dissenting:
This is a consumer fraud class action brought under the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1998)) and the Uniform Deceptive Trade Practices Act (Deceptive Practices Act) (815 ILCS 510/1 et seq. (West 1998)). The circuit court found Philip Morris USA (PMUSA) hable for consumer fraud for using the materially false and deceptive terms “lights” and “lower tar and nicotine” in marketing its Marlboro Lights and Cambridge Lights cigarettes. This court reverses the judgment on the basis that the action is barred by section 10b(l) of the Consumer Fraud Act, which exempts conduct “specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States.” The court holds that the Federal Trade Commission (FTC), through the use of two “consent orders,” specifically authorized all American tobacco companies to use descriptive terms such as “lights,” or “lowered tar and nicotine” in marketing and promoting cigarettes. 219 Ill. 2d at 265-66. Therefore, PMUSA was exempt from civil liability for the use of those terms under section 10b (1) of the Consumer Fraud Act and section 4 of the Deceptive Practices Act. 219 Ill. 2d at 273.
The court’s action today is predicated upon an erroneous and irresponsible interpretation of our Consumer Fraud Act, an act which I note is to be interpreted so as to give full protection to the citizens of this state against the fraudulent conduct of others. The protection of consumers from unfair practices is, of course, a traditional state police power function. The court’s construction of section 10b(l) serves not only to dilute needlessly the force of our state consumer protection legislation, but to limit unnecessarily our state’s citizens’ consumer protection in this area to a federal agency. For these reasons and because I do not agree that PMUSA was exempt from liability under section 10b(l), I cannot join in the court’s opinion. Rather, I would hold that the FTC did not specifically authorize PMUSA, within the meaning of section 10b(l) of the Consumer Fraud Act, to use the disputed descriptors. I therefore respectfully dissent.
I. Background
Plaintiffs filed their initial complaint on February 10, 2000. In it, they alleged violations of the Consumer Fraud Act and claims of unjust enrichment against PMUSA on behalf of a purported class of Illinois residents who had purchased “Light” cigarettes in Illinois since the introduction of Marlboro Lights in 1971. Plaintiffs claimed that the word “lights” and the phrase “lowered tar and nicotine” were deceptive in that those words led each consumer to believe that he or she would receive lower tar and nicotine from these cigarettes, and that, as a result, smoking them would be less hazardous than smoking regular, full-flavored cigarettes. Plaintiffs alleged that all class members purchased Lights because of a belief that they were less hazardous, and provided health benefits not associated with regular, full-flavored cigarettes, and that no one would have purchased Lights “but for” PMUSA’s “unfair and/or deceptive acts and/or practices.” Plaintiffs sought damages solely for economic loss. Plaintiffs moved for class certification on September 8, 2000. PMUSA opposed the motion, arguing that the plaintiffs failed to satisfy the requirements of the Illinois class action statute, because, inter alia, individual questions of fact predominated over any common issues shared by the purported class members. The circuit court certified the class on February 8, 2001.
Following class certification, PMUSA moved for summary judgment. PMUSA argued that Congress, in enacting the Federal Cigarette Labeling and Advertising Act (Labeling Act) (15 U.S.C. § 1331 et seq. (2000)), had specified the warnings that cigarette manufacturers must give to consumers and had expressly prohibited states from requiring additional disclosures. PMUSA also argued that the FTC had adopted the FTC test method to measure tar and nicotine yields and had allowed and encouraged manufacturers to use descriptive terms such as “lowered tar and nicotine” and “lights” so long as those terms were consistent with the FTC method. Any inconsistent state-law duty, PMUSA contended, would conflict with the FTC’s policies regarding tar and nicotine disclosures. For this reason, PMUSA asserted that its conduct as alleged by the plaintiffs was exempt from the Consumer Fraud Act by virtue of section 10(b). Both parties thereafter submitted affidavits of experts on this issue. Plaintiffs’ expert averred that the FTC did not have an official policy which permitted cigarette companies to use these terms. Plaintiffs further maintained that the FTC had not had occasion to ever consider the terms at issue, “lowered tar and nicotine” and “lights” as those descriptors were used by PMUSA in this case. Finding that there were “significant disputes about several material facts which can only be decided at trial,” the circuit court “reserved judgment” on the matter until trial.
At trial, as it was during the pretrial proceedings, it was PMUSA’s position, established through testimony and exhibits, that its use of the terms “lights” and “lowered tar and nicotine” were in compliance with FTC policies. Dr. John Peterman testified as an expert on behalf of PMUSA with respect to the FTC’s relationship to cigarette advertising. The FTC in 1955 established “Cigarette Advertising Guidelines,” which set forth the FTC’s policies on the disclosure of tar and nicotine yields in cigarettes. The Guidelines permitted a manufacturer to make claims regarding tar and nicotine yields only if the manufacturer could substantiate the claims “by competent and scientific proof.” In the late 1950s, scientists began to discern a relationship between exposure to cigarette tar and tumors in laboratory animals. Cigarette manufacturers responded by testing the amount of tar produced by their cigarettes and advertising the results. Each manufacturer used different machines to measure the tar, and confusion ensued. According to Dr. Peterman, in response to the multiple testing systems being used, the FTC developed a uniform testing system for use throughout the country. Tar and nicotine measures could be advertised provided that they were measured according to the FTC’s testing method. Under this testing methodology, a low-tar cigarette is a cigarette which had a tar level of 15 milligrams or less. However, the FTC did not enact or adopt any trade regulation rule with respect to cigarette advertising. Indeed, the parties do not dispute the fact that there is not any industrywide formal rulemaking authorizing the use of the disputed descriptors at issue in this case, “lights” and “lowered in tar and nicotine.” Nor do they dispute the fact that the FTC does not have any industrywide formal rule which authorizes or requires cigarette manufacturers to use the terms “light” or “low tar” or any variation thereof. Moreover, it is undisputed that the FTC views what it considers to be a “regulatory” scheme in this area as a “voluntary approach.” See 219 Ill. 2d at 192.
Defendant’s expert, Dr. Peterman, testified that the primary mission of the FTC is to enforce a variety of federal antitrust and consumer protection laws. The FTC is primarily a law enforcement agency, conferred with both investigative and enforcement powers. However, to the best of Dr. Peterman’s knowledge, there was no bureau, section, or other subset of the FTC dedicated to, or even associated with, tobacco regulation. The two primary tools the FTC employs to enforce consumer protection laws are trade regulation rules and enforcement procedures. Trade regulation rules are promulgated through formal notice and comment rulemaking. FTC policy is adopted or approved by the FTC commissioners acting collectively as the commission. Dr. Peterman admitted that an individual FTC commissioner giving a speech discussing FTC policy is not, per se, FTC policy. An FTC staff member cannot create FTC policy.
Dr. Peterman, defendant’s expert, testified that there has never been an FTC trade regulation rule governing cigarette advertising that has been put into effect. In 1964, the FTC formally promulgated a trade regulation rule declaring it an unfair and deceptive practice within the meaning of the FTC Act to fail to prominently disclose, in all cigarette advertising and packaging, that cigarette smoking is dangerous and may cause death from cancer or other diseases. Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8325 (1964). However, in 1965, Congress enacted the federal Labeling Act. This Act, inter alia, vacated the newly promulgated FTC cigarette health warning trade regulation rule. No FTC regulation, document, or official statement has ever regulated “low tar” and “lights” descriptors. Further, the FTC has disavowed any “official” definition of these terms as well as the term involved in this case, “lowered tar and nicotine.” Rather, a cigarette company’s decision to use descriptors such as “light,” or “low tar,” is voluntary; there is no FTC rule requiring or governing their use. A cigarette company could stop using those descriptors, and there is no FTC policy that would prohibit it.
Dr. Peterman did not offer an expert opinion that the FTC has a policy that prohibits states from regulating the term “lights” on cigarettes. Nor did he offer an expert opinion that the FTC has granted cigarette companies the right to use the “lights” and “low tar” descriptors and, thereby, immunize them from state regulation of those descriptors.
In 1970, the FTC proposed a formal trade regulation rule that would have required cigarette companies to disclose in their advertising FTC-measured tar and nicotine content of their cigarettes. See 35 Fed. Reg. 12,671 (proposed August 8, 1970). However, the FTC dropped this proposed order after eight cigarette companies entered into a voluntary trade agreement. Those signatories voluntarily agreed to provide the information on their cigarette packages. See 36 Fed. Reg. 784 (1971). The 1970 voluntary trade agreement was not all-inclusive; not every cigarette company signed the agreement. Those companies that did not sign the agreement have not included tar and nicotine rates in their cigarette advertising. Up to the time of trial, the FTC has taken no enforcement action against those companies.
