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Pennsylvania Appellate Court Rules that State Attorney General Cannot Seek Restitution Under State UDAP Statute

By Stephen M. Hladik, Esq. and Douglas Sullivan, Esq., Hladik, Onorato & Federman, LLP.

In a major decision, the Pennsylvania Commonwealth Court ruled that the Attorney General cannot seek the remedy of consumer restitution under the Unfair Trade Practices and Consumer Protection Law (Pennsylvania’s version of UDAP).  The case, Commonwealth v. Golden Gate National Senior Care LLC, et al., Docket Number 336 M.D. 2015, recently reviewed a motion to dismiss by Golden Gate National Senior Care, LLC (“Golden Gate”).  While most of Golden Gate’s challenges were related to whether particular advertising was puffery or actual substantive, deceptive advertisements, the fascinating component of the decision is where the Court addresses the issue of whether the Attorney General’s Office may seek restoration damages. Even though this case involved an enforcement action against a series of skilled nursing facilities, the ruling that relates to restitution is of major significance to lenders and servicers.

Whenever the Attorney General commences an investigation or litigation under UDAP, a key component of the relief sought is restitution for consumers.  In this instance, the appellate court ruled that the Attorney General does not have the power to seek restitution under the UDAP statute.  The relevant section of the UDAP statute articulates that a “person in interest” may seek restoration.[1]  The appellate court analyzed whether Pennsylvania is a “person” under UDAP.

The Court balanced the public interest and the benefits of consistency within the courts’ interpretations of UDAP.  Ultimately, the Court determined that consistency was crucial and affording the definition of “person” to shift based upon a section of the UDAP statute would not afford benefits that would outweigh the harm such an interpretation would cause.

The Court noted that there were no prior decisions to rely upon in determining the Attorney General’s rights to affirmatively assert a claim under UDAP as a “person.”  Prior decisions discussed whether the Commonwealth could be held liable as a defendant under UDAP, but did not discuss the state’s powers as a plaintiff.  Prior decisions relied upon sovereign immunity to effectively afford the State a defense from UDAP claims.  The Commonwealth Court decided that providing Pennsylvania the sovereign immunity “shield” and the UDAP “sword” would be improper and unfair.  Instead, the Court held that the State is not a “person” capable of asserting an interest fit for claiming restoration damages.

The Court noted that the agency is not completely without a “sword.”  The Attorney General can assert violations with a maximum civil penalty of five thousand dollars per violation of UDAP.  The Court reasoned that the Legislature laid out a specific mechanism for Pennsylvania to deter unfair trade practices, which effectively affords the same deterrent effects as permitting a governmental agency to proceed as a person seeking restoration damages.

What does this ruling mean for the future?

As a result of this decision, any pending enforcement actions by the Attorney General may be impacted, as restitution is certainly a component of the relief sought.  In addition, with regard to any pending investigations, where the parties may be engaged in settlement negotiations, this decision has an impact, as the state would surely be seeking consumer restitution.  While it is purely speculation, it is safe to assume that the Attorney General will seek to cure this “problem” for its office by seeking either review by the state Supreme Court or a legislative fix to clearly articulate that the Attorney General may obtain restitution relief.  For the time-being, with the benefit of this ruling, lenders, servicers and investors should be aware that in any UDAP enforcement context with the Attorney General, the remedy of restitution is off the table.

[1] 73 P.S. § 201-4.1.

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