Maese v. Garrett

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number:
Filing Date: April 14, 2014
Docket No. 32,260
GERALD MAESE and JACQUELINE MAESE,
Plaintiffs-Appellees,
v.
DAVID GARRETT and WELLS FARGO
ADVISORS, LLC,
Defendants-Appellants.
APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Theresa M. Baca, District Judge
Bryan L. Query, P.A.
Bryan L. Query
Albuquerque, NM
for Appellees
Windle Hood Alley Norton Brittain
& Jay, LLP
Joseph L. Hood, Jr.
El Paso, TX
for Appellants
OPINION
FRY, Judge.
{1} The formal opinion filed in this case on April 10, 2014, is hereby withdrawn, and
this opinion is substituted in its place.
{2} Plaintiff brought suit against Defendants to recover taxes, penalties, and interest
1
Plaintiff incurred in connection with the partial surrender of a deferred variable annuity.1
Plaintiff alleged that erroneous financial advice he received from Defendants caused him to
incur the additional tax liability. The district court agreed with Plaintiff and awarded him
damages. Defendants argue on appeal that (1) Plaintiff did not establish that he suffered a
compensable loss as a result of the erroneous financial advice; and (2) the Unfair Practices
Act (UPA), NMSA 1978, §§ 57-12-1 to -26 (1967, as amended through 2009), does not
apply to this case because the transaction at issue did not involve the sale of goods or
services. We conclude that Plaintiff established that he suffered a compensable loss by way
of the tax liability he incurred due to the misrepresentation. We further conclude that the
UPA applied to Defendants’ financial advising services. Accordingly, we affirm.
BACKGROUND
{3} Defendants do not challenge the following facts found by the district court.
Defendants provided financial services to Plaintiff, which included management of
Plaintiff’s securities account. At all material times, Defendant David Garrett had primary
financial advisory responsibility over Plaintiff’s account. At Garrett’s recommendation,
Plaintiff purchased a deferred variable annuity. Plaintiff invested approximately $175,000
in after-tax dollars in the annuity. By October 2007, Plaintiff’s contributions and investment
gains in the annuity totaled over $300,000.
{4} Around this time, Plaintiff purchased an office building and needed approximately
$140,000 to complete remodeling and to purchase equipment for his dental practice.
Plaintiff contacted Garrett regarding whether he could withdraw monies from the annuity
tax free and without incurring penalties in order to fund the remodeling. Garrett erroneously
advised Plaintiff that because the contributions made to the annuity were “after-tax” dollars,
Plaintiff could withdraw an amount equal to the amounts he had contributed to the annuity
without incurring any additional tax liability. Plaintiff asked Garrett on one or two other
occasions whether this advice was correct and was assured by Garrett that the amount he
wanted to withdraw from the annuity was “well within” the amount he could withdraw tax
free. Based on these representations, Plaintiff decided to withdraw the money needed to
complete the remodeling from the annuity.
{5} Garrett’s advice was incorrect, however, because withdrawals from the annuity
would first be considered withdrawals on gains from investments, not on amounts
contributed, and they would therefore be subject to income tax. The advice was also
incorrect because any withdrawals from the annuity before Plaintiff reached age fifty-nine-
and-a-half were subject to an early withdrawal penalty equal to ten percent of the investment
gains withdrawn from the account. Thus, after Plaintiff withdrew money from the annuity,
1
For convenience, we refer to Gerald Maese throughout this opinion as Plaintiff.
Although both Gerald Maese and his wife, Jacqueline, suffered damages, Gerald appears,
from the evidence, to be the active participant in the events that transpired.
2
Genworth, the annuity company, filed an IRS form indicating that the entire amount of the
withdrawal was taxable income. Plaintiff did not receive the IRS form filed by Genworth
and accordingly did not report the withdrawn amount on his income tax returns. Seventeen
months later, the IRS notified Plaintiff that it was proposing to increase his tax liability by
the amount withdrawn, though it was later modified to a slightly lower amount. As a result
of the adjustment, Plaintiff was assessed a total of $77,623.06 in additional state and federal
income taxes, interest, and penalties.
