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In recent years, Illinois has earned (rightfully or not) a reputation as a favorable forum for the plaintiffs’ class action bar. President Bush himself expressed this when he highlighted the exponential increase in class actions filed in one Illinois county in February, as he signed into law the Class Action Fairness Act of 2005 (CAFA), Pub. L. No. 109-2, 119 Stat. 14. “A few weeks ago, I visited Madison County, Illinois, where juries have earned a reputation for awarding large verdicts,” Bush said at the time. “The number of class actions filed in Madison County has gone from two in 1998 to 82 in 2004-even though the vast majority of the defendants named in those suits are not from Madison County.” Coincidentally (or not), approximately six months later, the Illinois Supreme Court issued its long anticipated decision in Avery v. State Farm Mutual Automobile Insurance Co., No. 91494, 2005 WL 1981444 (Ill. Aug. 18, 2005), which reversed not only the lower court’s certification of a nationwide class, but also the entry of a more than $1 billion judgment in favor of that class. Whether CAFA’s enactment and the growing chorus of complaints influence the timing and outcome of the Avery decision is hard to say. What is not hard to say is that the Avery opinion will change class action practice both within Illinois and under Illinois’ consumer protection statute. The claims at issue The Avery case arose from allegations that State Farm Mutual Automobile Insurance Co. breached its contract with a nationwide class of its policyholders and violated Illinois’ Consumer Fraud and Deceptive Business Practices Act by specifying the use of so-called nonoriginal equipment manufacturer (non-OEM) parts for repairs to its policyholders’ damaged automobiles and deceiving its policyholders regarding the relative quality of those parts. In certifying that nationwide class of policyholders, the circuit (i.e., trial) court determined that common issues of law and fact predominated. Specifically, the circuit court ruled that it could uniformly interpret the various contract forms State Farm had with its policyholders and that Illinois’ Consumer Fraud Act applied to transactions that occurred outside of Illinois because State Farm set its policy regarding the use of non-OEM parts at its corporate headquarters in Illinois. At the end of the subsequent two-month jury trial, the court entered judgment against State Farm on both counts and imposed damages of nearly $1.2 billion in favor of the nationwide class. When the Illinois Supreme Court granted State Farm’s petition for leave to appeal on Oct. 2, 2002-see Avery v. State Farm Mut. Auto. Ins. Co., 786 N.E.2d 180 (Ill. 2002)-many hoped that the Supreme Court would address two issues relevant to the lower court’s decisions: the perceived relaxed standards Illinois courts had for granting class certification and the extraterritorial application of the state’s Consumer Fraud Act. The latter was a major issue, particularly for Illinois-based companies, which often found themselves facing classes of non-Illinois consumers suing under the Illinois law. The ‘Avery’ decision Finally, on Aug. 18, nearly three years after granting leave to appeal, the Illinois Supreme Court issued its decision. In a nearly 85-page opinion, the court reversed both the certification of the nationwide class as well as the billion-dollar judgment. Moreover, the court addressed the two hot-button issues many were hoping the court would address. Although the Avery opinion did not substantively change Illinois class action requirements, the Illinois Supreme Court sent a strong signal that lower state courts asked to certify a class must take a hard look at the merits of the plaintiffs’ claims, particularly as to how those claims could (or could not) be tried on a classwide basis. Notably, the court did this not by simply reversing the circuit court’s certification decision. Rather, the high court first took the lower court to task for not deciding whether certain issues were uniform at the certification stage, saying that “the circuit court was incorrect for concluding, in the first instance, that the question of uniform contractual interpretation should be decided at trial rather than at the class certification stage.” 2005 WL 1981444, at 11. The court then applied that more stringent analysis to the classes in Avery itself. It conducted a detailed analysis of the claims at issue and found that the class should not have been certified. The court first looked at the various contract forms State Farm used and concluded that they were not subject to a uniform interpretation, thereby precluding class certification. 2005 WL 1981444, at 11. In addition, the Illinois Supreme Court held that the circuit court should not have certified the class because the issue of whether an insured had suffered any damages was not capable of being determined on a classwide basis. The existence of damages (as opposed to the amount of damages suffered) required looking at each individual insured’s automobile and the repairs done to it. 2005 WL 1981444, at 21. This was another individualized issue overwhelming any common issues and precluding class certification. Detailed or stringent analysis of the merits of the plaintiffs’ claims signals a new, or at least renewed, emphasis on the depth of analysis that Illinois’ circuit courts must perform at the class-certification stage. In some sense, this was the Illinois Supreme Court adopting the “rigorous analysis” standard that applies to federal courts’ class-certification decisions. See General Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). The impact of this on class action practice in Illinois state courts is significant. The focus at the certification stage has shifted to include the requirement that the court answer the question: How can this case be tried? Consequently, Illinois circuit courts can no longer punt on whether plaintiffs can prove their claims on a classwide basis or whether individual proof will be necessary. In turn, this means that plaintiffs, who have the burden of proof for class certification, will need to demonstrate, at the class-certification stage, that they can prove their claims at trial in a uniform, classwide manner. Besides the required depth of class-certification analysis, the Avery decision also addressed the application of Illinois’ Consumer Fraud Act to consumer transactions that occur outside of the state. While acknowledging that the statute was not clear on its face about its territorial application, the court held that the act did not apply to transactions that occurred totally outside of Illinois, because the Illinois Legislature did not intend the statute to have extraterritorial effect. 