ILLINOIS CONSUMER LAW
Daniel A. Edelman
EDELMAN, COMBS & LATTURNER, LLC
October 15, 2002
Copyright Daniel A. Edelman 2002
Daniel A. Edelman is the founding partner of Edelman, Combs & Latturner, a 14-attorney firm that represents injured consumers and investors. Edelman, Combs & Latturner brings both individual and class actions on behalf of people injured by home improvement frauds, the purchase of "lemon" automobiles, automobile lease overcharges, illegal repossession practices, mortgage overcharges (such as escrow, late payment and interest computations, illegal collection practices, excessive points on second mortgages), and similar violations.
Daniel A. Edelman is a 1976 graduate of the University of Chicago Law School. From 1976 to 1981 he was an associate at the Chicago office of Kirkland & Ellis with heavy involvement in the defense of consumer class action litigation (such as the General Motors Engine Interchange cases). In 1981 he became an associate at Reuben & Proctor, a medium-sized firm formed by some former Kirkland & Ellis lawyers, and was made a partner there in 1982. From the end of 1985 he has been in private practice in downtown Chicago. Virtually all of his practice involves litigation on behalf of consumers. He is the author or coauthor of numerous publications on class actions and consumer protection law, including Predatory Lending Litigation in Illinois (2001); Consumer Class Action Manual (2d-5th editions), National Consumer Law Center 1990-2002; Payday Loans: Big Interest Rates and Little Regulation, 11 Loy.Consumer L.Rptr. 14 (1999); Fair Debt Collection Practices Act Update -- 1999, Chicago Bar Ass=n 1999; An Overview of The Fair Debt Collection Practices Act, in Financial Services Litigation, Practicing Law Institute (1999); Consumer Fraud and Insurance Claims, in Bad Faith and Extracontractual Damage Claims in Insurance Litigation, Chicago Bar Ass'n 1992; Chapter 8, "Fair Debt Collection Practices Act," Ohio Consumer Law (1995 ed.); Fair Debt Collection: The Need for Private Enforcement, 7 Loy.Consumer L.Rptr. 89 (1995); The Fair Debt Collection Practices Act: Recent Developments, 8 Loy.Consumer L. Rptr. 303 (1996); Residential Mortgage Litigation, in Financial Services Litigation, Practicing Law Institute (1996); Automobile Leasing: Problems and Solutions, 7 Loy.Consumer L.Rptr. 14 (1994); Current Trends in Residential Mortgage Litigation, 12 Rev. of Banking & Financial Services 71 (1996); Applicability of Illinois Consumer Fraud Act in Favor of Out-of-State Consumers, 8 Loy.Consumer L.Rptr. 27 (1996); Illinois Consumer Law (Chicago Bar Ass'n 1996).
Mr. Edelman argued Heintz v. Jenkins, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995), the case establishing that the litigation conduct of collection attorneys is subject to the Fair Debt Collection Practices Act, as well as some 50 other federal and state appeals.
I. ILLINOIS CONSUMER FRAUD ACT
A. Section 2 of the Illinois Consumer Fraud Act, 815 ILCS 505/2, provides:
Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact, or the use or employment of any practice described in Section 2 of the "Uniform Deceptive Trade Practices Act," approved August 5, 1965, are hereby declared unlawful whether any person has in fact been misled, deceived or damaged thereby. In construing this section consideration shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to Section 5(a) of the Federal Trade Commission Act.
B. As indicated, '2 was patterned after '5(a) of the Federal Trade Commission Act, 15 U.S.C. '45. Section 5 of the FTC Act does not provide for any private right of action.
C. Section 2 of the Uniform Deceptive Trade Practices Act, 815 ILCS 510/2, incorporated by reference in the Consumer Fraud Act, provides:
A person engages in a deceptive trade practice when, in the course of his business, vocation or occupation, he:
(1) passes off goods or services as those of another;
(2) causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services;
(3) causes likelihood of confusion or of misunderstanding as to affiliation, connection or association with or certification by another;
(4) uses deceptive representations or designations of geographic origin in connection with goods or services;
(5) represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation or connection that he does not have;
(6) represents that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used or secondhand;
(7) represents that goods or services are a particular standard, quality or grade or that goods are a particular style or model, if they are of another;
(8) disparages the goods, services or business of another by false or misleading representation of fact;
(9) advertises goods or services with intent not to sell them as advertised;
(10) advertises goods or services with intent not to supply reasonably expectable public demand, unless the advertisement discloses a limitation of quantity;
(11) make false or misleading statements of fact concerning the reasons for, existence of or amounts of price reductions;
(12) engages in any other conduct which similarly creates a likelihood of confusion or of misunderstanding.
In order to prevail in an action under this Act, a plaintiff need not prove competition between the parties or actual confusion or misunderstanding.
This Section does not affect unfair trade practices otherwise actionable at common law or under other statutes of this State.
D. There are some 40 specific prohibitions in the Consumer Fraud Act following '2. Some of the more important are:
1. Pyramid sales prohibited: 815 ILCS 505/2A
2. Right of cancellation for home solicitation sales: 815 ILCS 505/2B. Patterned after FTC regulation (see below), but not as broad.
3. Return of down payment or trade in on rejection of credit application. 815 ILCS 505/2C.
4. "Revolving repossession" or "churning" schemes: disposing of collateral under retail installment contract in manner calculated to increase deficiency. 815 ILCS 505/2G
5. Credit advertising (similar prohibition in Truth in Lending Act, but no private right of action). 815 ILCS 505/2J.
6. Statutory used car warranties. 815 ILCS 505/2L.
7. Until recently, if contract was negotiated in foreign language contract must be furnished in that language. 815 ILCS 505/2N. This has now been substantially watered down.
8. Failure of home improvement contractor to complete work or return money upon demand. 815 ILCS 505/2Q.
9. A contract may not be enforced against a cosigner without giving 15 days' advance notice to the cosigner. 815 ILCS 505/2S provides:
No person may report adverse information to a consumer reporting agency, provide information to a collection agency or take any collection action regarding a cosigner of an obligation unless prior thereto, such person has notified the cosigner by first class mail that the primary obligor has become delinquent or defaulted on the loan, that the cosigner is responsible for the payment of the obligation and that the cosigner must, within 15 days from the date such notice was sent, either pay the amount due under the obligation or make arrangements for payment of the obligation. In the event that the cosigner pays or makes arrangements to pay the obligation, no adverse information shall be reported regarding the cosigner.
Any person violating this Section commits an unlawful practice within the meaning of this Act and, in addition, is liable in a civil action for actual damages of up to $250 plus reasonable attorney's fees.
10. Prohibits advertising of "wholesale prices" unless the advertiser can "substantiate significant savings on his price as compared to identical merchandise offered for sale by retailers in the trade area." 815 ILCS 505/2CC.
11. Section 2D subjects assignees to certain claims and defenses. This has in part been rendered obsolete by the FTC regulation on the same subject, 16 C.F.R. part 433 (discussed below).
E. Violations of other statutes are specifically defined as violations of the Consumer Fraud Act:
1. 815 ILCS 505/2E: Commission of three or more violations in a calendar year of:
a. Consumer Installment Loan Act, 205 ILCS 670/1 et seq.
b. Retail Installment Sales Act, 815 ILCS 405/1 et seq.
c. Motor Vehicle Retail Installment Sales Act, 815 ILCS 375/1 et seq.
d. Interest Act, 815 ILCS 205/0.01 et seq.
e. Wage Assignment Act, 740 ILCS 170/.01 et seq.
f. Garnishment restrictions in Code of Civil Procedure
Most of these other statutes are discussed below.
There is a conflict between Appellate Court districts as to whether the adjudication of the multiple violations can be made in the present action or has to have occurred previously. Fidelity Financial Services, Inc. v. Hicks, 214 Ill.App.3d 398, 574 N.E.2d 15 (1st Dist. 1991), leave to appeal denied, 141 Ill.2d 539, 580 N.E.2d 112 (1991); Smith v. Sears, Roebuck & Co., 95 Ill.App.3d 174, 419 N.E.2d 673 (4th Dist. 1981) (divided panel).
Furthermore, in Robinson v. Toyota Motor Credit Corp., No. 90242, 201 Ill.2d 403, 2002 WL 1038728 (May 23, 2002), the court held that the prohibition of unfair practices covers conduct which violates, or comes close to violating, other statutes, not specifically enumerated.
2. Willful and material violation of any Illinois consumer credit statute: 815 ILCS 505/2F. Picks up some federal violations as well because the regulations under the Sales Finance Agency Act require compliance with certain federal laws. (See below)
3. 815 ILCS 505/2Z makes a "knowing" violation of the following statutes a violation of the Consumer Fraud Act:
a. Dance Studio Act, 815 ILCS 610/1 et seq.
b. Physical Fitness Services Act, 815 ILCS 645/1 et seq.
c. Hearing Instrument Consumer Protection Act, 225 ILCS 50/1 et seq.
d. Illinois Union Label Act, 815 ILCS 425/1 et seq.
e. Job Referral and Job Listing Services Consumer Protection Act, 815 ILCS 630/1 et seq.
f. Travel Promotion Consumer Protection Act, 815 ILCS 420/1 et seq.
g. Credit Services Organizations Act, 815 ILCS 605/1 et seq. (discussed below).
h. Home Repair and Remodeling Act, 815 ILCS 513/1 et seq.
i. Safe and Hygienic Bed Act, 225 ILCS 50/1 et seq.
j. Subsection (a) or (b) of Section 3-10 of the Cigarette Tax Act and subsection (a) or (b) of Section 3-10 of the Cigarette Use Tax Act, 815 ILCS 390/1 et seq. and 35 ILCS 130/3-10.
k. Electronic Mail Act, 815 ILCS 511/1 et seq.
l. Automatic Telephone Dialers Act, 815 ILCS 305/1 et seq.
m. Pay‑Per‑Call Services Consumer Protection Act, 815 ILCS 520/1 et seq.
n. Telephone Solicitations Act, 815 ILCS 413/1 et seq.
o. Automotive Repair Act, 815 ILCS 306/1 et seq.
p. Illinois Funeral or Burial Funds Act, 225 ILCS 45/1 et seq.
q. Cemetery Care Act, 760 ILCS 100/1 et seq.
r. Pre‑Need Cemetery Sales Act, 815 ILCS 413/1 et seq.
F. Finally, the Illinois Supreme Court has adopted a definition of unfair practice that includes conduct that violates public policy, as defined by other statutes and regulations, injures consumers, and cannot reasonably be avoided by consumers.
G. Illinois Attorney General Regulations
a. Buyers clubs: 14 Ill. Adm. Code part 460
b. Retail advertising: 14 Ill. Adm. Code part 470
c. Automobile sales/ lease practices: 14 Ill. Adm. Code part 470. Important provisions:
(1) 14 Ill. Adm. Code 475.210 requires disclosure of "all material terms and conditions relating to the offer clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the offering might be misunderstood. Material terms include, without limitation, those mandated by federal law including, but not limited to, those Acts listed in Section 475.250, or state law, or without which the advertisement would be false or misleading."