{6} After Plaintiff received the IRS notice, he met with Garrett and his accountant to
determine why Genworth had reported the money as taxable. The parties spoke to a
Genworth representative over the phone during the meeting, who explained why the
withdrawal was properly reported to the IRS. After the meeting, Plaintiff and his accountant
contacted the IRS to explore whether the IRS would abate the increased taxes, interest, and
penalties. The IRS initially denied Plaintiff’s request for abatement but later indicated that
if Plaintiff could secure confirmation from Defendants that he had relied on erroneous
information in withdrawing the money, the IRS would look more favorably on eliminating
a portion of the penalties. Plaintiff contacted Defendants to request such a written
confirmation. Defendants declined to provide one.
{7} Plaintiff brought suit against Defendants in district court. Following a two-day bench
trial, the district court found in favor of Plaintiff on his claims of misrepresentation, breach
of fiduciary duty, and violation of the UPA. The district court entered a judgment awarding
Plaintiff $77,623 for the additional tax liability, plus attorney fees and costs. Defendants
appeal.
DISCUSSION
I. The District Court’s Damages Award Was Correct
{8} Plaintiff withdrew approximately $142,000 from the annuity. Of that amount,
$128,599 was attributable to investment gains realized by Plaintiff, against which $77,623
was levied in taxes, interest, and penalties. Defendants characterize the approximately
$50,976 difference between the taxable investment gains and the tax liability as a “net
investment gain” and argue that because Plaintiff realized a net investment gain, he did not
sustain a compensable loss as a result of Garrett’s misrepresentations regarding the tax
consequences of the transaction. Defendants further argue that because they were not
responsible for the interest and penalties the IRS assessed against Plaintiff, they should not
be liable for those damages. We discuss these issues in turn. Because the parties do not
dispute the facts, these issues raise questions of law, which we review de novo. Team
Specialty Prods., Inc. v. N.M. Taxation & Revenue Dep’t, 2005-NMCA-020, ¶ 8, 137 N.M.
50, 107 P.3d 4.
A. Plaintiff Suffered a Compensable Loss
3
{9} In arguing that Plaintiff did not suffer a compensable loss, Defendants rely largely
on cases holding that plaintiffs are generally precluded from recovering tax liabilities as
damages because they have an obligation to pay taxes regardless of whether their failure to
do so resulted from negligent financial advice. See DCD Programs, Ltd. v. Leighton, 90
F.3d 1442, 1449 (9th Cir. 1996) (denying recovery of back taxes because the plaintiffs’ “tax
liabilities resulted from the ineluctable requirements of the Internal Revenue Code, rather
than from any wrongful conduct on the part of the defendants”); O’Bryan v. Ashland, 2006
SD 56, ¶ 1, 717 N.W.2d 632, 633 (“In ordinary circumstances, when a tax advisor’s
negligence leads to an underpayment of tax, the taxpayer cannot recover as damages the tax
deficiency itself because the tax liability arose not from the negligent advice, but from the
ongoing obligation to pay the tax.”). Defendants do not argue that these cases represent an
absolute bar to Plaintiff’s recovery. Rather, Defendants argue that in addition to Plaintiff
establishing the amount of tax liability incurred due to the misrepresentation, Plaintiff was
required to also prove (1) that if Plaintiff had delayed his withdrawal from the annuity until
sometime in the future, his tax liability would have been less; and (2) that investment gains
in the annuity in the future would have been equal to the gains Plaintiff realized at the time
of the actual withdrawal. In other words, as we understand the argument, Plaintiff had to
prove that future market fluctuations would not have negatively impacted Plaintiff’s
investment. Thus, Defendants argue that in the absence of such evidence, the district court’s
judgment results in a windfall: “[Plaintiff] not only received the benefit of a substantial
investment gain that [he] would not otherwise have realized, [he is] also relieved of the
obligation to pay taxes on that gain—taxes that every other investor would be obligated to
pay.”
{10} As explained in more detail below, we are unpersuaded by Defendants’ argument for
two reasons. First, we conclude that Plaintiff met his burden to establish his damages with
reasonable certainty when he established that he would not have incurred the additional tax
liability but for Defendants’ erroneous advice. Second, to the extent Defendants argue that
Plaintiff benefitted from the misrepresentation, we conclude that it was Defendants’ burden
to prove what effect the tax implications or investment impact of any future withdrawal
should have on Plaintiff’s ability to recover damages resulting from the tax liability incurred
on the actual withdrawal.
