Illinois
IL ST Ch. 815,
ACT 605, Refs
Act 605. Credit Services Organizations Act
Chapter 815. Business Transactions
Contracts
Act 605. Credit Services Organizations Act
605/1. Short title
§ 1. This Act shall be
known and may be cited as the "Credit Services Organizations Act".
605/2. Legislative
findings and declaration
§ 2. The General Assembly finds and declares that:
(a) The ability to
obtain and use credit has become of great importance to consumers who have a
vital interest in establishing and maintaining their credit worthiness and
credit standing. As a result, consumers who have experienced credit problems
may seek assistance from credit service businesses which offer to improve the
credit standing of such consumers. Certain advertising and business practices
of some companies engaged in the business of credit services have worked a
financial hardship upon the people of this State, often on those who are of
limited economic means and inexperienced in credit matters.
(b) The purpose of this
Act is to provide prospective consumers of credit services companies with the
information necessary to make an informed decision regarding the purchase of
those services and to protect the public from unfair or deceptive advertising
and business practices.
605/3. Definitions
§ 3. As used in this
Act:
(a) "Buyer"
means an individual who is solicited to purchase or who purchases the services
of a credit services organization.
(b) "Consumer
reporting agency" has the meaning assigned by Section 603(f), Fair Credit
Reporting Act (15 U.S.C. Section 1681a(f)).
(c) "Extension of
Credit" means the right to defer payment of a debt or to incur a debt and
defer its payment offered or granted primarily for personal, family, or
household purposes.
(d) "Credit
Services Organization" means a person who, with respect to the extension
of credit by others and in return for the payment of money or other valuable
consideration, provides, or represents that the person can or will provide, any
of the following services:
(i) improving a buyer's credit
record, history, or rating:
(ii) obtaining an extension of
credit for a buyer; or
(iii) providing advice or
assistance to a buyer with regard to either subsection (i) or (ii).
"Credit Services Organization" does not include any of
the following:
(i) a person authorized to make
loans or extensions of credit under the laws of this State or the United States
who is subject to regulation and supervision by this State or the United
States, or a lender approved by the United States Secretary of Housing and
Urban Development for participation in a mortgage insurance program under the
National Housing Act (12 U.S.C. Section 1701 et seq.);
(ii) a bank or savings and loan
association whose deposits or accounts are eligible for insurance by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation, or a subsidiary of such a bank or savings and loan association;
(iii) a credit union doing
business in this State;
(iv) a nonprofit organization
exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, [FN1]
provided that such organization does not charge or receive any money or other
valuable consideration prior to or upon the execution of a contract or other
agreement between the buyer and the nonprofit organization;
(v) a person licensed as a real
estate broker by this state if the person is acting within the course and scope
of that license;
(vi) a person licensed to
practice law in this State acting within the course and scope of the person's
practice as an attorney;
(vii) a broker-dealer
registered with the Securities and Exchange Commission or the Commodity Futures
Trading Commission acting within the course and scope of that regulation;
(viii) a consumer reporting
agency; and
(ix) a residential mortgage
loan broker or banker who is duly licensed under the Illinois Residential
Mortgage License Act of 1987. [FN2]
(e) "Person"
means an individual, corporation, partnership, joint venture or any business
entity.
[FN1] 26 U.S.C.A. § 501.
[FN2] 205 ILCS 635/1-1 et seq.
605/4. Interpretations
of Fair Credit Reporting Act
§ 4. In construing this
Act consideration shall be given to the interpretations of the Fair Credit
Reporting Act (15 U.S.C. Section 1681 et seq.).
605/5. Prohibited acts
§ 5. No credit services
organization, its salespersons, agents or representatives, or any independent
contractor who sells or attempts to sell the services of a credit services
organization shall:
(1) Charge or receive
any money or other valuable consideration prior to full and complete
performance of the services the credit services organization has agreed to
perform for or on behalf of the buyer, unless the credit services organization
has, in conformity with Section 10 of this Act, obtained a surety bond issued
by a surety company licensed to do business in this State. If a credit services
organization is in compliance with this subsection the salespersons, agents,
and representatives who sell the services of such organization shall not be
required to obtain the surety bond provided for by this Act.
(2) Charge or receive
any money or other valuable consideration solely for the referral of a buyer to
a retail seller who will or may extend credit to the buyer if such extension of
credit is in substantially the same terms as those available to the general
public.
(3) Make, or advise any
buyer to make, any statement that is untrue or misleading, or that should be
known by the exercise of reasonable care to be untrue or misleading, with
respect to a buyer's credit reporting agency or to any person who has extended
credit to a buyer or to whom a buyer has made application for an extension of
credit.
(4) Make or use any
untrue or misleading representations in the offer or sale of the services of a
credit services organization or engage, directly or indirectly, in any act,
practice or course of business intended to defraud or deceive a buyer in
connection with the office or sale of such services; including but not limited
to: the amount or type of credit a consumer can expect to receive as a result
of the performance of the services offered; the qualifications, training or
experience of its personnel; or the amount of credit improvement the consumer
can expect to receive as a result of the services.
605/6. Consumer
statement
§ 6. Before the
execution of a contract or other form of agreement between a buyer and a credit
services organization or before the receipt by any such organization of money
or other valuable consideration, whichever occurs first, such organization
shall provide the buyer with a statement, in writing, containing the following:
(1) a complete and accurate
statement of the buyer's right to review any file on the buyer maintained by a
consumer reporting agency, as provided under the Fair Credit Reporting Act (15 U.S.C. Section 1681 et seq.);
(2) a statement that the buyer
may review his consumer reporting agency file at no charge if a request therefor
therefore is made to such agency within 30 thirty days after receipt by the
buyer of notice that credit has been denied and if such request is not made
within the allotted time, the approximate charge to the buyer for such review;
(3) a complete and accurate
statement of the buyer's right to dispute the completeness or accuracy of any
item contained in any file on the buyer maintained by a
consumer reporting agency;
(4) a complete and detailed
description of the services to be performed by the credit services organization
and the total cost to the buyer for such services;
(5) a statement notifying the
buyer that: (i) credit reporting agencies have no obligation to remove
information from credit reports unless the information is erroneous, cannot be
verified or is more than 7 years old; and (ii) credit reporting agencies have
no obligation to remove information concerning bankruptcies unless such
information is more than 10 years old;
(6) a statement asserting the
buyer's right to proceed against the surety bond required under Section 10; and
(7) the name and business
address of any such surety company together with the name and the number of the
account.
The credit services organization shall maintain on file, for a
period of 2 years after the date the statement is provided, an exact copy of
the statement, signed by the buyer, acknowledging receipt of the statement.
605/7. Contracts
§ 7. (a) Each contract
between the buyer and a credit services organization for the purchase of the
services of the credit services organization shall be in writing, dated, signed
by the buyer, and shall include:
(1) a conspicuous
statement in boldfaced type, in immediate proximity to the space reserved for
the signature of the buyer, as follows:
"You, the buyer, may cancel this contract at any time before
midnight of the third day after the date of the transaction. See the attached
notice of cancellation form for an explanation of this right";
(2) the terms and
conditions of payment, including the total of all payments to be made by the
buyer, whether to the credit services organization or to another person;
(3) a full and detailed
description of the services to be performed by the credit services organization
for the buyer, including all guarantees and all promises of full or partial
refunds, and the estimated date by which the services are to be performed or
the estimated length of time for performing the services; and
(4) the address of the
credit services organization's principal place of business and the name and
address of its agent in the State authorized to receive service of process.
(b) The contract must
have two easily detachable copies of a notice of cancellation. The notice must
be in boldfaced type and in the following form:
"Notice
of Cancellation"
"You may cancel this contract, without any penalty or
obligation, within three days after the date the contract is signed.
If you cancel, any payment made by you under this contract will be
returned within 10 days after the date of receipt by the seller of your
cancellation notice.
To cancel this contract, mail or deliver a signed, dated copy of
this cancellation notice, or other written notice to:
(name of seller) at (address of seller) (place of business) not
later than midnight (date)
I hereby cancel this transaction."
.............................. ........................................
(date) (purchaser's signature)
(c) The credit services
organization shall give to the buyer a copy of the completed contract and all
other documents the credit services organization requires the buyer to sign at
the time they are signed.
605/8. Noncompliance;
waiver
§ 8. Any contract for
services which does not comply with applicable provisions of this article shall
be void and unenforceable as contrary to public policy. Any waiver by a buyer
of the provisions of this Act shall be deemed void and unenforceable by a
credit services organization as contrary to public policy. Any attempt by a
credit services organization to have a buyer waive rights granted by this Act
shall constitute a violation of this Act.
605/9. Registration
statement
§ 9. (a) A credit
services organization shall file a registration statement with the Secretary of
State before conducting business in this State. The registration statement
shall contain:
(1) the name and address
of the credit services organization;
(2) the name and address
of the registered agent authorized to accept service of process on behalf of
the credit services organization;
(3) the name and address
of any person who directly or indirectly owns or controls 10 percent or more of
the outstanding shares of stock in the credit services organization; and
(4) the name, numbers,
and location of the surety company issuing a surety bond maintained as required
by Section 10 of this Act.
(b) The registration
statement must also contain either:
(1) a full and complete
disclosure of any litigation or unresolved complaint filed with a governmental
authority of this State, any other state or the United States relating to the
operation of the credit services organization; or
(2) a notarized
statement that states that there has been no litigation or unresolved complaint
filed with a governmental authority of this State, any other state or the
United States relating to the operation of the credit services organization.
(c) The credit services organization shall update such statement
not later than the 90th day after the date on which a change in the information
required in the statement occurs.
(d) Each credit services
organization registering under this Section shall maintain a copy of the
registration statement in their files. The credit services organization shall
allow a buyer to inspect the registration statement on request.
(e) The Secretary of
State may charge each credit services organization that files a registration
statement a reasonable fee not to exceed $100 to cover the cost of filing.
605/10. Surety bond
§ 10. If a credit
services organization is required to obtain a surety bond pursuant to paragraph
(1) of Section 5 of this Act, the following procedures shall be applicable:
(a) If a bond is
obtained, a copy of it shall be filed with the Office of the Secretary of
State.
(b) The required bond
shall be in favor of the State of
Illinois
for the benefit of any person who is damaged by any violation of this Act. The
bond shall also be in favor of any person damaged by such practices. Any person
claiming against the bond for a violation of this Act may maintain an action at
law against the credit services organization and against the surety. The surety
shall be liable only for actual damages and not the punitive damages permitted
under Section 11(b) of this Act. The aggregate liability of the surety
to all persons damaged by a credit services organization's violation of this
Act shall in no event exceed the amount of the bond.
(c) The bond shall be in
the amount of $100,000 and shall be maintained for a period of 2 years after
the date that the credit services organization ceases operations.
605/11. Damages
§ 11. Any person injured
by a violation of this Act or by the credit services organization's breach of a
contract entered into pursuant to Section 7 of this Act, may bring any action
for recovery of actual damages. Such person may also be awarded punitive
damages, reasonable attorney's fees and court costs.
605/12. Injunction
12. A. The Attorney
General, the State's Attorney of any county, or a buyer may bring an action in
a circuit court to enjoin a violation of this Act. In addition to any
injunction, the Attorney General or any State's Attorney or any county, in the
name of the People of the State of
Illinois
,
may seek to recover damages pursuant to this Act.
605/13. Misdemeanor;
felony
§ 13. Any person, as
defined under this Act, violating any provision of this Act except breach of
contract, upon conviction for the first offense, is guilty of a Class A
misdemeanor. Upon conviction of a second or subsequent offense the violator is
guilty of a Class 4 felony.
605/14. Burden of proof
§ 14. In an action under
this Act the burden of proving an exemption under paragraph (d) of Section 3 is
on the person claiming the exemption.
605/15. Nature of
remedies; violation of Consumer Fraud and Deceptive Business Practices Act
§ 15. The remedies
provided by this Act are in addition to other remedies provided by law. A
violation of this Act shall also constitute a violation of the Consumer Fraud
and Deceptive Business Practices Act. [FN1]
[FN1] 815 ILCS 505/1 et seq.
605/16. Liberal
construction
§ 16. This Act shall be liberally construed to effect the purposes
thereof.
Current through P.A. 95-5 of the 2007 Reg. Sess.
END OF DOCUMENT
815 ILCS 505/2Z
Formerly cited as IL ST CH 121 1/2 P 262Z
815 ILCS 505/2Z
Formerly cited as IL ST CH 121 1/2 ¶ 262Z
Chapter 815. Business Transactions
Deceptive Practices
Act 505. Consumer Fraud and Deceptive Business Practices Act
505/2Z. Violations of other Acts
§ 2Z. Violations of
other Acts. Any person who knowingly violates the Automotive Repair Act, [FN1] the Automotive Collision
Repair Act, [FN2] the Home Repair and
Remodeling Act, [FN3] the Dance Studio Act, [FN4] the Physical Fitness Services
Act, [FN5] the Hearing Instrument
Consumer Protection Act, [FN6] the Illinois Union Label Act, [FN7] the Job Referral and Job
Listing Services Consumer Protection Act, [FN8] the Travel Promotion Consumer
Protection Act, [FN9] the Credit Services Organizations Act, [FN10] the Automatic Telephone
Dialers Act, [FN11] the Pay-Per-Call Services
Consumer Protection Act, [FN12] the Telephone Solicitations
Act, [FN13] the Illinois Funeral or
Burial Funds Act, [FN14] the Cemetery Care Act, [FN15] the Safe and Hygienic Bed
Act, [FN16] the Pre-Need Cemetery Sales
Act, [FN17] the High Risk Home Loan Act, [FN18] the Payday Loan Reform Act, [FN19] the Mortgage Rescue Fraud
Act, subsection (a) or (b) of Section 3-10 of the Cigarette Tax Act, [FN20] the Payday Loan Reform Act,
subsection (a) or (b) of Section 3-10 of the Cigarette Use Tax Act, [FN21] the Electronic Mail Act, [FN22] paragraph (6) of subsection
(k) of Section 6-305 of the Illinois Vehicle Code, [FN23] Article 3 of the Residential
Real Property Disclosure Act, [FN24] the Automatic Contract
Renewal Act, [FN25] or the Personal Information
Protection Act [FN26] commits an unlawful practice within the meaning of
this Act.
Case Law
I identified several cases construing the act. In Arnold v.
Goldstar Financial Systems, Inc., 2002 WL 1941546 (N.D.
Ill.
, 2002), the court
concluded that it lacked personal jurisdiction over an out of state credit
repair organization where the credit repair client was in state and the credit
repair organization’s only contact with the state was a contact with debtor. In state plaintiff’s were able to establish personal jurisdiction over
the credit repair business for purposes of their claims where the business
contacted them directly by phone and mail in state. There
are also several cases ruling that the Act does not apply to retailers who help
their customers obtain credit. See Cannon v. William Chevrolet/Geo, Inc., 794 N.E.2d 843 (Ill.App. 1 Dist. 2003)
(Credit Services Act deals does not apply to car dealership that obtained
credit for its customers). Midstate Siding and Window Co., Inc. v. Rogers, 204 Ill.2d 314, 789 N.E.2d 1248 (
Ill.
2003) (credit services act does not
apply to siding company that obtained credit for customers)
Arnold
v. Goldstar
Financial Systems, Inc.
Not Reported in F.Supp.2d, 2002 WL 1941546
N.D.Ill.,2002.
August 22, 2002
United States
District Court, N.D.
Illinois
, Eastern
Division.
Jon ARNOLD, et al., Plaintiff,
v.
GOLDSTAR FINANCIAL SYSTEMS, INC., et al., Defendants.
No. 01 C 7694.
Aug. 22, 2002.
Customers
sued company providing credit repair services, and its law firm, claiming
breach of contract to manage debt. Company and attorney moved to dismiss or
compel arbitration. The District Court, Gottschall, J.,
held that: (1) personal jurisdiction was lacking over attorney; (2) court did
not have jurisdiction over claim of nonresident customer; (3) court had
jurisdiction over claims made by Illinois residents; (4) motion to compel
arbitration would be treated as motion to stay proceedings; and (5) proceedings
would not be stayed, due to likelihood that costs of arbitration would be
Motion granted in part, denied in part.
[1] KeyCite Notes
170B Federal
Courts
170BII Venue
170BII(A) In
General
170Bk76 Actions
Against Non-Residents; “Long-Arm” Jurisdiction in General
170Bk76.20 k.
Persons Acting in Representative Capacity, Venue For; Fiduciary Shield. Most Cited Cases
Under Illinois law, court lacked personal jurisdiction over
attorney employed by company in credit repair business, in suit by customers
alleging federal and state violations arising out of failure to live up to
promises; attorney acted only in her capacity as employee of company, and was
protected by fiduciary shield doctrine. S.H.A. 735 ILCS 5/2-209(c).
[2] KeyCite Notes
170B Federal
Courts
170BII Venue
170BII(A) In
General
170Bk77 Corporations, Actions by or Against
170Bk81 k.
Sales, Solicitation and Advertising. Most Cited Cases
Under Illinois law, court had personal jurisdiction over
nonresident company providing credit repair services, sued by Illinois
customers for failing to honor promises; representatives of company had made
phone calls to customers in state, urging them to enter into contract. S.H.A. 735 ILCS 5/2-209(c).
[3] KeyCite Notes
92 Constitutional Law
92XXVII Due
Process
92XXVII(E) Civil Actions and Proceedings
92k3961 Jurisdiction and Venue
92k3965 Particular Parties or Circumstances
92k3965(5) k.