(2) 14 Ill.Adm. Code 475.310 makes it unlawful "to advertise the total price of a motor vehicle without including in the advertised price all costs to the purchaser at the time of sale, or which are necessary or usual prior to delivery of such vehicle to the purchaser, including any costs of delivery, dealer preparation and any other charges of any nature; provided, however, taxes, license and title fees and a documentary service fee, as defined herein, may be excluded from the advertised price if clearly disclosed in the advertisement that these costs are excluded from the advertised price."
(3) 14 Ill. Adm. Code 475.410 regulates use of "Dealer Cost" and "Invoice" in advertising.
(4) 14 Ill. Adm. Code 475.580 makes it unlawful "for a dealer to negotiate the terms of a sale and thereafter add the cost of items including, without limitation, extended warranties, credit life, dealer preparation, or undercoating, to the contract without previously disclosing same to the consumer and without the consumer's consent."
H. APPLICABILITY
1. Section 2 covers unfair methods of competition and unfair or deceptive acts or practices "in the conduct of any trade or commerce . . . ."
2. Section 1(f) defines "trade" and "commerce" to mean "the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situated, and shall include any trade or commerce directly or indirectly affecting the people of this State."
3. This language should be construed to cover violations committed by an Illinois business, regardless of where the victim is located, and was so construed in Martin v. Heinold Commodities, 117 Ill.2d 772, 510 N.E.2d 840 (1987); and Gordon v. Boden, 224 Ill.App.3d 195, 586 N.E.2d 461 (1st Dist. 1991), leave to appeal denied. However, in Oliveira v. Amoco Oil Co., 311 Ill.App.3d 886, 726 N.E.2d 51 (4th Dist. 2000), appeal pending, the court held that the CFA only protected Illinois consumers. People of the state@ means any conduct affecting the sovereign interests of the state of Illinois -- the sense it is used in an indictment -- and not particular individuals within the state of Illinois.
4. Section 1(a) defines "advertisement" to "include[] the attempt by publication, dissemination, solicitation or circulation to induce directly or indirectly any person to enter into any obligation or acquire any title or interest in any merchandise and includes every work device to disguise any form of business solicitation by using such terms as 'renewal', 'invoice', 'bill', 'statement', or 'reminder', to create an impression of existing obligation when there is none, or other language to mislead any person in relation to any sought after commercial transaction".
5. "Merchandise" is defined in '1(b) to include "any objects, wares, goods, commodities, intangibles, real estate situated outside the State of Illinois, or services".
6. Leases are covered as well as sales. Duncavage v. Allen, 147 Ill.App.3d 88, 497 N.E.2d 433 (1st Dist. 1986), leave to appeal denied, 505 N.E.2d 352 (Ill. 1987); Carter v. Mueller, 120 Ill.App.3d 314, 457 N.E.2d 1335 (1st Dist. 1983); People ex rel. Fahner v. Hedrich, 108 Ill.App.3d 83, 438 N.E.2d 924 (2d Dist. 1982); People ex rel. Fahner v. Testa, 112 Ill.App.3d 834, 445 N.E.2d 1249 (1st Dist. 1983); Johnson v. Steven Sims Subaru and Subaru Leasing, 92 C 6355, 1993 WL 761231, 1993 U.S.Dist. LEXIS 8078 (N.D.Ill. June 9, 1993); Kedziora v Citicorp Nat'l Servs., 780 F.Supp. 516 (N.D. Ill. 1991).
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7. There were a couple of cases stating that the Consumer Fraud Act did not apply to banking practices, In re Estate of Szorek, 194 Ill.App.3d 750, 551 N.E.2d 697 (1st Dist. 1990), but these have now been repudiated, Law Offices of Wm. J. Stogsdill v. Cragin Fed. Bank for Savings, 268 Ill App.3d 433, 645 N.E.2d 564 (2d Dist. 1995); Brown v. C.I.L., Inc., 1996 U.S.Dist. LEXIS 4917 (N.D.Ill. 1996), adopted, 94 C 1479, 1996 WL 164294, 1996 U.S.Dist. LEXIS 4053 (N.D.Ill. April 1, 1996).
8. The statute does not apply to a claim by a client against an attorney for malpractice, Frahm v. Urkovich, 113 Ill.App.3d 580, 447 N.E.2d 1007 (1st Dist. 1983); Guess v. Brophy, 164 Ill.App.3d 75, 517 N.E.2d 693 (4th Dist. 1987), leave to appeal denied, 121 Ill.2d 569, 526 N.E.2d 830 (1988); Lurz v. Panek, 172 Ill.App.3d 915, 527 N.E.2d 663 (2d Dist. 1988), or to similar claims by patients against health care providers, Feldstein v. Guinan, 148 Ill.App.3d 610, 499 N.E.2d 535 (1st Dist. 1986), but has been held to apply to the commercial aspects of the provision of health care, such as secret payments for referrals. Gadson v. Newman, 807 F.Supp. 1412 (C.D.Ill. 1992); Dimensions Medical Ctr. v. Principal Fin. Group, 93 C 6264, 1995 U.S. Dist. LEXIS 1420 (N.D.Ill. 1995), later opinion, 1996 WL 494229, 1996 U.S.Dist. LEXIS 12,051 (N.D.Ill. Aug. 21, 1996); Sullivan's Whsle. Drug Co. v. Faryl's Pharmacy, Inc., 214 Ill.App.3d 1073, 573 N.E.2d 1370 (5th Dist. 1991), leave to appeal denied, 141 Ill.2d 561, 580 N.E.2d 136 (1991).
9. There is some ambiguity in the definitions as to whether the sale of Illinois real estate is covered, because '1(b) states that "The term 'merchandise' includes any objects, wares, goods, commodities, intangibles, real estate situated outside the State of Illinois, or services," but the better view is that it is covered. City of Aurora v. Green, 126 Ill.App.3d 684, 467 N.E.2d 610 (2d Dist. 1984); Randels v. Best Real Estate, Inc., 243 Ill.App.3d 801, 612 N.E.2d 984 (2d Dist. 1993). Contra: Maguire v. Holcomb, 169 Ill.App.3d 238, 523 N.E.2d 688 (5th Dist. 1988). Numerous cases, including Supreme Court decisions, assume that it is covered. Siegel v. Levy Organization Development Co., 153 Ill.2d 534, 607 N.E.2d 194 (1992); Breckenridge v. Cambridge Homes, Inc., 246 Ill.App.3d 810, 822‑23, 616 N.E.2d 615 (1993), leave to appeal denied, 152 Ill.2d 555, 622 N.E.2d 1201 (1993); Tan v. Boyke, 156 Ill.App.3d 49, 59‑60, 508 N.E.2d 390 (2d Dist. 1987), leave to appeal denied, 116 Ill. 2d 577, 515 N.E.2d 127 (1987).
10. There are decisions holding that one must be a "consumer" to bring suit under the general provisions of ''2 and 10a of the Consumer Fraud Act. Norton v. City of Chicago, 267 Ill.App.3d 507, 642 N.E.2d 839 (1st Dist. 1994), leave to appeal denied, 161 Ill.2d 529, 649 N.E.2d 418 (1995) (private citizens who were dunned for excessive amounts for parking violations by debt collection firm held to lack standing because they were not consumers). However, this conclusion is not justified by the text of the statute (certain provisions, such as '2B, are limited to consumer transactions, but neither '2 nor '10a is so limited), and there are a larger number of cases from the same Appellate Court districts and divisions holding that non-consumers can sue.
11. For example, it is clear that one business can bring suit against another under the Act for unfair competition. Empire Home Servs., Inc. v. Carpet Am., Inc., 274 Ill.App.3d 666, 653 N.E.2d 852 (1st Dist. 1995), appeal denied, 163 Ill.2d 553, 657 N.E.2d 619 (1995); Downers Grove Volkswagen, Inc. v. Wigglesworth Imports, Inc., 190 Ill.App.3d 524, 546 N.E.2d 33 (2d Dist. 1989); Zinser v. Rose, 245 Ill.App.3d 881, 614 N.E.2d 1259 (3d Dist. 1993); Sullivan's Whsle. Drug Co. v. Faryl's Pharmacy, Inc., supra, 214 Ill.App.3d 1073, 573 N.E.2d 1370 (5th Dist. 1991), leave to appeal denied, 141 Ill.2d 561, 580 N.E.2d 136 (1991); P.I.A. Mich. City, Inc. v. National Porges Radiator Corp., 789 F. Supp. 1421 (N.D. Ill. 1992); Gadson v. Newman, 807 F.Supp. 1412 (C.D.Ill. 1992); Coca‑Cola Co. v. Alma‑Leo U.S.A., Inc., 719 F.Supp. 725 (N.D.Ill. 1989); Web Communications Group, Inc. v. Gateway 2000, Inc., 889 F.Supp. 316 (N.D.Ill. 1995); Adams v. Advanta Mortgage Corp. Midwest, 88 A 216 (Bkcy., N.D.Ill. 1989); Pain Prevention Lab, Inc. v. Electronic Waveform Labs, Inc., 657 F.Supp. 1486 (N.D.Ill. 1987); Uniroyal Goodrich Tire Co. v. Mutual Trading Corp., 749 F.Supp. 869 (N.D.Ill. 1990); Industrial Specialty Chemicals v. Cummins Engine Co., 902 F. Supp. 805 (N.D.Ill. 1995), later opinion, 918 F.Supp. 1173 (N.D.Ill. 1996). The court in Sullivan's held that "the protections of the statute are not limited to consumers. That this is so is made clear by the full title of the Act itself, which indicates that it is 'An Act to protect consumers and borrowers and businessmen against fraud, unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce . . . .'" (214 Ill.App.3d at 1082, 573 N.E.2d at 1370) Another court stated: "Recently, courts have specifically held that standing to sue under the Fraud Act is not limited to consumers. . . . The conclusion reached by these courts is fully supported by the explicit language of the statute and is in accord with the Illinois Supreme Court's interpretation thereof." Scotsman Group v. Mid‑America Distribs., 1994 U.S. Dist. LEXIS 4127 (N.D.Ill. 1994), *17. Another court explained: "As is apparent from its name, The Consumer Fraud Act is fundamentally concerned with protecting consumers. . . . In spite of this fact, a plaintiff need not be a consumer to proceed under the Act. See 815 ILCS 505/1(c). However, when both parties to the suit are commercial entities which are not consumers the test for standing is whether the alleged conduct invokes trade practices addressed to the market generally or otherwise implicates consumer protection concerns." Stepan v. Winter Panel Corp., 948 F. Supp. 802, 805-06 (N.D. Ill. 1996).
12. The decisions requiring that the plaintiff be a consumer may have originated prior to the express enactment of a private right of action in 1973. During that period, courts implied a private right of action, Rice v. Snarlin, 131 Ill.App.2d 434, 440-2, 266 N.E.2d 183 (1st Dist. 1970), but inferred from the existence of the definition of "consumer" that one be a "consumer" to sue. Steinberg v. Chicago Medical School, 69 Ill.2d 320, 328, 371 N.E.2d 634 (1977); People ex rel. Scott v. Cardet Int'l, Inc., 24 Ill.App.3d 740, 321 N.E.2d 386 (1st Dist. 1974). It appears that some courts continued to refer to these cases even though the cause of action enacted by the legislature in 1973 ('10a) runs in favor of any "person" affected by a violation.