In 1971, the FTC and a cigarette company, American Brands, Inc., reached an agreement that was memorialized in a consent order. In the 1971 consent order, the FTC charged that American Brands’ advertisements of its cigarettes designated as “Pall Mall Gold” 100s, “Pall Mall Menthol” 100s and “Lucky Filters” were imprecise and misleading because the cigarettes were being described as “lower than the best selling filter king.” In actual fact, however, the FTC found that these brands were higher in tar levels than many other brands. The FTC and American Brands agreed that American Brands’ advertisements which stated that its cigarettes were low in tar must contain the tar and nicotine yield results as measured under the FTC testing methods (the advertisements challenged by the FTC in this action did not contain any tar and nicotine yield results). If American Brands’ advertisements contained a comparison to another product, then the advertisement had to include the tar and nicotine yield of that product as well. In re American Brands, Inc., 79 F.T.C. 225 (1971).
During the direct examination of defendant’s expert witness, Dr. Peterman, he stated that the 1971 consent order against American Brands, Inc., was “an official act of the FTC.” Further, the order provided “industry guidance to [PMUSA] and others regarding the use of descriptors.” This “guidance” was found in the terms of the order against American Brands. According to Dr. Peter-man, nonparties to a consent order, even an entire industry, learn from the order how far they can and cannot go. According to Peterman, the 1971 consent order was exemplary of the FTC intending to provide industry-wide guidance with respect to issues addressed in consent orders.
However, on cross-examination, Dr. Peterman qualified his direct examination testimony by admitting that the 1971 consent order did not mention the descriptor “lights.” Also, the consent order did not define the descriptor “low tar,” or establish a numerical standard for that term. This form of “compliance” is a voluntary decision on the part of each cigarette company. It is not a trade regulation rule. Further, PMUSA was never a party to the proceeding and never signed the consent order. Each cigarette company, including PMUSA, and the entire industry collectively, could simply stop using the disputed descriptors if they so chose. Peterman further acknowledged that the FTC has never taken any enforcement action against a cigarette manufacturer of these so-called “light” brands because that manufacturer did not use the word “light” in the brand name. There is no evidence in the record that PMUSA ever complied with this consent order.
In 1995, the FTC and another cigarette company, American Tobacco Company, reached an agreement that was memorialized in a consent order. In the 1995 consent order, the FTC and American Tobacco agreed that “presentation of the tar and/or nicotine ratings of any of respondent’s brands of cigarettes and the tar and/or nicotine ratings of any other brand (with or without an express or implied representation that respondent’s brand is ‘low,’ ‘lower,’ or ‘lowest’ in tar and/or nicotine) shall not be deemed” to violate an existing ban on numerical comparisons. In re American Tobacco Co., 119 F.T.C. 3 (1995). Dr. Peterman testified that the FTC intended to provide industrywide guidance with respect to issues addressed in the 1995 consent order against American Tobacco Company.
At the conclusion of the trial, the circuit court denied PMUSA’s affirmative defense based upon section 10b(l) of the Consumer Fraud Act. The court specifically found Dr. Peterman’s testimony to be “unpersuasive” on PMUSA’s claim that the issues in this case could potentially cause a conflict between state and federal law. Moreover, the court found that Dr. Peterman did not have any “expertise in assessing FTC involvement in regulation of the issues” and that the plaintiffs’ claims in this case did not conflict in any way with the federal Labeling Act or the regulations and policies of the FTC. With respect to the FTC, the court ruled:
“The false and misleading use of the descriptors ‘Lights’ and ‘Lowered Tar and Nicotine’ has never been specifically authorized by law. Philip Morris voluntarily chose to use these terms on its packages of Marlboro Lights and Cambridge Lights. No regulatory body has ever required (or even specifically approved) the use of these terms by Philip Morris. The court finds that Philip Morris has not established that its conduct is ‘specifically authorized’ by law.”
The circuit court further found plaintiffs had proven that PMUSA violated the Consumer Fraud Act through the deceptive act of misrepresenting its Cambridge Lights and Marlboro Lights products as “lights” and misrepresenting Marlboro Lights as “Lowered in Tar and Nicotine.”
II. Section 10b(l) of the Consumer Fraud Act
Section 10b(l) of the Consumer Fraud Act exempts conduct “specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States.” 815 ILCS 505/10b(l) (West 1998). PMUSA contends that the FTC’s policies regarding cigarette advertising fall within the scope of the phrase “specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States.” Because PMUSA asserted section 10b(l) as an affirmative defense, PMUSA has the burden of proving it. See Pascal P. Paddock, Inc. v. Glennon, 32 Ill. 2d 51, 54 (1964) (observing “elementary” rule that party asserting affirmative defense has the burden of proving it); In re Marriage of Jorczak, 315 Ill. App. 3d 954, 957 (2000) (same).
After reviewing the plain language of the statute, this court’s case law concerning section 10b(l), and the facts in this case, I am unable to conclude, as the court today does, that section 10b(l) exempts Philip Morris from suit. I believe that a fair reading of the statute compels the conclusion that the policies of the FTC, as presented at trial, do not rise to the level of specific authorization contemplated by our legislature when it enacted the statute.
My colleagues correctly point out that the primary rule of statutory construction is to ascertain and give effect to the intent of the legislature; that the best indicator of legislative intent is the statutory language; that a court gives undefined words their plain and ordinary meaning; and that it is appropriate to use a dictionary to ascertain the meaning of undefined terms. 219 Ill. 2d at 242-43. I note, however, that the court ignores several other principles of statutory construction. For example, the court does not mention that, in examining a statute’s plain language, “ ‘[t]he statute should be evaluated as a whole, with each provision construed in connection with every other section.’ ” Eden Retirement Center, Inc. v. Department of Revenue, 213 Ill. 2d 273, 291 (2004), quoting Paris v. Feder, 179 Ill. 2d 173, 177 (1997); accord In re Detention of Lieberman, 201 Ill. 2d 300, 308 (2002) (recognizing that “words and phrases should not be construed in isolation, but must be interpreted in light of other relevant provisions of the statute”); Huckaba v. Cox, 14 Ill. 2d 126, 131 (1958); 2A N. Singer, Sutherland on Statutory Construction § 46:05 (6th ed. 2000); 73 Am. Jur. 2d Statutes § 165 (2001). Nor does the court acknowledge the fundamental canon of statutory construction which provides that “in determining the intent of the legislature, the court may properly consider not only the language of the statute, but also the reason and necessity for the law, the evils sought to be remedied, and the purpose to be achieved.” Lieberman, 201 Ill. 2d at 308.
Section 11a of the Consumer Fraud Act mandates: “This Act shall be liberally construed to effect the purposes thereof.” 815 ILCS 505/lla (West 1998). By virtue, then, of its plain language, courts are mandated to give the Act a liberal construction: “This section provides a clear mandate to Illinois courts to utilize the Act to the greatest extent possible to eliminate all forms of deceptive or unfair business practices and provide appropriate relief to consumers.” Totz v. Continental Du Page Acura, 236 Ill. App. 3d 891, 901 (1992); accord American Buyers Club of Mt. Vernon, Illinois, Inc. v. Honecker, 46 Ill. App. 3d 252, 257 (1977) (expressly referring to statute). Thus, in construing the exemption provided in section 10b(l) of the Act, it is not merely proper for this court to consider, inter alia, the evils sought to be remedied and the purpose to be achieved, but the Act itself affirmatively mandates such consideration. Although the court acknowledges that the Act is to be liberally construed (219 Ill. 2d at 244), its actual interpretation of section 10b(l) is decidedly not a liberal one, as it constricts, rather than expands, the Act’s ambit.
What does “liberal construction” mean?
“Liberal statutory construction signifies an interpretation that produces broader coverage or more inclusive application of statutory concepts. [Citation.] Liberal construction is ordinarily one that makes a statute apply to more things or in more situations than would be the case under strict construction. [Citation.] ‘ “ ‘[L]iberal construction’ means to give the language of a statutory provision, freely and consciously, its commonly, generally accepted meaning, to the end that the most comprehensive application thereof may be accorded, without doing violence to any of its terms.” ’ [Citation.]” Board of Education of Community Consolidated School District No. 59 v. State Board of Education, 317 Ill. App. 3d 790, 795 (2000).