Services and Service Providers. Most Cited Cases
170B Federal
Courts KeyCite Notes
170BII Venue
170BII(A) In
General
170Bk77 Corporations, Actions by or Against
170Bk84 k.
Miscellaneous Particular Activities. Most Cited Cases
Court sitting in
Illinois
lacked
personal jurisdiction, consistent with due process, over nonresident company in
credit repair business, sued by nonresident customer for failing to honor
promises, when only contact with
Illinois
was alleged failure of company to pay one creditor located in state. U.S.C.A. Const.Amend. 5.
Court sitting in
Illinois
lacked
personal jurisdiction, consistent with due process, over nonresident company in
credit repair business, sued by nonresident customer for failing to honor
promises, when only contact with
Illinois
was alleged failure of company to pay one creditor located in state. U.S.C.A. Const.Amend. 5.
[4] KeyCite Notes
92 Constitutional Law
92XXVII Due
Process
92XXVII(E) Civil Actions and Proceedings
92k3961 Jurisdiction and Venue
92k3965 Particular Parties or Circumstances
92k3965(5) k.
Services and Service Providers. Most Cited Cases
170B Federal
Courts KeyCite Notes
170BII Venue
170BII(A) In
General
170Bk77 Corporations, Actions by or Against
170Bk81 k.
Sales, Solicitation and Advertising. Most Cited Cases
Court sitting in
Illinois
had personal jurisdiction, consistent with due process, over nonresident
company in credit repair business, sued by resident customer for failing to
honor promises, when representative of company called customer in state, to
solicit signing of contract. U.S.C.A. Const.Amend. 5.
Court sitting in
Illinois
had personal jurisdiction, consistent with due process, over nonresident
company in credit repair business, sued by resident customer for failing to
honor promises, when representative of company called customer in state, to
solicit signing of contract. U.S.C.A. Const.Amend. 5.
[5] KeyCite Notes
170B Federal
Courts
170BII Venue
170BII(A) In
General
170Bk77 Corporations, Actions by or Against
170Bk79 k.
Corporate Activities and Contacts Within District; Doing Business in General. Most Cited Cases
170B Federal
Courts KeyCite Notes
170BII Venue
170BII(A) In
General
170Bk77 Corporations, Actions by or Against
170Bk81 k.
Sales, Solicitation and Advertising. Most Cited Cases
Court sitting in
Illinois
had
personal jurisdiction over nonresident company which repaired credit, brought
by
Illinois
resident claiming that company did not honor its promises, when representative
called resident in state, soliciting contract, and resident transmitted
information and later contract payments over interactive Internet site. U.S.C.A. Const.Amend. 5.
[6] KeyCite Notes
29T Antitrust
and Trade Regulation
29TIII Statutory Unfair Trade Practices and Consumer Protection
29TIII(C) Particular Subjects and Regulations
29Tk218 k.
Credit Repair and Counseling. Most Cited Cases
Court had subject matter jurisdiction, under Credit Repair
Organizations Act (CROA), over claim that for-profit repair organization did
not honor promises made to customers, even though company's
successor-in-interest was non-profit corporation not covered by CROA. 15 U.S.C.A. § 1679 et seq.
[7] KeyCite Notes
25T Alternative
Dispute Resolution
25TII Arbitration
25TII(D) Performance, Breach, Enforcement, and Contest
25Tk185 Stay of
Arbitration
25Tk188 k.
Proceedings. Most Cited Cases
Court would treat motion to compel arbitration, under Federal
Arbitration Act (FAA), as motion for stay of arbitration, when forum selection
clause of contract specified another jurisdiction, precluding orders to compel
by courts in other than specified jurisdiction. 9 U.S.C.A. §§ 3, 4.
[8] KeyCite Notes
170B Federal
Courts
170BVI State
Laws as Rules of Decision
170BVI(C) Application
to Particular Matters
170Bk403 k.
Arbitration. Most Cited Cases
Federal law, rather than state law specified in contractual choice
of law provision, governed question whether arbitration clause in contract
could be avoided on grounds that contract was illegal.
[9] KeyCite Notes
25T Alternative
Dispute Resolution
25TII Arbitration
25TII(B) Agreements to Arbitrate
25Tk131 Requisites and Validity
25Tk134 Validity
25Tk134(1) k.
In General. Most Cited Cases
Under governing federal law, contractual obligation to arbitrate
disputes was not affected by claim that underlying contract was illegal.
[10] KeyCite Notes
25T Alternative
Dispute Resolution
25TII Arbitration
25TII(B) Agreements to Arbitrate
25Tk131 Requisites and Validity
25Tk134 Validity
25Tk134(1) k.
In General. Most Cited Cases
Provision of agreement between credit repair company and customer,
under which customer agreed not to participate in class action, as part of
arbitration clause, was not unenforceable as impermissible waiver of protection
provided by or consumer right under Credit Repair Organizations Act (CROA).
Consumer Credit Protection Act, § 402 et seq., as amended, 15 U.S.C.A. § 1679 et seq.
[11] KeyCite Notes
25T Alternative
Dispute Resolution
25TII Arbitration
25TII(D) Performance, Breach, Enforcement, and Contest
25Tk190 Stay of
Proceedings Pending Arbitration
25Tk196 k.
Particular Cases. Most Cited Cases
Prohibitive expense of arbitration, in Florida, precluded stay of
lawsuit by Illinois residents against nonresident company providing credit
repair services, claiming nonfulfillment of contractual promises, in order that
arbitration could proceed; it was estimated that arbitration would cost each
claimant, who was already hard pressed financially, $2,550, as opposed to court
filing fee of $150.
MEMORANDUM OPINION & ORDER
GOTTSCHALL, J.
In this putative class
action, plaintiffs allege that defendants violated various state and federal
laws in the course of offering and providing them with credit repair services. Defendants
have moved for dismissal on jurisdictional grounds and for an order compelling
arbitration. As explained below, the request for dismissal is granted in part
and denied in part, and the request for an order compelling arbitration is
denied.
I. Background
In their first amended
complaint, plaintiffs Jon Arnold, Cary Sorbo, and Julian Dorsey, on behalf of
themselves and similarly situated individuals, allege that Goldstar Financial
Systems, Inc. (“Goldstar”), doing business as Gibson Trust, Inc. (“Gibson”),
and The Law Office of Dashia Trowers, along with a putative defendant class of
similarly situated attorneys, engaged in fraudulent, unfair, and deceptive
practices in promising to manage consumer debt, improve plaintiffs' credit, and
prevent creditor harassment. In either late 1999 or early 2000, each plaintiff
entered into a credit repair services contract with Goldstar, which was
estimated to last between four and five years. The basic notion was that
Goldstar would work with each plaintiffs' creditors to consolidate and reduce
payments, would make the payments each month, and would generally serve as a
buffer between plaintiffs and their creditors. According to plaintiffs,
Goldstar violated both state and federal laws and generally failed to live up
to its promises and representations. Plaintiffs' complaint consists of three
counts: (1) violations of the Credit Repair Organizations Act (“CROA”), 15
U.S.C. § 1679 et seq.; (2)
illegality of contract; and (3) violations of the Illinois Consumer Fraud and
Deceptive Business Practices Act, 815
ILCS 505/1 et seq. The
first two counts are brought by all plaintiffs against all defendants; the
third is brought by Arnold and Sorbo, individually, against Goldstar alone.
Defendants move to dismiss the complaint for lack of personal and subject
matter jurisdiction. In the alternative, defendants seek an order compelling
arbitration.
II.
Analysis
A. Personal
Jurisdiction
Once personal
jurisdiction is contested, a plaintiff has the burden of providing sufficient
evidence to establish a prima facie case of personal jurisdiction. “The
allegations in the complaint are to be taken as true unless controverted by the
defendants' affidavits; and any conflicts in the affidavits are to be resolved
in his favor.” Turnock
v. Cope, 816 F.2d 332, 333 (7th Cir.1987). A motion to dismiss for lack of personal jurisdiction should be
denied if the plaintiff alleges sufficient facts to support a reasonable
inference that the defendant can be subjected to jurisdiction of the court. Jackam
v. Hosp. Corp. of Am. Mideast, Ltd., 800 F.2d 1577, 1579
(11th Cir.1986).
1.
Illinois
Law
In cases involving a
federal question, a plaintiff must show that the defendant is amenable to
service in the forum state and that exercising jurisdiction over the person of
the defendant would not offend constitutional standards of due process. Cent.
States, S.E. & S.W. Areas Pension Fund
v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir.2000). Because no special rule or statute
applies here, service is effective to establish jurisdiction over a defendant
only if that defendant would be subject to the jurisdiction of an
Illinois
state court. Fed.R.Civ.P. 4(k).
The
Illinois
long-arm statute provides for
jurisdiction on any basis permitted by the
Illinois
and federal constitutions. 735 ILCS 5/2-209(c).
Under the Illinois constitution, “[j]urisdiction is to be asserted only when it
is fair, just, and reasonable to require a nonresident defendant to defend an
action in Illinois, considering the quality and nature of the defendant's acts
which occur in Illinois or which affect interests located in Illinois.” Rollins v. Ellwood, 141 Ill.2d 244, 152 Ill.Dec. 384, 565 N.E.2d
1302, 1316 (Ill.1990). Of particular relevance here, the Illinois
Supreme Court has held that where an individual defendant's conduct in Illinois
“was a product of, and was motivated by, his employment situation and not his
personal interests, ... it would be unfair to use this conduct to assert personal
jurisdiction over him as an individual.” Id. at 1318.
Defendant Trowers swears
that Goldstar management made all decisions for transactions with its clients,
that prior to this lawsuit she was not aware that any of the named plaintiffs
were clients of Goldstar, that she had no agreement to provide any services to
them, that she does not remember performing any services for them, and that she
signed contracts on Goldstar's behalf only as an employee of Goldstar and not
in any other capacity. (Defs.' Mem. Supp. Mot. Dismiss Ex. B.) Plaintiffs argue
in response that the evidence contradicts Trowers's averments that she had no
communications with the plaintiffs and performed no services on their behalf.
In support of this argument, plaintiffs cite three documents: (1) a letter sent
to plaintiff Dorsey printed on letterhead listing both Goldstar and “The Law
Office of Dashia N. Trowers”; (2) a statement in the client information sheet
advising that late payments would render “ATTORNEY'S agent or subcontractor”
unable to make timely disbursements to creditors; and (3) a reference on
Goldstar's website boasting of its “full legal staff.” (Pls.' Resp. at 5.) The
second and third documents make no reference to Trowers. While the joint
letterhead does tend to refute Trowers's claim that her law offices had no
connection to Goldstar, the letterhead sheds no light on the capacity in which
Trowers and her law offices acted. Her averments that Goldstar's management
made all the decisions concerning client transactions and that she acted only
in her capacity as an employee of Goldstar stand unrebutted and bring her
within the fiduciary shield doctrine endorsed by the Illinois Supreme Court.
Because her only contacts with Illinois apparently derived from, and were
motivated by, her employment status, the Illinois constitution prohibits the
exercise of personal jurisdiction over her and her law firm.FN1All claims against
Trowers's law offices are therefore dismissed.
For
similar reasons, exercising personal jurisdiction over Trowers might also
violate federal due process. See Hanson
v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958) (“The
unilateral activity of those who claim some relationship with a nonresident
defendant cannot satisfy the requirement of contact with the forum State.”); cf. Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 479 n. 22, 105 S.Ct. 2174,
85 L.Ed.2d 528 (1985) (“[W]hen commercial activities are ‘carried on in behalf of’ an
out-of-state party those activities may sometimes be ascribed to the party, at
least where he is a ‘primary [participant]’ in the enterprise and has acted
purposefully in directing those activities.”) (citations omitted).
With respect to Goldstar, the case law applying the
Illinois constitution provides less clear guidance, but tends to point in the
other direction, at least with respect to plaintiffs Arnold and Sorbo.FN2 Neither of the two cases cited by defendants on the personal jurisdiction
question applies the
Illinois
constitutional standard. Khan v. Van Remmen,
Inc., 325 Ill.App.3d 49, 258
Ill.Dec. 628, 756 N.E.2d 902 (Ill.App.Ct.2001); MJC-A World of
Quality, Inc. v. Wishpets Co., No. 00 C 6803, 2001 U.S. Dist. LEXIS 13178
(N.D.Ill. Aug.22, 2001). Nor does this court's independent research reveal
especially helpful case law. To the extent the
Illinois
case law is applicable, it suggests
that these two plaintiffs clear the state constitutional hurdle. Plaintiffs
allege (and defendants do not dispute) that each entered into a long-term
contractual relationship with Goldstar, ranging in estimated duration between
four and five years. Goldstar telephoned Arnold and Sorbo in
Illinois
and entered into ongoing commercial relationships that would continue for years
to have substantial impacts on the interests of
Illinois
residents. See Alderson v. Southern
Co., 321 Ill.App.3d 832, 254
Ill.Dec. 514, 747 N.E.2d 926, 948 (Ill.App.Ct.2001) (holding that it
was “fair, just, and reasonable” under the Illinois due process clause to
exercise personal jurisdiction over defendants whose economic activities had “a
substantial effect upon interests located in Illinois”); cf. Viktron L.P. v. Program
Data, Inc., 326 Ill.App.3d
111, 259 Ill.Dec. 706, 759 N.E.2d 186, 195 (Ill.App.Ct.2001) (“Where
there is an ongoing commercial relationship, each party will typically have a
substantial jurisdictional claim at home against the other.”) (internal
quotation marks and citation omitted). This type of activity is apparently
sufficient to ground personal jurisdiction under
Illinois
law.
FN2. Dorsey, who has
Illinois
debts but is not an
Illinois
resident,
presents a more difficult case. See infra. Because plaintiffs clearly
fail to make out a prima facie case under the federal due process clause for
personal jurisdiction over Goldstar with respect to Dorsey's claim, the court
expresses no opinion as to the
Illinois
constitutional question and rests its holding with respect to Dorsey's claim on
federal grounds instead.
2. Federal
Due Process Clause
The existence of
personal jurisdiction over Goldstar therefore turns on the strictures imposed
by the federal due process clause. Due process requires that a nonresident
defendant have “minimum contacts with [the forum state] such that the maintenance
of the suit does not offend traditional notions of fair play and substantial
justice.” Int'l
Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (internal quotation marks omitted). The touchstone is
foreseeablility, whether “the defendant's conduct and connection with the
forum
State
are such that he should reasonably anticipate being haled into court there.” World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62
L.Ed.2d 490 (1980). Only purposeful acts
count, and a defendant may not be haled into a jurisdiction solely as a result
of “random,” “fortuitous,” or “attenuated” contacts. Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85
L.Ed.2d 528 (1985) (citation omitted).
Jurisdiction is proper,
however, where the contacts proximately result from actions by the defendant
himself that create a “substantial connection” with the
forum
State
.
Thus where the defendant “deliberately” has engaged in significant activities
within a State, or has created “continuing obligations” between himself and
residents of the forum, he manifestly has availed himself of the privilege of
conducting business there, and because his activities are shielded by “the
benefits and protections” of the forum's laws it is presumptively not
unreasonable to require him to submit to the burdens of litigation in that
forum as well.
Id.
at 475-76 (citations omitted). Once it has been decided that a
defendant purposefully established minimum contacts within the forum State, the
reasonableness of asserting personal jurisdiction may be evaluated in light of
“the burden on the defendant,” “the forum State's interest in adjudicating the
dispute,” “the plaintiff's interest in obtaining convenient and effective
relief,” “the interstate judicial system's interest in obtaining the most
efficient resolution of controversies,” and the “shared interest of the several
States in furthering fundamental substantive social policies.”
Id.
at 477 (quoting World-Wide
Volkswagen, 444 U.S. at 292). These factors can
either lower the level of minimum contacts required or, if the defendant puts
forward a compelling case, render the exercise of personal jurisdiction
unreasonable.
Id.
at 477-78.
Personal jurisdiction
may be either “general” or “specific.” Since plaintiffs here do not claim that
Goldstar had “continuous and systematic general business contacts” with
Illinois,FN3 each plaintiff must show that his or her claim arises out of or is related to
Goldstar's contacts with Illinois, Helicopteros Nacionales
de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 8, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984), and
that those contacts were not “random,” “fortuitous,” or “attenuated.” Burger King, 471 U.S. at 475. Each plaintiff
has his or her own claims against Goldstar. The personal jurisdiction analysis
therefore must be plaintiff-specific. Cf. Phillips Exeter Academy
v. Howard Phillips Fund, Inc., 196 F.3d 284, 289 (1st Cir.1999) (“Questions of specific
jurisdiction are always tied to the particular claims asserted.”). But since
the three claims asserted by any particular plaintiff rest on a common set of
operative facts, there is no need to examine the three claims separately.
FN3. Although plaintiffs point to Goldstar's maintenance of an interactive website,
they do not assert that Goldstar actually did business through the website with
anyone other than plaintiffs.
a.
Dorsey
Plaintiffs fail to
establish sufficient contacts between Goldstar and Illinois with respect to
plaintiff Dorsey. The complaint alleges that Dorsey is a resident of
Pennsylvania
and signed
an agreement with Goldstar in or about May 2000. Plaintiffs attach to their
response brief a letter dated June 1, 2000 from Goldstar to Dorsey at a
Pennsylvania
address.
The inference that Dorsey was never an
Illinois
resident at any time relevant to her claim against Goldstar is bolstered by plaintiffs'
argument that Goldstar “purposefully directed its activities to
Illinois
residents such as Plaintiffs Arnold and Sorbo”
(Pls.' Resp. at 4), and by the omission of Dorsey from Count III, which is
premised on
Illinois
law. The only relevant connection to
Illinois
is apparently Goldstar's alleged failure to make payments on behalf of Dorsey
to an
Illinois
creditor,
Loyola
College
.