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13. Privity between the plaintiff and defendant is not required. Elder v. Coronet Ins. Co., 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990), appeal withdrawn, Elder v. Coronet Ins. Co., 139 Ill.2d 594, 575 N.E.2d 913 (1991) (in action complaining of use of polygraph tests to process insurance claims, suit could be brought by insured against claims processor as well as insurer, although insured had only contracted with insurer); Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 675 N.E.2d 584 (1996) (consumer fraud claim stated against manufacturer of vehicle purchased through dealer for false statements in advertising); Ramson v. Layne, 668 F.Supp. 1162 (N.D.Ill. 1987) (liability of endorser).
14. Debt collection is covered by the Act. People ex rel. Daley v. Datacom Sys. Corp., 146 Ill.2d 1, 585 N.E.2d 51 (1991); Brown v. C.I.L., Inc., 1996 U.S.Dist. LEXIS 4917 (N.D.Ill. 1996), adopted, 94 C 1479, 1996 WL 164294, 1996 U.S.Dist. LEXIS 4053 (N.D.Ill. April 1, 1996).
I. STANDARD OF DECEPTION
1. The basic elements of a deception claim are (1) a deceptive act or practice, (2) at least if an omission is concerned, defendant's intent that the plaintiff rely on the deception, and (3) that the deception occurred in the course of conduct involving trade or commerce. Siegel v. Levy Org. Dev. Co., 153 Ill.2d 534, 607 N.E.2d 194, 198 (1992); Brandt v. Time Ins. Co., 302 Ill.App.3d 159, 704 N.E.2d 843, 946 (1st Dist. 1998); Vance v. National Benefit Ass'n, 99 C 2627, 1999 WL 731764, 1999 U.S.Dist. LEXIS 13846 (N.D.Ill. Aug. 30, 1999), *13; Shields v. Lefta, Inc., 888 F. Supp. 891 (N.D. Ill. 1995); Bankier v. First Fed. Sav. & Loan Ass'n, 225 Ill.App.3d 864, 588 N.E.2d 391 (4th Dist.), leave to appeal denied, 146 Ill.2d 622, 602 N.E.2d 446 (1992).
2. The test of "deception" is whether a representation "creates the likelihood of deception or has the capacity to deceive" the persons exposed to the practice in the particular case. Elder v. Coronet Ins. Co., 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990), appeal withdrawn, Elder v. Coronet Ins. Co., 139 Ill.2d 594, 575 N.E.2d 913 (1991); Williams v. Bruno Appliance & Furniture Mart, Inc., 62 Ill.App.3d 219, 222, 379 N.E.2d 52, 54 (1st Dist. 1978); Beard v. Gress, 90 Ill.App.3d 622, 625, 413 N.E.2d 448 (4th Dist. 1980).
3. The Consumer Fraud Act imposes an affirmative duty to disclose material facts pertaining to a transaction. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 675 N.E.2d 584 (1996). "Under the Act the omission of any material fact is deceptive conduct." Crowder v. Bob Oberling Enterprises, Inc., 148 Ill.App.3d 313, 317, 499 N.E.2d 115 (1st Dist. 1986); Simeon Mgmt. Corp. v. FTC, 579 F.2d 1137, 1145 (9th Cir. 1978) ("Failure to disclose material information may cause an advertisement to be false or deceptive within the meaning of the FTCA [Federal Trade Commission Act] even though the advertisement does not state false facts"); J. B. Williams Co. v. FTC, 381 F.2d 884, 888 (6th Cir. 1967) (court found a violation of FTCA '5 based on the manufacturer's failure to disclose that "Geritol" was useful only to individuals who were deficient in one of the vitamins or minerals contained in the product and required affirmative disclosure of "the negative fact that a great majority of persons who experience these symptoms do not experience them because there is a vitamin or iron deficiency").
4. Thus, material omissions are actionable even if no duty to disclose the omitted information, other than that imposed by the Consumer Fraud Act itself, exists. Connick v. Suzuki Motor Co., supra, 174 Ill.2d 482, 675 N.E.2d 584 (1996); Celex Group v. Executive Gallery, 877 F.Supp. 1114 (N.D. Ill. 1995), citing Totz v. Continental Du Page Acura, 236 Ill.App.3d 891, 602 N.E.2d 1374 (2d Dist. 1992) (car dealer has duty to disclose that vehicle has been previously damaged in an accident). The common-law restriction of liability to affirmative misrepresentation, as opposed to nondisclosure, has been abolished. Indeed, one of the specific problems that CFA '2 and other state statutes patterned after FTCA '5 were intended to solve was the common‑law rule that a seller had no affirmative duty to disclose material information relating to the product or service sold. Note, The Seller's Duty to Disclose Under Consumer Protection Statutes: Defining the Standard of Care, 17 Suff.U.L.R. 722 (1983).
5. The Illinois courts have held that where there is a dispute concerning the construction of a statute, noncompliance does not constitute a CFA violation until the statute has been construed. Lee v. Nationwide Cassell, LP, 174 Ill.2d 540, 675 N.E.2d 599 (1997); Stern v. Norwest Mortgage, Inc., 179 Ill.2d 160, 688 N.E.2d 99 (1997).
6. A matter is "material" if it might cause a consumer to act differently. Kleidon v. Rizza Chevrolet, Inc., 173 Ill.App.3d 116, 527 N.E.2d 374 (1st Dist. 1988), leave to appeal denied, 123 Ill.2d 559, 535 N.E.2d 402 (1988). "Materiality" is objective, to be determined according to the standard of the population to which the defendant's practices are directed. Heastie v. Community Bank of Greater Peoria, 690 F.Supp. 716 (N.D.Ill. 1988), later opinion, 125 F.R.D. 669 (N.D.Ill. 1989), later opinion, 727 F. Supp. 1133 (N.D.Ill. 1989), later opinion, 727 F.Supp. 1140 (N.D.Ill. 1989); Mother Earth, Ltd. v. Strawberry Camel, Ltd., 72 Ill.App.3d 37, 52, 390 N.E.2d 393, 406 (1st Dist. 1979), appeal after remand 98 Ill.App.3d 518, 424 N.E.2d 758 (1st Dist 1981). Note that this does not mean that the consumer would not have entered into the transaction at all, just that something different would have happened. Thus, small overcharges obtained through deception or unfair practices are actionable. People ex rel. Hartigan v. Stianos, 131 Ill.App.3d 575, 475 N.E.2d 1024 (2d Dist. 1985).
7. Even the "unthinking, the ignorant and the credulous" are protected from deceptive conduct, Williams, supra, quoting from Rodale Press, Inc., 71 F.T.C. 1184, 1237-38 (1967). Accordingly, lack of due diligence on the part of the injured party is no defense. Zimmerman v. Northfield Real Estate, Inc., 156 Ill.App.3d 154, 168, 510 N.E.2d 409 (1st Dist. 1986), appeal denied, 116 Ill.2d 578, 515 N.E.2d 129 (1987); Beard v. Gress, supra, ("neither the mental state of the person making a misrepresentation nor the diligence of the party injured to check as to the accuracy of the misrepresentation [is] material to the existence of a cause of action for that misrepresentation"); Carter v. Mueller, 120 Ill.App.3d 314, 320, 457 N.E.2d 1335 (1st Dist. 1983).
8. Deception is evaluated from the perspective of an unsophisticated consumer. FTC v. Standard Education Society, 302 U.S. 112, 115 (1937) ("The fact that a false statement may be obviously false to those who are trained and experienced does not change its character, nor take away its power to deceive others less experienced. . . . Laws are made to protect the trusting as well as the suspicious"); Clomon v. Jackson, 988 F.2d 1314, 1318-1319 (2d Cir. 1993) (the law protects "the vast multitude which includes the ignorant, the unthinking and the credulous," and "in evaluating the tendency of language to deceive," courts and agencies "look not to the most sophisticated readers but rather to the least"); Gammon v. GC Services, 27 F.3d 1254, 1257 (7th Cir. 1994) (following Clomon, standard is that of the "unsophisticated" consumer and protects the average consumer "who is uninformed, naive, or trusting"). As the court in Williams, supra, noted:
It is well established that the test to be used in interpreting advertising is the net impression that it is likely to make on the general populace. [Citations.] It is immaterial that a given phrase considered technically may be construed so as not to constitute a misrepresentation or that a deception is accomplished by innuendo rather than by affirmative misstatement. [Citations.] . . . In sum, the [Federal Trade] Commission's mandate from the courts is to protect the `ignorant, the unthinking, and the credulous.'" 62 Ill.App.3d at 222, 379 N.E.2d at 54, citing, Rodale Press, Inc., 71 F.T.C. 1184, 1237-38 (1967).
9. The fact that an astute consumer could have detected the practice is irrelevant when the fact is that most consumers under the circumstances do not check. For example, in People ex rel. Hartigan v. Stianos, 131 Ill.App.3d 575, 475 N.E.2d 1024 (2d Dist. 1985), the court held that a retailer's practice of charging consumers sales tax in an amount slightly greater than that authorized by law was both deceptive and unfair:
We conclude the practice described in this case is both deceptive and unfair as those terms are used in the Consumer Fraud Act. The sales tax rates which may be charged to consumers have been fixed by statute; the legislature set the tax rate at 1.25%, but the evidence here is that defendants collected an average of 4.75%. While the three sales upon which this case is premised reflect only a few cents in overcharges, it is apparent that similar overcharges, if permitted to continue, could aggregate very substantial losses and injury to the consuming public. It is also unfair to permit the extraction from the consumer of excessive sums under the guise it is a lawful tax. If, as defendants alleged in their answer, the excess sums collected were turned over to the State, defendants' conduct remains unfair and deceptive to the consumers' injury. (475 N.E.2d at 1029)
Obviously, the amount of sales tax is set by law, and a consumer who looked up the statute and then did the computations upon being presented with a cash register tape at the supermarket could detect the overcharge. Of course, consumers generally do not whip out the Revenue Act and a calculator when the clerk rings up their grocery purchase. They simply accept the supermarket's representation of the amount of the tax and pay. Given the context in which the representation was made -- i.e., the normal shopping habits of consumers -- inflating the amount of the tax has the "tendency" and "capacity" to deceive.
Another instructive decision is Linden v. United States, 254 F.2d 560 (4th Cir. 1958), which held that the use of advertising material for phone directory other than Yellow Pages that simulated appearance of Yellow Pages renewals violated the federal mail fraud statute, 18 U.S.C. '1341.
10. Under this standard, a representation is deceptive if it can be interpreted in either a misleading or a nonmisleading manner. Russell v. Equifax A.R.S., 74 F.3d 30 (2d Cir. 1996).
