PATRICK F. MCGROGAN AND BARBARA A. MCGROGAN, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, Appellants
FIRST COMMONWEALTH BANK, F/K/A NATIONAL BANK OF THE COMMONWEALTH, Appellee PATRICK F. MCGROGAN AND BARBARA A. MCGROGAN, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, Appellees
FIRST COMMONWEALTH BANK, F/K/A NATIONAL BANK OF THE COMMONWEALTH, Appellant
Appeal from the Order Entered August 30, 2012 In the Court of Common Pleas of Allegheny County Civil Division at No(s): G.D. 09-000797
BEFORE: BENDER, GANTMAN AND OLSON, JJ.
In this consolidated appeal and cross-appeal, Appellants/Cross-Appellees, Patrick F. McGrogan and Barbara A. McGrogan, on behalf of themselves and all others similarly situated, appeal from the order entered on August 30, 2012, denying their motion for partial summary judgment and granting the motion for summary judgment filed on behalf of
Appellee/Cross-Appellant First Commonwealth Bank, f/k/a National Bank of the Commonwealth (hereinafter "the Bank"). In granting the Bank's motion for summary judgment, the trial court dismissed the sole claim that it previously certified for class treatment. The Bank has also filed a cross-appeal from the same order. We affirm the trial court's order to the extent it denied class certification to Appellants' "fraud in the execution" claim (Count 1) and "violation of the Unfair Trade Practices and Consumer Protection Law" claim (Count 5). We quash the Bank's appeal at docket number 1490 WDA 2012.
Appellants instituted the current class action on January 12, 2009 and, on July 20, 2009, Appellants filed their Amended Class Action Complaint (hereinafter "Appellants' Complaint"). Within the complaint, the named Appellants – Patrick F. McGrogan and Barbara A. McGrogan – averred the following.
In March 1983, executives of the Bank approached Mr. McGrogan and informed Mr. McGrogan that the Bank was offering a variety of Individual Retirement Account ("IRA") investment products. Appellants' Complaint, 7/20/09, at ¶ 21. One of these products was named the "IRA Market Rate Savings Account." According to the McGrogans, the Bank executives orally promised Mr. McGrogan that: 1) the IRA Market Rate Savings Account "was designed to be a long-term investment vehicle with a rate that could fluctuate weekly and thus yield [a return that was] higher than 8%, but that would nonetheless guarantee a minimum 8% return for as long as [Mr. McGrogan] decided to keep his money in that account;" 2) although the account matured after 90 days, "[t]he 90-day maturity on the account was for [Mr. McGrogan's] benefit, since it gave him the flexibility of moving some or all of his retirement money to another investment vehicle every 90 days if he felt he could get a better rate;" and, 3) "[s]o long as [Mr. McGrogan] did not take action to move the funds or close the account, the IRA Market Rate Savings Account would automatically continue, roll over or renew at a rate that would never fall below 8%, and the Bank would continue to invest the funds in such an account." Id. at ¶ 22. As a result of these oral promises, Mr. McGrogan agreed to open an IRA Market Rate Savings Account with the Bank. Id. at ¶ 23. Further, and while the McGrogans do not specify what promises were personally made to Mrs. McGrogan, the McGrogans aver:
Barbara McGrogan opened an 'IRA Market Rate Savings Account' in March 1984 and consistent with the promises made to her and, earlier, to her husband, Mrs. McGrogan earned the greater of the Bank's market rate . . . or the guaranteed minimum rate of 8%, as promised.
Id. at ¶ 24.
To establish their IRAs, the McGrogans signed separate, but substantively identical, written contracts, which are entitled "Individual Retirement Custodial Account (Under Section 408(a) of the Internal Revenue Code)" (hereinafter "Custodial Agreement"). Mr. McGrogan's Custodial Agreement begins by providing:
The Depositor whose name appears above is establishing an individual retirement account (under section 408(a) of the Internal Revenue Code) to provide for his or her retirement and for the support of his or her beneficiaries after death.
The Custodian named above has given the Depositor the [D]isclosure [S]tatement required under the Income Tax Regulations under section 408(i) of the Code.
The Depositor has deposited with the Custodian [$3, 449.69] in cash.
Mr. McGrogan's Custodial Agreement, dated 1/26/84, at 1.
