IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA
July 23, 2008
STEPHEN E. CEHULA. JR., ET AL., PLAINTIFFS,
JANUS DISTRIBUTORS, LLC, DEFENDANT.
The opinion of the court was delivered by: Judge Nora Barry Fischer
Plaintiffs Stephen Cehula Jr., Ann Marie Cehula, Julie Dean Cehula, and Ann Marie Cehula (hereinafter "Plaintiffs") filed the instant civil action against Defendant Janus Distributors, LLC (hereinafter "Defendant" or "Janus"), alleging violations of the Pennsylvania Unfair Trade Practice/Consumer Protection Law ("UTP/CPL") stemming from Plaintiffs' investments with Defendant.*fn1 Pending before the court is Defendant Janus Distributors LLC's Motion for Summary Judgment .
At the outset, the Court notes Plaintiffs' violation of Rule 56.1(c) of the Local Rules of this Court ("L.R. 56.1(c)").*fn2 Plaintiff did not respond to Defendant's Statement of Material Facts and failed to file a separate statement of material facts as required by Local Rule 56.1(c)(1). Instead, Plaintiffs have included a brief factual background section in the beginning of their Opposing Response Brief.*fn3 (Docket No. 54). Thus, the facts, as set forth in Defendant's Statement of Material Facts ("SMF") (Docket No. 51), are deemed to be admitted by Plaintiff for the purpose of the instant motion, in accordance with Local Rule 56.1(e). See Jankowski v. Demand, 2008 WL 190134, at *1 (W.D.Pa 2008); GNC Franchising LLC v. Kahn, 2008 WL 612749, at *1 (W.D. Pa 2008); Ferace v. Hawley, 2007 WL 2823477, at *1 (W.D. Pa 2007) (citing Benko v. Portage Area School Dist., 2006 WL 1698317 (W.D. Pa 2006); Smith v. Burrows Corp., 2005 WL 2106594 (W.D. Pa 2005); Loving v. Borough of East McKeesport, 2005 WL 3560661 (W.D. Pa 2005). After careful consideration and for the reasons that follow, the Court grants Defendant's motion for summary judgment.
Defendant is a broker-dealer that facilitates the distribution of shares of mutual funds managed by Janus Capital Management LLC, a subsidiary of Janus Capital Group Inc. Defendant's Facts at ¶1. On or about March 26, 1992, Mr. Cehula*fn5 opened an Individual Retirement Account ("IRA") with Defendant with a total investment of $6,846.00.*fn6 Defendant's Facts at ¶15-16. On or about July 11, 1995, Mr. and Mrs. Cehula*fn7 opened a Joint Tenant Account with Right of Survivorship with Defendant investing $10,000.00.*fn8 Defendant's Facts at ¶20-21. Prior to opening this account, Plaintiffs had no problems or complaints associated with any product or service provided by Defendant. Defendant's Facts at ¶24. On or about March 23, 1999, Mrs. Cehula opened her own IRA with Defendant investing $77,906.15.*fn9 Defendant's Facts at ¶25-26. Finally, on or about December 7, 1999, Mr. Cehula opened a Uniform Gift to Minors Account, as a custodian of his daughter, Julie Dean, with an initial investment of $20,000.00.*fn10 Defendant's Facts at ¶29-30. Prior to opening their daughter's account, Plaintiffs had no problems or complaints associated with Defendant. Defendant's Facts at ¶32.