11. Although there is some occasional contrary language in cases, e.g., Duran v. Leslie Oldsmobile, Inc., 229 Ill.App.3d 1032, 594 N.E.2d 1355 (2d Dist. 1992), the common-law fraud requirement of a false statement of fact is eliminated. The statute expressly covers "false pretenses", "false promises", and omissions. For example, the Act prohibits false statements of opinion, Duhl v. Nash Realty, Inc., 102 Ill.App.3d 483, 495, 429 N.E.2d 1267 (1st Dist. 1981), misrepresentations as to future conduct, Buzzard v. Bolger, 117 Ill.App.3d 887, 453 N.E.2d 1129, 1131-2 (2d Dist. 1983), false innuendos, Simeon Mgmt. Corp. v. FTC, 579 F.2d 1137, 1145 (9th Cir. 1978), and other conduct that does not involve an outright false statement of fact.
12. The Illinois legislature has given a "clear mandate . . . that the courts . . . are to utilize the Consumer Fraud Act to the utmost degree in eradicating all forms of deceptive and unfair business practices and to grant appropriate remedies to defrauded consumers." Warren v. LeMay, 142 Ill.App.3d 550, 491 N.E.2d 464, 472 (5th Dist. 1986), later appeal, 144 Ill.App.3d 107, 494 N.E.2d 206 (5th Dist 1986); American Buyers Club of Mt. Vernon v. Honecker, 46 Ill.App.3d 252, 257, 361 N.E.2d 1370, 1374 (5th Dist. 1977); Downers Grove Volkswagen, Inc. v. Wigglesworth Imports, Inc., 190 Ill.App.3d 524, 546 N.E.2d 33 (2d Dist. 1989); Roberts v. Robert V. Rohrman, Inc., 909 F.Supp. 545, 549 (N.D.Ill. 1995). "The best element of business has long since decided that honesty should govern competitive enterprises, and that the rule of caveat emptor should not be relied upon to reward fraud and deception." FTC v. Standard Education Society, 302 U.S. 112, 116 (1937).
13. Whether the failure to disclose matters of law is deceptive has turned on whether the parties had equal access to the information. Randels v. Best Real Estate, Inc., 243 Ill.App.3d 801, 612 N.E.2d 984 (2d Dist. 1993); City of Aurora v. Green, 126 Ill.App.3d 684, 467 N.E.2d 610 (2d Dist. 1984). Where a statute or regulation requires that a seller inform a consumer of his or her rights, the parties do not have equal access to the information. Lee v. Nationwide Cassell, L.P., 277 Ill.App.3d 511, 660 N.E.2d 94 (1st Dist. 1995), rev'd other grounds, 174 Ill. 2d 540, 675 N.E.2d 599 (1996). Affirmative misrepresentation of a consumer's legal rights constitutes an unfair and deceptive practice. Heastie v. Community Bank of Greater Peoria, 727 F.Supp. 1133 (N.D.Ill. 1989) and 727 F.Supp. 1140 (N.D.Ill. 1989); Leardi v. Brown, 394 Mass. 151, 474 N.E.2d 1094 (1985) (landlord's inclusion in lease of provisions prohibited or rendered unenforceable by various consumer protection statutes or judicial decision is an unfair and deceptive practice violative of a statute virtually identical to the Illinois Consumer Fraud Act); People v. McKale, 25 Cal.3d 626, 602 P.2d 731, 159 Cal.Rptr. 811 (1979) (similar); Wiginton v. Pacific Credit Corp., 2 Haw. 435, 634 P.2d 111 (App. 1981) (unlawful for creditor to assert that debtors are liable for attorney's fees where such liability is clearly barred by state law). In the context of debt collection, such misrepresentation is specifically prohibited by the Fair Debt Collection Practices Act.
J. UNFAIRNESS
1. The Illinois Supreme Court has adopted the test of an unfair practice@ set forth in FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244-45 n. 5 (1972); and Cheshire Mortgage Service, Inc. v. Montes, 223 Conn. 80, 612 A.2d 1130 (1992). Robinson v. Toyota Motor Credit Corp., No. 90242, 201 Ill.2d 403, 2002 WL 1038728 (May 23, 2002); Scott v. Association for Childbirth at Home, Int'l, 88 Ill.2d 279, 430 N.E.2d 1012 (1981). The Robinson decision approved and adopted the discussion of unfair practice@ in Cheshire, which held that violations of the Truth in Lending Act and a Connecticut law regulating the number of points that can be charged in residential mortgage transactions established an unfairness violation.
2. In determining whether a practice is "unfair," these decisions consider:
(1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise -- whether, in other words, it is within at least the penumbra of some common-law, statutory or other established concept of unfairness;
(2) whether it is immoral, unethical, oppressive or unscrupulous;
(3) whether it causes substantial injury to consumers (or competitors or other businessmen).
FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244-45 n. 5 (1972).
3. "All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.@ Cheshire Mortgage Service, Inc. v. Montes, 223 Conn. 80, 612 A.2d 1130, 1143-44 (1992).
4. ATo justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided." Cheshire, 612 A.2d at 1447. An overcharge of about $400 was considered substantial injury.@
5. In light of the Supreme Court=s adoption of Cheshire, the Connecticut decisions following it should be considered as precedent. Some of the practices found to be unfair in Connecticut include:
a. Conducting business without compliance with a licensing requirement intended to protect the public. DSM, Inc. v. Sentry Select Ins. Co., 2002 WL 652424 (Conn. Super. March 22, 2002).
b. Forgery or enforcing forged documents. HomeAmerican Credit, Inc. v. Weiss, 2000 WL 347785 (Conn. Super. March 16, 2000).
K. PATTERN REQUIREMENT
1. A 1990 amendment to 815 ILCS 505/10a specified that no such requirement ordinarily exists. The amendment did not effect a substantive change in the law, but merely clarified that there never was a public injury requirement under the statute. Ryan v. Wersi Elec. GmbH & Co., 3 F.3d 174 (7th Cir. 1993), later opinion, 59 F.3d 52 (7th Cir. 1995); Golembiewski v. Hallberg Ins. Agency, Inc., 262 Ill.App.3d 1082, 635 N.E.2d 452 (1st Dist.), leave to appeal denied, 157 Ill.2d 499, 642 N.E.2d 1278 (1994).
2. A 1995 amendment to '10a purported to reinstate a "public injury" requirement with respect to car dealers, only. This was extended to holders of motor vehicle retail installment contracts in 1999. A 2002 Appellate Court decision holds that it violates the special legislation@ prohibition in the Illinois constitution. Allen v. Woodfield Chevrolet, Inc., 332 Ill.App.3d 605, 773 N.E.2d 1145 (1st Dist.2002).
3. There are a number of cases which state that a simple breach of a consumer contract is not a Consumer Fraud Act violation. Bankier v. First Fed. Sav. & Loan, 225 Ill.App.3d 864, 588 N.E.2d 391 (4th Dist. 1992), leave to appeal denied, 146 Ill.2d 622, 602 N.E.2d 446 (1992); Village of Pawnee v. Azzarelli Constr. Co., 183 Ill.App.3d 998, 539 N.E.2d 895 (4th Dist. 1989); Zankle v. Queen Anne Landscaping, 311 Ill.App.3d 308, 311-12, 724 N.E.2d 988, 992 (2d Dist. 2000). These decisions should not be read as imposing a "pattern" requirement, but rather as defining what constitutes a "deceptive" or "unfair" act or practice. A simple dispute over performance of a contract is neither. Golembiewski v. Hallberg Ins. Agency, Inc., 262 Ill.App.3d 1082, 1093, 635 N.E.2d 452 (1st Dist. 1994), leave to appeal denied, 157 Ill.2d 499, 642 N.E.2d 1278 (1994) ("Every individual breach of contract between two parties . . . does not amount to a cause of action cognizable under the Act and the Act should not apply to simple breach of contract claims").
4. However, it is unfair and deceptive for a business to (1) systematically breach or fail to honor obligations under consumer contracts, Orkin Exterminating Co., 108 F.T.C. 263 (1986), aff'd, 849 F.2d 1354 (11th Cir. 1988) (Orkin entered into form contracts with thousands of consumers to conduct annual pest inspections for a fixed fee and later, without authority in the contracts, raised the fees an average of $40; both the FTC and the federal Court of Appeals had no difficulty holding that this action was an unfair practice); People ex rel Hartigan v. All American Aluminum & Construction Co., 171 Ill.App.3d 27, 524 N.E.2d 1067 (1st Dist. 1988) (repeated failure to perform home improvement contracts violated Consumer Fraud Act); or (2) misrepresent or conceal material information concerning its ability or intention to perform a consumer contract, Elder v. Coronet Ins. Co., supra, 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990) (deceptive for insurance company to enter into contracts of insurance without disclosing that it intended to process claims under the contracts by means of "lie detector" tests). Some cases state that "the test for standing is whether the alleged conduct involves trade practices addressed to the market generally or otherwise implicates consumer protection concerns." Lefebvre Intergraphics, Inc. v. Sanden Mach. Ltd., 946 F.Supp. 1358, 1368 (N.D.Ill. 1996); Gadson v. Newman, 807 F. Supp. 1412, 1421 (C.D. Ill. 1992); Industrial Specialty Chemicals, Inc. v. Cummins Engine Co.,, 902 F. Supp. 805, 812 (N.D. Ill. 1995); Zinser v. Rose, 245 Ill.App.3d 881, 886, 614 N.E.2d 1259, 1263 (3d Dist. 1993).
5. While it is not generally necessary for a plaintiff to prove that a defendant acted in violation of the Consumer Fraud Act on other occasions, it is proper for a plaintiff to do so. Bond v. Noble, 163 Ill.App.3d 1067, 517 N.E.2d 319 (4th Dist. 1987). A pattern of violations shows that defendant intended to deceive, which in turn gives rise to an inference that the means defendant selected to carry out his intent were suitable to effectuate his illicit purpose. Gammon v. GC Services L.P., 27 F.3d 1254 (7th Cir. 1994). E.g., Joseph Taylor Coal Co. v. Dawes, 122 Ill.App. 389 (1905), aff'd. 220 Ill. 147, 77 N.E. 131 (1906) (intent); Eaves v. Penn, 587 F.2d 453, 463-4 (10th Cir. 1978) (in civil action for breach of fiduciary duty, evidence of breaches of fiduciary other than one for which recovery was sought properly admitted to show intent); Edgar v. Fred Jones Lincoln-Mercury, 524 F.2d 162, 167 (10th Cir. 1975) (same, odometer fraud); Welch v. Barnett, 34 Okla. 166, 125 P. 472 (1912) (that five Indians willed property to the same unrelated white men in different transactions is convincing proof that undue influence and fraud were practiced on all). Further, "a pattern of deception justifies an award of punitive damages." Carter v. Mueller, 120 Ill.App. 3d 314, 457 N.E.2d 1335, 1337 (1st Dist. 1983); accord, Tetuan v. A.H. Robins, 738 P.2d. 1210 (Kan. 1987); Eichenseer v. Reserve Life Ins. Co., 934 F.2d 1377 (5th Cir. 1991).
L. NO INTENT REQUIREMENT
1. There is no requirement of intent to defraud on the part of the defendant. Miller v. William Chevrolet/ Geo, Inc., 326 Ill.App.3d 642, 762 N.E.2d 1, 11 (1st Dist. 2001); Beard v. Gress, supra. Even innocent misrepresentations are covered. Ramson v. Layne, 668 F.Supp. 1162, 1169-70 (N.D.Ill. 1987). "[A] plaintiff's right to recovery under the Act may be based on an innocent or negligent misrepresentation as well as one that is intentional." Rubin v. Marshall Field & Co., 232 Ill.App.3d 522, 533, 597 N.E.2d 688, 695 (1st Dist. 1992).
