bar association fell within the scope of the Sherman Anti-Trust
Act. Id. The Sherman Anti-Trust Act was designed to bring
within it "every person engaged in business whose activities
might restrain or monopolize commercial intercourse among the
states." Id. at 787-88, 95 S.Ct. at 2014. The Court noted that
the setting of a minimum fee schedule was a "business aspect"
of the legal profession. Id. at 788, 95 S.Ct. at 2014. This
aspect had nothing to do with the actual non-business aspects
of the profession, or the actual practice of law. Therefore,
the Court refused to exclude the "learned professions" from the
reach of the federal anti-trust laws even though they were not
considered "ordinary business enterprises." Id.
The analysis in Frahm depended heavily on Goldfarb. Frahm,
113 Ill. App.3d at 583-84, 69 Ill.Dec. at 575, 447 N.E.2d at
1010. However, where Goldfarb held that the business aspects of
the legal profession were subject to federal anti-trust
regulation, Frahm held that the non-business aspects of the
legal profession were not subject to the Illinois Consumer
Fraud Act. The "business aspects" of the legal profession were
not implicated because the misfeasance in Frahm occurred
during the defendant attorney's "actual practice of law."
Indeed, in reaching its conclusion the Court noted: "We
conclude that the legislature's use of `trade or commerce' in
defining the application of the Act was not meant to include
the actual practice of law." Id. 113 Ill. App.3d at 584, 69
Ill.Dec. at 576, 447 N.E.2d at 1011 (emphasis ours).
Thus, under Frahm, if a lawyer's activities amount to the
"practice of law," they are exempt from the coverage of the
Illinois Consumer Fraud Act. Unfortunately, the court never
defined the phrase "actual practice of law." Given that the
Frahm court quoted Goldfarb, this Court assumes that the
determination of a minimum fee schedule for attorneys is not
the "practice of law," but instead is a "business aspect" of
law, subject to regulation. We further interpret Frahm to mean
that the "practice of law" exception includes activities
directly related to the lawyer's professional training or where
the lawyer is already subject to regulation from his or her
This definition of the "practice of law" is implicit in
Frahm and explicitly spelled out in Lyne. The central issue in
Frahm was whether the attorney misrepresented a material fact
in the course of his representation with the client, that is,
the issue of "attorney malpractice." The court stated: "In
essence, plaintiffs seek a broad interpretation of the Act
(Illinois Consumer Fraud Act) which would impose statutory
liability for misconduct amounting to professional
malpractice." Id. 69 Ill.Dec. at 574, 447 N.E.2d at 1009
(emphasis ours). "Professional malpractice," of course, is an
area fundamentally related to an attorney's or physician's
professional training and regulation. Frahm was hesitant to
extend the Illinois Consumer Fraud Act in this area. The
motivation behind the court's hesitancy became apparent in
The medical and legal professions are afforded
immunity from the Consumer Fraud Act primarily,
because, unlike other commercial services, medical
and legal bodies are regulated by governmental
bodies. See Guess [v. Brophy, 164 Ill. App.3d 75],
115 Ill.Dec.  at 285, 517 N.E.2d  at 696
[(1987)] ("the legal profession is subject to a
policing more stringent than that to which
purveyors of most commercial services are
Lyne, 772 F. Supp. at 1068. Thus, the professions are exempt
from the Illinois Consumer Fraud Act because they are subject
to other regulations. Where in Frahm the attorney was sued for
malpractice, the subject of malpractice was already governed by
a separate and developed body of law on malpractice and other
professional regulations that obviated a need for the Illinois
Consumer Fraud Act to impose additional regulations. However,
this is not the case in the dispute currently before the Court.
There has been no evidence presented to the Court that
contracts between psychiatric clinics and hospitals are already
subject to extensive professional regulation. The Court is also
not asked, for example, to decide an issue of medical
malpractice, or to apply the Illinois Consumer Fraud Act to
regulate how a doctor performs a surgery. Rather, the Court
confronts the commercial effect of a business contract between
a hospital and a medical clinic. It is alleged that this
contract has a deleterious impact on an entire community of
healthcare consumers. For these reasons, assuming the truth of
Plaintiff's allegations, the Court finds no reason why
contracts for medical service should be distinguished from
ordinary commercial contracts which are regulated by the
Illinois Consumer Fraud Act.