This lone contact with
Illinois
is far too fortuitous and attenuated to support the exercise of personal
jurisdiction over Goldstar with respect to Dorsey's claims. Dorsey's claims
against Goldstar are dismissed.
b. Sorbo
The plaintiff with the
next strongest case for personal jurisdiction is Sorbo. Sorbo alleges that she
is an
Illinois
resident. It is unclear whether she was in
Illinois
at all relevant times, but it is
reasonable to draw such an inference. In their response brief, plaintiffs
describe Sorbo as an
Illinois
resident and nothing in the record suggests a change in her place of residence.
Sorbo alleges that, prior to signing her client agreement in November 1999, a
Goldstar “specialist,” Roby Dudley, made various representations and promises
to her, encouraging her to sign up for services from Goldstar. The president of
Goldstar, Patrick O'Toole, avers that all communications with the plaintiffs
were initiated in
Florida
, so
Dudley
must have placed the call to Sorbo. After this
communication, Goldstar faxed Sorbo a contract which included her address.
Under the contract, Goldstar was to pay her creditors from funds automatically
withdrawn from her checking account on a monthly basis for an estimated period
of 51 months. To summarize, Sorbo has alleged sufficient facts to infer that
Goldstar called her at least once in Illinois, sent her a fax in Illinois, and
entered into a long-term contractual relationship with an Illinois resident
obligating itself to withdraw funds monthly from an Illinois checking account.
On the other hand,
O'Toole avers that the company has no offices in
Illinois
,
has never had any personnel in
Illinois
, and
has never solicited business in
Illinois
.
He further declares that the contracts “were completed in
Florida
”
and that the place of performance is in
Florida
.
(Defs.' Mem. Ex. A.) Physical absence, standing alone, is not decisive.
“Although territorial presence frequently will enhance a potential defendant's
affiliation with a State and reinforce the reasonable foreseeability of suit
there, it is an inescapable fact of modern commercial life that a substantial
amount of business is transacted solely by mail and wire communications across
state lines, thus obviating the need for physical presence within a State in
which business is conducted.” Burger King, 471 U.S. at 476; accord Daniel J. Hartwig
Assoc., Inc. v. Kanner, 913
F.2d 1213, 1219 n. 3 (7th Cir.1990). Nor is the location of contract
formation or performance dispositive. Burger King, 471 U.S. at 478 (“The Court long
ago rejected the notion that personal jurisdiction might turn on ‘mechanical’
tests, or on ‘conceptualistic ... theories of the place of contracting or of
performance.” ’) (citations omitted). However O'Toole may define “place of
performance” in his affidavit, he does not dispute Sorbo's allegation that the
agreement called for monthly withdrawals by Goldstar from her checking account.
O'Toole does not dispute
the existence or the content of the alleged pre-agreement conversation between
Sorbo and Dudley and does not suggest that Sorbo has ever left
Illinois
. A business
phone call made to a person in
Illinois
obviously counts as solicitation in
Illinois
. See Lung
v. Yachts Int'l, Ltd., 980 F.Supp. 1362, 1368 (D.Haw.1997) (holding that telephone calls to the forum qualify as active
solicitation). It is therefore difficult to reconcile O'Toole's statement that
Goldstar never solicited business in
Illinois
with his statement that any communication with the plaintiffs was initiated in
Florida
. Perhaps O'Toole
is operating under the false premise that solicitation in a state requires a
physical presence therein. Resolving this tension in favor of Sorbo, as the court
must, Goldstar's agent initiated contact with Sorbo in
Illinois
in a successful attempt to procure a contractual relationship with an
Illinois
resident that would span over four years and
that would obligate Goldstar to make monthly withdrawals from an
Illinois
checking
account.
Goldstar could
reasonably anticipate being haled into an
Illinois
court on the basis of these
contacts. Active solicitation of a forum resident resulting in a single
agreement is sufficient to support personal jurisdiction under the federal due
process clause. Madison
Consulting Group v. South Carolina, 752 F.2d 1193,
1202-03 (7th Cir.1990). More important,
Goldstar knowingly undertook “continuing obligations” to an
Illinois
resident. Burger
King, 471 U.S. at 476. The case at bar
closely resembles Daniel J. Hartwig, in which the Seventh Circuit held
that “[b]ecause [defendant] knowingly reached out to a Wisconsin business and
created a continuing relationship with that business [, which lasted four
years], we cannot say that [defendant]'s contacts with
Wisconsin
were ‘random, fortuitous or
attenuated.” ’ 913
F.2d at 1219. That at least one
monthly
Illinois
act was contemplated by the
agreement bolsters the court's conclusion that Sorbo has made out a prima facie
showing of sufficient purposeful minimum contacts between Goldstar and
Illinois
. See id. at 1219 (“Although not dispositive, the fact that a plaintiff performs a
substantial amount of a contract in the forum state constitutes another
meaningful contact between the defendant and the forum.”).
c.
Arnold
Plaintiff Jon Arnold's factual allegations are more detailed
than those of the other plaintiffs. He is an
Illinois
resident. As with Sorbo, there is
no reason to think that any of Goldstar's contacts with
Arnold
took place while
Arnold
was in another state. Around October 1999,
Arnold
responded to Internet advertising by
visiting Goldstar's website. On the website, he apparently submitted personal
information for analysis by Goldstar. Roby Dudley, the same Goldstar agent who
later contacted Sorbo, followed up with a phone call to
Arnold
, encouraging him to sign up for
services with Goldstar. On October 4, 1999,
Arnold
received an email from Goldstar which
included instructions for activating an account and a draft contract. After
signing and returning the contract, estimated to last 57 months,
Arnold
made his scheduled
November payment through the website. In the next few months, Goldstar sent
Arnold
at least one
letter and several billing statements. Jim Faust, a representative of
Goldstar's, called
Arnold
once to discuss issues
relating to
Arnold
's
contract.
Goldstar's alleged contacts
with
Arnold
in
Illinois
easily clear the minimum level
required by the federal due process clause to support personal jurisdiction in
this forum. Goldstar purposefully established a contractual relationship with
an
Illinois
resident
which was expected to last nearly five years. Although it does not appear that
Goldstar agreed to perform any services in
Illinois
,
there is no question that the company created “continuing obligations” between
itself and Arnold, an
Illinois
resident. Burger
King, 471 U.S. at 476. Goldstar repeatedly
directed its activities at
Illinois
,
telephoning
Arnold
twice, sending him statements on a monthly basis, and emailing him at least
once. Goldstar's website bolsters a finding of sufficient minimum contacts in
two ways. First, by inviting visitors to submit personal information in the
hope of later commercial gain, the website was “interactive” enough to
constitute “active solicitation” in Illinois.FN4Zippo
Mfg. Co. v. Zippo Dot Com, 952 F.Supp. 1119, 1124-25 (W.D.Pa.1997) (citing Maritz,
Inc. v. Cybergold, Inc., 947 F.Supp. 1328 (E.D.Mo.1996)). As observed above, active solicitation in a forum leading to a
contract with an in-forum resident is sufficient grounds for personal
jurisdiction. Madison
Consulting, 752 F.2d at 1202-03. Second,
Arnold
's submission of a
monthly payment through the website suggests that Goldstar was actually
transacting business over the Internet, not merely exchanging information. Zippo, 952 F.Supp. at
1123-25 (citing Compuserve,
Inc. v. Patterson, 89 F.3d 1257 (6th Cir.1996)). This is roughly
analogous to Goldstar setting up a 24-hour storefront in
Illinois
for
Arnold
's
use.
FN4. Although Goldstar objects to the printed web pages attached by plaintiffs to their
response brief, Goldstar does not dispute
Arnold
's
allegation that he submitted personal information and made a monthly payment
via the website. Even ignoring the printed pages, the website was interactive
on the undisputed allegations of fact.
Goldstar does not
expressly argue, let alone put forward a compelling case, that subjecting it to
the personal jurisdiction of a court in
Illinois
would be unreasonable in light of other constitutionally relevant factors. See World-Wide
Volkswagen, 444 U.S. at 292. The only hint of such
an argument is O'Toole's averment that, with the exception of the plaintiffs
and any records in their possession, all relevant documents and witnesses are
in
Florida
.
There is no indication as to the number of such witnesses or documents.
Goldstar fails to show that trying this case in
Illinois
would be unduly burdensome for it or that transporting witnesses and documents
to
Illinois
would substantially hinder judicial efficiency. Even if most of the evidence is
in
Florida
,
Illinois
has a strong countervailing
interest in protecting its residents' rights under state and federal law and
plaintiffs have an interest in obtaining convenient and effective relief. On
this record, it does not appear that forcing Goldstar to litigate this matter in
Illinois
would impose a constitutionally intolerable burden.
B. Subject
Matter Jurisdiction
Defendants argue that this court lacks subject matter
jurisdiction. Plaintiffs' only federal cause of action arises under the CROA,
which does not apply to non-profit organizations. 15 U.S.C. § 1679a(3)(B)(i).
O'Toole avers that Gibson Trust, Inc., Goldstar's successor-in-interest, is a
non-profit corporation. As plaintiffs observe in response, however, their
contracts were with Goldstar, which was not a non-profit organization.
Plaintiffs also assert that they were not informed about the transfer of their
accounts to Gibson Trust until well after the alleged wrongdoing took place. In
their reply brief, defendants do not dispute any of these assertions. Obtaining
non-profit status after the fact cannot protect an entity from liability for
its previous misdeeds. This court therefore has subject matter jurisdiction.FN5
FN5. After quoting a choice-of-law provision in the contracts, defendants assert in
a single sentence that “[t]he pendant state law claims fail because
Florida
law governs the
agreement.” (Mem. at 3.) Counts II and III allege claims under
Illinois
law, but defendants fail to establish that facts
consistent with the complaint could not give rise to recovery under
Florida
law. What
amounts to a Rule 12(b)(6) motion by defendants is therefore denied.
C. Arbitration
Clause
Defendants, citing § 4 of the Federal Arbitration Act (“FAA”), 9
U.S.C. § 1 et seq., ask
this court for an order compelling “binding arbitration in accordance with the
terms of the agreements at issue” (Mem. at 4.) Defendants assert that each of
plaintiffs' contracts included the following provision:
Any dispute between us
that cannot be amicably resolved; [sic] as to all claims or controversies
arising out of this Agreement, shall be settled solely and exclusively by
binding arbitration in
Ft. Lauderdale
,
Florida
. Arbitration shall be
administered by, and under the Commercial Arbitration Rules of the prevailing
American Arbitration Association.... And judgment upon the award rendered by
the arbitrator(s) may be entered and enforced in any court of competent
jurisdiction.
(
Id.
at 3.) In a footnote, defendants
claim that the agreements are attached as exhibits to the first amended
complaint. (
Id.
at 3 n. 4.) In fact, only
Arnold
's
agreement, which does contain the quoted language, appears in the exhibits.
Plaintiffs' first response on the arbitration issue is that defendants “should
be required to prove” that the other two plaintiffs signed agreements including
the quoted language. (Resp. at 8.) However, plaintiffs do not deny the
existence of such agreements. There is no requirement in the Federal Rules of
Civil Procedure that parties attach complete copies of contracts rather than
merely quote the relevant language. Mount Hawley Ins. Co. v. Guardsmark,
Inc., No. 01 C 5088, 2001
U.S.
Dist. LEXIS 9196, at *3-4 (N.D.Ill. July 2, 2001). By not disputing defendants'
assertion that each plaintiff signed a contract that included this arbitration
language, plaintiffs have conceded the point.
1. Order
or Stay?
Having established the
existence of arbitration agreements providing for arbitration in Florida, a
threshold question (mysteriously ignored by the parties) becomes whether this
court has the power to grant defendants' request by entering an order
compelling arbitration “in accordance with the terms of the agreements at
issue.” (Mem. at 4.) It does not. Where an arbitration agreement contains a
forum selection clause and the parties have not waived reliance on that clause,
only a court in the selected forum can issue a § 4 order compelling arbitration. Snyder
v. Smith, 736 F.2d 409, 418-20 & n. 8 (7th Cir.1984). Defendants quote the forum selection clause and seek an order
compelling arbitration in accordance with the agreement, so there is no waiver.
If anyone has waived the issue, it is plaintiffs; they have not requested, even
in the alternative, that arbitration should take place in the Northern District
of Illinois.
The question then is how
to respond to defendants' request for relief that is outside of the power of
this court to grant. At first blush, it is tempting simply to deny defendants'
motion for this reason.FN6 If plaintiffs had raised the objection instead of briefing the question of
arbitrability, then denying the motion may have been the appropriate course of
action. But plaintiffs argued the merits of the arbitration issue instead and
now the question is fully briefed. Both parties are apparently content to have
this court decide whether arbitration in
Florida
is appropriate. This court hesitantly accepts the invitation by interpreting
defendants' misguided motion for a § 4 order
compelling arbitration as seeking the only relief actually available under the
FAA from this court, a § 3 stay
pending arbitration. Requiring the parties to re-brief the issue of
arbitrability in another court would be a waste of judicial and attorney
resources. Cf. Fed.R.Civ.P. 1 (stating that Federal Rules of Civil Procedure “shall be construed and
administered to secure the just, speedy, and inexpensive determination of every
action”). Defendant obviously seeks a judicial ruling that this matter must be
arbitrated; the distinction between an order and a stay is more a matter of
form than substance. An expeditious ruling is especially appropriate in the
arbitration context. See Moses H. Cone Memorial
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 29, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (“The [FAA]
calls for a summary and speedy disposition of motions or petitions to enforce
arbitration clauses.”). Finally, there is no indication that any overlapping
litigation is currently pending elsewhere, so there is no risk of duplicative
effort or inconsistent judgments. Cf. Roe v. Gray, 165 F.Supp.2d 1164, 1174 (D.Colo.2001) (declining to rule on the question of arbitrability in the course of
determining whether a § 3 stay was
appropriate in deference to simultaneously pending proceedings).
FN6. If defendants had initiated this lawsuit seeking an order compelling
arbitration in
Florida
,
then dismissal would be the appropriate remedy. Snyder, 736 F.2d at 420 (“In a case ... where the
petition to compel arbitration [is] the only relief sought, the district court
should dismiss the petition or, upon motion, stay its proceedings.”); see
also Merrill Lynch, Pierce, Fenner & Smith v. Lauer, 49
F.3d 323, 328 (7th Cir.1995). Not so here-plaintiffs are presumptively
entitled to their choice of judicial forum.
2. Illegality
Plaintiffs seek to avoid
arbitration on the ground that the underlying contract is illegal. As a matter
of federal law, this argument is a non-starter: the illegality of a contract
containing an arbitration clause does not infect the clause itself. See Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,
403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Sweet
Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd., 1 F.3d 639, 642
(7th Cir.1993). This explains why the
only case law plaintiffs muster in support of their contrary position comes
from state courts. Ala.
Catalog Sales v. Harris, 794 So.2d 312, 314 (Ala.2000); FastFunding
The Co., Inc. v. Betts, 758 So.2d 1143, 1144 (Fla.Dist.Ct.App.2000). This court is bound by the Seventh Circuit's interpretation of
federal law and nothing connects the case at bar to
Alabama
, so precedent from that jurisdiction
is not helpful to plaintiffs' cause.
Although the parties
apparently fail to realize it, plaintiffs' reliance on FastFunding is
more intriguing. According to defendants, the contracts provide that all
questions concerning them are to be governed by
Florida
law. Perhaps plaintiffs, by citing a
Florida
case, mean to suggest that this
general choice-of-law provision indicates that the parties opted for
Florida
rather than
federal law to control the issue of arbitrability. It certainly would have been
within the power of the parties to reach such an agreement. See Volt
Info. Sciences v. Bd. of Trustees, 489 U.S. 468,
474-79, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (declining to overturn a
California
court's conclusion that a general choice-of-law provision covered the issue of
arbitrability). The question is whether they did so in this case, which is
itself a question of contract interpretation governed by
Florida
law.
The only case this court
has found considering the question under
Florida
law holds that a general choice-of-law provision does not displace federal law
on the issue of arbitrability. Paul Davis Sys., Inc. v. Paul W. Davis Sys.,
Inc., No. 98 C 2027, 1998
U.S.
Dist. LEXIS 16912, at *7 (N.D.Ill. Oct.15, 1998). Applying
Illinois
and
New York
law, the United States Supreme Court has reached the same conclusion. Mastrobuono v. Shearson
Lehman Hutton, Inc., 514 U.S.
52, 60 n. 4, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995); id. at 71-72 (Thomas, J., dissenting).
This court believes that
Florida
courts would follow suit. The normal purpose of general choice-of-law clauses
“is to determine that the law of one State rather than that of another State
will be applicable; they simply do not speak to any interaction between state
and federal law.” Volt Info., 489 U.S. at 488 (Brennan, J.,
dissenting). Moreover, because “the laws of the State of
Florida
” include federal laws under settled
principles of supremacy, the literal language of the contract gives no
indication of any intent to exclude application of the Federal Arbitration Act. Id. at 490-91. Finally,
Florida
courts, like
federal courts, read contractual ambiguity in favor of arbitration. Paul
Davis, 1998 U.S. Dist. LEXIS 16912, at *7 (citing Ronbeck Constr. Co. v.
