Articles Posted in Consumer Fraud/Consumer Protection

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The Business Was Not What They Promised: A Buyer’s Fraud Remedies and a Seller’s Defenses in an Illinois Sale

You closed on the acquisition in the spring, and by summer the
business you bought had stopped resembling the one you were sold. The
marquee customer, the one whose contract anchored the projections, had
given notice weeks before the closing, and the seller knew it. The
receivables that looked current were stale. The inventory was thinner
than the schedule. A tax exposure the seller called routine turned out
to be a six-figure problem already brewing. You sent a wire for a number
built on a story, and the story was not true. Now you want your money
back, and the seller points to the contract you signed and tells you
that a deal is a deal.

A signed purchase agreement is a powerful document, but it is not a
license for the seller to have lied. Illinois law gives a defrauded
buyer real remedies, and it gives an honest seller real defenses, and
which one prevails usually turns on two things, what was actually said
and written before the closing, and how carefully the agreement was
drafted. The buyer who understands the difference between a broken
promise and a provable fraud, and the seller who understands which
clauses actually protect him, are the ones who come out of these
disputes ahead.

Start with what fraud requires in Illinois. As the Supreme Court set
out in Connick v. Suzuki Motor Co., a claim for fraudulent
misrepresentation has five elements, a false statement of material fact,
the defendant’s knowledge or belief that the statement was false, an
intent to induce the other party to act, justifiable reliance on the
statement, and damage resulting from that reliance. Each element is a
battleground. A statement of fact is not the same as sales optimism,
reliance must be justifiable and not merely asserted, and the buyer must
connect the lie to a loss he can actually prove.

Fraud is not only what the seller says. It can be what the seller
hides. Connick also recognizes that concealing a material fact is
actionable when the seller was under a duty to disclose it, a duty that
arises where the parties stand in a relationship of trust and
confidence. Silence is not the only way to deceive. The seller who
volunteers that litigation is minor while sitting on a demand letter
that threatens the business has not stayed silent. He has spoken, and he
has spoken falsely.

There is a limit the buyer must respect, because it disposes of weak
fraud claims. Illinois generally does not allow a fraud claim built on a
broken promise about the future. A representation of what will happen,
as opposed to what is or was true, is ordinarily the domain of contract,
not fraud. The exception, drawn from Steinberg v. Chicago Medical School
and HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., is that
a false promise is actionable when it was the very scheme used to
accomplish the fraud. A buyer who dresses a garden-variety failure to
perform in the language of fraud will lose. A buyer who can show the
promise was a deliberate device to close the deal will not.

The seller’s next move is often the economic loss rule. Under Moorman
Manufacturing Co. v. National Tank Co., a party cannot use tort law to
recover purely economic losses that belong to the law of contract and
warranty. But Moorman has never shielded fraud. As the Supreme Court
confirmed in First Midwest Bank, N.A. v. Stewart Title Guaranty Co., an
intentional false representation is an exception to the rule, and a
buyer who was defrauded may pursue the tort even though the parties had
a contract. The economic loss rule bars the disappointed buyer. It does
not bar the deceived one.

Here is where sellers win or lose, and it is a matter of drafting. A
general merger or integration clause, the boilerplate reciting that the
written agreement is the entire agreement, does not bar a fraud claim,
because as the court explained in W.W. Vincent & Co. v. First Colony
Life Insurance Co., the rule that keeps prior statements out of a
contract dispute has no application to a claim sounding in fraud. What
does defeat a fraud claim is a specific non-reliance clause, a provision
in which the buyer represents that he did not rely on any statement
outside the four corners of the agreement. The Seventh Circuit, applying
Illinois law in Vigortone AG Products, Inc. v. PM AG Products, Inc.,
explained that such a clause negates the element of reliance and, if
enforced, precludes the suit. The difference between a plain merger
clause and a true non-reliance clause is the difference between a seller
who is exposed and a seller who is protected.

Reliance has a second dimension that favors a careful seller.
Illinois measures whether reliance was justifiable against the buyer’s
own ability to learn the truth. As the Supreme Court explained in Gerill
Corp. v. Jack L. Hargrove Builders, Inc., a party cannot close his eyes
to facts within his reach and later call his ignorance reliance. A
sophisticated buyer who was handed the data room, the contracts, and the
books, and who had every chance to investigate, may be unable to show
that his reliance on a casual assurance was justified. This is why the
scope of due diligence, and what the seller did or did not make
available, so often decides the case.

