Recovering a Defendant’s Attorney Fees Under the Consumer Fraud Act: Plaintiffs Worry Not

Originally published in The Docket, April 2007
By Mark A. Van Donselaar

Despite the Illinois Supreme Court’s admonition that not every cause of action for breach of contract gives rise to a corresponding cause of action under the Consumer Fraud and Deceptive Business Practices Act (the Act)¹, there is no shortage of breach of contract cases including claims for relief based on the provisions of the Act. The motivation for the prevalence of attorneys bringing claims for consumer fraud is speculative at best. Perhaps the skillful attorneys bringing such claims are consistently able to find facts supporting a cause of action based on the Act. Maybe the relatively low pleading requirements for an action based on the Act² are appealing to attorneys who feel as though their client’s situation neatly fits within the statute’s framework. Or, quite possibly, the allure of an award of attorney’s fees as part of a judgment is simply too compelling to a plaintiff’s attorney with a complaint on the drafting table.

Until the Supreme Court’s decision in Krautsack v. Anderson, ³ the provisions of the Consumer Fraud Act regarding the availability of attorney fees to the prevailing party remained somewhat of a mystery. Section 10a(c) of the Act provides that a court may award “reasonable attorney’s fees and costs to the prevailing party.”⁴ The issue of when a prevailing consumer fraud plaintiff may be awarded attorney fees has been well-settled for some time.⁵ However, the same cannot be said about a prevailing consumer fraud defendant. To be sure, there have been appellate court rulings on the availability of attorney fees to prevailing consumer fraud defendants.⁶ However, the Illinois appellate circuits have been split as to what must be shown before such fees may be awarded.⁷ This article reviews a sampling of Illinois appellate court cases in which the award of attorney fees to a prevailing consumer fraud defendant was at issue, and examines the ruling in Krautsack v. Anderson.

Haskell v. Blumthal⁸ was the first reported case in which a defendant who prevailed in an action for consumer fraud sought to be reimbursed for its attorney’s fees.⁹ The court initially examined whether a defendant who defeated a claim brought for consumer fraud could be considered a “prevailing party.” Without case law to guide it, the court referred to an Illinois Bar Journal article that supported the theory that a defendant who successfully defeats a claim brought against him under the Act should be eligible to receive fees.¹⁰ The court also examined federal civil rights legislation, which allows reasonable attorney’s fees to the prevailing party, and found that a defendant who wins such a case is deemed a “prevailing party.”¹¹ Based on federal precedent and the “commonsense interpretation of the phrase ‘prevailing party,’” the court found that a defendant who defeats a charge brought against him for consumer fraud is a “prevailing party” for the purposes of determining eligibility for reimbursement of attorney fees.¹²

Having determined that the defendant was eligible for reimbursement of its attorney fees, the court noted that the amount, if any, is within the court’s discretion.¹³ Accordingly, the court then discussed the criteria for whether to award attorney fees to a prevailing consumer fraud defendant.¹⁴ Without case law directly on point, the court looked to the guidelines followed by courts when determining whether to award attorney fees to a party in an ERISA lawsuit, including: “‘(1) the degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees (3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances (4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties’ position.’”¹⁵

The court found that no one guideline was decisive and that a showing of bad faith was not required to justify an award of attorney fees.¹⁶ However, the court also stated that it had difficulty envisioning a situation where it would award attorney fees to a prevailing consumer fraud defendant in the absence of bad faith on the part of the plaintiff.¹⁷ It noted federal case law supporting the proposition that, while successful plaintiffs should usually be awarded their attorney fees, successful defendants should be awarded their attorney fees only when the suit brought against them is frivolous.¹⁸

The court found the use of different standards for plaintiffs and defendants to be logical.¹⁹ The court justified its support for using different standards for plaintiffs and defendants by contending that defrauded plaintiffs would be discouraged from bringing lawsuits to recover their damages if the majority of any damages would be used to pay their attorney’s fees.²⁰ Haskell spawned several other cases that purport to follow Haskell, but upon closer examination extended the ruling in that case. Two of these cases include Graunke v. Elmhurst Chrysler Plymouth Volv²¹ and Casey v. Jerry Yusim Nissan, Inc.²²

The dispute in Graunke arose from the plaintiff’s purchase of an automobile from the defendant. The plaintiff alleged that the defendant led him to believe that the automobile he was purchasing was a “brand new” 1987 Chrysler New Yorker. Later, the plaintiff discovered that the automobile was actually a used 1986 New Yorker. After weighing the evidence, including the plaintiff’s own testimony and a letter written by the plaintiff referring to his “1986” New Yorker, the trial court ruled in favor of the defendant. Subsequently, the defendant filed a petition for attorney’s fees. After a hearing, the trial court denied the request for attorney fees and awarded costs of $291.90. The defendant appealed the denial of attorney fees.

