NJ PARALEGAL CONVENTION

Transcription

1 NJ PARALEGAL CONVENTION October 28, 2011 Renaissance Woodbridge CONSUMER FRAUD H. Richard Chattman, Esq.

2 New Jersey s Consumer Fraud Act: A Nutshell Overview, Recent Developments, and Practice Pointers Presented by: H. Richard Chattman, Esq. (973) rchattman@podvey.com The contents of this handout are for informational purposes only. Neither this document nor the lawyer who authored it are rendering legal advice or opinions on specific facts or matters.

3 History and Purpose of the New Jersey Consumer Fraud act ( CFA ) The nut in the nutshell: o The CFA is one of the strongest and most effective consumer protection laws in the country. o This is due to: (1) the breadth of statutory and regulatory protections, and a history of nearly constant legislative expansion of scope; (2) liberal judicial construction of the legislative and regulatory framework; and (3) special remedial provisions, including mandatory treble damages and attorneys fees. o Consequently, the CFA must be considered, both offensively and defensively, whenever a dispute or potential dispute involves the sale, lease, or promotion of goods or services to the public. The CFA was first enacted in 1960: o [T]o give consumers relief from fraudulent practices in the marketplace and to deter merchants from employing those practices. Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 11 (2004). The legislative concern was with sharp practices and dealings in the marketing of merchandise and real estate whereby the consumer could be victimized by being lured into a purchase through fraudulent, deceptive or similar kinds of selling or advertising practices. Daaleman v. Elizabethtown Gas Co., 77 N.J. 267, 271 (1978). o As first enacted, the CFA was exclusively enforceable by the Attorney General, who was provided broad powers to investigate, subpoena records, seek injunctions prohibiting fraudulent conduct, and orders of restitution, in addition to being authorized to promulgate rules and regulations in furtherance of the act. N.J.S.A. 56:8-3, 4, 5, 8, 15, 17, 18; Weinberg v. Sprint Corp., 173 N.J. 233, (2002). The CFA was significantly expanded in 1971 by amendments which: o Provided for private causes of action for violations of the act, and a powerful remedial scheme which included an award of treble damages, attorneys fees and costs (N.J.S.A. 56:8-19); o Expanded the definition of unlawful practice under the act to include any unconscionable commercial practice (N.J.S.A. 56:8-2); and o Broadened the Attorney General s enforcement powers. The 50 year history of the CFA has been marked by almost constant legislative and regulatory expansion and liberal judicial construction to effectuate its purposes. 1

4 o As the Supreme Court has noted, the CFA is broad remedial legislation enacted for the protection of consumers for a variety of goods and services and.its history has been marked by the constant expansion of consumer protection. Czar, Inc. v. Heath, 198 N.J. 195, 201 (2009). [O]ver the years following the initial adoption of the CFA, the Legislature has repeatedly amended and expanded the reach of its provisions, often by adding sections to address particular areas of concern and to include them specifically within its protective sweep. Czar, Inc., 198 N.J. at

5 Key Statutory Sections What the act prohibits and the transactions to which it applies: o The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be unlawful practice. N.J.S.A. 56:8-2 Important definitions: * * * o The term merchandise shall include any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale; o The term sale shall include any sale, rental or distribution, offer for sale, rental or distribution or attempt directly or indirectly to sell, rent or distribute; o The term person as used in this act shall include any natural person or his legal representative, partnership, corporation, company, trust, business entity or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, trustee or cestuis que trustent thereof N.J.S.A. 56:8-1, (c), (e), and (d). Private cause of action and remedies: o Any person who suffers any ascertainable loss of moneys or property, real or personal, as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act or the act hereby amended and supplemented may bring an action or assert a counterclaim therefore in any court of competent jurisdiction. In any action under this action the court shall, in addition to any other appropriate legal or equitable relief, award threefold the damages sustained by any person in interest. In all actions under this section, including those brought by the Attorney General, the court shall also award reasonable attorneys fees, filing fees and reasonable costs of suit. N.J.S.A. 56:

6 Pleading and Proving A Claim Under the CFA The act broadly applies to the sale (including rental or distribution) by any person to any person of any goods, real estate, services or anything offered directly or indirectly to the public for sale. o The broad application of the CFA derives from the wide scope of the statutory structure and the very broad definitions of key terms employed. The definition of merchandise to include services or anything offered, directly or indirectly for sale is a good illustration of this. At the same time, the requirement that the sale or offered sale be to the public has the effect of limiting the claims that one business can bring against another business under the CFA. o The broad application of the CFA is also effectuated by the provisions that it can be violated by any person, and that the victim of a violation and the one who can bring a claim also includes any person, with person being very broadly defined to include any natural person or any legal entity. Thus, individuals and legal entities of all sizes can be defendants under the act and, in appropriate circumstances, they can be claimants as well. o As a result of the broad scope and application of the CFA, whenever a dispute involves a sales transaction involving goods or services, or the performance required by such a transaction, the impact of the CFA must be carefully and seriously considered, both offensively on behalf of a potential plaintiff, and defensively on behalf of a potential defendant. A viable claim under the act must allege and attempt to prove three essential elements: (1) an unlawful practice ; (2) an ascertainable loss of money, or property (or similar benefit); and (3) that the unlawful practice caused the ascertainable loss. N.J.S.A. 56:8-19; Lee v. Carter-Reed Co., LLC, 203 N.J. 496, 521 (2010); Bosland v. Warnock Dodge, Inc., 197 N.J. 543, 557 (2009). An unlawful practice under the act includes any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the transactions to which the CFA applies, regardless of whether or not any person has in fact been misled, deceived or damaged thereby. N.J.S.A. 56:8-2. o actual or classic fraud is thus not required. Indeed, what the act prohibits is much broader than traditional common law fraud. o [U]nconscionable commercial practice is not defined in the act, and its meaning and application are left to be filled in by the Courts on a case-by-case basis. The term is an important category of potential violations, in part 4

7 because of its lack of precise boundaries and potentially broad application. It is meant to establish a broad business ethic and the standard of conduct implies a lack of good faith, honesty in fact and observance of fair dealing. Kugler v. Romain, 58 N.J. 522, (1971). o A breach of contract alone is not an unlawful practice in violation of the act. However, if aggravating circumstances are present, such as bad faith or lack of fair dealing, a breach of contract can be elevated to an unconscionable commercial practice and alleged to be in violation of the act. Hayden v. D Amico, 2009 WL , at 6 (App. Div. 2009). An unlawful practice may arise from: (1) an affirmative act; (2) a knowing omission; or (3) a violation of an administrative regulation. Cox v. Sears Roebuck & Co., 138 N.J. 2, 17 (1994). o An affirmative act such as written or oral representation, violates the CFA if it has the capacity to mislead, regardless of whether the person was actually misled, and regardless of the intent of the person making the representation. Theidemann v. Mercedes-Benz USA, LLC, 183 N.J. 234, 245 (2005). o A knowing omission, which is the failure to make a representation of material fact, by contrast requires proof that the potential defendant had knowledge and acted with the intent to deceive the consumer. Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590 (App. Div. 1992), aff d o.b. 124 N.J. 520 (1991). The third category of unlawful practices involves violations of regulations adopted by the Division of Consumer Affairs ( DCA ) under the act. Violation of such a regulation constitutes an unlawful practice and a violation of the act regardless of the intent of the actor, who becomes strictly liable for any loss resulting from the regulatory violation. o The DCA has promulgated regulations for numerous businesses or commercial practices, making it important to check whether regulations exist that could impact any particular dispute. As examples, some of the business areas and practices for which regulations have been promulgated include: deceptive mail order practices, motor vehicle advertising practices, automotive sales and automotive repairs, delivery of household furniture and furnishings, merchandise advertising, servicing and repairing of home appliances, and disclosure of refund policy in retail establishments. o The DCA has also adopted extensive and specific regulations governing home improvement practices. Among other things, these regulations require that all contracts for improvements in excess of $500, and changes to such contracts, must be in writing, and such written contracts are subject to further specific requirements as to form and content. N.J.A.C. 13:45A-16.2(a)(12)(i)-(vi). Despite their specific and extensive nature, these regulations are not exhaustive, and practices not specified in the regulations may nevertheless 5

