Marketing Company Can't Force Consumer to Arbitrate Claims When it Didn't Disclose it was the Contracting Party in the Form On-Line Arbitration Provision
While the law has struggled to catch up with the swift progression of technology in recent years, particularly the increase in internet use, many companies have taken advantage of the ease of acquiring consumers' information. It is easier than ever for companies to gain access to an individual's credit card information. Many companies make deals with each other to share this information, despite the fact that such agreements are illegal.
Many laws, though, remain relevant regardless of whether the transaction took place online or in person. This was demonstrated in one recent class action lawsuit against an online marketing company. The named plaintiffs filed their class action lawsuit against a company which performs background checks. The plaintiffs noticed that regular monthly charges appeared on their credit card for a report which they allege they did not intend to buy. The company performing the background checks said that the consumers were misled into purchasing the subscription of the online marketing company. As a result, the marketing company was added as a third defendant.
The background check company provided space on its website for the marketing company and used a "data pass" method of sharing credit card information which is now illegal. The marketing company used that shared information to enroll customers in free trial subscription offers which were then converted into a monthly billed subscription.
The marketing company moved to force the lawsuit into arbitration.
The district court ruled that the consumers had entered into a contract with the marketing company, but the court denied the motion to force arbitration.
The plaintiffs appealed and the case went to the Ninth Circuit Court of Appeals. The appellate court noted that, under Washington law, a contract requires mutual assent to its essential terms in order to be considered legally binding. Those essential terms include the names of the parties involved in the contract. The appellate court found that the web page which the consumers used to buy the subscription service did not sufficiently identify the marketing company as the party making the contract with the consumers. The appellate court also remained skeptical as to whether providing an email address and clicking a "yes" button is sufficient to agree to a contract. Such clicks are still new enough that many courts don't quite know how to handle them.
The appellate court also denied the marketing company's motion to force the case into arbitration. The court decided that, since the arbitration provision was on another hyperlink which the consumers did not click on, no valid arbitration agreement took place.
Arbitration agreements have grown increasingly popular with companies in recent years. Consumers and employees alike are both being asked to sign more and more contracts containing arbitration agreements. These agreements tend to favor the company over the individual as they make class actions impossible and the arbitrator is often chosen and paid for by the company. The higher courts have upheld many arbitration agreements in recent years, but not all of the appellate courts have been as favorable to the agreements. Many have been found to be unenforceable and the likelihood of such a finding can only increase if the consumer never even saw the arbitration agreement.
When a company is publicly owned, it needs to be aware that it has a responsibility, not only to its customers, but also to its shareholders. The recent class action lawsuits against Lumber Liquidators are good examples of this fact.
Shareholders filed a lawsuit against Lumber Liquidators when it came to light that the company had allegedly imported wood from the habitat of an endangered species and sold wood with elevated levels of formaldehyde. This lawsuit demonstrates the fact that selling unsafe materials has the potential to cause harm, not only to the customers who purchase the material, but also the people who have invested money in the company.
Shortly after the shareholders filed their lawsuit against Lumber Liquidators, customers who had purchased wood from the company filed a similar lawsuit.
Lumber Liquidators has been under investigation recently for importing wood from China which was allegedly harvested in Russia from the habitat of the endangered Siberian tiger. Taking lumber from the habitat of an endangered species is in direct violation of the Lacey Act, a conservation law which has been in existence in the United States since 1900. The Act was put in place to protect plants and wild animals from the hazards of industrialization. Among other things, the Act prohibits trading in wildlife, fish, and plants which have been illegally harvested, transported, or sold. In 2008, the Act was amended to include anti-illegal-logging provisions which makes it illegal to take wood from the habitat of an endangered species.
In addition to violating the Lacey Act, the lawsuits allege that Lumber Liquidators sold wood which contained unsafe levels of formaldehyde. According to the Environmental Protection Agency, formaldehyde is an important component in the production of processed wood products and other home goods. However, it has also "been shown to cause cancer in animals and may cause cancer in humans". The gas also has the potential to cause other health problems, including eye, nose, and throat irritation, wheezing and coughing, fatigue, and severe allergic reactions. Because of these health concerns, the federal government has imposed limits on the amount of formaldehyde that it deems safe to use in wood products.
Needless to say, when consumers discovered that the wood they had purchased might not be safe, they expressed serious concerns regarding the matter. The consumers' lawsuit was filed by three consumers who are petitioning the court to be named plaintiffs in the class action lawsuit against Lumber Liquidators. Each of these consumers purchased wood from Lumber Liquidators and had it installed in their homes. They all allege that, at the time that they bought the wood, it was represented as being in compliance with both the Lacey Act and formaldehyde standards. The three plaintiffs allege that they were entirely dependent upon Lumber Liquidators's representation of the wood and that they would not have purchased it if they had known that the wood might contain unsafe levels of formaldehyde.
The consumers' lawsuit has been filed on behalf of everyone in the United States "who purchased and installed wood flooring from Lumber Liquidators Holdings, Inc., either directly or through an agent, that was sourced, processed, or manufactured in China".
While lawsuits have become increasingly common in today's society, they have grown no less costly. Because of the cost and time consuming nature of lawsuits, plaintiffs should be advised to thoroughly consider every line of their contracts, as well as the law, before taking a person or company to court. In a recent case handled by the Seventh Circuit Court of Appeals, Martha Schilke either failed to thoroughly read her mortgage contract, or she failed to fully understand it. Either way, the result was much time spent in court that could have been avoided.