The appellate court examined the Act and remanded the case to the trial court,²³ holding that, in certain circumstances, a prevailing defendant is entitled to reasonable attorney fees.²⁴ The court noted that there was nothing in the language of the Consumer Fraud Act that would limit a defendant’s recovery of fees to those cases in which the plaintiff acted in bad faith.²⁵ The court referenced the Haskell court’s statement that it would have difficulty envisioning a circumstance in which “fees should be awarded [to] a defendant absent bad faith on part of the plaintiff.”²⁶ The court interpreted that statement to be a “general commentary on the policy underlying attorney fee awards, rather than a pronouncement limiting fee awards to cases in which there is bad faith on the part of the plaintiff.”²⁷

The court stated that, in its opinion, the policy considerations for awarding attorney fees to prevailing plaintiffs may not mirror those for awarding attorney fees to prevailing defendants.²⁸ The court instructed that the legislative purpose behind permitting attorney fees to prevailing parties under the Consumer Fraud Act should be considered by trial courts.²⁹ It found that by awarding attorney fees to prevailing parties under the Consumer Fraud Act, the court sought to further its goal of eradicating all forms of deceptive and unfair business practices.³⁰ The award of attorney fees was necessary to further this goal because, without the possibility of being awarded reimbursement of their attorney fees, plaintiffs may be reluctant to bring an action for fear that any recovery would be consumed by attorney fees.³¹

In conclusion, the court restated the factors presented in Haskell as pertinent for the consideration of whether to award attorney fees and wrote that “the existence of bad faith . . . is not the only consideration, but it is an important factor, in some cases the controlling one, which should be considered by a court deciding whether to award attorney fees.”³²

The importance of the bad faith factor was furthered by Casey v. Jerry Yusim Nissan, Inc.,³³ which also arose out of the sale of a used car. The defendants requested more than $41,000 in attorney fees but were awarded $30,000 in fees. They appealed from that ruling.

On appeal, the court emphasized the importance of a bad-faith finding and the significance of the policy interests discussed in Graunke and Haskell.³⁴ In fact, the court went so far as to say that “[i]n Haskell, the court found that an award of fees to a prevailing defendant depended on a finding of bad faith by the plaintiff.”³⁵ The court then reasoned that “[c]learly, bad faith is the pivotal factor in awarding attorney fees to prevailing defendants under the Act.”³⁶ It concluded: “Thus, trial court must first determine whether the plaintiff acted in bad faith.”³⁷

Tracking the evolution of the bad faith factor from Haskell to Casey is quite startling. In Haskell, the court merely indicated that it had a hard time envisioning a situation where a defendant would be awarded attorney fees in the absence of a bad-faith finding on the part of the plaintiff.³⁸ Though Haskell supported different standards for determining whether to award fees to defendants and plaintiffs,³⁹ the court never stated that a defendant may only be awarded fees if the plaintiff acted in bad faith. Moreover, the fact that the Haskell court was unable to envision a situation where fees may be awarded to a defendant absent bad faith cannot be reasonable interpreted as an absolute bar to such an award.

In Graunke, the appellate court remanded the case because it felt that the court might have inappropriately based its ruling exclusively on whether the defendant had shown bad faith by the plaintiff.⁴⁰ However, Casey incorrectly referenced Haskell and Graunke for the proposition that the award of fees to a defendant depended on a finding of bad faith by the plaintiff.⁴¹ Furthermore, Casey states that “a trial court must first determine whether the plaintiff acted in bad faith.”⁴² Thus, Casey at least implies that a court must find bad faith by the plaintiff before it may even examine the other factors used to determine whether to award attorney fees to a prevailing defendant.

An appellate court case that did not follow the developing trend of requiring a showing of bad faith before awarding fees to the defendant is Boeckenhauer.⁴³ Boeckenhauer also arose from the sale of a used car. One of the defendants, the Ford Motor Co., successfully defeated the consumer fraud claim and filed a petition for attorney fees. The court denied Ford’s request for fees, relying on the Casey decision for the appropriate test for whether to award fees. On appeal, Ford argued that bad faith is not a prerequisite to an award of attorney fees to a prevailing defendant, and that different standards do not apply for prevailing plaintiffs and defendants.

The court began with an examination of the precedent established by Graunke and Casey. The court found nothing in Graunke that supported the proposition that bad faith by the plaintiff must be shown to award fees to a prevailing defendant, and it declared Casey’s reliance on Graunke for that proposition to be erroneous.⁴⁴ The court also found that, in Graunke, it had rejected the notion that Haskell placed a bar on awarding attorney fees to prevailing defendants absent bad faith by the plaintiff.⁴⁵ As it did in Graunke, the appellate court remanded the case to the court because it was unclear whether the court was acting under the belief that it was required to find bad faith by the plaintiff before awarding fees to the defendant.⁴⁶

During the pendency of Ford’s second appeal in Boeckenhauer,⁴⁷ the Illinois Supreme Court decided Krautsack,⁴⁸ which established a new precedent for awarding attorney fees to prevailing consumer fraud defendants. The allegations in Krautsack arose out of a contract for a two-week safari to East Africa. In support of his claim for consumer fraud, the plaintiff alleged that the defendant knowingly misrepresented to him that existing weather conditions in Africa would not interfere with the planned safari.