Mr. McGrogan's Custodial Agreement then recites a number of "Articles, " setting forth the terms of his relationship with the Bank. For example, the Articles: specify the yearly maximum dollar amount that Mr. McGrogan was permitted to contribute to his IRA; declare that Mr. McGrogan's interest in the balance in his account was nonforfeitable; state that no part of the funds would be invested in life insurance contracts; provide that the assets would not be commingled with other property "except in a common trust fund or common investment fund;" and, establish a system for distributing the account assets. Id. at 1-2; see also 26 U.S.C. § 408(a).
Article VIII of the Custodial Agreement specifically allowed for amendment of the contract. The article declares:
This agreement will be amended from time to time to comply with the provisions of the [Internal Revenue] Code and related regulations. Other amendments may be made with the consent of the persons whose signatures appear below.
Note. [Article IX] may be used for any other provisions you wish to add. . . .
Mr. McGrogan's Custodial Agreement, dated 1/26/84, at 2.
The parties signed the bottom of the form agreement and attached a separate, signed page to the contract. The attachment is entitled "Attachment to Individual Retirement Account Article IX" and provides, in relevant part:
1. Contributions shall be invested, at the direction of the Depositor, in such time deposits or savings accounts as are, from time to time, offered by the Custodian Bank for IRA accounts. The Custodian is under no duty to compel the Depositor to make any contribution to the Individual Retirement Account (the Account) or to verify the accuracy of any contribution. A minimum contribution may be required by the Custodian.
Proceeds of maturities shall be invested, at the direction of the Depositor in such time deposits or savings accounts, as are from time to time, offered by the Custodian Bank. In absence of such direction, the proceeds will be invested in a like investment by the Custodian Bank.
2. Custodian may resign upon 60 days['] notice to the Depositor. Custodian, upon resignation, shall transfer the assets of the Account in such manner as the Depositor may specify in writing. If Depositor fails to appoint a successor Custodian within 60 days after the Custodian's notice of resignation, Custodian may appoint a successor Custodian to hold the assets of the account.
Id. at Attached Page 3.
In accordance with Treasury Regulation § 1.408-6, the Bank (as the Custodian of the IRA) was required to provide the McGrogans with both a copy of the "governing instrument [that was] used in establishing the [IRA]" and a "Disclosure Statement." 26 C.F.R. § 1.408-6(a)(1) and (d)(4)(i); see also 26 U.S.C. § 408(i). The McGrogans admit that they received the required Disclosure Statements. Indeed, as quoted above, the second full paragraph of Mr. McGrogan's Custodial Agreement expressly references the Disclosure Statement and declares that Mr. McGrogan received the Disclosure Statement prior to signing the Custodial Agreement. The relevant paragraph declares: "[t]he Custodian named above has given the Depositor the [D]isclosure [S]tatement required under the Income Tax Regulations under section 408(i) of the Code." See Mr. McGrogan's Custodial Agreement, dated 1/26/84, at 1; Mrs. McGrogan's Custodial Agreement, dated 3/19/84, at 1.
The McGrogans' Disclosure Statements contain the requisite explanations and other matters that Treasury Regulation § 1.408-6(d)(4) demands. However, the Disclosure Statements also contain certain "additional information." See 26 C.F.R. § 1.408-6(d)(4)(viii). In particular, "Article VI" of the Disclosure Statements (entitled "Investment Opportunities") lists a number of different investment vehicles that the Bank was then offering its IRA customers. See Mr. McGrogan's Disclosure Statement, at 3-5; Mrs. McGrogan's Disclosure Statement, at 3-5. One of the listed investment vehicles was the IRA Market Rate Savings Account. Article VI of the Disclosure Statements defined the IRA Market Rate Savings Account as follows:
1. IRA Market Rate Savings Account – This account offers a 90[-]day decreasing term with the entire account maturing 90 days from the date of the original deposit. This account permits additional deposits to be added to the account any time during its 90[-]day term. All deposits to the account mature 90 days from the date of the original deposit. The rate payable on the account changes weekly, in line with market conditions. The rate is established each week by the Bank's Steering committee, equal to 90% of the rate being offered on the Bank's 182 day to 364 day money maker certificates. The IRA Market Rate Savings Account carries a guaranteed minimum rate of 8%. A minimum $50.00 deposit is required.
If an account of this type is redeemed prior to maturity, you will forfeit an amount equal to 1 month of interest calculated on the basis of the interest rate in effect [at] the time the certificate is redeemed. . . .
