New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

A recent published case with a unique set of circumstances serves as a reminder that for a plaintiff to prevail and secure treble damages under the Consumer Fraud Act (CFA), not only must the plaintiff show that the defendant committed unlawful conduct, that plaintiff must also be able to demonstrate that he suffered an ascertainable loss. 

 

The plaintiffs in Gupta v. Asha Enterprises, LLC, __ N.J. Super.__ (App.Div. 2011) had unquestionably been quite specific when they ordered vegetable samosas from the defendant Indian restaurant for take-out; they were being purchased for a group of individuals who were strict vegetarians. When the time came for the plaintiffs to pick up their order, they were handed a tray indicating the samosas were, in fact, vegetarian, and were reassured of the “vegetarian nature of the food.”

 

Notwithstanding their abundance of care, plaintiffs were served and began to consume meat-filled samosas. The Indian restaurant was insistent that the samosas were vegetarian, however the plaintiffs returned to verify the samosas’ content. Once there, an employee of the Indian restaurant confirmed that is was he who was mistaken; the samosas contained meat. The Indian restaurant then prepared an order of vegetable samosas for the plaintiffs and delivered it to them without additional payment.

 

The plaintiffs brought their complaint alleging that consumption of the meat contained in the samosas caused them spiritual injuries resulting in damages. The motion judge subsequently granted the defendants’ motion to dismiss.

 

On appeal, plaintiffs argued that the motion judge erred in her dismissal of their CFA claim. The appellate panel agreed, noting that the CFA specifically forbids “act[s] constituting misrepresentation of food.” However, the panel declined to recognize the plaintiffs’ spiritual loss and need to travel to India to undergo a purification ritual as an ascertainable loss cognizable under the CFA, which requires evidence of loss of “moneys or property.” Because the Indian restaurant provided the plaintiffs with an order of vegetable samosas, the plaintiffs were demonstrably made whole, and the panel explicitly declined to recognize a spiritual loss in the absence of any supporting precedent.

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Home improvement contractors hoping to avoid liability under the Consumer Fraud Act (CFA) have one fewer argument in their arsenal; the Appellate Division has held that homeowners who act as general contractors of their own home improvement projects may still resort to the protections of the CFA.
In Murnane v. Finch Landscaping, LLC, ___ N.J. Super. ___ (App. Div. 2011), the Appellate Division considered the viability of a CFA claim brought by a homeowner who had contracted with several contractors to design and construct a patio at his home. During construction of the patio, several changes were made to the written contract with one of the contractors, though none of these changes were put into writing. When the job was complete, that contractor invoiced the homeowner for additional amounts not reflected in the original contract. The homeowner refused payment and brought an action in the Special Civil Part alleging breach of contract and violations of the CFA.

 

Later realizing that if his damages were trebled under the CFA, the damages would be in excess of the jurisdictional limit of the Special Civil Part, the homeowner moved to have the matter transferred to the Law Division. The defendant home improvement contractor opposed the motion, arguing that the homeowner, having characterized himself as “the general contractor of his patio project,” cannot invoke the protections of the CFA. The motion judge denied the homeowner’s motion to transfer and granted the defendant contractor’s cross-motion to dismiss the CFA claim.

 

On appeal, the defendant contractor relied upon Messeka Sheet Metal Co, v. Hodder, 368 N.J. Super. 116 (App. Div. 2004) for the proposition that a homeowner who acts as a general contractor may not proceed under the CFA. The appellate panel easily distinguished Messeka, where the plaintiff homeowner was precluded from proceeding under the CFA not because he acted as a general contractor, but because he had no direct contractual relationship with the defendant contractor. The existence of a contract between the homeowner and defendant home improvement contractor was not at issue here. As such, there was no basis to exclude an individual from the protections of the CFA who is clearly an “owner, tenant or lessee, of a residential or noncommercial property,” regardless of his service as a general contractor on his own home improvement project.

 

Homeowners must be constantly vigilant when dealing with home improvement contractors and should not hesitate to seek competent counsel when their contractors employ unlawful practices.

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On July 7, 2011, the New Jersey Supreme Court expanded the reach of the Consumer Fraud Act (CFA), arguably already the most extensive of consumer protection laws in the United States, and held that under certain circumstances, owners and employees of a corporation may be individually liable for regulatory violations of CFA undertaken by them through the corporate entity.