Savanna Club Corp., 592 So.2d
344, 346 (Fla.App.1992)). At most, the choice-of-law provision
creates some uncertainty as to which body of law governs arbitrability;
uncertainty must be resolved in favor of arbitration. Thus, this court holds
that the arbitration provisions in the present contracts are governed by
federal, not
Florida
,
law and that plaintiffs' reliance on FastFunding is therefore misplaced. See Buckeye Check Cashing, Inc. v. Cardegna, No. 4D01-3549, 2002
Fla.App. LEXIS 10336, at *3-4 (Fla.Dist.Ct.App. July 24, 2002) (distinguishing FastFunding where the contract provided that federal law would govern arbitrability).
3. Class
Action Prohibition
[10]
Plaintiffs' next
argument is based on the contractual provision prohibiting plaintiffs'
participation in any class action. This prohibition renders the arbitration
clause unenforceable because, according to plaintiffs, it constitutes an
impermissible waiver of a “protection provided by” or a “right of the consumer
under” the CROA. 15
U.S.C. § 1679f(a). Plaintiffs cite no
case law in support of this theory. This court's own research has failed to
reveal any judicial decision directly addressing the question of whether the
CROA renders void an arbitration clause that prohibits class actions.
Nonetheless, it is clear that plaintiffs' argument fails. The burden of showing
that Congress intended to preclude arbitration for a statutory claim rests with
the party who seeks to avoid arbitration. Gilmer
v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26,
111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). “If such an intention exists, it will be discoverable in the
text of the [statute], its legislative history, or an ‘inherent conflict’
between arbitration and the [statute]'s underlying purposes.”
Id.
Any doubts as to Congress's
intent are to be resolved in favor of arbitrability.
Id.
Plaintiffs here rely
solely on the statutory text. As a general matter, the right to bring a class
action in federal court is a procedural right created by Rule 23
of the Federal Rules of Civil Procedure. The only references to class actions in the CROA concern the
calculation of punitive damages. 15
U.S.C. §§ 1679g(a)(2)(B), (b)(4). These provisions do not create a substantive right to bring a
class action, so agreeing in an arbitration clause to forego the class action
mechanism does not amount to a waiver of a protection provided by or statutory
right under the CROA. Cf. Johnson
v. W. Suburban Bank, 225 F.3d 366, 371 (3d Cir.2000) (reaching the same result with respect to a Truth-in-Lending Act
(“TILA”) claim); Lopez v. Plaza Fin. Co., 1996 U.S. Dist. LEXIS 5566,
No. 95-C-7567, 1996 U.S. Dist. LEXIS 5566, at *7 (N.D.Ill. Apr. 25, 1996)
(“Congress has not created a statutory right to bring class actions under [the]
TILA”).
4. Prohibitive
Expenses
[11]
Plaintiffs' final argument against arbitration is their
strongest. The United States Supreme Court has recognized that “the existence
of large arbitration costs could preclude a litigant ... from effectively
vindicating her federal statutory rights in the arbitral forum.” Green Tree Fin. Corp.-Ala.
v. Randolph, 531 U.S. 79, 90,
121 S.Ct. 513, 148 L.Ed.2d 373 (2000). “[W]here ... a party seeks to
invalidate an arbitration agreement on the ground that arbitration would be
prohibitively expensive, that party bears the burden of showing the likelihood
of incurring such costs.” Id. at 92. Plaintiffs attempt to meet
this burden. Arbitration, plaintiffs' claim, would proceed under the American
Arbitration Association's Commercial Dispute Resolution Procedures and would
cost in excess of $4000 per plaintiff, not including the costs of renting a
room, traveling to
Florida
,
or reimbursing the arbitrator for time spent on pre-hearing matters. Plaintiffs
point out that the arbitration agreements do not provide for the splitting of
costs between the parties. Plaintiffs reason that “common sense” suggests that
such expenses would be prohibitive for consumers, like them, who sought credit
repair services precisely because they were in debt. (Resp. at 13.)
Defendants make only two points in reply.
First, citing Green Tree, they argue that because the agreements are
silent as to who will bear the costs of arbitration, plaintiffs have failed to
show that they will be required to do so. Second, defendants assert that
plaintiffs will not need to travel to
Florida
given the technology available for video and voice communication. Plaintiffs
have stated that they want to testify in person as to the oral promises and
affirmations of fact underlying their claims. This does not seem like an
unreasonable decision. Defendants offer no explanation as to why they should be
able to dictate the method by which plaintiffs' evidence is presented. But even
setting aside reasonable travel expenses, plaintiffs have shown a real
likelihood that they will not be able to afford to arbitrate their claims.
The starting point, as
both sides recognize, is Green Tree. There, the Court found that “[t]he
record reveals only the arbitration agreement's silence on the subject [of
whether claimaint would bear the costs], and that fact alone is plainly
insufficient to render it enforceable.”
Id.
at 91. The Court specifically declined to reach the question of how detailed
the initial showing of prohibitive expense would need to be before the burden
of production shifted to the proponent of arbitration because “in this case
neither during discovery nor when the case was presented on the merits was
there any timely showing at all on the point.”
Id.
at 92. Green Tree is
easily distinguishable from the case at bar.
Even at this relatively
early stage of litigation, plaintiffs here have done much more than merely
point to the absence of contractual language concerning arbitration costs.
Although plaintiffs do not state exactly what portion of the $4000 estimate
(unchallenged by defendants) they are likely to bear, the figure is easily
calculable. Plaintiffs state that the filing fee will be $750 each, as compared
with the single $150 fee for filing in federal court. This initial fee
apparently will be born entirely by plaintiffs. Defendants do not object to
plaintiffs' reliance on either a two-days-per-plaintiff hearing duration or a
$1800-per-day arbitrator's fee, so the court accepts as an accurate estimate
$3600 per plaintiff in arbitrator's fees. According to a recent case cited by
plaintiffs, “[t]he AAA's Commercial Rules provide that the arbitrator's fees ...,
travel expenses, rental of a hearing room, and other costs are borne equally by
the parties, absent some agreement between the parties ... or a different
division made at the discretion of the arbitrator.” Phillips v. Assocs.
Home Equity Servs., 179
F.Supp.2d 840, 846 (N.D.Ill.2001). Hence, even excluding one half of
travel expenses (or video conferencing costs) and rental fees, it is
uncontested that arbitration presumptively will cost each plaintiff $2550 (the
$750 filing fee plus half of the $3600 arbitrator's fee). This is seventeen
times the cost of proceeding in district court. Although one might have
preferred affidavits from plaintiffs stating that this amount was prohibitive,
defendants do not take issue with the view that individuals, like plaintiffs,
with debt problems are unable to afford such costs. Cf. Giordano v. Pep
Boys-Manny, Moe & Jack, Inc., No. 99-1281, 2001 U.S. Dist. LEXIS 5433,
at *24 (E.D.Pa. Mar. 29, 2001) (“[N]othing in Green Tree requires courts
to undertake detailed analyses of the household budgets of low-level employees
to conclude that arbitration costs in the thousands of dollars deter the
vindication of employees' claims in arbitral fora.”). Unlike Green Tree, this case squarely presents the question of whether a party resisting
arbitration has made an adequate showing of prohibitive expenses. Although
plaintiffs' showing on this point is less than overwhelming, this court
believes that it suffices to shift the burden to defendants, who offer in reply
only Green Tree and a vague promise of cost-saving technology.
III.
Conclusion
*11 This court has subject matter jurisdiction.
Because personal jurisdiction over the Law Offices of Dashia Trowers is
lacking, however, the claims against that entity (and the putative defendant
class represented thereby) are dismissed. So too Dorsey's claims against
Goldstar are dismissed for lack of personal jurisdiction. On the other hand,
this court finds that Arnold and Sorbo have made out prima facie cases of
personal jurisdiction with respect to Goldstar, so the court denies defendants'
motion to dismiss the claims of those two plaintiffs against Goldstar. Finally,
the court construes defendants' motion to compel arbitration as a motion to
stay proceedings pending arbitration and denies the motion because plaintiffs
have shown a genuine likelihood that they would incur prohibitive costs in
arbitration.
N.D.Ill.,2002.
Arnold
v. Goldstar Financial Systems, Inc.
Not Reported in F.Supp.2d, 2002 WL 1941546 (N.D.Ill.)
Cannon v. William
Chevrolet/Geo, Inc.
341 Ill.App.3d
674, 794 N.E.2d 843
Ill.App. 1
Dist.,2003.
June 26, 2003
(Approx. 14 pages)
341 Ill.App.3d 674, 794 N.E.2d 843, 276 Ill.Dec. 593, 2003-2 Trade
Cases P 74,085
Appellate
Court of
Illinois
,
First
District, Fourth Division.
Kattrina CANNON,
Plaintiff-Appellee and Cross-Appellant,
v.
WILLIAM CHEVROLET/GEO, INC., and Firstar Bank
Milwaukee
, N.A., Defendants-Appellants and
Cross-Appellees.
No. 1-01-3332.
June 26, 2003.
Used
car purchaser filed lawsuit against car dealership and bank which financed her
car purchase for, among other causes, violations of Magnuson-Moss Warranty
Federal Trade Commission Improvement Act (Magnuson-Moss Act) and Credit
Services Organizations Act, alleging dealership failed to inform her that the
vehicle had been in an accident, and raising disclosure issues related to
retail installment contract assigned to bank. The Circuit Court,
Cook
County
, Vanessa Hopkins,
J., granted judgment in favor of purchaser and awarded attorney fees and costs
to her. Dealership and bank appealed, and purchaser cross-appealed. The
Appellate Court, Theis, P.J.,
held that: (1) purchaser's petition for attorney fees under Magnuson-Moss Act
was not collateral to underlying action and, thus, notice of appeal filed by
dealership and bank within 30 days of resolution of attorney fees claim was
timely; (2) dealership's and bank's motions in limine seeking to dismiss
purchaser's Magnuson-Moss Act claims of breach of implied warranty of
merchantability and revocation of acceptance and recision were not proper
vehicle for the relief sought; (3) dealership's failure to inform purchaser that
it had obtained financing at lower interest rate than rate disclosed in retail
installment contract was not a violation of Credit Services Organizations Act;
(4) financing services offered by dealership in connection with purchase of
vehicle from dealership did not fall within the purview of Credit Services
Organizations Act; (5) award of attorney fees under Magnuson-Moss Act did not
depend upon a plaintiff's recovery of substantial monetary damages nor did it
need to be proportionate to an award of money damages; (6) reversal of attorney
fees award to purchaser and remand for new hearing on attorney fees to allow
trial court to reconsider whether purchaser's unsuccessful claims were
sufficiently related to successful claims, and whether purchaser achieved level
of success making it appropriate to award fees for hours reasonably expended on
unsuccessful claim was required; and (7) trial court acted within its
discretion in awarding attorney fees to purchaser at hourly billing rates
selected by court, rather than at rates claimed by purchaser's attorneys.
Affirmed in part, reversed in part and remanded with directions.
West
Headnotes
[1] KeyCite Notes
30 Appeal and
Error
30VII Transfer
of Cause
30VII(D) Writ
of Error, Citation, or Notice
30k428 Filing
Notice and Proof of Service
30k428(2) k.
Time for Filing. Most Cited Cases
Vehicle purchaser's petition, as prevailing party in lawsuit
against dealership and bank, for attorney fees pursuant to Magnuson-Moss
Warranty Federal Trade Commission Improvement Act, was not collateral to
underlying action and, thus, notice of appeal filed by dealership and bank
within 30 days of resolution of attorney fees claim was timely, although
purchaser argued that petition for attorney fees was not posttrial motion such
as to prevent order disposing of main claims from being appealable; trial court
retained jurisdiction to hear claim for fees as part of the judgment under said
act. Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, §
110(d)(2), 15 U.S.C.A. § 2310(d)(2); Sup.Ct.Rules, Rule 304(a).
[2] KeyCite Notes
30 Appeal and
Error
30X Record
30X(J) Defects,
Objections, Amendments, and Corrections
30k641 k.
Defects in Authentication or Certificate. Most Cited Cases
Appellate court cannot consider an unofficial copy of a portion of
the record. Sup.Ct.Rules, Rule 324.
[3] KeyCite Notes
30 Appeal and
Error
30X Record
30X(A) Matters
to Be Shown
30k497 Grounds
of Review
30k497(1) k. In
General. Most Cited Cases
The appellant has the burden of presenting a sufficiently complete
record of the proceedings at trial to support a claim of error.
[4] KeyCite Notes
30 Appeal and
Error
30XVI Review
30XVI(G) Presumptions
30k906 Facts or
Evidence Not Shown by Record
30k907 In
General
30k907(1) k. In
General. Most Cited Cases
In the absence of sufficiently complete record of the proceedings
at trial, the reviewing court will presume that the order entered by the trial
court was in conformity with the law and had a sufficient factual basis.
[5] KeyCite Notes
307A Pretrial
Procedure
307AI In
General
307Ak3 k.
Motions in Limine; Preclusion of Evidence, Argument, or Reference. Most Cited Cases
Car dealer's and bank's motions in limine seeking to dismiss car
purchaser's Magnuson-Moss Warranty Federal Trade Commission Improvement Act
claims of breach of implied warranty of merchantability and revocation of
acceptance and recision were not proper vehicle for the relief sought, where,
with regard to motion in limine on issue of recision, dealer and bank sought
ruling on election of remedies, rather than a ruling on evidentiary matter, and
another motion sought to bar purchaser from mentioning that she was refused any
repairs, also a dispositive, rather than evidentiary, matter.
[6] KeyCite Notes
307A Pretrial
Procedure
307AI In
General
307Ak3 k.
Motions in Limine; Preclusion of Evidence, Argument, or Reference. Most Cited Cases
Motions in limine are not designed to obtain rulings on
dispositive matters but, rather, are designed to obtain rulings on evidentiary
matters outside the presence of the jury.
[7] KeyCite Notes
307A Pretrial
Procedure
307AI In
General
307Ak3 k.
Motions in Limine; Preclusion of Evidence, Argument, or Reference. Most Cited Cases
It is improper to file a dispositive motion seeking the dismissal
of a claim as a motion in limine where it forecloses the opportunity of the
opposing party to adequately respond to the motion.
[8] KeyCite Notes
30 Appeal and
Error
30V Presentation and Reservation in Lower Court of Grounds of Review
30V(B) Objections and Motions, and Rulings Thereon
30k214 Instructions
30k215 Objections in General
30k215(1) k.
Necessity of Objection in General. Most Cited Cases
30 Appeal and
Error KeyCite Notes
30V Presentation and Reservation in Lower Court of Grounds of Review
30V(B) Objections and Motions, and Rulings Thereon
30k242 Necessity of Ruling on Objection or Motion
30k242(5) k.
Reservation of Rulings. Most Cited Cases
30 Appeal and
Error KeyCite Notes
30V Presentation and Reservation in Lower Court of Grounds of Review
30V(D) Motions
for New Trial
30k286 k.
Review of Rulings or Orders Before Trial or Hearing. Most Cited Cases
Car dealership and bank, as defendants in lawsuit brought by used
car purchaser, waived on appeal claim that trial court erred in denying their
motions in limine seeking to dismiss purchaser's Magnuson-Moss Warranty Federal
Trade Commission Improvement Act claims on basis of alleged failure by
purchaser to give notice and opportunity to cure, where, after court reserved
ruling on motions, defendants never sought a ruling, court denied their motions
for directed verdict on issue of notice, they did not object to jury
instructions on issue of notice, and they did not file posttrial motions.
Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, § 110(e), 15 U.S.C.A. § 2310(e).
[9] KeyCite Notes
307A Pretrial
Procedure
307AI In
General
307Ak3 k.
Motions in Limine; Preclusion of Evidence, Argument, or Reference. Most Cited Cases
When a motion in limine is made, the trial judge has broad
discretion to grant or deny the motion or choose not to entertain the motion at
all.
[10] KeyCite Notes
92B Consumer
Credit
92BI In General
92Bk3 License
and Regulation in General
92Bk4 k.
Particular Businesses or Transactions. Most Cited Cases
Car dealership's failure to inform car purchaser that it had
obtained financing at lower interest rate than rate disclosed in retail
installment contract was not a violation of Credit Services Organizations Act,
where dealership did not receive valuable consideration specifically for credit
services performed in procuring financing; without evidence of such
consideration, financing transaction was not regulated under act and dealership
could not be considered a credit services organization. S.H.A. 815 ILCS 605/1 et seq.
[11] KeyCite Notes
92B Consumer
Credit
92BI In General
92Bk3 License
and Regulation in General
92Bk4 k.
Particular Businesses or Transactions. Most Cited Cases
The Credit Services Organizations Act is not intended to regulate
retailers primarily engaged in the business of selling goods and services to
their customers; goods and services provided by retailers are not generally
services aimed at improving the consumer's credit or obtaining an extension of
credit for the consumer, otherwise unattainable because of the consumer's poor
credit history or rating. S.H.A. 815 ILCS 605/1 et seq.
[12] KeyCite Notes
92B Consumer
Credit
92BI In General
92Bk3 License
and Regulation in General
92Bk4 k.
Particular Businesses or Transactions. Most Cited Cases
Financing services offered by car dealership in connection with
purchase of vehicle from dealership did not fall within the purview of Credit
Services Organizations Act; dealership was primarily in the business of selling
and leasing cars, not primarily in the business of obtaining extensions of
credit otherwise unattainable because of a consumer's poor credit history or
rating, and, accordingly, legislature did not intend to include retailers, such
as car dealerships, within the purview of act. S.H.A. 815 ILCS 605/2.