2. Scienter is required for real estate brokers and insurance agencies and producers
3. The reference in CFA '2 to "intent that others rely . . ." does not reintroduce the common‑law requirement of intent to defraud. Rather, it requires that the defendant intend to affect the conduct of the victim. Warren v. LeMay, supra, 142 Ill.App.3d 550, 566, 573‑74, 491 N.E.2d 464 (5th Dist. 1986); Crowder v. Bob Oberling Enterprises, Inc., 148 Ill.App.3d 313, 316, 499 N.E.2d 115 (1st Dist. 1986); Elder v. Coronet Ins. Co., supra, 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990); Carl Sandburg Village Condominium Ass'n No. 1 v. First Condominium Development Co., 197 Ill.App.3d 948, 557 N.E.2d 246 (1st Dist. 1990) ("the 'intent' required by the statute is only the intent that plaintiffs . . . rely on the information that defendants gave them, as opposed to any intent on defendants' part to deceive"); Cox v. Joe Rizza Ford, Inc., 94 C 5688, 1996 WL 65994, 1996 U.S. Dist. LEXIS 1581 (N.D.Ill. Feb. 9, 1996). Satisfaction of this requirement is presumed when the challenged conduct takes place in connection with a transaction between the parties. Warren v. LeMay, supra; Roberts v. Robert V. Rohrman, Inc., supra, 909 F.Supp. 545 (N.D.Ill. 1995). The purpose of the requirement is to prevent unlimited liability to unknown persons for failure to disclose.
M. NO RELIANCE REQUIREMENT
1. Siegel v. Levy Organization Development Co., 153 Ill.2d 534, 607 N.E.2d 194 (1992); Martin v. Heinold Commodities, 163 Ill.2d 33, 643 N.E.2d 734, 754 (1994); Miller v. William Chevrolet/ Geo, Inc., 326 Ill.App.3d 642, 762 N.E.2d 1, 11 (1st Dist. 2001); Tylka v. Gerber Products Co., 178 F.R.D. 493 (N.D.Ill. 1998); Swanagan v. Al Piemonte Ford Sales,94 C 4070, 1995 WL 493480, 1995 U.S. Dist. LEXIS 11863 (N.D.Ill., August 15, 1995).
2. Damages are assessed on objective basis: would reasonable consumer have considered matter significant. Heastie v. Community Bank of Greater Peoria, supra, 690 F.Supp. 716 (N.D.Ill. 1988).
3. However, it is necessary to prove that plaintiff's damages were caused by the defendant's conduct. See below.
N. TRIAL BY JURY
1. Available in federal court, Inter-Asset Finanz AG v. Refco, Inc., 1993 U.S. Dist. LEXIS 11181, *8-9 (N.D.Ill. 1993), Cellular Dynamics, Inc. v. MCI Telecommunications Corp., 1997 U.S.Dist. LEXIS 7466 (N.D.Ill. 1997), but not in state court, Martin v. Heinold, supra.
2. In most cases, whether a representation is material or deceptive presents a factual question. Nichols Motorcycle Supply v. Dunlop Tire Corp., 913 F.Supp. 1088 (N.D.Ill. 1995); People ex rel. Daley v. Datacom Sys., 146 Ill. 2d 1, 585 N.E.2d 51, 66 (1991).
O. PARTIES LIABLE
1. In Zekman v. Direct American Marketers, Inc., 182 Ill.2d 359, 695 N.E.2d 853 (1998), the court rejected the theory that knowingly accepting the fruits of a deceptive practice results in CFA liability. "We agree with AT&T that the plain language of section 2 of the Act does not include anything that makes it unlawful to knowingly receive the benefits of another's fraud." Defendants tend to cite this decision in inappropriate contexts, such as where liability is sought to be imposed on the basis of respondeat superior.
2. Respondeat superior liability is necessarily provided for by the CFA, as '10a provides that "Any person who suffers actual damage as a result of a violation of this Act committed by any other person may bring an action against such person," and '1(c) defines "person" to include any natural person or his legal representative, partnership, corporation (domestic and foreign), company, trust, business entity or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, trustee or cestui que trust thereof". Since a corporate "person" can only act through a human agent, respondeat superior liability is necessarily contemplated. Warren v. LeMay, supra; Duhl v. Nash Realty, Inc., 102 Ill.App.3d 483, 429 N.E.2d 1267 (1st Dist. 1981); Vance v. National Benefit Ass'n, 99 C 2627, 1999 WL 731764, *4, 1999 U.S.Dist. LEXIS 13846 (N.D.Ill. Aug. 30, 1999).
3. Similarly, the CFA expressly contemplates that agents, officers, directors, etc., may be held liable. The cases hold that an officer or other person who controls a corporation is liable if he or she participates in violations. Garcia v. Overland Bond & Inv. Co., 282 Ill.App.3d 486, 668 N.E.2d 199 (1st Dist. 1996); People ex rel. Hartigan v. All American Aluminum & Construction Co., 171 Ill.App.3d 27, 524 N.E 2d 1067 (1st Dist. 1988); People ex rel. Fahner v. American Buyer's Club, Inc., 115 Ill.App.3d 759, 450 N.E.2d 904 (3d Dist. 1983); People ex rel. Hartigan v. Dynasty System Corp., 128 Ill.App.3d 874, 471 N.E 2d 236 (1st Dist. 1984). This test appears somewhat more stringent than that applied under '5 of the FTC Act. Zale Corp. v. FTC, 473 F.2d 1317, 1322 (5th Cir. 1973); In re Macmillan, Inc., 96 F.T.C. 208 (1980); FTC v. Amy Travel Service, 875 F.2d 564 (7th Cir. 1989); FTC v. International Diamond Corp., 1983‑2 Trade Cas. (CCH) &65,506, at p. 68,458 (N.D.Cal. 1983); FTC v. H. N. Singer, Inc., 1982‑83 Trade Cas. (CCH) &65,011 (N.D.Cal. 1982).
4. Advertising agencies
In re Diamond Mortgage Co., 118 B.R. 575 (Bankr., N.D.Ill. 1989).
5. Endorsers
Ramson v. Layne, 668 F.Supp. 1162 (N.D.Ill. 1987); In re Diamond Mtge. Corp., 118 B.R. 588 (Bankr. N.D.Ill. 1989); In re Diamond Mtge. Corp., 118 B.R. 575 (Bankr. N.D.Ill. 1989).
.
6. Aiding, abetting, and assisting.
Waltham Watch Co. v. FTC, 318 F.2d 28, 32 (7th Cir. 1963); People by Lefkowitz v. Therapeutic Hypnosis, Inc., 83 Misc.2d 1068, 374 N.Y.S.2d 576 (N.Y.Sup.Ct. 1975); Armstrong v. Edelson, 718 F.Supp. 1372 (N.D.Ill. 1989). This ground of liability is open to question in light of Zekman.
P. REMEDIES
1. DAMAGES
a. Causation.
It is necessary to show a causal connection between the misrepresentation or omission and the claimed damages, but this can be done on an objective basis through proof of a material misrepresentation or omission. Heastie v. Community Bank of Greater Peoria, supra, 690 F.Supp. 716 (N.D.Ill. 1988); Mother Earth, Ltd. v. Strawberry Camel, Ltd., supra, 72 Ill.App.3d 37, 52, 390 N.E.2d 393, 406 (1st Dist. 1979). For example, in Martin v. Heinold Commodities, Inc., 163 Ill.2d 33, 643 N.E.2d 734 (1994), where a commodities broker misrepresented that part of its commission was a third-party "foreign service fee," the court permitted a class of commodities purchasers to recover the entire amount of the fee, without any showing as to what happened in individual transactions.
In In re Synthroid Marketing Litigation, 1999 U.S.Dist. LEXIS 11195 at *13 (N.D.Ill. July 19, 1999), Judge Bucklo stated that "Proximate cause is established by demonstrating that purchases occurred after the allegedly fraudulent statements were made, and that the alleged fraud directly or indirectly injured Plaintiffs," citing Garner v. Healy, 184 F.R.D. 598, 602 (N.D.Ill. 1999).
Defendants claim that a stricter standard is required under Oliveira v. Amoco Oil Co., No. 89511, 201 Ill.2d 134, 2002 WL 1340895 (June 20, 2002).
b. Benefit of Bargain
Brooks v. Midas-Int'l Corp., 47 Ill.App.3d 266, 272-73, 361 N.E.2d 815 (1st Dist. 1977).
c. Injury to Person: recently abolished
d. Punitive: Guess v. Brophy, 164 Ill.App.3d 75, 517 N.E.2d 693 (4th Dist. 1987); Gent v. Collinsville Volkswagen, Inc., 116 Ill.App.3d 496, 451 N.E.2d 1385 (5th Dist. 1983); Malooley v. Alice, 251 Ill.App.3d 51, 621 N.E.2d 265 (3d Dist. 1993); Ekl v. Knecht, 223 Ill.App.3d 234, 585 N.E.2d 156 (2d Dist. 1993); Martin v. Heinold Commodities, 163 Ill.2d 33, 643 N.E.2d 734 (1994).
2. INJUNCTIVE RELIEF.
a. The Consumer Fraud Act was amended effective January 1, 1991 to authorize "injunctive relief where appropriate" in suits by private parties. '10a(c). This changed prior law to contrary. Brooks v. Midas-International Corp., 47 Ill.App.3d 266, 361 N.E.2d 815 (1st Dist. 1977).
b. Previously, courts had refused to grant injunctive relief in suits by private individuals on the grounds that (i) a person harmed by a deceptive practice does not need an injunction against future deception and (ii) the provisions in the Act authorizing the Attorney General to obtain injunctive relief were exclusive. Brooks, supra.
c. It appears that the Legislature meant to create a "statutory injunction," whereby any individual who was damaged by a practice has standing to obtain an injunction protecting others from being harmed. In applying a statute authorizing an injunction for law enforcement purposes, "the standards of the public interest, not the requirements of private litigation, measure the propriety and need for injunctive relief." Hecht Co. v. Bowles, 321 U.S. 321, 331 (1944). The question is simply whether an injunction is necessary to secure future compliance with the law. People ex rel. Edgar v. Miller, 110 Ill.App.3d 264, 441 N.E.2d 1328 (4th Dist. 1982). However, some cases appear to continue to inquire whether the plaintiff needs an injunction, which will almost never be the case. Disc Jockey Referral Network, Ltd. v. Ameritech Publishing, 230 Ill.App.3d 908, 596 N.E.2d 4 (1st Dist. 1992), leave to appeal denied, 146 Ill.2d 625, 602 N.E.2d 450 (1992).
3. RESCISSION
Grimes v. Adlesperger, 67 Ill.App.3d 582, 384 N.E.2d 537, 539 (4th Dist. 1978); Warren v. Borger, 184 Ill.App.3d 38, 539 N.E.2d 1284 (5th Dist. 1989), appeal denied, 136 Ill. Dec. 610, 545 N.E.2d 134 (1989); Perkins v. Collette, 179 Ill.App.3d 852, 534 N.E.2d 1312 (2d Dist. 1989).