Accord Smith v. Stevens, 82 Ill. 554, 556 (1876) (observing that statute “is emphatically a remedial act, and, in accordance with a well established canon, it must receive a liberal construction, and made to apply to all cases which, by a fair construction of its terms, it can be made to reach”); 3 N. Singer, Sutherland on Statutory Construction § 58:2, at 88 (6th ed. 2001); 73 Am. Jur. 2d Statutes § 179 (2001). Thus, section 11a of the Consumer Fraud Act actually directs courts to employ judicial construction to supply gaps in the statutory language, in order to afford broader coverage or a more inclusive application. Bank One Milwaukee v. Sanchez, 336 Ill. App. 3d 319, 321-22, 324 (2003); Hurlbert v. Cottier, 56 Ill. App. 3d 893, 896 (1978).
In this case, however, rather than using judicial construction to effectuate expansive coverage of the Consumer Fraud Act, the court employs arduous judicial construction to establish limitations on the reach of the Act. The court breaks down the statutory term “specifically authorized by laws administered by” and, with the aid of a dictionary, separately and in a vacuum defines the word “specific” and the word “authorize.” 219 Ill. 2d at 243-44. Based on this dissection, the court speculates that the legislature “must have intended” the phrase “laws administered by” to require deference to agency policy and practice. 219 Ill. 2d at 244. I disagree with this interpretation. Courts have long recognized that ascertaining legislative intent is not always properly accomplished by mechanically applying the dictionary definitions of individual words and phrases. See, e.g., Whelan v. County Officers’ Electoral Board, 256 Ill. App. 3d 555, 558 (1994). As Judge Learned Hand observed:
“Of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing ***. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish ***.” Cabell v. Markham, 148 F.2d 737, 739 (2d Cir. 1945).
The court’s tortured construction of section 10b(l) ignores the rule that statutes are to be construed as a whole, and the fact that expansive construction of the Act comes from the Act itself.
Even more disturbing than the dissection of the statutory language of section 10b(1) is the court’s speculation as to the “apparent legislative intent.” 219 Ill. 2d at 244. The court states that section 10b(l):
“serves to channel objections to agency policy and practice into the political process rather than into the courts. [Citations.] Parties who desire to bring about change in agency policies or rules can take their complaints to the agency itself and can participate in the formal rulemaking process. If their concerns are not addressed by the agency, they may seek assistance from their legislators and may use the political process, including the power of the ballot box, if their voices are not heard.” 219 Ill. 2d at 245.
This statement is a brazen usurpation of the power of the legislature. Not only does it completely ignore the statutorily mandated expansive construction of the Act, but it injects the court’s own preferred public policy into this statutory provision without any basis in law or fact.
Such an expansive reading of section 10b(l) flies in the face of the plain language of the Act read as a whole. First, as I have explained, the plain language of section 11a mandates an expansive construction. 815 ILCS 505/ 11a (West 1998). Second, the plain language of section 10b(l) exempts conduct “specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States.” 815 ILCS 505/10b(l) (West 1998). Accepting that this plain language is “the most rehable indicator of the legislature’s objectives” in enacting the Consumer Fraud Act (Michigan Avenue National Bank v. County of Cook, 191 Ill. 2d 493, 504 (2000)), it is clear that the legislature would not consider PMUSA’s conduct exempt under section 10b(l). The record simply does not establish that the FTC’s regulatory activity constituted “specific authorization” for PMUSA to use the disputed descriptors, i.e., “Lights,” and “lowered tar and nicotine,” in marketing Marlboro Lights or Cambridge Lights.
Further, section 10b(l) of the Consumer Fraud Act lists exemptions from the otherwise expansive and inclusive reach of the Act. Because of this, I believe that the court’s expansive reading of section 10b(l), an exception to the Consumer Fraud Act, not only flies in the face of the plain language of the Act mandating an expansive construction, but also ignores another rule of statutory construction: exceptions in a statute, being designed to qualify or limit what is declared in the body of an act, should be strictly construed. Mid-South Chemical Corp. v. Carpentier, 14 Ill. 2d 514, 519 (1958) (and cases cited therein); see People v. Chas. Levy Circulating Co., 17 Ill. 2d 168, 171 (1959); 82 C.J.S. Statutes § 371 (1999). “Where a general rule is established by statute with exceptions, the court ordinarily will not curtail the former or add to the latter by implication.” (Emphasis added.) 82 C.J.S. Statutes § 371, at 496-97 (1999). I note that “[tjhese rules are particularly applicable where, in general, the law itself is entitled to a liberal construction.” 73 Am. Jur. 2d Statutes § 212, at 402 (2001). Courts may give apparently plain words a restrictive meaning if such is understood by the statute as a whole, or by the persuasive gloss of legislative history. United States v. Witkovich, 353 U.S. 194, 199, 1 L. Ed. 2d 765, 769, 77 S. Ct. 779, 782 (1957); Whelan, 256 Ill. App. 3d at 558; Fleischer v. Board of Community College District No. 519, 128 Ill. App. 3d 757, 760 (1984). The court’s disregard for the combination of the statutorily mandated expansive and inclusive construction of the Consumer Fraud Act, and the well-settled rule of statutory construction that exceptions in statutes are to be strictly construed, fatally undercuts the persuasiveness of its statutory construction.
The court holds that “the FTC’s informal regulatory activity, including the use of consent orders, comes within the scope of section 10b(l)’s requirement that the specific authorization be made ‘by laws administered by’ a state or federal regulatory body.” 219 Ill. 2d at 258. However, neither the court’s lengthy discussion of FTC policy and practice nor the court’s citations to our case law establish that the FTC’s regulatory activity constituted “specific authorization” for PMUSA to use the disputed descriptors in marketing Marlboro Lights or Cambridge Lights.
The court correctly observes that our past decisions “make it clear that mere compliance with applicable federal regulations is not necessarily a shield against liability under the Consumer Fraud Act.” 219 Ill. 2d at 247. My colleagues, in fact, devote several pages of their analysis to discussing some of this court’s decisions involving section 10b(l). 219 Ill. 2d at 245-53 (discussing Lanier v. Associates Finance, Inc., 114 Ill. 2d 1 (1986), Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33 (1994), and Jackson v. South Holland Dodge, Inc., 197 Ill. 2d 39 (2001)). None of these cases, however, support the court’s holding in this case.
In Lanier, for example, the issue was whether the “specific authorization” requirement of section 10b(l) was found in a Federal Reserve Board staff interpretation of a federal regulation. This court explained as follows:
“The Truth in Lending Act was enacted by Congress to assure meaningful disclosure of credit terms, so that consumers can readily compare various credit options available to them. [Citation.] Congress granted the Federal Reserve Board the authority to prescribe regulations to carry out the purposes of the Truth in Lending Act. [Citation.] Pursuant to that authority, the Board enacted a comprehensive set of rules, known as Regulation Z [citation], implementing the principles of the Truth in Lending Act.” (Emphasis added.) Lanier, 114 Ill. 2d at 11.
In 1973, the Federal Reserve Board staff issued an “official interpretation” of Regulation Z. Lanier, 114 Ill. 2d at 12. This court further explained:
“Although not binding upon the courts, the Federal Reserve Board’s formal interpretations are entitled to a great degree of deference. This deference is especially appropriate in interpreting the Truth in Lending Act and the Board’s own Regulation Z. [Citation.] The Supreme Court has stated that ‘[u]nless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or regulation [Z] should be dispositive.’ [Citations.]” Lanier, 114 Ill. 2d at 13.
The Lanier court explained as follows. The Federal Reserve Board is the agency that Congress empowered to prescribe implementing and interpretive regulations for the Truth in Lending Act. Therefore, the Board is entitled to the greatest respect in the interpretation of its own regulations. Further, it is unimportant that “formal interpretations’ ’ are issued by Federal Reserve Board staff rather than the Board itself, because judicial deference is based on agency expertise. Moreover:
“Congress included compliance with official staff interpretations when it absolved creditors from liability under the Truth in Lending Act for ‘any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Board or in conformity with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Board to issue such interpretations.’ (15 U.S.C. sec. 1640(f) (1980).) Section 1640 evinces a clear congressional determination to treat the Board’s administrative interpretations under the Truth in Lending Act as authoritative.” Lanier, 114 Ill. 2d at 13-14.
