United States: Pa. Needs Regulatory Compliance Defense To UTPCPL Actions

Pennsylvania's Unfair Trade Practices and Consumer Protection Law can impose additional — and sometimes inconsistent — restrictions on industries already subject to extensive regulation by state and federal authorities. Good arguments can be made that Pennsylvania should embrace, if not a full-blown safe harbor for highly regulated industries, at least a regulatory compliance defense to claims brought under the UTPCPL. In theory at least, regulatory authorities balance the cost of regulation against the value of restricting particular business conduct in promulgating and enforcing regulation. Private UTPCPL litigation does not weigh such considerations, focusing instead on the nature of the parties' conduct and losses in a single or series of transactions. Where a regulatory body has balanced the competing equities and elected to regulate business conduct in a certain manner, a business should be able to rely on its compliance with that regulation to show that its conduct was neither deceptive nor unfair in private UTPCPL litigation.

A regulatory compliance defense should not be confused with an express regulatory exemption from a consumer protection statute. The regulatory compliance defense permits a presumption against unfairness and deception or admits evidence of a defendant's compliance with a statute or regulation that governs the trade practice alleged to be unfair or deceptive. By contrast, a regulatory exemption typically is created by statute, and exempts a regulated industry from the application of the consumer protection statute. About two-thirds of the states have an express exemption for regulated industries in their consumer protection statute, although Pennsylvania is not one of them.

Although no Pennsylvania court has relied exclusively on a regulatory compliance defense, decisions suggest that it is an evidentiary consideration. In Fay v. Erie Ins. Group,¹ the Superior Court was troubled by the nature of the plaintiff's claims in that the defendant insurer had complied with Pennsylvania's insurance laws regarding the stacking of first party benefits. The plaintiff in Fay brought a class action for accidental death benefits under more than one insurance policy. Although the plaintiff claimed to have paid for more than one death benefit, the policies did not permit the "stacking" of death benefits. The Superior Court couched its decision on whether the UTPCPL required an express misrepresentation. However, the court also acknowledged the administrative enforcement of the Unfair Insurance Practices Act, which does not contain a private right of action.² In so doing, the court considered the defendant's compliance with applicable insurance law.

[T]he insurer's practice of offering and collecting premiums for duplicative benefits that cannot be collected may appear to be unfair. However, motor vehicle insurance is a matter that it heavily regulated by both state statute and the Insurance Commissioner. The policy here complied with the [law] and [the insurer] is entitled to charge premiums, the rates of which are approved by the Insurance Commissioner, for first party benefits requested by its insureds. If [plaintiff] deems the practice objectionable, her remedy is to bring the matter to the attention of the legislature or the Insurance Commissioner rather than to seek a judicial solution.³

While perhaps dicta, this language suggests that compliance with applicable laws in a highly regulated arena should be considered in defense of an UTPCPL claim. Similarly, in Grudkowski v. Foremost Ins. Co,⁴ the court ruled that coverage that complied with the law did not state a claim under the UTPCPL, notwithstanding the plaintiff's contentions that the extent of coverage was misrepresented.⁵ Other decisions have suggested that lawful conduct should not violate the UTPCPL.⁶

Closely related to the regulatory compliance defense are the doctrines of implied preemption, primary jurisdiction and judicially construed exemptions. Each of these doctrines act to limit the purview of the UTPCPL over businesses as a result of federal and regulatory oversight, and thus generally support the regulatory compliance defense. By way of example, preemption can preclude enforcement of the UTPCPL either expressly in a federal statute, through a federal statute fully occupying the field or through conflict or impossibility of compliance with both federal and state law.⁷ Thus, the UTPCPL can be preempted by federal law where what is required under federal law is prohibited as an unfair trade practice under the UTPCPL. However, conflict or impossibility preemption is narrowly applied, and courts breathe life into both state and federal law to the extent possible.⁸

