In the
United States Court of Appeals
For the Seventh Circuit

No. 00-2057

Cozzi Iron & Metal, Inc., now
known as Metal Management
Midwest, Inc.,

Counterclaim Plaintiff-Appellant,

v.

U.S. Office Equipment, Inc.,
now known as U.S. Office
Solutions, Inc.,

Counterclaim Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 3343--Elaine E. Bucklo, Judge.

Argued December 4, 2000--Decided May 15, 2001


  Before Flaum, Chief Judge, Diane P. Wood
and Williams, Circuit Judges.

  Williams, Circuit Judge. Cozzi Iron &
Metal, Inc. ("Cozzi") filed this
counterclaim against GreatAmerica Leasing
Corp. ("GreatAmerica") and U.S. Office
Equipment, Inc. ("U.S. Office") alleging
that their failure to modify the terms of
ten written leases constituted common law
fraud and a violation of the Illinois
Consumer Fraud and Deceptive Business
Practices Act ("Illinois Consumer Fraud
Act")./1 The district court, sitting in
diversity jurisdiction, dismissed the
counterclaim for failure to state a
claim. We affirm the dismissal of the
common law fraud cause of action, but
reverse and remand the consumer fraud
claim.

I

  This appeal arises out of a dispute
between two parties to a photocopier
leasing agreement. On nine different
occasions, Cozzi leased fourteen
photocopiers from U.S. Office for use at
seven different Cozzi locations. Between
February and December 1998, the parties
entered into a total of ten leases; each
of the leases being two pages in length
and containing identical terms. Under the
terms of the leases, Cozzi agreed to pay
2.17 cents per copy up to a stated number
of copies, plus an additional 1.1 cents
per copy for any amount over the stated
quantity. According to Cozzi, because it
had never leased photocopiers on a per
copy basis, it was unfamiliar with how
many copies it made on a monthly basis.
Thus, U.S. Office selected the minimum
number of copies for each lease.

  Each lease specifically required Cozzi
to pay a minimum monthly fee that was
derived from multiplying the cost per
copy by the minimum number of copies
assigned to each lease. Paragraphs 5 and
7, respectively, provided in pertinent
part:

YOU AGREE THAT YOU ARE UNCONDITIONALLY
OBLIGATED TO PAY ALL MINIMUM MONTHLY
RENTAL PAYMENTS . . . NO MATTER WHAT
HAPPENS . . . .

Your obligation to pay Minimum Monthly
Rental Payments . . . is unconditional
and is not subject to any reduction, set-
off, defense, or counterclaim for any
reason whatsoever. . . . You will never
pay less than the Minimum Monthly Rental
Payment.

The result was that Cozzi agreed to pay
for a minimum of 321,575 copies per
month, for 60 months, at a minimum cost
of $6,978.17 per month.

  The leases also provided that Cozzi had
not relied on any representations other
than those stated in the agreement:

NO INDIVIDUAL IS AUTHORIZED TO CHANGE ANY
PROVISION OF THIS AGREEMENT. . . . YOU
HAVE NOT RELIED ON ANY STATEMENTS OWNER
OR OWNER’S EMPLOYEES HAVE MADE.

Nevertheless, Cozzi alleges that
contemporaneously with the signing of
each lease, a U.S. Office representative
informed a Cozzi representative that even
though the leases required payment for
the minimum number of copies assigned to
each lease, Cozzi would only be
responsible for the copies it actually
made. Cozzi further claims that actual
copy usage was to be determined at a
later time by U.S. Office based on actual
readings taken from the machines.
  All was well until January 1999, when
Cozzi determined, through documents
provided by U.S. Office, that Cozzi’s
actual copy usage was approximately
40,000 copies per month. Allegedly, after
some bantering back and forth, in March
1999, U.S. Office reduced Cozzi’s minimum
copies from 321,575 to 70,000 per month,
and increased the minimum cost per copy
from 2.17 cents to 7.5 cents. Cozzi
refused to accept the adjustment and sent
notice that it would only pay for the
actual number of copies it made at the
rate of 2.17 cents per copy.

