New Jersey enjoys one of the strongest consumer protection statutes in the United States.  New Jersey Courts have consistently emphasized that like most remedial legislation, the New Jersey Consumer Fraud Act ("CFA") is to be construed liberally in favor of consumers. Although initially designed to combat "sharp practices and dealings" that victimized consumers by luring them into purchases through fraudulent or deceptive means, the Act is no longer aimed solely at "shifty, fast-talking and deceptive merchants" but reaches "non-soliciting artisans" as well. Thus, the Act is designed to protect the public even when a merchant acts in good faith. Despite the same, it appears that the CFA will not be a viable claim against the Juicy Campus website because it did not engage in activities which violate the CFA.

The CFA only recognizes three forms of violations.  They are: (1) misrepresentations of fact; (2) knowing omission of fact; and (3) per se violations of administrative code.  Cox v. Sears Roebuck & Co., 138 N.J. 2 (1994)The first apparently problem with the State’s possible case against the website is that most of the statements posted on the website appear to be "opinions" rather than "facts."  Opinions are generally not actionable under the CFA.  Moreover, in order for there to be a violation of the CFA, the State would need to prove that a consumer suffered an ascertainable loss which is has a casual connection to the misrepresentation, omission or per se violation of the act. In other words, the State would have to prove that the recipient of the false information suffered a loss as a result of reading those false statements.

FRAUD

In order to prove fraud, the State of New Jersey would have to prove by "clear and convincing evidence" that the defendant made a material misrepresentation of a presently existing material fact, with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance in that party to its detriment. The first procedural hurdle the State would face if it were to assert a fraud claim is that it may not have standing to assert that claim because it did not suffer and damages.  Unlike the CFA which gives the Office of the New Jersey Attorney General powers to assert claims under that Act, N.J.S.A. 56:8-3, in order to have standing to assert a common law fraud claim the State would need to demonstrate that it was somehow damaged. Perhaps, if the website in question has false statements about State colleges or universities, the State would have standing to assert a fraud claim. Since it appears not to be the case, I believe that any common law fraud claim asserted by the State would be subject to dismissal for lack of standing.

Like a CFA claim, the State would have trouble asserting a fraud claim because it appears that the statements made on the website were opinions rather than knowingly false presently existing material facts. Again, under the CFA and fraud opinions are not actionable.  Thus, unless the website posted a knowingly false presently existing material fact such as "X State University admitted 25 students who’s grade point averages and SAT scores were 90% below the mean SAT and GPA requirements because those students had ties to Governor X," the State could not assert common law fraud claims.

Moreover, in prove fraud, the State would need to prove that the website posted those presently existing false statements with knowledge that they were false at the time they were placed. The first issue is that the website simply hosts the statements of others. The website is really not making any statements. It also appears that as a result of the same, it would be extremely difficult for the State to prove that the website knew that the factual statements were false at the time they were made.

Finally, as discussed above, it appears that the State would not be able to prove by clear and convincing evidence that it detrimentally relied on those false statements and suffered damages as a result of the same. In order to successfully prosecute a fraud claim, the Plaintiff must prove amongst other things that it detrimentally relied upon the false statements and suffered damages as a result. A classic example of a party detrimentally relying and suffering damages is "Seller provides knowingly false income statements to a potential buyer, the buyer in doing its due diligence relies on the knowingly false income statements and purchases the company. After the purchase, the buyer learns that the pro-offered income statements were inflated and the company was not worth anywhere near what it paid for the company." In the aforementioned example, the buyer detrimentally relied on the false income statements and suffered damages as a result. It seems unlikely that the State of New Jersey detrimentally relied upon what was posted on the website in question and suffered damages as a result.

For the reasons stated above, the New Jersey Attorney General may want to consider not asserting charges against JuicyCampus.com.

