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Hoover v. May Department Stores Co.





APPEAL from the Circuit Court of Madison County; the Hon. JOHN W. DAY, Judge, presiding.


This is an appeal by defendant May Department Stores Company from a judgment of the circuit court of Madison County in favor of plaintiffs Ronald Hoover and Sheila Ruth, individually, and as representatives of a class composed of defendant's charge account customers.

The judgment appealed from is a summary judgment with detailed findings entered on March 2, 1977, pursuant to the parties' separate motions for summary judgment and May's motion to dismiss the action as a class action. Since portions of the order were necessarily interlocutory in nature, the court, on the motion of defendant, entered a modification order March 25, 1977, pursuant to Supreme Court Rule 308 (Ill. Rev. Stat. 1975, ch. 110A, par. 308) covering all of the findings and directives of the judgment. We granted the defendant's application for an interlocutory appeal and therefore have all aspects of the case before us for review.

One of the divisions of defendant May Department Stores Company is the Famous-Barr Company. Famous-Barr Company is a concern which sells a broad range of merchandise for cash or credit through 12 outlets or stores in the St. Louis metropolitan area. The St. Louis metropolitan area encompasses cities and towns in both Illinois and Missouri. One of the Famous-Barr stores is located in Illinois, the remainder are in Missouri. This case involves Famous-Barr's policy with respect to issuance of "Eagle Stamps" to the customers of its stores. Eagle Stamps are trading stamps which defendant issues as a sales promotion program. The facts are not in dispute, only the legal effect to be ascribed to them.

Famous-Barr has issued Eagle Stamps in connection with sales of merchandise at its stores since the early 1900's. Its policy as to which of its customers are entitled to receive the stamps apparently has been unchanged since the inception of the stamp program.

Under this policy only cash customers and charge account customers who pay their entire balance before the next billing date after receiving a statement are entitled to receive Eagle Stamps. The charge account customer who decides to pay for his purchases in one or more deferred payments cannot obtain stamps, either after a partial payment or upon complete payment of all balances due. Moreover, if a charge account customer, upon the first appearance on his monthly statement of an amount for new purchases, immediately remits payment in that amount, he is still not entitled to any stamps if he has a balance carried over from previous billing cycles since Famous-Barr's policy is to apply all payments towards the oldest balances first.

The procedures for obtaining the stamps are as follows. When a customer purchases an item in a Famous-Barr store by cash or check he receives a receipt. He may then take the receipt of the Eagle Stamp counter in that store or any other Famous-Barr store and exchange it for stamps. A charge account customer who pays his entire balance by mail before his next billing date receives a receipt with his next monthly statement that can be exchanged for stamps at any Eagle Stamp counter in any Famous-Barr store. If he pays his entire bill during this period in person he is issued stamps at that time. One stamp is issued for every 10¢ of qualified purchases. The stamps are then pasted into books and either redeemed for cash at an Eagle Stamp counter or redeemed for merchandise certificates which are honored by any Famous-Barr store.

During most of the time relevant to this suit, an Eagle Stamp book held 1,250 stamps. Famous-Barr's policy was to accept only full books of stamps at its stamp counters. However, the Eagle Stamp Company, another division of defendant May Company, redeems partial books and loose stamps as a customer convenience if unusual circumstances exist. Each full book was exchangeable for $2.25 in cash, or, upon election by the customer, $2.50 in merchandise certificates.

Sometime in 1976, the Eagle Stamp Company began supplying stamp books that hold 1,500 stamps. Since these books are redeemable for $2.70 cash or $3 in merchandise certificates, the relative cash value of the stamp has remained constant at 18¢ per each $10 of purchases, in other words, 1.8% of the purchase price.

Both of the named plaintiffs are Illinois residents who have charge accounts with Famous-Barr and have shopped at stores in both Missouri and Illinois, purchasing items in both States pursuant to their charge agreements. The complaint upon which the instant summary judgment order was entered is a class action brought on behalf of these plaintiffs and all other persons, whether Illinois residents or not, who have purchased goods from Famous-Barr stores pursuant to charge agreements and have paid for the goods in more than one installment.