{11} We begin by examining the proper measure of damages in cases where negligent
financial or tax advice has led to a plaintiff incurring additional tax liability. As O’Bryan
and Leighton recognize, even where a plaintiff has received negligent tax advice, the plaintiff
cannot recover as damages an otherwise valid tax obligation. O’Bryan, 2006 SD 56, ¶ 1, 717
N.W.2d at 633; see Leighton, 90 F.3d at 1449. However, these cases and others also stand
for the proposition that where the tax liability is caused by the negligent advice or wrongful
conduct and would not have been incurred but for the negligent advice or wrongful conduct,
there is no prohibition on the recovery of the tax liability. See Eckert Cold Storage, Inc. v.
Behl, 943 F. Supp. 1230, 1234 (E.D. Cal. 1996) (stating that “plaintiffs may be entitled to
damages due to the tax liability, if they can prove that this liability was caused by [the
defendant’s] negligent or fraudulent advice and would not otherwise have been incurred”);
4
Deloitte, Haskins & Sells v. Green, 403 S.E.2d 818, 820 (Ga. Ct. App. 1991) (concluding
that where evidence showed that the plaintiff would not have incurred the tax liability but
for the negligent advice, the plaintiff was entitled to claim as damages the tax liability, not
as “[a] tax he lawfully paid, but for his loss in having sold the business with unanticipated
tax consequences”); Whitney v. Buttrick, 376 N.W.2d 274, 279 (Minn. Ct. App. 1985)
(holding that the plaintiff should have been allowed to argue the tax liability resulting from
the attorney’s negligent advice as an element of damages).
{12} Under these circumstances, we agree with the court in Lien v. McGladrey & Pullen
that the proper measure of damages should be the difference between what the plaintiff
would have owed absent the negligence and what the plaintiff paid because of the
negligence, plus incidental damages. 509 N.W.2d 421, 426 (S.D. 1993); see also Eckert
Cold Storage, 943 F. Supp. at 1234 (“[The] plaintiffs’ recovery must be limited to losses
proximately caused by [the defendant’s] alleged misrepresentations: the damages awarded
should place [the] plaintiffs in the position they would have occupied had the
misrepresentations not occurred.”). We believe that this measure of damages most closely
comports with the purpose of compensatory damages, which is to “fully compensate a
plaintiff, or restore [the] plaintiff to his [or her] rightful position.” McNeill v. Burlington
Res. Oil & Gas Co., 2007-NMCA-024, ¶ 28, 141 N.M. 212, 153 P.3d 46, aff’d, 2008-
NMSC-022, 143 N.M. 740, 182 P.3d 121.
{13} In this case, Plaintiff’s testimony that he would not have chosen to withdraw monies
from the annuity but for Garrett’s misrepresentation that the withdrawal would be tax free
was sufficient to establish that the full amount of the tax liability was avoidable and would
not have been incurred but for Garrett’s advice. Cf. Eckert Cold Storage, 943 F. Supp. at
1234 (stating “that an accountant ‘causes’ its client to incur tax liability when its advice
induces the client to earn taxable income”). Thus, we conclude that where Plaintiff
established that he incurred an additional $77,623 in taxes, interest, and penalties due to the
misrepresentation by Defendants, he met his “burden of proving the existence of injuries and
resulting damage with reasonable certainty.” Sanchez v. Martinez, 1982-NMCA-168, ¶ 20,
99 N.M. 66, 653 P.2d 897; see Green, 403 S.E.2d at 820 (stating that the plaintiff met his
burden to prove he incurred damages where he submitted evidence that he would not have
incurred the tax liability if it had not been for the defendant’s negligent tax advice).
{14} In so concluding, we reject Defendants’ assertion that Plaintiff was required to prove
that a future withdrawal would have lessened or avoided the amount of tax liability incurred
and that the investment gains at the time of a speculative future withdrawal would have
matched or exceeded the gain realized at the time of the actual withdrawal. While we
acknowledge that it is never the purpose of compensatory damages to allow a plaintiff to
profit from his or her loss, see McNeill, 2007-NMCA-024, ¶ 28, in this case, the burden
Defendants seek to place upon Plaintiff was their own. In arguing that Plaintiff benefitted
from Garrett’s misrepresentation, Defendants are essentially arguing that whatever damages
Plaintiff incurred were offset by the benefit Plaintiff received due to the relative strength of
the stock market at the time of the withdrawal. The burden of proving that a tortfeasor’s
5
negligence benefitted the plaintiff is generally the defendant’s. See Lovelace Med. Ctr. v.
