You hire an architect to prepare plans for the construction of a new home and a developer to execute those plans and physically construct the home. The plans require the testing of the underlying soil to confirm that the bearing capacity of the soil is adequate to support the weight of the structure. The builder, despite being contractually obligated to build the home in accordance with the plans and specifications, does not test the soil.

As a result, after the structure is erected, you notice substantial cracking and differential settlement throughout the house. The builder assures you this is just “a normal part of the settling process.” You later find out that a substantial portion of the house was constructed on soil with a bearing capacity that is considerably less than what is required, and the house is slowly sliding down a hill and uninhabitable. You bring suit against the developer for breach of contract. Can you also claim a violation of the Consumer Fraud Act and seek triple damages and attorneys’ fees?

Continue Reading Triggering the Protections of the Consumer Fraud Act with Breach of Contract

In a Per Curiam decision, the Appellate Division recently reversed a Trial Judge’s order dismissing several Consumer Fraud Act (“CFA”) claims against the developer of a condominium development and the general contractor for allegedly having filed false affidavits of title in the course of selling several units.

The CFA claims concerned defendants Paxton Construction (Jon Paxton, principal), the general contractor, and Cresse Development, LLC, the owner and developer of the condominium construction project. Cresse had sold units to three residential buyers and a commercial unit to Park Place Management in 2005. Prior to closing, Cresse conveyed to the buyers an affadavit of title signed by Paxton, representing among other things that “[n]o judgment or other lien … has been filed against [the property]” as well as attesting “that there were no pending lawsuits or judgments against it … [that] may be enforced against the property.” Despite these representations, Cresse had not paid a subcontractor, ABJ Sprinkler Co. (“ABJ”), for its work, and as a result, ABJ filed a construction lien against the property. Moreover, in his deposition, Paxton admitted that at the time the affadavits were signed, he knew that there was an ongoing dispute between Cresse and ABJ over the amount of money owed for the sprinkler work.

The CFA prohibits both affirmative misrepresentations and knowing omissions that are made with the intent that others rely upon the misrepresentations or omissions. Under the CFA, acts of omission must be knowing and committed with intent to induce reliance. However, affirmative acts, including misrepresentation of material facts, do not require proof of intent to mislead. In this case, the Appellate Court did not hesitate in concluding that Paxton’s affadavits of title were in fact issued to induce the buyers to complete the purchases of the units. As a result, the owners had established a prima facie violation of the CFA and were entitled to default judgment on that claim.

Consequently, because the buyers established a CFA violation, the Appellate Court reversed the order on appeal and remanded the matter to the trial court to address the issues of damages and counsel fees under the CFA.

The New Jersey Supreme Court announced a sweeping expansion of the NJ Consumer Fraud Act, N.J.S.A. 56:8-2 (“CFA”), to include work done by contractors performing interior work on new construction. In Czar Inc. Heath, A-114-07, decided 3/13/09, the Supreme Court ruled 6-1 that new homeowners who act as their own general contractors for interior finish work have a right to assert claims under the CFA against the Czar, Inc (“Czar”), the subcontractor responsible for doing installation of kitchen cabinets, doors, chair railing and other interior finishes.

The owners of the home were unhappy with the subcontractor’s work and withheld $80,000 from the bill. When they were sued by the subcontractor, the owners counterclaimed based on, among other things, violations of the CFA. Czar moved to dismiss the CFA claim arguing that HOW and its implementing regulations specifically exclude application of the CFA because this case involved “construction of a new residence” . The trial court agreed and dismissed the CFA claim.

The Appellate Division reversed the trial court holding that the exemption for construction of a new residence in the home improvement regulations under HOW did not apply to the work of the subcontractor. The Appellate Division panel reviewed the Contractor’s Registration Act (“CRA”) and noted that it regulates contractors who are involved in the home improvement business. The CRA exempts from its reach any person who is required to register under the New Home Warranty and Builder’s Registration Act (“HOW”) and who were already subject to a registration requirement. The Appellate Division reconciled the regulatory schemes set forth in the CRA and HOW, noting that HOW created a warranty program and an election of remedies by the homeowner. By contrast, instead of requiring warranties, CRA requires insurance and disclosures and, through its implementing regulations, defines unlawful practices which are punishable under the CFA.

