Opinion
No. 00 C 762
October 10, 2001
MEMORANDUM OPINION
Before the court is defendant's motion to dismiss Count III of the Amended Complaint. For the reasons explained below, the motion is granted.
BACKGROUND
The relevant facts of this case were described in our earlier memorandum opinion denying defendant's motion to dismiss or to transfer the action. They are as follows:
In November, 1996, plaintiff General Electric Capital Auto Financial Services, Inc. ("G.E. Auto"), a Delaware corporation, headquartered in Barrington, Illinois, entered into a Dealer Lease Plan Agreement with defendant Phil Smith Chrysler Jeep Eagle ("Phil Smith"), a Florida corporation with its principal place of business in Homestead, Florida.
The following facts are undisputed. Pursuant to the parties' agreement, Phil Smith leased vehicles to customers, then sold the vehicles and assigned the leases to G.E. Auto. Phil Smith would complete all necessary paperwork for the lease and the sale and send that paperwork to G.E. Auto. Originally the documentation was sent to G.E. Auto's regional facility in Charlotte, North Carolina. In June, 1998, the Charlotte facility was closed, so Phil Smith began submitting the materials to G.E. Auto's Barrington facility. According to plaintiff, 50 lease packages were submitted to the Barrington facility in June, 1997. Another 74 packages were submitted to that facility in July and August, 1998. For transactions executed during this time period, G.E. Auto sent checks to Phil Smith (in Florida) from Illinois totaling $1,257,502, $1,104,294 and $685,032, respectively.
Plaintiff alleges that beginning in around July, 1997, Phil Smith engaged in a scheme to send fraudulent documentation to G.E. Auto in connection with the lease and sale. The fraudulent scheme worked as follows: Phil Smith created dummy invoices for the vehicles, in which it increased the manufacturer's suggested retail price ("MSRP"). Phil Smith used the inflated MSRP to set an equally inflated "residual value," which is a projection of the value of the vehicle at lease end.
The monthly lease payment is a function of two factors: depreciation and the lease charge. Depreciation is calculated based upon the difference between the capitalized cost of a vehicle and its residual value. By overstating the residual value, Phil Smith was able to decrease the depreciation component and thereby deflate the monthly lease payment. As a result, G.E. Auto, at lease term, would own a vehicle worth significantly less than its purported residual value. G.E. Auto claims to have discovered the fraud in late August, 1998.
Invoking diversity jurisdiction, plaintiff filed this suit against Phil Smith in February, 2000, alleging breach of contract and fraud.
Memorandum Opinion (September 29, 2000).
On July 18, 2001, G.E. Auto amended its complaint to add Count III, a claim for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. (the "Consumer Fraud Act" or "Act"). The Amended Complaint explains that "[t]he fraud had the potential to injure the lessee consumers" because consumers choosing to terminate the lease before its scheduled termination date would have to pay an increased early termination fee as a result of the falsely overstated residual value of the vehicle. (Amended Complaint, ¶ 26.) Phil Smith now moves to dismiss the Consumer Fraud Act claim.
DISCUSSION
The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1356, at 294 (2d ed. 1990). When evaluating such a motion, the court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Hentosh v. Herman M. Finch Univ. of Health Sciences, 167 F.3d 1170, 1173 (7th Cir. 1999); Jang v. A.M. Miller Assocs., 122 F.3d 480, 483 (7th Cir. 1997). Dismissal is appropriate only if "`it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Ledford v. Sullivan, 105 F.3d 354, 356 (7th Cir. 1997) (quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984)); Jones v. General Elec. Co., 87 F.3d 209, 211 (7th Cir.), cert. denied, 519 U.S. 1008 (1996).
Phil Smith argues that G.E. Auto fails to state a claim under the Consumer Fraud Act because it does not allege that the purported fraudulent trade practices affecting consumers were conducted in Illinois or that such practices affected Illinois consumers, as required by Illinois law. The Act prohibits the use of unfair or deceptive acts or practices "in the conduct of any trade or commerce." 815 ILCS 505/2. The Act defines "trade" and commerce" as follows:
The terms "trade" and "commerce" mean the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situated, and shall include any trade or commerce directly or indirectly affecting the people of this State.815 ILCS 505/1(f) (emphasis added). Courts have interpreted the language of this provision to require an effect on Illinois consumers. See Oliveira v. Amoco Oil Co., 311 Ill. App.3d 886, 896-99, 726 N.E.2d 51, 60-62 (4th Dist. 2000); Continental X-Ray Corp. v. XRE Corp., No. 93 C 3522, 1995 WL 599064, at *2-3 (N.D. Ill. Oct. 2, 1995); Swartz v. Schaub, 818 F. Supp. 1214 (N.D. Ill. 1993); Seaboard Seed Co. v. Bemis Co., 632 F. Supp. 1133, 1140 (N.D. Ill. 1986). In Oliveira, the Illinois Appellate Court stated that the purpose of the Act is to "protect Illinois consumers" and therefore required the plaintiff to allege "trade or commerce affecting Illinois consumers" to claim protection under the Act. 311 Ill. App.3d at 897-98, 726 N.E.2d at 61.
The Illinois Supreme Court has not ruled specifically on the issue of whether the Act protects non-Illinois consumers, and there is a split in the federal district court case law on this question. We believe that this is the better approach, given the Illinois Appellate Court's holding in Oliveira and for the reasons discussed in Oliveira.
Phil Smith states that "[v]irtually every one of the lessees is either a Florida resident or, at the time he or she leased the automobile, was a resident of the state of Florida," and points out that the leases were negotiated and executed in Florida between Phil Smith and the lessees. (Defendant's Motion to Dismiss at 3.) Thus, argues Phil Smith, Count III fails to state a claim under the Consumer Fraud Act because there are no allegations that Illinois consumers were affected by Phil Smith's conduct or that the conduct occurred in Illinois.
We agree with defendant. There are no indications in the Amended Complaint that Illinois consumers were affected by the alleged conduct. The conduct as a whole has some connection to Illinois in that the leases were eventually assigned to G.E. Auto and the false documentation allegedly submitted to G.E. Auto in Illinois, but the conduct relevant to consumers occurred in Florida and affected Florida, not Illinois, consumers.
G.E. Auto argues that there is a "more than ample Illinois nexus" here because G.E. Auto is located in Illinois, but that is not the issue. The question is whether G.E. Auto has alleged trade or commerce affecting Illinois consumers, and the answer is no. Accordingly, it cannot invoke the protection of the Consumer Fraud Act. Because of this holding, we need not address defendant's other argument in support of its motion.
CONCLUSION
For the reasons stated above, defendant's motion to dismiss is granted. Count III of the Amended Complaint is dismissed with prejudice.