The nephews, Steve Venturini, III (“Steve III”) and Gregg Venturini (“Gregg”) collectively obtained fifty percent ownership in the corporation when their father, Steve Venturini, II, died in or about 2001. Around the time of their father’s death, Marie offered to purchase Steve III and Gregg’s interest in Steve’s Steak House, Inc. (“the corporation” or “Steve’s Steak House”). Growing up, Steve III and Gregg rarely worked for the corporation. On occasion they would open up or close the restaurant of perform odd jobs for the corporation. Despite the same, for a significant period of time, even after the litigation was commenced by them in the Superior Court of New Jersey, Chancery Division, Bergan County, they received approximately $750.00, per week from the corporation. Marie and her child, Blaise were full time employees of the corporation for a majority of their lives.

Moreover, the court found that Gregg had several physical altercations with his cousin, Blaise. During the course of one altercation, Gregg threatened and did return with his firearm. The local police were called and Gregg was eventually ordered to surrender all of this firearms.

Eventually, Marie terminated Gregg’s and Steve III’s employment and “locked them out” of the business property. As a result of those actions, Gregg and Steve III, commenced this case. In their complaint they sought an accounting, dissolution of the corporation, damages, fees, and costs, and “any and all further relief that this court deems equitable and just.”

The first issue the Venturini Court needed to address was whether or not Gregg and Steve III, were oppressed minority shareholders. The Court held they were not. The Court found that Gregg and Steve, III, were not actively involved in the corporation. As stated above, they were not regularly employed by the corporation. The Court found that their involvement was “passive” and held that “equity does not aid one whose indifference contributes materially to the” complained of injuries. Harrington v. Heder, 109 N.J. Eq. 528, 534 (E & A 1934). Moreover, the Court found that “mere disagreement or discord between the shareholders is not sufficient to prove a violation of the [minority oppression] statute.” Citing, Brenner v. Berkowitz, 134 N.J. 488, 505 (1993).

The second issue the Court had to address was whether or not the corporation should be dissolved. It found that Steve’s Steakhouse should not be dissolved. The Court in making that determination followed well-established precedents which state that dissolution “is not appropriate” where the corporation is a viable entitle. Steve’s Steakhouse was a thriving business. To dissolve it would be inequitable and contrary to the law and public policy. The Court found that the appropriate remedy in this case was the Court Ordered sale of Steve III’s and Gregg’s stock because it found that “there has been an irretrievable breakdown in the relationship of the shareholders.” Citing, Musto v. Vidas, 281 N.J. Super. 548 (App. Div. 1995); Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474 (1974); see also N.J.S.A. 14A:12-7(8).   The Venturini Court found despite the fact that it did not find that Steve III and Gregg were oppressed, courts of equity have the power “to mandate the buyout.” Citing, N.J.S.A. 14A:12-7. As a result of the same, it considered the testimony of various expert witnesses, so that it could opine as to the “fair value” of Steve III’s and Gregg’s interest in Steve’s Steakhouse.

With regard to the valuation, the Court followed well-established legal precedent and decided that the date of valuation should be the date Steve III and Gregg filed their complaint. In order to determine the fair value of the corporation, the Court considered the valuation of two experts for each side who were charged with providing an opinions of the fair value of the earnings of the corporation along with its principal asset, the building which housed the restaurant.

Finally, the Court decided not to award pre-judgment interest and counsel fees to Steve III or Gregg. The reason it refused to award pre-judgment interest is because it found that the $750 a week pay the brothers received both pre- and during the pendency of the litigation was probably far more than they should have received because they did not provide services for the corporation. Moreover, the Court decided not to award counsel fees to either party because it opined that neither side truly prevailed.

Before considering whether or not these discounts are applicable, a general understanding of the marketability and minority discounts and the rationale behind them is important. Generally, a minority discount is an adjustment which could be applied based upon the minority shareholder’s lack of control over the closely held business entity. The theory behind the minority shareholder discount is that non-controlling shares of non-publicly traded stock are not worth their proportionate share of the firm’s value because the minority owner lacks voting power to control the corporation’s actions.  The marketability discounts adjusts for a lack of liquidity in one’s interest in an entity, on the theory that there is a limited supply of potential buyers of the stock of a closely held corporation.