Schilke purchased a town house in 2006 using a mortgage from Wachovia Mortgage, FSB. One of the conditions of her mortgage was that Schilke buy and maintain insurance on her property. If, at any point, she failed to do so, the contract stipulated that Wachovia had the right to purchase insurance on her behalf and charge her for the premium. The contract even went so far as to warn Schilke that, due to fewer insurance options, insurance coverage bought by them would likely be at a much higher premium and less coverage than insurance Schilke could buy on her own.
The contract further stated that "[i]f at any time during the life of the loan, a policy is cancelled or replaced or an insurance agent is substituted, we must receive written evidence of the insurance and written evidence of the substitution of the insurance agent. Written evidence of insurance is defined as: a copy of the reinstatement notice for the cancelled policy or a copy of the replacement policy. ... If we do not receive such evidence prior to the termination date of the previous coverage, we may at our sole option, obtain an insurance policy for our benefit only, which would not protect your interest in the property or the contents. We would charge the premium due in under such a policy to your loan and the loan payment would increase accordingly."
In January of 2008, Schilke purchased insurance for her property. In May of that same year, Wachovia sent her a notice that her policy had ended on April 8. The letter requested that Schilke provide proof of insurance within 14 days. She never replied. Wachovia sent Schilke another letter in June, once again requesting proof of insurance and notifying her that it had acquired temporary insurance coverage through American Security Insurance (ASI). Enclosed with the letter was an "Illinois Notice of Placement Insurance" in which Wachovia described the terms of the temporary insurance coverage and informed Schilke that she was responsible for the cost. The letter further stated that, if Schilke could provide proof of insurance, Wachovia would cancel the temporary insurance coverage and refund any premiums paid by Schilke. It also stated that, in the event that Schilke failed to provide proof of insurance in the next 30 days, Wachovia would cancel the temporary insurance and replace it with a 12-month insurance policy, for which Schilke would be charged.
In July 2008, Wachovia wrote to Schilke to inform her that it had purchased a 12-month insurance policy on her mortgaged property and of the cost of that coverage. One year later, Schilke filed a class action lawsuit, on behalf of herself and others similarly situated, against Wachovia and ASI for allegedly engaging in deceptive practices by failing to disclose that Wachovia was receiving "kickbacks" from ASI.
Wachovia and ASI moved to dismiss the motion and the district court granted it.
Schilke then sought leave to file an amended complaint in which she added claims for breach of contract against both Wachovia and ASI and "clarified" that her claim under the Consumer Fraud Act was based on allegations that Wachovia's conduct was both "deceptive" and "unfair" as defined by the Act. The district court rejected the proposed amendment, concluding that Schilke's "clarification" of her amendment did not change the fact that she did not have a claim under the Act.
Schilke then submitted another amended complaint. In this version, she proposed to add Assurant, Inc., ASI's parent company, as a defendant. She also proposed to add claims for conspiracy, aiding and abetting, acting "in concert", and "intentional interference". The judge denied leave to amend the complaint, stating that none of the changes significantly changed the allegations in the complaint. Schilke appealed and the case moved to the Seventh Circuit Court of Appeals.
As to Schilke's claims under the Consumer Fraud Act, the Act prohibits any "unfair" or "deceptive" business practices to be used by a person or entity in order to gain an unfair advantage. The Act defines these terms as including "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". The court found that, due to the contract provided by Wachovia, as well as its notices and correspondence to Schilke, the company had provided sufficient evidence that it had not violated the Consumer Fraud Act.
Schilke tried to claim that, even if Wachovia's business practices were not deceptive, they were unfair because they "coerced" her into buying insurance through them. She backed this statement by saying that, had she refused to pay for the insurance through Wachovia, or failed to make a payment on her mortgage, Wachovia would have cancelled her mortgage, therefore she was "coerced" into buying the more expensive insurance. The court, however, pointed out that Wachovia had provided plenty of chances for Schilke to purchase cheaper insurance and, since having insurance was always a part of the legal contract, the court denied these allegations.
Because Wachovia received a commission from ASI for purchasing insurance on one of its properties, Schilke called it a "kickback" and claimed that it was unlawful. However, a "kickback" is defined as a bribe or payment which might be used to divide loyalties. This was never the case because Wachovia was not acting on Schilke's behalf. Instead, the bank was merely acting to protect its own interests in the property it had purchased, for which Schilke was paying them back. Such a commission is fully within the limits of the law.
The Seventh Circuit Court of Appeals therefore upheld the ruling of the district court and dismissed the case.
How to avoid internet auto fraud, intimidation and extortion.
Our Chicago consumer protection and Chicago class action lawyers are investigating food product mislabeling claims.
NY Attorney General sues Trump University for alleged consumer fraud. Our Chicago consumer fraud and class action lawyers have successfully pursued class actions against trade schools in Illinois that have misrepresented the percentage of graduates who have obtained jobs in the field or omitted to disclose that very few graduates obtain jobs in the field. Illinois requires trade schools to disclose the percentage of graduates who obtain jobs in the field.
Our law firm is pursuing class actions and putative class actions against for profit vocational schools in the Chicago area. We have interviewed many students of for profit universities, colleges and vocational schools who believe that various for profit colleges and Universities have cheated them along with the government in getting the students to borrow money with government backed loans for essentially a worthless education.