The Court noted that Czar had not registered as a new home builder under HOW and had not provided the required warranties. The Court refused to allow Czar to simultaneously escape the requirements for the warranty under HOW while also escaping from the registration requirements of the CRA and the remedies afforded to consumers protected by the CRA. Essentially, the Court declined to allow Czar to have its cake and eat it too. Since Czar did not register as a builder of new homes under HOW, the Court rejected its argument that it was involved in building new homes. Czar therefore did not fall within the ambit of HOW, was not entitled to the safe harbor of the exclusion for new home builders and was subject to the CFA.

In a recent unpublished decision under New Jersey’s Consumer Fraud Act, the Appellate Division in D. Wyatt Stone and Stone Foundation, LLC v. Kahr Properties, LLC, December 2008 App. Div. 09-2-2471), decided the appeal of a judgment in the Plaintiff’s favor for damages, attorneys’ fees and costs arising from a home improvement project. The Plaintiff was a limited liability company engaged in the business of buying, renovating and reselling residential properties. The Defendant was a family-owned company whom the Plaintiff contracted with to renovate a residential property. The project met with delays, shoddy workmanship and overcharges, which prompted suit by the Plaintiff under the Consumer Fraud Act. The Defendant appealed the judgment in Plaintiff’s favor by arguing that the Consumer Fraud Act was not intended to apply to a corporate entity such as the Plaintiff that is engaged in the business of buying, renovating and reselling residential properties. The Appellate Division disagreed, finding that the Consumer Fraud Act applied to the transaction between the parties, based upon testimony from the Defendants that established they were involved in the sale or advertisement of home improvement services, either directly or indirectly to the public, and finding that the Act was meant to protect both business entities like the Plaintiff as well as individual consumers.

Every builder operating in New Jersey is most likely aware that our state has plaintiff-friendly laws in the context of construction defect litigation. Even so, the gravity of claims made against builders for alleged defects typically has a direct correlation to relatively known and controllable factors, i.e. their contract performance and quality of product. However, there is another category of claims being made with increasing success in defect cases made under New Jersey’s Consumer Fraud Act (CFA).

The CFA is aimed at unlawful sales and advertising practices designed to induce consumers to purchase merchandise or real estate. Intended to give New Jersey one of the strongest consumer protection laws in the nation, it receives liberal interpretation from the Courts in favor of consumers. The CFA declares as an unlawful practice “[t]he 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”. Affirmative misrepresentations under the Act do not require proof that the alleged violator actually intended to deceive the consumer. Concealment or omission claims require only that the alleged violator knowingly concealed a material fact with the intent that the omission be relied upon by consumers.

The scope of the CFA’s consumer protections can be seen in its language that “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…may bring an action”. Courts have interpreted that, an “ascertainable loss” occurs simply when a consumer receives less than promised.

Additionally, no proof is required under the CFA that a consumer actually relied upon any alleged statement or conduct by a defendant to make a claim. Rather, the Act specifically provides that consumers are protected “whether or not any person has been misled, deceived, or damaged thereby”. There is also no requirement that consumers have a contract with the alleged violator, or be in direct contact with a party who has allegedly violated the CFA, in order to assert claims. How these principles have been applied in defect cases shows how broad the potential scope of liability can be for builders and contractors.

In Chattin v. Cape May Greene, a developer had distributed a brochure to homeowners that indicated the homes would contain “insulated aluminum windows”. The windows actually used in the homes had a double pane of glass, which provided insulation. The aluminum frames of the windows, however, had no insulating features. Homeowners claimed the frames of the windows allowed air infiltration and caused condensation damage to the sills and woodwork. Homeowners who received the brochure won at trial because the Court agreed that the representation about the windows in the brochure was misleading under the CFA. On appeal, the Appellate Court sent the case back for a new trial, but only because it wanted the jury to determine whether the average consumer would understand the term “insulated aluminum windows” to refer only to the glass or to the entire window unit.