The court granted the defendants’ motion for summary judgment on the consumer fraud count. Defendants then filed a petition for attorney fees under section 10a(c) of the Consumer Fraud Act. The plaintiff appealed the grant of summary judgment on the consumer fraud count, and the appellate court reversed. Because the summary judgment entered for defendants was overturned, they were no longer a prevailing party, so they could no longer maintain a petition for their fees. On remand, the case went to a bench trial, and judgment was entered for the defendants on all counts, including the count for consumer fraud. Defendants, again, sought reimbursement for their fees. The court entered an order striking the defendants’ petition for fees, and the defendant subsequently appealed that order. The appellate court upheld the trial court’s decision, and the Illinois Supreme Court granted the defendants’ appeal.

The defendants’ contention on appeal was that “an award of attorney’s fees to a prevailing defendant under section 10a(c) of the [Consumer Fraud] Act should not be conditioned upon a finding that the plaintiff acted in bad faith.”⁴⁹ The court began by reviewing the well-known principles that guide the interpretation of any statute.⁵⁰ The court then quoted the language of the Consumer Fraud Act allowing for attorney fees to the prevailing party and found that a prevailing defendant is a prevailing party for purposes of the Consumer Fraud Act.⁵¹

The court explained that it agreed with the defendants’ argument that nothing in section 10a(c) conditioned awarding fees to a prevailing defendant on the existence of bad faith by the plaintiff, and that it also agreed with the plaintiff’s argument that section 10a(c) does not expressly restrict or limit the court’s discretion on whether to award fees.⁵² Therefore, the court found that it must look beyond the language of the statute and examine its provisions in light of the entire statute, while keeping in mind the legislature’s intent and the evils it sought to remedy.⁵³

The court reiterated its own findings from Cruz v. Northwestern Chrysler Plymouth Sales, Inc.⁵⁴ that in consumer fraud cases the amount incurred by plaintiffs for attorney fees can easily out weight the amount recovered for actual damages.⁵⁵ The court reasoned that plaintiffs would be reluctant to bring claims for consumer fraud violations because any potential recovery for damages could easily be consumed by attorney fees.⁵⁶ Thus, the court noted that the allowance of attorney fees to prevailing plaintiffs is necessary to encourage plaintiffs who have causes of action to sue and thereby discourage unfair or fraudulent methods of business.⁵⁷

The court explained that the reasons for allowing attorney fees to a prevailing defendant are different than the reasons for allowing attorney fees to a prevailing plaintiff.⁵⁸ The court referenced Haskell for the proposition that the award of attorney fees to prevailing defendants was meant to deter bad-faith conduct by plaintiffs and to reimburse defendants when such bad-faith conduct did occur.⁵⁹ Therefore, the court found that allowing fees to defendants only in situations where bad faith by the plaintiff is shown is consistent with the purposes of the Consumer Fraud Act.⁶⁰ The court opined that without this stricter standard for the award of defendant’s attorney fees, a plaintiff with a legitimate claim could be forced to pay a defendant’s attorney fees simply because the plaintiff “lost at trial on the proofs.”⁶¹ The court stated that such a potential penalty would be deterrent to filing a consumer fraud action and would defeat the purpose of the Act.⁶²

The court also took time to respond to an argument presented by the defendant that to only allow fees to a defendant when bad faith by the plaintiff is shown unfairly shifts the balance of fairness in consumer fraud cases to favor the plaintiff.⁶³ The court countered that although the award of fees to plaintiffs is discretionary, not mandatory, the award of fees to a prevailing plaintiff is more likely than to a prevailing defendant.⁶⁴ However, the court explained that such was the result of the remedial function of the Consumer Fraud Act, not a distortion of the statute.⁶⁵ The court also noted that a prevailing plaintiff is a more worthy candidate to receive reimbursement for fees because he or she has proven the defendant’s guilt, while a successful defendant may have not proven anything more than that the plaintiff’s efforts were unsuccessful.⁶⁶

Having determined that fees should be awarded to the defendants only when bad faith by the plaintiff is shown, the court went on to examine the standard that governs a bad-faith finding.⁶⁷ Previous appellate court cases had ruled that Supreme Court Rule 137 provided theappropriate standard upon which to judge bad faith.⁶⁸ On this issue, however, the court agreed with the defendant and held that a defendant should not be limited by Rule 137 in proving a plaintiff’s bad faith.⁶⁹ Though the court found Rule 137 and its case law to be instructive, it ruled that the failure to prove bad faith under Rule 137 is not fatal to a defendant’s claim for attorney fees.

The conclusion stemming from these cases is that a plaintiff’s counsel need not worry too much about the scenario in which his or her client may be held liable for the defendant’s attorney’s fees. While the award of attorney fees to defendants is still discretionary, it seems unlikely that circuit courts will be willing to assess fees against a plaintiff who has survived the initial round of dispositive motions.