4. DECLARATION THAT AN OBLIGATION IS UNENFORCEABLE.
American Buyer's Club v. Honecker, 46 Ill.App.3d 252, 361 N.E.2d 1370, 1375 (5th Dist. 1977); American Buyer's Club v. Hayes, 46 Ill.App.3d 270, 361 N.E.2d 1383, 1384 (5th Dist. 1977).
5. NO NEED TO PROVE MONETARY DAMAGES
In a case where rescission of contracts or declaratory relief is appropriate, it should be possible to sue under the Act for that relief alone. Section 10a(a) of the Act provides that "Any person who suffers actual damage as a result of a violation of this Act committed by any other person may bring an action against such person. The court, in its discretion may award actual economic damages or any other relief which the court deems proper . . . ." "Injury" or "damage" is defined as "any wrong or damage done to another, either in his person, rights, reputation or property. The invasion of a legally protected interest of another." Black's Law Dictionary, 5th Ed., p. 706. See White v. Touche Ross & Co., 163 Ill.App.3d 94, 516 N.E.2d 509 (1st Dist. 1987), appeal denied, 119 Ill.2d 576, 522 N.E.2d 1259 (1988). For example, the fact that a purported indebtedness results from a violation of the CFA is in and of itself an invasion of protected rights. Golt v. Phillips, 308 Md. 1, 517 A.2d 328 (1986) ("legal liability is also an actual damage" under Maryland statute similar to the Illinois Consumer Fraud Act).
At least one court has found that the fact that a consumer was required to defend a lawsuit and prosecute a counterclaim to secure relief from an illegal obligation constituted "damages sustained" under a consumer protection statute. St. Paul Fire & Marine Ins. Co. v. Updegrave, 33 Wash.App. 653, 656 P.2d 1130 (1983). In St. Paul Fire, a consumer was sued for insurance premiums, and successfully counterclaimed alleging the premiums had been imposed in violation of the consumer protection statute. The court awarded the consumer attorneys' fees due to the fact that the consumer was forced to defend the lawsuit, and held that "damages sustained" does not require proof of specific monetary damages. See also, Hinchliffe v. American Motors Corp., 184 Conn. 607, 440 A.2d 810, 813 (1981).
Massachusetts courts have also held that a consumer who signed a contract containing illegal terms constituted "injury" within the meaning of the Massachusetts consumer protection statute. Leardi v. Brown, 394 Mass. 151, 474 N.E.2d 1094, 1100-01 (1985). "The term `injury' denotes `the invasion of any legally protected interest of another.'" Id. 474 N.E.2d at 1101.
6. ATTORNEY'S FEES
Attorney's fees are specifically authorized by '10a(c). Although there is some difference in the formulations used in the 1st and 2d Appellate Districts, a prevailing defendant should be able to recover fees only if the action was frivolous. Graunke v. Elmhurst Chrysler Plymouth Volvo, Inc., 247 Ill.App.3d 1015, 617 N.E.2d 858 (2d Dist. 1993).
Q. DEFENSES
1. LIMITATIONS
Section 10a provides a three year statute of limitations, which is tolled until the injury is discovered by the victim. Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72, 651 N.E.2d 1132 (1995); Highsmith v. Chrysler Credit Corp., 18 F.3d 434 (7th Cir. 1994).
2. PAROL EVIDENCE
The parol evidence rule does not bar evidence of deceptive representations. Shanahan v. Schindler, 63 Ill.App.3d 82, 379 N.E.2d 1307 (1st Dist. 1978); Spindler v. Krieger, 16 Ill.App.2d 131, 147 N.E.2d 457 (1st Dist. 1958); Wagner v. Morris, 658 S.W.2d 230 (Tex.Civ.App. 1983); Tidelands Life Ins. Co. v. Harris, 675 S.W.2d 224 (Tex.Civ.App. 1984), writ ref'd n.r.e.
3. VOLUNTARY PAYMENT
Under this doctrine, a plaintiff who voluntarily pays money in reply to an incorrect or illegal claim of right cannot recover that payment unless he show fraud, coercion, or mistake of fact.@ Randazzo v. Harris Bank Palatine, 262 F.3d 663, 666 (7th Cir. 2001).
The voluntary payment doctrine cannot be used to defeat public policy. Pratt v. Smart Corp., 968 S.W.2d 868 (Tenn. App. 1997) (the voluntary payment rule does not come into play in situations involving a transaction that violates public policy@); Harper v. American Tel. & Tel. Co., 54 F.Supp.2d 1371, 1380-81 (S.D.Ga. 1999) (state law regarding voluntary payments cannot be used to prevent recovery of money obtained through mail fraud); LaParr v. City of Rockford, 100 F.2d 564, 568 (7th Cir. 1938); Dunbar v. American Tel. & Tel. Co., 238 Ill. 456, 87 N.E. 521, 535-36 (1909); Evans v. Funk, 151 Ill. 650, 661-2, 38 N.E. 230, 234 (1894); Bizik v. Bizik, 124 Ind. App. 146, 158, 111 N.E.2d 823, 829 (1953). Thus, where a party not in pari delicto seeks recovery of amounts paid pursuant to an illegal contract, he may do so. Congress & Empire Spring Co. v. Knowlton, 103 U.S. 49, 58 (1880).
For example, the voluntary payment doctrine cannot be used to defeat the recovery of usurious interest, the law being intended for the protection of borrowers against lenders. Watertown Fire Ins. Co. v. Rust, 40 Ill.App. 119 (3d Dist. 1890), aff=d on opinion below, 141 Ill. 85, 30 N.E. 772 (1892); Buck v. Dahlgren, 23 Cal. App.3d 779, 100 Cal.Rptr. 462, 468 (1972). Similarly, where a statute limits the fees that may be charged in a transaction, and a person intended to be protected against excessive fees is charged more than permitted, the fact that the payment is voluntary does not prohibit recovery of the fee. Newton v. Cox, 878 S.W.2d 105 (Tenn. 1994).
Illinois courts have held that where a person performs professional services for which a license is required to protect the public, without having the required license, and collects a fee, the person that paid the fee is entitled to bring an action for restitution of the payment. Ransburg v. Haase, 224 Ill.App.3d 681, 684-88, 586 N.E.2d 1295, 1297-1300 (3d Dist. 1992) (unlicensed architect); Kaplan v. Tabb Assoc., 276 Ill.App.3d 320, 324-5, 657 N.E.2d 1065 (1st Dist. 1995) (same). The purchaser is not considered to be in pari delicto because the law in question was passed for the protection of the person who paid and it appears that the purposes of the law would be better effectuated by granting relief [to the client] than by denying it.@ Ransburg, 586 N.E.2d at 1298-99. The Ransburg decision specifically allows recovery on public policy grounds even though the fee was voluntarily paid to the unlicensed person.
The voluntary payment doctrine has no application where money is entrusted to someone for a specific purpose, such as payment to a governmental official, and the money is not paid over to the third party. Harrison Sheet Steel Co. v. Lyons, 15 Ill.2d 532, 155 N.E.2d 595, 597-8 (1959); Cohon v. Oscar L. Paris Co., 17 Ill.App.2d 21, 149 N.E.2d 472 (1st Dist. 1958); Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d 1157, 1164 (7th Cir. 1997). There is no rule of equity or law which would permit the defendant to collect money for a special purpose for which it never can or will be used and to retain the money for its own enrichment over the rights of the plaintiff or plaintiffs who had paid it.@ Cohon, 149 N.E.2d at 478. Duress, compulsion or fraud need not be shown in such cases. Cohon, supra; Lawyers Title, supra. Allowing the defendant to retain money under such circumstances is little short of theft.
Finally, the voluntary payment doctrine should have no applicability to residential mortgages. The Illinois voluntary payment rule in effect imposes an obligation to raise any question regarding debits and credits on a transaction prior to payment. The federal Cranston Gonzales amendment to the Real Estate Settlement Procedures Act, 12 U.S.C. '2605, says a mortgagor can go back and get an adjustment for any debits or credits up to one year after the servicer ceases servicing the loan. See N. K. Fairbank Co. v. City of Chicago, 153 Ill.App. 140, 1910 WL 1720 (1st Dist. 1910) (where ordinance gives payor right to adjustment after payment, voluntary payment rule does not apply). The federal statute prevails over the state common law rule, under the Supremacy Clause.
4. PREEMPTION DEFENSE
Invariably, and usually inappropriately, invoked by defendants.
The CFA does not apply to "actions taken or transactions specifically authorized by laws administered by any regulatory body or officer . . . ." '10b (815 ILCS 505/10b)
Preemption exists only if some other statute or regulation mandated some specific disclosure or act and an attempt is made to prohibit it under CFA. Heastie v. Community Bank of Greater Peoria, supra, 690 F.Supp. 716 (N.D.Ill. 1988); Aurora Firefighter's Credit Union v. Harvey, 163 Ill.App.3d 915, 516 N.E.2d 1028 (2d Dist. 1987), leave to appeal denied, 119 Ill.2d 553, 522 N.E.2d 1240 (1988).
a. INSTANCES WHERE PREEMPTION FOUND
In Lanier v. Associates Finance, Inc., 114 Ill.2d 1, 499 N.E.2d 440 (1986), the court held that where the Federal Reserve Board required use of particular terminology, without further explanation, a CFA '2 claim complaining that further explanation should have been provided could not be sustained.
In Hill v. St. Paul Federal Bank, 2002 WL 480924 (Ill.App. March 29, 2002), the court held that it was not necessary for a bank to disclose the fact that it posted checks in such order as to maximize the overdraft fees it charged. A[I]t is the policy in Illinois not to extend disclosure requirements beyond what is mandated by federal law.@
In Weatherman v Gary‑Wheaton Bank of Fox Valley, N.A., 186 Ill.2d 472, 713 N.E.2d 543 (1999), the court held that where a fee was disclosed in compliance with the Real Estate Settlement Procedures Act, the CFA could not be used to impose greater disclosure requirements.
In Aurora Firefighter's Credit Union, the court held that where TILA specified the persons to whom a disclosure statement had to be furnished, CFA '2 could not be used to alter the list.
b. INSTANCES WHERE PREEMPTION NOT FOUND
The mere fact that a transaction is subject to regulation under another statute does not mean that it is not also subject to the CFA.
In Chandler v. American General Finance, Inc., 329 Ill.App.3d 729, 768 N.E.2d 60 (1st Dist. 2002), the court held that the fact that the disclosures in a credit transaction complied with the Truth in Lending Act did not foreclose a CFA claim based on misleading advertising used to induce the credit transaction.
In Heastie v. Community Bank of Greater Peoria, supra, the court held that the fact that TILA confers a right to cancel certain mortgage transactions does not preclude a CFA '2 claim based on unfair or deceptive inducement of such mortgage transactions.
Similarly, in Aurora Firefighter's Credit Union v. Harvey, supra, the fact that the Credit Union Act regulated the credit union's practices did not create a CFA exemption; the court held that only if a specific act or representation were authorized or required by the Credit Union Act would there be an exemption.