Mendez, 1991-NMSC-002, ¶ 41, 111 N.M. 336, 805 P.2d 603 (“ ‘When the defendant’s
tortious conduct has caused harm to the plaintiff or to his property and in so doing has
conferred a special benefit to the interest of the plaintiff that was harmed, the value of the
benefit conferred is considered in mitigation of damages, to the extent that this is equitable.’
” (quoting Restatement (Second) of Torts, § 920 (1979)); McGinnis v. Honeywell, Inc.,
1990-NMSC-043, ¶ 22, 110 N.M. 1, 791 P.2d 452 (explaining that it is the defendant’s
burden to prove mitigation of damages); see also O’Bryan, 717 N.W.2d at 639 (stating that
the “defendants should be permitted to come forward with evidence of benefit from the
[attorney’s erroneous tax advice] that could be applied to reduce the plaintiff’s recovery”
(internal quotation marks and citation omitted)). Thus, it was Defendants’ burden to prove
whether and to what extent Plaintiff was benefitted by Defendants’ negligence. Here, the
district court rejected Defendants’ proposed findings of fact regarding alleged benefits
Plaintiff received due to the transaction, indicating that it determined that there was
insufficient evidence presented to find that the investment gains and tax implications of an
indeterminate withdrawal in the future necessitated reduction of Plaintiff’s damages award.
Thus, Defendants did not meet their burden to offset Plaintiff’s damages award.
B. Interest and Penalties Were Properly Included in the Damages Award
{15} Finally, although we have already concluded that the district court properly included
interest incurred by Plaintiff in the damages award, we briefly address Defendants’ argument
that Plaintiff is not entitled to recover the penalties and interest associated with the tax
liability because Defendants were not the cause of Plaintiff’s failure to timely pay the taxes.
See Topmiller v. Cain, 1983-NMCA-005, ¶ 19, 99 N.M. 311, 657 P.2d 638 (“Compensatory
damages are recoverable if they proximately result from a violation of a legally-recognized
right of the person seeking the damages[.]” (internal quotation marks and citation omitted)).
The district court found that Plaintiff was not notified that Genworth reported the amount
to the IRS as taxable income until the IRS sent Plaintiff a notification letter seventeen
months after he withdrew from the annuity. The IRS sought an early withdrawal penalty tax
of $12,860, an accuracy penalty of $12,860, and interest payments in the amount of $4,179
and $262. The district court found that after Plaintiff received the notification, he met with
Garrett. During that meeting, Garrett called a Genworth representative, who explained to
Garrett and Plaintiff why the withdrawal was properly reported as taxable income.
Defendants, however, subsequently refused to aid Plaintiff in obtaining a penalty waiver
after Plaintiff requested that Defendants provide the IRS with confirmation that they had
provided erroneous advice. These findings properly support the district court’s conclusion
that the interest and penalties resulted from Defendants’ misrepresentation both because the
penalties and interest were a natural consequence of the misrepresentation and because
Defendants refused to assist Plaintiff in obtaining a penalty waiver. Defendants do not
challenge the sufficiency of the evidence supporting these findings, and we therefore affirm
the district court’s inclusion of the interest and penalties in the damages award on this basis
as well. See Griffin v. Guadalupe Med. Ctr., Inc., 1997-NMCA-012, ¶ 7, 123 N.M. 60, 933
P.2d 859 (“The trial court’s findings not properly attacked are conclusive on appeal.”).
6
II. Unfair Practices Act
{16} Defendants argue that the district court erred in concluding that the UPA applied
under the facts of this case because the transaction at issue did not involve the sale of a good
or service. More specifically, Defendants argue that Plaintiff never purchased goods or
services from Defendants because Plaintiff did not pay Defendants for the incorrect financial
advice or for the withdrawal from the annuity. Defendants also argue that to the extent the
representations were found to be in connection with the purchase of the annuity four years
earlier, the annuity—as a security—cannot be considered a “good” and is therefore not
covered by the UPA. The question of whether the UPA applies in this case is a question of
statutory construction that we review de novo. Truong v. Allstate Ins. Co., 2010-NMSC-009,
¶ 22, 147 N.M. 583, 227 P.3d 73.