Feldstein also lacked a "business" or "commercial" effect,
but for a markedly different reason than Frahm. To be sure,
Feldstein dealt with a "business" contract between a hospital
and a physician. However, as noted by the court, this
arrangement was completely insulated from the public at large:
"The commercial phases of medicine which directly affect the
public are not at issue here." Feldstein, 148 Ill. App.3d at
613-15, 101 Ill.Dec. at 948-50, 499 N.E.2d at 536-38 (emphasis
ours). Thus, the arrangement was not "trade" or "commerce"
because it did not affect any commerce beyond the hospital's
four walls. Therefore, as noted above, Feldstein does not have
an application in the instant case where Plaintiff alleges that
the business arrangement between SMH and Newman's Clinic has a
direct public impact.
(2) FTC Guidelines
Illinois legislative history also provides little guidance on
interpreting the intent of the Illinois Consumer Fraud
Act.*fn1 Therefore, the Court, as directed by Illinois law,
must consult decisions of the Federal Courts and of the Federal
Trade Commission under the Federal Trade Commission (FTC) Act
to determine the intent of the Act. See Ill.Rev.Stat. ch. 121
1/2, ¶ 261 (1991); People v. All American Aluminum and
Construction Co., Inc., 171 Ill. App.3d 27, 121 Ill.Dec. 19,
524 N.E.2d 1067 (1988).
The FTC guidelines provide: "Unfair methods of competition in
or affecting commerce, are declared unlawful."
15 U.S.C. § 45(a)(1) (1988). Unlike Illinois caselaw (Frahm and Feldstein)
which recognize an exception to the Illinois Consumer Fraud Act
for the practice of law or medicine, the FTC regulates both
professions.*fn2 Indeed, Congress has repeatedly rejected
proposals to strip the FTC of the power to regulate
professions. In 1982, Congress voted down an amendment which
would have provided: "(c) Section 5(a)(2) of the Federal Trade
Commission Act (15 U.S.C. § 45(a)(2)) is amended by inserting
immediately after `except' the first time it appears the
following: `practitioner of a profession whose members are
licensed and regulated by a State as a condition of independent
within the State, incorporated or unincorporated associations
of State-regulated professionals.'" Heslin v. Connecticut Law
Clinic of Trantolo and Trantolo, 190 Conn. 510, 461 A.2d 938
(1983). The Senate voted down this amendment by a vote of 59 to
37. 128 Cong.Rec. S31,389 (daily ed. December 16, 1982). A more
limited proposal to restrict FTC regulations of the professions
was again voted down in 1984. Sen.Rep. No. 98-215, 98th Cong.
1st Sess. 10, 11 (1984).
The legislative history behind the failed amendments also
supports the FTC regulation of the medical profession. Senator
Warren Rudman spoke out against the proposed 1982 amendments
arguing that the FTC had only proceeded against the business
practices of the medical profession, including kickbacks from
laboratories to referring physicians. Id. at S31,379-80. He
suggested that to revoke FTC's authority to scrutinize
professional practices would be "to abdicate a national
responsibility and is nothing short of absurd." Id. at S31,380.
Senators Gorton and Heinz noted that if the exception were
passed it would "create a privileged class" and "unnecessarily
increase the costs of health and other professional services to
all Americans." Id. at S31,381, S31,385. Senator William
Proxmire noted that the only supporter of the exception was the
AMA. Id. at S31388. He cited the opposition of then President
Reagan, the Wall Street Journal, and other professional
organizations and concluded: "[T]he overwhelming public
response is that this broad exemption is wrong: It is bad
economics, bad politics and, most importantly, it is simply
unfair." Id. at S31,389.
The FTC has also unequivocally stated that state-regulated
professions are not exempt from the coverage of the FTC Act.
