McMorrow takes dim view of appellate court in Avery

Steve Korris Sep. 8, 2005, 4:12am

Illinois Supreme Court Chief Justice Mary Ann McMorrow

Illinois Supreme Court Justice Charles Freeman

Fifth chastised for solving 'temporal' problems

When the Illinois Supreme Court overturned Avery v. State Farm on Aug. 18, it was an obvious embarrassment of the Fifth District Appellate Court.

But, less obviously, the Supreme Court accused the Fifth District judges of cheating.

Chief Justice Mary Ann McMorrow’s opinion held that the appellate court adopted a theory of damages that plaintiffs did not advance and the circuit court did not adopt.

In this way, McMorrow wrote, the appellate court solved “temporal problems.”

She chose such tame words that anyone might have missed the point, if Justice Charles Freeman had not reacted so strongly by disavowing her statements.

Plaintiffs in the class action case argued that State Farm damaged them by specifying repair parts that were not made by the original equipment manufacturer, or OEM.

Under this theory, McMorrow wrote, the damage to plaintiff Sam DeFrank occurred at the moment State Farm specified non-OEM parts in its estimate.

DeFrank, however, also alleged that State Farm defrauded him by misrepresentations and failure to disclose the inferiority of non-OEM parts. McMorrow wrote that these occurred after specification, when he was handed his estimate and a brochure.

“Actual damage cannot be the result of omissions and misrepresentations which are made after the damage has already occurred,” McMorrow wrote.

“Perhaps aware of the temporal problems that arise when actual damage is defined as the mere specification of non-OEM parts, the appellate court offered an additional explanation of damage which, at least implicitly, resolves this problem.”

McMorrow quoted the appellate court: “There is evidence that State Farm’s material misrepresentations led numerous class members to blindly accept the non-OEM parts…”

She wrote, “Notice what the appellate court has done here. With this sentence, it is no longer the case that damage occurred when non-OEM parts were specified. Instead, the damage occurred when non-OEM parts were accepted. This is not the theory of damages which was adopted by the circuit court, nor is it the theory advanced by plaintiffs.”

Dissenters disavow

This upset Freeman. He wrote in a partial dissent that, “…the majority suggests that the appellate court intentionally rephrased or recharacterized DeFrank’s actual damages to avoid certain ‘temporal problems.’”

“Assigning such motives to the appellate court constitutes unfair innuendo. These statements impugn the integrity of the bench and bar. I expressly disavow them,” Freeman wrote.

Justice Thomas Kilbride joined in Freeman’s partial dissent.

How did Illinois reach a point where plaintiffs could win a billion dollars in damages without proving a penny in damages?

Answers leap from the pages of the Illinois Supreme Court’s decision reversing the Fifth District Appellate Court, which had affirmed a pair of Williamson County verdicts against State Farm.

Avery and four other plaintiffs claimed that State Farm specified inferior parts when repairing vehicles. The plaintiffs alleged breach of contract and consumer fraud.

A jury returned a $456,180,000 verdict on the contract claim. Circuit Judge John Speroni entered a $730,000,000 verdict on the fraud claim. The appellate court affirmed, though it trimmed $130,000,000 from Speroni’s verdict.

The Supreme Court opinion, by Chief Justice Mary Ann McMorrow, held that Speroni erred in allowing the contract and fraud claims, in certifying the case as a 48-state class action, and in awarding damages.


Two weeks ago The Record printed excerpts of the opinion about the contract claim. Last week, excerpts about the fraud claim were printed, and now this week’s excerpts deal with class certification. Next week, damages.

Certifying Avery

On breach of contract, Speroni certified a class by ruling that all State Farm policies constituted a single contract, regardless of differences in policy language or state laws. McMorrow rejected that. “There was no contract,” she wrote.