The Lanier court concluded that the disclosure required by the Board’s staff interpretation of Regulation Z implicitly provided “specific authorization” not to make any additional disclosures. Lanier, 114 Ill. 2d at 17-18.4
The clarity and strength of the agency regulation in Lanier stands in marked contrast to the implicit and uncertain methodology of the FTC in this case. Lanier involved a formal staff interpretation of an agency’s formally promulgated regulation. Indeed, the enabling legislation recognizes such a staff interpretation. In this case, the FTC has never promulgated any industrywide formal rule that regulates the use of the disputed descriptors. There is no formal rule to interpret, either formally or informally. The evidence adduced at trial established that, rather than employ even informal rulemaking, the FTC took a “voluntary approach” to regulating the cigarette industry. Dr. Peterman acknowledged that the FTC, generally, does not adopt trade rules that approve conduct that an FTC-regulated business may choose to engage in. Rather, the FTC adopts regulations that require or forbid specific conduct. Regarding cigarettes, the FTC has never promulgated a single trade regulation governing cigarette advertising that has ever been in effect. No FTC regulation, document, or official statement has ever regulated “low tar” and “lights” descriptors. Further, the FTC has disavowed any “official” definition of these terms. Rather, a cigarette company’s decision to use descriptors such as “light,” or “low tar,” is voluntary; there is no FTC rule requiring their use. A cigarette company could stop using those descriptors and there is no FTC policy that would prohibit it. Indeed, Dr. Peter-man admitted that if “light” cigarettes delivered the same level of tar and nicotine as “regular” cigarettes, the “light” descriptor would be false and misleading.
In its opinion, the court describes a 1970 FTC proposal that would have declared it an unfair or deceptive practice under the FTC Act for cigarette manufacturers to fail to disclose in their advertising the tar and nicotine content of the product, based on the most recent FTC test results. 219 Ill. 2d at 192. The court notes that this proposal was dropped after eight cigarette companies voluntarily agreed to provide the information on their cigarette packages. 219 Ill. 2d at 192. The court, however, fails to observe that, during his cross-examination, Dr. Peterman recognized that the 1970 trade agreement was not all-inclusive. In other words, not every cigarette company signed the agreement. Further, those companies that did not sign the agreement have not included tar and nicotine rates in their cigarette advertising. Indeed, up to the time of trial, the FTC has taken no enforcement action against those companies.
Unwilling to allow the FTC’s lack of definitive regulations in the area of cigarette advertising to control the question of the application of section 10b(l) to this case, the court holds that two consent orders entered into by the FTC and another tobacco producer constitute the type of regulatory activity that falls within the scope of section 10b(l). The majority opinion describes the background to the 1971 consent order against American Brands (219 Ill. 2d at 193-97) and the 1995 consent order against American Tobacco (219 Ill. 2d at 207-08).
During his direct examination, Dr. Peterman, defendant’s expert, testified that the 1971 FTC consent order against American Brands, Inc., was “an official act of the FTC.” Further, the order provided “industry guidance to [PMUSA] and others regarding the use of descriptors.” This “guidance” was found in the terms of the order against American Brands. According to Dr. Peterman, nonparties to a consent order, even an entire industry, learn from the order how far they can and cannot go. According to Peterman, the 1971 consent order was exemplary of the FTC intending to provide industrywide guidance with respect to issues addressed in consent orders.
However, the 1971 consent order did not mention the descriptor “lights.” Nor did it concern the disputed descriptor in this case, “lowered tar and nicotine.” The consent order did not define the descriptor “low tar,” or establish a numerical standard for that term. Peterman testified that this form of “compliance” is a voluntary decision on the part of each cigarette company. It is not a trade regulation rule. Peterman acknowledged that PMUSA was never a party to the proceeding and never signed the consent order. Each cigarette company, including PMUSA, and the entire industry collectively, could simply stop using the disputed descriptors if they so chose. Peterman further acknowledged that the FTC has never taken any enforcement action against a cigarette manufacturer of these so-called “light” brands because that manufacturer did not use the word “light” in the brand name. There is no evidence in the record that PMUSA ever complied with this consent order.
Dr. Peterman also testified that the FTC intended to provide industrywide guidance with respect to issues addressed in the 1994 consent order against American Tobacco Company. However, as with the 1971 consent order, the 1994 consent order did not mention the descriptor “lights.” Also, it did not define the descriptor “low tar,” or establish a numerical standard for that term. Indeed, the two consent orders upon which PMUSA relies were not directed at it, but at other parties. This is the issue: whether PMUSA’s conduct was “specifically authorized” by the two FTC consent orders directed at other parties: American Brands, Inc., and American Tobacco Company. See 219 Ill. 2d at 253-54. I observe that Dr. Peterman did not offer an expert opinion that the FTC has granted cigarette companies the right to use “light” or “low tar” descriptors and immunize them from state regulation of those descriptors.
Further proof as to the lack of regulatory action with respect to the disputed descriptors can be found in Dr. Peterman’s testimony. The FTC, in 1997, asked for comments as to whether the use of the disputed descriptors “should be changed or in any way are potentially misleading.” According to Peterman, “that investigation remained open as of the date of his testimony.” 219 Ill. 2d at 224. Given that the record evidence establishes that the FTC’s position on the use of the descriptors “remained open,” it is difficult to understand how the FTC’s activities in this area can be deemed to be “specific authorization” of anything.
In fight of the above, I believe the regulatory action present in this case is much less specific than the regulatory action taken by the Federal Reserve Board with respect to Regulation Z in Lanier. Lanier, therefore, is distinguishable from and, contrary to, not consistent with, the court’s conclusion in this case. Jackson is likewise distinguishable from the court’s holding in this case.
Unlike my colleagues in the majority, I do not believe that the Illinois General Assembly intended that such “implicit” and “uncertain” (see 219 Ill. 2d at 255) methods of agency action, such as consent orders, directed at other parties, constitute the “specific authorization” required in section 10b(l) to exempt conduct from the broad coverage of the Consumer Fraud Act. I note that the court refers to a 1964 FTC Statement that offers “ten reasons why a formal rule-making proceeding may be preferable to an adjudicative proceeding, or a series of adjudicative proceedings.” 219 Ill. 2d at 254. While not condemning the use of agency adjudicative proceedings to establish agency policy, the court’s own quotations clearly evince an FTC preference for formal rulemaking. 219 Ill. 2d at 254-56. Given the agency’s own preference for formal rulemaking, it is not unreasonable for our legislature to have likewise had this understanding of administrative law in mind in enacting section 10b(l) as an exception to the expansive reach of the Act.
Further, while an agency has the discretion to use adjudicatory proceedings to announce a sectorwide substantive principle or standard of conduct, it must be remembered that the consent orders upon which PMUSA relies are not directed at PMUSA. The court reasons:
“The FTC’s observation that adjudication could be used to announce ‘a substantive principle or standard of conduct having general application’ suggests that a consent order may serve as authorization for nonparties to the order to follow its directives.” (Emphases added.) 219 Ill. 2d at 256.
This reasoning, by its own terms, is based on mere conjecture and suggestion. The proof to which the court points in support of this conclusion—two FTC reports to Congress (219 Ill. 2d at 258)—is, in my opinion, insufficient to show that these two consent orders establish sectorwide policy. I view these reports as the FTC describing its efforts to obtain voluntary compliance with the two consent orders. Negotiations to obtain voluntary compliance from individual parties do not equate with announcing an industrywide substantive principle or standard of conduct.
Federal courts share my view of consent orders. An administrative consent order is an agreement reached in an administrative proceeding between parties, one of which is usually the agency’s litigation staff. If the agency accepts the agreement, the agency issues an order as a court issues a consent decree. A.R. ex rel. R.V. v. New York City Department of Education, 407 F.3d 65, 77 n.12 (2d Cir. 2005) (and authorities cited therein). While the interpretation of a statute by the agency charged with its administration is accorded deference, a consent order simply memorializes an agreement of the parties to end litigation upon certain terms. An unsubstantiated assertion of a legal proposition in an administrative consent order is untested in the adversarial crucible. It reflects nothing more than the drafting or view of an agency staff member that has not been considered carefully by the agency itself. “Hence, it is not necessarily reliable evidence of an agency’s considered view of the issue.” Commodity Futures Trading Comm’n v. Hanover Trading Corp., 34 F. Supp. 2d 203, 206 n.19 (S.D.N.Y. 1999).
Continuing with the accepted analogy between administrative consent orders and judicial consent decrees, it is clear that the 1971 and 1995 FTC orders cannot be considered to have industrywide legal force. The United States Supreme Court has explained:
“Consent decrees are entered into by parties to a case after careful negotiation has produced agreement on their precise terms. The parties waive their right to litigate the issues involved in the case and thus save themselves the time, expense, and inevitable risk of litigation. Naturally, the agreement reached normally embodies a compromise; in exchange for the saving of cost and elimination of risk, the parties each give up something they might have won had they proceeded with the litigation. Thus the decree itself cannot be said to have a purpose; rather the parties have purposes, generally opposed to each other, and the resultant decree embodies as much of those opposing purposes as the respective parties have the bargaining power and skill to achieve. For these reasons, the scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it.” (Emphases in original.) United States v. Armour & Co., 402 U.S. 673, 681-82, 29 L. Ed. 2d 256, 263, 91 S. Ct. 1752, 1757 (1971).
