Hoak v. Newton
Posted on Categories Court Decisions, Securities Customers

By David C. Franceski, Jr.

*Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) prohibiting fraud in consumer goods and services transactions does not extend to a long-term investment relationship between broker/investment advisor and customer. **A broker’s FINRA report of multiple regulatory events, customer complaints, settlements and an industry bar is inadmissible; the reported issues are not sufficiently similar to underlying claims to demonstrate common purpose or design. ***A prior arbitration has collateral estoppel and/or res judicata effects on subsequent court proceedings.

Hoak vs. Newton, No. 315 (Pa. Super. Ct., 7/23/19).

Appellant, plaintiff below, in his third appeal of various trial court rulings regarding his thirty-three claims to recover over $500,000 in losses from investment in defendants’ private equity fund, challenged: (1) the dismissal of his Pa. Unfair Trade Practices and Consumer Protection Law (UTPCPL) claim; and (2) various other evidentiary rulings, including the exclusion of defendant Newton’s FINRA and SEC registration reports as irrelevant. In a non-precedential opinion, the Pennsylvania Superior Court, the Commonwealth’s intermediate appellate court, affirms the trial court as to each issue. With respect to appellant’s argument that the trial court, in granting a compulsory nonsuit on the UTPCPL claim, failed to apply the proper evidentiary standard, the Appellate Court, while characterizing the court’s reference to “no compelling evidence” as “inartful” where only a preponderance was required, finds that the trial court applied the proper standard.

In so holding, neither the Appellate Court (nor appellant) takes issue with the trial court’s conclusion that the long-term investment relationship at issue was not a “consumer transaction for goods and services” subject to the UTPCPL, or that appellant was a “knowing and intelligent investor who assumed the risk of loss.” The Appellate Court further finds waiver with respect to the trial court’s redaction of a key email written by defendant Newton to plaintiff/appellant, and harmless error in allegedly leading testimony admitted after the entry of the non-suit.

The Appellate Court also finds no error in the exclusion of the broker/advisor’s FINRA report, and a related SEC report, disclosing five regulatory actions, three settled customer disputes, one ongoing customer claim, including improper supervision of oil and gas private placements, the sale of unregistered securities and an industry bar for failing to appear for on-the-record testimony in an investigation into securities violations. Though appellant offered the reports to impeach defendant Newtown’s evidence of good character and undermine his credibility, in the Appellate Court’s view, the information in the reports is not “similar enough to the actions that underlie appellant’s UTPCPL claim” to satisfy Pa. Rule of Evidence 404(b).

Finally, the Court agrees with the trial court that the AAA arbitration exonerating one original defendant stands as collateral estoppel and res judicata as to evidence appellant sought to admit with respect to that party’s alleged wrongdoing. This is especially so given that appellant refused to appear at the arbitration.

(D. Franceski: Though “non-precedential,” this opinion of Pa.’s intermediate appellate court may signal a significant and important change to the view of both state and federal courts within the Commonwealth that “consumer services” under the Pa. UTPCPL include brokerage and investment advisory services.)

(SOLA Ref. No. 2019-36-06)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis. 

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