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Monday, September 4, 2006

Contract: Saved from Death by Consumer Fraud Statute?

The Seventh Circuit (Easterbrook, Rovner, Evans) recently held that a hotel guest's allegation that the hotel's website misrepresented the room rate was not actionable as consumer fraud but, rather, sounded in breach of contract.

Using the hyatt.com website, Britt Shaw made a reservation for a 3-night hotel stay at the Ararat Park Hyatt in Moscow, Russia. The website established a nightly room rate of $502.  However, the website cautioned that the conversion represented an approximate price based on the recent exchange rates, and that "the price paid at the time of hotel checkout will be of the currency initially quoted and displayed."

Shaw stayed at the hotel for three nights and, upon checkout, his bill was provided in Russian rubles. Shaw paid the bill using his American Express card, which charged him a roughly 3182 rubles for the room, taxes, and other amenities. Shaw’s hotel bill reflected a hotel exchange rate of 32 Russian rubles per United States dollar, whereas the official exchange rate set by the Central Bank of Russia on the date of check-out was 28.01 Russian rubles per dollar. The result: Shaw paid approximately 14% more for his room in U.S. dollars than the rate promised by the website.

Shaw pursued a class action against Hyatt, alleging unjust enrichment and violation of the Illinois Consumer Fraud Act.*  Shaw did not allege breach of contract, maintaining throughout the proceedings that there was no contract between him and Hyatt.  The trial court granted Hyatt's motion to dismiss both claims, and the Seventh Circuit affirmed.

The Seventh Circuit held that there was an express contract between Shaw and Hyatt, and that ultimately resolved both of his claims.  The court held that a breach of a contractual promise, without more, is not actionable under the Consumer Fraud Act.The court wrote:

What plaintiff calls "consumer fraud" or "deception" is simply defendants' failure to fulfill their contractual obligations. Were our courts to accept plaintiff's assertion that promises that go unfulfilled are actionable under the Consumer Fraud Act, consumer plaintiffs could convert any suit for breach of contract into a consumer fraud action. However, it is settled that the Consumer Fraud Act was not intended to apply to every contract dispute or to supplement every breach of contract claim with a redundant remedy. [citation omitted] We believe that a "deceptive act or practice" involves more than the mere fact that a defendant promised something and then failed to do it. That type of "misrepresentation" occurs every time a defendant breaches a contract.

Here's a link to the oral argument, with an enlightening set of questioning concerning why Plaintiff did not allege that Hyatt.com breached an express contract to provide the room at the rate promised on the website.

[*Apparently, the website specified that any disputes would be governed by Illinois law.  Shaw booked the Moscow hotel room while on the internet in London; the parties disputed whether Shaw had established the requisite nexus of contact with Illinois to form a basis for the application of the Consumer Fraud Act to the transaction.]

Shaw v. Hyatt Int'l Corp, __ F.3d __, 2006 WL 2473417 (7th Cir. Aug. 30, 2006). 

[Meredith R. Miller]

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