The complaint alleged that the above stated policy of denying stamps to charge customers who pay their statements in installments violates the Retail Installment Sales Act (Ill. Rev. Stat. 1975, ch. 121 1/2, pars. 501-533) in that the forfeiture of this 1.8% or 2% "Eagle Stamp discount" is a component of the "finance charge" which under the Act should have been, but was not, disclosed in the charge account agreement and monthly statements and the inclusion of which caused the finance charge actually assessed to be in excess of that allowable under the Act.

Count two of the complaint contained similar allegations with respect to the Missouri Retail Credit Sales Act (Mo. Rev. Stat. §§ 408.250-408.370 (1975 Supp.)). The count charges that the denied Eagle Stamp discount results in an increase in the "time charge" paid beyond that allowable by law and that the "time charge" was not properly disclosed under the Missouri Act because the discount's value was not included in the agreement or statements.

The two remaining counts of the complaint allege violations, of the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1975, ch. 121 1/2, par. 261 et seq.) and the Missouri Merchandising Practices Act (Mo. Rev. Stat. § 407.010 et seq. (1975 Supp.)) based on misleading statements and deliberate concealments of defendant's Eagle Stamp policy.

In its judgment the trial court held the loss of the Eagle Stamp discount to be a "finance charge" within the meaning of the Illinois Retail Installment Sales Act and to be a part of the "time charge" under the Missouri Retail Credit Sales Act. The court further found the defendant's failure to disclose this portion of the charges to be respective violations of section 25 and 408.290 of the Illinois and Missouri Acts (Ill. Rev. Stat. 1975, ch. 121 1/2, par. 525, and Mo. Rev. Stat. § 408.290 (1975 Supp.)), and that the resultant charges were in excess of those allowable under section 28 of the Illinois Act (Ill. Rev. Stat. 1975, ch. 121 1/2, par. 528) and section 408.300.2 of the Missouri Act (Mo. Rev. Stat. § 408.300.2 (1975 Supp.)).

On the two fraud counts, the court held that defendant's disclosures were misleading as a matter of law but found that the ordering of further relief was unnecessary since even a full disclosure of the unlawful practices would not have been a defense to defendant's violations of the Illinois Retail Installment Sales Act and the Missouri Retail Credit Sales Act. See Ill. Rev. Stat. 1975, ch. 121 1/2, par. 513, and Mo. Rev. Stat. § 408.350 (1975 Supp.).

In addition, the court in the judgment: (1) adjudged the action to be a proper class action; (2) permanently enjoined the defendant from pursuing the policy of non-issuance of stamps described above; (3) declared defendant a constructive trustee of all excessive finance charges collected since November 5, 1968, and ordered it to make restitution of such; (4) ordered the defendant to make a complete accounting of the names and last known addresses of every class member and the amount due to each, including interest; (5) ordered the defendant to set aside a fund of $9,000,000 from which to satisfy the terms of the decree; (6) directed defendant to provide notice to all class members so as to advise them of the terms of the decree and their right to "elect out" of the class by mailing an appropriate notice to the court; and (7) provided for the award of reasonable attorneys' fees and costs to plaintiffs' attorneys to be paid out of the fund to be created by defendant.

There are three main issues in this appeal: (1) was this a proper class action; (2) did defendant's Eagle Stamp policy violate the Illinois and Missouri Sales Acts, resulting in the imposition of an excessive "finance charge" or "time charge" within the meaning of the respective Acts; and (3) was the relief awarded proper. In addition, the class action issue contains subissues, such as the necessity of prejudgment notice to class members and the existence or necessity of a "common fund" for class relief.

• 1 We turn first to the issue of the propriety of the trial court's allowing this action to be maintained as a class action.