8 constitute an unlawful practice and thus a violation of the act. See, N.J.A.C. 13:45A-16.2(a). o Additional consumer rights and requirements for contractors in the home improvement area were added by the 2004 enactment of the Contractor s Registration Act ( CRA ), which supplements and amends the CFA. N.J.S.A. 56:8-136, et seq. Among other things, the CRA gives the consumer the right to cancel the contract within three business days and requires that the contract contain notice of this right. Regulations have been promulgated to implement the CRA and establish standards under it. N.J.A.C. 1:45A-17.1(a). The required elements of pleading and proving an ascertainable loss caused by a CFA violation: o Pleading and proof of an ascertainable loss is necessary to obtain treble damages under the act. It is the amount of such loss that will be multiplied to arrive at the treble damage award. o An ascertainable loss is one that is quantifiable or measurable and not illusory or hypothetical. Lee v. Carter-Reed Co., LLC, 203 N.J. 496, 522 (2010). Examples include out-of-pocket expense and replacement costs for a defective product. To establish such loss, there is no requirement that the consumer spend money to repair or finish improper or incomplete work, or demand a refund before filing suit. Cox, 138 N.J. at 22; Lee, 203 N.J. at 528. o In addition to establishing an ascertainable loss, there must be pleading and proof that the loss was caused by the CFA violation. Where a dispute entails both contractual breaches and distinct violations of the CFA, and different losses flowing from each, it is necessary to show and for the court to find that the CFA violation(s) rather than the contract breach caused a particular loss in order to obtain a treble damage award for that loss. An instructive example of this requirement, and of the often concomitant need to assist the trial court in making specific findings on which loss was caused by CFA violations and which by contract breaches, is to be found in Fernandes v. Navas, 2008 WL (N.J. App. Div. April 10, 2008). See also, Hayden v. D Amico, 2009 WL (N.J. App. Div. Sept. 17, 2009). The real power of a private claim under the CFA derives from the act s special and potent remedies. o As the Supreme Court has noted, the remedies available in a private cause of action promote several purposes, by creating an efficient mechanism to (1) compensate the victim for his or her actual loss; (2) punish the wrongdoer through the award of treble damages; and (3) attract competent counsel to counteract the community scourge of fraud by providing an incentive for an attorney to take a case involving a minor loss to the individual. Weinberg, 173 N.J. at

9 o Accordingly, the remedies available under the act include: (a) mandatory treble damages for any proven ascertainable loss ; (b) mandatory award of attorneys fees and costs if an unlawful practice under the act is proven; (c) equitable injunctive relief; and (d) civil penalties. N.J.S.A. 56:8-13, 14, 19. o A plaintiff whose claim cannot survive a motion for summary judgment on the issue of ascertainable loss (even if the issue of a CFA violation could or does survive the motion) cannot proceed with claims for injunctive relief or attorneys fees. Weinberg, 173 N.J. at 253. However, a plaintiff who pleads a claim of ascertainable loss caused by a CFA violation and survives a summary judgment motion on both, can proceed to obtain injunctive relief and/or attorneys fees and costs if successful in proving an unlawful practice, even if unsuccessful in proving an ascertainable loss necessary to support an award of treble damages. Weinberg, 173 N.J. at

10 Additional Significant Points, Considerations and Potential Limitations Where to institute suit: The $15,000 jurisdictional limit on cases filed in the Special Civil Part applies to and limits treble damage awards under the CFA. Della Valle v. Angel Remodeling, 2010 WL (N.J. Super. A.D. 2010). See also Nieves v. Baran, 164 N.J. Super. 86, 89 (App. Div. 1978). Consequently, a treble damage award under the CFA cannot exceed $15,000 if the claim is litigated in the Special Civil Part. o By contrast, an award of counsel fees under the CFA is not subject to or considered part of the $15,000 jurisdictional amount limitation on actions filed in the Special Civil Part. Lettenmaier v. Lube Connection, Inc., 162 N.J. 134, (1999) Personal liability and who to sue: In Allen v. V and A Bros., Inc., 208 N.J. 114 (2011), the Supreme Court addressed the standards for and circumstances under which individual owners, officers or employees of a corporate entity can be personally liable under the CFA. The commission by such an individual of an affirmative act or a knowing omission that is an unlawful practice under the act can be the basis for imposing personal liability on such individual. The answer is more complicated when the basis for the CFA claim is a regulatory violation rather than an affirmative act or a knowing omission. In such circumstances, individual liability is a fact sensitive determination dependent on the language of the particular regulation at issue and the nature of the actions undertaken by the individual defendant. If the regulatory violation is based on a corporate policy initiated by the principals of the corporation, then it may be fair to hold a principal individual liable for a violation of the regulation but not the employee who acts pursuant to that policy. However, if the regulatory violation is based on the unilateral decision of an individual employee, then it may be fair to hold the employee individually liable but not the principal. This is a stilldeveloping and important area of law within the CFA. The learned professional s exception: The CFA has been held not to apply to certain professionals if acting within the scope of their usual professional capacity. The learned professionals exception is a judicially crafted rule, whereby certain transactions fall outside the CFA because they involve services provided by learned professionals acting in their professional capacity. Lee v. First Union Nat. Bank, 199 N.J. 251, (2009). The rationale for this judicial exception is that uniform regulation of a profession, where it exists, could conflict with concurrent regulation under the CFA. Lee, 199 N.J. at 264. The legislature has never amended the act in response to any of the judicial declarations of this exception. o Professionals whose services have been held to be exempt from CFA claims if the professional was acting within the scope of the profession include physicians, insurance brokers, attorneys, and university and college professors. See Macedo v. DelloRusso, 178 N.J. 340 (2004); Plemmons v. 8

