Illinois Appellate Court Affirms Dismissal of Class Action Lawsuit Alleging Consumer Fraud and Violations of Illinois Security Deposit Statutes

An Illinois Appellate Court recently considered a putative class action lawsuit alleging that a senior housing community operator violated several consumer protection statutes in connection with its contracts with residents. The First District affirmed the trial court’s dismissal of the claims finding that the trial court properly concluded that the contracts did not violate the statutes and granted summary judgment to senior housing community operator.

The defendant is an Illinois not for profit corporation that operates an independent living senior housing community for persons 55 years and older in Glenview, Illinois. The plaintiff filed the lawsuit as the executor of the estate of Marjorie Hamilton and sought to represent a class of other similarly situated individuals. Hamilton entered into a “Residency and Services Agreement” with the defendant for an apartment at the senior living facility Chestnut Square. The Agreement provided for an initial deposit that was to be paid by Hamilton to reserve a residence in Chestnut Square which would bear interest at the passbook savings rate established by Bank One.

In February 2013, Hamilton notified the defendant of her intent to terminate her residency. The defendant did not refund her entrance fee until July 2014. When it did, Hamilton did not receive any interest with her entrance fee refund. Even before the refund, the plaintiff filed a class action complaint against the defendant asserting claims of unconscionability; breach of contract; and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, the Security Deposit Interest Act and the Security Deposit Return Act. The trial court subsequently dismissed the unconscionability claim with prejudice, dismissed the Consumer Fraud Act claim without prejudice, and denied the defendant’s motion to dismiss the Deposit Return Act and Interest Act claims.

The trial court ultimately granted class certification for the Deposit Return Act and Interest Act claims but denied class certification for the Consumer Fraud Act and breach of contract claims. After class notice had been provided to the class members, the defendant filed for summary judgment as to all claims and plaintiff filed a cross-motion for partial summary judgment on liability under the Interest Act and Deposit Return Act claims. After hearing the arguments of both parties, the trial court granted summary judgment in favor of the defendant on both the class claims and the plaintiff’s individual claims. The plaintiff subsequently appealed these rulings to the First District Appellate Court.

As the Court noted, the crux of the plaintiff’s case depended on whether the Court found the Agreement to be a lease or a services agreement. A secondary issue in the case was whether the entrance fee could constitute a security deposit. Turning to the first question, the Court identified the requisite elements for an agreement to be considered a lease: (1) it must delineate the extent and bounds of the property; (2) it must identify a rental price and time and manner of payment; and (3) must set forth the term of the lease. After reviewing the terms of the Agreement, the Court determined that it could not be considered a lease under Illinois law.

First, the Court pointed out that the Agreement did not delineate the extent and bounds of the property. While acknowledging that it did refer to a specific apartment, the Court also noted that it allowed a resident to change apartments on request. Second, the Court noted that the Agreement did not specify a rental price. While it contained a monthly services fee, the Court pointed out that this fee related to various services that would be provided by Chestnut Square, including meals, housekeeping, resident social activities, and local transportation. Finally, the Court found that the Agreement did not set forth the term of the lease as it had no expiration date. A resident could live there as long as he was able to live independently (and the Agreement provided options for transferring to other facilities operated by the defendant if the resident was no longer able to do so). Additionally, the Agreement could be terminated at any time by either party. Accordingly, the Court found that the Agreement created much more than a simple landlord-tenant relationship between the parties and therefore the Agreement was not a lease.

After finding that the Agreement was not a lease, the Court reasoned that it follows then that the Interest Act and Deposit Return Act do not apply to the entrance fee. Parties are only covered by these statutes, the Court explained, if their agreements are leases. The Court also explained that the entrance fee did not share the characteristics of a security deposit. The entrance fee was not held to secure the payment of rent or as compensation for damage to property; instead, per the Agreement, it was held to cover the resident’s continued residency and the various services provided by the defendant during such occupancy, regardless of whether the resident was able to pay the monthly services fee. Following its analysis of the plaintiff’s class claims, the Court analyzed the individual claims, including her Consumer Fraud Act claims, and ultimately affirmed the trial court’s ruling.

The Court’s full opinion is available here.

Super Lawyers named Wilmette and Elmhurst business litigation and class action litigation attorneys Peter Lubin and Patrick Austermuehle a Super Lawyer and Rising Star respectively in the Categories of Class Action, Consumer Rights Litigation, and Business Litigation. Lubin Austermuehle’s Oak Brook and Chicago consumer rights litigation lawyers have over thirty-five years of experience litigating complex class action and consumer protection lawsuits. We handle consumer rights, auto fraud, complex class action, breach of contract, franchise and dealer termination, copyright, partnership, and shareholder oppression suits, non-compete agreement, trademark and libel suits, and many different types of business and commercial litigation disputes. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices near Naperville and Wheaton, we serve clients throughout Illinois and the country. To set up a consultation with one of our Chicago class action attorneys and Chicago business trial lawyers, please call us locally at 630-333-0333 or contact us online.

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