Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

TUREK v. GENERAL MILLS (October 17, 2011)

Carolyn Turek brought suit against General Mills and Kellogg, alleging that the defendants' marketing of chewy bars violated the Illinois Consumer Fraud and Deceptive Business Practices Act. Specifically, she alleged that the defendants label the product as containing dietary fiber without disclosing that the principal fiber used in the product is processed and does not provide the normal benefits associated with fiber consumption. Judge Gettleman (N.D. Ill.) dismissed the suit for want of jurisdiction on the grounds that the action was preempted by federal law. Turek appeals.

In their opinion, Seventh Circuit Judges Cudahy, Posner, and Williams affirmed (but on different grounds). First of all, the Court noted that the case was not one of complete preemption, where federal law pervades a field such that no state law claim could exist. The statute at issue here, the Nutrition Labeling and Education Act of 1990, provides specifically that it preempts no state law unless it is expressly preempted by the Federal Food, Drug, and Cosmetic Act. Therefore, the Court stated, the district court had jurisdiction to hear the case on the merits. The FFDCA does prohibit states from imposing labeling requirements that are not identical to the federal requirements. Federal law does impose a labeling requirements on dietary fiber. The principal requirement is that a manufacturer state the amount of fiber in each serving. The chewy bars at issue meet all the federal labeling requirements. The labeling that plaintiff suggests is missing is not identical to the federal labeling requirements and thus barred by federal law. Plaintiff's claim should have been dismissed for failure to state a claim, rather than for want of jurisdiction.

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MORRISON v. YTB INTERNATIONAL, INC. (July 27, 2011)

YourTravelBiz.com (also known as YTB International) is based in Illinois and operates a business in which its customers purchase the right to act as a travel agent and sell travel services to the public. A number of its customers brought suit against YTB. They brought the suit as a class action on behalf of all of YTB’s customers and invoked jurisdiction under the Class Action Fairness Act. The class alleged that YTB's business practices violated the Illinois Consumer Fraud Act's prohibition on pyramid schemes. The Act prohibits businesses in which a customer's income is based primarily on inducing others to participate rather than on the amount of goods or services sold. Judge Murphy (S.D. Ill.) dismissed the complaint. First, he ruled that YTB's transactions with the non-Illinois class members were not covered by the Act. Second, he ruled that he should decline to exercise CAFA jurisdiction over the remaining intrastate claims under § 1332(d)(4). Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Flaum and Rovner vacated and remanded. The Court rejected the district court's rationale for dismissing the case. CAFA jurisdiction is examined at the time of the filing of the complaint. Here, the plaintiffs proposed a nationwide class that met the CAFA jurisdictional requirements. Although the district court labeled its dismissal of the non-Illinois plaintiffs as one based on standing, it was wrong. The ruling that the Illinois Act does not cover transactions with out-of-state plaintiffs is a ruling on the merits, not a jurisdictional one. Notwithstanding the district court's error, the Court concluded that it also had to resolve the Illinois Consumer Fraud Act question. It likened § 1332(d)(4) to abstention, a concept under which a federal court has jurisdiction but declines to exercise it. If non-resident plaintiffs are covered by the Act, the claim is predominately interstate and a federal court should resolve the entire claim. Whether the non-resident plaintiffs are covered by the Act is governed by the Illinois Supreme Court's decision in Avery. There, the court concluded that the Act applies if "the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois." The Court found the factors here quite balanced: YTB's only office was in Illinois, it included an Illinois choice of law clause in its contracts, and it conducted training sessions in Illinois -- but the class members come from many different states, the class members' losses incurred in different states, and some states may not prohibit pyramid schemes. On balance, the Court concluded that the factors, although they may not compel application of Illinois law, they certainly did not defeat its application. The complaint therefore must survive a motion to dismiss.