The buyer has an answer to the seller who over-reads his own
contract. An “as is” clause or a disclaimer of warranties does not
license fraud. As the court held in Bauer v. Giannis, a buyer remains
entitled to rely on the seller’s affirmative representations despite an
“as is” provision, and such a clause is not a defense to a claim that
the seller lied. The contract can allocate the risk of the unknown. It
cannot absolve the seller of the risk of his own deceit.

When fraud is established, the buyer has a choice of remedies. He may
affirm the deal and sue for damages, measured in Illinois under Gerill
as the benefit of his bargain, the difference between what the business
was worth as represented and what it was actually worth. Or he may seek
rescission, asking the court to unwind the sale and restore both sides
to where they began. He cannot keep the business and also undo the
purchase, so the election matters, and it should be made with counsel
and with the numbers in view. Well-drafted purchase agreements also
carve fraud out of the indemnification caps and exclusive-remedy clauses
that otherwise limit a buyer’s recovery, which is why a fraud claim so
often survives the very provisions the seller believed had closed the
book.

Time is its own defense, and its own trap. A common-law fraud claim
in Illinois is governed by the five-year period of section 13-205 of the
Code of Civil Procedure, 735 ILCS 5/13-205, while a claim on the written
contract itself carries ten years under section 13-206. Fraud, by its
nature, is often discovered late, and Illinois law accounts for that.
The discovery rule, and the fraudulent-concealment provision at section
13-215, can hold the clock until the buyer knew or reasonably should
have known that he had been wronged, as the Supreme Court described the
principle in Knox College v. Celotex Corp. A seller who buried the
problem cannot always count on the calendar to rescue him.

A few steps protect a buyer in the first weeks after the truth
surfaces. First, preserve everything from the deal, the data room, the
drafts, the emails, and above all the specific representations and the
disclosure schedules, because the case will be decided on what was said
and written, not on what anyone remembers. Second, separate the written
warranties from the oral assurances, because the two are governed by
different rules and the paper is where the leverage lives. Third, do not
elect between rescission and damages, and do not accept a quiet fix from
the seller, before counsel has valued both paths, because the first move
can foreclose the better one. For a seller, the lesson runs the other
way. The defense was won or lost at the drafting table, in the
disclosure schedules and the non-reliance language, long before anyone
thought about a lawsuit.

The sale of a business is the transfer of a story about what the
business is, and Illinois law holds the seller to the truth of that
story. A buyer who was merely disappointed has a contract claim at most.
A buyer who was deceived has more, and the boilerplate will not always
save the seller who earned the suit. The parties who prevail are the
ones who know, before the dispute begins, which words on the page
actually carry the weight.

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The complaint arrives about six months after the sale, and it is never really about the car. It is about the fee petition. A customer who bought a nine-year-old vehicle with ninety thousand miles on it, signed a buyer’s order marked as is, and drove it for five months now says the dealership committed consumer fraud. The pleading recites a repair the buyer paid for, attaches nothing, and demands actual damages, punitive damages, and attorney’s fees under the Illinois Consumer Fraud and Deceptive Business Practices Act. Plaintiff’s counsel knows that the fees are the leverage and that the cost of defending a four-thousand-dollar dispute is what usually produces a settlement.

What the complaint rarely contains is the thing the statute actually requires, which is a deception that reached this buyer and caused this loss. The Consumer Fraud Act is a powerful remedial statute, and dealers that shade disclosures or bury charges deserve what it does to them. But the Act is not a warranty statute, it is not a substitute for a breach of contract claim, and it does not make a dealership the insurer of a used car. A defense built on those distinctions, early, resolves a large share of these cases before the fees that drive them have a chance to accumulate.

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The complaint arrives styled as a class action, and the number at the bottom of the page is built to frighten you. A single fee, a single line in a form contract, or a single advertisement, multiplied across every customer you have served for years, until the demand looks large enough to swallow the company. The plaintiff’s lawyer wants you to see that number and reach for the checkbook before anyone asks the harder question. Can this case be a class action at all?

Most consumer fraud class actions are won or lost at class certification, the stage where the court decides whether one named plaintiff may sue on behalf of thousands. Illinois law gives a defendant real tools to defeat certification, and the strongest of them rests on one idea. A consumer fraud claim requires that each plaintiff was actually deceived, and deception rarely reaches thousands of people the same way.

