ameriprise appealed, raising two issues, only one of which remains relevant at this juncture. ² Ameriprise argued 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.

In an opinion filed pursuant to Pa.R.A.P. 1925(a), 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 TAP Pharm. Products, Inc ., 36 A.3d at 1255 (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.’ " Tr. Ct. Op. at 3 (quoting TAP , 36 A.3d at 1253 ).

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. The trial court additionally noted that the Greggs relied upon Ameriprise to their financial detriment when they elected to forego the purchase of the survivor benefit option...