Recently, the Second District of the Illinois Appellate Court affirmed the trial court’s dismissal of a claimed violation of the Illinois Consumer Fraud Act (the “CFA”) because the alleged violation did not primarily take place in Illinois. Although the ultimate result is not a novel proposition of law, in reaching this conclusion, the Second District found that a contractual choice of law provision could not avoid the territorial boundaries of the CFA. This may limit consumers residing in other states from attempting to recover under the CFA based on a choice of law provision that selects Illinois law.
The case, International Profit Associates, Inc., et al. v. Linus Alarm Corporation, arose out of plaintiffs’ breach of contract and fraud actions alleging that the defendant had not paid them all monies owed under the contract. In response to the plaintiffs’ complaint, the defendant filed counterclaims alleging breach of contract; fraudulent inducement; and two claims under the Consumer Fraud Act. The plaintiffs successfully moved in the trial court, pursuant to section 2-619(a)(9) of the Illinois Code of Civil Procedure, to dismiss the defendant’s CFA counts. The plaintiffs argued that the CFA did not apply because the CFA does not apply to a non-Illinois resident who engaged in acts outside of Illinois, and where the contracts at issue were entered into and performed in Florida. The defendant appealed the dismissal.
On appeal, the Illinois Appellate Court considered whether the choice-of-law and forum-selection clauses in the plaintiffs’ consulting contracts mandated application of Illinois law irrespective of the CFA’s territorial limitations. As the court put it, “[t]he broader question the instant case raises is whether parties’ contractual choice-of-law provisions trump statutory territorial limitations.” Ultimately, the court found that they do not. Apparently an issue of first impression in the Illinois Appellate Courts, the Second District looked to federal appellate court decisions examining the issue with respect to other types of statutes. In conducting this analysis, the court found that in different situations, the Seventh, Ninth, Sixth, and Fourth circuits had each held that choice-of-law provisions failed to avoid the territorial limitations of consumer protection statutes. Although unwilling to adopt a categorical rule that statutory territorial limitations trump choice-of-law provisions, the court found the federal appellate decisions persuasive and therefore affirmed the trial court’s dismissal of the defendant’s counterclaims where the circumstances relating to the alleged fraud occurred primarily in Florida rather than Illinois.
As made clear by International Profit Associates, Inc. v. Linus Alarm Corporation, a corporation does not necessarily expose itself to liability under Illinois’ CFA for conduct outside of Illinois simply by utilizing an Illinois choice-of-law provision. This is significant because the Illinois CFA provides that a party that prevails on an action under the CFA is entitled to reasonable attorney’s fees. Additionally, liability under the CFA, in some instances provides for treble damages. Therefore, pursuant to International Profit Associates, companies do not need to be concerned that by incorporating an Illinois choice-of-law provision, they are automatically exposing themselves to liability under the CFA.