United States: Grimes: Another Look At Reliance And Loss Under Pa.'s UTPCPL

The Pennsylvania Supreme Court is taking another look at justifiable reliance and "ascertainable loss" under Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL). On Jan. 30, the court granted allocatur in Grimes v. Enterprise Leasing Co. of Philadelphia, No. 488 MAL 2013 (Pa. Jan. 30, 2014), on the twin issues of whether: (1) a plaintiff alleging deceptive conduct under the UTPCPL's catch-all fraud provision must prove justifiable reliance; and (2) the act of hiring an attorney and incurring expense to challenge allegedly deceptive conduct constitutes an "ascertainable loss" under 73 Pa. Stat. Section 201-9.2. Grimes will revisit the relationship between Section 201-9.2, which requires both that a plaintiff purchase goods or services in reliance on and suffer an "ascertainable loss" resulting from proscribed conduct, and Section 201-2(4)(xxi)—the so-called "catch-all" provision—which has been read as requiring only deceptive conduct creating a likelihood of confusion or misunderstanding.

In Grimes, a short-term automobile lessee declined an optional damage waiver provision in a rental agreement, effectively agreeing to pay not only for repairs to the vehicle but also for administrative, loss of use and diminution in value fees. When the plaintiff returned the car scratched, she was charged a total of $840.42 for these categories. She did not pay the invoiced charges, choosing instead to file suit. While the plaintiff generally alleged "reliance" on the inflated invoices and concealed repair charges, she did not allege that she paid the inflated invoices. The plaintiff's "ascertainable loss" was the expense she incurred to assert her rights and protect herself legally against the rental company's charges—or put differently, her litigation costs. Liberally construing the UTPCPL, the Superior Court acknowledged the justifiable-reliance requirement, but found that the plaintiff had properly pleaded deceptive conduct under the catch-all provision. It further concluded that incurring costs and fees associated with asserting legal rights and preventing the collection of the debt was a cognizable ascertainable loss under Section 201-9.2.

Granting allocatur in Grimes should be read in historic context. In Prime Meats v. Yochim, 619 A.2d 769 (Pa. Super. 1993), the Superior Court ruled that the UTPCPL's catch-all fraud provision was coextensive with common-law fraud and, therefore, required proof of the elements of common-law fraud, including reliance. Prime Meats, however, did not address the reliance and ascertainable-loss requirements of Section 201-9.2. In 1996, the Pennsylvania Legislature broadened the catch-all provision from "other fraudulent conduct which creates a likelihood of confusion or of misunderstanding" to include "deceptive conduct."

Since then, courts have struggled to interpret the legislative act of adding "deceptive conduct" into the catch-all provision and whether the "likelihood of confusion" language of Section 201-2(4)(xxi) somehow modifies the reliance and loss requirements of Section 201-9.2. Some courts suggest that deceptive conduct that merely creates a likelihood of confusion is actionable under the catch-all provision, such as Bennett v. A.T. Masterpiece Homes at Broadsprings, 40 A.3d 145, 154-55 (Pa. Super. 2012); and In re Fisher, 320 B.R. 52, 71 (Bankr. E.D. Pa. 2005) (suggesting that the UTPCPL requires only a false representation that deceived or had a tendency to deceive that was likely to affect the consumer's lending decision). Other courts have found that a presumption or reasonable inference of reliance is appropriate in certain cases, as in Cave v. Saxon Mortgage Services, No. 11-CV-4586, Slip Op. at 2 (E.D. Pa. Feb. 6, 2013); but see Debbs v. Chrysler, 810 A.2d 137, 157-58 (Pa. Super 2002) (declining to rule that a presumption of reliance should be applied where the wrongful conduct includes the omission of objectively material information). "Implicit" reliance has been found where the wrongful conduct was performed by a fiduciary, like in Basile v. H&R Block, 729 A.2d 574, 584 (Pa. Super. 1999), vacated, 761 A.2d 1115 (Pa. 2000) (record did not support finding of agency). Still other courts have ruled that a per se UTPCPL violation based on the violation of another statute obviates the reliance requirement of Section 201-9.2, as in Pierce v. Cavalry SPV I LLC, No. 13-CV-588, (W.D. Pa. Dec. 20, 2013).