Thus, a court has no authority to expand or contract a consent order’s terms to reflect “what might have been.” Willie M. v. Hunt, 657 F.2d 55, 60 (4th Cir. 1981).
This authority demonstrates that it is simply incorrect for the court to refer to the 1971 and 1995 consent orders as establishing FTC policy. Only the FTC commissioners can formally adopt policy. The FTC staff members who drafted the consent orders cannot make agency policy. Further, the orders have not been subjected to adversarial testing. The 1971 and 1995 consent orders must be viewed only as what they are: two private agreements between the FTC and individual cigarette companies without industrywide force of law.
It is clear from the long history of FTC regulation of the cigarette industry, as described in the court’s opinion, that consent orders are economic, i.e., they are not based on substantive law. The cases before the FTC are filed as a result of competitors complaining one against the other. They are simply administrative and are not binding authority. At most they may be persuasive to other participants in the industry. Indeed, in Part 1(A) of the court’s opinion (“History of FTC Regulation of the Cigarette Industry”), the court mentions Federal Trade Comm’n v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 37 (D.C. Cir. 1985), which I believe to be instructive on this point. 219 Ill. 2d at 201. In Brown & Williamson, the manufacturer claimed that its Barclay brand of cigarettes contained 1 milligram of tar. Brown & Williamson’s competitors complained that the design of the Barclay filter caused it to register very low tar measurements. Publishing its findings, the FTC determined that the Barclay claim was false and deceptive. The FTC attempted to require Brown & Williamson to state a higher tar content. Brown & Williamson refused and retained the 1 milligram claim, but voluntarily qualified the claim. The FTC thereafter sought an injunction to prevent such advertising. Brown & Williamson, 778 F.2d at 37-38. Even after making published findings, the FTC nonetheless had to resort to a court order to enforce comphance. In my view, this demonstrates why the FTC’s “voluntary” compliance scheme cannot equate to formal agency rulemaking.
Despite the uncertain nature of FTC involvement in this area, the court today concludes that the FTC’s “informal regulatory activity, including the use of consent orders,” satisfies the requirement of section 10b(l) (219 Ill. 2d at 258) and has the force of law. I very much doubt, however, that a federal court would regard the FTC consent orders as “law” in the context of section 10b(l). For example, in Wabash Valley Power Ass’n v. Rural Electrification Administration, 903 F.2d 445 (7th Cir. 1990), the Seventh Circuit Court of Appeals was presented with the issue of whether a letter from a federal agency to the regulated business was sufficient for federal preemption. The court held that it was not. The court recognized that to preempt state authority, the agency was required to establish rules with the force of law, and that regulations adopted after notice-and-comment rule-making have the effect of law. Wabash Valley Power, 903 F.2d at 453-54. However, the court recognized that the agency sent the regulated business a letter. “There was no notice, no opportunity for comment, no statement of basis, no administrative record, no publication in the Federal Register—none of the elements of rulemaking under the [Administrative Procedure Act]. 5 U.S.C. § 553.” Wabash Valley Power, 903 F.2d at 454 (collecting cases). The court concluded: “Procedural shortcomings prevent giving this letter the force of law.” Wabash Valley Power, 903 F.2d at 454.
In the present case, as in Wabash Valley Power, the FTC has never promulgated an industrywide formal rule. Just as the agency letter in Wabash was not based on a formal rule, the two consent orders in this case are not based on any formal rule. If the letter in Wabash Valley Power cannot be considered as “law” as a matter of federal law, then there is no basis for concluding that the consent orders constitute “laws” administered for the purposes of section 10b(l).
As a final matter, the court, in its opinion, “note[s] with great interest” (219 Ill. 2d at 263) a decision by the United States District Court for the Eastern District of Arkansas. Watson v. Philip Morris Cos., No. 4:03—CV— 519 GTE (E.D. Ark., December 12, 2003), affd, 420 E3d 852 (8th Cir. 2005), involved an Arkansas consumer fraud class action, which charged Philip Morris with the same fraudulent misconduct as in this case. Philip Morris removed the cause from Arkansas state court to federal court pursuant to 28 U.S.C. § 1442(a)(1) (2000), which provides for removal where a person is sued for actions taken under the direction of a federal officer. Philip Morris claimed that it satisfied the requirements of the federal officer statute “because it was acting under the direct control of the [FTC] when it engaged in the allegedly unlawful conduct.” Watson, 420 F.3d at 854.
A key requirement for federal removal jurisdiction is that the defendant act under the direction of a federal officer.
“ ‘[Rjemoval by a “person acting under” a federal officer must be predicated upon a showing that the acts ... were performed pursuant to an officer’s direct orders or to comprehensive and detailed regulations.’ Virden v. Altria Group, Inc., 304 F. Supp. 2d 832, 844 (N.D. W. Va. 2004) (quoting Ryan v. Dow Chem. Co., 781 F. Supp. 934, 947 (E.D. N.Y. 1992)). Mere participation in a regulated industry is insufficient to support removal unless the challenged conduct is ‘closely linked to detailed and specific regulations.’ Virden, 304 F. Supp. 2d at 844.” Watson, 420 F.3d at 857.
The model cases in which private actors have successfully removed cases to federal court under the statute have involved: government contractors with limited discretion; Medicare program contractors because they serve as agents of the federal government; and private actors whose functions are so intertwined with the federal government that they are considered effectively to be federal employees. Virden v. Altria Group, Inc., 304 F. Supp. 2d 832, 845 (N.D. W. Va. 2004) (and cases cited therein). “Removal under § 1442(a)(1) will not be permitted if the defendant cannot establish direct and detailed control but only that the relevant acts occurred under the general auspices of a federal officer, as would be the case, for example, if the defendant were simply a participant in a regulated industry.” Paldrmic v. Altria Corporate Services, Inc., 327 F. Supp. 2d 959, 966 (E.D. Wis. 2004).
The district court in Watson reasoned that the FTC often regulates industries within its purview by compelling voluntary agreements and consent orders rather than by promulgating formal regulations. See 219 Ill. 2d at 264. Further, the district court stated that “the FTC coerced Philip Morris and other cigarette manufacturers into ‘voluntary’ cooperation with its cigarette labeling and advertising policies ‘in such a way that a formal rule’ was not required to create federal jurisdiction.” See 219 Ill. 2d at 265. The court of appeals agreed with the district court’s view of the record: “We are convinced that the record in this case shows a level of compulsion that establishes that Philip Morris was indeed ‘acting under’ the direction of a federal officer.” Watson, 420 F.3d at 859. Regarding the 1970 voluntary agreement: “The FTC effectively used its coercive power to cause the tobacco companies to enter the agreement. *** This ‘voluntary agreement’ was a substitute for a formal rule.” Watson, 420 F.3d at 859. Regarding the consent orders, the court of appeals opined that the consumer fraud class action “directly implicates the enforcement and wisdom of the FTC’s tobacco policies” as explained in the 1971 consent order. Watson, 420 F.3d at 862.
In this case, the court concludes:
“The issue addressed by the Watson court—whether removal to federal court was proper—has no bearing on the present case. However, the federal district court’s detailed analysis does support our conclusion that specific authorization for the use of the disputed descriptors may be found in consent orders rather than in formally promulgated trade regulation rules of the FTC.” 219 Ill. 2d at 265.
I respectfully disagree.
I note with great interest that removal actions “have been brought in other jurisdictions, and courts have generally declined to permit Philip Morris to remove, concluding that the FTC did not exercise direct and detailed control over the acts for which it was being sued.” Paldrmic, 327 F. Supp. 2d at 966. Indeed, the federal district courts in Paldrmic and Virden candidly acknowledged the contrary holding of the district court in Watson. Paldrmic, 327 F. Supp. 2d at 966 n.2; Virden, 304 F. Supp. 2d at 846. Likewise, the court of appeals in Watson candidly acknowledged the contrary holding of the district courts. Watson, 420 F.3d at 857-59. Although the district court’s reasoning in Watson was affirmed on appeal, Watson was the only district court to hold that the FTC “regulated” the use of the disputed descriptors to such a degree as to qualify for federal officer removal jurisdiction.