[13] KeyCite Notes
30 Appeal and
Error
30X Record
30X(J) Defects,
Objections, Amendments, and Corrections
30k635 Effect
of Omissions
30k635(1) k. In
General. Most Cited Cases
Car dealership and bank, as defendants in lawsuit brought by used
car purchaser for, among other causes, violations of Magnuson-Moss Warranty
Federal Trade Commission Improvement Act (Magnuson-Moss Act) and Credit
Services Organizations Act, waived on appeal claims regarding reasonableness of
attorney fees awarded by trial court to purchaser under Magnuson-Moss Act,
where defendants failed to make transcript of hearing on attorney fees part of
record on appeal. Magnuson-Moss Warranty-Federal Trade Commission Improvement
Act, § 110(d)(2), 15 U.S.C.A. § 2310(d)(2).
[14] KeyCite Notes
102 Costs
102VIII Attorney Fees
102k194.10 k.
In General. Most Cited Cases
115 Damages KeyCite Notes
115III Grounds
and Subjects of Compensatory Damages
115III(A) Direct or Remote, Contingent, or Prospective Consequences or Losses
115III(A)1 In
General
115k15 k.
Nature and Theory of Compensation. Most Cited Cases
Damages are designed to compensate a plaintiff for his or her loss
and injury, whereas the purpose of awarding attorney fees is to provide
potential litigants with access to legal assistance so that they might pursue a
remedy for their injuries or loss.
[15] KeyCite Notes
29T Antitrust
and Trade Regulation
29TIII Statutory Unfair Trade Practices and Consumer Protection
29TIII(E) Enforcement and Remedies
29TIII(E)7 Relief
29Tk395 Costs
29Tk397 k.
Attorney Fees. Most Cited Cases
(Formerly 92Hk42 Consumer Protection)
Award of attorney fees under Magnuson-Moss Warranty Federal Trade
Commission Improvement Act does not depend upon a plaintiff's recovery of
substantial monetary damages nor does it need to be proportionate to an award
of money damages. Magnuson-Moss Warranty-Federal Trade Commission Improvement
Act, § 110(d)(2), 15 U.S.C.A. § 2310(d)(2).
[16] KeyCite Notes
102 Costs
102VIII Attorney Fees
102k194.18 k.
Items and Amount; Hours; Rate. Most Cited Cases
When plaintiff fails to prevail on claims that are distinct in all
respects from the prevailing claims, the hours spent on unsuccessful claims may
be excluded in considering the amount of reasonable attorney fees; however,
when lawsuit cannot be viewed as a series of discrete claims, court must
evaluate whether the claims (1) involved a common core of facts or related
legal theories, and (2) whether the plaintiff achieved a level of success
making it appropriate to award attorney fees for hours reasonably expended on
the unsuccessful claims as well.
[17] KeyCite Notes
30 Appeal and
Error
30XVII Determination and Disposition of Cause
30XVII(D) Reversal
30k1172 Reversal in Part
30k1172(5) k.
As to Damages and Costs. Most Cited Cases
Reversal in part of trial court's judgment, in lawsuit by used car
purchaser against dealership and bank for, among other causes, violations of
Magnuson-Moss Warranty Federal Trade Commission Improvement Act and Credit
Services Organizations Act, required reversal of attorney fees award to
purchaser and remand for new hearing on attorney fees to allow trial court to
reconsider whether purchaser's unsuccessful claims were sufficiently related to
successful claims, and whether purchaser achieved level of success making it appropriate
to award fees for hours reasonably expended on unsuccessful claims.
Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, § 110(d)(2), 15 U.S.C.A. § 2310(d)(2).
[18] KeyCite Notes
29T Antitrust
and Trade Regulation
29TIII Statutory Unfair Trade Practices and Consumer Protection
29TIII(E) Enforcement and Remedies
29TIII(E)7 Relief
29Tk395 Costs
29Tk398 k.
Proceedings to Impose; Evidence. Most Cited Cases
(Formerly 92Hk42 Consumer Protection)
Trial court acted within its discretion, in lawsuit by used car
purchaser against dealership and bank for, among other causes, violations of
Magnuson-Moss Warranty Federal Trade Commission Improvement Act, in awarding
attorney fees to purchaser at hourly billing rates selected by court, rather
than at rates claimed by purchaser's attorneys, where attorneys did not submit
any affidavits or testimony on rates from other counsel practicing in same
market, and defendants presented evidence supporting rates selected by court. Magnuson-Moss
Warranty-Federal Trade Commission Improvement Act, § 110(d)(2), 15 U.S.C.A. § 2310(d)(2).
**846**596*677
Ira M. Levin,
Corie E. Schafer, Burke, Warren, MacKay & Serritella, P.C., for Appellants.
Andy Norman,
Mauck & Baker, Chicago, for Appellee.
Presiding Justice THEIS delivered
the opinion of the court:
Defendants, William Chevrolet/Geo, Inc. (William Chevrolet), and
Firstar Bank Milwaukee, N.A. (Firstar Bank), appeal from the trial court's
order of January 12, 2001, granting judgment in favor of plaintiff, Kattrina
Cannon, for violations of the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act (Magnuson-Moss Act or Act) (15 U.S.C. § 2310(d)
(2000)), and violations of the Credit Services Organizations Act
(Credit Services Act) (815 ILCS 605/1 et
seq. (West 1998)). Additionally, defendants appeal from the award of
attorney fees and costs entered on August 24, 2001.
*678 Defendants contend that
(1) the trial court erred in failing to dismiss Cannon's Magnuson-Moss Act
claims for Cannon's failure to comply with the notice provisions of the Act;
(2) the trial court erred in allowing Cannon to amend her complaint to add a
cause of action under the Credit Services Act where William Chevrolet is not a
credit service organization; (3) the trial court erred in finding that William
Chevrolet committed interest rate fraud in violation of the Credit Services
Act; and (4) the trial court abused its discretion in awarding attorney fees
and costs. On cross-appeal, Cannon contends that the trial court erred in selecting
a reasonable hourly rate in calculating the award of attorney fees. For the
following reasons, we affirm in part, reverse in part and remand with
directions.
BACKGROUND
In January 1999, Cannon filed a lawsuit against William Chevrolet
and Firstar Bank, in connection with her purchase of a used 1998 Nissan Sentra.
Therein, she alleged in her complaint that William Chevrolet failed to disclose
that the vehicle had been in an accident. She later amended the complaint to
raise additional disclosure issues relating to her retail installment contract
assigned to Firstar Bank. She sought recovery under various legal theories,
including the Illinois Consumer Fraud and Deceptive Business Practices Act
(Consumer Fraud Act) (**847 ***597 815 ILCS 505/1 et
seq. (West 1998)) (count I), common law fraud (count II), violations of the
Magnuson Moss Act (15 U.S.C. § 2310(d)
(2000)), including breach of the implied warranty of merchantability
(count III), breach of the service contract (count IV), and revocation of
acceptance and rescission (count V), and violations of the Credit Services Act
(815 ILCS 605/1 et
seq. (West 1998)) (count VI). Cannon also sought to recover her costs and
attorney fees. The matter proceeded to mandatory arbitration at which time
Cannon was awarded $24,933.92. The award was rejected by defendants and the
case was assigned to the trial calendar.
After a bifurcated bench and jury trial, on January 12, 2001, the
trial court entered judgment on the jury's verdict in favor of Cannon for
$34,130.82 on her Magnuson-Moss Act claims (count III, breach of implied
warranty, and count V, revocation of acceptance and rescission), and entered
judgment on the jury's verdict in favor of William Chevrolet on the common law
fraud claim (count II). Additionally, the trial court entered judgment, based
upon its findings of fact, in favor of Cannon for $471 under the Credit
Services Act (count VI), and for William Chevrolet under the Consumer Fraud Act
(count I). Firstar Bank, as assignee of the retail installment contract, was
held jointly and severally liable for $10,807.96, the amount of money Cannon
had *679 paid under the retail
installment contract. Thereafter, Cannon filed several posttrial motions and a
petition for statutory attorney fees and costs. On August 24, 2001, after an
evidentiary hearing, the trial court awarded attorney fees, costs, and expenses
to Cannon's attorneys, totalling $70,115.20.
ANALYSIS
Jurisdiction
[1]
Initially, Cannon filed a motion, taken with the case,
contending that we lack jurisdiction to address the arguments on appeal
relating to the order of January 12, 2001, where the notice of appeal was filed
on September 10, 2001, more than 30 days after the last pending posttrial
motion was resolved by the trial court. Cannon specifically argues that the
last posttrial motion was resolved by the order of July 6, 2001, and that the
petition for attorney fees, which was not resolved until August 24, 2001, was
not a posttrial motion such as to prevent the January 12 order, disposing of
the main claims, from being appealable, citing Servio v. Paul Roberts
Auto Sales, Inc., 211
Ill.App.3d 751, 156 Ill.Dec. 186, 570 N.E.2d 662 (1991), in support.
In Servio, the appellate court determined that a
postjudgment petition for attorney fees under section 10(a)(c) of the Consumer
Fraud Act was collateral to the underlying action and therefore did not affect
the finality or appealability of the judgment in the principal action. Servio, 211 Ill.App.3d at 760-61, 156 Ill.Dec. 186,
570 N.E.2d at 667-68.
This case is distinguishable from Servio. Here, Cannon's
complaint contained a claim for attorney fees pursuant to the Magnuson-Moss Act
under which she was the prevailing party. Section 2310(d)(2) of the Act specifically provides:
“If a consumer finally prevails * * *, he may be allowed by the
court to recover as part of the judgment a sum equal to the aggregate
amount of cost and expenses (including attorneys' fees based on actual time
expended) determined by the court to have been reasonably incurred by the
plaintiff for or in connection with the commencement and prosecution of such
action, unless the court in its discretion shall determine that such an award
of attorneys' fees would be inappropriate.” (Emphasis added.) 15 U.S.C. § 2310(d)(2)
(2000)
**848***598 Thus,
where the trial court retained jurisdiction to hear the claim for fees “as part
of the judgment,” it was not collateral to the underlying action. Any other
judgment entered in the case before the claim for fees was ruled upon became
nonfinal and nonappealable when the claim for fees was made, unless the prior
judgment contained the language set forth in Supreme Court Rule 304(a) (155 Ill.2d R. *680 304(a)) that
there was no just reason to delay enforcement or appeal. Dewan v. Ford Motor
Co., No. 1-01-3259, 2002 WL 31834629 (December 18, 2002); F.H. Prince & Co.
v. Towers Financial Corp., 266 Ill.App.3d 977, 983-84, 203 Ill.Dec. 940, 640 N.E.2d 1313, 1317 (1994).
Here, the order of January 12, 2001, did not resolve the claim for
attorney fees or contain a finding pursuant to Rule 304(a) that there was no just reason to delay enforcement or appeal. Therefore, in the
absence of a Rule 304(a) finding, the January 12, 2001, order, even if final, remained unappealable
until the resolution of Cannon's claim for attorney fees on August 24, 2001. F.H. Prince, 266 Ill.App.3d at 983-84, 203 Ill.Dec. 940,
640 N.E.2d at 1317. Consequently, the notice of appeal filed on
September 10, 2001, within 30 days after resolution of the attorney fee claim,
was timely, providing this court with jurisdiction.
Magnuson-Moss
Act Claims
We next address defendants' contention that the trial court erred
in denying their motions in limine seeking to dismiss the Magnuson-Moss
Act claims of breach of implied warranty of merchantability and revocation of
acceptance and rescission. Defendants argue that Cannon failed to comply with
the requisite notice requirements of the Act and therefore the trial court
should have granted the motions in limine as a matter of law. Pursuant to section 2310(e) of the Magnuson-Moss Act, no action may be brought for failure to comply with
any obligation under any written or implied warranty unless the person
obligated under the warranty is afforded reasonable notice and opportunity to
cure such failure to comply. 15 U.S.C. § 2310(e) (2000); Belfour v. Schaumburg
Auto, 306 Ill.App.3d 234,
241, 239 Ill.Dec. 383, 713 N.E.2d 1233, 1238 (1999).
Cannon's complaint alleged that William Chevrolet was served with
notice of its violations of the law and that the dealership was aware of the
condition of the vehicle prior to any cause of action being brought. According
to the record on appeal, no motion to dismiss or motion for summary judgment
was ever filed in connection with the adequacy of those allegations pertaining
to the notice requirement under the Magnuson-Moss Act. Nor do defendants argue
on appeal that the allegations in the complaint were deficient. On the first
day of trial, William Chevrolet filed motions in limine relating to the
Magnuson-Moss Act claims.
[2]
[3]
[4]
Initially, we note that neither motion stating the
requested relief has been made part of the record on appeal. An unofficial copy
of the motions without a file stamp has been provided in the appendix to the
brief. This court cannot consider an unofficial copy of a portion of the
record. Anderson v. Village of
Forest Park, 238 Ill.App.3d
83, 90, 179 Ill.Dec. 373, 606 N.E.2d 205, 210 (1992), citing Supreme Court Rule 324
(155 Ill.2d R. 324) (the clerk shall *681 prepare and certify the record on appeal). The appellant
has the burden of presenting a sufficiently complete record of the proceedings
at trial to support a claim of error. Foutch v. O'Bryant, 99 Ill.2d 389, 391-92, 76 Ill.Dec. 823, 459
N.E.2d 958, 959 (1984). In the absence of such a record the
reviewing court will presume that the order entered **849***599 by the trial court was
in conformity with the law and had a sufficient factual basis. Foutch, 99 Ill.2d at 392, 76 Ill.Dec. 823, 459 N.E.2d
at 959.
[5]
[6]
[7]
Even were we to consider whether the trial court
correctly ruled on the motions in limine, we find that defendants'
arguments lack merit. One of defendants' motions sought to bar Cannon from
mentioning at trial that she was refused any repairs on her vehicle because she
failed to give proper notice of her warranty claims. While they argue that the
trial court should have dismissed the claims at the motion in limine stage as a matter of law, defendants misunderstand the purpose of such a
motion. Motions in limine are not designed to obtain rulings on
dispositive matters but, rather, are designed to obtain rulings on evidentiary matters outside the presence of the jury. People v. Owen, 299 Ill.App.3d 818, 822, 233 Ill.Dec. 900,
701 N.E.2d 1174, 1177 (1998). It is improper to file a dispositive
motion seeking the dismissal of a claim as a motion in limine where it
forecloses the opportunity of the opposing party to adequately respond to the
motion. See Silverstein v. Brander, 317 Ill.App.3d 1000, 1005-06, 251 Ill.Dec.
276, 740 N.E.2d 357, 361 (2000). Additionally, with regard to the
motion in limine on the issue of rescission, defendants sought a ruling
on an election of remedies, arguing inconsistent jury instructions, rather than
a ruling on an evidentiary matter. Accordingly, the motions were not the proper
vehicle for the relief sought by defendants.
[8]
[9]
Furthermore, when a motion in limine is made, the
trial judge has broad discretion to grant or deny the motion or choose not to
entertain the motion at all. Schuler v. Mid-Central
Cardiology, 313 Ill.App.3d
326, 334, 246 Ill.Dec. 163, 729 N.E.2d 536, 543 (2000). The motion
pertaining to notice was unsubstantiated with any evidence that Cannon failed
to provide proper notice. On appeal, defendants cite to Cannon's deposition
testimony as evidence in support of their contention. However, that evidence
was not presented to the trial court during the hearing on the motion in
limine. The trial court therefore properly reserved its ruling on the
motion to allow Cannon an opportunity to present her evidence of notice to the
jury as a question of fact. The court specifically stated that “if there's no
substantive evidence to set forth that there has been any notice that can be
substantiated in any form then this will be granted. If not, it will be
denied.”
Subsequently, defendants never sought a ruling on the motions in
limine, the trial judge then denied the motion for a directed verdict on *682 the notice issue, and after the close of the evidence, jury
instructions were given, including instructions on the issue of notice and
remedies. Defendants did not object to the jury instructions on notice, nor do
they argue that the instructions were improper on appeal. Additionally,
defendants failed to file a posttrial motion. Pursuant to section 2-1202(a) of the
Illinois Code of Civil Procedure (735 ILCS 5/2-1202 (West 2000)), if the court denies a motion for directed verdict, the motion is
waived unless the request is renewed in a posttrial motion. Accordingly, to the
extent that defendants argue the insufficiency of the evidence presented at
trial to support adequate notice and an opportunity to cure, they have waived
such contention on appeal and we decline to review it. For all of the foregoing
reasons, we affirm the decision of the trial court on the Magnuson-Moss Act
claims.
Credit
Services Act
We next address William Chevrolet's argument that the trial court
erred in denying its motion for summary judgment on count VI of the amended
complaint, alleging**850***600 violations of the Credit Services Act. Summary judgment is
appropriate when “the pleadings, depositions, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter
of law.” 735 ILCS 5/2-1005(c) (West 2000); Sollami v. Eaton, 201 Ill.2d 1, 6-7, 265 Ill.Dec. 177, 772
N.E.2d 215, 218 (2002). Our review of the circuit court's judgment
is de novo. Sollami, 201 Ill.2d at 7, 265 Ill.Dec. 177, 772 N.E.2d
at 218.
[10]
The following undisputed facts were presented on the
motion for summary judgment. When Cannon entered into the transaction to
purchase the used 1998 Nissan Sentra, William Chevrolet agreed to arrange for
an extension of credit to finance a portion of the purchase price of the used
vehicle. Cannon signed a retail installment contract with a disclosed annual
percentage rate of 11.95%. Subsequently, William Chevrolet obtained financing
from Firstar Bank at a lower annual percentage rate of 7.39%, which was not
disclosed to Cannon. Cannon claimed that William Chevrolet had concealed the
lower interest rate she could have received, and claimed that failure to
disclose the actual rate obtained by the bank was a violation of the Credit
Services Act. The trial court denied William Chevrolet's motion for summary
judgment and ultimately granted Cannon damages for a violation of the Credit
Services Act.