 

In Allen v. V and A Bros., Inc., ___ N.J. ___ (2011), the New Jersey Supreme Court had before it William and Vivian Allen, homeowners who had contracted with V and A Brothers, Inc. to landscape their property and to construct a retaining wall in preparation for the installation of a pool. At no time was the parties’ agreement reduced to writing. When construction of the pool did not proceed as initially contemplated, V and A Brothers modified their plan and moved the location of the retaining wall and increased its height. V and A Brothers did not obtain the Allens’ consent for the change in design, nor did it obtain municipal approval before accepting final payment from the Allens after completion of work. Not long after the work was completed, the retaining wall developed cracks and a visible bulge, undermining the integrity of the pool installation.

 

After consulting with an engineer who concluded that the movement of the retaining wall was caused by its excessive height and the use of inferior backfill material to support it, the Allens filed their two-count complaint. The first count, alleging breach of contract, was directed solely at V and A Brothers. The second count, alleging violations of the CFA, was brought against the corporation as well as the two owners of the corporation and its employee.  The latter count alleged violations of the Home Improvement Practices regulations, specifically failure to execute a written contract, failure to obtain final approval before accepting final payment, and the failure to obtain the Allens’ consent before modifying the design of the retaining wall and substituting backfill material.

 

Before trial, the lower court granted the individual defendants’ motion to dismiss the complaint as to them, reasoning that the CFA does not create a direct cause of action against individuals, and absent allegations to support traditional veil-piercing, there is no basis on which to recover against the individual defendants. After trial, where the Allens secured treble damages and attorneys’ fees against the corporation in excess of $550,000, the Allens appealed the dismissal of the individual defendants. The Appellate Division reversed the dismissal, but also barred the individual defendants from litigating damages. The Supreme Court then granted the defendants’ petition for certification to review the Appellate Division’s order.

 

Defendants argued that the principals and employees of a corporation are not “persons” as contemplated by the CFA, and that personal liability under the CFA must be supported by grounds to pierce the corporate veil. They also argued against barring the individual defendants from contesting the quantum of damages. 

 

After examination of the statutory provisions of CFA, the Home Improvement Practices regulations which formed the basis of the Allens’ claim and subsequent case law, the Supreme Court concluded that the CFA unquestionably does not limit recourse to the corporation, and, accordingly, does not preclude personal liability. That conclusion was nothing new, as New Jersey courts have long held that corporate officers and employees may be held individually liable for their substantive violations of the CFA, but for the first time, the court also held that these individuals may also be personally liable when the basis for the CFA claim is a regulatory violation. Accordingly, no veil piercing is required to reach the individuals behind the corporation, those individuals having already been identified in the explicit definition of “person” under the CFA.

 

Having answered the question whether personal liability may attach in the context of a regulatory violation of the CFA, the Supreme Court then addressed the circumstances under which personal liability may be warranted. It concluded that while principals of a corporation may be “broadly liable,” as they are the ones who determine corporate policy, employees may be liable when they take unilateral actions which are unlawful.

 

Homeowners have been given one more weapon to combat against home improvement contractors, their principals and their employees who employ unlawful practices.  To ensure proper handling of the matter and to help ensure individual wrongdoers are taken to task for their misdeeds, homeowners should seek counsel experienced in these matters and equipped to wield the weapons of this enhanced arsenal.

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The Appellate Division has recently upheld summary judgment in favor of a guarantor who had executed a personal guaranty for rent due under a lease, finding that the specific language of the guaranty, read in conjunction with the language of the lease, rendered the guaranty inapplicable in a holdover situation.

In Montpen SC, L.L.C. v Mathews Art, Inc., d/b/a/ Art Wholesalers, Ltd., A-5036-09T3 (March 30, 2011), the Appellate Division had before it a situation where a tenant’s business had been purchased by a third party and its lease assigned to the purchaser. Fearing that the purchaser, a shell company, would be judgment proof in the event of default, the landlord required that the principal of the purchaser execute a personal guaranty to secure the landlord’s consent to the assignment of lease and agreement of an extension of the lease.

Notwithstanding the landlord’s exercise of caution, the landlord was not careful enough. The lease specifically addressed a holdover situation and designated such circumstances as not constituting a renewal or extension of the lease. The guaranty, however, contained specific language which limited the guarantor’s obligations under the lease to the initial term of the lease and any “extensions and renewals thereof.”

In finding that the guaranty was not enforceable in a holdover situation, the court dispensed with the landlord’s argument that the guaranty was a substantial inducement for its agreement to allow the assignment and to authorize the extension of the lease. The court, having before it a clear and unambiguous lease and guaranty, declined to make for the landlord a better agreement than it had made for itself.

Commercial landlords should be aware of the possibility of a guarantor escaping his responsibilities under a guaranty and ensure that they have enlisted counsel cognizant of the potentially ruinous results of a poorly crafted lease or guaranty. Moreover, an abundance of caution should be exercised when dealing with savvy tenants who use, and often abuse, the myriad corporate forms available to them in order to avoid liability.

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