Lee v. First Union Nat. Bank

• Decision Date: 03 June 2009
• Docket Number: A-58 September Term 2008.
• Citation: 199 N.J. 251,971 A.2d 1054
• Parties: Margaret L. LEE, Plaintiff-Respondent, v. FIRST UNION NATIONAL BANK, a Banking Corporation, Wachovia Bank, N.A., a Banking Corporation, Individually and as Successor in Interest to First Union National Bank, First Union Brokerage Services, Inc., and Gregory Mack, Defendants-Appellants.
• Court: New Jersey Supreme Court

971 A.2d 1054

199 N.J. 251

Margaret L. LEE, Plaintiff-Respondent, v. FIRST UNION NATIONAL BANK, a Banking Corporation, Wachovia Bank, N.A., a Banking Corporation, Individually and as Successor in Interest to First Union National Bank, First Union Brokerage Services, Inc., and Gregory Mack, Defendants-Appellants.

A-58 September Term 2008.

Supreme Court of New Jersey.

Argued February 18, 2009.

Decided June 3, 2009.

Beverly Jo Slaughter, a member of the Virginia bar, argued the cause for appellants (Stark & Stark, attorneys; Thomas B. Lewis and Amy Beth Dambeck, Lawrenceville, on the brief).

Henry Gurshman, Metuchen, argued the cause for respondent.

Justice LaVECCHIA delivered the opinion of the Court.

In this appeal we must determine whether a securities broker's fraudulent activity, in connection with his handling of client funds intended for the purchase of a security, subjects him and the bank and brokerage firm that employed him to liability under the Consumer Fraud Act (CFA or Act), N.J.S.A. 56:8-1 to -106. Our analysis of that issue necessitates consideration of three distinct arguments advanced by the parties: whether the sale of securities is included in the CFA's definition of "merchandise"; whether there is a distinction between the purchase of a security and the purchase of the "service" to buy the security; and whether a securities broker is exempt from CFA liability based on the case law recognizing an exception for learned professionals. We hold that the sale of securities is not covered under the CFA and that recognition of a separate "service" to purchase securities would thwart the CFA's design to keep the sale of securities beyond the CFA's application. In view of our holding, there is no need to address whether securities brokers are the type of professionals to which the learned professional exception would apply.

I.

This appeal arises from an order granting summary judgment to defendants and, therefore, we view the evidence in the light most favorable to the non-moving party, plaintiff Margaret Lee. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523, 666 A.2d 146 (1995).

The key events in this dispute occurred on May 22, 2000, after Lee received $12,000 in settlement of a personal injury action. Shortly after receiving her settlement check, she went to the Elizabeth branch of defendant, First Union National Bank (First Union), where she maintained a checking account. On that day, she deposited $5,000 from the settlement into her checking account and took the remaining $7,000 in cash. While at the Elizabeth branch bank, Lee asked about making an investment and was referred to defendant, Gregory Mack, who worked as an investment counselor at the bank's facility in Hillside. As it turns out, Mack held dual employment within the First Union family of entities. He was a First Union employee as well as an employee of First Union Brokerage Services, Inc., where he served as a registered representative.

Lee met with Mack that same day. He recommended that she purchase a mutual fund known as Evergreen Omega. Based on Mack's recommendation, Lee decided to invest $2,000 by purchasing 61.52 shares of Evergreen Omega. She opened a brokerage account with First Union Brokerage Services and signed a mutual fund disclosure statement, which indicated that she understood the prospectus for the Evergreen Omega Fund. She gave Mack $2,000 in cash to effectuate the purchase.

Unbeknownst to Lee, Mack did not deposit in the brokerage account the $2,000 in cash that she had given to him. On May 25, 2000, when brokerage records indicated that the mutual fund purchase was confirmed, the bank's records revealed not only that the $2,000 had not been deposited in the brokerage account to cover the purchase, but also that Lee had made withdrawals from her checking account during the intervening period, bringing her checking balance down to $591. As a result, Lee's brokerage account had insufficient funds from which to draw in order to pay for the Evergreen Omega unit shares and complete the transaction. The bank applied $500 from Lee's checking account as partial payment for the purchase. It then liquidated $1,500 of the mutual fund units, which had been allocated to Lee's brokerage account, in order to cover the remainder of the balance due to Evergreen Omega Fund for the purchase. That reduced Lee's total trade amount from a $2,000 interest to a $500 interest in the Evergreen Omega Fund.

According to Lee, she spoke with Mack after she became aware of those events and he admitted that he had not deposited the $2,000 cash that she had given him to pay for the mutual fund purchase. She claims that he admitted to converting the money for personal use and offered to give her $1,500 if she would agree not to tell his supervisor about his transgression. Lee would not accept less than the entire $2,000 in return and, when Mack refused, Lee initiated the instant action.