Likewise, Kellerman v. MCI Telecommunications Corp., 112 Ill.2d 428, 493 N.E.2d 1045 (1986), held that the federal Communications Act, by regulating rates for long distance phone service, did not preclude application of CFA '2 to deceptive advertising of long distance telephone rates. Accord, Speakers of Sport, Inc. v. U. S. Telephone, 149 Ill.App.3d 898, 501 N.E.2d 318 (1st Dist. 1986), appeal denied, 114 Ill.2d 558, 508 N.E.2d 736 (1987).
If the other regulatory statute is not complied with, and the conduct is also unfair or deceptive within meaning of CFA '2, there is no problem in applying CFA to impose liability. April v. Union Mortgage Co., 709 F.Supp. 809 (N.D.Ill. 1989) (misstatement of material information required to be disclosed by TILA); Kleidon v. Rizza Chevrolet, Inc., 173 Ill.App.3d 116, 527 N.E.2d 374 (1st Dist. 1988), leave to appeal denied, 123 Ill.2d 559, 535 N.E.2d 402 (1988)(similar).
The fact that the federal law has a shorter limitations period, which has expired, does not mean that the transaction complies with federal law for purposes of ' 10b. MorEquity, Inc. v. Naeem, 118 F.Supp.2d 885, 893 (N.D.Ill. 2000).
Under a parallel provision in the North Carolina UDAP statute, the fact that the state insurance commission authorized the terms of the policy did not exempt deception in marketing or selling it. Davidson v. Knauff Ins. Agency, Inc., 93 N.C.App. 20, 376 S.E.2d 488 (1989), review denied, 324 N.C. 577, 381 S.E.2d 772 (1989)
Section 155 of the Insurance Code does not preempt the CFA. Fox v. Industrial Cas. Ins. Co., 98 Ill.App.3d 543, 546, 424 N.E.2d 839 (1st Dist. 1981).
II. FTC REGULATION ABOLISHING THE HOLDER IN DUE COURSE RULE IN MOST CONSUMER TRANSACTIONS
A. 16 CFR part 433
In 1976, the Federal Trade Commission promulgated a regulation, 16 C.F.R. part 433, intended to address the problem of consumer liability to financial institutions which finance the purchase of defective goods. As explained in the FTC's Staff Guidelines on Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses, the purpose of the regulation was to make it impossible "for a seller to arrange credit terms for buyers which separate the consumer's legal duty to pay from the seller's legal duty to keep his promises." Prior to the regulation, this could be accomplished in three ways: (1) "[T]he seller may execute a credit contract with a buyer which contains a promissory note," which was then negotiated to a financing institution. (2) "[T]he seller may incorporate a written provision called a 'waiver of defenses' in the text of an installment sales agreement" and then assign the agreement to a financing institution. (3) "[A] seller may arrange a direct loan for his buyer" from the financing institution. (Id.)
The FTC regulation "is directed at all three of the above situations." Seller‑arranged direct loans were expressly included because "[i]n jurisdictions where efforts have been made to curtail the use of promissory notes and waivers of defenses, the Commission documented a significant increase in the use of arranged loans to accomplish the same end." (Id.)
1. Assigned obligations
The FTC regulation has two parts. The first part, 16 C.F.R. '433.2(a), applies to situations (1) and (2) ‑‑ where the seller and the consumer enter into an obligation which is then assigned or transferred to a financing institution. In that situation, the FTC regulation eliminates holder in due course status for the financing institution by requiring that the contract contain the following statement:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
2. Direct loans
The second part of the regulation, 16 C.F.R. '433.2(b), applies to situation (3) ‑‑ where the seller refers the consumer to a lender which proceeds to enter into a loan agreement with the consumer. Section 433.2(b) is triggered when a "creditor" makes a cash advance to a consumer which the consumer applies, "in whole or substantial part, to a purchase of goods or services from a seller who (1) refers consumers to the creditor or (2) is affiliated with the creditor by common control, contract, or business arrangement." (16 C.F.R. '433.1(d)) It requires that "any consumer credit contract made in connection with such purchase money loan" ‑‑ i.e., the contract between the consumer and the lender ‑‑ contain the following notice:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
B. Depends on existence of referral or assignment relationship
C. Purpose:
1. The FTC regulation was intended to abrogate the holder in due course rule in consumer transactions, Hempstead Bank v. Babcock, 115 Misc.2d 97, 453 N.Y.S.2d 557, 559 (Sup.Ct. 1982), and place the creditor "in the shoes of the seller" with respect to the consumer. Aillet v. Century Fin. Co., 391 So.2d 895, 897 (La.App. 1980). "The creditor or assignee is in the same position the seller would have been in." Thomas v. Ford Motor Credit Co., 48 Md.App. 617, 429 A.2d 277, 282 (Md.App. 1981).
2. The FTC intended to place the burden of losses caused by seller misconduct on the creditor/assignee, on the theory that it is in a better position to bear the losses and to avoid them by policing seller misconduct. Provident Bank v. Barnhart, 3 Ohio App. 3d 316, 445 N.E.2d 746, 749-50 (1982).
D. Restrictive reading by Illinois Supreme Court
1. In Jackson v. South Holland Dodge, 197 Ill.2d 39, 755 N.E.2d 462 (2001), the Illinois Supreme Court held that the FTC notice only applied where the violation was such as to warrant rescission, revocation of acceptance, or the like.
E. Displacement by specific assignee limitation provisions in TILA and other statutes.
1. The Seventh and Eleventh Circuits and the Illinois Supreme Court have held that the FTC required notice does not overcome the limitation on assignee liability in the Truth in Lending Act, 15 U.S.C. '1641. Walker v. Wallace Auto Sales, 155 F.3d 927 (7th Cir. 1998); Ellis v. GMAC, 160 F.3d 703 (11th Cir. 1998); Jackson v. South Holland Dodge, Inc., 197 Ill.2d 39, 755 N.E.2d 462 (2001).
2. The Jackson court further held that under '10b of the Consumer Fraud Act, the holder notice could not be used to impose liability for a CFA violation based entirely on noncompliance with TILA, on the theory that the assignee complied with TILA by accepting a transaction that did not on its face violate TILA.
3. This limitation should not be applied to any federal statute that does not expressly address and limit the liability of assignees or transferees.
4. Outside the context of the CFA, with its peculiar provision in '10b, this limitation should not be applied to any state statute or common law theory of liability, regardless of whether it expressly addresses or limits the liability of assignees or transferees, as doing so would be inconsistent with the Supremacy Clause. While Walker held that an FTC regulation cannot override a federal statute, a federal regulation can override state law.
F. Extent of affirmative recovery:
1. The consumer may recover from an assignee all payments made under an assigned contract, including any down payment made to the seller. Cox v. First Nat'l Bank of Cincinnati, 633 F.Supp 236, 239 (S.D.Ohio 1986); FTC Staff Guidelines on the Holder Rule, 41 Fed.Reg. 20,023 (May 14, 1976).
2. Tinker v. De Maria Porsche Audi, Inc., 459 So.2d 487, 492 (Fla.App. 1984):
". . . it is clear that not only does the Notice clause entitle the buyer to withhold the balance of the purchase price owed to the creditor when the seller's contractual duties are not fulfilled, but it gives the buyer a complete defense should the creditor sue for payment."
3. Provident Bank v. Barnhart, supra, 445 N.E.2d 746, 750 (Ohio App. 1982):
"The FTC Notice allows the obligor to sue the assignee for the seller-assignor's faulty performance."
4. Thomas v. Ford Motor Credit Co., 429 A.2d 277, 282 (Md.App. 1981):
"The appellee urges that a debtor can only assert a defense in response to a suit by the creditor for collection of the debt. We disagree. The appellee, as the assignee of the contract can be sued directly by the appellants, recovery being limited to the amounts paid by the debtor under the contract. To find otherwise would be to defeat the purpose of the notice and the clear import of the language."
G. Operation
1. The rule requires insertion of language negating negotiability in the contract.
2. This avoids the problem that there is no private right of action under '5 of the FTC Act. The cause of action is contractual.
3. Because it alters the contract, the required preservation-of-claims language may be enforced as a contract term even if it is inserted in error, e.g., in a business-purpose contract, or one in which there is no referral relationship. Jefferson Bank & Trust Co. v. Stamatiou, 384 So.2d 388, 391 (La. 1980).
4. The consumer may be able to recover attorney's fees from a creditor who refuses to recognize its obligations under the required notice, on the theory that it is unfair or deceptive conduct. Home Savings Ass'n v. Guerra, 733 S.W.2d 134 (Tex. 1987); Kish v. Van Note, 692 S.W.2d 463, 466, 468-69 (Tex. 1985).
5. Consumers who exercise their rights under the notice may be the subject of derogatory reports to credit bureaus. Such reports may be unfair or deceptive, insofar as they imply that the consumer is not paying for credit-related reasons. See Metro Ford Truck Sales, Inc. v. Davis, 709 S.W.2d 785, 790-1 (Tex.Civ.App. 1986).
H. Consequences of attempts to evade
1. Consumer fraud
Heastie v. Community Bank of Greater Peoria, 727 F.Supp. 1133 (N.D.Ill. 1989), and 727 F.Supp. 1140 (N.D.Ill. 1989) (lender's provision of contradictory loan documentation as consumer fraud violation).
Iron & Glass Bank v. Franz, 9 Pa.D.& C.3d 419, 428‑29 (1978) (court held that a lender's "knowing participation in a transaction which violated the FTC 'preservation of defenses' trade regulation rule constitutes an unfair or deceptive act or practice" within the meaning of the Pennsylvania consumer protection statute").
In re Beneficial Corp., 96 F.T.C. 120 (1980) (financial institution which attempted to limit claims and defenses assertable against it to those raised within specific time period committed violation of '5 of FTC Act) (consent order).
The FTC Staff Guidelines state that "[t]he requirement that a contract 'contain' the Notice is not satisfied if the text of the Notice is printed in the contract in conjunction with additional recitals which limit or restrict its application."
2. Mail and wire fraud
Brown v. LaSalle Northwest National Bank, 148 F.R.D. 584 (N.D.Ill. 1993), later opinion, 820 F.Supp. 1078 (N.D.Ill. 1993), later opinion, 1993 U.S.Dist. LEXIS 11419 (N.D.Ill. 1993) (lender's provision of nonconforming loan documentation as scheme to defraud within mail and wire fraud statutes).
Stevens v. Associates Finance, 1996 U.S. Dist. LEXIS 1912 (N.D.Ill. 1996) (Magistrate Judge's report, adopted by District Court).