The general rule in New Jersey is that in a statutory appraisal for purposes of determining the “fair value” of shareholders owned by a dissenting shareholder, N.J.S.A. 14A:11-1 to -11, or for valuing shares in a court-ordered buy-out resulting from an oppressed shareholder situation, N.J.S.A. 14A:12-7(1)(c), neither a marketability nor a minority discount should be applied absent extraordinary circumstances.  Balsamides v. Protameen Chemicals, Inc., 160 N.J. 352 (1999); Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383 (1999).  In other words, marketability and minority discounts generally are not applied in New Jersey valuation proceedings where there will be no actual transfer of shares and a sale of the entire business appears unlikely. Denike v. Cupo, 394 N.J. Super. 357, 383 (App. Div. 2007) (citing, Brown v. Brown, 348 N.J. Super. 466, 489 (App. Div. 2002)).

Although, the general rule sets forth that these discounts should not be applied the New Jersey Supreme Court has held that where “extraordinary circumstances” exist the application of the marketability and minority discounts maybe warranted.   For example, in Balsamides the New Jersey Supreme Court found that a 35% marketability discount was appropriate because the oppressing 50% shareholder who was to acquire the shares of the oppressed 50% shareholder. The Balsamides Court found that equity demanded that the oppressor not be rewarded for his conduct by allowing a buy out at a discounted price.  Hence, these discounts maybe applied where equity dictates. 

It is extremely important that all parties involved in minority oppression litigation consider whether or not “extraordinary circumstances” warrant their application. Moreover, it is extremely important for the advocates to either prove or disprove that there are extraordinary circumstances present that warrant the application of the marketability and/or minority discounts. It is important to consider these principals throughout the litigation. Whether or not these discounts apply will have a huge impact on the ultimate resolution of this complicated form of litigation.

This week's New Jersey Legal Update podcast is presented by Scott Unger, Shareholder of Stark & Stark's Litigation Group.

This week's New Jersey Legal Update is presented by Scott Unger, member of Stark & Stark’s Litigation Group.

You can download the New Jersey Legal Update Podcast # 60 here. (5.9 MB)

Technorati Tags: New Jersey : Podcast :  Litigation : Shareholder Oppression

The central issue the Court addressed in Papergraphics International, Inc. v. Juan “J.J” Correa, Jr., et. al., was whether or not the New Jersey Consumer Fraud Act applied to the wholesale purchase of ink cartridges which were later discovered to be counterfeits.

The facts of the case are simple. Papergraphics purchased what it believed to be Epson Inkjet cartridges from the defendants. First, the Plaintiff purchased 5,000 ink cartridges from the defendant. Later, the Plaintiff purchased an additional 4,714 cartridges from the defendants. Sometime after receiving the ink cartridges the Plaintiff learned that they were not “Epson Inkjet” cartridges as was represented. Rather, they were counterfeits. The Plaintiff commenced litigation against the defendant alleging breach of contract, breach of Uniform Commercial Code warranties, unjust enrichment, fraud, conversation and violations of the New Jersey Consumer Fraud Act.

The Trial Court found that the defendant violated the New Jersey Consumer Fraud Act. The defendants appealed that decision. In support of their appeal, the defendants argued that the Plaintiff did not have standing to assert a Consumer Fraud Claim as a matter of law because commercial transactions are not a covered “consumer transaction.”

There has been significant case law regarding whether or not a business can be a “consumer” under the New Jersey Consumer Fraud Act. A review of those cases reveals that the New Jersey Consumer Fraud Act does not cover every sale in the market place. The earlier cases hinge on the nature of the transaction which requires a case by case analysis.