  GreatAmerica, which had been assigned
the leases by U.S. Office, sued Cozzi for
$372,053.14 for defaulting under the
leases. In response, Cozzi filed this
counterclaim against both GreatAmerica
and U.S. Office alleging that U.S.
Office’s inclusion of provisions in the
leases different than its oral
representations constituted common law
fraud and a violation of the Illinois
Consumer Fraud Act. Specifically, Cozzi
claimed, among other things, that U.S.
Office never informed Cozzi that: 1)
there would be a minimum monthly payment
regardless of the number of copies and
even if no copies were made, 2) there
would not be an adjustment to the
contract to reflect Cozzi’s actual usage,
and 3) the contract was subject to fine
print terms and conditions on the reverse
side.

  This appeal centers around the district
court’s dismissal of Cozzi’s counterclaim
against U.S. Office./2 On appeal, Cozzi
argues that the district court erred when
it: 1) dismissed its common law fraud
claim on the grounds that Cozzi’s
reliance on the alleged representation
was not justified as a matter of law, and
2) found that Cozzi could not state a
claim for consumer fraud because it could
not prove that it reasonably relied on
the representations.

II

  We review a district court’s decision to
grant a motion to dismiss under Rule
12(b)(6) de novo, accepting all well-
pleaded allegations in the counterclaim
as true and drawing all reasonable
inferences in favor of the counterclaim
plaintiff. See Gastineau v. Fleet
Mortgage Corp., 

, 493 (7th
Cir. 1998).

A

  In order to state a claim for common law
fraud in the formation of a contract,
Cozzi needs to allege that: 1) U.S.
Office made a false statement of material
fact, 2) U.S. Office knew that the
statement was false, 3) U.S. Office made
the statement intending to induce Cozzi
to act, 4) Cozzi relied upon the truth of
the statement, and 5) Cozzi’s damages
resulted from reliance on the statement.
Connick v. Suzuki Motor Co., Ltd., 

, 591 (Ill. 1996). In addition,
Cozzi’s reliance upon the
misrepresentation must have been
justified. See Charles Hester Enters.,
Inc. v. Illinois Founders Ins. Co., 499
N.E.2d 1319,1323 (Ill. 1986). That is,
Cozzi must have had a right to rely upon
the statement. See id.

  In determining whether Cozzi’s reliance
was justified, we must consider all of
the facts that Cozzi knew, as well as
those facts Cozzi could have learned
through the exercise of ordinary
prudence. See Adler v. William Blair &
Co., 

, 232 (Ill. App. Ct.
1995). Although reliance is normally a
question of fact, it can be determined as
a matter of law when no trier of fact
could find that it was reasonable to rely
on the alleged statements or when only
one conclusion can be drawn. Neptuno
Treuhand-und Verwaltungsgesellschaft MBH
v. Arbor, 

, 819 (Ill. App.
Ct. 1998).

  It is an elementary principle of
contract law that "’[a party] may not
enter into a transaction with [its] eyes
closed to available information and then
charge that [it] has been deceived by another.’"
Adler, 648 N.E.2d at 232 (quoting Central
States Joint Bd. v. Continental Assurance
Co., 

, 936 (Ill. App. Ct.
1983)). As long as the complaining party
could have discovered the fraud by
reading the contract and had the
opportunity to do so, Illinois courts
have refused to extend the doctrine of
fraudulent inducement to invalidate
contracts. See Belleville Nat’l Bank v.
Rose, 

, 283-84 (Ill. App.
Ct. 1983); Hurley v. Frontier Ford
Motors, Inc., 

, 392 (Ill.
App. Ct. 1973).
  Cozzi argues, relying on Ginsburg v.
Bartlett, 

 (Ill. App. Ct.
1931), that this is not the normal
failure to read the contract situation
because it could have read the contract
"once or 200 times" and would not have
found that the alleged representation was
a lie. Cozzi contends that it could only
realize that U.S. Office’s promises were
misrepresentations when it came time for
U.S. Office to make the adjustment to the
number of copies for which Cozzi would be
responsible. At that time, Cozzi asserts,
U.S. Office failed to decrease the
minimum number of copies to reflect
Cozzi’s actual copy usage and increased
the price per copy, thereby making the
overall adjustment only nominally cheaper
for Cozzi.

