Consumer Fraud: Strict Consumer Protection Laws
By: Peter J. Lamont, Esq. In the past, when a kitchen or bath company was sued the allegations generally sounded in breach of contract or negligence. The defendant kitchen and bath company typically did not have to worry about payment of attorney’s fees or punitive damages. In essence, the parties were on an equal playing field in the prosecution and defense of the claims. However, over the past five years, there has been a dramatic increase in pro-consumer laws passed by a majority of states which have greatly shifted the playing field in favor of the consumer plaintiff. Legislative Shift
Unfortunately, most people have fallen prey to some form of deceptive business practice at one time in their lives. It may have been as simple as a loss of $10 on a product that a deceptive television advertisement duped you into buying or a serious as being bilked out of thousands of dollars by an unscrupulous contractor or failed to finish construction on your house. Five to ten years ago, people would generally complain to the Better Business Bureau or retain a private attorney. However, as the Internet developed it became much easier to e-mail local government officials or file claims online with the Federal Trade Commission. As a result, state and federal agencies became overwhelmed with consumer fraud claims. The legislature’s response, both at the state and federal levels, was to enact strong consumer protection laws which had “teeth" and that would act as a deterrent against fly-by-night companies and general deceptive business practices.
The “teeth", in most states, was the possibility of double or triple damages against a company found to have committed a deceptive business practice and the repayment of the plaintiff’s attorney’s fees by the defendant. For example, under New Jersey law, which is at the forefront of consumer protection legislation, if a cabinet company was found to be liable to a plaintiff for a deceptive practice and the actual damages were $100,000, the Court could award three times the damages, up to $300,000, plus award attorney’s fees to the plaintiff’s counsel. Depending upon the length of the case, attorney’s fees could exceed $50,000. Thus, a $100,000 claim could end up costing the cabinet company $350,000 (not to mention the defense costs to its own attorney). Increase in Consumer Rights Practice Plaintiffs attorneys quickly focused on the potential to cash in on the new consumer protection laws. As a result, many plaintiff attorneys have devoted their practices to consumer rights. Obviously, the draw for the attorney is the ability to recover most if not all of his fees as opposed to the typical 1/3% recovery of the total amount awarded in a regular negligence action. Type in “consumer fraud attorney" into any search engine and you will find pages of plaintiff-oriented law firms who are eager to speak with you about your consumer rights. In addition to their websites, many attorneys actively seek out potential plaintiffs on consumer complaint websites such as the squeakywheel.com and complaints.com. The result is that more and more cabinet and bath companies are being sued by these over-aggressive plaintiff attorneys. Understanding Your States Consumer Protection Laws It is critical that you research and understand your state’s consumer protection laws. Many kitchen and bath companies are hiring attorneys to make sure that there practices and procedures comply with their state’s consumer protection laws. These new laws can be rather tricky to understand and have broad sweeping language which is detrimental to the kitchen and bath industry. For example, numerous states have enacted home improvement laws which directly impact the industry. While you may not think of your company as a “home improvement" company, the statues may say otherwise. For example, New Jersey law defines a “home improvement" as: the remodeling, altering, painting, repairing, renovating, restoring, moving, demolishing, or modernizing of residential or noncommercial property or the making of additions thereto, and includes, but is not limited to, the construction, installation, replacement, improvement, or repair of . . . cabinets, kitchens, bathrooms, . . . , and other changes, repairs, or improvements made in or on, attached to or forming a part of the residential or noncommercial property, but does not include the construction of a new residence. . . Clearly, kitchen and bath companies are considered “home improvement" contractors under New Jersey law. Similar definitions and laws have bee enacted in numerous states including, New York, Pennsylvania, Illinois, Florida and California. In fact, Pennsylvania recently began enforcing its new home improvement contractor’s registration act which provides for criminal penalties for non-compliance. Over the past year there has been a flurry of lawsuits filed against kitchen cabinet companies alleging consumer fraud. In fact, the New Jersey Supreme Court recently held that the Consumer Fraud Act and its treble-damages remedy can apply to contractors performing interior work on new homes, a ruling that expands the already broad power of the statute. It is expected that many states will follow the New Jersey Supreme Court’s ruling. Conclusion It is imperative that you become familiar with your state’s consumer protection laws and stay abreast of recent developments in the law. It may be beneficial to consult with an attorney to ensure that your current business practices, contracts, and customer interactions comply with consumer protection laws. Failure to do so could be very costly to your business.