The Papergraphics Court found that the Plaintiff was not a consumer. The Court gave additional guidance as to what transactions are covered by the New Jersey Consumer Fraud Act. The Court considered the following elements when it decided that the Plaintiff was not a consumer under the Act:

     • the quantity of the purchase;

     • the intended use of the purchased goods (use versus resale); and

     • the sophistication of the complaining party;

The Papergraphics decision is extremely important because it provides additional guidance as to the applicability of the New Jersey Consumer Fraud Act. Recently, the Superior Court of New Jersey, Appellate Division issued an opinion which gives greater insight as to which transactions are covered and not covered by the New Jersey Consumer Fraud Act.

Technorati Tags: New Jersey : Consumer Fraud Act

The law has a specific definition what constitutes actionable legal fraud. "Although the word 'fraud' maybe used in common parlance to connote any practice involving shady or underhanded dealing, in law it is a term of art with a precise definition." Banco Popular N. Am. v. Gandi, 184 N.J. 161, 175 (2005). In order to assert a legal fraud claim the moving party must establish the following five elements by clear and convincing evidence: “(1) [a] material misrepresentation of a presently existing or past fact; (2) knowledge or belief by defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting harm.” Jewish Ctr. of Sussex Cty v. Whale, 86 N.J. 619, 624-625 (1991); see also Simpson v. Widger, 311 N.J. Super. 379, 392 (App. Div. 1998) (holding that “fraud must be proven by clear and convincing evidence”).

I. Opinions or Forecasts Are Not Actionable.

As stated above, in order to assert a fraud claim the moving party must assert a “presently existing” misrepresentation of “fact.” See Simpson, 311 N.J. Super. at 392 (holding that“[p]ossibilities are not ‘presently existing’ facts”); see also Daibo v. Kirsch, 316 N.J. Super. 580, 589-590 (App. Div. 1998). Hence a misstatement or misrepresentation of opinion is not fraudulent. Gennari v. Weichert Co. Realtors, 288 N.J. Super. 504, 535 (App. Div. 1996) . Whether a statement is one of fact or one of opinion under New Jersey law is decided as follows:

The distinction between fact and opinion is broadly indicated by the generalization that what was susceptible of exact knowledge when the statement is made is usually considered to be a matter of fact. Representation in regard to matters not susceptible of personal knowledge are generally to be regarded as mere expressions of opinion, and that is held to be so even though they are made positively and as thought they are based upon the maker’s own knowledge. Usually, also, to say that a thing is only matter of opinion imports that it is unsusceptible of proof.

Joseph J. Murphy Realty, Inc. v. Shervan, 159 N.J. Super. 546, 551 (App. Div. 1978). Using that definition, Courts have held that possibilities or future forecasts are not presently existing material misrepresentations of fact, but instead are in-actionable opinions. See Simpson, 311 N.J. Super. at 392; Daibo, 316 N.J. Super. at 589-90.

II. Exact Knowledge At the Time the Statement was Made Is Required To Prove Fraud.

Additionally, “a statement’s content must be susceptible of ‘exact knowledge’ at the time it is made” to be a statement of fact. Alexander v. CIGNA, 991 F. Supp. 427, 435 (D. N.J. 1998). Because future business is merely an “opinion” of the “possibilities” and not “presently existing facts," any predictions or projections of future payments which would flow to the Respondents cannot be fraudulent as a matter of law. Simpson, 311 N.J. Super. at 392; Daibo, 316 N.J. Super. at 589-590; Alexander, 991 F. Supp. at 435. Discussions as to the future projections cannot constitute “presently existing” material misrepresentations as a matter of law.

III. A Party Must Show Scienter to Prove Legal Fraud.

A party asserting a fraud claim must also prove by clear and convincing evidence that the party who made the presently existing material misrepresentation did so with knowledge that the fact was false and wanted the other party to rely on it. As such, if a defendant makes a misstatement in error without any bad intent they cannot be held liable for legal fraud.