On consumer fraud, McMorrow wrote:

“During the hearing on State Farm’s motion to decertify the class…plaintiffs clarified to the circuit court that…the consumer fraud count was based on actions, representations and omissions which occurred during the claims process

“Because the consumer fraud claim was based on the uniform representations contained in State Farm’s written claims of documents and not, for example, on the myriad different oral representations that occurred during the sales of the class members’ policies, plaintiffs were able to convince the circuit court that there was a common question of fact which predominated over the class…

“In its certification order, the circuit court also determined that the Consumer Fraud Act could, as a matter of statutory interpretation, be applied to members of the plaintiff class who did not reside in Illinois…

“In its subsequent Order Regarding Law to be Applied to Class Members’ Claims, the circuit court explained its reasoning: ‘…State Farm was chartered and is headquartered in Illinois. State Farm affirmatively uses and consents to the jurisdiction of Illinois courts. It is alleged that the conduct at issue emanated from activities in Illinois’…

“At the conclusion of trial, the circuit court found that State Farm had violated the Consumer Fraud Act with respect to the five named plaintiffs and the class as a whole…

“The appellate court affirmed the circuit court’s certification of a nationwide class for consumer fraud…The appellate court also held that the Consumer Fraud Act could be applied to consumers residing out of state…

“The appellate court then concluded: ‘The evidence demonstrates that the deceptive claims practices occurred in Illinois. It was in Illinois that the claims practices were devised and procedures for implementation were prepared for dissemination in other states…

“According to State Farm, the circuit court’s application of the Consumer Fraud Act to policyholders across the country was impermissible because the Act, by its own terms, does not apply to consumer transactions involving nonresidents that occur outside Illinois…

“Both plaintiffs and State Farm note that a plaintiff cannot recover under the Act unless the defendant’s disputed conflict involves ‘trade or commerce’…Both parties then point to section 1(f) of the Act:

‘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…’

“State Farm contends that the Act is limited to transactions which take place in Illinois. Further, according to State Farm, the Consumer Fraud Act does not provide a cause of action to nonresidents whose claim processes took place outside Illinois because those transactions had no effect on the people of Illinois…

“Plaintiffs, in reply, argue that…the trade or commerce need only ‘indirectly affect’ the people of Illinois. From this, plaintiffs maintain that there is no geographic limit to the ‘trade or commerce’ covered by the Act…

“The language of section 1(f) has been interpreted by courts in a variety of ways. This divergence of interpretation is most notable in the federal district courts…Our appellate court has also divided over the question of how best to interpret section 1(f)…


“In the case at bar, the Fifth District concluded, without discussing the statutory language of section 1(f) or any of the federal district court decisions discussing this issue, that non-Illinois consumers are ‘permitted to pursue an action under the Act against a resident defendant where the deceptive acts and practices are perpetrated in Illinois’…

“Although there is not a great deal of legislative history with respect to section 1(f), we do find relevant a statement from Senator Sours, the Senate sponsor of the bill which created a private cause of action under the Act and which added section 1(f): ‘…We are talking about trade and commerce that is not included within the interstate concept.’

“In addition to Senator Sours’ statement, we note the long standing rule of construction in Illinois which holds that ‘a statute is without extraterritorial effect unless a clear intent in this respect appears from the express provision of the statute’…

“Given the statement of Senator Sours and the rule against giving statutes extraterritorial effect unless an intent to do so is clearly expressed, we conclude that the General Assembly did not intend the Consumer Fraud Act to apply to fraudulent transactions which take place outside Illinois…

“The overwhelming majority of circumstances relating to the disputed transactions in this case - State Farm’s claims practices - occurred outside of Illinois for the out-of-state plaintiffs…Avery resides in Louisiana, not Illinois. His car was garaged in Louisiana and his accident occurred there as well. Avery’s estimate was written in Louisiana…

“Avery’s contact with State Farm was through a Louisiana agent, a Louisiana claims representative and a Louisiana adjustor. In sum, the overwhelming majority of the circumstances which relate to Avery’s and the other out-of-state plaintiffs’ claims proceedings - the disputed transactions in this case - occurred outside Illinois.

“We conclude, therefore, that the out-of-state plaintiffs in this case have no cognizable cause of action under the Consumer Fraud Act…The circuit court erred in certifying a nationwide class that included class members whose claim proceedings took place outside Illinois…

“The only named plaintiff in this case whose vehicle was assessed and repaired in Illinois…is Sam DeFrank. Because a failure of DeFrank’s claim would render discussion of class certification issues moot, we now turn to the propriety of the judgment in favor of DeFrank…

“The most striking deficiency in DeFrank’s claim that State Farm violated the Consumer Fraud Act is his lack of actual damage…DeFrank’s testimony makes it abundantly clear that he was not deceived by anything State Farm said, or did not say…

“Because DeFrank, as the representative plaintiff, has not proven his claim for consumer fraud, there can be no Illinois class for plaintiffs’ consumer fraud count.”

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