Our supreme court has recently noted that the class action is a potent procedural vehicle which under its terms allows claims of numerous persons to be decided without the personal appearance of each and permits the vindication of the rights of numerous persons in a single action when for many reasons individual actions would be impracticable. Steinberg v. Chicago Medical School (1977), 69 Ill.2d 320, 334-35, 371 N.E.2d 634; see also Adams v. Jewel Companies, Inc. (1976), 63 Ill.2d 336, 347, 348 N.E.2d 161; Smyth v. Kaspar American State Bank (1956), 9 Ill.2d 27, 44, 136 N.E.2d 796.

Impracticability of individual actions or joinder is a touchstone of representative suits as is apparent from the fact that the original purpose of the invention of class actions in equity was to enable equity "to proceed to a decree in suits where the number of those interested in the subject matter of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable." Hansberry v. Lee (1940), 311 U.S. 32, 41, 85 L.Ed. 22, 27, 61 S.Ct. 115, 118.

Class actions are particularly alluring in the area of consumer protection since it is often the case that the situations presented are ones where individual litigation of the underlying dispute is not feasible, usually because the costs of litigation greatly exceed the value of the potential relief which could be awarded.

"To consumerists, the consumer class action is an inviting procedural device to cope with frauds causing small damages to large groups. The slight loss to the individual, when aggregated in the coffers of the wrongdoer, results in gains which are both handsome and tempting. The alternatives to the class action — private suits or governmental actions — have been so often found wanting in controlling consumer frauds that not even the ardent critics of class actions seriously contend that they are truly effective. The consumer class action, when brought by those who have no other avenue of legal redress, provides restitution to the injured, and deterrence of the wrongdoer." J. Landers, Of Legalized Blackmail and Legalized Theft: Consumer Class Actions and the Substance — Procedure Dilemma, 47 So. Cal. L. Rev. 842, 845 (1974).

This case points up the truth of these observations as to the impracticability of either joinder or resolution of the dispute by individual litigation.

According to defendant's responses to plaintiffs' interrogatories, Famous-Barr had, at that time, in excess of 491,000 charge account customers; hundreds of thousands of which must be class members as defined in this suit. It is obvious that these class members are too numerous for joinder and that if these individuals were to pursue individual actions, the burden placed on the courts> would be staggering. Moreover, the average claim of each member is estimated to be $20, a sum which hardly motivates one to resort to the costly forum of our judicial system for individual vindication. For all these reasons, adjudication of the questions of this suit is impracticable save through the vehicle of a class action.

At the time summary judgment was entered in plaintiffs' favor in this suit, all questions concerning the propriety of class actions were decided by case law in Illinois — a common law approach. (See Steinberg v. Chicago Medical School (1977), 69 Ill.2d 320, 335, 371 N.E.2d 634, 642, and authorities cited therein.) One of the requisites was the existence of a community of interest in both the subject matter and the remedy. (Peoples Store of Roseland v. McKibbin (1942), 379 Ill. 148, 39 N.E.2d 995; Smyth v. Kasper American State Bank.) Our examination of the plethora of decisions cited to us in this case, especially those which attempt to flesh out the "community of interest" requirement by enumerating many factors to be considered in determining whether such a community of interest exists (e.g., Moseid v. McDonough (1968), 103 Ill. App.2d 23, 27-28, 243 N.E.2d 394), leads us to agree with the author of a law review comment that "Illinois case law provides little guidance as to the definitive requirements for maintaining a class action." (Emphasis added.) Comment, Illinois: A Common Law Approach, 68 Nw. U.L. Rev. 1094 (1974).

A more terse and lucid statement of the "community of interest" requirement, found in the more recent case law, is as follows: "[T]he existence of common questions which dominate the controversy and pertain to each class member and an interest in a common result." Adams v. Jewel Companies, Inc. (1976), 63 Ill.2d 336, 347, 348 N.E.2d 161, 167; Magro v. Continental Toyota, Inc. (1977), 67 Ill.2d 157, 365 N.E.2d 328; Ross v. City of Geneva (1976), 43 Ill. App.3d 976, 357 N.E.2d 829.