Federal Court Dismisses Certain State Law Claims in Multidistrict Litigation Case Alleging ATM Overdraft Fee Fraud
A federal judge denied most of a motion to dismiss brought by multiple banks in a consolidated case alleging overdraft fee fraud. In re Checking Account Overdraft Litigation, 694 F.Supp.2d 1302 (S.D. Fla. 2010). The Judicial Panel on Multidistrict Litigation (JPML) consolidated multiple claims into a single matter in the Southern District of Florida in order to deal efficiently with common pretrial matters. The plaintiffs asserted causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing (“GFFD covenant”), and many individual causes asserted common law breach of contract claims and state law consumer protection claims. The defendants filed an omnibus motion to dismiss, which the trial court granted in part and denied in larger part. The court dismissed claims under certain state consumer statutes, as well as claims based on the laws of states in which no plaintiffs lived.
The central issue of the litigation was the ordering of ATM transactions from highest to lowest, regardless of the order in which the account holder performed the transaction. This allegedly reduced the account holder’s total account balance more quickly, garnering more overdraft fees for the defendants. At the time the court rendered its order on the omnibus motion to dismiss, the litigation consisted of fifteen separate complaints, each brought against an individual bank. All of the fifteen complaints pending at the time of the court’s order involved breach of GFFD covenant claims. Five complaints were filed in California as putative class actions on behalf of California customers. Eight complaints were filed outside California, putatively on behalf of nationwide classes excluding California. One complaint was filed by a California resident and sought to represent a nationwide class. The final complaint was filed by a Washington resident on behalf of a class of Washington customers. According to the JPML, the consolidated litigation has involved one hundred separate complaints since 2009, with forty-four still involved as of March 5, 2013.
Court Retains Most of a Deceptive Business Practices Putative Class Action Against a Bank for Overdraft Fees - White v. Wachovia Bank
A federal court allowed most causes to proceed in a putative class action against a bank for allegedly fraudulent overdraft fees. White, et al v. Wachovia Bank, N.A., No. 1:08-cv-1007, order (N.D. Ga., Jul. 2, 2008). The plaintiffs, who alleged that the bank had recorded transactions out of chronological order to maximize overdraft fee liability, claimed violations of state deceptive trade practice laws and several claims related to breach of contract. The court denied the defendant bank’s motion to dismiss as to all but two of the plaintiffs’ claims.
The two lead plaintiffs opened a joint checking account with Wachovia Bank in 2007. They signed a Deposit Agreement that stated that the bank could pay checks and other items in any order it chose, even if it resulted in an overdraft. It also stated that the bank could impose overdraft charges if payment of any single item exceeded the balance in the account. The plaintiffs alleged in their lawsuit that Wachovia ordered its posting of transactions in a way that would cause their account to incur overdraft fees, even when they had sufficient funds to pay the items. They also alleged that the bank imposed overdraft fees when no overdraft had occurred.
The lawsuit, originally filed in a Georgia state court in February 2008, asserted violations of the Georgia Fair Business Practices Act (FBPA), O.C.G.A. §§ 10-1-390 et seq., and breach of the duty of good faith. The plaintiffs also claimed that the clause of the Agreement related to the ordering of transaction was unconscionable, that the bank had engaged in trover and conversion, and that it had been unjustly enriched. The defendant removed the case to federal court under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2), which allows defendants to remove certain class actions to federal court. It then moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which allows a court to dismiss a lawsuit that “fail[s] to state a claim upon which relief can be granted.” To defeat such a motion, a plaintiff must show a plausible factual basis for their claims.
Class Action Plaintiffs Awarded $203 Million in Lawsuit Alleging Manipulation of Bank Overdraft Charges - Gutierrez v. Wells Fargo
A California federal court awarded $203 million in damages to a class of plaintiffs in Gutierrez v. Wells Fargo Bank, NA, 730 F.Supp.2d 1080 (N.D. Cal. 2010). The lawsuit alleged that the defendant bank overcharged the plaintiffs, who held deposit accounts at the bank, for overdraft fees, using a series of deceptive bookkeeping techniques. A similar bookkeeping trick was the subject of an Illinois lawsuit resulting in a settlement, Schulte v. Fifth Third Bank, 805 F.Supp.2d 560 (N.D. Ill. 2011).
According to the court’s ruling in the Gutierrez case, Wells Fargo charged individual depositors more than $1.4 billion in overdraft fees between 2005 and 2007, just in the state of California. Gutierrez, 730 F.Supp.2d at 1082. The lawsuit, filed on behalf of individual depositors, alleged that Wells Fargo used a bookkeeping trick known as “resequencing” to turn a single $35 overdraft charge into as many as ten overdraft charges. The bank would then hide this technique behind a “facade of phony disclosure.” Id. The court outlined how the bank would sequence transactions from the highest amount to the lowest amount, out of chronological order, often resulting in a negative balance in an account earlier than if it had sequenced the transactions in any other order. This maximized the amount of overdraft fees the bank could charge to the account. Id. at 1088.
The allegations in the Schulte case were similar to those in Gutierrez. Fifth Third Bank allegedly processed ATM and debit card transactions out of chronological order. During a posting period, the bank would process the largest transactions first, proceeding in high-to-low order. Schulte, 805 F.Supp.2d at 565. This allegedly almost guaranteed that, if a depositor overdrew their account during that posting period, the bank could collect more overdraft fees.