Throughout the Plaintiffs' relationship with Defendant, Mr. Cehula dealt exclusively with Defendant and was solely responsible for the selection of mutual funds which he purchased.*fn11
Defendant's Facts at ¶33-38. When selecting funds associated with an account in Mrs. Cehula's name, Mr. Cehula acted with his wife's consent. Defendant's Facts ¶33-38. Before investing in any fund with Defendant, Mr. Cehula would call a Janus phone representative to ask questions about a particular fund and receive that fund's corresponding prospectus.*fn12 Defendant's Facts at ¶51. Janus phone representatives would "select" a majority of the funds "following what [he] was asking for," and inform Mr. Cehula if the fund conformed to what he desired or if the fund purchased stocks from a company in which he expressed interest. Defendant's Facts at ¶54. If satisfied with the answers or information received from the Defendant's phone representative(s) and the information contained in a fund's prospectus, Mr. Cehula would then send Defendant a check to purchase shares in the fund.*fn13 Defendant's Facts at ¶51-52. According to Mr. Cehula, Defendant's phone representatives were always "very good" at explaining the mutual funds he was interested in purchasing.*fn14 Defendant's Facts at ¶55; S. Cehula Deposition, at 36:24-25; 37:1-5. Defendant made no misrepresentations of fact with respect to any of the mutual funds which Plaintiffs purchased. Defendant's Facts at ¶56, S. Cehula Deposition, at 94:11-25; 95:1-24. Mr. Cehula admits the same. Id.
On January 24, 2003, pursuant to a telephone directive given by Mr. Cehula, Plaintiffs liquidated all four of their accounts with Defendant.*fn15 Defendant's Facts at ¶57-58. According to Mr. Cehula, he chose to liquidate the accounts at this time because the market was "stagnant." Defendant's Facts at ¶60, S. Cehula Deposition at 152:10-20.
On January 30, 2007, the Plaintiffs commenced the instant action by filing a Complaint in which they alleged common law fraud and deceit, violations of the UTP/CPL, 73 Pa. C.S.A. 201-1, et. seq., and breach of contract. (Docket No. 1). On April 10, 2007, before Defendant filed a responsive pleading, Plaintiffs filed an Unopposed Motion for Leave to Amend Complaint, which the Court granted. (Docket No. 6). On May 3, 2007, Plaintiffs filed an Amended Complaint, to which they attached copies of applications allegedly entered into between Plaintiffs and Defendant. (Docket No. 8).
On June 6, 2007, Defendant filed a Motion to Dismiss the Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6).*fn16 (Docket No. 12). On November 2, 2007, the Court granted Defendant's Motion to Dismiss the Amended Complaint and granted Plaintiffs leave to amend their Amended Complaint. (Docket No. 29). On December 6, 2007, Plaintiffs filed a Second Amended Complaint. (Docket No. 32). On December 24, 2007, Defendant filed its Motion to Dismiss the Plaintiffs' Second Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6).*fn17 (Docket No. 33). On February 19, 2008, the Court denied Defendant's Motion to Dismiss, concluding that the instant dispute should proceed through discovery in order to shed light on the specifics of Plaintiffs' claims. (Docket No. 39).
On March 10, 2008, Defendant filed its Answer and Affirmative Defenses to the Second Amended Complaint. (Docket No. 40). On April 25, 2008, the Court granted the parties' stipulation of dismissal of Count I (common law fraud and deceit) and Count III (breach of contract) of the Second Amended Complaint, with prejudice. (Docket No. 44). On May 13, 2008, the Court confirmed the parties' stipulation as to the waiver of the right to a jury trial. (Docket No. 47).
On May 27, 2008, Defendant filed the instant motion for summary judgment. (Docket No. 50). On June 22, 2008, Plaintiffs filed Plaintiffs' Opposition to Defendant's Motion for Summary Judgment. (Docket No. 54). On July 7, 2008 Defendant filed Defendant's Reply Memorandum of Law in Support of Motion for Summary Judgment.*fn18 (Docket No. 56).
STANDARD OF REVIEW
Summary judgment may only be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Pursuant to Rule 56, the Court must enter summary judgment against the party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A motion for summary judgment will not be defeated by the mere existence of some disputed facts, but will be defeated when there is a genuine issue of material fact. Anderson v. Liberty Lobby, 477 U.S. 242 (1986).