Another requirement for a class action, sometimes considered a separate and distinct requirement (Landesman v. General Motors Corp. (1976), 42 Ill. App.3d 363, 365, 356 N.E.2d 105, 107) and sometimes as a factor to be considered in deciding whether a community of interest exists (Brooks v. Midas-International Corp. (1977), 47 Ill. App.3d 266, 271, 361 N.E.2d 815, 818), is that the named party or parties adequately represent the rights of the class. Due process dictates this requirement. Since class actions by their very nature adjudicate the rights of parties not before the court, it has long been held that due process requires that the parties before the court must adequately represent the interests of those not before the court. (See Hansberry v. Lee (1940), 311 U.S. 32, 42-43, 85 L.Ed. 22, 27, 61 S.Ct. 115, 118-19; State Life Insurance Co. v. Board of Education (1946), 394 Ill. 301, 308, 68 N.E.2d 525, 529.

During the pendency of this appeal, the legislature enacted a bill (P.A. 80-809, effective Oct. 1, 1977) which added six sections to the Civil Practice Act, all dealing with class actions. Section 57.2 provides:

"Prerequisites for the Maintenance of a Class action.

(a) An action may be maintained as a class action in any court of this State and a party may sue or be sued as a representative party of the class only if the court finds:

(1) The class is so numerous that joinder of all members is impracticable.

(2) There are questions of fact or law common to the class, which common questions predominate over any questions affecting only individual members.

(3) The representative parties will fairly and adequately protect the interest of the class.

(4) The class action is an appropriate method for the fair and efficient adjudication of the controversy."

Although this section primarily codifies previous case law on class actions, its simplicity undercuts the vagaries made possible by the divergent lines of cases which have developed over the years as to what goes into making a sufficient "community of interest." As stated by our supreme court: "It would be needless to consider the variations in our case law on this aspect. With the advent of the statute many of the prior decisions have become corpses." Steinberg v. Chicago Medical School (1977), 69 Ill.2d 320, 338, 371 N.E.2d 634, 643.

Since this case was decided before this section became law our decision on the class action questions will be grounded on the case law requirements; however, the statute now in effect lends us guidance as to what weight should be accorded to the previous case law.

After due consideration, we find that the instant case presents a proper class action.

We have already concluded that this case presents a situation where the class is so numerous that joinder is impracticable. The very idea of joining approximately 400,000 plaintiffs in a single suit is unimaginable. Such an attempt, if made, would surely serve only to render the suit unmanageable.

Defendant vehemently contends that this was an improper class action, arguing that there are no questions of law or fact common to the class members which dominate the controversy. Defendant emphasizes the fact that a majority of the class members are Missouri residents and that the class sought relief on the basis of the statutes of Missouri as well as Illinois.

There is no dispute as to the accuracy of the statement of William Fischer, financial vice-president for Famous-Barr, made in his affidavit in support of defendant's motion for summary judgment, that at least 75 per cent of Famous-Barr's charge account customers are Missouri residents. However, we believe that a class action was proper here despite the fact that people other than Illinois residents are included in the class and resort must be made to Missouri law as well as to Illinois law in order to decide the case.

First, we note that Illinois courts> have found class actions maintainable in situations where the class includes the residents of other States. (E.g., Kimbrough v. Parker (1951), 344 Ill. App. 483, 101 N.E.2d 617.) Second, we note that the class is very cohesive in that the vast majority of the class members are residents of the general St. Louis metropolitan area, either in Illinois or Missouri, who shop in defendant's stores located on both sides of the Mississippi River and are treated exactly alike with respect to Famous-Barr's Eagle Stamp policy for charge account customers. Defendant's operation takes advantage of the geographic and demographic factors inherent in the general St. Louis area, drawing customers from both sides of the Mississippi River to its 12 locations both in Missouri and Illinois. Its uniform policy as to Eagle Stamps provides the common factual nexus and cohesive factor for the present class.

The record reveals that plaintiff Ronald Hoover of Edwardsville, Illinois, traded extensively with the St. Louis and other Missouri Famous-Barr stores, including the downtown St. Louis, Northland, and Northwest Plaza locations. He has also traded at the store in St. Clair Square, Fairview Heights, Illinois. Since the Illinois store opened approximately two years prior to the giving of his deposition, he has divided his shopping between the Illinois and Missouri stores since there are several Missouri locations which are as close either in time or distance to his home as the Illinois store is.

