Opinion ID: 1401014
Heading Depth: 2
Heading Rank: 2

Heading: .Unfair Conduct Under The Consumer Fraud Act

Text: The plaintiffs submit that their claim under the Illinois Consumer Fraud Act may go forward without meeting the heightened standard of pleading fraud claims under Rule 9(b). In their view, a claim under the Consumer Fraud Act may allege either deceptive practices, which sound in fraud, or unfair practices, which do not. Because the allegations in Count I do not allege fraud but an unfair trade practice, they maintain, the governing pleading standard is the one contained in Rule 8.
The Illinois Consumer Fraud Act is a regulatory and remedial statute intended to protect consumers ... against fraud, unfair methods of competition, and other unfair and deceptive business practices. Robinson v. Toyota Motor Credit Corp., 201 Ill.2d 403, 266 Ill.Dec. 879, 775 N.E.2d 951, 960 (2002). The Supreme Court of Illinois has held that recovery under the Consumer Fraud Act may be had for unfair as well as deceptive conduct. Id. In interpreting unfair conduct under the Consumer Fraud Act, Illinois courts look to the federal interpretations of unfair conduct under section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45. Robinson, 266 Ill.Dec. 879, 775 N.E.2d at 960; 815 ILCS 505/2. Thus, three considerations guide an Illinois court's determination of whether conduct is unfair under the Consumer Fraud Act: (1) whether the practice offends public policy; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers. Robinson, 266 Ill.Dec. 879, 775 N.E.2d at 961. A court may find unfairness even if the claim does not satisfy all three criteria. Id. For example, a practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three. Id. Because neither fraud nor mistake is an element of unfair conduct under Illinois' Consumer Fraud Act, a cause of action for unfair practices under the Consumer Fraud Act need only meet the notice pleading standard of Rule 8(a), not the particularity requirement in Rule 9(b). Therefore, under federal notice pleading standards, the complaint need only provide a short and plain statement of the claim that shows, through its allegations, that recovery is plausible rather than merely speculative. Tamayo, 526 F.3d at 1083; see also Bell Atl., 127 S.Ct. at 1964; Fed.R.Civ.P. 8(a)(2).
By contrast with the federal pleading regimen under Rule 8, Illinois requires fact pleading even to non-fraud claims. See Knox Coll. v. Celotex Corp., 88 Ill.2d 407, 58 Ill.Dec. 725, 430 N.E.2d 976, 985 (1981); Robinson, 266 Ill.Dec. 879, 775 N.E.2d at 961 (reviewing an appellate court's holding that none of a plaintiff's allegations had been stated with sufficient particularity and specificity to show that the defendant's conduct was unfair), 962 (Plaintiffs argue here that all automobile leases have standard provisions and that leases are not negotiable. However, no such averments appear in the pleadings. Thus, the appellate court correctly held that plaintiffs' bald claim of unfairness ... was not sufficient to state a claim.). We can see no reason, however, why the standards of Rule 8 of the Federal Rules of Civil Procedure, rather than Illinois fact pleading requirements, should not apply here. It is well settled that a federal court sitting in diversity applies federal pleading requirements even when the claim pleaded arises under state rather than federal law. Muick v. Glenayre Elecs., 280 F.3d 741, 743 (7th Cir.2002) (applying federal pleading requirements to an Illinois cause of action); see also Hefferman v. Bass, 467 F.3d 596 (7th Cir.2006) (same); Johnson v. Hondo, Inc., 125 F.3d 408, 417 (7th Cir. 1997) ([I]t is rudimentary that pleading requirements in the federal courts are governed by the federal rules and not by the practice of the courts in the state in which the federal court happens to be sitting. (internal quotation marks omitted)); Colton v. Swain, 527 F.2d 296, 304 (7th Cir. 1975). Although we have never explained in detail the basis for this determination, a review of the basic principles governing federal-state choice of law in the context of federal diversity jurisdiction makes clear that the federal rule must be the governing approach in this case. It is, of course, well established that, as a general matter, a district court exercising jurisdiction because the parties are of diverse citizenship must apply state substantive law and federal procedural law. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). When evaluating whether a particular state law is procedural or substantive, district courts take as their starting point the outcome-determinative test of Guaranty Trust Co. v. York, 326 U.S. 99, 109, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). In that case, the Supreme Court held that the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court. [5] Id. The bedrock case for the precise issue that confronts us today, however, must be a case that followed Guaranty Trust  Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). In Hanna, the Court was confronted, as we are today, with a conflict between a state rule of procedure and a federal rule of procedure. 