William Chevrolet argues that it is not a credit services
organization as defined by the Credit Services Act, and that the legislature
did not intend to regulate the transaction at issue. Therefore, it concludes
that it cannot be held liable. Relying on section 3 of the Credit Services Act,
Cannon maintains that William Chevrolet is a credit services *683 organization by virtue of its agreeing to assist her in obtaining
an extension of credit, in indeed obtaining the credit, and by receiving
consideration for its services “ as part of the overall transaction.”
Section 3 of the Credit Services Act provides in pertinent part:
“(a) ‘Buyer’ means an individual who is solicited to purchase or
who purchases the services of a credit services organization.
* * *
(d) ‘Credit Services Organization’ means a person who, with
respect to the extension of credit by others and in return for the payment of
money or other valuable consideration, provides, or represents that the person
can or will provide, any of the following services:
(i) improving a buyer's credit record, history, or rating[;]
(ii) obtaining an extension of credit for a buyer; or
(iii) providing advice or assistance to a buyer with regard to
either subsection (i) or (ii).” 815 ILCS 605/3(a), (d) (West 1998).
Recently, our supreme court addressed a similar question in
determining whether the Credit Services Act applied to a transaction between a
retailer and a homeowner in Midstate Siding and
Window Co. v. Rogers, 204
Ill.2d 314, 273 Ill.Dec. 816, 789 N.E.2d 1248 (2003). There, a home
remodeling contractor entered into an agreement to assist homeowners in
obtaining financing in connection with the contractor's installation of windows
and siding at their home. The contractor filed suit to enforce the agreement,
and the homeowners counterclaimed, alleging that the agreement was void under
the Credit Services Act. Midstate Siding, 204 Ill.2d at 316, 273 Ill.Dec. 816, 789
N.E.2d 1248. In determining that the Act did not apply to **851***601 the transaction at
issue, the court analyzed the definition of a credit services organization
pursuant to section 3 of the Act, and the legislative purpose behind the Credit
Services Act.
The supreme court rejected Cannon's argument that she was required
to show only that William Chevrolet received consideration “as part of the
overall transaction.” Rather, the court held that in examining the definition
of a buyer and a credit services organization, the Credit Services Act only
regulates transactions involving the payment of money or other valuable
consideration in return for the services of the credit services
organization. Midstate Siding, 204 Ill.2d at 322, 273 Ill.Dec. 816, 789
N.E.2d 1248. Therefore, “the Credit Services Act requires payment
for credit services, not simply payment for other goods or services.” Midstate Siding, 204 Ill.2d at 322, 273 Ill.Dec. 816, 789
N.E.2d 1248. Accordingly, where the contract in Midstate Siding did not provide for payment of money or valuable consideration for credit
services, but rather for the payment of windows and siding to be installed,
there was inadequate consideration to support a contract for credit services. Midstate Siding, 204 Ill.2d at 322, 273 Ill.Dec. 816, 789
N.E.2d 1248.
*684 Similarly, here, we
must determine whether William Chevrolet performed the credit services “in
return for the payment of money or other valuable consideration.” While it is
undisputed that William Chevrolet assisted her in obtaining financing for her
automobile purchase, and indeed obtained a loan commitment from the bank,
Cannon, as the buyer, must show that she gave valuable consideration
specifically for the credit services performed and not simply for other goods
or services.
Here, there was no evidence presented in the record to support
Cannon's argument that she paid a fee or gave other valuable consideration
relating solely to the efforts made in obtaining the extension of credit.
Rather, the evidence was that Cannon made a cash down payment for the car in
the amount of $500, traded in her vehicle with a net trade value of $3,752.62,
and paid a document service fee of $46.88 as part of the overall transaction to
purchase the car. There was no evidence that Cannon transferred money or its
equivalent to the dealership specifically for credit services. Accordingly,
without evidence of such consideration, the transaction was not one regulated
under the Credit Services Act and William Chevrolet cannot be considered a
credit service organization.
[11]
[12]
In addition, we find that Cannon's interpretation is not
consistent with the stated purpose of the Credit Services Act. Section 2
provides in pertinent part:
“(a) The ability to obtain and use credit has become of great
importance to consumers who have a vital interest in establishing and
maintaining their credit worthiness and credit standing. As a result, consumers
who have experienced credit problems may seek assistance from credit service
businesses which offer to improve the credit standing of such consumers.
Certain advertising and business practices of some companies engaged in the
business of credit services have worked a financial hardship upon the people of
this State, often on those who are of limited economic means and inexperienced
in credit matters.
(b) The purpose of this Act is to provide prospective consumers of
credit services companies with the information necessary to make an informed
decision regarding the purchase of those services and to protect the public
from unfair or deceptive advertising and business practices.” 815 ILCS 605/2 (West 1998).
**852 ***602 Thus, the Credit Services Act is aimed at remedying problems
encountered by consumers who have poor credit and seek to establish and
maintain credit worthiness and credit standing. As stated by our supreme court
in Midstate Siding:
“[T]he Credit Services Act is not intended to regulate retailers
primarily engaged in the business of selling goods and services to *685 their customers. The goods and services provided by retailers are
not generally services aimed at improving the consumer's credit or obtaining an
extension of credit for the consumer, otherwise unattainable because of the
consumer's poor credit history or rating.” Midstate Siding, 204 Ill.2d at 324, 273 Ill.Dec. 816, 789 N.E.2d
1248, citing Fogle v. William
Chevrolet/Geo, Inc., No.
99-C-5960, 2000 WL 1129983 (N.D.Ill. August 9, 2000) (mem. op.).
Here, William Chevrolet is a car dealership primarily in the
business of selling and leasing cars, not primarily in the business of
obtaining extensions of credit otherwise unattainable because of a consumer's
poor credit history or rating. Accordingly, the legislature did not intend to
include retailers, such as car dealerships, within the purview of this
particular act. Consequently, we must reverse that part of the trial court's
judgment granting Cannon $471 for a violation of the Credit Services Act.
Attorney
Fees
We next consider defendants' arguments relating to the
reasonableness of the attorney fee award. It contends that the award of fees
and costs was excessive because (1) it was not commensurate with the results
obtained; (2) Cannon's petition failed to delineate time spent among her
different claims; and (3) time related to claims on which Cannon was
unsuccessful should have been excluded. The plain language of section 2310(d)(2) of the Magnuson-Moss Act provides that an award of attorney fees to a
prevailing plaintiff is within the sound discretion of the trial court and will
not be disturbed on review absent an abuse of discretion. 15 U.S.C. § 2310(d)(2)
(2000); Vieweg v. Friedman, 173 Ill.App.3d 471, 475, 122 Ill.Dec. 105,
526 N.E.2d 364, 367 (1988).
[13]
Here, there was an evidentiary hearing at which the
court considered the affidavits of counsel, the petitions of the attorneys, and
the testimony presented by both sides. The trial judge indicated that she would
enter and continue her ruling to make a determination “based upon a finding of
whether or not the fees are reasonable and necessary what should be
appropriately entered based on the services rendered.” A transcript of the
trial court's findings has not been made a part of the record on appeal.
Without the transcript, we are unable to discern the trial court's reasoning
and whether it abused its discretion. As stated previously, the appellant has
the burden of presenting a sufficiently complete record of the proceedings at
trial to support a claim of error. Foutch, 99 Ill.2d at 391-92, 76 Ill.Dec. 823, 459
N.E.2d at 959. In the absence of such a record, the reviewing court
will presume that the order entered by the trial court was in conformity with
the law and had a sufficient factual basis. Foutch, 99 Ill.2d at 392, 76 Ill.Dec. 823, 459 N.E.2d
at 959. Accordingly, to the extent that defendants argue the
reasonableness*686 of the fees awarded,
they have waived those contentions for review.
[14]
We further reject defendants' argument that the award is
excessive because it is not commensurate with the damages awarded. They have
cited no authority and we have found none to suggest that an award of attorney
fees must be proportionate to the damages awarded. Nor was this a case where
Cannon recovered**853***603 only nominal damages. Here, Cannon recovered a substantial
portion of the damages she requested. Furthermore, we note that under section 2310(d)(2) of the Magnuson-Moss Act (15 U.S.C. § 2310(d)(2)
(2000)), attorney fees are not related to the damages awarded.
“Damages are designed to compensate a plaintiff for his loss and injury,
whereas the purpose of awarding attorney fees under [the Act] is to provide
potential litigants with access to legal assistance so that they might pursue a
remedy for their injuries or loss.” Vieweg, 173 Ill.App.3d at 476, 122 Ill.Dec. 105, 526
N.E.2d at 368.
[15]
The statute specifically refers to attorney fees “based
on actual time expended.” In addressing this phrase, Congress has explained
that “an attorney's fee is to be based upon actual time expended rather than
being tied to any percentage of the recovery. This requirement is designed to
make the pursuit of consumers rights involving inexpensive consumer products
economically feasible.” S.Rep. No. 93-151, 1st Sess. at pp. 23-24 (1973). Thus,
the award of attorney fees does not depend upon a plaintiff's recovery of
substantial monetary damages nor does it need to be proportionate to an award
of money damages. See Berlak v. Villa
Scalabrini Home for the Aged, Inc., 284 Ill.App.3d 231, 237-38, 219 Ill.Dec. 601, 671 N.E.2d 768, 772
(1996). It is for the trial court to determine a reasonable fee, if
any, in light of the particular facts and circumstances of each case. We will
not substitute our judgment for that of the trial court, especially here, where
we have no transcript of the trial court's findings.
[16]
Defendants further argue that an attorney must
differentiate which part of his work was performed on each count of the
complaint, and that he may only recover his fees for those claims on which he
prevails, but not on the other claims that were dismissed. The United States
Supreme Court has previously addressed this issue in the context of other federal
fee-shifting statutes. In Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40
(1983), the Court, in considering statutory attorney fees under a
federal civil rights claim, held that when the plaintiff fails to prevail on
claims that are distinct in all respects from the prevailing claims, the hours
spent on unsuccessful claims may be excluded in considering the amount of
reasonable attorney fees. However, the Court further explained that:
*687 “In [some] cases the
plaintiff's claims for relief will involve a common core of facts or will be
based on related legal theories. Much of counsel's time will be devoted
generally to the litigation as a whole, making it difficult to divide the hours
expended on a claim-by-claim basis. Such a lawsuit cannot be viewed as a series
of discrete claims. Instead [the court] should focus on the significance of the
overall relief obtained by the plaintiff in relation to the hours reasonably
expended on the litigation.” Hensley, 461 U.S. at 435, 103 S.Ct. at 1940, 76
L.Ed.2d at 51-52.
Thus, the court must evaluate whether the claims (1) involved a
common core of facts or related legal theories and (2) whether the plaintiff
achieved a level of success making it appropriate to award attorney fees for
hours reasonably expended on the unsuccessful claims as well. Cress v.
Recreation Services, Inc., No. 2-01-1350, 2003 WL 188128 (January 28, 2003)
(applying the test in case involving statutory attorney fee provision of
Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et
seq. (1994))); Berlak, 284 Ill.App.3d at 238, 219 Ill.Dec. 601, 671
N.E.2d at 772-73 (applying a similar***604 analysis in case involving statutory attorney fee provision of
Nursing Home **854 Care Act (210 ILCS 45/3-602 (West 1994))).
While we do not disagree with defendants that generally a
plaintiff is entitled to only those fees incurred on his or her prevailing
claims that allow for attorney fees ( Roche v. Fireside
Chrysler-Plymouth, Mazda, Inc., 235 Ill.App.3d 70, 175 Ill.Dec. 760, 600
N.E.2d 1218 (1992); Rubin v. Marshall Field
& Co., 232 Ill.App.3d
522, 173 Ill.Dec. 714, 597 N.E.2d 688 (1992)), as stated in Hensley, there are times where the lawsuit cannot be perceived as a series of discrete
claims, making it difficult to distinguish the time spent on each claim. We
find that the better reasoned approach is to follow the test outlined by the
Supreme Court in Hensley in making that determination.
[17]
In light of our holding, and because we are reversing
the trial court's judgment with respect to the Credit Services Act claim, we
remand for a new hearing on the award of attorney fees to allow the trial court
to reconsider whether Cannon's unsuccessful claims were sufficiently related to
the successful claims, and whether Cannon achieved a level of success, making
it appropriate to award fees for hours reasonably expended on the unsuccessful
claims as well.
Cross-Appeal
Cannon's sole contention in her cross appeal is that the trial
court abused its discretion in selecting an hourly billing rate for her
attorneys, Mr. Norman and Mr. Feofanov. Cannon argues that the allowed hourly
rates of $190 for Mr. Norman and $125 for Mr. Feofanov, instead of the claimed
rates of $310 and $225, respectively, were not supported by the record. Again,
we note that the parties have not *688 provided this court with a transcript of the trial court's
findings as to the reasonableness of the attorneys' claimed hourly rates. In
the absence of such a record the reviewing court will presume that the order
entered by the trial court was in conformity with the law and had a sufficient
factual basis. Foutch, 99 Ill.2d at 392, 76 Ill.Dec. 823, 459 N.E.2d
at 959.
[18]
Furthermore, in determining whether the trial judge
abused her discretion in reaching a reasonable hourly rate, we find the case of Fogle v. William
Chevrolet/Geo, Inc., 275 F.3d
613 (7th Cir.2001), to be instructive where it involved the same
lawyer seeking the same hourly fee against the same defendant where much of the
same evidence was presented. There, Mr. Norman garnered a reasonable hourly
rate of $185 in connection with a court-awarded attorney fee. The court stated
that the best evidence of a lawyer's reasonable hourly rate is the fee he
commands in the market, but such evidence may not be available where much of
the lawyer's compensation is by a court-awarded fee. Fogle, 275 F.3d at 615. As in Fogle, Mr. Norman testified in the present case that he has had a few paying clients,
and only a handful that pay him at a rate of $310 per hour. In such a
situation, the court in Fogle held that Mr. Norman had to show that
lawyers of comparable ability commanded the rate he was asking the judge to
assess. Fogle, 275 F.3d at 616.
In the present case, Mr. Norman did not submit any affidavits or
testimony from other counsel practicing in the same market. Rather, he
submitted an affidavit from James Wilber, a paid management consultant who does
not practice law in
Illinois
, resides in
Wisconsin
, has not practiced law since 1990, and as the
court in Fogle pointed out, made no study of the
Chicago
or any other consumer litigation
lawyer market. It was for the trial court to determine the worth and weight to
be given Mr. Wilber's assessment of Mr. Norman**855***605 and Mr. Feofanov and we
will not disturb that determination on review.
We find further support for the trial court's ruling in the
record. Defendants presented evidence of the rate that lawyers of similar
ability and experience in the community garnered for the type of work in
question. They cited cases in which the hourly rates of $150 and $190 were
appropriate. They presented the fee petition of Krohn & Moss, Ltd., the law
firm that originally represented Cannon in this dispute, and the law firm where
Mr. Norman previously worked. Under the fee petition submitted at the
arbitration, Mr. Norman's hourly rate was fixed at $175 per hour. With respect
to Mr. Feofanov, the record reveals that he was participating in his first jury
trial and had been practicing consumer law for only about 1 1/2 years.
Additionally, the trial court was also vested with the discretion to consider
the quality of the work *689 done during the course of
the trial. Accordingly, based upon the record before this court, we find no
abuse of discretion in the trial court's determination that the rates of $190
for Mr. Norman and $125 for Mr. Feofanov were reasonable.
For the foregoing reasons, we affirm in part, reverse in part, and
remand for a new hearing on an appropriate award of fees where the trial court
is to reconsider the number of hours reasonably expended in accordance with the
test set forth in Hensley.
Affirmed in part and reversed in part; cause remanded with
directions.
HARTMAN and KARNEZIS, JJ.,
concur.
Ill.App. 1 Dist.,2003.
Cannon v. William Chevrolet/Geo, Inc.
341 Ill.App.3d 674, 794 N.E.2d 843, 276 Ill.Dec. 593, 2003-2 Trade
Cases P 74,085
END OF DOCUMENT
Midstate Siding and
Window Co., Inc. v.
Rogers
204 Ill.2d
314, 789 N.E.2d 1248
Ill.
,2003.
April 24, 2003
204 Ill.2d 314, 789 N.E.2d 1248, 273 Ill.Dec. 816
Briefs and Other Related Documents
Supreme
Court of
Illinois
.
MIDSTATE SIDING AND WINDOW
COMPANY, INC., Appellant,
v.
Kenneth ROGERS et al., Appellees.
No. 89059.
April 24, 2003.
Home
remodeling contractor who had entered into agreement with homeowners to provide
aluminum siding, with contractor agreeing to help homeowners obtain financing,
brought suit against homeowners to enforce agreement. Homeowners
counterclaimed, alleging that agreement was void under Credit Services
Organizations Act. After a bench trial, the Circuit Court,
Knox
County
, James B. Stewart,
J., entered judgment for homeowners. Contractor appealed. The Appellate Court, 309 Ill.App.3d 610, 243
Ill.Dec. 87, 722 N.E.2d 1156, affirmed and remanded with directions.
Appeal was allowed. The Supreme Court, Freeman, J.,
held that the contractor was not a “credit services organization” under the
Act.