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The complaint reads like an indictment of your marketing department. A national class. Allegations that a label, a website disclosure, or a price representation deceived consumers. A nationwide class period stretching back five years. A demand for restitution, actual damages, punitive damages, and a permanent injunction against your business practices. The Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505, is one of the broadest consumer-protection statutes in the country, and the plaintiffs’ bar treats it that way. The complaint is written to make a settlement feel inevitable long before discovery starts.

The complaint is doing what it is supposed to do. The Illinois Supreme Court and the Seventh Circuit have built five distinct doctrinal walls that most ICFA class actions never finish climbing. An Illinois defendant who learns those walls early often resolves the case at the pleading stage or wins at class certification, not after eighteen months of merits discovery. The settlement number a plaintiff demands on day one is usually the number that fits the case the plaintiff hopes to have. It is not the case Illinois law gives them.

The first wall is the extraterritorial limit, set by the Illinois Supreme Court in Avery v. State Farm Mutual Automobile Insurance Co. The Act does not reach a transaction that occurred outside Illinois. The Court held that there is no bright-line formula, but the inquiry asks whether the circumstances relating to the disputed transaction occurred primarily and substantially within Illinois. In Avery itself, a Louisiana plaintiff whose accident, repair, estimate, and dealings with the insurer all happened in Louisiana had no cause of action under the Illinois statute. The implication for class actions is enormous. A putative nationwide class that includes residents of forty-nine other states, whose purchases occurred everywhere except Illinois, runs straight into Avery. Many of these claims should not survive a motion to dismiss as to the out-of-state plaintiffs, and they almost never survive a contested class certification.

The second wall is choice of law in nationwide classes, illustrated by the Seventh Circuit’s decision in In re Bridgestone/Firestone, Inc. Tires Products Liability Litigation. Judge Easterbrook, writing for the panel, reversed certification of two nationwide classes because the claims would have to be adjudicated under the law of so many different jurisdictions that a single nationwide class was not manageable. The Seventh Circuit explained that the choice-of-law rules of the forum state ordinarily point to the consumer-protection law of each plaintiff’s home jurisdiction, not to a single state’s statute applied across the country. The implication for an Illinois ICFA class action that tries to reach beyond Illinois purchasers is direct. Where the trial court would have to apply Illinois law to some plaintiffs, California law to others, New York law to others, and so on, the predominance and manageability findings that Rule 23 demands collapse. Bridgestone is the case that prevents a single Illinois plaintiff from acting as a national consumer-protection regulator through one complaint. Continue reading ›

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Yes, the Illinois Attorney General can sue your company for consumer fraud (In re Tapper, 123 B.R. 594 (1991)), (People of State of Ill. ex rel. Hartigan v. Commonwealth Mortg. Corp. of America, 732 F.Supp. 885 (1990), (People of State of Ill. v. Life of Mid-America Ins. Co., 805 F.2d 763 (1986). The Attorney General can act under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFDBPA), and can take action when there is reason to believe that your company is engaging in, or about to engage in, any method, act, or practice declared unlawful under the ICFDBPA (People of State of Ill. v. Life of Mid-America Ins. Co., 805 F.2d 763 (1986)), (People ex rel. Devine v. Time Consumer Marketing, Inc., 336 Ill.App.3d 74 (2002)), (People ex rel. Madigan v. United Const. of America, Inc., 2012 IL App (1st) 120308 (2012)).

The Attorney General can file a lawsuit to halt deceptive practices without needing to demonstrate anyone has been directly harmed, a requirement necessary for a private plaintiff. B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 168 F.3d 967 (1999)), (Harris v. Kashi Sales, LLC, 609 F.Supp.3d 633 (2022)). Deceptive practices can include deceptive advertising or violations of the Illinois Consumer Fraud Act and the Illinois Uniform Deceptive Trade Practices Act (People of State of Ill. ex rel. Hartigan v. Commonwealth Mortg. Corp. of America, 732 F.Supp. 885 (1990)), (People ex rel. Devine v. Time Consumer Marketing, Inc., 336 Ill.App.3d 74 (2002)).

The Attorney General can file suit under the ICFDBPA when it appears your company has engaged in, is engaging in, or is about to engage in practices declared to be unlawful by the Act (815 ILCS 505/3), (815 ILCS 505/6.1). The Attorney General has the power to obtain and impose injunctions, and the ICFDBPA provides the Attorney General with the full authority to impose an injunction that can effectively tie up the company’s known assets. People of State of Ill. ex rel. Hartigan v. Peters, 871 F.2d 1336 (1989). They can even bring an action in the name of the People of the State against your company to restrain by preliminary or permanent injunction the use of such method, act, or practice (People ex rel. Devine v. Time Consumer Marketing, Inc., 336 Ill.App.3d 74 (2002), (815 ILCS 505/7).