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PIRELLI ARMSTRONG TIRE CORPORATION RETIREE MEDICAL BENEFITS TRUST v. WALGREEN COMPANY (January 21, 2011)

Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust uses a Pharmacy Benefit Manager (PBM) to administer its relationships with pharmacies that the Trust's members use to fill prescriptions and that the Trust then reimburses for amounts in excess of the members’ co-pays. The PBM sets the maximum reimbursable price for the most frequently used prescriptions. Reimbursement for less popular medications is the average wholesale price, set by the manufacturers. The average wholesale price is almost always more than if the price had been set by a PBM. In the case of two particular drugs, Ranitidine and Fluoxetine, one form of the drug (i.e., capsule versus tablet) was on the controlled price list and the other was governed by the average wholesale price. It is illegal in Illinois for a pharmacy to dispense a drug in a form other than that which was prescribed. The Trust brought suit against Walgreens, alleging that the pharmacy filled members' prescriptions for those two drugs in the form that provided them the greatest reimbursement, regardless of which form was prescribed. The complaint cited several grounds for the Trust's belief that Walgreens committed this fraud: a) a preliminary review of its own reimbursement data that showed 12 members had prescriptions filled at Walgreens with the more expensive form of one of the drugs, and that three of those 12 members had apparently the same prescriptions filled at other pharmacies with the less expensive form of the drug, b) the allegations of a 2003 whistleblower suit that alleged that Walgreens filled prescriptions for the drugs with the more expensive form, and c) the data collected by a different PBM that compared Walgreens’ choice of drug form with other pharmacies and concluded that Walgreens’ rate of filling prescriptions with the higher priced drugs was overwhelmingly greater. The suit was originally brought as a class action and encompassed prescriptions in 35 states. It scope was narrowed, however to Illinois only and the Illinois Consumer Fraud and Deceptive Business Practices Act. The Trust also included an unjust enrichment claim under Illinois law. Judge Kendall (N.D. Ill.) granted Walgreens' motion to dismiss on the grounds that the Trust failed to adequately plead fraud and that it failed to allege that it had been injured. The Trust appeals.

In their opinion, Judges Flaum, Manion, and Tinder affirmed. The Illinois Act does make it unlawful to use fraud in trade or commerce. But it also is governed by the heightened fraud pleading requirements of the federal rules. The general rule is that a plaintiff cannot satisfy that heightened standard with allegations "on information and belief." Although the plaintiff does not use those words, the allegations fit the concept. There is an exception to that general rule where the plaintiff has no access to the facts constituting the fraud and where he adequately provides the grounds for his suspicions. The Court considered the support cited in the complaint in that light. First, it gave little weight to the allegations of the whistleblower suit. Allegations in other lawsuits are typically given little weight, particularly here, when those allegations themselves, for the most part, are made on information and belief. Second, the Court afforded little weight to the data set collected by the other PBM. Although that data does support a belief that a third party payor was injured, it does little to support the Trust, particularly since it is based on a different set of reimbursement data. The Trust had available its own reimbursement data. Third, the Court turned to that reimbursement data and found it wanting as well. There is not much data to begin with and the Court wondered why the Trust's pre-filing inquiry could not have resulted in a more robust data set. The suspicious examples themselves were few. In a universe of thousands of members and thousands of pharmacies nationwide, 12 erroneous prescriptions is not evidence of fraud. The Trust simply did not provide enough data and context to meet the heightened standard. Although the Trust may be correct that the small subset of members who had their prescriptions filled differently at Walgreens and other pharmacies is "suspiciously consistent" with fraud, it is not enough to satisfy the fraud pleading requirement. The district court was correct in dismissing the statutory count. Finally, the Court concluded that the district court was correct in dismissing the unjust enrichment claim. In Illinois, an unjust enrichment claim is not a separate cause of action but an equitable remedy. The Trust pleads its unjust enrichment claim on the same facts as it pleads its statutory claim. Those allegations of fraud are governed by the same pleading standard and must be dismissed for the same reason.

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GREENBERGER v. GEICO GENERAL INSURANCE CO. (January 10, 2011