Reversed and remanded.
Kilbride, J.,
filed a dissenting opinion.
West
Headnotes
[1] KeyCite Notes
30 Appeal and
Error
30X Record
30X(M) Questions Presented for Review
30k693 Sufficiency of Evidence
30k695 Necessity of Setting Forth All the Evidence
30k695(1) k. In
General. Most Cited Cases
Failure of home remodeling contractor to provide a complete record
of the trial court proceedings did not require the reviewing court to affirm
the trial court's order finding the contractor's agreement with homeowners was
unenforceable under the Credit Services Organizations Act, where the reviewing
court was not being asked whether the evidence presented at trial was
sufficient to support the trial court's findings, and instead was asked to
interpret the Act, thereby presenting a question of law. S.H.A. 815 ILCS 605/1 et seq.
[2] KeyCite Notes
30 Appeal and
Error
30X Record
30X(A) Matters
to Be Shown
30k497 Grounds
of Review
30k497(1) k. In
General. Most Cited Cases
The appellant has the burden of presenting a sufficiently complete
record of the proceedings at trial to support a claim of error.
[3] KeyCite Notes
30 Appeal and
Error
30XVI Review
30XVI(G) Presumptions
30k906 Facts or
Evidence Not Shown by Record
30k907 In
General
30k907(1) k. In
General. Most Cited Cases
In the absence of a sufficiently complete record of the
proceedings at trial to support a claim of error, the reviewing court will
presume that the order entered by the trial court was in conformity with the
law and had a sufficient factual basis.
[4] KeyCite Notes
30 Appeal and
Error
30XVI Review
30XVI(G) Presumptions
30k906 Facts or
Evidence Not Shown by Record
30k907 In
General
30k907(1) k. In
General. Most Cited Cases
The reviewing court will resolve any doubts arising from the
incompleteness of the record of the trial court proceedings against the
appellant.
[5] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k176 k.
Judicial Authority and Duty. Most Cited Cases
Interpretation of a statute is a question of law.
[6] KeyCite Notes
30 Appeal and
Error
30XVI Review
30XVI(F) Trial
De Novo
30k892 Trial De
Novo
30k893 Cases
Triable in Appellate Court
30k893(1) k. In
General. Most Cited Cases
A matter of statutory construction is reviewed de novo.
[7] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k180 Intention of Legislature
361k181 In
General
361k181(1) k.
In General. Most Cited Cases
The primary rule of statutory construction is to ascertain and
give effect to the intent of the legislature.
[8] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k187 Meaning
of Language
361k188 k. In
General. Most Cited Cases
To determine legislative intent, the court examines the language
of the statute, which is the most reliable indicator of the legislature's
objectives in enacting the law.
[9] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k187 Meaning
of Language
361k188 k. In
General. Most Cited Cases
The court affords the language of a statute its plain and ordinary
meaning.
[10] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k204 Statute
as a Whole, and Intrinsic Aids to Construction
361k205 k. In
General. Most Cited Cases
361 Statutes KeyCite Notes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k204 Statute
as a Whole, and Intrinsic Aids to Construction
361k208 k.
Context and Related Clauses. Most Cited Cases
The court construes a statute as a whole; the words and phrases
must not be viewed in isolation, but must be considered in light of other
relevant provisions of the statute.
[11] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k212 Presumptions to Aid Construction
361k212.3 k.
Unjust, Absurd, or Unreasonable Consequences. Most Cited Cases
The court presumes that in enacting the statute, the legislature
did not intend absurdity, inconvenience, or injustice.
[12] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k187 Meaning
of Language
361k190 k.
Existence of Ambiguity. Most Cited Cases
Where the language of the statute is clear and unambiguous, the
only legitimate function of the courts is to enforce the law as enacted by the
legislature.
[13] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k187 Meaning
of Language
361k188 k. In
General. Most Cited Cases
361 Statutes KeyCite Notes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k228 k.
Provisos, Exceptions, and Saving Clauses. Most Cited Cases
It is never proper for the courts to depart from the plain
language of the statute by reading into it exceptions, limitations, or
conditions which conflict with the intent of the legislature.
[14] KeyCite Notes
361 Statutes
361VI Construction and Operation
361VI(A) General Rules of Construction
361k187 Meaning
of Language
361k188 k. In
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There is no rule of statutory construction which authorizes the
courts to declare that the legislature did not mean what the plain language of
the statute says.
[15] KeyCite Notes
92B Consumer
Credit
92BI In General
92Bk3 License
and Regulation in General
92Bk4 k.
Particular Businesses or Transactions. Most Cited Cases
Home remodeling contractor, which agreed to help homeowners obtain
financing for their home remodeling project in which contractor would install
windows and siding at their home, was not a “credit services organization”
under the Credit Services Organizations Act; the consideration received by the
contractor was payment for goods or services, not payment for improving the
homeowners' credit history or payment for obtaining an extension of credit.
S.H.A. 815 ILCS 605/3(a, d).
**1250***818Chester C. Fuller,
Peoria
, for
appellant.
John R. Rehn,
Galesburg
,
for appellees.
Justice FREEMAN delivered the opinion of the court:
*316 In this appeal, we are
asked to determine whether the Credit Services Organizations Act (Credit
Services Act) (815 ILCS 605/1 et
seq. (West 1996)) applies to a transaction between a retailer, Midstate
Siding and Window Company, Inc. (Midstate), and homeowners Kenneth and Ella
Rogers (Rogers). We find that the Credit Services Act does not apply.
Consequently, we reverse the judgments of the appellate court and circuit
court, and remand for further proceedings.
BACKGROUND
On December 2, 1996, Midstate filed a complaint in the circuit
court of
Knox
County
against the
Rogers
.
In the complaint, Midstate alleged that it is in the home remodeling business,
and that on July 24, 1996, it entered into a contract with the
Rogers
to install windows and siding at their
home at a cost of $19,600. Midstate further alleged that the
Rogers
breached the contract by refusing to
allow Midstate to perform the work at their home. Midstate sought damages of
$4,000 for lost profit, costs and overhead. Midstate also sought to recover its
costs of suit and attorney fees. Midstate attached a copy of the contract to
its complaint.
In their answer to the complaint, the
Rogers
admitted that Midstate is in the home
remodeling business, and that they signed the contract attached to the
complaint. The
Rogers
also admitted notifying Midstate that they did not want Midstate to perform the
work at their home. However, the Rogers maintained that the contract is not
enforceable because: (1) it lacks definite and certain terms; (2) it violates
the Credit Services Act (815 ILCS 605/1 et
seq. (West 1996)), and the Consumer Fraud and Deceptive Business Practices
Act (815 ILCS 505/1 et
seq. (West 1996)); (3) the Rogers informed Midstate of their intent to
cancel the contract on July 28, *317 1996; (4) Midstate failed to obtain credit for the Rogers, a
condition precedent to performance of the contract; (5) no payment is due under
the terms of the contract; and (6) the Rogers believed they were signing an
estimate, not a contract. In addition, the
Rogers
filed a counterclaim against Midstate.
In the counterclaim, the
Rogers
alleged that
Midstate's salesman, Alan Klunk, indicated that Midstate would obtain financing
for the
Rogers
and/or provide advice or
assistance to the
Rogers
in obtaining an extension of credit. However, in the contract, Midstate failed
to describe the services Midstate was to provide in obtaining the extension of
credit for the
Rogers
,
in violation of the Credit Services Act and the Consumer Fraud and Deceptive Business
Practices Act. The
Rogers
sought an award of court costs, attorney fees and punitive damages.
Midstate admitted that the
Rogers
filled out a credit application, and that Midstate forwarded the application to
several lending institutions to obtain financing for the
Rogers
. Bank One,
Illinois
,
N.A., one of the
institutions
Midstate
contacted, agreed to provide a home equity
loan to the
Rogers
.
In a letter dated July 30, 1996, Bank One advised the
Rogers
of its commitment **1251 ***819 to lend
the
Rogers
the
sum of $24,000 at prime plus 3.15%. Midstate maintained that it provided a
gratuitous service to the
Rogers
in forwarding their credit application to the financial institutions.
The matter proceeded to a bench trial at which testimony was heard
but not recorded. Following the trial, the circuit court issued a letter
opinion as follows:
“I have considered the evidence and your arguments. I find that
the Credit Services Organization Act is applicable to the case at bar. I have
considered the cases and find that the Act is to be liberally construed to
protect consumers. Plaintiff qualifies as a Credit Services Organization i.e.,
that Plaintiff represented to Defendant that it would assist or obtain for her
an extension of credit.
*318 The contract between
Plaintiff and Defendant is thereby unenforceable in that it does not comply
with [815] ILCS 605/7.
Plaintiff argued that inadequate consideration existed to support
a credit contract. This was simply not true. In order to remain competitive,
the Plaintiff offered a service to prospective buyers to assist them in
obtaining financing to purchase siding and windows. In fact, the agreement
between the Plaintiff and Defendant would never have been consummated had the
Plaintiff not helped them obtain financing. The Plaintiff's assistance was more
than a mere service, but was part of the consideration to support the
agreement.”
The circuit court awarded the
Rogers
attorney fees and costs in the amount
of $6,157.50. However, the court found that the
Rogers
were not entitled to an award of
punitive damages. Subsequently, the circuit court denied Midstate's motion to
reconsider and clarified that Midstate had violated section 7(a)(2) of the
Credit Services Act (815 ILCS 605/7(a)(2) (West 1996)).
The appellate court affirmed the judgment of the circuit court,
with one justice dissenting. 309 Ill.App.3d 610, 243
Ill.Dec. 87, 722 N.E.2d 1156. The appellate court reasoned that the
Credit Services Act applies to retailers who, in exchange for valuable
consideration, aid consumers in obtaining extensions of credit. 309 Ill.App.3d at 611, 243
Ill.Dec. 87, 722 N.E.2d 1156. The appellate court held that, by
providing assistance to the
Rogers
with regard to obtaining an extension of credit as part of an agreement to side
their home, Midstate acted within the purview of the Credit Services Act. In
addition the court held that the
Rogers
were entitled to appellate attorney fees under the Credit Services Act.
We granted Midstate's petition for leave to appeal. 177 Ill.2d R.
315.
ANALYSIS
A.
Record on Review
[1]
As noted above, a transcript of the evidence at trial is *319 not available because the trial was not recorded. In the absence
of a transcript, it is incumbent upon the appellant to file a bystander's
report of the proceedings (166 Ill.2d R. 323(c)) or an agreed statement of
facts (166 Ill.2d R. 323(d)). Midstate failed to do so, leading the
Rogers
to argue that we
must affirm the judgments of the lower courts because the record on review is
incomplete. We disagree.
[2]
[3]
[4]
[5]
[6]
Midstate, as appellant, has the burden of presenting a
sufficiently complete record of the proceedings at trial to support a claim of
error ( Foutch v. O'Bryant, 99 Ill.2d 389, 391-92, 76 Ill.Dec. 823, 459 N.E.2d 958 (1984); **1252 ***820Landeros v. Equity
Property & Development, 321 Ill.App.3d 57, 63, 254 Ill.Dec. 351, 747 N.E.2d 391 (2001)),
and, in the absence of such a record on appeal, the reviewing court will
presume that the order entered by the trial court was in conformity with the
law and had a sufficient factual basis ( Webster v. Hartman, 195 Ill.2d 426, 433, 255 Ill.Dec. 476, 749 N.E.2d 958 (2001); Foutch, 99 Ill.2d at 392, 76 Ill.Dec. 823, 459 N.E.2d
958). The court will resolve any doubts arising from the
incompleteness of the record against the appellant. Foutch, 99 Ill.2d at 392, 76 Ill.Dec. 823, 459 N.E.2d
958; In re K.S., 317 Ill.App.3d 830, 832, 251 Ill.Dec. 344,
740 N.E.2d 425 (2000). However, in the present case, we are not
asked to determine whether the evidence presented at trial was sufficient to
support the trial court's finding. See Buckholtz v. MacNeal
Hospital, 313 Ill.App.3d 521,
526, 246 Ill.Dec. 298, 729 N.E.2d 949 (2000) (plaintiff maintained
that the record fails to establish that an expert witness' deposition fee was
reasonable). Instead, we are asked to interpret a statute, the Credit Services
Act, and determine whether the statute regulates the transaction at issue. This
is a question of law, and the lack of a complete record does not bar our
review. Candice Co. v.
Ricketts, 281 Ill.App.3d 359,
362, 217 Ill.Dec. 53, 666 N.E.2d 722 (1996); In re Estate of Day, 261 Ill.App.3d 993, 996, 199 Ill.Dec. 878,
634 N.E.2d 1232 (1994); In re B.H., 218 Ill.App.3d 583, 586, 161 Ill.Dec. 762,
579 N.E.2d 19 (1991). Further, because the issue before us is a
matter of statutory construction, our review is de novo. *320 Sylvester v. Industrial
Comm'n, 197 Ill.2d 225, 232,
258 Ill.Dec. 548, 756 N.E.2d 822 (2001); Bridgestone/Firestone,
Inc. v. Aldridge, 179 Ill.2d
141, 148, 227 Ill.Dec. 753, 688 N.E.2d 90 (1997).
B.
Credit Services Act
[7]
[8]
[9]
[10]
[11]
In determining whether the Credit Services Act applies
to the transaction at issue, we are guided by established principles. The
primary rule of statutory construction is to ascertain and give effect to the
intent of the legislature. Bridgestone, 179 Ill.2d at 149, 227 Ill.Dec. 753, 688
N.E.2d 90, quoting Illinois Power Co. v.
Mahin, 72 Ill.2d 189, 194, 21
Ill.Dec. 144, 381 N.E.2d 222 (1978); In re B.C., 176 Ill.2d 536, 542, 223 Ill.Dec. 919, 680
N.E.2d 1355 (1997). To do so, we examine the language of the
statute, the most reliable indicator of the legislature's objectives in
enacting the law. Michigan Avenue
National Bank v. County of Cook, 191 Ill.2d 493, 504, 247 Ill.Dec. 473, 732 N.E.2d 528 (2000).
We afford the language of the statute its plain and ordinary meaning ( Michigan Avenue
National Bank, 191 Ill.2d at 504, 247 Ill.Dec. 473, 732 N.E.2d 528) and construe the statute as a whole ( Sylvester, 197
Ill.2d at 232, 258 Ill.Dec. 548, 756 N.E.2d 822). Words and phrases
must not be viewed in isolation but must be considered in light of other
relevant provisions of the statute. Sylvester, 197 Ill.2d at 232, 258 Ill.Dec. 548, 756
N.E.2d 822; Michigan Avenue
National Bank, 191 Ill.2d at
504, 247 Ill.Dec. 473, 732 N.E.2d 528. We also presume that in
enacting the statute the legislature did not intend absurdity, inconvenience,
or injustice. Michigan Avenue
National Bank, 191 Ill.2d at
504, 247 Ill.Dec. 473, 732 N.E.2d 528.
[12]
[13]
[14]
Where the language of the statute is clear and
unambiguous, the only legitimate function of the courts is to enforce the law
as enacted by the legislature. Henrich v. Libertyville
High School, 186 Ill.2d 381,
391, 238 Ill.Dec. 576, 712 N.E.2d 298 (1998). It is never proper for
the courts to depart from the plain language of the statute by reading into it
exceptions, limitations or conditions which conflict with the intent of the
legislature. Bridgestone, 179 Ill.2d at 149, 227 Ill.Dec. 753, 688
N.E.2d 90, quoting **1253**821Harvey Firemen's Ass'n
v. City of Harvey, 75 Ill.2d
358, 363, 27 Ill.Dec. 339, 389 N.E.2d 151 (1979). There is no rule
of statutory construction which authorizes the courts to declare that the
legislature did not mean what the plain language of the *321 statute
says. Henrich, 186 Ill.2d at 391, 238 Ill.Dec. 576, 712
N.E.2d 298; Bridgestone, 179 Ill.2d at 149, 227 Ill.Dec. 753, 688 N.E.2d
90.
[15]
With these principles in mind, we turn to the arguments
advanced by the parties. Citing section 3 of the Credit Services Act (815 ILCS 605/3 (West 1996)), the
Rogers
maintain that Midstate
is a credit services organization because Midstate agreed to help the
Rogers
obtain financing
for the improvements to their home. Midstate counters that it provided a
gratuitous service to the
Rogers
in forwarding their loan application to the financial institutions. Midstate
maintains that, in enacting the Credit Services Act, the legislature did not
intend to regulate the actions of retailers, such as Midstate, in facilitating
the extension of credit to their customers. We agree with Midstate that the
legislature did not intend to regulate the transaction at issue.
Section 3 of the Credit Services Act provides in part:
“(a) ‘Buyer’ means an individual who is solicited to purchase or
who purchases the services of a credit services organization.
* * *
(d) ‘Credit Services Organization’ means a person who, with
respect to the extension of credit by others and in return for the payment of
money or other valuable consideration, provides, or represents that the person
can or will provide, any of the following services:
(i) improving a buyer's credit record, history, or rating[;]
(ii) obtaining an extension of credit for a buyer; or
(iii) providing advice or assistance to a buyer with regard to
either subsection (i) or (ii).” 815 ILCS 605/3(a), (d) (West 1996).