On May 12, 2006, she filed a two-count complaint against First Union; Wachovia Bank, N.A. (as successor by merger to First Union); First Union Brokerage Services, Inc., and Mack. In Count One, Lee claimed that Mack induced her to give him $2,000 in cash for the purchase of securities and that defendants jointly and severally misapplied those funds. In Count Two, she alleged that she suffered economic loss as a result of the misapplication of funds, which constituted an unconscionable commercial practice in violation of the CFA. In lieu of filing an answer, defendants moved for summary judgment. The trial court concluded that the first count was barred by the two-year statute of limitations contained in the New Jersey Uniform Securities Law, N.J.S.A. 49:3-47 to -76, and that the second count failed to state a claim because the CFA is inapplicable to the sale of securities. Accordingly, the court dismissed the complaint in its entirety.

On appeal, the Appellate Division reversed the trial court's dismissal of both counts. Lee v. First Union Nat'l Bank, 402 N.J.Super. 346, 349, 954 A.2d 499 (App.Div.2008). Concerning the first count, the panel concluded that the trial court inappropriately had applied the two-year statute of limitations found in the Uniform Securities Law, N.J.S.A. 49:3-71(g), when Lee's complaint was subject to the six-year statute of limitations in N.J.S.A. 2A:14-1 because it concerned the unlawful "taking, detaining, or converting of personal property." Lee, supra, 402 N.J.Super. at 352, 954 A.2d 499 (internal quotations omitted). Therefore, the panel reinstated Lee's first count.¹ Ibid.

Turning to the CFA count, the panel agreed that securities are not considered to be "merchandise" subject to the strictures of the CFA. Id. at 351, 954 A.2d 499. However, the panel explained that it actually was Mack's "misappropriation" of the money, and not the purchase of the mutual fund itself, which constituted the unlawful practice that Lee claimed violated the CFA. Ibid. The panel found the distinction critical because "services" are included among the items listed in the CFA's definition of "merchandise." Id. at 350, 954 A.2d 499 (citing N.J.S.A. 56:8-1(c)). Furthermore, the Appellate Division held that Mack's services were not exempt from CFA liability under the judicially crafted "learned professionals" exception. Id. at 350-52, 954 A.2d 499 (finding that services were not subject to extensive regulation, citing Macedo v. Dello Russo, 178 N.J. 340, 345, 840 A.2d 238 (2004)).

We granted certification to consider only "whether the purchase of securities comes within the scope of the [CFA]." Lee v. First Union Nat'l Bank, 197 N.J. 16, 960 A.2d 746 (2008).

II.

In 1960, the Legislature passed the CFA, creating a powerful weapon to curb consumer fraud in this State. Its purpose is to "eliminat[e] sharp practices and dealings in the marketing of merchandise and real estate." Channel Cos. v. Britton, 167 N.J.Super. 417, 418, 400 A.2d 1221 (App.Div.1979); see also Real v. Radir Wheels, Inc., 198 N.J. 511, 514, 969 A.2d 1069(2009) (recognizing that CFA "represents a legislative broadside against unsavory commercial practices"). N.J.S.A. 56:8-2 prohibits, as an unlawful practice, the "act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, [or] misrepresentation . . . in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid." The Act provides a remedy for any consumer who has suffered an "ascertainable loss of moneys or property, real or personal, as a result of [a CFA violation]," including treble damages, costs, and attorneys fees. N.J.S.A. 56:8-19. To fully advance its remedial purposes, we construe the Act "liberally in favor of consumers." Cox v. Sears Roebuck & Co., 138 N.J. 2, 15, 647 A.2d 454 (1994); see also Czar, Inc. v. Heath, 198 N.J. 195, 201, 966 A.2d 1008 (2009) (reiterating that CFA is broad remedial legislation intended to afford strong protection to consumers).

N.J.S.A. 56:8-1 defines the material terms used in the CFA:

(a) The term "advertisement" shall include the attempt directly or indirectly by publication, dissemination, solicitation, indorsement or circulation or in any other way to induce directly or indirectly any person to enter or not enter into any obligation or acquire any title or interest in any merchandise or to increase the consumption thereof or to make any loan;

. . . .

(c) The term "merchandise" shall include any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale;

. . . .

(e) The term "sale" shall include any sale, rental or distribution, offer for sale, rental or distribution or attempt directly or indirectly to sell, rent or distribute Although we apply the CFA's operative terms broadly to protect consumers from a wide variety of abhorrent deceptive practices, see ...