Cass Sunstein Former Chief Regulator for the Obama Administration Discusses the Importance of Ensuring that Consumer Disclosures are Written in Plain English Which Consumers Understand
Chicago Class Action Attorneys and Consumer Fraud Lawyers at DiTommaso-Lubin and ChicagoLemonLaw.com Prevail in Beating Back a Summary Judgment Motion in Long Running Alleged RV Fraud Lawsuit
In a long running alleged RV fraud case, the Chicago lemon law and autofraud attorneys at DiTommaso-Lubin and ChicagoLemonLaw.com prevailed in beating back Defendant's summary judgment motion. After years of litigation in federal and state court which resulted in discovery sanctions being imposed on the RV dealer defendant for withholding a smoking gun email, the case is finally headed for a jury trial where we hope to vindicate our client's rights and obtain a substantial judgment. You can click here to obtain a copy of the full opinion:
This cause is before the Court on Defendants Barrington Motor Sales RV (“Barrington”), Bryan Bransky, and Sean Bransky’s motion for summary judgment on Plaintiff IWOI, LLC’s complaint under section 2-1005 of the Illinois Code of Civil Procedure.
The Plaintiff alleges that the Defendants sold the Plaintiff an RV that purportedly contained material defects. In addition, the Plaintiff alleges that the Defendants knew of the defects at the time of sale and omitted disclosure of the defects and actively concealed the defects from the Plaintiff. The Plaintiff filed an eight-count complaint alleging claims for (1) violation of the Illinois Consumer Fraud Act (count I – Barrington; count II – Sean Bransky; count III – Bryan
Bransky); (2) Action to Recover the Price under 810 ILCS 5/2-711(1) (count IV – Barrington); (3) common law fraud (count V – Barrington; count VI – Sean Bransky; count VII – Bryan Bransky); and (4) revocation of acceptance (count VIII – Barrington). The Court notes that the parties, by agreement and with the consent of this Court, submitted complete copies of briefs and related statements that the parties previously filed in the matter of IWOI, LLC v. Monaco Coach Corp, et al., Case No. 07 C 3453 (N.D. Ill. 2007).
Summary judgment is proper when the pleadings, affidavits, depositions, admissions, and exhibits on file, when viewed in a light most favorable to the nonmovant, fail to establish a genuine issue of material fact, thereby entitling the movant to judgment as a matter of law. 735 ILCS 5/2-1005(c); Adames v. Sheehan, 233 Ill. 2d 276,. 295-96 (2009). A genuine issue of material fact precluding summary judgment exists where the material facts are disputed, or if reasonable persons might draw different inferences from undisputed facts. Adames, 233 Ill. 2d at 296. However, summary judgment is a drastic means of disposing of litigation and should be granted only when the right of the moving party is clear and free from doubt. Adams v. N. Ill. Gas Co.; 211 Ill. 2d 32, 43 (2004). A party opposing a summary judgment motion is not required to prove their case; but, it is under a duty to present a factual basis which would arguably entitle it to judgment in their favor, based on the applicable law. Soderlund Bros. v. Carrier Corp., 278 Ill. App. 3d 606, 615 (1st Dist. 1995).
Barrington moves for summary judgment on count VIII arguing that the Plaintiff’s purported acceptance of the RV, with knowledge of the alleged defects, bars the Plaintiff’s revocation claim. In contrast, the Plaintiff contends that material facts exist as to Barrington’s (1) knowledge of all of the RV’s purported defects; (2) knowledge regarding the severity of the defects; and (3) that acceptance was based on the assurances of Barrington that the defects were cured.
Section 2-608(1) of the Illinois Uniform Commercial Code states that: “[t]he buyer may revoke his acceptance of a ... commercial unit whose non-conformity substantially impairs its value to him if he has accepted it: (a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.” 810 ILCS 5/2-608(1). Whether revocation is justified is ordinarily a question of fact to be determined by the circumstances of the particular case. Boysen v. Antioch Sheet Metal, Inc., 16 Ill. App. 3d 331, 332 (2nd Dist. 1974). The Plaintiff attached the affidavit of Robert Woischke, the Plaintiffs manager who
was involved in purchasing the RV on behalf of the Plaintiff. The affidavit lists the purported defects that Mr. Woischke was allegedly unaware of at the time he “accepted” the RV. Therefore, the Court finds that questions of fact exist as to whether the Plaintiff was justified in revoking his acceptance.
Barrington also argues that the under the purchase agreement, the Plaintiff purchased the RV “AS IS,” and therefore, because Barrington delivered the good described in the contract, the good can neither be deemed nonconforming nor can there be grounds for the Plaintiff to revoke acceptance. “When the evidence unequivocally demonstrates that the substantially defective nature of the vehicle clearly impaired its value to the Plaintiffs ... revocation of acceptance is appropriate even if the dealer has properly disclaimed all implied warranties.” Blankenship v. Northtown Ford, Inc., 95 Ill. App. 3d 303, 305-07, 420 N.E.2d 167, 50 Ill. Dec. 850 (4th Dist. 1981).
The Court finds that questions of fact exist regarding Barrington’s argument for the following reasons. First, the the trier of fact must determine whether the alleged defects in the goods caused substantial impairment to the buyer. See GNP Commodities, Inc. v. Walsh Heffernan Co., 95 Ill. App. 3d 966, 978 (1st Dist. 1981) (substantial impairment is measured in terms of the particular needs of the buyer). Specifically, the Court finds that questions of fact exist regarding whether or not the evidence demonstrates that the purported defects in the RV substantially impaired its value to the Plaintiff. Similarly, factual question of whether the attempted revocation of acceptance was timely or whether delay in buyer’s attempted revocation of acceptance was reasonably induced by the seller’s continued assurances that repairs would be successful must also be resolved. See Id. at 974 (the reasonable time for revocation of acceptance may be extended if the seller gives continuous assurances). The Court finds that because factual questions regarding whether or not the defects had a substantial impairment on the Plaintiff’s value must first be determined, the Court is unable to determine, as a matter of law, whether or not the disclaimer precluded the Plaintiff’s ability to revoke his acceptance.