The Virden and Paldrmic courts recognized that Philip Morris has never acted as an agent or an employee of the federal government. Virden, 304 F. Supp. 2d at 846. “At most, it [Philip Morris] is a private corporation doing business in a regulated industry.” Paldrmic, 327 F. Supp. 2d at 968. Indeed, in the court of appeal’s decision in Watson, a member of that panel concurred “to emphasize that our decision today should not be construed as an invitation to every participant in a heavily regulated industry to claim that it, like Philip Morris, acts at the direction of a federal officer merely because it tests or markets its products in accord with federal regulations.” Watson, 420 F.3d at 863 (Gruender, J., concurring). The concurring judge believed that “in most instances, a contract, principal-agent relationship, or near-employee relationship with the government will be necessary to show the degree of direction by a federal officer necessary to invoke removal under 28 U.S.C. § 1442(a)(1).” Watson, 420 F.3d at 863 (Gruender, J., concurring). However, because the concurring judge viewed the level of FTC regulation of the cigarette industry as “extraordinary,” he opined that “this is a rare case in which federal officer jurisdiction is appropriate even in the absence of a contract, principal-agent relationship, or near-employee relationship with the government.” Watson, 420 F.3d at 864 (Gruender, J., concurring).
However, as the Virden court concluded: “The indicia of federal control present in cases finding federal officer removal jurisdiction are wholly lacking here.” Virden, 304 F. Supp. 2d at 846. In Paldrmic, the court found that Philip Morris did not establish that its use of the disputed descriptors “was mandated by the FTC.” Paldrmic, 327 F. Supp. 2d at 966. Both courts focused on the voluntary nature of the 1970 agreement. According to the Virden court, “the most that can be said is that the FTC has been impliedly regulating the tobacco industry through its tacit acceptance of a voluntary private agreement made thirty years ago.” Virden, 304 F. Supp. 2d at 846. The Paldrmic court reasoned: “while it may be true that the cigarette companies preferred an agreement to a regulation, the fact remains that they entered into the agreement voluntarily.” Paldrmic, 327 F. Supp. 2d at 966. These courts, therefore, reasoned:
“On some level the FTC clearly has coercive control over the tobacco companies’ tar and nicotine advertising based on its power to regulate deceptive advertising. However, in this Court’s opinion, neither the right to control, nor the threat of taking control, constitutes the direct and detailed control required for the application of federal officer removal jurisdiction.” Virden, 304 F. Supp. 2d at 846-47.
See Paldrmic, 327 F. Supp. 2d at 966.
I disagree with the reasoning in Watson, on which the court relies, and agree with the better-reasoned decisions such as Paldrmic and Virden.
In light of the above, I believe that a proper statutory construction analysis leads to the conclusion opposite to that reached by the majority. The analysis must begin with our Consumer Fraud Act, viewed as a whole. Its plain language mandates expansive coverage and the use of judicial construction to effectuate that mandate. Section 10b of the Consumer Fraud Act exempts from the Act conduct “specifically authorized by laws administered by” Illinois or federal regulatory bodies. In this case, the two consent orders upon which PMUSA relies, directed at other parties, did not establish an industrywide standard of conduct for PMUSA. Stated simply, PMUSA did not carry its burden in proving the existence of this affirmative defense.
Further, regardless of how the FTC views the role of consent orders in industrywide rulemaking, for purposes of the Consumer Fraud Act, including section 10b(l), a court may not expand the exemption of section 10b(l) by implication. I do not believe that the consent orders in this case are sufficient to “specifically authorize” PMUSA’s use of the disputed descriptors, so as to exempt that conduct from the statutorily mandated expansive scope of the Consumer Fraud Act.
III. Damages
Although I could end my dissent here, I feel compelled to address the special concurrence’s suggestion that reversal is warranted for a “more basic reason” than section 10b(l). The special concurrence claims that plaintiffs failed to establish that they sustained actual damages and suggests the absence of actual damages is an alternate basis for the result the majority reaches. The special concurrence applies the wrong measure of damages, however, to plaintiffs’ consumer fraud claim. A proper application of the law to the facts at issue leads to the conclusion that the alternate basis suggested by the special concurrence is lacking in merit.
The special concurrence begins with a frank assessment of the deceptive practices employed by PMUSA in promoting its cigarette products:
“The record in the case before us shows that PMUSA developed and marketed Marlboro Lights and Cambridge Lights cigarettes in response to heightened public concern over health risks posed by smoking. The company believed that it could forestall declining sales by offering a product which consumers perceived as better for them than conventional ‘full-flavored’ brands. Pursuant to that strategy, PMUSA advertised Marlboro Lights and Cambridge Lights cigarettes in a way that led consumers to believe that the brands posed a lower health risk than their ‘full flavored’ counterparts. In reality, and as PMUSA was fully aware, the so-called ‘light’ cigarettes not only offered no health benefits, but were actually more toxic.” 219 Ill. 2d at 276 (Karmeier, J., specially concurring, joined by Fitzgerald, J.).
The special concurrence further comments, “When a consumer chooses one product over another in the belief that it will be less harmful to his or her health, only to discover later that it may have been more harmful, the existence of damages might seem self-evident.” 219 Ill. 2d at 276 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). The “self-evident” nature of the damages, however, hardly gives pause to the special concurrence in its quest to prove that plaintiffs failed to establish actual damages.
The special concurrence notes that class representative Sharon Price “continued smoking PMUSA’s light cigarettes even after this litigation alerted her to the fact that the cigarettes were not, in fact, any healthier and may actually be more harmful than the regular version of those cigarettes.” 219 Ill. 2d at 277 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). Additionally, the special concurrence notes that “[n]ews that PMUSA’s low tar and light representations were illusory” did not deter class representative Michael Fruth “from continuing to smoke, although he testified that he did switch back from lights to regulars.” 219 Ill. 2d at 277 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). From these observations, the special concurrence concludes:
“Whatever valuation the class representatives may have placed on the health component of light cigarettes, that valuation had no observable economic consequences. Neither Price nor Fruth offered any testimony suggesting that switching from regulars to lights resulted in their paying any more for cigarettes than they would have otherwise. There was no price disparity between light cigarettes and their full-flavored counterparts, and there is no indication that the switch from regulars to lights caused them to buy more packages of cigarettes. The price they paid did not go up. The quantity they purchased did not increase.151 No additional ancillary or incidental costs were identified. Moreover, neither Price nor Fruth complained that the cigarettes were not worth what they paid for them. To the contrary, Price’s continued purchase of lights even after being alerted to their lack of health benefits suggests that she was entirely satisfied with the value of what she received for her cigarette-purchasing dollar.” 219 Ill. 2d at 277-78 (Karmeier, J., specially concurring, joined by Fitzgerald, J.).
Having explained that the class representatives did not sustain damages because they continued to smoke after learning the true nature of light cigarettes, the special concurrence makes a similar argument regarding smokers and class members in general. The special concurrence recognizes that the Knowledge Network Survey respondents placed a “lower subjective value on cigarettes that lacked the health qualities claimed by PMUSA in its marketing of Marlboro Lights and Cambridge Lights.” 219 Ill. 2d at 281 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). However, the special concurrence maintains that real-world “consumers would not have paid less to satisfy their tobacco habits had the lights’ true properties been known.” 219 Ill. 2d at 281 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). According to the special concurrence, consumers “would not have stopped smoking, for they were addicted, and they could not have bought cigarettes that cost 77.7% less or 92.3% less/61 for no such cigarettes existed. At most, they would have reverted back to ‘full-flavored’ versions of the cigarettes.” 219 Ill. 2d at 281-82 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). Since the price of light cigarettes and regular cigarettes were the same at all times, the special concurrence concludes that “while PMUSA’s misrepresentations may have deceived consumers into altering their purchasing decisions, the net change in consumers’ economic position as a result of those misrepresentations was zero.” 219 Ill. 2d at 282 (Karmeier, J., specially concurring, joined by Fitzgerald, J.).
The special concurrence’s analysis, as it applies to both the class representatives and to the members of the class, suffers from a fundamental misunderstanding of the measure of damages in an action that is based upon a fraudulent misrepresentation made by a defendant. This court’s opinions in Drew v. Beall, 62 Ill. 164 (1871), and Gerill Corp. v. Jack L. Hargrove Builders, Inc., 128 Ill. 2d 179 (1989), are particularly instructive. In Drew, the plaintiff traded a house and lot in Dixon, Illinois, in return for acreage in Missouri and the sum of $800. The plaintiff charged that the defendant had made certain misrepresentations concerning the Missouri land. The defendant sought to limit the plaintiff’s damages, arguing the proper measure of damages was the value of the house and lot in Dixon, less the $800, and less the actual value of the land in Missouri. The defendant maintained that this would restore the plaintiff to the condition he was in before the exchange of property. On appeal, the defendant argued the trial court should have allowed the jury to hear testimony regarding the value of the house and lot in Dixon. This court disagreed, holding that the proper measure of damages was “the difference between the actual value of the land and the value of such a tract of land as defendant’s land was represented to be, and the value of the Dixon house and lot was not properly involved.” Drew, 62 Ill. at 168. The court reasoned that the “parties had, by their agreement fixed an estimate and value upon the property which each sold and transferred to the other, and it was not for the jury to make a new contract for them, or fix a new price upon the plaintiff’s property for them. The plaintiff was entitled to the benefit of his bargain.” Drew, 62 Ill. at 168.