III. Detrimental Reliance Is Also Required.

Moreover, in order to prove actionable legal fraud the party asserting the claim must prove by clear and convincing evidence that they were tricked or fooled by the defendant’s misrepresentation. If the Plaintiff did not believe or consider the presently existing misstatement of fact when they entered into the agreement then they could not maintain their legal fraud claim.

IV. Damages.

The last element a party asserting a fraud claim must prove is that they suffered damages. Those damages must be linked to the presently existing or past misrepresentation of fact. Thus, if a party cannot show that it suffered any form of injury or damages caused by that misrepresentation their case must be dismissed as a matter of law.

Technorati Tags: New Jersey : Legal Fraud

The Parol Evidence Rule is a substantive rule which states that whenever contractual intent is sought to be ascertained from among several expressions of agreement by the parties, an earlier tentative agreement will be rejected in favor of a later expression that is final. Harker v. Kissock, 12 N.J. 310, 321 (1953). Simply stated, the final agreement made by the parties supercedes any terms discussed in earlier negotiations. The “purpose of the Parol Evidence Rule is not to exclude unreliable evidence, but to exclude evidence, however reliable, of negotiations and understandings which the parties intended to supplant with the agreement under consideration.” J.I. Kislak Realty Corp. v. 6051 Blvd. East Corp., 192 N.J. Super. 280, 283 (App. Div. 1983). The policy behind the rule is to give the writing a preferred status, which renders it immune to perjured testimony and the risk of “uncertain testimony of slipping memory.” McCormick, The Parol Evidence Rule as a Procedural Device for Control of the Jury, 41 Yale L.J. 365, 366-377 n. 3 (1932); Wallach, The Declining “Sanctity” of Written Contracts -- Impact of the Uniform Commercial Code on the Parol Evidence Rule, 44 Mo. L. Rev. 651, 653 (1979); Binks Mfg. Co. v. Natl. Presto Indus., Inc., 709 F.2d 1109 (7th Cir. 1983). In other words, if a party seeks to introduce terms which were memorialized in a written, binding contract they may be excluded by the Parol Evidence Rule.

The Parol Evidence Rule comes into play where the last expression is in a written binding contract. Courts asked to make a ruling as to the applicability of the Parol Evidence Rule generally consider whether or not the writing is the final embodiment of the parties' entire agreement. To aid Court’s in making this determination, contractual drafters often utilize a merger clause to provide a clear, unmistakable proof that the writing is the final expression of all of the terms agreed upon and is a complete and exclusive statement of those terms. Courts consistently have enforced merger clauses. See A. N. Airlines, Inc. v. Schwimmer, 12 N.J. 293, 302 (1953) (holding, the "parol evidence rule ‘purports to exclude testimony’ only when it is offered for the purpose of 'varying or contradicting' the terms of an 'integrated contact’"); Inter-City Tire and Auto Ctr., Inc. v. Uniroyal, Inc., 701 F. Supp. 1120, 1126 (D.N.J. 1989), aff’d Uniroyal, Inc. v. Erbesh, 888 F.2d 1382 (3d Cir. 1989). A merger clause sets forth that the written, binding contract is the final embodiment of the parties agreement. That clause specifically excludes all prior negotiations and/or discussions from the contract. Finally, a merger clause sets forth that all changes to the contract must be in writing signed by all parties to the contract.

What is Consideration?

A simple way of defining consideration is to say that both sides must “get something out of the exchange.” Contl. Bank of Pa., 93 N.J. at 170; Friedman, 22 N.J. at 533; 1 Corbin, Contract §110 (1963 ed.). Valuable consideration may take the form of either a detriment incurred by the promisee or benefit received by the promisor. Contl. Bank of Pa., 93 N.J. at 170; Novak v. Cities Serv. Oil Co., 149 N.J. Super. 542, 549 (Law Div. 1977), aff’d, 159 N.J. Super. 400 (App. Div.), certif. denied, 78 N.J. 396 (1978); 1 Corbin, Contract §§121-122 (1963 ed.).

