The U.S Court of Appeals for the Seventh Circuit recently held that charging too much for goods or services, standing alone, is insufficient to assert a claim under the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA").
Accordingly, the Seventh Circuit affirmed the trial court's dismissal of a putative class action filed by condominium owners related to fees charged by a property management company and its vendor to provide various documents required to be provided to prospective purchasers of condominium units.
A copy of the opinion is available at: Link to Opinion
The plaintiffs ("Plaintiffs") were owners of condominium units in two different buildings. The condominium associations for both buildings retained a property management company ("Company") to manage the day-to-day operations.
The Plaintiffs put their units on the market and found willing buyers. Under the Illinois Condominium Property Act ("Condominium Act"), the condo owners were then required to provide the prospective purchasers with a number of documents, including the condo association's rules, declarations, and other documents, which are commonly referred to as the "disclosure documents."
Section 605/22.1(b) of the Condominium Act provides that the condo association shall furnish a unit owner with the required documents within 30 days of a written request. Section 605/22.1(c) provides that the association may charge the unit owner a "reasonable fee covering the direct out-of-pocket cost of providing such information and copying."
The Company contracted with an online document service company ("Vendor") to provide a service that assembles the required disclosure documents in portable document form ("PDF"), giving condominium owners almost instantaneous electronic access to the disclosure documents. The two Plaintiffs were charged $240 and $365, respectively, for their disclosure documents.
The Plaintiffs then filed a lawsuit against the Company and Vendor seeking to represent a proposed class of condominium owners "who were charged by or paid a fee" to the Vendor for disclosure documents in connection with a condominium resale. The Complaint asserted claims for: (1) violation of the Condominium Act, (2) violation of ICFA, (3) breach of fiduciary duty, (4) civil conspiracy, and (5) unjust enrichment.
After the trial court dismissed the complaint, the Plaintiffs appealed.
On appeal, the Seventh Circuit first analyzed the Plaintiffs' claim under the Condominium Act. The Court noted that "[t]he statute doesn't provide an express private remedy, so the plaintiffs advance an argument that a right of action exists by necessary implication."
Under Illinois law, "courts will recognize an implied right of action only if (1) the plaintiff is within the class of members the statute was enacted to benefit; (2) the plaintiff's injury is one the statute was designed to prevent; (3) a private right of action is consistent with the underlying purpose of the statute; and (4) inferring a private right of action is necessary to provide an adequate remedy for statutory violations."
"All four factors must be met before a court will recognize an implied remedy," but the Seventh Circuit determined that "[n]ot one of them is satisfied here."
As the Court explained, Illinois courts have previously concluded that section 22.1 of the Condominium Act "was clearly designed to protect prospective purchasers of condominium units," as its purpose was "to prevent prospective purchasers from buying a unit without being fully informed . . ."
Thus, owners/sellers "are not within the class of persons the statute was designed to protect, nor have they suffered an injury the statute was designed to prevent." Therefore, "implying a remedy for condominium sellers is neither consistent with nor necessary to effectuate the statute's purpose."
Accordingly, the Seventh Circuit held "that section 22.1 does not confer an implied right of action on condominium owners," and the district court "properly dismissed the Condominium Act claim."
Turning to the ICFA claim, the Seventh Circuit first explained that it was effectuated to protect consumers "against fraud, unfair methods of competition, and other unfair and deceptive business practices."
"A trade practice may be deemed unfair if it (1) 'offends public policy'; (2) is 'immoral, unethical, oppressive or unscrupulous'; or (3) 'causes substantial injury to consumers.'" It is not necessary to establish all three criteria.
The Seventh Circuit determined that the Plaintiffs' ICFA claim failed for several reasons.
First, the Plaintiffs' claim relied almost entirely on the alleged violation of section 22.1 of the Condominium Act, but that provision places a duty on a condominium association, which was not named in the complaint. The Plaintiffs argued that the Company and Vendor could be liable for violating ICFA because they acted on behalf of the condominium association, but the Court noted that "[t]his argument distorts basic agency law; it is essentially 'the reverse vicarious liability.'"
"Thus stripped of its Condominium Act premise, the [ICFA] claim rests on nothing more than a generic allegation that [the Vendor] charged too much for a PDF of the disclosure documents." However, "Illinois courts have held that 'charging an unconscionably high price generally is insufficient to establish a claim for unfairness.'"
Accordingly, the Seventh Circuit held that the trial court correctly dismissed the ICFA claim.
With respect to the three common law claims, the Seventh Circuit held that the unjust enrichment and civil conspiracy claims failed because they are not separate causes of action under Illinois law.
Moreover, the breach of fiduciary duty claim failed because it alleged only that the Company and Vendor "aided and abetted" the breach of a fiduciary duty by the condominium associations, but "the complaint does not allege facts that, if true, could support an inference that the officers or board members of either condominium association committed a fiduciary breach."
Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@MauriceWutscher.com
Admitted to practice law in Illinois
Alabama | California | Florida | Georgia | Illinois | Massachusetts | New Jersey | New York | Ohio | Pennsylvania | Texas | Washington, DC
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates and webinar presentations are available on the internet, in searchable format, at:
Financial Services Law Updates
and
The Consumer Financial Services Blog™
and
and
California Finance Law Developments
