Court Opinion

ID: 9713131
Source: CourtListenerOpinion
Date Created: 2023-08-26 05:09:05.089133+00
Date Added: 2024-06-11T18:23:16.906769
License: Public Domain

JUSTICE CLARK, concurring: The majority has determined that the plaintiffs’ complaint fails to state a cause of action both under the lilinois Consumer Fraud and Deceptive Business Practices Act (the Consumer Fraud Act) and the Illinois Antitrust Act. For the following reasons, I concur. CONSUMER FRAUD COUNT Count I of plaintiffs’ complaint alleges that the defendants’ practice of granting rebates to Blue Cross and no other third-party payor constitutes an “unfair method of competition” in violation of section 2 of the Consumer Fraud Act (Ill. Rev. Stat. 1985, ch. 121½, par. 261 et seq.). The majority has rejected this claim, holding that count I does not state a cause of action because the reach of the Consumer Fraud Act is limited to either deceptive or fraudulent conduct. (133 Ill. 2d at 390.) While I agree that count I does not state a cause of action under the Act, I write because I do not agree that the prohibitions of the Consumer Fraud Act are limited to conduct that is either fraudulent or deceptive. The Consumer Fraud Act was enacted to “protect consumers and borrowers and businessmen against fraud, unfair methods of competition and unfair or deceptive acts or practices.” (Ill. Rev. Stat. 1987, ch. 121½, par. 261.) Section 2 of the Act provides: “Unfair methods of competition and unfair or deceptive acts or practices, including but not limited to the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission of such material fact *** are hereby declared unlawful.” (Emphasis added.) (Ill. Rev. Stat. 1987, ch. 121½, par. 262.) In interpreting this section consideration is given to the interpretations of the Federal Trade Commission and the Federal courts relating to section 5(a) of the Federal Trade Commission Act (the FTC Act) even though our courts are not bound by such interpretations. Ill. Rev. Stat. 1987, ch. 121½, par. 262; see also Newman-Green, Inc. v. Alfonzo-Larrain R. (N.D. Ill. 1984), 590 F. Supp. 1083,1085. Section 5(a) of the FTC Act, like the Consumer Fraud Act, prohibits “unfair methods of competition” and “unfair or deceptive acts or practices.” (15 U.S.C. §45(a) (1973).) The unfair methods of competition that are prohibited by section 5 are not confined to those that were illegal at common law or those that are condemned by the antitrust laws. Congress specifically left the concept of “unfair” flexible to be defined with particularity by the myriad of cases from the field of business. (FTC v. Motion Picture Advertising Service Co. (1953), 344 U.S. 392, 394-95, 97 L. Ed. 426, 429-30, 73 S. Ct. 361, 363.) Thus, section 5 has been interpreted to prohibit as “unfair” conduct which is neither deceptive nor violative of Federal antitrust laws. (See, e.g., Spiegel, Inc. v. FTC (7th Cir. 1976), 540 F.2d 287 (Spiegel’s practice of suing customers for delinquent credit accounts in a court distant from the consumer’s residence, although not illegal, was nonetheless unfair within the meaning of section 5 because it violated public policy and was injurious to customers).) Factors that are considered by the FTC in determining whether a practice that is neither in violation of the Federal antitrust laws nor deceptive is nonetheless unfair include: “ ‘(1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen).’ ’’ FTC v. Sperry & Hutchinson Co. (1972), 405 U.S. 233, 244 n.5, 31 L. Ed. 2d 170, 179 n.5, 92 S. Ct. 898, 905 n.5, quoting 29 Fed. Reg. 8355 (1964). See also Spiegel, Inc. v. FTC (7th Cir. 1976), 540 F.2d 287, 293. As both the Consumer Fraud Act and section 5 prohibit “unfair methods of competition” and “unfair or deceptive acts or practices,” I believe that the statutes should be construed in a similar manner. This interpretation has been adopted by Federal courts that have applied the Consumer Fraud Act (see, e.g., Jays Foods, Inc. v. Frito-Lay, Inc. (N.D. Ill. 1987), 664 F. Supp. 364; Evanston Motor Co. v. Mid-Southern Toyota Distributors, Inc. (N.D. Ill. 1977), 436 F. Supp. 1370 (cases in which the court considered whether the defendant’s non-deceptive practices were unfair under the Consumer Fraud Act)) and in certain cases by the appellate court (see, e.g., Zinser v. Uptown Federal Savings & Loan, F.A. (1989), 185 Ill. App. 3d 979; Perrin v. Pioneer National Title Insurance Co. (1980), 83 Ill. App. 3d 664 (cases which consider whether nondeceptive conduct is unfair under the Consumer Fraud Act); but see Keller-man v. Mar-Rue Realty & Builders,Inc. (1985), 132 Ill. App. 3d 300 (which holds that fraud or deception must be