The Pennsylvania Supreme Court, however, repeatedly has ruled that justifiable reliance is required under the UTPCPL. In Weinberg v. Sun, 777 A.2d 442 (Pa. 2001), the Supreme Court reversed the Superior Court's order allowing class certification with a reduced showing of reliance in UTPCPL false advertising claims. The court concluded that the UTPCPL was not intended "to do away with the traditional common-law elements of reliance and causation." Similarly, in Yocca v. Pittsburgh Steelers Sports, 854 A.2d 425 (Pa. 2004), the court confirmed that a UTPCPL plaintiff "must show that he justifiably relied on the defendant's wrongful conduct or representation and that he suffered harm as a result of that reliance." In Toy v. Metropolitan Life Insurance, 928 A.2d 186, 201 (Pa. 2007), a pre-amendment case, the court reiterated that "justifiable reliance is an element" of claims under the UTPCPL. (See also Schwartz v. Rockey, 932 A.2d 885, 897 n.16 (Pa. 2007) (acknowledging the express causation requirement of Section 201-9.2).) Based on this authority, the U.S. Court of Appeals for the Third Circuit predicted that notwithstanding the 1996 amendment, the court would require proof of reliance under Section 201-9.2 in Hunt v. United States Tobacco, 538 F.3d 217 (3d Cir. 2008).

This precedent foreshadows that the Pennsylvania Supreme Court will not lightly discard justifiable reliance in private actions brought under the UTPCPL catch-all provision. The statutory construction of the UTPCPL supports this position. Section 201-9.2 is a standing gatekeeper requiring that plaintiffs in private actions under the UTPCPL plead and prove both justifiable reliance and ascertainable loss. By contrast, the 1996 amendment adding "deceptive" conduct to Section 201-2(4)(xxi) merely broadened the prohibited conduct under UTPCPL, which applies equally in governmental enforcement and private actions. The "likelihood of confusion" language in Section 201-2(4)(xxi) existed before the 1996 amendment, so it cannot be the basis for altering the reliance requirement in Section 201-9.2. Moreover, it is sometimes forgotten that the 1996 legislative amendment also modified Section 201-9.2. In amending Section 201-9.2, however, the legislature left the reliance and loss language of Section 201-9.2 untouched, counseling against a change to the requirement of justifiable reliance in private actions.

The remaining question in Grimes is whether retaining an attorney to initiate suit or protect legal rights can satisfy the "ascertainable loss" requirement of Section 201-9.2. The American rule of attorney fees presumes that such fees should be borne by the party incurring the fees—thereby suggesting a "loss" of sorts. However, if this were the only proof required, it is difficult to imagine that any plaintiff would be unable to plead and prove an ascertainable loss under Section 201-9.2. Moreover, the 1996 amendment to Section 201-9.2 added express authorization for award of attorney fees and costs. This suggests that legal fees and costs are a distinct category of recovery from "ascertainable loss." Similarly, since an award of legal fees and costs under Section 201-9.2 is discretionary, the UTPCPL imposes a different standard for recovery of legal fees and costs than for actual damages.

Grimes presents a conventional contract dispute that the leasing company may never have enforced or that could have been resolved through negotiation. Upholding justifiable reliance and ascertainable loss as the UTPCPL's private actions gatekeeper prevents the transformation of such routine disputes into full-blown litigation. It also may curtail class actions—to the extent that individual issues of justifiable reliance outweigh classwide issues of proof. Grimes also has the potential of limiting claims brought simply because an allegation of illegality—however trivial—invades a consumer transaction.

This article originally appeared in The Legal Intelligencer.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

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