{17} “The UPA provides that unfair or deceptive trade practices and unconscionable trade
practices in the conduct of any trade or commerce are unlawful.” Hicks v. Eller, 2012-
NMCA-061, ¶ 17, 280 P.3d 304 (alteration, internal quotation marks, and citation omitted).
The three essential elements of a UPA claim are:
(1) the defendant made an oral or written statement, a visual description or
a representation of any kind that was either false or misleading; (2) the false
or misleading representation was knowingly made in connection with the
sale, lease, rental, or loan of goods or services in the regular course of the
defendant’s business; and (3) the representation was of the type that may,
tends to, or does deceive or mislead any person.
Lohman v. Daimler-Chrysler Corp., 2007-NMCA-100, ¶ 5, 142 N.M. 437, 166 P.3d 1091;
see § 57-12-2(D). Because Defendants do not challenge the district court’s findings that the
statements constituted misrepresentations or that the misrepresentations deceived or tended
to deceive Plaintiff, we are concerned here with the second element: whether the
misrepresentation was in connection with the sale of goods or services. See Diversey Corp.
v. Chem-Source Corp., 1998-NMCA-112, ¶ 17, 125 N.M. 748, 965 P.2d 332 (“The
gravamen of an unfair trade practice is a misleading, false, or deceptive statement made
knowingly in connection with the sale of goods or services.”). Accordingly, we are not
faced with the question of whether merely incompetent financial advice can be construed as
a deceitful misrepresentation.
{18} Consistent with the remedial purpose of the UPA and the corresponding liberal
interpretation we accord to its provisions, our prior decisions have utilized a broad
construction of the element “in connection with the sale of goods or services.” Lohman,
2007-NMCA-100, ¶¶ 5, 42 (internal quotation marks and citation omitted); State ex rel.
Stratton v. Gurley Motor Co., 1987-NMCA-063, ¶ 27, 105 N.M. 803, 737 P.2d 1180
(“Because the Unfair Practices Act constitutes remedial legislation, we interpret the
provisions of this Act liberally to facilitate and accomplish its purposes and intent.”). In
Lohman, we stated that “[t]he conjunctive phrase ‘in connection with’ seems designed to
7
encompass a broad array of commercial relationships.” Id. ¶ 21. We have also rejected the
argument that this element can only be satisfied upon a showing that the defendant made a
misrepresentation in the course of selling a product or services to the plaintiff. Id. ¶ 30
(“[The UPA] does [not] require a misrepresentation in the course of a sale between [the]
plaintiff and [the] defendant; it merely requires that a misrepresentation be ‘made in
connection with the sale . . . of goods [or services]’ generally.” (omissions in original)).
{19} Thus, given our liberal construction of the provisions of the UPA, we are
unpersuaded by Defendants’ argument that the UPA does not apply because Plaintiff did not
specifically compensate Defendants for the advice or the withdrawal from the annuity. The
district court found that Defendants were compensated for the sale of financial products sold
to Plaintiff and for Garrett’s provision of financial advising services. Defendants do not
attack these findings, and it is sufficient for the UPA that Defendants received compensation
for the goods and services provided to Plaintiff, even if the compensation was received at
a time prior to the misrepresentation, provided that it occurred in connection with the
commercial relationship for which Defendants were compensated. See id. ¶ 32 (stating that
the UPA merely “contemplates a plaintiff who seeks or acquires goods or services and a
defendant who provides goods or services” (internal quotation marks and citation omitted)).
Garrett’s misrepresentation occurred in the context of this broader commercial relationship,
which included the provision of financial advice regarding investments Plaintiff made
through Defendants. It is immaterial that Plaintiff did not specifically compensate
Defendants for financial advising services where Defendants received compensation from
third parties (e.g., from Genworth for the annuity in question) for investment advice that led
to Plaintiff’s purchase of their products. Hicks, 2012-NMCA-061, ¶ 20 (“We understand
[Lohman] to mean that the plaintiff does not necessarily have to purchase the product from
the defendant, but that somewhere along the purchasing chain, the [plaintiff] did purchase
an item that was at some point sold by the defendant.”).