  Cozzi’s argument is misguided. Cozzi had
the lease in front of it nine different
times. Each lease contained identical
provisions and was only two pages long.
Each time Cozzi signed a lease, it had
the opportunity to read the terms of the
lease that were explicitly different from
the alleged oral representations. In two
paragraphs, the lease agreement stated
that Cozzi was responsible for the
minimum number of copies identified in
the lease. Nowhere did the lease provide
that Cozzi would only be responsible for
the actual copies that it made. And,
each lease specifically provided that
Cozzi had not relied on any oral
representations contrary to the written
terms of the agreement. Cozzi is a
sophisticated business that has
experience in entering into contracts. It
could have shopped around and found a
better deal, or at the very least,
negotiated with U.S. Office to include
written terms that protected its own
interests.

  Additionally, Ginsburg is of no help to
Cozzi. There, the plaintiff purchased
land from the defendant under a written
contract that provided that she "agrees
that the vendor has not represented or
promised that there will be a new line of
transportation [established nearby] and .
. . that a new line of transportation is
not a part of the consideration of this
contract." Ginsburg, 262 Ill. App. at 21-
22. The contract further stated that "no
representation, promise or agreement not
expressed in the contract has been made
to induce [her] to enter it." Id. Despite
these statements in the contract, the
Illinois appellate court affirmed the
trial court’s finding that the plaintiff
could introduce evidence that at the time
of entering into the contract the seller
falsely represented that a new railroad
facility would actually be established.
The court’s decision was based on its
finding that the fraudulent
representation did not concern a
substantive part of the contract, i.e.,
the purchase of the land. Id. at 35.

  Here, the alleged representations affect
a substantive part of the contract,
namely, the amount of money that Cozzi
would be required to pay U.S. Office each
month for the photocopiers it leased.
Accordingly, we agree with the district
court that as a matter of law, Cozzi’s
reliance was not justified. Therefore,
the dismissal of Cozzi’s common law fraud
counterclaim is affirmed.
B

  Cozzi fares better on its consumer fraud
claim. The Illinois Consumer Fraud Act
prohibits the "misrepresentation or the
concealment, suppression or omission of
any material fact" in the conduct of
trade or commerce. 815 Ill.Comp.Stat.
sec.505/2 (West 2000). In order to state
a claim for a violation of the Act, Cozzi
must allege: 1) a deceptive act or
practice by U.S. Office, 2) U.S. Office’s
intent that Cozzi rely on the deception,
and 3) that the deception occurred in the
course of conduct involving trade and
commerce. See Connick, 675 N.E.2d at 593.
Cozzi must also allege that the deceptive
act proximately caused its injury. See
id.

  U.S. Office argues that Cozzi cannot
establish that the alleged statements
were material or that Cozzi’s reliance
was reasonable. A material fact is one in
which "a buyer would have acted
differently knowing the information, or .
. . concern[s] the type of information
upon which a buyer would be expected to
rely in making a decision whether to
purchase." Id. at 595. In other words,
the fact "must be essential to the
transaction between the parties." L.R.J.
Ryan v. Wersi Elec. GmbH & Co., 

, 54 (7th Cir. 1995).

  Cozzi pleaded that because it was
inexperienced in leasing photocopiers on
a per copy basis, it relied on U.S.
Office’s representation that it would
change the minimum number of copies in
the leases to reflect Cozzi’s actual
usage. According to Cozzi, it would not
have entered into the leases if it had
known that U.S. Office would not make the
change. Although U.S. Office correctly
notes that in Ryan we held that the
failure to include a specific provision
in a stock purchase agreement
demonstrated that the provision was
immaterial, Ryan is distinguishable
because Cozzi was not experienced in the
subject matter of the agreement and was
not represented by counsel. Most
importantly, the provision in Ryan was
collateral to the purchase of the
company’s stock. See id. Here, by
contrast, the alleged misrepresentations
go to the very heart of the contract--the
amount that Cozzi was required to pay
U.S. Office for use of the photocopiers.