Plaintiff Sheila Ruth of Edwardsville has also shopped at defendant's stores in both Missouri and Illinois. According to her deposition testimony, it would be fair to say that she trades basically at the Fairview Heights, Illinois, location and the downtown and Northwest Plaza locations in Missouri.

• 2 Presumably, a similar bistate purchasing pattern permeates a substantial portion of the transactions of Missouri residents. Such a situation is all but assured when judicial notice is taken of the Missouri law which requires the closure of all Missouri stores on Sunday. See Mo. Rev. Stat. § 563.721 (1975 Supp.).

When the foregoing observations are considered realistically, it becomes apparent that it would be unjust and arbitrary to allow the fortuitous location of a river and a State line through defendant's area of operation and the area from which it draws its customers to dictate which customers, uniformly affected by defendant's policy, can be class members.

• 3 Similarly, we find absolutely no authority to thwart a class action merely because a complete resolution of the dispute requires examination of a sister State's law as well as our own.

The question of law common to all class members is whether the challenged stamp practice violates the State laws applicable to all charge account transactions with respect to the imposition of charges incident to the extension of credit for the purchase of consumer goods.

The defendant states in its brief that relief was sought and awarded to Illinois residents for Illinois transactions under the Illinois Retail Installment Sales Act (Ill. Rev. Stat. 1975, ch. 121 1/2, par. 501 et seq.) and sought and awarded to Missouri residents for Missouri transactions under the Missouri Retail Credit Sales Act (Mo. Rev. Stat. § 408.250 et seq. (1975 Supp.)). This observation is correct as far as it goes, but overlooks the fact that the Missouri law was applied to Illinois residents as to Missouri transactions and vice versa. In order to completely adjudicate the lawfulness of defendant's practice as applied to the party plaintiffs and all other Illinois class members, the court had to examine the relevant portions of the sales acts of both Missouri and Illinois. The same laws determine the legality of the non-issuance of stamps to Missouri charge account customers for items purchased both in Illinois and Missouri. Accordingly, all class members share these common questions of law.

Starting from its misconception that Missouri class members are the only persons whose claims are based on the Missouri Retail Credit Sales Act, defendant urges that any difference between the Illinois and Missouri acts would be fatal to the class action. Defendant directs our attention to an opinion by the Attorney General of Missouri (Op.Atty.Gen. Mo. No. 271, Oct. 9, 1969) which it feels shows such a fatal difference. After examining this opinion, we find that none of the elements which would be treated differently under the Missouri act as opposed to the Federal Credit Protection Act, commonly known as the "Truth in Lending Act" (15 U.S.C. § 1601 et seq.) are present here.

• 4 Since all class members are similarly situated factually and the Eagle Stamp policy was admittedly uniformly applied to them, no material question of fact existed. That is why disposition by summary judgment was appropriate. As our foregoing discussion has made clear, all members shared a common question of law — the legality of the stamp policy as it applied to them under both Illinois and Missouri law. Whether differences may exist in the reach of the two statutes we regard as immaterial here if it is determined that identical Eagle Stamp transactions are violative of both statutes. The only question of an individual nature is the extent to which each member was damaged if the policy was unlawful. This can be determined from defendant's records. Vice-president Fischer admitted in his deposition that by reviewing each charge account record one could determine how many stamps each person would have received had he paid each balance within the first billing cycle. Under these circumstances, the common questions predominate over any individual questions. The better reasoned cases have recognized that multiple claims for damages in varying amounts which have to be separately adjudicated do not bar a class suit if the other requirements of such a suit are present. Fiorito v. Jones (1968), 39 Ill.2d 531, 236 N.E.2d 698; Gaffney v. Shell Oil Co. (1974), 19 Ill. App.3d 987, 989-90, 312 N.E.2d 753, and cases cited therein.

