New Jersey’s Consumer Fraud Act Can Create Personal Exposure for Contractors

In two recent decisions, New Jersey’s Appellate Division re-affirmed individuals acting within the scope of their employment can be personally liable under the State’s Consumer Fraud Act (the “CFA”), as well as related regulations governing home improvements, provided they actively participated in the consumer fraud. Lanza v. Secret Gardens, No. A-2613-07T22613-07T2 (App. Div. October 14, 2008) and Anne Milgram v. Comfort Direct, Inc. and Kevin Dyevich, A-0360-07T20360-07T2 (App. Div. October 28, 2008). The plaintiff in Lanza had hired the defendant, Secret Gardens Landscaping, Inc. (“SGL”), to perform remodeling and landscaping work on her property. After completion of the project, plaintiff filed suit against SGL, and SGL’s president and CEO, claiming they had violated the CFA. In reversing the trial court’s decision to dismiss the claims against SGL’s principal, the Appellate Division held there was undisputed evidence the principal, who had prepared the contract, supervised the work, and discussed change orders with the plaintiff, had participated personally in the alleged violations of the CFA, which were committed in connection with the execution and performance of the contract. Based upon those facts, the principal could be liable for any violation of the CFA in which he participated personally.

Placed more firmly in the construction context, these decisions subject a principal to the harsh penalties of the CFA. If the court finds the principal was involved in committing a consumer fraud, it will permit the aggrieved consumer to pursue the assets of the individual principal and those of the company.

What Constitutes a Consumer Fraud Act Violation?
The general standard for a CFA violation is “unconscionable commercial conduct,” which can include affirmative acts and intentional omissions. While there are no bright line rules as to what constitutes unconscionable commercial conduct in a new construction case, courts have held that the substitution of building materials inferior to those specified in the contract and even severe construction defects can constitute CFA violations. Violations of home improvement regulations, which are applicable to everything from minor improvements to significant renovations, are more clearly defined. A violation can include the failure to obtain a signed contract for the work from the property owner, the failure to specify start and end-dates in the contract, and misrepresentations regarding the quality of materials. Notably, the term “consumer” is broadly defined under the CFA and applies to businesses as well as consumers. As such, both residential and commercial projects can be subject to the CFA’s requirements.

Why I Should Care?
The CFA, which was implemented to protect the State’s consumers and punish those engaging in improper commercial practices, mandates the implementation of severe remedies in the event a CFA violation is found to exist. A consumer who can demonstrate it suffered a loss as a result of “unconscionable” conduct is entitled to recover treble damages and counsel fees. In the context of home improvement regulations, New Jersey’s courts have held that even if a consumer was not damaged by a violation of the regulations, the consumer is still entitled to recover its attorney’s fees. As a result, CFA violations can lead to significant exposure, both for the business and the individual — with what might otherwise be viewed as a minor problem exploding into a major monetary loss.

How Can I Protect Myself?
Although it sounds obvious, the best way to protect yourself from CFA liability is to communicate frequently, openly, and honestly with the owner about the project’s progress and any issues that may arise. If a material specified in the contract is unavailable, do not simply switch the material out for something that may or may not be deemed by the owner or, ultimately, a court to be its equivalent. Instead, advise the owner and have it authorize the substitution in a change order. Avoid overstating the qualities of your products or services and make sure your contracts comply with regulations by having an attorney review them or familiarizing yourself with the regulations’ specific requirements.