  As for whether Cozzi’s reliance was
reasonable, we need not spill additional
ink on how imprudent it was for Cozzi to
enter into a contract with terms
explicitly different than what it thought
it to be. This is so because the Illinois
Supreme Court has repeatedly held that,
unlike a claim for common law fraud,
reliance is not required to establish a
consumer fraud claim. See Connick, 675
N.E.2d at 593 (no reliance); Martin v.
Heinold Commodities, Inc., 

, 754 (Ill. 1994) (no actual
reliance); Siegel v. Levy Org. Dev. Co.,
Inc., 

, 198 (Ill. 1992) (no
actual reliance). Despite the Illinois
Supreme Court’s clear holdings, U.S.
Office asks us to find, as did the
district court and a multitude of
Illinois appellate courts, see Elipas
Enters., Inc. v. Silverstein, 

, 12 (Ill. App. Ct. 1993); Stehl v.
Brown’s Sporting Goods, Inc., 

, 51 (Ill. App. Ct. 1992); Lidecker v.
Kendall College, 

, 1124
(Ill. App. Ct. 1990), that reasonable or
justifiable reliance is required.

  As a federal court reviewing a state
statute, we must follow the state’s
highest court’s interpretation of its own
state law. Heidelberg v. Illinois
Prisoner Review Bd., 

, 1027
(7th Cir. 1998). Based on this principle,
we must hold that a complaining party is
not required to establish reliance,
either actual or reasonable, to state a
claim under the Illinois Consumer Fraud
Act. This is in line not only with the
Illinois Supreme Court’s statements
regarding the absence of a reliance
requirement, but also the liberal policy
behind the Act. See Connick, 675 N.E.2d
at 594. Accordingly, the district court
erred when it disposed of Cozzi’s
consumer fraud claim on the basis that
Cozzi could not establish that its
reliance was reasonable.

  A review of the counterclaim
demonstrates that Cozzi has plead all
that is required of the Illinois Consumer
Fraud Act. By holding as we do, we are
not expressing a belief that Cozzi will
be successful in proving that it was U.S.
Office’s misrepresentations and not
Cozzi’s own imprudence that proximately
caused Cozzi’s damages. We simply find
that Cozzi has satisfied its pleading
obligations.

III

  For the foregoing reasons, we AFFIRM the
district court’s dismissal with prejudice
of Cozzi’s common law fraud claim, but
REVERSE and REMAND for further proceedings
on its consumer fraud claim.

FOOTNOTES

/1 Cozzi also sought recovery under various breach
of contract theories, none of which is the
subject of this appeal.

/2 The claims between GreatAmerica and Cozzi have
been settled and dismissed with prejudice.


  DIANE P. WOOD, Circuit Judge, concurring in the
judgment. While I agree that the proper disposi-
tion of Cozzi Iron & Metal’s counterclaims
against Great America Leasing Corporation and
U.S. Office Equipment is to dismiss the common
law fraud claim and to remand the statutory
consumer fraud claim, I am concerned that the
rationale the majority has employed does not draw
as sharp a line as it should among several
different Illinois doctrines. I therefore concur
in the judgment.

  First, with respect to the common law fraud
claim, the majority correctly notes that Illinois
requires a plaintiff to prove five elements: (1)
defendant made a false statement of material
fact, (2) defendant knew that the statement was
false, (3) defendant made the statement intending
to induce the plaintiff to act, (4) plaintiff
relied on the truth of the statement, and (5)
plaintiff’s damages resulted from that reliance.
See Connick v. Suzuki Motor Co., 

,
591 (Ill. 1996). The majority concludes that even
if Cozzi, our plaintiff for these purposes,
literally relied on the truth of U.S. Office’s
copy volume estimates, this cannot constitute
reliance as a matter of law because the contract
warned that no representations had been made. If
we were writing on a clean slate, this position
makes perfect sense. But we are not. The Illinois
Appellate Court, in Ginsburg v. Bartlett, 

 (1st Dist. 1931), faced a remarkably
similar situation. There, a seller had represent-
ed to the plaintiff at the time she entered into
a contract for the sale of land that a new
railroad facility would be established nearby.
The contract, however, expressly stated that the
buyer "agree[d] that the vendor has not repre-
sented or promised that there will be a new line
of transportation . . . and that a new line of
transportation is not part of the consideration
of this contract." 262 Ill. App. at 21. The
majority has attempted to distinguish Ginsburg on
the ground that the fraudulent misrepresentation
there did not involve a substantive part of the
contract, but I find that unpersuasive.