In re Wilson Chemical Co., 64 F.T.C. 168, 186-87 (1964);
Reauthorization of the Federal Trade Commission, 1982 Hearings
on S. 1984, Before the Senate Committee on Commerce, Science,
and Transportation, 97th Cong., 2d Sess., 32-36 (letter, by
direction of the Federal Trade Commission, of James C. Miller
III, Chairman). In addition, because Congress has not acted to
change the FTC's interpretation of the statute, this is also a
significant indicator that Congress intended to acquiesce in
the administrative interpretation of the statute. See Bob Jones
University v. United States, 461 U.S. 574, 600-01, 103 S.Ct.
2017, 2033, 76 L.Ed.2d 157 (1983).
However, perhaps the most relevant indication that the
professions are not immune from FTC coverage comes from federal
courts. Federal courts have repeatedly indicated that FTC and
other anti-trust regulations apply to the commercial aspects of
the medical profession. Summit Health Ltd v. Pinhas, ___ U.S.
___, 111 S.Ct. 1842, 114 L.Ed.2d 366 (1991) (Sherman Anti-trust
§ 1 violation); FTC v. Indiana Federation of Dentists,
476 U.S. 447, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986) (Federal Trade
Commission Act § 5 violation); Arizona v. Maricopa County
Medical Society, 457 U.S. 332, 102 S.Ct. 2466, 73 L.Ed.2d 48
(1982) (Sherman Anti-trust § 1 violation); American Medical
Ass'n v. F.T.C., 638 F.2d 443, 448 (2d Cir. 1980), aff'd,
455 U.S. 676, 102 S.Ct. 1744, 71 L.Ed.2d 546 (1982) (citing
Goldfarb, 421 U.S. at 778, 95 S.Ct. at 2008) (Federal Trade
Commission Act § 5 violation).
Defendants Dr. Newman and SMH argue the above cases are not
applicable because the challenged activities in AMA and Indiana
Federation of Dentists do not relate to contracts for medical
services. In AMA, for example, the AMA's authoritative
interpretations of the AMA guidelines were found to violate § 5
of the Federal Trade Commission Act because they restricted
competitive advertising and solicitation among physicians. AMA,
638 F.2d at 448. By contrast, Defendants argue, the dispute in
the instant case concerns a contractual arrangement to provide
medical care — not medical advertising. This distinction,
however, is not supported by any evidence. Moreover, bestowing
special status on contracts for medical care is a rehashing of
the argument the Court rejected in refusing to apply
Feldstein. Medical contracts, for medical service or medical
advertising, have no intrinsic difference. Rather, Frahm
dictates that only the actual practice of medicine (which
includes those aspects of medical practice which receive
comprehensive training or which is regulated by the professions
themselves) is immunized from the jurisdiction of the Illinois
Consumer Fraud Act.
(B) Fraud or Deceptive Practices
As noted above, the Illinois Consumer Fraud Act prohibits
"Unfair methods of competition and unfair or deceptive acts or
practices. . . ." Ill.Rev.Stat. ch. 121 1/2, ¶ 261 (1991).
Defendants argue that an allegation of an unfair trade practice
is not enough to state a cause of action under the Illinois
Consumer Fraud Act after the Illinois Supreme Court decision in
Laughlin v. Evanston Hospital, 133 Ill.2d 374, 140 Ill.Dec.
861, 550 N.E.2d 986 (1990). Under Laughlin, a cause of action
under the Act must involve some conduct that "defrauds" or
"deceives" others. Because consumers are not in any way
deceived by the business arrangement between SMH and Dr.
Newman's clinic, Defendants argue that a cause of action does
However, the Court finds that Plaintiff Dr. Gadson has
alleged deceptive practice. We note that many deceptive acts
are specifically charged:
¶ 25. Newman and his Clinic engaged in unfair and
deceptive methods of competition and in deceptive
acts and practices by committing one or more of the
following acts or course of conduct: (See
allegation contained in a-i, which include
undisclosed financial incentives, conflict of
interest, self-referrals, increased billings
through hospitalizations and ancillary procedures
where the conflict of interest is undisclosed,
compounded by an intent to eliminate competition.)
