Tag: consumer fraud

Illinois Consumer Fraud Act Applies To ‘Biz to Biz’ Insurance Dispute Says Fed. Court

In GoHealth, LLC v. Zoom Health, Inc., 2013 WL 6183024, the Northern District provides a detailed summary of the necessary Illinois pleading elements of some signature business torts in a diversity contract dispute involving the sale of insurance products.

Plaintiff and defendants entered into a written agreement where plaintiff would sell insurance product leads to defendants for a fee.  The defendants would in turn use the leads in peddling insurance products to its own customers.  The relationship soured and each side filed claims against each other.  Defendant’s counterclaims sounded in consumer fraud and common law fraud. Each side moved to dismiss.

The Court struck defendants’ fraud and negligent misrepresentation claims and upheld its consumer fraud and trade secrets counts.

Fraud Claim and Negligent Misrepresentation Claims

The Court dismissed the defendants’ common law fraud  and negligent misrepresentation claims.  An Illinois fraud plaintiff must allege a (i) knowingly false statement, (ii) intended to induce reliance in the plaintiff, (iii) reliance by the plaintiff and (iv) damages resulting from the reliance.

Negligent misrepresentation has the same elements as fraud except the plaintiff must allege a negligent or reckless (instead of intentional) false statement.  Federal specificity-in-pleading rules under Rule 9(b) don’t apply to a negligent misrepresentation claim. *9-10.

Defendants’ fraud count asserted that plaintiff falsely inflated defendants commission and renewal rates and misstated some sales projections.

The Court found that these two statements non-actionable as they involved future events (e.g. future sales and commissions projections).  Statements of future intent, opinions or of financial projections don’t equal fraud under the law.

The Court also rejected defendants’ argument that plaintiff was in business of providing information for the guidance of others in their business dealings – a key exception to the economic loss rule (this rule posits that you can’t recover in tort where a contract governs the parties’ relationship.)

The Court held that plaintiff was contractually obligated to provide sales leads and nothing else.  It wasn’t hired to provide sales projections or renewal forecasts – the bases for defendants’ fraud and negligent misrepresentation claims.  Any information provided by plaintiff in connection with the leads was peripheral to the contract’s core purpose.  *11.

Consumer Fraud Claims – Allowed

The court sustained defendants’ consumer fraud counterclaim. 815 ILCS 505/1 (the “Act”).  The consumer fraud count was based on plaintiff furnishing over 40,000 bogus and recycled sales leads to defendant instead of fresh leads.

Allowing the claim, the Court broadly construed the Act to encompass business-to-business relationships: “the protections of the Act are not limited to consumers”, but applies broadly to “persons”, including businesses. *12.

The court found the defendant was a “consumer” of plaintiff’s sales leads which constituted intangible property under the Act. (The Act applies to intangible property.)

The defendants’ claim that plaintiff supplied a high volume of duplicate leads also stated a deceptive act under the Act.   *12.

Afterword:

This case is post-worthy for its application of the consumer fraud statute to a purely business-to-business setting and its discussion of what constitutes “information” in the context of a negligent misrepresentation claim that will beat an economic loss rule challenge.

Discovery Rule Saves Plaintiffs’ Fraud Claims Against Investment Firm (IL – 2d Dist)

Rasgaitis v. Waterstone Financial Group, Inc., 2012 IL App (2d) 111112-U, a 20-plus page Second District case, presents a detailed synopsis of Illinois agency law, the discovery rule and the “forward-looking” fraud rule (statements of future intent or opinion do not equal fraud).

Facts: The plaintiffs sued the defendant financial services firm and two of its agents for fraud and other tort claims based on defendants’ misrepresentations in connection with selling investment and insurance products to plaintiffs.  (¶ 10).  Defendants moved to dismiss, arguing that the claims were time-barred, were non-actionable statements of future intent and was too conclusory to show an agency relationship between the individuals and the investment firm.  The trial court agreed and dismissed all 15 complaint counts.

Held: The Second District reversed the trial court on 14 of the 15 counts (the Court sustained dismissal of negligent supervision claim based on economic loss rule) and held that plaintiffs’ suit was timely based on the discovery rule.

Reasoning:

The discovery rule stops the running of the statute of limitations until a plaintiff knows or should know of his injuries and that the injuries were caused by defendant’s wrongful conduct. (¶ 31).  The rule generally presents a fact question (the question being – when did the plaintiff reasonably know he was injured?) but can be an issue of law where the key facts are undisputed.  Id.

Here, the Court held that while the defendants’ underlying misrepresentations were made in 2005 and 2006, and plaintiffs didn’t sue until 2010, the plaintiffs still pled they didn’t learn of the false promises until 2009 when they learned that the chosen investment vehicle wasn’t as good as advertised.  And since plaintiffs filed suit approximately 14 months after they discovered the defendants’ wrongful conduct (in April 2010) – the complaint was timely under the two and three-year limitations periods for suits based on the sale of life insurance policies and annuities.  ¶¶ 24, 32,  735 ILCS 5/13-214.4, 815 ILCS 5/13.

Fraud Claim Analysis

The Second District also sustained plaintiffs’ fraud claims against defendants’ various Section 2-615 arguments.  While acknowledging that statements of opinion, future intent or financial projections are generally not actionable, the Court focused on the context, not the content of defendants’ statements.  (¶ 43)  The Court held that the plaintiffs sufficiently alleged that the defendants’ statements (that plaintiffs’ funds were 100% safe and the investment plan was proven to be successful) were sufficiently factual to state statutory and common law fraud claims under Illinois pleading rules. (¶ 44).

 Agency Analysis

Sustaining the plaintiffs’ agency allegations (and therefore upholding the claims against defendants’ 2-615 motion attack), the Court provided an agency law primer:

– agency is a fiduciary relationship where the principal can control the agent’s conduct and the agent can act on the principal’s behalf;

– an agent’s authority can be actual or apparent;

– actual authority can be express or implied;

– express authority = principal explicitly grants the agent authority to perform a given act;

implied authority = actual authority proved by circumstantial evidence of the agent.  That is, the principal’s conduct reasonably leads the agent to believe that the principal wants the agent to act on the principal’s behalf;

– apparent agency = principal holds out agent as having authority to act on principal’s behalf and a reasonably prudent third party would assume the agent’s authority based on the principal’s conduct.

(¶¶ 49-51).

Applying these rules, the Court held that the plaintiffs pled sufficient facts to establish an agency relationship between the two individual financial agents and the investment firm.  Factors the court considered in its agency calculus included that the defendants used the corporate employer’s offices, business cards and same phone number. ¶ 51.  The Court also cited the fact that plaintiffs had multiple meetings with the individual defendants at the corporate defendant’s office – something that would likely lead a reasonable person to assume that the individual defendants were authorized to act for the corporate principal.  As a result, plaintiffs’ stated colorable claims under Illinois fact-pleading rules.  14 of plaintiff’s 15 claims were reinstated.

Take-aways: The discovery rule applies to common law and consumer fraud claims.  The more detailed a plaintiff’s allegations, the better chance they will survive a limitations defense.  Fraud claims cannot be based on future intent, opinions or financial forecasts unless the statements are sufficiently present-tense and factual.   The case is also instructive on what agency allegations will and won’t satisfy Illinois fact-pleading rules where a plaintiff attempts to impute an agent’s conduct to a corporate principal.