Secondly, the Court finds that questions of fact exist regarding whether or not Barrington delivered the RV as required under the purchase agreement because presumably, the purchase agreement required Barrington to tender a fully conforming RV, which based on the allegations within the Plaintiff’s complaint, Barrington did not. Therefore, Barrington’s motion for summary judgment on count VIII of the Plaintiff’s complaint is denied.
The Plaintiff argues that the Defendants are not entitled to summary judgment on counts I-III because questions of material fact exist as to what the
Defendants purportedly concealed and failed to disclose to the Plaintiff, including
(1) the existence of unfixable defects on the RV and (2) improper modifications made in an attempt to mask the defects. In order to state a cause of action under the Illinois Consumer Fraud and Deceptive Business Practices Act (“Consumer Fraud Act”), a plaintiff must show: (1) that the defendant engaged in a deceptive act or practice; (2) that the defendant intended the plaintiff to rely on the deception; (3) that the deception occurred in the course of conduct involving trade or commerce; and (4) actual damage to the plaintiff; (5) proximately caused by the deception. Capiccioni u. Brennan Naperville, Inc., 339 Ill. App. 3d 927, 933 (2nd Dist. 2003). An omission or concealment of a material fact in the conduct of trade or commerce constitutes consumer fraud. Connick v. Suzuki Motor Co., Ltd., 174 Ill. 2d 482, 501 (1997). Concealment is actionable where it is employed as a device to mislead. First Midwest Bank, N.A. v. Sparks, 289 Ill. App. 3d 252, 257 (2nd Dist. 1997). A car dealer that “conceals, suppresses, or fails to disclose a material fact to a consumer violates section 2 of the [Consumer Fraud Act] if the dealer intended the consumer to rely upon the concealment, suppression, or omission.” Totz v. Cont’l Du Page Acura, 236 Ill. App. 3d 891, 903 (2nd Dist. 1992).
The Court finds that questions of material fact exist regarding whether the Defendants knew that the RV had unfixable defects. In addition, the Court finds that if the Defendants knew of unfixable defects, questions of material fact exist regarding whether the Defendants concealed and failed to disclose them to the Plaintiff. Further, the Court finds that questions of fact exist regarding Defendant Bryan Bransky’s liability under the Consumer Fraud Act because it is unknown whether, at the time he prepared and signed an inspection report stating that there were no defects to the RV, he knew that unfixable defects existed on the RV. Therefore, the Defendants’ motion for summary judgment on counts I - III of the complaint is denied.
The Court notes that the Defendants moves for summary judgment on counts V – VII by including a one sentence citation, without a supporting argument, to an Illinois Appellate Court opinion regarding the element of justifiable reliance. The Court finds that the Defendants failed to meet their burden of establishing that no questions of material fact exist regarding counts V –VII. Therefore, the Defendants’ motion for summary judgment on counts VI – VII of the complaint is denied.
For the foregoing reasons, it is hereby ORDERED:
(1) Barrington’s motion for summary judgment on count VIII of the Plaintiff’s complaint is DENIED;
(2) Defendants’ motion for summary judgment on counts I - III of the Plaintiff’s complaint is DENIED;
(3) Defendants’ motion for summary judgment on counts VI - VII of the complaint is DENIED;
(4) The parties have until February 22, 2013 to pick up the unmarked courtesy copies tendered to the Court, otherwise they will be discarded;
(5) This case is continued for a case management date of March 1, 2013 at 9:30 a.m. without further notice.
DiTommaso-Lubin's Chicago Class Action Attorneys Will Fight Against Unethical Confidentiality Provisions -- CBA Advisory Opinion Concludes That Confidentiality Provision Used By Car Dealer Attorneys in the Chicago Area May Be Unethical
Under the First Amendment to the Constitution and lawyers' ethics rules, the public and litigants have a right to know about about matters that are resolved in our court and litigation system. For instance a car dealer who repeatedly engages in consumer fraud, bait and switch and false advertising or who regularly sells lemon cars should not be able to hide litigation about its misconduct from the public though use of confidential settlement agreements. This is particularly true because the Supreme Court has allowed contracts of adhesion to force consumers to arbitrate claims in secret forums against big business such as car dealers and other businesses such as cell providers and cable television companies. The combination of secret arbitration proceedings and of defendants using confidentiality clauses in settlement agreements to hide misconduct that has been exposed through litigation is keeping misconduct by many businesses secret.
In a recent case our firm litigated a so called pro-consumer rights law firm that regularly litigates consumer fraud cases on behalf of consumer victims used such a confidentiality clause to refuse to cooperate and force us to go to court to uncover the details of repeated false advertising engaged in by a business whose pattern of misconduct had already been exposed through extensive litigation. This so called pro-consumer rights law firm had documents that were not publicly available which put the lie to false testimony provided by the owners of the deceptive business. These lawyers in this firm, who have a practice that should make them sympathetic to protecting consumer rights and freedom to obtain information about public lawsuits, participated in trying to hide the very misconduct that they had litigated to expose. This type of conduct according to a recent Chicago Bar Association ethics advisory opinion violates lawyer ethics rules.
At the request of DiTommaso-Lubin's long time co-counsel Dmitry Feofanov of ChicagoLemonLaw.com , the Chicago Bar Association just issued the below ethics advisory opinion concluding that use of certain confidentiality provisions in consumer rights, class action and other important litigation are unethical under Illinois attorney ethics rules. These same rules apply in many other states. There has been a recent trend among defendants to demand these confidentiality provisions.
