This month we address two recent opinions emphasizing and reiterating, in very different contexts, the necessity of fact-pleading in Illinois. The two opinions are Weiss v. Waterhouse Securities, Inc., No. 95458, 2004 WL 116140, 2004 Ill. LEXIS 1 (Ill. 2004) and People ex rel. Lisa Madigan v. Tang, No. 1-02-3337, 2004 WL 192983, 2004 Ill.App. LEXIS 74 (Ill.App.1 Dist. 2004).
In Weiss, the Illinois Supreme Court considered the question of "how much must a putative class representative plead" in order to establish the statutory prerequisites for maintenance of a class action and thereby survive a motion to strike or dismiss? 2004 WL 116140 at 6-7. The plaintiff in Weiss opened a "webBroker" account with a discount securities brokerage known as Waterhouse Securities (Waterhouse), whereby he planned to trade securities on his computer, over his phone, or through a broker. According to plaintiff's allegations, Waterhouse's promotional materials and advertisements promised instant access to Waterhouse's computers, telephones, or brokers twenty-four hours a day. However, plaintiff and his fellow customers soon found that their attempts to trade securities twenty-four hours a day were stymied by busy signals, allegedly excessive hold times, and unavailable brokers. Plaintiff filed a class action complaint against Waterhouse on behalf of more than 1.5 million customers, asserting claims for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, breach of contract, and fraud. Waterhouse subsequently filed a motion asking the trial court for "an Order striking the class allegations from the Complaint pursuant to 735 ILCS 5/2-801." Id. at 3. That motion was premised on Waterhouse's argument that plaintiff's class action could not be certified because common issues of fact and law did not predominate.
The trial court denied the motion to strike, and Waterhouse appealed. The appellate court determined that "Illinois law is 'not clear' about the extent to which a putative class action plaintiff must plead the requirements in section 2-801" but held that plaintiff's complaint sufficiently stated a class action:
A representative plaintiff is not required to allege all the details necessary to establish that his class action is maintainable pursuant to section 2-801 in bringing a claim or claims as a class action. Rather, the plaintiff need only allege a viable individual cause of action, indicate that the claim is being brought as a class action lawsuit, and contain factual allegations that are broad enough in scope to establish the possible existence of a class action suit as contemplated by section 2-801. . . .The complaint alleges that plaintiff and a number of other Waterhouse customers shared difficulties in using Waterhouse's trading services during the class period. Taking the complainant's allegations as true, the possibility that plaintiff's claims can be maintained as a class action cannot be ruled out.
Id. at 4-5 (citing Weiss v. Waterhouse Secs., Inc., 335 Ill.App.3d 875, 781 N.E.2d 1105, 269 Ill. Dec. 915 (Ill.App.Ct. 2002)).
The Supreme Court affirmed and emphasized the importance of fact-pleading in this class action context: "As we have stated time and time again, 'Illinois is a fact-pleading jurisdiction.' Beahringer v. Page, 204 Ill.2d 363, 789 N.E.2d 1216, 273 Ill. Dec. 784 (2003). That is, a plaintiff must allege facts sufficient to bring a claim within a legally recognized cause of action. . . When that cause of action is also a class action, the plaintiff must allege facts sufficient to bring the claim within the statutory prerequisites for a class action." Id. at 7. The Court noted that the only statutory prerequisite in dispute was section 2-801(2), which requires the plaintiff to sufficiently allege that common questions of fact or law predominate over individual questions. Waterhouse argued that the proper test for determining whether plaintiff had sufficiently alleged same was to ask whether successful adjudication of plaintiffs' claim would establish a right to recovery in the class members. According to Waterhouse, plaintiff's complaint failed that test because even if Weiss established his individual claim, he did not necessarily establish claims for all class members because the class "undoubtedly" included customers who had never attempted to execute trades during service interruptions or delays. Id. at 7.
The Court disagreed that Waterhouse's "successful adjudication" test was applicable in this situation because "[t]he showing that Weiss must make in seeking class certification is correspondingly higher than the showing he must make to withstand a motion to strike class allegations. Unlike the class prerequisites at certification, here they are not a matter of proof, but a matter of pleading." Id. at 8. While Weiss had filed his suit on behalf of all Waterhouse's customers, the Court found that he "clearly" only represented those customers who had actually attempted to trade securities. Id. at 9. The operative facts alleged by Weiss were "identical" for those customers: Waterhouse promised twenty-four hour instant access, Waterhouse broke that promise, and class members suffered damages as a result. Id. Consequently, the Court concluded that common issues of fact or law "may predominate" and plaintiff's "allegations are sufficient to bring Weiss' complaint within section 2-801." Id.