If consideration is met, there is no additional requirement of gain or benefit of the promisor, loss or detriment to the promisee, equivalence in values exchanged, or mutually of obligation. Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. at 289 (adopting Restatement (Second) of Contracts §79 (1979)). In other words, Courts will not measure the adequacy of consideration. Rather, the only analysis is to determine whether or not consideration is present in the contract. See Seaview Orthopedics v. Natl. Healthcare Resources, Inc., 366 N.J. Super. 501, 509 (App. Div. 2004). Thus, if both parties even received something nominal a Court will find the existence of consideration as a matter of law.

Technorati Tags: New Jersey : Contracts

This week's New Jersey Legal Update is presented by Scott Unger, a member of the Firm's Litigation group.

You can download the New Jersey Legal Update Podcast # 43 here. (8 MB)

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On June 16, 2006, The Honorable Peter E. Doyne, P.J.S.C., wrote an interesting and important decision that relates to minority oppression litigation. In Actives International, LLC, et. al. v. Reitz, et. al. the Court addressed the valuation date when dealing with a closely held company. Valuation is one of the most important issues in a minority oppression suit.

The valuation date is important when valuing a business because the value of a closely held company could change over the course of time. In this case, the company’s value decreased over time because it lost a number of significant accounts. In my vast experience representing individuals and businesses in minority oppression claims, I have seen companies become more and less profitable over time. I have seen companies both secure and lose business. If those changes are significant it could effect the value of the company.

Actives International filed a five count complaint with the Superior Court of New Jersey, Chancery Division, Bergen County on July 7, 2005. Shortly after the litigation was filed, the parties’ lawyers agreed in writing to use December 31, 2005, as the valuation date. New Jersey law presumes that the valuation date to be used in a minority oppression claim is the date when the complaint was filed. That presumption may be overcome upon the showing of certain equitable factors. In this case, Actives International lost two significant customers after the filing of the complaint, July 7, 2005. The loss of those two significant customers could reduce the value of the closely held company. Nevertheless, Judge Doyne agreed to enforce the attorneys’ agreement. The Court’s enforcement of the latter valuation date was based upon the failure of the defendants to demonstrate that the plaintiffs’ improper actions caused an artificially low valuation date to be utilized.

This case is instructive to both attorneys (representing clients) and persons involved in minority oppression suits. First and foremost, before a valuation date (other than the date the complaint is filed) is agreed on, you should consider what may happen to the company. You should consider the possibility of obtaining and losing business. Moreover, you should consider the effect of those possible business fluctuations on the ultimate value of the company. In addition, you should also consider the financial future of the company if you are considering commencing minority oppression litigation. Again, Courts will presume that the date the complaint is filed is the applicable date for valuation purposes. If you are aware of the direction of the company it may be prudent to either commence litigation immediately or wait. 

Technorati Tags: New Jersey : Litigation : Minority Oppression

This week's New Jersey Legal Update is presented by Scott Unger, a member of the Firm's Litigation group.

You can download the New Jersey Legal Update Podcast # 34 here.(9.6MB)

Technorati Tags: New Jersey : Podcast : Arbitration : Contract

This week's New Jersey Legal Update is presented by Scott Unger, a member of the Firm's Litigation group.

You can download the New Jersey Legal Update Podcast # 19 here.(34MB)

Technorati Tags: New Jersey : Podcast

This week's New Jersey Legal Update is presented by Scott Unger, a member of the Firm's Litigation group.

You can download the New Jersey Legal Update Podcast # 8 here.(14MB)

On Monday, May 2, 2005, Honorable Jonathan N. Harris of the Superior Court of New Jersey, Law Division, Bergen County issued two opinions which should be carefully reviewed by companies leasing goods in the Garden State.