The court in Drew thus sharply distinguished between the benefit-of-the-bargain rule for the measure of damages in cases of fraud and deceit and the out-of-pocket rule measure of damages.7 The plaintiff in a fraud and deceit case is not merely entitled to be placed in the condition he was in before the bargain was made. He is entitled to the benefit of his bargain. Moreover, the courts will not rewrite the plaintiffs bargain by assigning a different price to an item than what the plaintiff and defendant originally agreed to.
In Gerill, 128 Ill. 2d at 179, Gerill Corporation and Jack L. Hargrove Builders, Inc., had formed a joint venture to develop land owned by Gerill in Woodridge, Illinois. Eventually, the parties approached John Rosch with the proposition that Rosch purchase Hargrove’s interest in the joint venture. Rosch purchased Hargrove’s interest after reviewing a 19-page handwritten list of the joint venture’s outstanding loans and open invoices prepared by Hargrove. Upon consummation of the sale, Rosch’s accountant discovered that Hargrove had misrepresented the joint venture’s liabilities in that a number of liabilities related to the Woodridge properties had either been omitted from the list or misstated. The circuit court awarded damages to Rosch for Hargrove’s fraudulent misrepresentations and the appellate court affirmed.
In this court, Hargrove argued that the circuit court’s computation of damages was incorrect. Hargrove claimed that under the benefit-of-the-bargain rule, damages for fraudulent misrepresentation must be based upon the amount of money the plaintiff paid as a result of the misrepresentation. Thus, Hargrove argued, the circuit court should not have excluded evidence that the misrepresented liabilities were either never paid or were not paid until after Rosch sold his interest in the joint venture. The court rejected this argument, reasoning:
“Under the benefit-of-the-bargain rule, which governs the damage computations in fraudulent misrepresentation cases, damages are determined by assessing the difference between the actual value of the property sold and the value the property would have had if the misrepresentations had been true. (Hicks v. Deemer (1900), 187 Ill. 164, 170; Munjal v. Baird & Warner, Inc. (1985), 138 Ill. App. 3d 172, 186-87; Kinsey v. Scott (1984), 124 Ill. App. 3d 329, 341.) In this case, it was found that Hargrove represented the joint venture’s liabilities as being less than they actually were. The proper measure of damages under the benefit-of-the-bargain rule, then, and the formula that was used by the circuit court, was the difference between the joint venture’s liabilities as misrepresented by Hargrove and what those liabilities actually were. How Rosch or the joint venture subsequently dealt with those liabilities was irrelevant to this determination.” Gerill, 128 Ill. 2d at 196.
The Gerill court restated that the proper measure of damages in an action for fraudulent misrepresentation is the difference between the actual value of the property sold and the value the property would have had if the misrepresentations had been true. The court added that the bargain, and the measure of damages, are not affected by subsequent actions. Rosch might or might not have been held hable for the full amount of the liabilities of the joint venture. However, whether Rosch was made to pay for the liabilities mattered not to the determination of damages. See also Antle & Brothers v. Sexton, 137 Ill. 410, 416 (1891) (where the land conveyed consisted of 30 acres rather than 80 acres as represented, the trial court did not err “in refusing evidence tending to show that notwithstanding the shortage [in acreage] plaintiffs got the worth of their money in the whole trade”); Kinsey v. Scott, 124 Ill. App. 3d 329 (1984) (holding the proper measure of damages was the difference in value between the apartment building as a five-unit structure including a basement unit and as a four-unit structure in 1973, the year of the purchase. In addition, the rental income which the plaintiff received from the basement unit, which defendant had not built to code, from 1973 to 1981 also belonged to the plaintiff as owner of the building). And see City of Chicago v. Michigan Beach Housing Cooperative, 297 Ill. App. 3d 317 (1998) (observing that in an appropriate case, a plaintiff may recover the difference between the value of the note or security interest as represented, and the value of the note or security interest received); Kleinwort Benson N. America v. Quantum Financial Services, 285 Ill. App. 3d 201 (1996) (reversing entry of summary judgment and holding that a question for a fact finder existed as to the amount of damages where counterclaimant purchased the company at a premium and evidence showed that, without the promised institutional sale force, the company had no value beyond the book value of assets); Poeta v. Sheridan Point Shopping Plaza Partnership, 195 Ill. App. 3d 852 (1990) (holding that a benefit-of-the-bargain analysis for damages is appropriate in an action for fraud); Four “S” Alliance, Inc. v. American National Bank & Trust Co. of Chicago, 104 Ill. App. 3d 636, 640 (1982) (trial court properly applied the benefit-of-the-bargain formula in awarding plaintiff “the profit difference for the gas actually sold during the three months [at the gas station plaintiff leased from defendants] and the volume of sales which had been represented orally”).
The special concurrence and PMUSA concede that the proper measure of damages in the case at bar, as in an action for common law fraudulent misrepresentation, is the benefit-of-the-bargain. 219 Ill. 2d at 276 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). Having made that concession, however, the special concurrence applies a measure of damages that is closer to the out-of-pocket measure of damages than the benefit-of-the-bargain measure. In the process, the special concurrence impermissibly rewrites the bargain that plaintiffs entered into in purchasing light cigarettes from PMUSA. As to the class representatives, the focus of the analysis that the special concurrence employs is the continued use of cigarettes by the representatives beyond the time that they learned the true properties of fight cigarettes. The special concurrence maintains that, since the class representatives continued to smoke after they learned that the health benefits were illusory, the class representatives could not have placed any real value on the health components of fight cigarettes, and hence could not have suffered any economic loss when the representations regarding the health benefits turned out to be false. The special concurrence thus looks beyond the time frame of the bargain between the parties, and rewrites the bargain in fight of the representatives’ subsequent behavior. In other words, rather than look to the time frame when plaintiffs were deceived by PMUSA’s representations and purchased fight cigarettes for their perceived health benefits, the special concurrence looks to the time frame when the class representatives learned of the falsity of the representations.8 The fact that the class representatives knew of the true properties of fight cigarettes in the second time frame and bargained for cigarettes based on that knowledge, however, does not in any way undercut the damages they sustained in the first time frame, when they purchased light cigarettes for the health benefits touted by PMUSA.
A simple illustration makes the point. I purchase 10 acres of land for development upon a representation that the land is never subject to flooding. After constructing houses on nine acres, I discover that the remaining acre is not suitable for development because it lies below the floodplain and is subject to periodic flooding. I construct a fishing pond on part of the remaining acre and leave the balance in its natural state so the purchasers of the houses may benefit from the view. Under the benefit-of-the-bargain measure of damages, I am entitled to the difference between the value of the land as promised, that is, the value of land suitable for development in toto, and the value of the land as received, that is, the value of land with only nine acres suitable for development. Contrary to this approach, the special concurrence would focus on the development of the fishing pond and the benefit of the natural view, and conclude that I must have placed a higher value on the land received since I was able to find some use for it. The special concurrence would rewrite my bargain by assigning a greater value to the land based on my actions subsequent to the time of the purchase.
The special concurrence repeats the same mistake in its analysis regarding the class members in general. As noted above, the special concurrence recognizes that the Knowledge Network Survey respondents placed a lower value on cigarettes that lacked the health qualities claimed by PMUSA. However, the special concurrence does not focus on the difference between the value of the cigarettes as represented by PMUSA and the value of the cigarettes without the health benefits. Instead, the special concurrence focuses on two factors: (1) discounted cigarettes were not available for purchase in the marketplace; and (2) the class members were addicted to the use of cigarettes. From these factors the special concurrence concludes that the class members did not incur damages, and are not entitled to compensation, because they would have purchased cigarettes at the nondiscounted prices to continue feeding their addiction.
In essence, the special concurrence rewrites the bargain that plaintiffs made. The special concurrence ignores the evidence that cigarette consumers would have required a steep discount to purchase light cigarettes without the health benefits. Instead, the special concurrence asserts that cigarette consumers would have continued to purchase light cigarettes, at nondiscounted prices, even knowing the true properties of the cigarettes. In the alternative, the special concurrence asserts that cigarette consumers would have purchased regular cigarettes at a price equal to the price paid for light cigarettes as misrepresented by PMUSA. But the focus under the benefit-of-the-bargain is the difference in value, as of the time of the transaction, between the goods as received and the goods as promised. Thus, the Genii court focused on the difference between the joint venture’s liabilities as misrepresented and what those liabilities actually were. How Rosch subsequently dealt with those liabilities was irrelevant to the determination of damages. Hargrove could not share in the forgiveness of any of the liabilities by rewriting the bargain to assign a higher value to the joint venture.
