defendants' business activities constitute the conduct of a trade or commerce, in the state of Illinois as that term is defined in the Consumer Fraud Act. Count XI para. 36. They further allege that the "security" describe above constitutes "merchandise" as defined by the Consumer Fraud Act. They also allege that the sales of, and offers to sell, the security described above occurred within the three-year statute of limitations that governs the Consumer Fraud Act. The Neumanns seek their actual damages incurred as a result of their purchase of the security, together with interest, attorney's fees and costs.
The defendants contend that a plaintiff seeking relief under the Consumer Fraud Act must plead and prove that a violation of the Consumer Fraud Act caused a public injury -- something plaintiffs have not and cannot do. The defendants argue that, at most, the acts of the defendants resulted in a purely private injury to the plaintiffs individually and did not affect the consuming public generally.
The Magistrate rejected the defendants' contention that a cause of action under the Consumer Fraud Act requires an allegation of public injury. However, the Magistrate concluded that the Consumer Fraud Act is not intended to extend to every transaction between contracting parties, or to be completely open-ended. Thus even though courts have not required an allegation of "public injury," application of the Consumer Fraud Act is restricted to conduct that "affect[s] consumers generally." See Magistrate's Report and Recommendation at 4.
Although the Illinois Supreme Court has not directly addressed this question, the general trend of authority in both the Illinois Appellate Courts and in the Northern District of Illinois is in accord with this interpretation. See, e.g., Bonfield v. AAMCO Transmissions, Inc., 708 F. Supp. 867 (N.D. Ill. 1989); Maduff v. Life Insurance Company of Virginia, 657 F. Supp. 437 (N.D. Ill. 1987); Blake v. State Farm Mutual Automobile Insurance Company, 168 Ill. App. 3d 918, 523 N.E.2d 85, 119 Ill. Dec. 617 (1st Dist. 1988); Beaton and Associates v. Joslyn Manufacturing & Supply Company, 159 Ill. App. 3d 834, 512 N.E.2d 1286, 111 Ill. Dec. 649 (1st Dist. 1987) (the Consumer Fraud Act is not intended to provide a redundant remedy to redress a private wrong). Century Universal Enterprises, Inc. v. Triana Development Corporation, 158 Ill. App. 3d 182, 510 N.E.2d 1260, 110 Ill. Dec. 229 (2d Dist. 1987); Exchange National Bank v. Farm Bureau Life Insurance Co. of Michigan, 108 Ill. App. 3d 212, 438 N.E.2d 1247, 63 Ill. Dec. 884 (3d Dist. 1982) (one does not need to allege a public injury to recover under the Consumer Fraud Act).
In Blake, the plaintiff attacked the entire notification procedure used by the defendant to inform new policyholders that underinsured motorist insurance coverage was available. 168 Ill.App.3d at 924, 523 N.E.2d at 89. The Blake court stated that the intent of the Consumer Fraud Act was not to extend to wrongs committed in the context of private transactions, but rather addressed wrongs committed in the course of business or trade. Id. The court reasoned that there might have been a sufficient showing of a course of business or trade to state a claim under the Consumer Fraud Act if the case were sustainable as a class action. Id. However, since the trial court had properly dismissed the class action allegations, the court dismissed the plaintiff's allegation of a violation of the Consumer Fraud Act. Id.; see also Newman-Green, Inc. v. Alfonzo-Larrain, 590 F. Supp. 1083, 1086 (N.D. Ill. 1984).
Here, as in Blake, there might have been a sufficient showing of course of business or trade to state a claim under the Consumer Fraud Act if the case were sustainable as a class action. However, just as in Blake, once the class action allegations were dismissed, any basis for such a showing is eliminated.
Furthermore, in line with the general trend of authority which holds that the Consumer Fraud Act does not address private wrongs, the one-to-one transaction between the plaintiffs and defendants does not result in a public injury. The transaction that took place between the parties in this case relates to a specific investment made by the plaintiffs based on the alleged misrepresentations and omissions made in individualized consultations. The Consumer Fraud Act does not address, nor was it intended to extend to, such private transactions. Obviously, if one has a public injury, it affects consumers generally. On the other hand, if one does not have a public injury, the conduct in question may still be such that it affects consumers generally. However, a single course of conduct by a defendant toward a plaintiff is not enough to impose liability under the Consumer Fraud Act because consumers are not affected generally.
If the plaintiffs were allowed to allege a violation of the Consumer Fraud Act in a controversy involving an isolated act, they would effectively supplant Illinois common law of contracts and fraud. As the court in Exchange National Bank, stated:
Every individual breach of contract between two parties does not amount to a cause of action cognizable under the [Consumer Fraud] Act. If it did, common law breach of contract actions would be supplemented in every case with an additional and redundant remedy. Such is not the intention of the Consumer Fraud Act.
108 Ill. App. 3d at 216, 438 N.E.2d at 1250.
Accordingly, the Court accepts the Magistrate's recommendation that Defendants' Motion to Dismiss Count XI of Plaintiffs' Amended Complaint be granted.
