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In a Nutshell: The New Jersey Consumer Fraud Act

Posted by attorney Michael Millar

(1) What is consumer fraud?

Consumer fraud is "any unconscionable commercial practice, deception, fraud, false pretense, false promise or misrepresentation" in connection with the sale of goods, services or real estate.N.J.S. 56:8-2.

The statute defines the word "sale" to include not only a traditional sale of goods or services but also rentals and distribution. Thus, a lease agreement for an apartment or office space maybe subject to the Consumer Fraud Act.49 Prposepct Street Tenants Assoc. v. Sheva Gardens, Inc., 227 N.J.Super. 449 (App. Div. 1988). Further, a "sale" need not be completed. The definition includes "offers" and "attempts" to sell, rent or distribute goods or services. SeeN.J.S. 56:8-1(e).

The New Jersey Consumer Fraud Act provides that are three ways in which an act of consumer fraud may be committed:

a. Affirmative Misrepresentation.

An affirmative misrepresentation is a statement of fact that is untrue. It does not matter whether the party making the statement knew that it was untrue. If the statement is untrue, then it is consumer fraud. Thus unlike traditional concepts of fraud which require an intentional misrepresentation (i.e., a "lie"), consumer fraud may be a negligent, unintentional misrepresentation.

b. Knowing Omission.

Consumer fraud can be the "knowing concealment, suppression or omission of any material fact."N.J.S.56:8-2. A knowing omission occurs when a party knows a fact that is important to the transaction but fails to disclose it to you.

c. Violation of Certain Laws.

The third basis for responsibility under the New Jersey Consumer Fraud Act involves either a specific-situation statute or administrative regulations enacted to interpret the Act itself. Such statutes and regulations define specific conduct prohibited by law.

Specific situation statutes cover approximately 40 topics including, but not limited to, selling food as kosher or halal when it is not, home improvement contracts, junk faxes, gym memberships and children's toys and products. SeeN.J.S.56:8-1 through 56:8-195

d. Ascertainable Loss.

Once a party establishes a violation of the New Jersey Consumer Fraud Act, the party must then establish that he or she has an "ascertainable loss" related to the act of consumer fraud.

By "ascertainable loss", the law means any type of damage that is quantifiable or measurable.Thiedemann v. Mercedes-Benz, USA, LLC, 183 N.J. 234 (2005). It does not have to be a loss that you have already experienced, but may include a future out of pocket expense that you will be required to make.Cox v. Sears Roebuck & Co., 138 N.J. 2 (1995).

(2) What are the penalties for a violation of the New Jersey Consumer Fraud Act?

a. Treble Damages.

If a jury or a court determines that a party has committed an act of consumer fraud, then that party must pay three times (3X) the amount of damages awarded to the other party. For example, if a party is found to have caused $50,000 in damages, under the Consumer Fraud Act that party must pay $150,000 in damages. Note that trebling of damages is mandatory. The court has no discretion on this point.

It should be noted that insurance policies do not cover fraud claims – including consumer fraud claims. Thus, although an insurance company may defend a party in a lawsuit that includes a claim for consumer fraud, the insurance company likely will not pay the treble damages or attorney fees awarded under the Consumer Fraud Act.

b. Attorney Fees.

If a party prevails on a claim under the New Jersey Consumer Fraud Act, then the other party must pay the first party's attorney fees. In some cases, the attorney fees are more than the damages.

In a fairly recent case, the New Jersey Appellate Division ruled that even where the party fails to establish any damages at trial due to the claim of consumer fraud, the party is still entitled to attorney fees. Thus, a party could have zero dollars in damages and still be awarded $100,000 in attorney fees.SeePerez v. Professionally Green, LLC, 2011 N.J. Super. Unpub. LEXIS 2588 (Unpublished) (Awarding attorney fees after plaintiff's consumer fraud claims were dismissed by way of directed verdict at trial).

(3) Who May Be Found Liable Under the New Jersey Consumer Fraud Act?

a. Persons.

The Consumer Fraud Act has an expansive definition of who is defined as a "person". Under the Consumer Fraud Act a "person" includes natural persons, business entities such as corporations, LLCs, and partnerships, and agents, employees, salespersons, partners, officers, directors, members, stockholders, associate and trustees.N.J.S.56:8-1(d).

b. Individual Liability of Company Owners, Employees and Agents.