The result that the special concurrence advocates is, at best, surprising. PMUSA misrepresented the qualities of its light cigarettes. The misrepresentations led cigarette consumers to overcome their aversion to the taste of light cigarettes and purchase light cigarettes in an unsuccessful attempt to lower their intake of the harmful products to which they were exposed in smoking cigarettes. While PMUSA saw its profits increase because of the sale of light cigarettes, cigarette consumers did not receive the health benefits for which they bargained. The special concurrence dispenses with the inequities in the transaction, however. So long as the price the consumers paid for the false light cigarettes was no more than the price for the nonbargained-for cigarettes, PMUSA could make misrepresentations of whatever kind it desired.
When considered in light of the addictive nature of cigarettes, the special concurrence’s position is not only surprising but untenable. Recall the special concurrence’s acknowledgment that “PMUSA was fully aware[ ] the so-called ‘light’ cigarettes not only offered no health benefits, but were actually more toxic.” 219 Ill. 2d at 276 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). Also recall the special concurrence’s claim that cigarette consumers could “not have stopped smoking, for they were addicted.” 219 Ill. 2d at 281 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). The stepping-stones to the special concurrence’s position are as follows. Cigarette manufacturers, including PMUSA, could market a highly addictive and toxic product, a cigarette, with the result that the consumer became addicted to the product. PMUSA could then market a light cigarette, just as addictive as a full-flavored cigarette, that it claimed contained less toxic compounds than a full-flavored cigarette. Consumers could flock to the light cigarette, believing the misrepresentations regarding the health benefits flowing from the claimed reduction of toxic compounds in the light cigarette. PMUSA could reap increased profits as customers switched to the light cigarette marketed by PMUSA. However, consumers could not recover for the misrepresentations because they could not break free of the addiction directly flowing from PMUSA’s marketing of full-flavored and light cigarettes.
Far from bolstering the result reached by the majority, the special concurrence serves as a reminder of the problems associated with the out-of-pocket measure of damages in an action for fraud or deceit. In an opinion joined by the author of today’s majority opinion, our appellate court observed:
“The rule set forth in [Perry v. Engel, 296 Ill. 549 (1921)] comports with section 549, comment i of the Restatement (Second) of Torts, which discusses the measure of damages in misrepresentation cases where the recipient of the misrepresentation has suffered no out-of-pocket loss. That section provides as follows:
‘When the value of what the plaintiff has received under the transaction with the defendant is fully equal to the value of what he has parted with, he has suffered no out-of-pocket loss, and under the rule stated in subsection (1), clause (a) [providing that the recipient of misrepresentation may choose to recover his actual out-of-pocket loss], he could recover no damages. This would mean that the defrauding defendant has successfully accomplished his fraud and is still immune from an action in deceit. Even though the plaintiff may rescind the transaction and recover the price paid, the defendant is enabled to speculate on his fraud and still be assured that he can suffer no pecuniary loss. This is not justice between the parties. The admonitory function of the law requires that the defendant not escape liability and justifies allowing the plaintiff the benefit of his bargain.’ (Emphasis added.) Restatement (Second) of Torts § 549, Comment i, at 115 (1977).
See also W. Keeton, Prosser & Keeton on Torts § 110, at 768 (5th ed. 1984) (‘in many cases the out-of-pocket measure will permit the fraudulent defendant to escape all liability and have a chance to profit by the transaction if he can get away with it’).” Kirkruff v. Wisegarver, 297 Ill. App. 3d 826, 837 (1998).
Perhaps these words still ring true in the heart of the author of today’s majority opinion, and are the reason that the majority of the court does not endorse the position advanced by the special concurrence. Be that as it may, I note that the proper measure of damages in Illinois in a fraud and deceit action, whether based on statute or at common law, is the benefit-of-the-bargain, rather than the out-of-pocket measure of damages or some close relative thereof. I note further that the record contains sufficient evidence to support an award of damages to the plaintiff class. Several members of the class testified that they switched to light cigarettes because they wanted to reduce their exposure to the harmful compounds in regular cigarettes. Class representative Sharon Price testified that, having switched to light cigarettes because of concerns about lung cancer and other diseases, she would not have gone back to regular cigarettes even if they were offered to her for free. In a similar vein, the Knowledge Network Survey respondents stated that they would have required a steep discount had they known that light cigarettes either did not offer any health benefits compared to regular cigarettes or were actually more harmful than regular cigarettes. The fact remains that the members of the plaintiff class were defrauded because of the misrepresentations made by PMUSA regarding light cigarettes. Illinois law should not tolerate the use of deceptive practices aimed at defrauding the consumers of this state.
IV Conclusion
Today marks the second time in just six months that this court has completely reversed a multibillion dollar verdict in favor of a corporate defendant. See Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100 (2005). To do so in Avery, the court construed an insurance contract strictly against an insured despite its ambiguities and our own precedent to the contrary. See Avery, 216 Ill. 2d at 215-29 (Freeman, J., concurring in part and dissenting in part, joined by Kilbride, J.). In this case, the court does so by interpreting section 10b(l) so expansively that it dilutes the very purpose of the Act. In addition, not content with just speaking to section 10b(l), the two specially concurring justices engage in nothing more than a conclusory analysis on damages—an analysis which, as I have detailed above, overlooks or ignores several salient legal points which serve to greatly undercut their position. Suffice it to say, the issue of damages is not as cut-and-dry as these justices would have one believe.
The manner in which these two, highly publicized cases have been decided by this court leads me to several troubling conclusions. First, a majority of this court has become increasingly desensitized to the interests of the average Illinois consumer. There is little doubt in my mind that these decisions will send a chill wind over consumer protection. That said, I am not blind to the very real problems that exist in the world of class action lawsuits. As I stated in my separate opinion in Avery, I share in the concerns that the class action vehicle has the potential to be greatly abused. However, that concern must not transcend the rules of law that have been set by this court in past decisions. In my view, this means that all cases, even class actions filed in our Fifth District, must be guided by the same long-recognized standards of review, rules of construction, procedural requirements, and burdens of proof that have guided all other types of actions over the years. Aspects of the court’s opinion today and in its opinion in Avery cause me to fear that a majority of my colleagues will continue to hold large class actions to different standards in an effort to reduce the perception that the Illinois court system serves as a playpen for the disingenuous class action practitioner.
JUSTICE KILBRIDE joins in this dissent.
The court also discusses a subsequent decision of this court, Jackson v. South Holland Dodge, Inc., 197 Ill. 2d 39 (2001). 219 Ill. 2d at 248-49. Although the court does not rely on Jackson in its holding, I note that Jackson involved the same federal disclosure requirement as in Lanier. Jackson, 197 Ill. 2d at 45-47.
My reading of the record differs on this point from that of the special concurrence. When Price switched to Cambridge Lights in 1986, she smoked one pack of cigarettes a day. Her consumption increased to IV2 packs of cigarettes a day. In 2002, after she learned of the lawsuit, Price was able to reduce her cigarette consumption to one-half to one pack per day. A summary of Price’s cigarette consumption admitted into evidence as Plaintiffs’ Exhibit 99 reflected the increase in cigarette consumption.
The Knowledge Network Survey respondents would have demanded a discount of 77.7% had they known that light cigarettes did not provide any health benefit when compared to the full-flavored cigarettes, and a discount of 92.3% had they known that light cigarettes were more harmful than regular cigarettes.
According to W Keeton, Prosser & Keeton on Torts § 110, at 767-68 (5th ed. 1984), the “out of pocket” rule, followed by a minority of perhaps a dozen American jurisdictions, “looks to the loss which the plaintiff has suffered in the transaction, and gives him the difference between the value of what he has parted with and the value of what he has received. If what he received was worth what he paid for it, he has not been damaged, and there can be no recovery.” In contrast, the loss-of-bargain rule, adopted by some two-thirds of the courts which have considered the question in actions for deceit, “gives the plaintiff the benefit of what he was promised, and allows recovery of the difference between the actual value of what he has received and the value that it would have had if it had been as represented.”
The class period for purchases of Cambridge Lights was from 1986 to 2001. The class period for purchases of Marlboro Lights was from 1971 to 2001. Plaintiffs did not seek damages for cigarette purchases made outside of those time periods. For example, class representative Sharon Price testified that she learned that light cigarettes were not truly lower in tar and nicotine in the spring of 2002. Plaintiffs entered into evidence a summary of her cigarette purchases from 1986 until February 1, 2001.