However, a nonresident plaintiff can only sue under the ICFDBPA if the circumstances leading to the cause of action primarily and substantially occurred in Illinois. Irwin v. Jimmy John’s Franchise, LLC, 175 F.Supp.3d 1064 (2016). The company’s headquarters being located in Illinois is not a decisive factor as to whether a nonresident possesses standing to sue under the ICFDBPA. Irwin v. Jimmy John’s Franchise, LLC, 175 F.Supp.3d 1064 (2016).

It’s important to note that under the ICFDBPA, to state a claim, a plaintiff must show a deceptive or unfair act or promise by the defendant, the defendant’s intent that the plaintiff rely on the deceptive or unfair practice, and that the unfair or deceptive practice occurred during a course of conduct involving trade or commerce (Harris v. Kashi Sales, LLC, 609 F.Supp.3d 633 (2022)).

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Hiring DiTommaso Lubin to defend your company in an Illinois Attorney General consumer fraud investigation could be strategically beneficial for several reasons:

  1. Focus on Consumer Law: DiTommaso Lubin likely has a comprehensive understanding of consumer law, particularly as it pertains to the regulations and practices within Illinois. This focus on consumer law can be critical in navigating the specifics of a consumer fraud investigation conducted by the state’s Attorney General.
  2. Experience with Regulatory Bodies: If the firm has experience dealing with regulatory bodies, including the Illinois Attorney General’s office, it can provide your company with an advantage. Such experience means the firm understands the procedures, expectations, and typical workflows of the office, which can lead to more effective communication and negotiation.
  3. Defensive Strategies: The firm can develop robust defensive strategies tailored to the specifics of your case. This can include challenging the validity of the investigation, negotiating for lesser penalties, or demonstrating compliance with consumer protection laws.
  4. Preventive Advice: Beyond just defense, DiTommaso Lubin can offer preventive advice to help your company avoid future legal pitfalls. This includes revising current business practices, improving compliance protocols, and training staff to adhere to state and federal consumer laws.
  5. Reputation Management: During an investigation by the Attorney General, maintaining a positive public image is crucial. A law firm experienced in handling such cases can help manage the public and media perception, which is vital for preserving customer trust and company reputation.
  6. Cost-Effective: While defending against a consumer fraud investigation can be expensive, a specialized firm like DiTommaso Lubin might offer more cost-effective solutions through efficient management of the case, potentially reducing long-term costs associated with prolonged legal battles or heavier penalties.
  7. Personalized Attention: Depending on the size and focus of the firm, your company might benefit from more personalized service, ensuring that your specific needs and concerns are addressed promptly and thoroughly.

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Yes, a business can be considered a consumer under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) and can therefore file a suit under this Act. The ICFA allows private plaintiffs, including corporations, to file a suit if they can demonstrate damage due to a violation of the Act. The Act is designed to protect consumers, borrowers, and businesses against fraud, unfair competition, and other unfair and deceptive business practices. Importantly, the Act extends its protections to business entities as well.

The term “consumer” under the ICFA is defined as any person who purchases merchandise “not for resale in the ordinary course of his trade or business”. This means a business can be considered a consumer if it buys goods or services for its use and not for resale. For example, courts have found businesses to be consumers under the Act when they purchased insurance services for their own use. Yes, a business can be considered a consumer under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) and can therefore file a suit under this Act. The ICFA allows private plaintiffs, including corporations, to file a suit if they can demonstrate damage due to a violation of the Act. The Act protects consumers, borrowers, and businesses against fraud, unfair competition, and other unfair and deceptive business practices. Importantly, the Act extends its protections to business entities as well. Lefebvre Intergraphics v. Sanden Mach. Ltd., 946 F. Supp. 1358, 1369 (N.D. Ill. 1996) (finding that Plaintiff bought Defendant’s printing press for its own use and not for resale in the ordinary course of its business.); Labella Winnetka, Inc. v. Gen. Cas. Ins. Co., 259 F.R.D. 143 (N.D. Ill. 2009) (finding that Plaintiff is a consumer where it purchased Defendant’s insurance services for its own use and not for resale.); Commonwealth Ins. Co. v. Stone Container Corp., 2001 WL 477151, *4 (N.D. Ill. May 3, 2001) (same).