In evaluating the evidence, the Court must interpret facts in the light most favorable to the non-moving party, and draw all reasonable inferences in their favor. Watson v. Abington Twp., 478 F.3d 144, 147 (3d Cir. 2007). Initially, the burden is on the moving party to demonstrate that the evidence in the record creates no genuine issue of material fact. Conoshenti v. Public Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir. 2004). The dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). In determining whether the dispute is genuine, the court's function is not to weigh the evidence or to determine the truth of the matter, but only to determine whether the evidence of record is such that a reasonable jury could return a verdict for the non-moving party. Id. at 249. "The court may consider any material or evidence that would be admissible or usable at trial in deciding the merits of a motion for summary judgment." Turner v. Leavitt, Civil Action No. 05-942, 2008 WL 828033, at *4 (W.D. Pa. March 25, 2008) (citing Horta v. Sullivan, 4 F.3d 2, 8 (1st Cir. 1993) (citing 10 WRIGHT AND MILLER, FEDERAL PRACTICE § 2721at 40 (2d ed.1983))); Pollack v. City of Newark, 147 F. Supp. 35, 39 (D.N.J. 1956), aff'd, 248 F.2d 543 (3d Cir. 1957), cert. denied, 355 U.S. 964 (1958) ("in considering a motion for summary judgment, the court is entitled to consider exhibits and other papers that have been identified by affidavit or otherwise made admissible in evidence").
While the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing that the admissible evidence in the record would be insufficient to carry the non-movant's burden of proof at trial. Celotex, 477 U.S. at 322-323. Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond its pleadings, and designate specific facts by the use of affidavits, depositions, admissions, or answers to interrogatories showing that there is a genuine issue for trial. Id. at 324. The nonmoving party "cannot simply reassert factually unsupported allegations contained in its pleadings." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989).
CHOICE OF LAW
Preliminarily, the Court notes that jurisdiction in this case rests on the diversity of the parties. 28 U.S.C. § 1332(a)(1). A federal court sitting in diversity must apply the substantive law of the state in which it sits, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938), including its choice of law rules, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Here, however, there is no dispute between the parties that Pennsylvania law applies to this case and thus the Court declines to engage in a choice of law analysis. Rochez Bros., Inc. v. North American Salt Co., Inc., Civ. A. No. 94-1131, 1994 WL 735932, at *6 n.8 (W.D. Pa. 1994) (citing Schiavone Construction Co. v. Time, Inc., 735 F.2d 94, 96 (3d Cir. 1984)) ("Because the parties appear to implicitly agree on the applicable choice of law, this Court will not challenge their decision").
In its motion, Defendant requests summary judgment as to Plaintiffs' UTP/CPL claims.*fn19
The UTP/CPL provides a private right of action to:
Any person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful by section 3 of this act.*fn20
73. P.S. §201-9.2(a). Section 3 provides that:
Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce as defined by subclauses (i) through (xxi) of clause (4) of section 2 of this act and regulations promulgated under section 3.1 of this act are hereby declared unlawful.
73 P.S. §201-3. Plaintiffs allege violations of subclauses (ii), (vii) and (xxi) of Section 2 of the UTP/CPL. (Docket No. 32 at 20).
Pertaining to subclauses (ii)*fn21 and (vii),*fn22 recent case law provides guidance pertaining to the elements that a plaintiff must prove to succeed at trial under the UTP/CPL. As noted above, the underlying foundation of the UTP/CPL is fraud prevention. Weinberg, 777 A.2d at 446. Furthermore, the Pennsylvania Supreme Court has consistently held that "to bring a private cause of action under the UTP/CPL, a 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." Yocca v. Pittsburgh Steelers Sports Inc., 854 A.2d 425, 438 (2004) (emphases added). See also Weinberg, 777 A.2d at 446 (providing that "nothing in the legislative history [of the UTP/CPL] suggests that the legislature ever intended statutory language directed against consumer fraud to do away with the traditional common law elements of reliance and causation"); Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 201 (Pa. 2007) (construing Weinberg as to have settled that justifiable reliance on a misrepresentation is an element of UTP/CPL claims).*fn23 Despite the lack of case law on the specific elements a plaintiff must prove under subclauses (ii) and (vii), this Court finds that, pursuant to Pennsylvania law governing claims brought under the UTP/CPL, Plaintiffs must demonstrate, at a minimum, a false misrepresentation, justifiable reliance upon the misrepresentation, and causation.*fn24