2005 WL 1981444, at 42. Yet for transactions occurring at least partially outside of Illinois, the court eschewed any bright-line test. Instead, the court held that the Consumer Fraud Act applied “if the circumstances relating to the transaction occur primarily and substantially within” Illinois. 2005 WL 1981444, at 44. Moreover, the court gave little other guidance on this standard except to say that “each case must be decided on its own facts.” One can glean some guidance from the court’s analysis of the facts in Avery itself. On those facts, the Illinois Supreme Court held that although State Farm set its policy regarding OEM and non-OEM parts in Illinois, Illinois’ Consumer Fraud Act did not apply if the plaintiffs did not reside in Illinois and the circumstances of the transactions at issue (car damage, dealings with State Farm and car repair) all occurred outside of Illinois. 2005 WL 1981444, at 44-46. Additionally, the court ruled that while the establishment of a nationwide policy or the creation of a form document in Illinois may be a factor in determining whether the Illinois Consumer Fraud Act applies, those facts in themselves did not establish a sufficient nexus with Illinois for the statute to apply. Questions left unanswered While the Illinois Supreme Court signaled a disfavor of non-Illinois consumers suing Illinois companies under the state Consumer Fraud Act, it left a murky and heavily fact-specific standard for lower courts to apply. Future cases involving transactions occurring partly outside of Illinois in which plaintiffs seek relief under the Illinois Consumer Fraud Act will involve battles over where the transactions at issue “primarily and substantially” occurred. There is thus some leeway for courts to certify nationwide classes under the Illinois law. Consequently, Avery very likely will not be the last word on this issue. Another matter the Illinois Supreme Court left for another day was whether any class could continue to be certified under the Illinois Consumer Fraud Act. Plaintiffs have opted to bring class actions under the law because that statutory claim, unlike common law fraud or negligent misrepresentation claims, does not require the showing of reliance. Reliance issues often preclude certification because they can be established only on an individualized basis, thus overwhelming any common issues that a plaintiff may claim predominate for class-certification purposes. A statutory fraud claim under the Illinois Consumer Fraud Act does, however, require a showing of “proximate causation” (i.e., that the plaintiff was deceived). And in Avery, the court reversed directly on that point: The named plaintiff did not have a statutory fraud claim because he did not show that he was, in fact, “deceived.” 2005 WL 1981444, at 53. This follows other recent Illinois Supreme Court decisions rejecting “fraud on the market” theories for showing proximate causation and instead requiring a plaintiff to show that he or she actually received the deceptive statement at issue and suffered damages as a result. See Avery, 2005 WL 198144, at 51-52; Oliveira v. Amoco Oil Co., 776 N.E.2d 151 (Ill. 2002); and Zekman v. Direct Am. Marketers Inc., 695 N.E.2d 853 (Ill. 1998). In those cases as well as in Avery, the Illinois Supreme Court has addressed only the claims of the named plaintiffs. As a result, the court has not addressed whether proximate causation could be shown on a classwide basis. If proximate causation cannot be shown on a class-wide basis (i.e., individualized proof is necessary), no classes could be certified under Illinois’ Consumer Fraud Act. Until the Illinois Supreme Court does address this issue, it will certainly percolate in the lower courts now applying Avery‘s more stringent class-certification analysis. Ruling’s reach Nonetheless, the Avery decision will affect consumer class actions brought under Illinois’ Consumer Fraud Act. Courts now will be taking a much closer look at where the consumer transactions occurred. When the facts are similar to those in Avery (non-Illinois-resident plaintiffs with all transactions-including those with the defendant-occurring outside of Illinois), courts will not certify nationwide or multistate classes. Moreover, plaintiffs’ attorneys may no longer even file complaints seeking to certify such classes to begin with, but instead must file these as Illinois-only classes. However, it is too soon to tell what the results will be in cases with more of an Illinois connection. It also is too soon to tell whether Avery will result in fewer classes actually being certified by Illinois state courts. This outcome, in turn, would affect the number of actions defendants remove from Illinois state courts under CAFA. This all depends upon what the lower Illinois courts do in applying Avery‘s more stringent analysis of class-certification issues. If, in applying that analysis, the lower courts continue to certify class actions at the same rate as before, Avery will have had no impact, as defendants will continue to exercise their removal rights under CAFA. If, however, Illinois courts in the wake of Avery start denying more motions for class certification, removals under CAFA may lessen. In any event, it is indisputable that the Avery decision will significantly affect consumer class actions brought in Illinois state courts or brought under Illinois’ Consumer Fraud Act. David Z. Smith is a member of the class action defense group of Chicago-based Sachnoff & Weaver. He has represented defendants in class actions in Illinois and various other jurisdictions. He can be reached at [email protected].

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