{20} Defendants argue that, even if they provided financial advising services to Plaintiff,
those services were not the main purpose of their commercial relationship with Plaintiff.
Instead, they contend that the primary purpose was the sale of the Genworth annuity. We
are not persuaded. In hiring Defendants to manage his securities account, Plaintiff was
implicitly seeking Defendants’ advice about various investment products and, ultimately,
their advice about the benefits of the annuity at issue. Defendants’ advice about the tax
consequences of withdrawing funds from the annuity was interrelated with the overall
investment advice that Defendants provided and that Plaintiff purchased in the course of
their business relationship.
{21} We need not resolve Defendants’ second argument that the UPA does not apply
because securities do not constitute “goods” under the UPA. Defendants note a number of
cases supporting the assertion that consumer protection statutes do not apply to securities
transactions. See, e.g., Bowen v. Ziasun Techs., Inc., 11 Cal. Rptr. 3d 522, 529-32 (Ct. App.
2004) (holding that securities transactions are not covered under California’s consumer
protection statute); Crowell v. Morgan, Stanley, Dean Witter Servs. Co., 87 F. Supp. 2d
8
1287, 1294-95 (S.D. Fla. 2000) (holding that securities transactions are not within the scope
of Florida’s deceptive trade practices act). However, these cases are distinguishable. The
majority of these cases are securities fraud cases in which the security transaction itself was
the basis of the plaintiff’s complaint. See Skinner v. E.F. Hutton & Co., 333 S.E.2d 236
(N.C. 1985). In this case, Garrett’s misrepresentative financial advice formed the basis of
Plaintiff’s complaint. Defendants cite no authority that financial advisors are exempt from
consumer protection statutes. Nor do Defendants argue that financial advising does not
constitute a “service” under the UPA. See McElhannon v. Ford, 2003-NMCA-091, ¶ 17,
134 N.M. 124, 73 P.3d 827 (“The word ‘services’ is generally understood to mean work
done by one person at the request of another.” (internal quotation marks and citation
omitted)). Thus, even if we were to conclude that securities transactions are not “goods”
under the UPA, it would not lead to the conclusion that the UPA is inapplicable to this case.
See § 57-12-2(D) (defining an unfair or deceptive trade practice as one “made in connection
with the sale . . . of goods or services”).
CONCLUSION
{22} For the foregoing reasons, we affirm the district court’s judgment.
{23} IT IS SO ORDERED.
CYNTHIA A. FRY, Judge
I CONCUR:
J. MILES HANISEE, Judge
JONATHAN B. SUTIN, Judge (concurring in part and dissenting in part).
SUTIN, Judge (concurring in part and dissenting in part).
{24} I concur in all but the majority’s UPA analysis and holding, with respect to which,
I respectfully dissent.
{25} The tax advice at issue related to a variable annuity. The advice was not given to
induce or consummate a sale of anything. There exists no evidence that the advice was
given for any compensation or income growing out of the sale of the variable annuity.
Furthermore, the advice was given long after the sale of the variable annuity.
{26} The tax advice unquestionably was not a “good.” It was not given in connection with
the sale of goods. The variable annuity at issue is a security or is in the nature of a security.
9
See Sec. & Exch. Comm’n v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65, 66, 71
(1959) (holding that companies who offered their annuity contracts to the public were
subject to federal securities laws); Gilmore v. Mony Life Ins. Co. of Am., 165 F. Supp. 2d
1276, 1280 (M.D. Ala. 2001) (observing that the Supreme Court, in Securities & Exchange
Commission, held that variable annuities are securities subject to the commission’s
registration requirements); N.M. Life Ins. Guar. Ass’n v. Quinn & Co., 1991-NMSC-036, ¶
15 n.5, 111 N.M. 750, 809 P.2d 1278 (adopting federal precedent in construing the New
Mexico definition of “security”). A variable annuity, like a security, does not come within
the ambit of “goods.” See Estate of Migliaccio v. Midland Nat’l Life Ins. Co., 436 F. Supp.
2d 1095, 1108-09 (C.D. Cal. 2006) (holding that, under California Consumers Legal
Remedies Act, annuities are not goods or services); State ex rel. McGraw v. Bear, Stearns
& Co., 618 S.E.2d 582, 585-86 (W. Va. 2005) (stating that securities are “instruments” not
“goods” in the context of West Virginia’s consumer protection statute); cf. Cottonwood Fin.