Looking to the definition of a “[b]uyer” and the definition of a
“[c]redit [s]ervices [o]rganization,” it is clear that the Credit Services Act
regulates transactions involving the payment of money or other valuable
consideration in return for the services of the credit services
organization. In turn, the services of the credit *322 services organization are “improving a buyer's credit record,
history, or rating”; “obtaining an extension of credit for a buyer”; or
“providing advice or assistance to a buyer” with regard to “ improving a
buyer's credit record, history, or rating” or with regard to “ obtaining an
extension of credit” for the buyer. 815 ILCS 605/3 (West 1996). Thus, the Credit Services Act requires payment for credit
services, not simply payment for other goods or services.
In the present case, the circuit court rejected Midstate's
contention that there was inadequate consideration to support a contract for
credit services. The circuit court observed:
“In order to remain competitive, the Plaintiff offered a service
to prospective buyers to assist them in obtaining financing to purchase siding
and windows. In fact, the agreement between the Plaintiff and Defendant would
never have been consummated had the Plaintiff not helped them obtain financing.
The Plaintiff's assistance was more than a mere service, but was part of the
consideration to support the agreement.”
In this, the circuit court committed error. The Credit Services
Act requires that the credit services organization, in return for the payment
of money or other valuable **1254 ***822 consideration,
agree to provide, or represent that it will provide, credit services to the
buyer. The services must be related to an extension of credit for the buyer or
improvement of the buyer's credit record, history or rating. The contract at
issue does not provide for payment of money or other valuable consideration in
return for credit services provided by Midstate. Instead, the agreed consideration
is for payment of windows and siding to be installed at the
Rogers
' home. Although we agree with the
circuit court that the
Rogers
would not have proceeded with the installation of the windows and siding
without assistance in obtaining an extension of credit, the Credit Services Act
requires additional consideration for such assistance.
*323 Our reading of the
statutory language is consistent with section 5 of the Act. That section
provides:
“No credit services organization * * * shall:
* * *
(2) Charge or receive any money or other valuable consideration
solely for the referral of a buyer to a retail seller who will or may
extend credit to the buyer if such extension of credit is in substantially the
same terms as those available to the general public.” (Emphases added.) 815 ILCS 605/5 (West
1996).
The section prohibits a credit services organization from charging
a fee for referrals to a retail seller. The section also recognizes that a
retail seller is an entity that may extend credit to a buyer. The major
distinction between a credit services organization and a retail seller is that
the credit services organization, in return for the payment of money or other
valuable consideration, offers services to a buyer dedicated to improving the
buyer's credit history or rating or to obtaining an extension of credit for the
buyer.
Our interpretation of the statutory language is also consistent
with the legislative findings and declarations set forth in the Act. Section 2
of the Credit Services Act (815 ILCS 605/2 (West 1996)) provides in part:
“(a) The ability to obtain and use credit has become of great
importance to consumers who have a vital interest in establishing and
maintaining their credit worthiness and credit standing. As a result, consumers
who have experienced credit problems may seek assistance from credit service
businesses which offer to improve the credit standing of such consumers.
Certain advertising and business practices of some companies engaged in the
business of credit services have worked a financial hardship upon the people of
this State, often on those who are of limited economic means and inexperienced
in credit matters.
(b) The purpose of this Act is to provide prospective consumers of
credit services companies with the information necessary to make an informed
decision regarding the purchase of those services and to protect the public
from unfair or deceptive advertising and business practices.”
*324 The Credit Services Act
is aimed at remedying problems encountered by consumers seeking to improve
their credit history or rating, obtain more favorable terms on current debt, or
obtain an extension of credit through services provided by credit services
organizations. As such, the Credit Services Act prohibits credit services
organizations from engaging in certain conduct (815 ILCS 605/5 (West 1996)) and requires that credit services organization make certain
disclosures to the buyers (815 ILCS 605/6,
7 (West 1996)). The **1255 ***823 Credit
Services Act is not intended to regulate retailers primarily engaged in the
business of selling goods and services to their customers. The goods and
services provided by retailers are not generally services aimed at improving
the consumer's credit or obtaining an extension of credit for the consumer,
otherwise unattainable because of the consumer's poor credit history or rating.
See Fogle v. William
Chevrolet/Geo, Inc., No.
99-C-5960, 2000 WL 1129983 (N.D.Ill. August 9, 2000) (mem. op.).
CONCLUSION
For the aforementioned reasons, the judgments of the appellate
court and circuit court are reversed, and the cause is remanded to the circuit
court for further proceedings consistent with this opinion.
Appellate court judgment reversed; circuit
court judgment reversed; cause remanded.
Justice RARICK took no
part in the consideration or decision of this case.
Justice KILBRIDE,
dissenting:
The majority ignores the plain language of the Act and the
undisputed facts of this case. The majority does not stop there. It also reads
a requirement of “additional consideration” into the Act. 204 Ill.2d at 322, 273
Ill.Dec. at 822, 789 N.E.2d at 1254. Based on *325 these
fundamental errors, the majority concludes that Midstate is not a “credit
services organization.” Because I cannot agree with that erroneous conclusion,
I respectfully dissent.
Initially, the majority cites the statutory definition of a credit
services organization, encompassing “a person who * * * in return for the
payment of money or other valuable consideration” either obtains “ an
extension of credit for a buyer; or * * * provid[es] advice or assistance to a
buyer with regard to” obtaining an extension of credit. (Emphasis
added.) 815 ILCS 605/3(d)(ii),
(d)(iii) (West 1996); 204 Ill.2d at 321, 273 Ill.Dec. at 821, 789
N.E.2d at 1253. The majority also notes that the statutory definition of a
“[b]uyer” is one “who is solicited to purchase or who purchases the services of
a credit services organization.” 815 ILCS 605/3(a) (West 1996).
After briefly acknowledging these definitions, however, the
majority does not consider their application in this case, choosing instead to
conclude summarily that Midstate is not a credit services organization because
“the Credit Services Act requires payment for credit services, not simply
payment for other goods or services.” 204 Ill.2d at 322, 273 Ill.Dec. at 821,
789 N.E.2d at 1253. This conclusion fails to analyze fully the key issue in
this case, namely, whether Midstate's conduct brings it within the statutory
definition of a credit services organization. The majority omits a fundamental
analytical step by not applying the Act to the relevant facts underlying the
parties' transaction. A complete analysis requires us to examine the undisputed
facts in this case.
When the Midstate sales representative who met the
Rogers
in their home informed them of the total cost of
the remodeling project, the
Rogers
explained that they had limited income and could not afford the project. Mr.
Rogers is disabled, with a gross income of only $9,540 per year, and Mrs.
Rogers works as a nurse, earning an annual gross income of $19,760. As the
majority admits *326 (204 Ill.2d at 322, 273
Ill.Dec. at 821, 789 N.E.2d at 1253), the
Rogers
ultimately agreed to the contract only because Midstate offered its
services to help them obtain third-party financing. The parties' agreement
indicated no cash payments and stated that the contract amount of $19,600 was
subject to a loan. It disclosed no information about **1256 ***824 the applicable interest
rates or monthly payment amount.
Midstate concedes that it assisted the
Rogers
in securing a third-party loan. One of
its sales representatives provided the
Rogers
with a credit application and directed them to complete it. The representative
informed the couple that Midstate would obtain financing for them and that they
would make monthly payments for approximately 15 years. Again, the
representative failed to provide any information concerning the actual amount
of the monthly payments.
After the representative's visit, a Midstate loan assistance
employee reviewed the
Rogers
'
credit application. The employee testified that Midstate assists customers with
financing and that her job is to help qualify customers for loans. In this
capacity, she reviews more than 50 credit applications each week. In this case,
she received the
Rogers
'
credit application, reviewed it, and then contacted a number of lending
institutions on their behalf, forwarding their credit application in an effort
to secure a loan. The first three institutions she contacted refused to extend
credit to the
Rogers
.
Eventually, Midstate secured a loan commitment from Bank One at a rate of
11.35%, adjustable monthly, but the
Rogers
found this interest rate unacceptable. The record contains no evidence that the
Rogers
ever independently met, or otherwise undertook loan negotiations, with any lending institution. Thus, Midstate acted as a de facto representative
for the
Rogers
in obtaining the loan commitment, for the mutual benefit of both parties.
When we focus on the specific facts of the transaction *327 between the parties in this case, we must conclude that
Midstate's actions went far beyond simply selling goods to the
Rogers
, as the majority
claims. 204 Ill.2d at 322, 273 Ill.Dec. at 822, 789 N.E.2d at 1254. Midstate's
conduct fulfilled two of the Act's key criteria, not only “providing advice or
assistance to a buyer with regard to” “obtaining an extension of credit,” but
also actually obtaining an extension of credit for the
Rogers
. See 815 ILCS 605/3(d) (ii),
(d)(iii) (West 1996). The trial court properly found Midstate's acts
went beyond mere ancillary services performed in conjunction with a retail sale
and fall squarely within the statutory definition of those provided by a “
[c]redit services organization.” See 815 ILCS 605/3(d)(ii),
(d)(iii) (West 1996).
To determine whether Midstate itself was a credit service
organization under the Act in this case, however, we must address two other,
closely interrelated questions: (1) whether Midstate performed the credit
services “in return for the payment of money or other valuable consideration”
(emphasis added) (see 815 ILCS 605/3(d) (West 1996)) and (2) whether the Rogers were “buyers” under the statute,
meaning that they either were “solicited to purchase” or actually purchased the
services of a credit services organization (see 815 ILCS 605/3(a) (West 1996)).
In answering these questions, the majority abruptly concludes that
“the agreed consideration is for payment of windows and siding” and is not “in
return for credit services provided by Midstate.” 204 Ill.2d at 322, 273
Ill.Dec. at 822, 789 N.E.2d at 1254. Based on that conclusion, the majority
holds that Midstate is not a credit services organization. The majority's
rationale is belied, however, by its subsequent statement agreeing “with the
circuit court that the
Rogers
would not have proceeded with the installation of the windows and siding
without assistance in obtaining an extension of credit.” (Emphasis added.) 204
Ill.2d at 322, 273 Ill.Dec. at 822, 789 N.E.2d at 1254. The circuit court
expressly found that
**1257 *328 ***825“ ‘[i]n order to remain
competitive, the Plaintiff [Midstate] offered a service to prospective buyers
to assist them in obtaining financing to purchase siding and windows. In fact, the
agreement between the Plaintiff and Defendant would never have been consummated
had the Plaintiff not helped them obtain financing. The Plaintiff's assistance was more than a mere service, but was part of the consideration to support
the agreement.’ ” (Emphases added.) See 204 Ill.2d at 322, 273 Ill.Dec. at
821-22, 789 N.E.2d at 1253-54.
Despite its stated agreement with this finding, the majority
nonetheless declares that “the Credit Services Act requires additional
consideration for such assistance.” (Emphasis added.) 204 Ill.2d at 322,
273 Ill.Dec. at 822, 789 N.E.2d at 1254. This conclusion is unsupported by any
language in the Act. Thus, the majority both overlooks the plain language of
the statute and creates other requirements out of whole cloth, without any
legal justification.
The majority cites section 5 of the Act as consistent with this
conclusion, but the connection between the two concepts remains unexplained.
Section 5 prohibits credit services organizations from receiving valuable
consideration solely for referring buyers to retail sellers who may extend
credit “if such extension of credit is in substantially the same terms as those
available to the general public.” 815 ILCS 605/5 (West 1996). First, there is nothing in the record to suggest that this case
meets the criteria in section 5. Indeed, the record strongly suggests the
opposite conclusion, i.e., the
Rogers
would not have been able to obtain the necessary financing “ in
substantially the same terms as those available to the general public.”
Thus, section 5 is not implicated in this case.
Even more importantly, section 5 appears completely unrelated to
the majority's finding that “the Credit Services Act requires additional
consideration” for Midstate's assistance in obtaining financing for the
Rogers
. 204 Ill.2d at 322,
273 Ill.Dec. at 822, 789 N.E.2d at 1254. As the majority aptly notes (204
Ill.2d at 320, 273 Ill.Dec. at 820, 789 N.E.2d at 1252), we must not depart
from a statute's plain language by reading into it exceptions, limitations, or *329 conditions not clearly intended by the legislature. See Bridgestone/Firestone,
Inc. v. Aldridge, 179 Ill.2d
141, 149, 227 Ill.Dec. 753, 688 N.E.2d 90 (1997). Yet, the majority
departs from this same fundamental rule of construction by reading into the Act
a requirement that an agreement to assist another in obtaining third-party
financing be accompanied by some form of “additional consideration.” See 204
Ill.2d at 322, 273 Ill.Dec. at 822, 789 N.E.2d at 1254. The majority does not,
and cannot, point to any language in the Act supporting this limitation.
Contrary to the majority's rationale, to bring a credit services
organization within the ambit of the Act does not require any additional monetary payment for performing the credit-related services. The Act expressly requires
only that the services be provided “in return for the payment of money or
other valuable consideration.” (Emphasis added.) 815 ILCS 605/3(d) (West 1996).
Here, Midstate induced the
Rogers
to enter into the remodeling project by offering to arrange a loan for them,
and it subsequently fulfilled this promise. As the majority admits, the
Rogers
' agreement to
proceed with the contract was strictly contingent on Midstate's proffered
assistance in obtaining credit. 204 Ill.2d at 322, 273 Ill.Dec. at 822, 789
N.E.2d at 1254. By expressly agreeing with the trial court's finding that “the
Rogers would not have **1258 ***826 proceeded”
with the contract without Midstate's substantial assistance in obtaining the
requisite financing (204 Ill.2d at 322, 273 Ill.Dec. at 822, 789 N.E.2d at
1254), the majority also implicitly acknowledges that Midstate's credit
assistance was in fact supported by “other valuable consideration” (see 815 ILCS 605/3(d) (West 1996)), i.e., the Rogers' ultimate agreement to enter into the
remodeling contract. This acknowledgment contradicts the majority's conclusion
that Midstate's credit services were gratuitous and not supported by
“additional consideration” (204 Ill.2d at 322, 273 Ill.Dec. at 822, 789 N.E.2d
at 1254). As the majority admits, Midstate's assistance constituted an integral
part of the parties' contract, received in exchange for valuable consideration.
*330 By giving “other valuable
consideration” for Midstate's proffered credit services, in addition to the
promise of monetary payment for windows and siding as noted by the majority
(204 Ill.2d at 322, 273 Ill.Dec. at 822, 789 N.E.2d at 1254), the
Rogers
were “buyers”
under the Act. 815 ILCS 605/3(a) (West 1996) (defining a “[b]uyer” as one “who is solicited to purchase * * *
the services of a credit services organization”). Under these facts, Midstate
clearly falls within the statutory definition of a “credit services
organization,” with the
Rogers
acting as “buyers” of that organization's credit services. See 815 ILCS 605/3(a), (d) (West 1996). Therefore, the parties agreed to the provision of credit services
“in return for the payment of * * * other valuable consideration” (815 ILCS 605/3(d) (West 1996)), and their transaction was governed by the Act.
Holding that Midstate's conduct in this case qualified it as a
credit services organization is consistent with the Act's stated goal of
providing “prospective consumers of credit services companies with the
information necessary to make an informed decision regarding the purchase of
those services and to protect the public from unfair or deceptive advertising
and business practices.” 815 ILCS 605/2(b) (West 1996). These protections were prompted by “[c]ertain advertising and
business practices of some companies engaged in the business of credit services
[that] have worked a financial hardship upon the people of this State, often on
those who are of limited economic means and inexperienced in credit matters.” 815 ILCS 605/2(a) (West 1996). As prospective consumers of Midstate's credit services, the
Rogers
were entitled to
these protections.
As a credit services organization, Midstate was bound by the
statutory mandates contained in sections 6 and 7 of the Act (815 ILCS 605/6,
7 (West 1996)). Since the parties' contract failed to comply with the mandatory
terms of the statute, including the requirement of full *331 disclosure of “the terms and conditions of payment, including the
total of all payments to be made by the buyer” (815 ILCS 605/7 (West 1996)), it violated the statute. “Any contract for services which does
not comply with applicable provisions of [the Act] shall be void and
unenforceable as contrary to public policy.” 815 ILCS 605/8 (West 1996).
For this reason, the trial court and the appellate court properly
deemed the contract void and awarded the Rogers attorney fees under section 11
of the Act (815 ILCS 605/11 (West 1996)). I would affirm the appellate court on this issue and remand the
cause to the trial court with instructions to award reasonable attorney fees in
favor of the
Rogers
.
I also believe the trial court's ruling could be affirmed on the
alternative basis that the contract violated the Consumer Fraud and Deceptive
Business Practices Act (Fraud Act) (815 ILCS 505/1 et
seq. (West 1996)). The
Rogers
raised this issue**1259 ***827 in their
counterclaim, but the trial and appellate courts did not address it. The Fraud
Act provides that “the use or employment of any * * * misrepresentation or the
concealment, suppression or omission of any material fact, with intent that
others rely upon” it constitutes an “[u]nfair method[ ] of competition and
unfair or deceptive act [ ] or practice[ ].” 815 ILCS 505/2 (West 1996). Such conduct is unlawful regardless of “whether any person has in
fact been misled, deceived or damaged thereby.” 815 ILCS 505/2 (West 1996). In this case, the contractual interest rate was undoubtedly a
material fact, but it was not disclosed when the
Rogers
entered into the agreement with
Midstate. Because Midstate omitted the applicable interest rate from the
contract, it violated the Fraud Act. For this reason, I would affirm the award
of attorney fees to the
Rogers
pursuant to section 10a(c) of the Fraud Act (815 ILCS 505/10a(c) (West 1996)).
Ill.
,2003.
Midstate Siding and Window Co., Inc. v.
Rogers
204 Ill.2d 314, 789 N.E.2d 1248, 273 Ill.Dec. 816
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