The primary jurisdiction doctrine also limits the application of the UTPCPL in highly regulated fields and thus supports the concept of a regulatory compliance defense. The primary jurisdiction doctrine counsels courts to refrain from exercising jurisdiction over a claim where an issue is within the jurisdiction of an administrative agency and involves complex subject matter beyond the knowledge of the fact finder.⁹ The primary jurisdiction doctrine has been applied to prevent UTPCPL claims.¹⁰

Finally, as additional support for a regulatory compliance defense, some courts have reasoned that exemption from the UTPCPL covers certain regulated fields, even though the UTPCPL does not contain an express statutory exemption for the field. For example, courts have found that the UTPCPL does not apply to claims against providers of medical services,¹¹ the sale of investment securities,¹² attorney misconduct¹³ and exposure is limited for prescription drug and medical device manufacturers through the learned intermediary rule.¹⁴ It should be noted the exemption is limited to the UTPCPL, as parties asserting against such businesses generally can proceed under tort law.

If a statute or regulation addresses the specific conduct at issue, a defendant should be able to show that it complied with statutes or regulations pertaining to the conduct alleged to violate the UTPCPL. Similarly, a defendant should be able to introduce evidence that a regulatory body has determined that conduct under the UTPCPL is legal. If a regulatory body decides that certain conduct is permitted, it would follow that the permitted conduct could not be "unfair" or "deceptive" within the meaning of the UTPCPL. Certainly, businesses should be permitted to present this evidence to the fact finder in the UTPCPL claims.

Originally published by Law360, May 14, 2014.

Footnotes

1 723 A.2d 712, 715 (Pa. Super. 1999).

2 723 A.2d at 714.

3 Id. at 715 (emphasis added).

4 No. 3:cv-12-1847, 2013 U.S. Dist. LEXIS 30567 (M.D. Pa. Mar. 5, 2013), aff'd, 2014 U.S. App. LEXIS 3738 (3d Cir. (Pa.) Feb. 27, 2014).

5 Id. at *20 (noting that the policies "sold by [defendant] complied with Pennsylvania law"); Id. at *30 (the policies contained "clear, lawful coverage limitations").

6 Fisher v. Aetna Life Ins. & Annuity Co., 39 F. Supp. 2d 508, 512 n.2 (M.D. Pa. 1998), aff'd, 176 F.3d 472 (3d Cir. 1999); Porter v. NationsCredit Consumer Discount Co., No. 03-03768, 2006 U.S. Dist. LEXIS 83161 (E.D. Pa. Nov. 14, 2006), aff'd, 285 Fed. Appx. 871 (3d Cir. 2008)(noting compliance with required disclosures); Commonwealth ex rel. Zimmerman v. Nickel, 26 Pa. D. & C.3d 115, 124 (Mercer Co. 1983) ("Ordinarily, where acts are lawful individually, their combination does not become unlawful . . ..")

7 Mwantembe v. TD Bank, N.A., 669 F. Supp. 2d 545, 550 (E.D. Pa. 2009); Neill v. State Farm Fire & Cas. Co, 159 F. Supp. 2d 770 (E.D. Pa. 2000).

8 See Dougherty v. Wells Fargo Home Loans, Inc., 425 F. Supp. 2d 599, 608 (E.D. Pa. 2006).

9 See, e.g. in re Insurance Stacking Litigation , 754 A.2d 702 (Pa. Super. Ct. 2002).

10 Pettko v. Pennsylvania American Water Co., 39 A.3d 473 (Pa. Commw. Ct. 2012), appeal denied, 51 A.3d 839 (2012).

11 Walter v. Magee-Womens Hospital of UPMC Health System, 876 A.2d 400 (Pa. Super. Ct. 2005), aff'd, 906 A.2d 1194 (2006).

12 Algrant v. Evergreen Valley Nurseries, Ltd., 126 F.3d 178 (3d Cir. 1997).

13 Beyers v. Richmond, 937 A.2d 1082 (Pa. 2007).

14 Kee v. Zimmer, Inc., 871 F. Supp. 2d. 405 (E.D. Pa. 2012).

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