In a very different context, dismissal of the Illinois Attorney General's case against an alleged violator of the Illinois Environmental Protection Act (the IEPA) was affirmed after the State amended its complaint twice but still failed to allege sufficient facts. People ex rel. Lisa Madigan v. Tang, No. 1-02-3337, 2004 WL 192983, 2004 Ill.App. LEXIS 74 (Ill.App.1 Dist. 2004). In Tang, the defendant was chairman and CEO of, and also possessed a controlling ownership interest in, a scrap iron company which conducted automobile shredding operations. The State filed a complaint against Tang himself under the IEPA, alleging open dumping, improper waste disposal, common law public nuisance, and other wrongdoing. Tang filed a motion to dismiss pursuant to 735 ILCS 5/2-619.1, claiming that the State failed to "allege any personal involvement in any wrongful act by Mr. Tang, and thus failed to state a claim under Illinois law." Id. at 3.
That original complaint was dismissed without prejudice, and the State tried again by filing its first amended complaint. That complaint, however, "was nearly identical to the original complaint, except that it added counts. . .[and] also contained an allegation that Tang 'caused or allowed' the violations." Id. Tang moved to dismiss the first amended complaint, and the court granted the motion. Id. at 4.
The State tried a third time, filing a second amended complaint containing "allegations . . . very similar to the allegations made in the original and first amended complaints." Id. Specifically, the State alleged that Tang conducted an auto shredding operation, "caused or allowed" residue from same to pollute the site in question, "failed to take any action to remove the wastes," and "failed to authorize the expenditure necessary for proper removal of the wastes." Id. Tang once again moved to dismiss the complaint pursuant to section 2-619.1, claiming that the allegations were insufficient to state a claim against him personally. This time, the court had had enough, and dismissed the complaint with prejudice. The State appealed, arguing that its first and second amended complaints both adequately stated multiple causes of action against Tang. Id. at 5.
The Appellate Court framed the issue thusly: "In this case, we are not asked to determine whether, as a general proposition, a corporate officer may ever be held liable for corporate wrongs under the Act; both parties concede [as much]. Instead, we must determine whether the pleadings in this case are sufficient to state a claim for Tang's individual liability." Id. The Court noted that only one previous Illinois case, People ex rel. Burris v. C.J.R. Processing, Inc., 269 Ill.App.3d 1013 (1995), had considered whether a corporate officer could be held individually liable under the IEPA, and that both parties were claiming that C.J.R. Processing supported their respective positions. According to the Appellate Court, the C.J.R. court "found that the complaint sufficiently alleged 'active participation or personal involvement' to withstand a motion to dismiss. Specifically, the complaint alleged that the defendant was 'responsible' for CJR and controlled its activities." 2004 WL 192983 at 6.
The Appellate Court then reiterated that Illinois is a fact-pleading jurisdiction, Id. at 7, and proceeded to affirm the trial court's dismissal with prejudice of the second amended complaint:
From our analysis of C.J.R. [and other sources of law]. . .we conclude that in order to state a claim for personal liability against a corporate officer under the [IEPA], a plaintiff must do more than allege corporate wrongdoing. . . .The plaintiff must allege facts establishing that the corporate officer had personal involvement or active participation in the acts resulting in liability, not just that he had personal involvement or active participation in the management of the corporation. . . .The State has made conclusory allegations that Tang "caused or allowed" certain actions to occur. . .The State, however, offers no explanation as to how Tang "caused or allowed" these violations to occur. . . .Significantly, the State does not even allege that Tang had knowledge of the wastes or the violations. The allegations merely state in conclusory fashion that Tang "conducted an automobile shredding operation. . ." and inexplicably "caused or allowed" the violations to occur. These allegations are significantly deficient. . .
Id. at 9. In a final bid to keep its case alive, the State argued that it should have been allowed to conduct discovery because the facts it needed to strengthen its complaint were in the defendant's possession and knowledge. The Appellate Court disagreed, noting that the State had never petitioned for discovery and had instead "continued to replead nearly identical conclusions" which were "insufficient to apprise Tang of what acts he [was] being asked to defend." Id. at 10.
Taken together,Weiss and Tang illustrate the vital importance of fact-pleading in Illinois. Weiss demonstrates that even a few facts will enable a plaintiff to successfully defend his or her complaint, when those facts are the "right" facts. Tang illustrates the insufficiency of "conclusory allegations," which usually consist of legal catch-phrases such as "caused or allowed" rather than actual facts. Tang is also a warning to plaintiffs and a comfort to defendants. That is, the plaintiff should only get so many bites at the apple before the complaint is dismissed with prejudice.