alleged to state a cause of action under the Consumer Fraud Act).) Consequently, I believe that to state a cause of action under the Consumer Fraud Act, it is sufficient to allege that the complained-of conduct was “unfair”: the conduct need not be fraudulent or deceptive. In the present case, plaintiffs maintain that the defendants’ practices constitute an unfair method of competition. Plaintiffs contend that the practices in question amount to price discrimination which is prohibited by sections 2(a) and (c) of the Clayton Act, and that violations of the Clayton Act are considered unfair practices under section 5(a). Since our courts look to Federal interpretations of section 5(a) in construing the Consumer Fraud Act, plaintiffs maintain that price discrimination should be considered an unfair practice under the Consumer Fraud Act. While it is true that discriminatory pricing is prohibited by sections 2(a) and (c) of the Clayton Act, these provisions are limited to conduct affecting “commodities.” (15 U.S.C. §§13(a), (c) (1988).) The term “commodities” as used in these sections is restricted to products, merchandise or other tangible goods (Freeman v. Chicago Title & Trust Co. (7th Cir. 1974), 505 F.2d 527; Baum v. Investors Diversified Services, Inc. (7th Cir. 1969), 409 F.2d 872, 875); medical services are not “commodities” (Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc. (7th Cir. 1986), 784 F.2d 1325, 1340). Thus, the practices involved in the present case do not violate sections 2(a) and 2(c) of the Clayton Act. Even assuming the conduct in question did violate the Clayton Act, it would not necessarily be an unfair practice under the Consumer Fraud Act. (See Fitzgerald v. Chicago Title & Trust Co. (1978), 72 Ill. 2d 179, 184 (not every violation of the Clayton Act is an unfair or deceptive practice under the Consumer Fraud Act).) Under the Consumer Fraud Act unfair conduct is defined on a case-by-case basis because of the futility of trying to anticipate all the unfair methods and practices a fertile mind might devise. Just as Congress left the concept of fairness to the FTC to define, so our legislature chose to frame the Consumer Fraud Act in general terms so as to permit construction and implementation of the statute on a case-by-case basis (Scott v. Association for Childbirth at Home, International (1981), 88 Ill. 2d 279, 290; Fitzgerald, 72 Ill. 2d at 186), with the ultimate determination of what is “unfair” being left to the trier of fact (Jays Foods, Inc. v. Frito-Lay, Inc. (N.D. Ill. 1987), 664 F. Supp. 364, 368). In the present case, plaintiffs have alleged that, pursuant to a contract between the defendants and Blue Cross, defendants pay rebates to Blue Cross and that, as a result of the rebates, the plaintiffs and the plaintiff class are required to pay higher prices than Blue Cross is required to pay for the same hospital services. The plaintiffs have not alleged in count I that the defendants’ conduct either directly injured consumers or that it indirectly injured consumers by affecting competition. Injury to the public is required under section 5 of the FTC Act (FTC v. Klesner(1929), 280 U.S. 19, 27, 74 L. Ed. 138, 144-45, 50 S. Ct. 1, 3), and the consensus of authority is that an injury to consumers, or at least injury to the public, is an essential element of a claim under the Consumer Fraud Act (see Jays Foods, Inc. v. Frito-Lay, Inc. (N.D. Ill. 1987), 664 F. Supp. 364 (and cases cited therein)). Plaintiffs have only alleged that, as a result of the defendants’ conduct, they and other third-party payors have been economically injured. Injury to the public cannot be presumed from this allegation because, as the courts have repeatedly observed, injury to a competitor is not the same thing as injury to competition. (Jays Foods, 664 F. Supp. at 372.) Because count I does not allege an injury to consumers, it fails to state a cause of action under the Consumer Fraud Act. Accordingly, count I was properly dismissed. ANTITRUST COUNT Count II of the complaint alleges that the hospitals’ practice of giving rebates only to Blue Cross amounts to discriminatory pricing and constitutes an unreasonable restraint of trade in violation of section 3(2) of the Illinois Antitrust Act. The majority concludes that by modeling section 3(2) after the Sherman Act, rather than the Clayton Act, the legislature did not intend to prohibit price discrimination. (133 Ill. 2d at 383-84.) Conse- quently, price discrimination is not actionable under section 3(2) of the Illinois Antitrust Act. (133 Ill. 2d at 386.) While I agree that count II does not state a cause of action under section 3(2), I do not concur