III. UNIFORM COMMERCIAL CODE, 810 ILCS 5/1-101 et seq.
A. Article 2: sales
1. Express warranties:
a. '2‑313(1)(b): "any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description".
b. '2‑313(1)(a): "any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise."
c. Brochures and advertisements may constitute express warranties. Wheeler v. Sunbelt Tool Co., 181 Ill.App.3d 1088, 1100, 537 N.E.2d 1332, 1340 (4th Dist. 1989), appeal denied, 136 Ill.Dec. 610, 545 N.E.2d 134 (1989). The description of the product normally creates an express warranty. Custom Automated Machinery v. Penda Corp., 537 F.Supp. 77, 82 (N.D.Ill. 1982) (seller's statement that machine would operate at 120 cycles per hour created an express warranty).
d. In car cases, express warranties may be found on the basis of statements that a car is in good running condition or free from defects, Redmac, Inc. v. Computerland of Peoria, 140 Ill.App.3d 741, 489 N.E.2d 380 (3d Dist. 1986) ("free of defects" and would "work for a reasonable period of time"); that a car is new, Stamm v. Wilder Travel Trailers, 44 Ill.App.3d 530, 358 N.E.2d 382 (5th Dist. 1976); Buechin v. Ogden Chrysler‑Plymouth, Inc., 159 Ill.App.3d 237, 511 N.E.2d 1330 (2d Dist. 1987), in undamaged condition, Sass v. Spradlin, 66 Ill.App.3d 976, 384 N.E.2d 464 (2d Dist. 1978), in good order, condition and repair, Continental Sand & Gravel, Inc. v. K & K Sand & Gravel, Inc., 755 F.2d 87 (7th Cir. 1985); or a "good runner." Crothers by Crothers v. Cohen, 384 N.W.2d 562, 563 (Minn. App. 1986).
e. Disclaimers: Disclaimers of express warranties are generally not effective to the extent that they negate promises or representations. UCC '2-316; Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 420 N.E.2d 167, 169-71 (4th Dist. 1981) (boilerplate disclaimer did not negate dealer's obligation to supply "new" car); Husky Spray Serv. v. Patzer, 471 N.W.2d 146 (S.D. 1991). UCC '2-316 states:
Exclusion or modification of warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
Comment 4 to UCC '2-313 states:
In view of the principle that the whole purpose of the law of warranty is to determine what it is that the seller has in essence agreed to sell, the policy is adopted of those cases which refuse except in unusual circumstances to recognize a material deletion of the seller's obligation. Thus, a contract is normally a contract for sale of something describable and described. A clause generally disclaiming "all warranties, express or implied" cannot reduce the seller's obligation with respect to such description and therefore cannot be given literal effect under Section 2-316.
2. Implied warranties:
a. Merchantability
UCC '2-314 provides:
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. . . .
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and . . .
(c) are fit for the ordinary purposes for which such goods are used; . . . .
(f) conform to the promise or affirmations of fact made on the container or label if any.
b. Fitness for particular purpose. UCC '2-315.
c. Used vehicles are covered: Lipinski v. Martin J. Kelly Oldsmobile, Inc., 325 Ill.App.3d 1139, 759 N.E.2d 66 (1st Dist. 2001); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550, 555-6 (1st Dist. 1978); Overland Bond & Investment Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st Dist. 1972). Any car can be expected to provide reliable and safe transportation. Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 420 N.E.2d 167, 169-71 (4th Dist. 1981).
d. The statute of limitations on such a warranty begins running from the time the used vehicle is delivered to the plaintiff. Lipinski, supra.
e. Disclaimers must be:
(1) Permitted under 15 U.S.C. '2308, which invalidates disclaimers if a written warranty or service contract is issued within 90 days after purchase (see below).
(2) Conspicuous. UCC '2-518. Language of disclaimer under a caption such as "Warranty" is misleading and not conspicuous. Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 420 N.E.2d 167 (4th Dist. 1981).
(3) Made prior to or at the time of consummation of the transaction, not later. Midland Supply Co. v. Ehret Plumbing & Heating Co., 108 Ill.App.3d 1120, 440 N.E.2d 153, 157 (5th Dist 1982); Independent Mach. v. Kuehne & Nagel, Inc., 867 F. Supp. 752 (N.D.Ill. 1994).
(4) Must be in a document comprising part of the contract, rather than an invoice or shipping document. See Independent Mach. v. Kuehne & Nagel, Inc., 867 F.Supp. 752 (N.D.Ill. 1994); Schroeder v. Fageol Motors, Inc., 86 Wash. 2d 256, 544 P.2d 20 (1975) (en banc) (disclaimer of warranties included in "owner book" handed to vehicle owner upon delivery of vehicle).
(5) In order to disclaim the implied warranty of merchantability, the disclaimer must either refer to "merchantability" or contain "as is" language. Schultz v. Jackson, 67 Ill. App. 3d 889, 385 N.E.2d 162 165 (3d Dist. 1979); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550, 555-6 (1st Dist. 1978); McCormick Mach. v. Julian E. Johnson & Sons, 523 So.2d 651 (Fla.App. 1988).
.
f. Disclaimers may not be effective if the seller engages in fraud. Shannon v. Boise Cascade, 328 Ill.App.3d 621, 630, 766 N.E.2d 1136, 1143-44 (4th Dist. 2002). A[E]ven if a disclaimer on its face is not unconscionable, it is subject to challenge if a plaintiff, as in this case, properly raises allegations of deceit and violation of chapter 93A.@ V.S.H. Realty, Inc. v. Texaco, Inc., 757 F.2d 411, 418 (1st Cir. 1985). The First Circuit Court also stated that Massachusetts case law unequivocally rejects assertion of an Aas is@ clause as an automatic defense against allegations of fraud:
The same public policy that in general sanctions the avoidance of a promise obtained by deceit strikes down all attempts to circumvent the policy by means of contractual devices. In the realm of fact it is entirely possible for a party knowingly to agree that no representations have been made to him, while at the same time believing and relying upon representations which in fact have been made and in fact are false but for which he would not have made the agreements.= Bates v. Southgate, 308 Mass. 10, 182, 31 N.E.2d 551 (1941).
See also Schell v. Ford Motor Company, 270 F. 2d 384, 386 (1st Cir. 1959) ( under the law of Massachusetts ... in the absence of fraud a person may make a valid contract exempting himself from any liability to another which he may in the future incur as a result of his negligence@); Attaway v. Tom=s Auto Sales, Inc., 144 Ga.App. 813, 815, 242 S.E.2d 740, 742 (1978). An effective disclaimer of warranties does not necessarily prevent recovery of damages caused by the seller=s fraudulent or other deceptive conduct.@ Bundren v. Car Connection, Inc., 963 P.2d 634, 637 (Okla.Civ.App. 1998)..
The use of an Aas is@ disclaimer did not disclaim all prior misrepresentations regarding the failure of a seller to disclose that a truck had been wrecked, because the state Consumer Protection Act creates a separate and distinct cause of action for unfair and deceptive acts or practices.@ Smith v. Scott Lewis Chevrolet, 843 S.W.2d 9, 11 (Tenn.1992). The Tennessee Supreme Court stated that to allow an Aas is@ disclaimer to serve as a bar to claims of fraud, would be to contradict the intent of the Consumer Protection Act and give sellers free rein to engage in fraudulent acts. Id., citing Morris v. Mack=s Used Cars & Parts, Inc., 1991 WL 3310 (Tenn.Ct.App.). The Tennessee Supreme Court has held that the Uniform Commercial Code (UCC) imposes an obligation of good faith in the performance of every contract which may not be disclaimed, and that disclaimers permitted by Tenn.Code. Ann. ' 47-2-316 do not defeat separate causes of action under the Consumer Protection Act.@ Ganzevoort v. Russell, 949 S.W.2d 293, 297 (Tenn. 1997).
g. A seller=s ability to disclaim is limited by the principles of unconscionability (UCC ' 2-302) and good faith (UCC ' 1-203). Among the circumstances which can invalidate a disclaimer on these grounds are misrepresentation or nondisclosure of known nonconformities. Bernstein v. Sherman, 130 Misc.2d 741, 497 N.Y.S.2d 298 (1986); Butcher v. Garrett-Enumclaw Co., 20 Wash.App. 361, 581 P.2d 1352 (1978).
h. Disclaimers of liability for consequential and incidental damages flowing from warranty breaches may not be honored in consumer cases, on the theory that the warranty fails of its essential purpose if the defendant is unable or unwilling to repair a defective vehicle or similar product, but nevertheless seeks the benefit of its disclaimer. Frank's Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill.App.3d 980, 989-92, 408 N.E.2d 403 (1st Dist. 1980); Custom Automated Machinery v. Penda Corp., 537 F.Supp. 77 (N.D.Ill. 1982); KKO, Inc. v. Honeywell, Inc., 517 F.Supp. 892 (N.D.Ill. 1981); Jones & McKnight Corp. v. Birdsboro Corp., 320 F.Supp 39, 43-44 (N.D.Ill. 1970) ("This Court would be in an untenable position if it allowed the defendant to shelter itself behind one segment of the warranty when it has allegedly repudiated and ignored its very limited obligations under another segment of the same warranty, which alleged repudiation has caused the very need for relief which the defendant is attempting to avoid"); see Schroeder v. Fageol Motors, Inc., 86 Wash. 2d 256, 544 P.2d 20, 22-5 (1975) (en banc). "Under Illinois law, a buyer may seek consequential damages arising from a seller's breach of warranty, despite a disclaimer to the contrary if the buyer can demonstrate that the warranty fails of its essential purpose and the parties did not contractually allocate all attendant risks." Trans States Airlines v. Pratt & Whitney Canada, Inc., 1995 U.S.Dist. LEXIS 1641, * 6 (N.D.Ill. 1995).
3. Proof of breach does not necessarily require expert testimony, although such testimony is certainly desirable. Redmac, Inc. v. Computerland of Peoria, 140 Ill.App.3d 741, 489 N.E.2d 380 (3d Dist. 1986); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550, 555-6 (1st Dist. 1978); Burrus v. Itek Corp., 46 Ill.App.3d 350, 360 N.E.2d 1168, 1171-2 (3d Dist. 1977); Sauers v. Tibbs, 48 Ill.App.3d 805, 809-10, 363 N.E.2d 444 (4th Dist. 1977); Overland Bond & Investment Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st Dist. 1972); Universal Motors, Inc. v. Waldock, 719 P.2d 254, 257-9 (Alas. 1986) (extensive discussion). "It is well settled that the defective condition of a product can be shown by circumstantial evidence." Ouwenga v. Nu‑Way Ag, Inc., 239 Ill.App.3d 518, 521, 604 N.E.2d 1085 (3d Dist. 1992).
4. Remedies:
a. The basic measure of damages is the difference in value between what was promised and what was received, plus consequential and incidental damages. UCC '' 2-714, 2-715. The cost of repair is an acceptable measure of the difference in value; it is not necessary that the repairs actually have been made. Continental Sand & Gravel, Inc. v. K & K Sand & Gravel, Inc., 755 F.2d 87, 91-92 (7th Cir. 1985); Crest Container Corp. v. R.H. Bishop Co., 111 Ill.App.3d 1068, 1075, 445 N.E.2d 19 (5th Dist. 1982); Midland Supply Co. v. Ehret Plumbing & Heating Co., 108 Ill.App.3d 1120, 440 N.E.2d 153, 157 (5th Dist 1982); Stamm v. Wilder Travel Trailers, 44 Ill.App.3d 530, 358 N.E.2d 382, 385 (5th Dist. 1976); Overland Bond & Investment Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st Dist. 1972). It is permissible to award damages on this basis exceeding the purchase price of the goods. Continental Sand, supra, 755 F.2d at 91.
b. Finance charges may be included in determining the value of the product as warranted. Burrus v. Itek Corp.< |