Mr. McGrogan's Disclosure Statement, at 3-4; Mrs. McGrogan's Disclosure Statement, at 3.
Importantly, the above language does not declare that the account would be "automatically continued" or "rolled over" after the 90-day term. Rather, the paragraph states that the IRA Market Rate Savings Account is a "90[-]day decreasing term with the entire account maturing 90 days from the date of the original deposit. . . . All deposits to the account mature 90 days from the date of the original deposit." Mr. McGrogan's Disclosure Statement, at 3-4; Mrs. McGrogan's Disclosure Statement, at 3; see also Mr. McGrogan's Custodial Agreement, dated 1/26/84, at Attached Page 3 ("[p]roceeds of maturities shall be invested, at the direction of the Depositor in such time deposits or savings accounts, as are from time to time, offered by the Custodian Bank"); Mrs. McGrogan's Custodial Agreement, dated 3/19/84, at Attached Page 3 (same).
As the McGrogans aver, from the time they opened their IRA Market Rate Savings Accounts until the fall of 2008, the Bank paid them a minimum interest rate of 8% and, after each 90-day maturation period, the Bank "automatically continued, renewed/rolled over the[ir] IRA Market Rate Savings Accounts." Appellants' Complaint, 7/20/09, at ¶ 24 and 27-28. The McGrogans also aver that, in 1998, the Bank "threatened to unilaterally reduce the guaranteed rate of the IRA Market Rate Savings Account from 8% to 4.6%." Id. at ¶ 28. However, on June 3, 1998, the Bank retreated from its attempt and sent the McGrogans letters, "stating that the minimum 8% rate would be paid 'retroactively to [their] most recent maturity date and will continue going forward on deposits presently in the account and on annual additions.'" Id.
In the fall of 2008, the Bank sent the McGrogans letters, notifying the McGrogans that the Bank was "exercising [its] right to resign as Custodian for" the IRAs. The letter addressed to Mr. McGrogan declared:
With this writing[, the Bank] is exercising the right to resign as Custodian for this account in accordance with the disclosure provided at account opening. This letter serves as your official notice that upon the Maturity Date of December 26, 2008, reflected on the enclosed notice you will receive a total disbursement from [the Bank] of the current IRA balance, including principal and interest.
[The Bank] would appreciate the opportunity to continue to serve as your first choice for any retirement investment needs. Currently, we are pleased to offer a Variable Rate Savings IRA with a 3.50% APY. A number of Certificates of Deposit with current market rates are also available. . . .
Because this is a Qualified Retirement Account, [the Bank] believes both the principal and the earnings on that principal represent a return of "tax-deferred" dollars to you, the investor. Therefore, we highly recommend that you consult with your tax advisor or your financial advisor regarding the issues surrounding premature withdrawal or transfer of money held in a qualified account. Many account holders receiving this letter may need to consider making a "custodian-to-custodian" transfer into another qualified account to avoid potential current year tax consequences or possible IRS penalties for early withdrawal.
We are here to help in your decision-making to find the proper investment vehicle for your upcoming IRA disbursement. . . .
Letter from the Bank to Mr. McGrogan, dated 10/8/08, at 1 (emphasis in original); see also Letter from the Bank to Mrs. McGrogan, dated 9/10/08, at 1.
Following the Bank's resignation, the McGrogans initiated the current lawsuit. As the McGrogans claimed, the Bank had specifically promised them that the IRA Market Rate Savings Account "would automatically continue, roll over or renew at a rate that would never fall below 8%" – and that the automatic rollover would continue for so long "as [the McGrogans] did not take action to move the funds or close the account." Appellants' Complaint, 7/20/09, at ¶ 22. Further, the McGrogans claimed that the Bank had made similar promises to hundreds of other people. According to the McGrogans, when the Bank resigned as Custodian over the accounts and marked the accounts closed, the Bank breached its contractual obligations to the McGrogans and to all of the then-existing IRA Market Rate Savings Account holders. Thus, the McGrogans filed a complaint on behalf of themselves and all other similarly situated individuals. The McGrogans sought to represent the following class:
All persons who established an [IRA] with [the Bank] for his or her retirement and for the support of his or her beneficiaries after death, who (a) opened an IRA Market Rate Savings Account at the Bank, and (b) received letters, beginning in or around the middle part of 2008 and continuing thereafter, which are identical or substantially ...