in the majority’s analysis. Section 3(2) of the Illinois Antitrust Act provides that a person violates the Act if he “[b]y contract, combination, or conspiracy with one or more persons unreasonably restraints] trade or commerce.” (Ill. Rev. Stat. 1985, ch. 38, par. 60 — 3(2).) As noted by the majority, the Illinois Antitrust Act is patterned after section 1 of the Sherman Act and, consequently, we refer to Federal interpretations of section 1 for guidance when construing section 3(2) of the Illinois Antitrust Act. (133 Ill. 2d at 384.) Section 1 of the Sherman Act prohibits “[e]very contract, combination *** or conspiracy, in restraint of trade or commerce.” (15 U.S.C. §1 (1976).) Recognizing that this language could be construed to render any commercial contract violative of the Sherman Act (Board of Trade v. United States (1918), 246 U.S. 231, 238, 62 L. Ed. 683, 687, 38 S. Ct. 242, 244), courts have tempered the Act by applying the “rule of reason” in determining whether a violation of section 1 has occurred (Standard Oil Co. v. United States (1911), 221 U.S. 1, 55 L. Ed. 619, 31 S. Ct. 502). Under the rule of reason, courts look to the effects of the restraint to determine whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition, or whether it suppresses or even destroys competition. In making that determination, courts ordinarily examine: (1) the facts peculiar to the business to which the restraint is applied; (2) its condition before and after the restraint was imposed; and (3) the nature of the restraint and its effect. Board of Trade, 246 U.S. at 238, 62 L. Ed. at 687, 38 S. Ct. at 243. Ordinarily, whether particular action violates section 1 is determined through case-by-case application of the rule of reason. (Business Electronics Corp. v. Sharp Electronics (1988), 485 U.S. 717, 723, 99 L. Ed. 2d 808, 816, 108 S. Ct. 1515, 1519.) Certain categories of agreements, however, have been held to be per se violations, thus dispensing with the need for case-by-case evaluation. The per se rules are applicable only to conduct that is so anticompetitive that further examination of the challenged conduct is not necessary. (Business Electronics, 485 U.S. at 723-24, 99 L. Ed. 2d at 816, 108 S. Ct. at 1519.) Since price discrimination has been held not to be a per se violation of section 1 (Crowl Distributing Corp. v. Singer Co. (D. Kan. 1982), 543 E Supp. 1033, 1037), allegedly anticompetitive discriminatory pricing arrangements are examined under the rule of reason. St. Bernard General Hospital, Inc. v. Hospital Services Association of New Orleans, Inc. (5th Cir. 1983), 712 F.2d 978, 985; see also Monahan’s Marine, Inc. v. Boston Whaler, Inc. (1st Cir. 1989), 866 F.2d 525 (where defendant sold boats to plaintiff’s competitors on better terms and at lower prices, court applied rule of reason to determine whether the anticompetitive effects of the agreements outweighed their legitimate business justifications); Zoslaw v. MCA Distributing Corp. (9th Cir. 1982), 693 F.2d 870, 886 (since vertical agreements are not a per se violation of section 1, court examined the arrangement to determine whether it was reasonable); Travelers Insurance Co. v. Blue Cross of Western Pennsylvania (3d Cir. 1973), 481 F.2d 80 (where plaintiff alleged that Blue Cross had a dominant competitive position resulting from the discriminatory pricing arrangement contained in Blue Cross’ contract with area hospitals, the court examined the contract itself, as well as the setting in which it originated for unreasonable restraint-of-trade characteristics). Based on these principles, I do not agree with the majority’s conclusion that by modeling section 3(2) of the Illinois Antitrust Act after section 1 of the Sherman Act the legislature did not intend to prohibit price discrimination. (133 Ill. 2d at 387-88.) Rather, I believe that by patterning the Illinois act after the Sherman Act the legislature chose not to establish per se offenses, but intended that allegedly anticompetitive conduct be examined under the rule of reason. (See Evanston Motor Co. v. Mid-Southern Toyota Distributors, Inc. (N.D. Ill. 1977), 436 F. Supp. 1370, 1373 (“The clear intent of including the word ‘unreasonably’ [in section 3(2) of the Illinois Antitrust Act] was to require a rule of reason analysis and to eliminate the category of ‘per se offenses’ from that provision”); see also People ex rel. Scott v. Convenient Food Mart, Inc. (1974), 21 Ill. App. 3d 97.) If price discrimination constitutes an unreasonable restraint of trade, it violates section 3(2) of the Illinois Antitrust Act. Accord American Academic Suppliers, Inc. v. Beckley-Cardy, Inc. (N.D. Ill. 