Plaintiff's Complaint Count IV, ¶ 25 (a-i). The fact that these
undisclosed referrals and other financial incentives state a
case under the Illinois Consumer Fraud Act was established in
Sullivan's Wholesale Drug Co. v. Faryl's Pharmacy, Inc.,
214 Ill. App.3d 1073, 158 Ill.Dec. 185, 573 N.E.2d 1370 (1991).
Sullivan's found that a kickback scheme where a nursing home
pocketed 15% of the drug profits obtained from the sale of
drugs to its patients violated the Illinois Consumer Fraud Act.
Defendants argue that Sullivan's does not apply because the
$90 fee rebated to the Newman Clinic for hospital in-patient
treatment is not a kickback but is a reimbursement for
services. Newman's physicians actually perform much of the
medical treatment to the patients they refer to SMH. Therefore,
Defendants' claim that the $90 fee arrangement is not
misleading to the patients, but instead is a fee-for-service
compensation for services that Newman's doctors provide.
Although the Court acknowledges this distinction, it is not
supported by the holding in Sullivan's. Sullivan's overruled a
summary judgment decision in favor of the defendant nursing
home. The court held that the issue of whether the nursing
home's practice of keeping 15% of the profits was patently
deceptive was a question of fact to be resolved by the trier of
fact. The actual "deception" in Sullivan's had nothing to do
with whether the compensation was a fee-for-service
arrangement. Rather, the arrangement was deceptive because the
nursing home patients were not aware of the 15% kickback
arrangement. Id. at 1075-77, 158 Ill.Dec. at 188-90, 573 N.E.2d
at 1373-75. This "deception" existed even though a copy of the
agreement between the drug company and the nursing home was on
file in the nursing home office and was available for public
inspection. The court found that the nursing home was obliged
to "affirmatively disclose these charges [the 15% kickback
The same type of "deception" exists in the case before the
Court. Defendants SMH and Dr. Newman have provided no evidence
that SMH or Dr. Newman's clinic supplied information about the
$90.00 fee arrangement to the psychiatric patients who were
enrolled in the "programs". Therefore, the rule of
Sullivan's is dispositive in the instant case.
In addition, other forms of "deception" may exist if the
Court assumes the truth of allegations that the undisclosed
agreement between SMH and Dr. Newman's clinic increases health
care costs to consumers. This deception may be visualized as it
applies to insurance payments. If the parents of a troubled
teenager have insurance
limits that are exhausted through psychiatric in-patient
services in the hospital, and the parents are unaware of the
doctor's financial incentive to admit their child to the
hospital, they will be more prone to agree with his or her
recommendation and hospitalize the child.
Similarly, the type of contractual arrangement between SMH
and Dr. Newman's clinic increases the propensity for
affirmative misstatements ("deception") made by the doctor.
Medical studies confirmed the danger of this abuse:
Our results add to the existing literature
suggesting that physicians given appropriate
motivation (fee for service reimbursement) and
appropriate circumstances (less than full capacity
of patients) can manipulate demand for care and
consequently patient use of services. (footnotes
omitted). This study substantiates, with direct
evidence, the observation made by Wilenski and
Rossiter (footnote omitted) that physicians induce
or initiate demand for care.
Hickson, Altemeir and Perrin, Physician Reimbursement by Salary
or Fee for Service: Effect on Physician Practice Behavior in a
Randomized Prospective Study, 3 Pediatrics 349-50 (Sept. 1987).
Thus, given the wide range of deception that is alleged, the
Court allows Plaintiff Dr. Gadson the opportunity to prove his
Defendants SMH and Dr. Newman next argue Plaintiff Dr. Gadson
lacks standing to enforce violations of the Illinois Consumer
Fraud Act. They claim that Dr. Gadson is not a person or a
business who suffered "damage as a result of a violation of
this [the Illinois Consumer Fraud] Act." Ill.Rev.Stat. ch. 121
1/2, ¶ 270a(a) (1991). The Court does not agree.