The Consumer Fraud Act's expansive definition of "person" has far reaching consequences for owners, officers, employees and agents of a business. It essentially means that the "limited liability" that one expects from a business entity may not apply and one may be held personally liable for actions taken on behalf of the business.

It has long been settled law that an agent or employee of a company who deals directly with the public can be held personally responsible for any affirmative misrepresentation or intentional omission of a material fact.See e.g.,Gennari v. Weichert Co. Realtors, 148 N.J. 582, 608-610 (1997) (holding agent liable under the CFA for affirmative misrepresentations made in connection with services provided to a business).

In a fairly recent case, the New Jersey Supreme Court ruled that company management can be held personally liable to a plaintiff under the Consumer Fraud Act where management participated in an activity for the company that was a regulatory violation. InAllen v. V and A Brothers, Inc., 208 N.J. 114 (2011), the Court ruled that both employees and officers of a corporation may be individually liable under the Consumer Fraud Act for actions taken for the company. In that case, the defendants were landscapers subject to home improvement contractor law and regulations. They were alleged to have committed several regulatory violations including the failure to obtain a written contract, the failure to obtain final approvals before accepting final payment and the failure to obtain the homeowner's consent to modifications to designs and plans for the project. The trial court had dismissed the claims against the corporate employees and officers. The Appellate Division upheld the trial court. The Supreme Court reversed both lower courts. The Supreme Court opined that principals of a business may be individually liable if they set policies that are in violation of the Consumer Fraud Act. Thus, under the New Jersey Consumer Fraud Act, the owner of a company who sets a policy that unwittingly violates a statute or regulation may not have "limited liability" and instead may be personally liable for business decisions.

c. Businesses as Consumer Fraud Plaintiffs

The expansive definition of who is a "person" means not only that businesses may be sued for consumer fraud but also that a business may bring consumer fraud claims against others.

d. Exceptions.

Although the Consumer Fraud Act is expansive and covers many transactions and many "persons", it does have its limits.

First, as a general rule, in order to be subject to the CFA, a transaction must involve a sale of goods, services or real estate to the general public. Thus, the sale of specialized equipment to a business may not be covered by the Consumer Fraud Act. This is a fact sensitive question that is decided on a case-by-case basis. For example, a retail store that buyers wholesale lots of inkjet cartridges for resale to the general public may not be consumer fraud because the wholesale transaction did not involve a sale to the public. However, if the same business bought a lot of inkjet cartridges for use in its own office printers, then it may be subject to the Consumer Fraud Act because the business was acting as a consumer in the transaction.Papergraphics International, Inc. v. Correa, 389 N.J.Super. 8 (App. Div. 2006).

Second, New Jersey courts have created a special "learned professional exemption" to the Consumer Fraud Act.SeeNeveroski v. Blair,141 N.J.Super. 365 (App. Div. 1976);Macedo v. Dello Russo, 178 N.J. 340,344-345 (2004) ("Thus, today, forty years after the CFA was enacted, our jurisprudence continues to identify learned professionals as beyond the reach of the Act so long as they are operating in their professional capacities"). Pursuant to the learned professional exemption, doctors, lawyers, architects, accountants, engineers and other licensed professionals for providing services pursuant to their license. Note, however, that if a licensed professional provides services outside the scope of his or her license, then he or she may be liable under the Consumer Fraud Act. For example, if an architect were to make representations to a prospective buyer of a home in order to induce the buyer to purchase the home, the architect might have CFA liability because selling homes is not within the scope of an architect's license.Blatterfein v. Larken, 323 N.J.Super. 167 (App. Div. 1999).

Finally, not all breach of contract actions, or the failure to make warranty repairs, involve a Consumer Fraud Act violation.Cox v. Sears Roebuck & Co., 138 N.J. 2 (1994) ("[A] breach of warranty, or any breach of contract, is not per se unfair or unconscionable . . . and a breach of warranty alone does not violate a consumer protection statute.");D'Ercole Sales, Inc. v. Frehauf Corp., 206 N.J.Super. 11, 23 (App. Div. 1985) (holding that breach of warranty for malfunctioning tow truck and refusal to repair was not unconscionable practice).

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