1988), 699 F. Supp. 152, 156 (which holds that if price discrimination amounts to an unreasonable restraint of trade, it constitutes a cause of action under the Illinois Antitrust Act not because it is price discrimination, but because it is an unreasonable restraint of trade). The conclusion that allegedly anticompetitive conduct should be examined under the rule of reason finds support in the historical and practice notes and committee comments to section 3(2). The historical and practice notes provide: “Because *** section [3(2)] outlaws only that conduct which ‘unreasonably’ restrains trade, it is clear that a ‘rule of reason’ is to be applied. *** *** Subsection (2) embraces a virtually endless number of restraints on competition which are not specifically prohibited as per se offenses under subsection (1). Typical of such offenses are vertical price-fixing, boycotts or group refusals to deal, and tying agreements. These offenses are prohibited by the Illinois Act if, tested by the “rule of reason,” they are found to be injurious to competition.” (Ill. Ann. Stat., ch. 38, par. 60 — 3, Historical & Practice Notes — 1970, at 460 (Smith-Hurd 1977).) The comments provide: “Section 3(2) prohibits unreasonable restraints of trade under the ‘rule of reason’ approach. *** It seems probable that, except where the language and structure of the Illinois Act indicate that a different result was intended, Sherman Act Section 1 cases will be followed by the Illinois courts when construing Section 3(2), particularly in light of the provisions of Section 11 of the Illinois Act. Various arrangements which, as noted above, do not fall under the purview of Section 3(1) *** must meet the test of the ‘rule of reason’ established in Section 3(2). As pointed out in the discussion with reference to Section 3(1), supra, the courts should examine the competitive and economic purposes and consequences of such arrangements for the purpose of determining whether or not trade or commerce has been unreasonably restrained ***. *** It will be noted that the Illinois Act contains no counterpart to Sections 2, 3, 7, and 8 of the Clayton Act or to Section 5 of the Federal Trade Communication Act. Hence, practices which would be violative of those federal provisions would be violative of the Illinois Act only if they were deemed unreasonably to restrain trade under the provisions of Section 3(2).” Ill. Ann. Stat., ch. 38, par. 60 — 3, Bar Committee Comments — 1967, at 453-54 (Smith-Hurd 1977). Having determined that discriminatory pricing arrangements which unreasonably restrain trade violate the Illinois Antitrust Act, the next inquiry is whether the plaintiffs’ complaint sufficiently alleges that the defendants’ conduct unreasonably restrains trade. In order to state a cause of action under section 3(2), the complaint must allege that a conspiracy, contract or combination in fact existed and that its effect was to unreasonably restrain trade. (Adkins v. Sarah Bush Lincoln Health Center (1989), 129 Ill. 2d 497, 521-22; People ex rel. Scott v. College Hills Corp. (1982), 91 Ill. 2d 138, 154.) In determining whether the complaint is adequate, pleadings are to be liberally construed. Allegations are sufficiently specific if they reasonably inform the defendants by factually setting forth the elements necessary to state a cause of action. (College Hills, 91 Ill. at 145.) Where the essential elements of the purported contract, conspiracy or combination and its anticompetitive effects under section 3(2) of the Illinois Act are alleged, the complaint states a cause of action and the question of whether the defendants’ conduct was reasonable is a question of fact. College Hills, 91 Ill. 2d at 155. In the present case, the complaint alleges that, due to the agreement between Blue Cross and the defendant hospitals, Blue Cross has a substantial competitive advantage which results in an unreasonable restraint of trade. However, plaintiffs do not allege any facts to support their claim that the defendants’ conduct has an anticompetitive effect in the relevant market. The absence of a sufficient allegation of anticompetitive effect is fatal to the existence of a cause of action under section 1 of the Sherman Act (Havoco of America, Ltd. v. Shell Oil Co. (7th Cir. 1980), 626 F.2d 549, 554), and is similarly fatal to the existence of a cause of action under the Illinois Antitrust Act (see Adkins, 129 Ill. 2d at 522). Accordingly, I believe that count II is deficient, not because price discrimination is not actionable under section 3(2), but because it fails to allege an unreasonable restraint of trade. The trial court’s dismissal of count II was proper.