The proper test for standing was enunciated in Downers Grove
Volkswagen v. Wigglesworth Imports, Inc., 190 Ill. App.3d 524,
137 Ill.Dec. 409, 546 N.E.2d 33, 41 (1989). Wigglesworth found
that where the dispute involves two businesses who are not
consumers, the test for standing is whether "the alleged
conduct involves trade practices addressed to the market
generally or otherwise implicates consumer protection
concerns." The court found that plaintiff, who was a business
competitor of the defendant, stated a case against defendant by
alleging that the defendant published false information about
its prices to consumers. Id. There was no requirement that
plaintiff plead any special damages other than damages to
"reputation", "business" or "prestige." Id. Wigglesworth also
noted that the requirements for standing under the act were to
be liberally construed. Id.
The Court finds that Plaintiff Dr. Gadson's pleadings meet
this test. In paragraph 25 of Count IV of his complaint, Dr.
Gadson alleges harm to the medical consumers in the Quincy area
because of SMH and Dr. Newman's fraudulent and deceptive
practices. Dr. Gadson also notes that his own business has been
damaged as a result of these actions. These pleadings satisfy
the "liberal construction" of the pleading requirements as
stated in Wigglesworth. Id.
(D) Declaratory Judgment and Injunction
Defendants SMH and Dr. Newman next argue that Count VII of
Plaintiff's complaint, seeking a declaratory judgment per
28 U.S.C. § 2201 (1988), should be dismissed or stricken because
there is no actual controversy. The Court agrees that the
pleading is ambiguous and also notes that Plaintiff has not
responded to Defendants' arguments.
Count VII is ambiguous for several reasons. First, Plaintiff
alleges in paragraph 24 of Count VII that the action for
declaratory judgment and injunction is brought pursuant to
federal statute 28 U.S.C. § 2201, 2202 (1988). However, on
page 14 of Plaintiff's "Brief Opposing Defendant's Motions to
Dismiss and/or to Strike," Plaintiff characterizes Count VII as
based on state law (the Illinois Consumer Fraud Act).
Second, and more importantly, Plaintiff Dr. Gadson is not a
signatory of the contract between SMH and Dr. Newman's clinic.
It is thus unclear how Dr. Gadson has standing to contest the
contract in question.
True, under the Illinois Consumer Fraud Act competing business
entities have standing in some circumstances, but this count is
apparently not based on state law.
Third, there has been no controversy alleged which can be
addressed by a declaratory judgment.
The Illinois Consumer Fraud Act was promulgated to prevent
consumer fraud at all levels. Since the adoption of the Act,
only two entities have been specifically exempted the Act:
agents of the media (Ill.Rev.Stat. ch. 121 1/2, ¶ 270b(3)
(1991)); and real estate agents and brokers (Id. ¶ 270b(4)). No
legislative provision was ever offered to immunize the medical
profession from inclusion in the Act.
Nor does this Court think the medical profession should be
given special treatment in the "business aspect" of the medical
profession. Physicians and hospitals sell medical services and
goods to a wide range of consumers. For the courts to create an
exception would, in the words of Senators Gorton and Heinz
"create a privileged class" and "unnecessarily increase the
costs of health and other professional services to all
Americans." 128 Cong.Rec. S31,388.
However, the Court notes that there are significant
differences between the medical profession and other service
industries. The medical profession, unlike other service
industries, is governed by a host of regulations and
professional training requirements which set professional
standards in every area from admission to the profession to
proper surgery techniques. For these "non-business" aspects,
the medical profession has expertise to set the proper
But the instant case falls outside the expertise of the
professional regulations of the medical community. It involves
a dispute in a contract entered into between a hospital and a
psychiatric clinic. This contract allegedly deceives an entire
community of medical consumers. We therefore will allow
Plaintiff the opportunity to prove his case under the Illinois
Consumer Fraud Act.
Ergo, Defendants' motion for a more definite statement is
ALLOWED as to Count VII of Plaintiff's complaint. Plaintiff has
ten days from the date of entry of this opinion to respond or
the Court will strike Count VII.
Defendants' motion to dismiss is DENIED as to Counts IV and
V of Plaintiff's complaint.