Turning to subclause (xxi), commonly known as the "catch-all" provision, one engages in unfair or deceptive acts or practices by "engaging in other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding." 73 P.S. §201-2(4)(xxi). Prior to the 1996 amendment to the UTP/CPL, when the words "or deceptive conduct" were added to subclause (xxi), a plaintiff alleging a violation of the catch-all provision had to establish all of the elements of common law fraud.*fn25 Commonwealth v. Percudani, 825 A.2d 743, 746 (Pa.Cmwlth. 2003). However, after the 1996 amendment to subclause (xxi), two divergent views have emerged regarding the effect of the addition of the words "or deceptive conduct," creating a split between Pennsylvania appellate courts as to what a plaintiff alleging a violation of the catch-all provision must establish at trial.*fn26 One view, espoused in multiple rulings by the Pennsylvania Superior Court, still requires a plaintiff to establish the elements of common law fraud to prove a claim under subclause (xxi). See Colaizzi v. Beck, 895 A.2d 36, 39 (Pa.Super. 1999) (providing that in order to establish a violation of the catch-all provision, a plaintiff must prove the elements of a common law fraud claim). See also Skurnowicz v. Lucci, 798 A.2d 788, 794 (Pa.Super. 2002) (citing Sewak v. Lockhart, 699 A.2d 755, 761 (Pa.Super. 1997); Slapikas v. First American Title Ins. Co., 2008 WL 793919 (W.D.Pa. 2008) (requiring all elements of common law fraud to be met in order to succeed under a subclause (xxi) claim). A second view, proposed by the Pennsylvania Commonwealth Court, requires a showing of something less than fraudulent conduct. See Commonwealth v. Manson, 903 A.2d 69, 73-74 (rejecting the interpretation that the post-1996 amendment requirements of subclause (xxi) still requires a showing of the elements of common law fraud); see also In re Patterson, 263 B.R. 82 (E.D.Pa.Bankr. 2001) (holding that the inclusion of the word "deceptive" in the subclause (xxi) necessitates a less restrictive standard of proof than common law fraud because to "require fraud would render the statute's addition of the word deceptive redundant"); Commonwealth v. Percudani, 825 A.2d 743, 747 (Pa.Commw. 2003) (predicting that the Pennsylvania Supreme Court would agree with the position adopted by the Bankruptcy Court in In re Patterson).*fn27
Regardless of whether a less restrictive standard of proof applies as a result of the 1996 Amendments, which, the Court notes, Plaintiffs do not even assert,*fn28 Plaintiffs still must demonstrate the requirements of any claim brought under the UTP/CPL, as espoused by the Pennsylvania Supreme Court: (1) that the Defendant made a false misrepresentation; (2) which the Plaintiffs justifiably relied upon; and (3) suffered loss as a result of such reliance. Toy, 928A.2d at 201. Having outlined the necessary elements for a violation of subclauses (ii), (vi), and (xxi), the Court will now address the same, in turn.*fn29 Here, the Plaintiffs are unable to meet their burden and survive Defendant's motion for summary judgment.
In order to qualify as "services," and thus afford protection under the UTP/CPL, any fraud involving securities must exist in the security transaction itself. Baker, 64 F.Supp.2d at 468. Therefore, only fraud relating to the actual sale, and not the security itself, is covered by the UTP/CPL. Id. Here, Plaintiffs admit that Defendant made no misrepresentations of fact with respect to the mutual funds they purchased from Defendant.*fn30 Defendant's Facts at ¶56. Plaintiffs also do not claim that any of the prospectuses received from Defendant, contained any false misrepresentations. Furthermore, Plaintiffs have admitted that the Defendant's representatives were always "very good" at explaining the mutual funds that Mr. Cehula was interested in purchasing. Defendant's Facts at ¶55.
Assuming that the Plaintiffs construe the alleged guarantee that their accounts would reach a value of $10 million in the future as a false misrepresentation, which they do not plead, the Court finds no evidence of record to demonstrate that any such representation, if made, was false or misleading. The $10 million guarantee allegedly took place in late winter of 2001 and the Plaintiffs liquidated their accounts with Defendant on January 24, 2003. Defendant's Facts at ¶57-58.