You can click here for a copy of the opinion.
Below is the full text of this important advisory opinion in full:
Chicago Bar Association
Informal Ethics Opinion 2012-10
Committee on Professional Responsibility
The Professional Responsibility Committee of the Chicago Bar Association has issued the following informal legal ethics opinion as a public service to aid the inquiring lawyer in interpreting the Illinois Rules of Professional Conduct. The opinion represents the judgment of a member or members of the Committee and does not constitute an official act of the Chicago Bar Association. The opinion is not binding upon the Attorney Registration and Disciplinary Commission or on any court and should not be relied upon as substitute for legal advice.
The Committee has received the following inquiry:
(1) Is the confidentiality provision of the proposed settlement agreement attached
hereto as Exhibit A ethical under Illinois Rule of Professional Conduct 3.4(f)?
(2) Is the confidentiality provision of the proposed settlement agreement attached
hereto as Exhibit A ethical under Illinois Rule of Professional Conduct 5.6(b)?
(3) May a defendant's lawyer, as part of settlement discussions, demand that the
settlement agreement include a provision that prohibits plaintiffs counsel
from disclosing publicly available facts about the case on plaintiffs counsel's
website or through a press release?
Inquiry 1: Settlement Agreement Non-Cooperation Provisions and Rule 3.4(f)
Illinois Rule of Professional Conduct 3.4(f) states that a "lawyer shall not. . . request a person
other than a client to refrain from voluntarily giving relevant information to another party" unless
that person is a relative or agent of the client and the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from disclosure. I I I . R. PROF'L CONDUCT R. 3.4(f) (2010). As the comments to Rule 3.4 explain, the rule is based on the belief that "[fjair competition in the adversary system is secured by prohibitions against destruction or concealment of evidence, improperly influencing witnesses, obstructive tactics in discovery
procedure, and the like." Id. cmt. 1.
Settlement agreements are not exempt from Rule 3.4(f). S.C Ethics Advisory Comm. Op. 93-20
(1993). Therefore, when negotiating a settlement agreement, a lawyer cannot ethically request
that the opposing party agree that it will not disclose potentially relevant information to another
party. Id. The Committee believes that "another party" in Rule 3.4(f) means more than just the
named parties to the present litigation. Rather, it should be interpreted more broadly to include
any person or entity with a current or potential claim against one of the parties to the settlement
agreement. A more narrow interpretation would undermine the purpose of the rule and the proper functioning of the justice system by allowing a party to a settlement agreement to conceal important information and thus obstruct meritorious lawsuits.
Here, the defendant has proposed a settlement provision that would prohibit the plaintiff from,
among other things, disclosing the "existence, substance and content of the claims" and "all
information produced or located in the discovery processes in the Action" unless "disclosure is
ordered by a court of competent jurisdiction, and only if the other party has been given prior
notice of the disclosure request and an opportunity to appear and defend against disclosure . . ."
That proposed settlement provision therefore precludes the plaintiff from voluntarily disclosing
relevant information to other parties. As a result, it violates Rule 3.4(f) and a lawyer cannot
propose or accept it. I I I . R. PROF'L CONDUCT R. 3.4(f); S.C. Ethics Advisory Comm. Op. 93-20 (1993).
Inquiry 2: Settlement Agreement Confidentiality Provisions and Rule 5.6(b) llinois Rule of Professional Conduct 5.6(b) states that a "lawyer shall not participate in offering or making . . . an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy." I I I . R. PROF'L CONDUCT R. 5.6(b).There are three main public policy rationales for Rule 5.6(b): (i) to ensure the public will have broad access to legal representation; (ii) to prevent awards to plaintiffs that are based on the value of keeping plaintiffs' counsel out of future litigation, rather than the merits of plaintiffs case; and (iii) to limit conflicts of interest.
By its own terms, Rule 5.6(b) plainly applies to direct restrictions on the right to practice law.
Moreover, certain indirect restrictions on the right to practice law violate Rule 5.6(b) as well,
namely, a lawyer agreeing not to bring future claims against a defendant, and a number of ethics
authorities have determined that some confidentiality provisions in settlement agreements violate
According to the American Bar Association's Ethics Opinion 00-417, a provision in a settlement
agreement that prohibits a lawyer's future "use" of information learned during the litigation
violates Rule 5.6(b), because preventing a lawyer from using information is no different than
prohibiting a lawyer from representing certain persons. ABA Standing Comm. on Ethics &
Prof 1 Responsibility, Formal Op. 00-417 (2000). That same opinion further determined that a
settlement provision that prohibits a lawyer's future "disclosure" of such information generally is
permissible, because without client consent the lawyer already generally is foreclosed from
disclosing information about the representation. Id.
However, not all limitations on the disclosure of information are ethical. Rather, as several
authorities have stated, whether a settlement provision restricting a lawyer's "disclosure" of
information violates Rule 5.6(b) depends on the nature of the information. Numerous ethics
authorities have determined that settlement provisions may prohibit a party's lawyer from
disclosing the amount and terms of the settlement (provided that information is not otherwise
known to the public), because that information generally is a client confidence and consequently
is required by the rules of professional conduct to be kept confidential absent client consent.