Ltd. v. Cash Store Fin. Servs., Inc., 778 F. Supp. 2d 726, 738 (N.D. Tex. 2011) (“Stocks, like
other securities, are not goods.”); Hand v. Dean Witter Reynolds, Inc., 889 S.W.2d 483, 486-
87, 496-97 (Tex. App. 1994) (holding that intangibles, including commodity option
contracts, are not “goods” as that term is defined by the Texas Deceptive Trade
Practices—Consumer Protection Act).
{27} The majority hinges its UPA applicability on an analysis that connects the tax advice
to the annuity transaction. Majority Op. ¶¶ 18-19.2 There is no connection to be had. The
tax advice was not an independent sale of services. Nor was it given in connection with a
sale of a service. Nor was it incidental to the annuity purchase. The advice at best was
simply related to the Plaintiff’s ownership of the variable annuity and Plaintiff’s plan to
surrender part of the annuity to use the funds for another investment. Even if some
continuing relationship between the advice and the annuity transaction could be found, the
advice was so incidental and remote that it cannot come within the UPA. See McGraw, 618
S.E.2d at 586 (“Clearly, the service of providing investment advice and analyses is so
ancillary or subsidiary to the buying and selling of securities, it is only reasonable to
conclude that such conduct does not fall within the scope of the consumer-type transactions
governed by the consumer protection act.”); see generally Hand, 889 S.W.2d at 499
2
The district court adopted verbatim Plaintiff’s requested finding that “Defendant . . .
Garrett received financial compensation in connection with the sale of financial products”
sold to Plaintiff and for Garrett’s provision of “financial advisor services[.]” The majority
reads this finding to mean that “Defendants received compensation for the goods and
services provided to Plaintiff[.]” Majority Op. ¶ 18. I see no basis on which to conclude
from the district court’s broad, if not ambiguous, finding that the court found that Defendants
received compensation in April 2002 (when the annuity purchase occurred) for any tax
advice that might happen to be given some time in the future, here, five and one-half years
later, in or about October 2007. The majority points out that Defendants did not specifically
attack this unclear finding. Majority Op. ¶ 18. In my view, reliance on the finding creates
bad law—expansion of the UPA beyond its intended limit.
10
(recognizing that to some extent all transactions involve human service, the cost of which
is included in the price of the transaction; however, where the acquisition of that service is
not the main objective of the transaction, consumer protection laws do not apply); cf.
Thomas v. Metro. Life Ins. Co., 631 F.3d 1153, 1160, 1166 (10th Cir. 2011) (distinguishing
investment advisers, who give advice for its own sake, who are specifically hired to do so,
and for which advice the adviser receives special compensation from broker-dealers who
receive brokerage commissions for transactions involving incidental investment advice, and
recognizing that advice about the value of securities, the advisability of purchasing or selling
securities, is solely incidental to the conduct of a broker-dealer’s business). Any such
incidental, remote relationship between the purchase of the annuity and the tax advice given
years later related to a partial surrender of the annuity should not bring mere tax advice
within the scope of the UPA.
{28} I am not aware of any New Mexico authority or a reasoned analysis of legislative
intent that would support viewing such advice as being covered by the UPA. Cf. Grassie v.
Roswell Hosp. Corp., 2011-NMCA-024, ¶ 85, 150 N.M. 283, 258 P.3d 1075 (recognizing
that the application of unfair trade practices laws to legal, medical, and other professionals
is limited to entrepreneurial aspects of practices such as advertising, solicitation of business,
and billing practices). The extension of the UPA to cover the tax advice as a “sale . . . of .
. . services” goes beyond what the Legislature could have intended. See § 57-12-2(D).
{29} I suspect that a study of case law will indicate that knowingly made
misrepresentations3 relating to securities and to advice given by professionals are more than
adequately covered by securities laws and malpractice claims and are not in need of a
broadening of the UPA to cover a circumstance like that in the case before us.
JONATHAN B. SUTIN, Judge
3
It does not appear that Defendants contested liability on the ground that the
misrepresentations were not made “knowingly” and, thus, intentionally under Section 57-12-
2(D).
11