  I cannot see a difference between inducing
someone to enter a contract for a copier based on
representations about copy volume and inducing
someone to enter a contract for the purchase of
land based on representations about the land’s
proximity to a railroad. Both are statements
designed to make the purchaser think that he or
she is getting a great bargain--cheap copies, or
land that is more desirable because it has access
to cheap transportation. Neither is inherently
more substantive than the other.

  On the other hand, the central issue before the
Ginsburg court was not whether the reliance
element of a fraud claim could not be proven as
a matter of law. It was instead whether the
evidence of the pre-contractual representations
had to be excluded from the proceeding because of
Illinois’s parol evidence rule. The court found
that the parol evidence rule did not require
exclusion of the evidence, because "parol evi-
dence of fraudulent representations, not concern-
ing a substantive part of the contract but made
to induce a party to enter into the same, is
admissible in evidence and has no tendency to
vary the terms of provisions of the written
contract." Id. at 35 (emphasis in original). As
Cozzi’s case comes to us, no one is arguing about
parol evidence. The issue is reliance, and the
district court followed the numerous cases in
which this court and others have said that a
party cannot reasonably rely on statements flatly
contradicted by the express terms of a contract.
Nonetheless, the holding in Ginsburg is, as Cozzi
points out, inconsistent with that line of cases,
as the following passage illustrates:

It is also contended that the false representa-
tions, if made, cannot be relied upon by plain-
tiff . . . because of the clause in all contracts
(that plaintiff agrees that the vendor has not
represented or promised that there will be a new
line of transportation to the properties) . . .
. Under the evidence and the law we do not think
there is any merit in that contention or argu-
ment. We believe it to be well settled law that
a party guilty of fraud cannot, by way of estop-
pel against the party injured, rely upon provi-
sions in a contract similar to those contained in
the present contracts.

262 Ill. App. at 33-34. In essence, the court
found that the fraud was complete by the time the
pre-contractual false representations were made,
and thus that the contractual provisions claiming
the contrary could not shield the seller from a
fraud lawsuit.

  Even if this is what Ginsburg held, however,
our analysis of the present case is not complete.
Ginsburg is, after all, a seventy-year-old deci-
sion from the intermediate state appellate court.
It is our duty under Erie Railroad v. Tompkins,

 (1938), to decide whether Ginsburg
represents the current view of the Illinois
Supreme Court. Even though that court has never
expressly disapproved of the outcome in Ginsburg,
there is ample reason to predict that the Illi-
nois Supreme Court would today require justifi-
able reliance, and would find that a plaintiff
did not justifiably rely if the written contract
it signed clearly warned--before plaintiff signed
it--that no promises were being made. So, for
example, in Marino v. United Bank of Illinois,
N.A., 

 (Ill. 1985), the Illinois
Supreme Court held that a mere allegation of
reliance is insufficient to sustain a claim for
common law fraud; the reliance must be justified.
Whether reliance is justified depends on "all of
the facts within a plaintiff’s actual knowledge
as well as those which he could have discovered
by the exercise of ordinary prudence." Neptune
Treuhand v. Arbor, 

, 818 (Ill. App.
Ct. 1998). Some years before Marino, the Illinois
Appellate Court also held that there was no fraud
as a matter of law in a case where the plaintiff
had relied on oral representations that were
inconsistent with the terms of a loan agreement
that the plaintiff had ample opportunity to read
before signing. See Belleville National Bank v.
Rose, 

 (Ill. App. Ct. 1983).

  In short, rather than drawing a line that is at
best difficult and at worst illusory between
"substantive" misrepresentations and non-substan-
tive ones, I would squarely confront Ginsburg and
hold that my best guess as a federal judge is
that it no longer represents the law of Illinois.
With Ginsburg out of the way, we are then free to
apply the law of reliance as it now exists in the
state and to conclude that Cozzi’s common law
claim against Great America was properly dis-
missed.