D.C. Bar Ethics Op. 335 (2006); N.Y. State Bar Ass'n Comm. on Prof 1 Ethics Op. 730 (2000);
N.D. State Bar Ass'n Ethics Comm Op. 97-05 (1997); Col. Bar Ass'n Ethics Comm. Op. 92 (1993); N.M. Bar Ass'n Advisory Ops. Comm. Op. 1985-5 (1985). On the other hand, ethics
authorities have found that a settlement agreement may not prohibit a party's lawyer from disclosing information that is publicly available or that would be available through discovery in
other cases. D.C. Bar Ethics Op. 335 (2006); N.Y. State Bar Ass'n Comm. on Prof 1 Ethics Op.
730 (2000); N.D. State Bar Ass'n Ethics Comm. Op. 97-05 (1997).
Based on the foregoing authority, the Committee believes that under Rule 5.6(b), a settlement
agreement may not prohibit a party's lawyer from using information learned during the instant
litigation in the future representation of clients. The Committee agrees with the American Bar
Association that prohibiting a lawyer from using such information essentially is no different than
prohibiting a lawyer from representing certain clients in the future, and thus such a settlement
provision is an impermissible restriction on the practice of law in violation of Rule 5.6(b).
In addition, the Committee believes that pursuant to Rule 5.6(b) a settlement agreement may not
prohibit a party's lawyer from disclosing publicly available information or information that
would be obtainable through the course of discovery in future cases. The Committee agrees with
the District of Columbia Ethics Committee, and other ethics authorities cited above, that drawing
such a line strikes an appropriate balance between the genuine interests of parties who wish to
keep truly confidential information confidential and the important policy of preserving the
public's access to, and ability to identify, lawyers whose background and experience may make
them the best available persons to represent future litigants in similar cases.
Applying those principles here, the Committee believes that the settlement provision as currently
drafted does not comply with Rule 5.6(b). While it is permissible for the settlement agreement to
prohibit the disclosure of the "substance, terms and content of the settlement agreement
(assuming that information is not otherwise publicly known), the settlement agreement violates
Rule 5.6(b) because it broadly forecloses the lawyer's disclosure of information that appears to
be publicly available already, such as the fact that a lawsuit was filed and certain claims were
asserted, as well as other information that could be obtained (and in fact was obtained) in
discovery. The settlement agreement therefore should be re-written to permit the lawyer's use of
information learned during the dispute and to permit the lawyer's disclosure of publicly available
information and information that would be available through discovery in other litigation.
Inquiry 3: Settlement Agreement Restrictions on Attorney Advertising and Rule 5.6(b)
Based on the principles discussed above, the Committee believes that under Rule 5.6(b), a
settlement agreement may not prohibit a party's lawyer from disclosing publicly available facts
about the case (such as the parties' names and the allegations of the complaint) on the lawyer's
website or through a press release. See, e.g., D.C. Bar Ethics Op. 335 (2006).
Dated: February 12,2013
CHICAGO BAR ASSOCIATION
PROFESSIONAL RESPONSIBILITY COMMITTEE
EXHIBIT A - Proposed Confidentiality Provision in Settlement Agreement
8. Plaintiff and his counsel agree that the existence, substance and content of the
claims of the Action, as well as all information produced or located in the discovery processes in
the Action shall be completely confidential from and after the date of this Agreement. Similarly,
the existence, substance, terms and content of this Agreement shall be and remain completely
confidential. Plaintiff shall not disclose to anyone any information described in this paragraph,
except: (a) if disclosure is ordered by a court of competent jurisdiction, and only if the other
party has been given prior notice of the disclosure request and an opportunity to appear and
defend against disclosure and/or to arrange for a protective order; (b) Plaintiff may disclose the
contents of this Agreement to his attorneys, accounting and/or tax professionals as may be
necessary for tax or accounting purposes, subject to an express agreement to become obligated
under and abide by this confidential and non-disclosure restriction; and (c) Plaintiff may disclose
that the Action has been dismissed.
As consumers, we are all familiar with the boilerplate language at the end of a standard form contract. Whether it is a cell phone agreement, real estate contract, or a car loan document, all form contracts include boilerplate fine print. Although consumers skim over these provisions, paying little attention to their significance, the fine print boilerplate provisions are actually quite important. It is important that consumers understand the legal significance of boilerplate provisions, so that they can understand their legal rights and obligations.
The following is a list of 5 common boilerplate provisions and their legal significance:
1. Choice of law. Most contracts include a provision that stipulates which laws will apply in the event that there is a dispute between the parties. Often times, state law will dictate that a contract should be determined according to the laws of the place where it was performed or executed, but given our reliance on electronic communications and document execution, it is often unclear where a contract was executed or where it is performed. Accordingly, the boilerplate language will stipulate which state or country’s law will be used to interpret the contract.
2. Jurisdiction. This boilerplate provision will stipulate the jurisdiction in which a lawsuit may be brought in the event that a dispute arises.
3. Venue. The fine print provision regarding venue governs which courts have the authority to hear and decide any business disputes regarding the contract. For instance, just because a contract dispute is to be governed according to Illinois law, the case may not necessarily be heard in an Illinois court depending on the circumstances of the contract and the dispute. The venue boilerplate language makes clear which state or federal court(s) have the authority to hear any disputes regarding the contract.
4. Attorney fee clauses. In some states, boilerplate provisions allowing for unilateral attorneys are allowed. Other states apply reciprocity for unilateral attorney fee provisions so that if one party is allowed to recover attorney fees in a successful claim, the other party is allowed to recover attorney fees, as well. Although attorney fee provisions are relatively common boilerplate language, there is no “one-size-fits-all” approach to attorney fee provisions.