11 Blue Chip Ins. Servs., Inc., 387 N.J. Super. 551 (App. Div. 2006); Vort v. Hollander, 257 N.J. Super. 56, 62 (App. Div.) certif. denied 130 N.J. 599 (1992); Gourdine v. Felician College, 2006 WL (N.J. App. Div. August 15, 2006). o However, the CFA has been held to apply to a professional who acts outside of the scope of his/her profession. See Blatterfein v. Larken Associates, 323 N.J. Super. 167, 183 (App. Div. 1999) (holding that an architect who misrepresented building materials to a house purchaser was acting as a sales agent rather than as a professional architect, and could therefore be liable under the CFA); Finderne Management Co., Inc. v. Barrett, 402 N.J. Super. 546, (App. Div. 2008) (insurance agent and accountant who acted as financial planners were not protected from suit under the CFA by the learned professionals exception because acts of financial planning went beyond profession of an accountant or insurance agent); Gilmore v. Berg, 761 F. Supp. 358, (D.N.J.1991) (lawyer and accountant were answerable under CFA for efforts to sell real estate). CFA claims by one business against another business: The CFA contains no definition of consumer, and corporations or other business entities are not per se precluded from bringing a CFA claim. Whether one business entity can bring a CFA claim against another business entity is largely dependent on whether the goods or services at issue in the dispute are generally sold to the public at large. Marascio v. Campanella, 298 N.J. Super. 491, 498 (App.Div.1997). That is at least in part based on the CFA s definition of merchandise. Thus, protections under the CFA have been extended to corporate plaintiffs when they are involved in consumer-oriented situations or are in the position of a true consumer or user of the goods or services being purchased. See Coastal Group v. Dryvit Sys. Inc., 274 N.J. Super. 171, 179, (App. Div. 1994) (upholding CFA claim brought by condominium developer against seller of prefabricated wall panels); Perth Amboy Iron Works, Inc. v. American Home Assurance Co., 226 N.J. Super. 200, 209 (App. Div. 1988), aff'd, 118 N.J. 249 (1990) (upholding corporate plaintiff's CFA claim relating to purchase of a yacht); Hundred East Credit Corp. v. Eric Schuster Corp., 212 N.J. Super. 350, 355 (App. Div.), certif. denied, 107 N.J. 60 (1986) (upholding corporate plaintiff's CFA claim relating to purchase of computer peripherals). The Supreme Court recently reviewed a case in which the Appellate Division had upheld a CFA claim by a corporation that managed residential properties throughout the state against a supplier of janitorial and maintenance supplies, which the manager used in its apartment buildings. Pomerantz Paper Corp. v. New Community Corp., 207 N.J. 344 (2011). However, the Supreme Court found it unnecessary to address or reach the issue, and instead resolved the case on a different ground. o The CFA has been found inapplicable to business entities purchasing nonconsumer goods or goods bought wholesale for purposes of resale. See J & R Ice Cream Corp. v. California Smoothie Licensing Corp., 31 F.3d 1259, 1273 (3d Cir. 1994) (finding CFA inapplicable to purchase of commercial restaurant franchise); A.H. Meyers & Co. v. CNA Ins. Co., 88 Fed. Appx