New York Career Guidance Services, Inc. v. Wells Fargo Financial Leasing Systems, Inc., et. al.
In this matter, the trial court provided guidance as to when a late payment is permissible and when it is not. In this important case the Plaintiff leased a Gateway computer from the defendant for $53.64 per month. The written lease agreement set forth that the Plaintiff would have to pay a $50.00 penalty for each late lease payment. The trial court set forth a test to determine when a penalty provision was an unconscionable business practice in violation of the New Jersey Consumer Fraud Act. The trial court stated, "in New Jersey, liquidated damages, such as late fees, default interest rates, and prepayment premiums are subject to the test of reasonableness, this is , whether the stipulated damage clause is reasonable under the totality of the circumstances." The circumstances a court should examine in determining whether or not a liquidated damage clause is reasonable are: (1) if a statute governs the relationship, what does that statute say with regard to liquidated damage clauses; (2) what is the common practice in the industry; (3) the penalty compared to the monthly lease payment.

Although the New York Career Guidance Services' Court stated that liquidated damage clauses are presumably reasonable when they are between sophisticated parties it reviewed the totality of the circumstances and found that a $50.00 penalty clause for a $53.64 monthly lease payment was unreasonable. The trial court's holding was based upon the mathematics of the case alone. The trial court appeared offended that the penalty was ninety-plus percent higher than the monthly installment. As a result of the same and because the trial court found that the Plaintiff met its burden of satisfying the requirements for class certification (numerosity, commonality, typicality, adequacy of representation, predomerance of common issues, and superiority) the trial court certified a class action against the defendant.

Leasing companies who engage in business in the State of New Jersey need to make sure that their liquidated damage clauses are not considered penalty provisions. If the leasing company is doing business with the run of the mill consumer they must be more careful to make sure that the liquidated damage clause is clearly set forth in a conspicuous place in the lease and that it be reasonable. This case also illustrates that leasing companies need to be cautious when requested liquidated damage clauses from sophisticated businesses. Those clauses must be reasonable under the circumstance. If they are not your company may be exposed to damages pursuant to the New Jersey Consumer Fraud Act.

Bradstreet Personal Group, et. al. v. Wells Fargo Financial Leasing, et. al.
In this matter, the trial court considered whether or not a leasing company engaged in the process of "evergreening" had violated the New Jersey Consumer Fraud Act. This case involved a lawsuit by a number of companies who leased commercial equipment. Each of the written lease agreements contained clauses which automatically renewed the equipment leases if the lessees failed to provide timely notice of intent to purchase the equipment or return it to the lessor.

Although the trial court concluded that businesses leasing commercial equipment are consumers under the New Jersey Consumer Fraud Act, it held that the Plaintiffs could not maintain that cause of action against the lessor. The reason for the same was that the Plaintiffs admitted that they never reviewed the lease agreement which set forth that the lease would automatically renew if the lessor did not give exactly 90 days notice. One important element to maintain an action of Consumer Fraud is to be able to prove that the defendant mislead the Plaintiff. In this case, the Plaintiff could not show that they were mislead because the unread portions of the leasing agreement would have revealed the existence of the clauses the Plaintiffs claim are in violation of the Act.

Despite the fact that the trial court found that the practice of evergreening is not a per se violation of the New Jersey Consumer Fraud Act, leasing companies should be weary before they engage in such practices. It is strongly recommended that the leasing contract set forth in bold, large type print that the lease will automatically renew if the lessee does not notify the lessee by a date certain. It is also recommenced that the lessee initial that clause.

In the first case, Bradstreet Personnel Group, Inc. v. Wells Fargo Financial Leasing, Inc., plaintiffs were lessees of office equipment including photocopiers and high-speed duplicators. Plaintiffs claimed they were victims of unconscionable business practices due to the defendant's practice of "evergreening" equipment leases (automatically renewing leases because lessee fails to provide timely notice of intent to either purchase equipment or return it to lessor). As a result, plaintiffs claimed they suffered economic injuries by paying for unwanted extensions of their leases, or by purchasing the leased equipment at inflated prices.