• 5 Defendant also contends that the court erred in allowing the class action, arguing that no common fund exists from collected finance or time charges from which a judgment could be satisfied and that the creation of a fund from defendant's general assets is not proper under Illinois law (Reardon v. Ford Motor Co. (1972), 7 Ill. App.3d 338, 344-45, 287 N.E.2d 519).

• 6 We disagree. We concur in the reasoning and analysis of the case law concerning the common fund concept found in Perlman v. First National Bank (1973), 15 Ill. App.3d 784, 798, 305 N.E.2d 236, 247, appeal dismissed (1975), 60 Ill.2d 529, 331 N.E.2d 65. The court there found that there was no precedential basis for a conclusion that the term "fund" as used in class actions means a sequestered sum of money, easily identified and computed, and reasoned that there was "no basis in law or logic for permitting a class action against an individual who has sequestered all money wrongfully acquired but denying one against an individual who has comingled it with his other assets." (15 Ill. App.3d 784, 800, 305 N.E.2d 236, 249. See also Brooks v. Midas-International Corp. (1977), 47 Ill. App.3d 266, 361 N.E.2d 815.) When unjust enrichment is involved, "The liability or wrongdoing creates the fund, and whatever is taken wrongfully constitutes the fund." (Perlman v. First National Bank (1973), 15 Ill. App.3d 784, 801, 305 N.E.2d 236, 249.) That such is the proper rule is emphasized by the fact that under the new statute, there is no requirement of a common fund. See Ill. Rev. Stat. 1977, ch. 110, par. 57.2, effective Oct. 1, 1977; Steinberg v. Chicago Medical School (1977), 69 Ill.2d 320, 340, 371 N.E.2d 634.

We do not agree with defendant that no "finance charge" or "time charge" was collected from any class member because of Eagle Stamps. If plaintiffs' position is correct, defendant has indeed collected such charges when it accepted the payments made by charge account customers. If they had issued them stamps, the amount collected would have been reduced in the future when the stamps were redeemed for cash.

Defendant makes complaint that plaintiffs did not properly invoke the equity jurisdiction of the court, making much of the fact that the cause for damages is at law and dependent upon statute. We find no basis for error in such contention.

• 7 It must be recognized that the Judicial Article embodied in the Illinois Constitution of 1970 has abolished the distinction between courts> of law and equity so that our State's circuit courts> have "original jurisdiction of all justiciable matters." (Ill. Const. 1970, art. VI, § 9.) The purpose of section 9 was to create a single integrated trial court structure (Ill. Ann. Const., art. VI, § 9, Constitutional Commentary, at 473 (Smith-Hurd 1971)), thereby vesting the circuit courts> with jurisdiction to adjudicate all controversies. Consequently, so long as a case presents a justiciable matter, the circuit court has jurisdiction and the presence or absence of an adequate remedy at law is an irrelevant consideration in determining its power to adjudicate the matter. Lopin v. Cullerton (1977), 46 Ill. App.3d 378, 361 N.E.2d 6; Stevens v. Protectoseal Co. (1975), 27 Ill. App.3d 724, 327 N.E.2d 427; see also Fins, Re-Examination of "Jurisdiction" in Light of New Illinois Judicial Article, 53 Ill. B.J. 8, 11-12, (1964).

Moreover, in view of the fact that if defendant's practice were illegal a complete resolution of this case would require a complicated accounting and the issuance of an injunction, we are of the opinion that the court properly treated this action as one in equity since a purely legal remedy would be inadequate. In addition, although a class action in Illinois must seek "equitable" relief, this requirement has been interpreted so as to permit class actions in which the principal relief sought was monetary. Frank v. Teachers Insurance & Annuity Association of America (1977), 47 Ill. App.3d 821, 365 N.E.2d 28, appeal allowed (1977), 66 Ill.2d 630; see Perlman v. First National Bank; Kimbrough v. Parker.

Defendant contends next that the court should not have adjudicated plaintiffs' claims for the absent "class members" without prior notice. It complains that the court's order whereby class members are notified after judgment has been entered and given an opportunity to "elect out" of the suit is unusual ...

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