Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDIll: Legal Recruiting Firm Failed to Allege That Email Hosting Provider Committed Unfair Practice , (Mar 28, 2013)

By John W. Arden, J.D., LL.M.

A legal recruiting firm, claiming that an email hosting provider failed to notify clients that emails from its server were being “bounced back” by the most popular email domains, failed to allege that the provider committed an unfair practice within the Illinois Consumer Fraud and Deceptive Business Practices Act, according to the federal district court in Chicago (Astor Professional Search, LLC v. Megapath Corp., March 27, 2013, Lefkow, J.). The claim was dismissed with without prejudice, and the recruiting firm was allowed to replead its claim.

Astor Professional Search is a legal recruiting firm, headquartered in Chicago. In 2009, it contracted with Speakeasy Broadband Services, LLC to provide Internet hosting and email services in return for a $15 monthly fee. In 2010, MegaPath Corporation merged with Speakeasy and began to provide services to Astor.

Astor depended on properly functioning email to communicate with attorneys and law firms in order to set up interviews, communicate job offers, and counsel clients prior to meetings. In August 2011, Astor learned that its clients were not receiving emails sent through MegaPath’s servers and that the problems started as early as January 2011. Astor contacted MegaPath numerous times in August and September 2011, yet the email problems persisted.

A MegaPath representative informed Astor in September 2011 that the company was aware of the email problem and that, at one point, 11 of the most popular email hosting services—including Gmail, Yahoo, Hotmail, AT&T, and Comcast—were blocking emails sent from MegaPath’s servers. Nevertheless, MegaPath refused to provide a refund for lost service and never notified other customers of the problem.

On March 28, 2012, Astor filed a putative class action lawsuit against MegaPath, alleging breach of contract, fraud/intentional misrepresentation, unjust enrichment, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA). MegaPath moved to dismiss the complaint, arguing that it failed to state a claim under rule 12(b) (6). MegaPath also moved to strike Astor’s request for punitive damages under Rule 12(f). Contrary to MegaPath’s claim, there generally is no requirement of pleading the facts or elements, the court noted.

Consumer Fraud and Deceptive Business Practices Act. The elements of an ICFA claim are: (1) a deceptive act or practice by the defendant; (2) the defendant’s intent that the plaintiff rely on the deceptive act or practice; and (3) the unfair or deceptive practice occurred during the course of conduct involving trade or commerce.

Under the statute, a plaintiff may maintain a claim that is premised on either deceptive or unfair practices. In its response brief, Astor indicated that it intended to proceed under the “unfair practice” prong of the statute, although it made no such indication in its complaint, the court observed. An unfair practice is one that offends public policy; is immoral, unethical, oppressive, or unscrupulous; or causes substantial injury to consumers.

MegaPath argued that the statutory claim had to be dismissed because it was predicated on the same acts as Astor’s breach of contract claim. The Illinois Supreme Court has held that a breach of contractual promise, without more, is not actionable under the Consumer Fraud Act. Avery v. State Farm Mutual Auto. Insurance Co., 835 N.E. 2d 801.

The district court agreed, finding that the ICFA claim was “based on largely the same allegations” as the contract claim. Thus, the statutory claim appeared to be merely a breach of contract claim clothed as a violation of the ICFA. While Astor may be able to overcome this deficiency by demonstrating that MegaPath’s actions implicate the consumer protection purpose of the Act, it failed to clearly articulate such a purpose, the court found.

Accordingly, the court granted MegaPath’s motion to dismiss the ICFA claim without prejudice and allowed Astor to replead its claim to satisfy the “unfair practice” prong of the Act.

Breach of contract, unjust enrichment. The breach of contract claim withstood MegaPath’s motion to dismiss. The complaint alleged that Astor contracted with Speakeasy to provide Internet and email host services for $15 per month. The agreement consisted of an offer, acceptance, and consideration by both parties. Thus, the contract was valid. Astor allegedly fulfilled its contractual obligation by timely paying all fees, as did other members of the class. MegaPath, however, was alleged to have breached its agreements by failing to deliver email services, causing harm to its customers.

The unjust enrichment claim was deficient because it incorporated some of Astor’s contractual allegations. The court granted Astor leave to file an amended complaint omitting references to an express contract in its unjust enrichment claim.

The case is No. 1:12-cv-02313.

Attorneys: Joseph J. Siprut (Siprut PC) for Astor Professional Search, LLC. David S. Almeida (Sedgwick LLP) for MegaPath, Corp.

Companies: Astor Professional Search, LLC; Megapath Corp.

Cases: StateUnfairTradePractices IllinoisNews