  Turning to the discussion of Cozzi’s claim
under the Illinois Consumer Fraud and Deceptive
Practices Act (CFA), 815 ILCS 505/1 et seq., I
again cannot subscribe to the rationale the
majority has adopted. Once again, we begin on
common ground with the elements of a claim under
the CFA: (1) a deceptive act or practice by the
defendant (U.S. Office), (2) the defendant’s
intent that the plaintiff (Cozzi) rely on that
deception, (3) the deception occurred in trade or
commerce, and (4) proximate causation. Here, the
troublesome parts of the case concern materiality
and reliance. The majority looks to the Illinois
Supreme Court’s decision in Connick, supra, for
the authoritative word on the meaning of materi-
ality. There, the court defined a material fact
as one in which "a buyer would have acted differ-
ently knowing the information, or . . . [one
that] concern[s] the type of information upon
which a buyer would be expected to rely in making
a decision whether to purchase." 675 N.E.2d at
595. This is the kind of language courts use when
they are describing an objective inquiry. So far,
so good, but then the majority turns to this
court’s opinion in L.R.J. Ryan v. Wersi Elec.
GmbH & Co., 

 (7th Cir. 1995). Decided
prior to Connick, Ryan treated materiality under
Illinois law as a subjective inquiry. It held
that a sophisticated business person who signed
a stock agreement containing terms inconsistent
with oral representations made prior to signing
the agreement must not have considered the repre-
sentations material and thus he could not state
a claim under the CFA. Id. at 54.

  Rather than recognize that the later Connick
decision undermines the interpretation of Illi-
nois law we used in Ryan (to the extent that Ryan
relies on a subjective inquiry), the majority
accepts Ryan’s subjective inquiry and attempts to
distinguish Ryan on its facts. Given that we are
debating matters of Illinois law, any earlier
decision of this court has no binding force in
any event on the Illinois Supreme Court, and thus
we are under no imperative to reconcile Ryan and
Connick. Furthermore, to the extent that recon-
ciliation may be desirable, the majority’s dis-
tinctions are unpersuasive. Cozzi, it says, had
no experience with the substance of this contract
and was not represented by counsel. Ante at 8.
This statement flatly contradicts the earlier
observation in the section of the majority’s
opinion discussing common law fraud that "Cozzi
is a sophisticated business that has experience
in entering into contracts." Ante at 6. More
importantly, after Connick there can be little
doubt that, unlike reliance, materiality is
assessed in Illinois under an objective test.
Objectively, it is clear that a trier of fact
could find that whether a buyer would be held
responsible for a fixed number of copies per
month no matter how many it generated is the type
of information upon which a reasonable person
would be expected to rely. As far as materiality
is concerned, therefore, Cozzi is on solid
ground.

  With respect to reliance, Cozzi is helped by
the fact that the CFA has modified the common law
requirement that reliance must be demonstrated
and that it must be shown to be reasonable or
justifiable. The Illinois Supreme Court said in
Connick that "[p]laintiff’s reliance is not an
element of statutory consumer fraud [under the
CFA]." 675 N.E.2d at 593. The district court’s
holding to the contrary relied on Illinois appel-
late decisions that had concluded that a private
plaintiff seeking damages under the CFA must
demonstrate "reasonable or justifiable reliance"
even if "actual reliance" was not required.
Whatever the status of those decisions before
Connick, I cannot imagine that the Illinois
Supreme Court would find that they survived it.
Connick itself was a private party action, and
thus no distinction based on the posture of the
case is possible. Last, Connick cites with ap-
proval the earlier decision in Harkala v. Wild-
wood Realty, Inc., 

 (Ill. App. Ct.
1990), where the court said: "The [CFA] is in-
tended to provide broader consumer protection
than the common law action of fraud; therefore,
a plaintiff need not show actual reliance or
diligence in ascertaining the accuracy of the
misstatements." Id. at 199 (internal citations
omitted).

  Particularly given the distinction Illinois has
drawn between reliance in common law cases and
reliance in statutory cases, it is important for
us to keep these doctrinal lines straight. On the
other hand, we should not be introducing an
element of subjectivity into the materiality
question that does not now exist in Illinois law,
whatever the case may once have been. I have no
doubt that this court has come to the correct
result in this case, but I must respectfully
concur in the judgment.