MOTION TO SUBSTITUTE
Jones was a named defendant on the basis that Alan Misale was allegedly an employee, independent contractor, or sub-agent of Jones when Misale first met with the plaintiffs. Jones has died since this action was filed. After Jones' death was suggested of record on June 15, 1989, and pursuant to Fed.R.Civ.P. 25(a), the plaintiffs moved to substitute the Estate of John W. Jones, Nancy Jones, Executor, Case No. 89 P 60, Circuit Court of Kane County, Illinois, as a party defendant.
The Magistrate found that Counts I-III and V, which allege violations of federal securities laws, survive the death of the parties; that Count VIII, alleging common law fraud, survives the death of the parties; and that Count VI and VII, which allege violations of the Illinois Securities Act, survive the death of the parties.
Jones' estate objects on the grounds that, as plaintiffs' purported securities and negligence claims were extinguished upon Jones' death, substitution as to all counts is inappropriate. Plaintiffs respond that they have been damaged by a diminution in value of their assets as a result of an alleged illegal sale of securities. Accordingly, plaintiffs assert that such a cause of action survives the death of the defendant Jones and thus their Motion to Substitute should be granted.
Rule 25(a) of Federal Rules of Civil Procedure provides, in pertinent part, that the court may order the substitution of the appropriate parties only "if a party dies and the claim is not thereby extinguished." The question of whether an action survives the death of a party must be determined by looking towards the law, state or federal, under which the cause of action arose. Continental Assurance Company v. American Bankshares Corporation, 483 F. Supp. 175, 177 (E.D.Wis. 1980). If a right of action is federally created, federal law controls on the survival of the action. In a pendent claim where state law provides the rule of decision, state law is controlling on whether the claim survives. See 7 Wright and Miller, Federal Practice and Procedure § 1954 at 537.
The parties agree that in the absence of a federal statutory directive, the question of the survival of a federal statutory cause of action is a question of federal common law. See generally Khan v. Grotnes Metalforming Systems, Inc., 679 F. Supp. 751, 756 (N.D. Ill. 1988). Actions brought under the federal securities laws have consistently been held to survive the death of one of the parties. Continental Assurance Co., 483 F. Supp. at 178; see also First Interstate Bank of Nevada, N.A. v. National Republic Bank of Chicago, [1984-85 Transfer Binder]Fed.Sec.L.Rep. (CCH) P91,994 at 90,932 (N.D. Ill. March 10, 1985); Derdiarian v. Futterman Corp., 223 F. Supp. 265, 271 (S.D. N.Y. 1963); Miller v. Alexander Grant & Co., [1971 Transfer Binder] para. 93,271 at 91,583 (E.D. N.Y. Nov. 4, 1971). Accordingly, Counts I-III and V of Plaintiffs' Amended Complaint which allege violations of federal securities laws survive the death of Jones.
Under Illinois law, whether plaintiffs' pendent Illinois state law counts abate or survive is governed by common law rules and by statutory provisions changing the common law. Jordan v. Officer, 170 Ill. App. 3d 776, 787, 525 N.E.2d 1067, 1074, 121 Ill. Dec. 760 (5th Dist. 1988); see also Fireman's Fund Mortgage Corp. v. Zollicoffer, 713 F. Supp. 1112, 1113 (N.D. Ill. 1989).
Under Illinois common law, the death of either party abates a personal cause of action, but actions primarily based upon property rights survive. Fireman's Fund Mortgage Corp., 713 F. Supp. at 1113. Statutory causes of action did not survive unless specifically declared to do so by the statute creating the cause of action or some other statute. Id. The legislature, however, supplemented this common law rule to allow the representative of the deceased to recover damages for certain other injuries to the deceased. Id. at 1113-14. In its current form, the Illinois Survival Act ("Survival Act") enumerates those actions which survive. It provides in part:
In addition to the actions which survive by the common law, the following also survive: . . ., actions to recover damages for an injury to real or personal property or for the detention or conversion of personal property, . . . actions for fraud and deceit . . .
Ill.Rev.Stat., ch. 110-1/2, para. 27-6 (1989 Supp.).
Counts VI and VII allege violations of the Illinois Security Act. Since these counts essentially seek rescission of the contracts for the sale of the allegedly unregistered and fraudulent securities, they primarily involve a property interest. See Caldwell v. Cole, 326 Ill. 502, 504, 158 N.E. 159 (1927). Because these counts allege injury to personal property, they therefore fall within the scope of § 27-6 of the Illinois Survival Statute and do not abate. Moreover, plaintiffs' property claims would also survive under the common law. Count VIII, alleging common law fraud, also explicitly falls within the scope of the Illinois Survival Statute which provides that "actions fraud and deceit" survive. Fireman's Fund Mortgage Corp., 713 F. Supp. at 1114. Accordingly, the Court accepts the Magistrate's recommendation to grant Plaintiffs' Motion to Substitute as to these counts.
Defendants' Motion to Dismiss Count XI of Plaintiffs' Amended Complaint is granted. Plaintiffs' Motion to Substitute is granted as to the remaining Counts I-III, V, VI, VII, VIII, and IX.
IT IS SO ORDERED.
DATED: April 30, 1990
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