Please note that the definition of “person” under the Act includes legal or commercial entities such as corporations. This further supports the notion that a business can be a consumer under the Act.

If a business does not meet the definition of a “consumer” under the Act, it must establish a connection to consumer protection concerns in its claim. It needs to demonstrate that the deceptive or unfair practices in question have implications beyond the immediate contractual relationship and could potentially harm other consumers or the market more generally.

To prove a claim under the Illinois Consumer Fraud Act, a plaintiff must show (1) a deceptive act or practice by the defendant; (2) the defendant’s intent that the plaintiff relies on the deception; (3) that the deception occurred in the course of conduct involving trade and commerce; and (4) damages. Note that the Consumer Fraud Act does not authorize a suit by a non-consumer where there is no injury to consumers. Therefore, a business must show actual damage as a consequence of a violation of the Act. Also, to meet the causation element of a claim under the Consumer Fraud Act, a plaintiff must have actually been deceived in some manner by the defendant’s alleged misrepresentations of fact.

It’s essential to understand that the ICFA does not apply to every contract dispute, and failure to fulfill contractual obligations alone does not necessarily constitute a deceptive act or practice. Furthermore, a lawsuit under the ICFA cannot be based on the filing or threat to file time-barred suits without specific allegations of actual damages.

Please note that the definition of “person” under the Act includes legal or commercial entities such as corporations. This further supports the notion that a business can be a consumer under the Act. Continue reading ›

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Several cases in Illinois have awarded punitive damages for auto fraud by used car dealers. One such case is “Gent v. Collinsville Volkswagen, Inc.” where the court upheld punitive damages against the dealership for fraud or gross negligence, though the award was reduced from $12,000 to $3,000 as it was deemed excessive.

In the case “Totz v. Continental Du Page Acura”, punitive damages were awarded to the buyers for misrepresentations about the car’s condition, violating the Consumer Fraud and Deceptive Business Practices Act. This case was referred to in “Pigounakis v. Autobarn Motors”, where the court ruled that punitive damages can be awarded for outrageous conduct, specifically reckless indifference to the rights of others.

The case “Perez v. Z Frank Oldsmobile, Inc.” also awarded punitive damages for fraudulent actions other than misrepresenting a car’s mileage. In “Tague v. Molitor Motor Co.”, a $17,000 punitive damages award was justified due to the dealer’s pattern of bad faith and the danger posed to the customer and others due to unexpected brake failure. Continue reading ›

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Fake internet reviews can potentially state claims for deception under Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) laws. UDAAP laws are designed to protect consumers from deceptive practices by businesses, including misleading statements about products and services. This protection ensures consumer confidence, particularly in financial transactions, and it addresses unfair practices that can financially harm consumers and which they cannot reasonably avoid.

Under these laws, if a business or service provider uses fake reviews to deceive consumers into making purchases or forms a misleading impression about their products or services, this could be construed as a violation of UDAAP. Civil penalties may apply in these cases, regardless of whether the deceptive acts were committed intentionally or accidentally. It’s important to note that the scope of UDAAP violations is broad and can encompass a range of deceptive practices, including those occurring in online environments.

The Federal Trade Commission (FTC) has specifically addressed the issue of fake reviews and other misleading endorsements. The FTC is exploring rulemaking to combat deceptive or unfair review and endorsement practices, including the use of fake reviews, suppression of negative reviews, and payment for positive reviews. These actions are considered deceptive and can mislead consumers who rely on reviews for genuine feedback on products or services, and they can unfairly disadvantage honest businesses.

Overall, fake internet reviews have the potential to fall under UDAAP violations due to their deceptive nature and the misleading information they present to consumers. Continue reading ›

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In Illinois, the pleading requirements for consumer fraud and common law fraud differ in several key aspects:

  1. Common Law Fraud: To establish a case for common law fraud, you must demonstrate five elements:
    • A false statement of material fact made by the defendant to the plaintiff.
    • The defendant knew the statement was false.
    • The statement was made with the intent that the plaintiff would rely on it.
    • The plaintiff did rely on the statement.
    • The plaintiff suffered damage due to this reliance.
  2. Consumer Fraud: Under the Illinois Consumer Fraud Act, the requirements are slightly different and only four elements are needed:
    • A deceptive act or unfair practice (involving a public policy violation) by the defendant.
    • The defendant intended for the plaintiff to rely on the deception.
    • The deception or unfair practice occurred in the course of trade or commerce.
    • The plaintiff suffered actual damage as a result of the defendant’s violation of the act.

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