Consumer Protection Act Applies to Claim Against Financial Advisor

Judge Bill Koch has written a opinion that is worth a read by everyone who visits this blog. The case is Johnson v. John Hancock Funds, No. M2005-00356-COA-R3-CV (Tenn. Ct. App., M.S., June 30, 2006).

Plaintiffs claimed that they received poor advice from their financial advisor and suffered a loss of money. They brought suit under the Tennessee Consumer Protection Act and also asserted several common law torts.

The trial court dismissed the TCPA claim. The Court of Appeals reversed, saying, in part, that:

“[w]e have examined the federal and state statues and regulations governing the sale of securities. While these statutes are comprehensive and detailed, we find no provision in them that can reasonably be construed as limiting the remedies available to consumers who purchase securities to the remedies provided in the securities laws. Likewise, we find no provision that states the Tennessee Consumer Protection Act or similar Acts passed by other states do not apply to marketing or sale of securities. Finally, we find no precedent for the notion that the federal regulation of securities is so pervasive that it preempts state consumer protection statutes.”

The Court of Appeals went on the say that:

“[s]ecurities are “goods” for the purposes of the Tennessee Consumer Protection Act, and investment counseling and advice is likewise a “service.” Accordingly, offering securities for sale and providing investment counseling are consumer transactions. The Act explicitly proscribes unfair or deceptive acts or practices in connection with consumer transactions. Tenn. Code Ann. ㋔ 47-18-104(a), (b)(27). Following the Tennessee Supreme Court’s reasoning in Myint v. Allstate Ins. Co., we have determined that acts or practices in connection with the marketing or sale of securities are covered by the Tennessee Consumer Protection Act. Therefore, the trial court erred by granting Signator Investors’ motion to dismiss.”
[Footnotes omitted.]

The opinion has a great summary of the law of the admissibility of expert testimony and holds that the trial court erred in excluding the plaintiffs’ expert.

The opinion also takes an appropriate slap at the defendants’ attempt to mischaracterize evidence in the case.

“[Plaintiffs’ expert] Dr. O’Neal stated in his deposition that his opinion regarding [defendant]Mr. Henderson’s investment recommendations was based on Annie Johnson’s needs and investment objectives and that his opinion would be different if Mr. Henderson’s recommendations were responding to Linda Johnson’s needs. Signator Investors insists that this statement undermines Dr. O’Neal’s testimony because is was “undisputed” that the Johnsons told Mr. Henderson that the investments were to be used solely to benefit Linda Johnson. This fact is far from undisputed.

Announcing that a fact is undisputed does not make it so. Even a cursory examination of the record quickly reveals that the substance of the conversation between Mr. Henderson and theJohnsons is hotly contested.”

Once again, this opinion is a great read regardless of whether you accept such cases in your office. Section III of the opinion addresses the issues concerning the testimony of the expert.

See the entire opinion here. It would be a crying shame if this opinion were not published.

Finally, a little known fact. Judge Koch was the drafter of the original Tennessee Consumer Protection Act. At the time he served in the State Attorney General’s office.