5. Arbitration. Many form contracts include arbitration clauses that require parties to submit to arbitration in the event of a dispute. Arbitration clauses can become particularly complex when claims are brought as part of a class action and the boilerplate language provides that the parties must submit to arbitration. The U.S. Supreme Court recently decided in the landmark decision AT& Mobility v. Concepcion that the terms of an arbitration provision cannot be invalidated as unconscionable because the provision contained a class action waiver. The extent to which the AT&T Mobility decision is applicable is still in flux, however, so it is advisable to seek legal counsel regarding the practical effects of a particular arbitration provision if you have any doubts.
The Chicago consumer protection attorneys at DiTommaso-Lubin focus on representing clients in a wide variety of business law disputes, including disputes regarding the application of consumer contracts and boilerplate fine print language. Contact our office at (877) 990-4990 or (630) 333-0000 to schedule an appointment with one of our knowledgeable Chicago consumer protection attorneys.
While this blog frequently discusses issues regarding consumer rights in the event the consumers purchase a faulty product, it is equally important for companies to provide their consumers with full disclosure regarding their return policies. This is the issue at hand in a class action lawsuit against Toys “R” Us for allegedly failing to provide customers with full refunds on items purchased with promotional gift cards or discounts.
Allegedly, Toys “R” Us customers who purchased items from the store that offered free gift cards, buy-one-get-one-50-percent-off discounts or other benefits received less money than the full purchase price when they went to return the items.
Laura Maybaum, the lead plaintiff in the case, purchased $75 worth of Toys “R” Us products and received a $10 gift card. When she later returned one of the toys, the toy company allegedly refused to pay the full purchase price.
Under California law, retailers must give no less than full cash or credit refunds unless a more restrictive policy has been announced.
A California judge has recently approved a $1.1 million settlement in the case. Under the settlement, Class Members will receive a voucher for $10 off a purchase of $50 or more. The toy company has also agreed to provide more disclosure of its return policy for merchandise bought as part of a promotion. One of the ways they intend to do this is by putting the disclosure on point-of-sale displays.
Class Members include all California consumers who purchased toys from Toys “R” Us since January 1, 2008 that qualified for a promotion and then returned one or more items.
As consumers become increasingly health-conscious, we see more lawsuits against food manufacturers who label their products as “natural” when, in fact, they may have highly processed ingredients.
Such is the case in a lawsuit currently facing the Northern District of California. Two consumers, Lauren Ries and Serena Algozer have filed a class action on behalf of all similarly situated consumers against AriZona iced tea. They argue that the “natural” label on the beverages is deceptive, because they allegedly contain high fructose corn syrup and citric acid.
Ms. Ries claims she purchased an “All Natural Green Tea” at a gas station because she was thirsty and was looking for an option which would be healthier than soda. Ms. Algozer says she purchased several AriZona iced teas over the years, but neither plaintiff remembers the prices, nor do they have receipts.
Ms. Ries and Ms. Algozer filed for a class action under the Federal Rule of Civil Procedure 23(b)(2). This Rule is a little more lenient than Rule 23(b)(3), under which the commonality hurdle would have been much higher. As it is, potential class members only need to satisfy “minimal commonality” in order to qualify.
While this works in favor of the plaintiffs towards attaining class certification, it prevents them from collecting any monetary damages. The lawsuit was filed seeking an injunction against using the word “natural” on the product’s packaging, as well as restitution for their purchases of the mislabeled iced tea. However, the same “minimal commonality” requirements which allow this class to gain certification also prevent the class from claiming any monetary damages. Therefore, Judge Seeborg of the Northern District of California has partially certified the class for an injunction, but refused to certify the class to seek restitution for their purchases.
California Federal Court Dismisses Class Action Lawsuit Claiming Unpaid Commissions - Park v. Morgan Stanley & Co., Inc.
The United States District Court for the Central District of California dismissed a class action claim brought by a financial advisor employed by a major financial services company. In Park v. Morgan Stanley & Co., Inc., the plaintiff claimed breach of contract and violation of California’s Unfair Competition Law (UCL), based on allegations that the defendant failed to pay commissions owed to plaintiff and other employees. The court ruled that the plaintiff failed to plead sufficient facts to support his claim for breach of contract, and that the UCL claim lacked support as a result.
The plaintiff was employed by the defendant as a financial advisor by Morgan Stanley & Co., Inc. Part of his job involved the sale of financial products to investors. He received commission payments from the defendant as compensation for sales, in amounts based on an “applicable commission grid.” This grid was allegedly contained in a “written agreement” between the plaintiff and the defendant that the court described in its order as “unspecified.” According to the plaintiff, the defendant said that it would base commissions on the full amount of revenue received for the financial products sold. The plaintiff alleged that the defendant took a portion of the revenue received before applying the commission grid, thus reducing the total amount of the commissions paid to the plaintiff and other employees.
The plaintiff filed a federal class action lawsuit on November 15, 2011, claiming breach of contract and violations of the UCL. The lawsuit alleged that the defendant’s policies knowingly denied earned compensation to certain employees, resulting in breach of contract and unjust enrichment to the defendant. The defendant filed a motion to dismiss the claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure, asserting that the plaintiff had not stated a cause of action on which the court could grant relief. The court cited precedents from the U.S. Supreme Court and the Ninth Circuit Court of Appeals to establish that, in order to defeat the defendant’s motion, the plaintiff needed to demonstrate enough allegations of fact to make his claims facially plausible. The court found that the plaintiff did not meet this standard, and it granted the defendant’s motion to dismiss.