The day after Stephen Greenberger got into a car accident, a GEICO insurance adjuster inspected his car and gave him a check for over $3200. Greenberger kept the money but never repaired the car. A few months later, in connection with the possible sale of the car, a mechanic estimated that the damage was closer to $5000. Greenberger eventually donated the car to charity. He brought suit against GEICO for breach of contract, fraud, and violation of the Illinois Consumer Fraud and Deceptive Practices Act. His claim is that GEICO purposely understates the value of necessary repairs in its estimates. Although he filed the action as a class action, the court never ruled on class certification. Judge Manning (N.D. Ill) dismissed the statutory fraud claim and granted summary judgment to GEICO on the contract and common law fraud claims. Greenberger appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Circuit Judges Kanne and Sykes affirmed. First, the Court concluded that the breach of contract claim was foreclosed by the Illinois Supreme Court's decision in Avery. That case stands for the proposition that a physical examination of the insured's automobile is necessary to prevail on a claim that one's insurer breached its promise to restore the automobile to its prior condition. Although Avery dealt with an insurer's practice of not using original equipment manufacturer parts, the principle is the same. The Court rejected Greenberger's attempts to distinguish Avery on the ground that he had an actual higher estimate. It also rejected his theory that GEICO failed to meet industry standards. With respect to the former, a higher estimate cannot establish the fact of a breach, although it may be admissible, supporting evidence. With respect to the latter, the Court noted that GEICO's promise was not to repair according to any industry standard. The Court also noted that Greenberger could not prove damages without the automobile. Second, the Court affirmed the district court's dismissal of the statutory fraud claim. The Act prohibits unfair and deceptive practices but does not apply to every simple contract dispute. Again, Avery controls. It held that a deceptive practice must include more than simply a promise and a breach. Here, Greenberger has only that. Finally, the Court addressed the common law fraud claim. That claim fails for the same reason the statutory fraud claim fails. Greenberger cannot identify a fraudulent act other than the breach. The Court noted that the claim also fails to the extent it alleges fraudulent concealment. Fraudulent concealment requires a fiduciary relationship. Insurers are generally not fiduciaries and Greenberger has not alleged with any specificity any reason why they should be considered so here.

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 SIEGEL v. SHELL OIL CO. (July 30, 2010)

Michael Siegel is a retail gasoline consumer. He brought a class action against several major oil companies. The complaint alleged that the oil companies violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA") and were unjustly enriched as a result of their concerted effort to reduce the supply of gasoline, thereby increasing its price. Judge St. Eve (N.D. Ill.) denied class certification and entered summary judgment for the defendants. Siegel appeals.

In their opinion, Circuit Judges Bauer and Sykes and District Judge Griesbach affirmed. The Court noted that an Illinois claim for unfair conduct under the ICFA requires both a substantial injury that could not reasonably have been avoided and that the injury be the proximate result of defendants' conduct. Addressing first the class certification issue, the Court concluded that the district court did not abuse its discretion in finding that common issues of fact did not predominate over individual issues. For example, each class member's gasoline purchasing habits would have to be determined in order to establish causation. On the merits, the Court concluded that Siegel's own testimony precluded a finding of proximate causation. He testified that he could and did purchase gasoline from other oil companies, that he continued to purchase gasoline from the defendant oil companies, and that many factors were relevant to his buying decisions. Finally, an unjust enrichment claim is not a stand-alone claim. Here, Siegel’s claim rests on his allegation of unfair conduct. Having rejected the ICFA claim, the Court rejected the unjust enrichment claim as well.

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KIM v. CARTER'S INC. (March 15, 2010)

Su Yeun Kim and Gina Polubinski purchased children's clothing at several different Carter's stores in Illinois over a period of time. Articles of clothing in the stores had individual price tags. Frequently, however, Carter's displayed signs announcing discounts off individual prices. Kim and Polubinski each filed separate class actions, alleging that any savings were fictitious because the prices listed were artificially inflated . The complaints alleged breach of contract and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The district court granted Carter’s motion to dismiss the complaints. Kim and Polubinski appeal.

In their opinion, Judges Bauer, Kanne, and Tinder affirmed. With respect to the breach of contract count, the Court concluded that Carter's fulfilled its contractual obligations. It provided articles of clothing to the plaintiffs at an agreed upon price. The Court rejected plaintiffs' interpretation that the sales contract required Carter's to apply the discount to an undisclosed, fair price instead of the tag price. With respect to the statutory claim, however, the Court found that the allegations of the complaints did sufficiently allege a violation. However, the Act requires a private party to show "actual damage." Here, the plaintiffs agreed to pay a certain price for the clothing. They have not alleged that the clothing is actually worth less than what they paid or that they could have purchased it elsewhere for less. Having concluded that the plaintiffs suffered no actual pecuniary harm, the Court held that they could not state a claim under the Act.

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