380 U.S. at 469-70, 85 S.Ct. 1136. The Court set forth the approach that must guide our present inquiry: We must determine whether there is an actual conflict between the federal and the state rule by determining whether the scope of the federal rule is sufficiently broad to control the issue before the court. Id. at 470, 85 S.Ct. 1136. If the federal rule is sufficiently broad to control the issue, then we must evaluate the rule to ensure that the rule has not exceeded the congressional mandate embodied in the Rules Enabling Act nor transgressed constitutional bounds. Id. at 464, 85 S.Ct. 1136. If the federal rule does fall within constitutional boundaries, then it should be applied, despite the fact that its application might alter the mode of enforcing a state-created right. Id. at 473-74, 85 S.Ct. 1136. If it is not, then the traditional Erie analysis of Guaranty Trust is appropriate and the court should proceed to apply the outcome-determinative test. Id. at 470, 85 S.Ct. 1136. On several occasions, in applying the approach it outlined in Hanna, the Supreme Court had to focus on whether there was an irreconcilable conflict between a federal and a state rule of procedure. We turn briefly to those cases to determine whether the difference between the federal approach to pleading and the Illinois approach is an irreconcilable one. In Walker v. Armco Steel Corp., 446 U.S. 740, 750, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980), the Court determined that Rule 3 of the Federal Rules of Civil Procedure, which addresses when an action is commenced in federal court, was not sufficiently broad to address the effect of the tolling of a state statute of limitations on when a case commences under state law. That determination, said the Court, is a substantive policy decision of the state as to the deadline after which a defendant may have peace of mind and after which it would be unfair to expect the defendant to mount a defense. Walker, 446 U.S. at 751, 100 S.Ct. 1978. By contrast, in Burlington Northern Railroad Co. v. Woods, 480 U.S. 1, 107 S.Ct. 967, 94 L.Ed.2d 1 (1987), the Supreme Court determined that there was a true conflict between a federal rule of procedure and a state statute. In that case, a state statute provided that when an appellate court affirmed a money judgment without substantial modification, it was to impose a ten-percent penalty on any appellant who had obtained a stay of that judgment pending appeal by executing a bond. By contrast, Federal Rule of Appellate Procedure 38 affords the federal courts of appeals plenary discretion to award damages upon a determination that the appeal was frivolous. The Court held that a federal appellate court ought to apply the federal rule. The two rules conflicted, and the federal rule was a constitutional exercise of federal rule-making authority and affected only the process of enforcing litigants' rights and not the rights themselves. Id. at 8, 107 S.Ct. 967. Here, it is clear that a conflict between the federal and state pleading rule does exist. Compare Fed.R.Civ.P. 8 (requiring only notice pleading), with 735 ILCS 5/2-601 (requiring that pleadings contain substantial allegations of fact), and Knox Coll., 58 Ill.Dec. 725, 430 N.E.2d at 985-86 (same). The federal and the state provisions address the same subject and require adherence to conflicting standards. Continuing to follow the analytical model of Hanna, we next ask whether Rule 8 is within the congressional mandate. The Rules Enabling Act gives the Supreme Court the power to prescribe, by general rules, the forms of process, writs, pleadings, and motions ... of the district courts of the United States. 28 U.S.C. § 2072 (emphasis added). Prescribing the specificity with which a claim must be pleaded relates solely to the practice and procedure of a court and clearly falls within the scope of the Rules Enabling Act. There is, moreover, no basis for concluding that the regulation of pleading requirements in federal court is beyond the limits of federal constitutional authority. See Hanna, 380 U.S. at 464, 85 S.Ct. 1136. Consequently, we evaluate the state-law claims in this case under the federal pleading standards.
When we turn to the unfair conduct allegations of Count I, it is clear that this claim meets the federal notice pleading standards by providing allegations that raise a right to relief above the speculative level. Tamayo, 526 F.3d at 1084 (quotation omitted). Count I alleges that CIT used unfair practices, specifically the dissemination of false advertisements for the purpose of inducing the plaintiffs to enter into unconscionable equipment rental agreements. It further alleges that CIT violated the Consumer Fraud Act by attempting to enforce those agreements. R. 79 at ¶ 77. Finally, the complaint goes on to allege that the plaintiffs suffered a loss as a result of these allegedly illegal equipment rental agreements. These allegations address the three considerations that, in combination, guide a court's determination of whether conduct is unfair. See Robinson, 266 Ill.Dec. 879, 775 N.E.2d at 961 (holding that an unfairness determination should consider: (1) whether the practice offends public policy; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers). Although the complaint does not use specifically the words immoral, unethical, oppressive, or unscrupulous, it alleges conduct that, if proven, could support this statutory definition of unfairness under the Consumer Fraud Act. See id. By claiming that CIT engaged in unfair conduct and averring facts that, if proven, make relief more than merely speculative, Tamayo, 526 F.3d at 1084, the plaintiffs stated adequately a claim for relief. It is important to note that, in the procedural posture of this case, we must take the allegations of the plaintiffs in the light most favorable to them. Indeed, CIT has not answered the complaint at this stage and its position on such matters as the holder in due course defense and, specifically, the implications of the Assurance which it executed with the Attorney General of Illinois has not been stated explicitly in the present procedural context. See IFC Credit Corp. v. United Bus. & Indus. Fed. Credit Union, 512 F.3d 989 (7th Cir. 2008).