According to Mr. Cehula, he was given no time frame as to when their accounts would reach this potential value. Defendant's Facts at ¶78. Moreover, Mr. Cehula admits that he knew it would take some time for his investments to reach $10 million. Defendant's Facts at ¶70. Finally, when Plaintiffs liquidated their accounts on January 24, 2003, less than two years after the alleged $10 million guarantee, Mr. Cehula admits the decision to liquidate was based on the combination of the market becoming stagnant and his becoming tired of waiting for his investments to grow. Defendant's Facts at ¶60, 91.*fn31
Based on Plaintiffs' admissions, and the competent evidence of record, one cannot reasonably find that Defendant misrepresented anything that either: (1) "caused a likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services," (2) represented "that goods or services [were] of a particular standard, quality or grade, or that goods were of a particular style or model, [when] they [were] of another," or (3) engaged in any other fraudulent or deceptive conduct which created a likelihood of confusion or of misunderstanding." 73 §§P.S. 201-2(4)(ii),(vii),(xxi). The lack of any evidence supporting a finding that a misrepresentation was made is fatal to Plaintiffs' UTP/CPL claims.
Just as Plaintiffs cannot successfully demonstrate that a misrepresentation on the part of the Defendant was made at the time of any sale or other transaction of funds with the Defendant, Plaintiffs cannot meet their burden of demonstrating that the conduct allegedly causing their losses is actionable under the UTP/CPL.*fn32 Plaintiffs allege that their losses are a result of Defendant's refusal to honor a sell order during the late winter 2001 phone call in which Mr. Cehula was also given the alleged $10 million guarantee.*fn33 (See Docket No. 32 at ¶¶25-26) (alleging that at some point in time, the Plaintiffs requested to be sold out of all Janus Funds, that the Defendant refused to do so, and that this refusal "caused the vast majority of the losses complained of today").
In order to succeed under the UTP/CPL, a plaintiff must be able to establish that an alleged misrepresentation by a defendant caused their loss. Weinberg v. Sun Co., 740 A.2d at 1169. Setting aside the fact that Plaintiffs have admitted that Defendant made no misrepresentations of fact in the first place, Plaintiffs have not presented evidence that establishes that their losses were a result of misrepresentations made by the Defendant, whether those misrepresentations be in the form a $10 million guarantee or the denial of a personal investment advisor. Instead, Plaintiffs claim that their losses were suffered as a result of Defendant's refusal to sell them out of their mutual funds. (Docket No. 32 at ¶¶25-26).
Under the UTP/CPL, a plaintiff is only protected from a defendant's malfeasance, defined as the improper performance of a contractual obligation.*fn34 See Meyer v. Cuna Mut. Group, Civil Action No. 03-602, 2007 WL 2907276, at *11 (W.D. Pa. Sept. 28, 2007) (citing Horowitz v. Federal Kemper Life Assur. Co., 57 F.3d 300, 307 (3d Cir. 1995). The UTP/CPL does not protect a plaintiff from nonfeasance, defined as the failure to perform a contractual obligation. See Meyer, 2007 WL 2907276, at *11 (citing Gordon v. Pennsylvania Blue Shield, 548 A.2d 600, 604 (Pa.Super. 1988)). Accordingly, a defendant's improper performance of a contractual obligation is protected by the UTP/CPL, while its failure to perform a contractual duty is not. See Fass v. State Farm Fire and Cas. Co., Civil Action No. 06-02398, 2006 WL 2129098, at *2 (E.D. Pa. July 26, 2006) (providing that "the UTPCPL only protects plaintiffs against a defendant's malfeasance; nonfeasance is not covered by the statute"). Consequently, even assuming that the Defendant's failure to honor a sell order from the Plaintiffs caused their alleged losses, this failure is not actionable under the UTP/CPL.*fn35
Because Plaintiffs are unable to establish the existence of a false misrepresentation on the part of Defendant or that their losses were caused by an actionable event under the UTP/CPL, Defendant is entitled to summary judgment with respect to Plaintiffs' UTP/CPL claims.
Accordingly, based on the foregoing, Defendant Janus Distributors LLC's Motion for Summary Judgment  is GRANTED. An appropriate order to follow.
Nora Barry Fischer United States District Judge