The second case, N.Y. Career Guidance Svcs., Inc. v. Wells Fargo Financial Leasing, Inc., was brought by a serially delinquent lessee of office equipment who complained they were repeatedly charged an unconscionable penalty on its late payments. Plaintiff claimed that the lease terms regarding late payment penalties were ambiguous and the fees which were being assessed were actually impermissible penalties.

On March 22, 2005, the Appellate Division rendered an important decision that will effect the way the New Jersey Consumer Fraud Act is applied. That case, Cole v. Laugherty Funeral Home involved an allegation that a funeral home violated the Consumer Fraud Act when it followed the instructions of part of the decedent's family not to permit certain members of the family to attend the viewing.

The case involved a feuding family whose relatives were murdered. The decedent's children from a later marriage planned the decedents entire funeral. Pursuant to their instructions, the children excluded certain family members of the previous marriage from the viewing. Despite that fact, the obituary for the decedents set forth that there would be a public viewing. Those family members were excluded from the viewing when they came to pay their respects to the decedents. The excluded family members claimed that the misrepresentation (the public viewing) was a violation of the Consumer Fraud Act. The Appellate Court disagreed.

The Appellate Court affirmed the dismissal of the Consumer Fraud Claim because the Plaintiffs could not show that the funeral home made a misrepresentation to induce the buyer to make a purchase. The Plaintiffs did not purchase any goods or services from the funeral home.

Finally, the Cole Court held that "emotional damages" cannot be recovered under the New Jersey Consumer Fraud Act. The Cole Court reasoned that under that statute a damaged party could only recover "ascertainable losses" - not emotional damages.

A consumer decides to purchase an "on sale" 3' x 6' carpet for $3,000.00. The original sticker price before the "mark down" was $6,000.00. The sticker incorrectly sets forth or misrepresents that the carpet is 3' x 6'. Two weeks later the carpet is delivered. It is damaged and only 2' x 4'. The consumer complains. In response to the same, the store offers to give the consumer a refund or a similar carpet at a larger price

Is this a violation of the New Jersey Consumer Fraud Act? If so, does the trial court treble the sale price or the original price?

The New Jersey Supreme Court in Furst v. Einstein Moonjy, Inc. found that the above-described situation is a violation of the Consumer Fraud Act and held that the consumer is entitled to three times the "replacement cost," plus attorneys' fees and costs. The New Jersey Supreme Court also held that there is a presumption that the original non-sale price is the "replacement cost." The New Jersey Supreme Court set forth this policy in order to prevent businesses from fraudulently marking up and down merchandise to give the appearance of a sale.

The Furst decision is extremely important for both businesses and consumers. Businesses must think twice about making up or inflating the original price of goods. In addition, businesses must be extremely careful when making representations. A representation can easily become an actionable misrepresentation under the Consumer Fraud Act even if the seller does not intend to make a misrepresentation.

The case entitled, Pron v. Carlton Pools, Inc., involved a dispute relating to the construction of a swimming pool. According to the Plaintiff, defendant, Carlton Pools, Inc. misrepresented that it did not use any subcontractors for the construction of its pools. It was shown at trial that Carlton Pools subcontracted an electrician and plumber for the job. Notwithstanding, the alleged misrepresentation, the Plaintiff was unable to prove that he suffered any damages as a result of the defendant's statement that it did not subcontract. The alleged loss was not caused by subcontracting out the work. It related to a portion of the job which was not subcontracted. As a result of the same, the Appellate Division reserved the trial court's finding that the Consumer Fraud Act was violated. The Appellate Division held that attorneys' fees, tremble damages and costs may only be awarded if a consumer can demonstrate that it suffered an ascertainable loss which was caused by the misrepresentation.

The Pron decision is extremely important to both businesses and consumers because it limits damages unless a consumer can show a causal connection between the misrepresentation and the ascertainable loss.