12 (3d Cir. 2004) (finding CFA inapplicable to insurance agency agreement); Werner & Pfleiderer Corp. v. Gary Chem. Corp., 697 F.Supp. 808, 815 (D. N.J. 1988) (holding commercial contract for purchase of a plastics processing machine not covered by CFA); D Ercole Sales, Inc. v. Fruehauf Corp., 206 N.J. Super. 11, (App. Div. 1985) (holding defendant's breach of warranty in purchase of custom tow truck not covered by CFA); BOC Group, Inc. v. Lummus Crest, Inc., 251 N.J. Super. 271, 277 (Law Div. 1990) (finding problems in the design, engineering, and operation of a $125 million refining process plant not covered by CFA); Papergraphics Int l Inc. v. Correra, 389 N.J. Super. 8, 14 (App. Div. 2006) (finding the purchase of 10,000 ink jet cartridges for resale belied CFA application). Lithuanian Commerce Corp. v. Sara Lee Hosiery, 179 F.R.D. 450, 469 (D.N.J. 1998) (finding plaintiff's purchase of pantyhose from defendant for resale was not a consumer transaction within the purview of the CFA); Conte Bros. Auto., Inc. v. Quaker State-Slick 50, Inc., 992 F.Supp. 709, 716 (D.N.J.) aff'd, 165 F.3d 221 (1998) (finding plaintiff to be commercial resellers who did not qualify as consumers under the CFA); Windsor Card Shops, Inc. v. Hallmark Cards, Inc., 957 F.Supp. 562, 567 n. 6 (D.N.J. 1997) (finding plaintiff which purchased goods at wholesale to sell to its retail store customers not to be a consumer, as it did not diminish or destroy the utility of the goods ); City Check Cashing, Inc. v. National State Bank, 244 N.J. Super. 304, 309 (App. Div.), certif. denied, 122 N.J. 389 (1990) (CFA application denied as plaintiff essentially was buying cash from defendant at wholesale to sell to its check-cashing customers at retail ); Arc Networks, Inc. v. Gold Phone Card Co., Inc., 333 N.J. Super. 587, 590 (Law Div. 2000) (plaintiff's purpose in purchasing services was to offer them to its customers thus the CFA was inapplicable). Equitable estoppel as a defense: In appropriate circumstances, equitable estoppel can be a defense to an alleged CFA violation. Joe D Egidio Landscaping, Inc. v. Apicella, 337 N.J. Super. 252, (App. Div. 2001); B&H Securities, Inc. v. CKC Condominium Association, Inc., 2008 WL (N.J. App. Div. Feb. 27, 2008). o Equitable estoppel is the effect of a party s voluntary conduct whereby he is precluded from asserting rights which might otherwise exist as against another person who has in good faith relied upon the conduct and has thereby changed his position for the worse. Heuer v. Heuer, 152 N.J. 226, 237 (1998). Where the conduct of the claimant under the CFA induced or caused the alleged violation, and the defendant contractor/seller relied upon that conduct in committing the alleged violation, the defense of equitable estoppel might apply. It is particularly appropriate where the claimant specifically rejected or waived conduct offered by the contractor/seller which would have been in compliance with the CFA or its regulations. 10

13 Take-Aways, Practice Pointers and Considerations Why is it important to know about the CFA? o Due to the depth and breadth of its protections and regulations, and the scope of activity and transactions to which it potentially applies, the CFA should be routinely consulted in connection with every consumer-related and almost all commercial disputes to determine whether a viable CFA claim exists. o The extremely powerful nature of available remedies under the CFA make it important for representatives of potential plaintiffs and potential defendants alike to consider the potential impact of a CFA claim. o The statutory and regulatory protections have historically grown, consistently received liberal construction from the courts, and new or novel questions concerning them have usually received a friendly reception in the courts. Determining whether a viable CFA claim exists and whether to raise or pursue on appeal a close, new or novel question: o Importance of these issues to both sides in a dispute; o Check if there are any pertinent regulations under the CFA that relate to the particular activity in question, and investigate compliance with any applicable ones, including licensing, registration and the conduct and standards promulgated for the business or activity in issue. o Even if there are no apparent statutory or regulatory CFA violations, carefully examine any potential breaches of contract to determine whether aggravating circumstances (e.g., bad faith or lack of fair dealing) are present which would elevate a breach of contract to an unconscionable commercial practice in violation of the CFA, thus triggering its remedies. Each side of the dispute needs to consider making the best record possible on the presence or absence of such circumstances. o Both sides in the dispute will want to check if a potential CFA defendant has previously been sued for consumer fraud or been subject to a complaint or regulatory filing by the Office of Consumer Protection ( OCP ) of the DCA. The OCP website can be checked for recent filings, and copies can be obtained. For less recent filings, an Open Public Records act request can be filed with the OCP to obtain information and copies of relevant documents. The DCA website can be searched for licenses for business and individuals. If considering filing a CFA claim in the Special Civil Part, determine whether the jurisdictional limitation amount there ($15,000) is sufficient to permit recovery of the trebled amount of the provable damages sought. 11

14 For purposes of pleading, proofs and potential exposure, consider whether the facts arguably satisfy the standards for personal, individual liability of the relevant principals, officers and employees, in addition to CFA liability of the corporation or other legal entity with which those individual actors are associated. For purposes of pleading, proofs and potential exposure, consider whether the defense of equitable estoppel should be raised, based on facts or inferences that the specifically alleged CFA violations were caused or induced by the plaintiff s conduct, including communications, upon which defendant relied in committing the alleged violation. For investigation, discovery and at trial, consider the record that can be developed, in terms of proofs and findings, on the required causal connection between any specific ascertainable loss on which treble damages will be sought and the alleged CFA violations, as distinct from mere breaches of contract. Consider using proposed findings of fact and possible jury interrogatories to make an adequate record on this element of the claim. 12