Recently in Matera et. al. v. M.G.C.C. Group, Inc. et. al., a defendant bank concealed information from a local planning board regarding drainage problems connected to land it was selling to a developer, in order to gain approval from the planning board for construction of homes. Homeowners in an adjoining property all began experiencing flooding after the developer bought the land from the bank and built the homes. Despite the homeowners having no direct contact with the bank, and despite the facts that the homeowners never heard any of the bank’s misrepresentations and were never directly exposed to any of its omissions, the Court found the homeowners could still maintain CFA claims against the bank.

With cases like Chattin and Matera, which involved liability to homeowners under the CFA for statements in a brochure and statements to a planning board, it may seem difficult for a builder to avoid claims under the CFA. However, builders and contractors can take steps to protect themselves by having an understanding of the broad scope of potential liability under the CFA and using that knowledge to serve as a filter for all statements and advertisements made in developing and marketing a project.

Matera et. al. v. M.G.C.C. Group, Inc. et. al., Docket No. L-1812-04

Judge Louis Locascio of the New Jersey Superior Court recently ruled in the matter of Matera et. al. v. M.G.C.C. Group, Inc. et. al., Docket No. L-1812-04, that a cause of action under New Jersey’s Consumer Fraud Act exists where there is no direct contact between the parties but there is a connection between the defendants’ “alleged violation of the Consumer Fraud Act and plaintiff’s ascertainable loss.”

The Plaintiffs, homeowners who purchased homes in a development called Crystal Creek Estates, argued that the defendant Bank of America (“BOA”) had concealed information and made misrepresentations to its purchaser, Defendant Developer M.G.C.C. Group, Inc., and to the Howell Township Planning Board, in order to gain approval for constructing the final phase of Crystal Creek Estates, known as Section III. The Plaintiffs all bought homes within Section II of Crystal Creek Estates and began experiencing flooding in their basements and back yards after defendant M.G.C.C. Group, Inc. constructed Section III of the development.

BOA, as the successor to the original financier of the project, took title to two undeveloped lots in Section II and all of the undeveloped lots in Section III of the Crystal Creek Estates development. BOA obtained approvals for the construction of Section III of Crystal Creek Estates from the Howell Township Planning Board before selling the land to Developer M.G.C.C. Group, Inc. In obtaining those approvals, BOA failed to disclose to either the Howell Township Planning Board or M.G.C.C. Group, Inc. that BOA knew about serious drainage problems that would occur in Section II of the development if Section III was constructed as planned and approved. BOA also knew but concealed that Section II of the development would have to be re-graded in order to deal with excessive drainage to the section caused by the planned construction of Section III, and that an engineer had provided BOA with an opinion that there were serious drainage issues between the two sections.

Judge Locascio found that BOA’s misrepresentations and omissions were not only made directly to the Howell Township Planning Board, but were also “intended to be conveyed to the buyer” (defendant M.G.C.C.), because obtaining planning board approval “was necessary to complete the real estate transaction with defendant M.G.C.C.” Id. at 5. The Judge concluded, therefore, that BOA’s misrepresentations and omissions were “in connection with the sale of real estate,” a requirement for application of the Consumer Fraud Act.

The Judge then went on to find that a “causal nexus” existed between the Plaintiffs’ damages and BOA’s misrepresentations and omissions to M.G.C.C. Group and the planning board. Noting that the Consumer Fraud Act does not require privity between a defendant and a consumer, Judge Locascio concluded that the Plaintiffs did not need to be directly exposed to BOA’s misrepresentations and omissions because the Consumer Fraud Act states that a violator of the Act “is liable for any misrepresentations whether ‘any person has in fact been misled, deceived, or damaged thereby’ … [the Act] did not say any party.” Id. at 6 to 8 (emphasis in original). The Judge found, therefore, that because BOA’s misrepresentations to the planning board and to M.G.C.C. Group ultimately damaged the Plaintiffs, there existed “a causal nexus” between BOA’s violation of the Consumer Fraud Act and the Plaintiff’s “ascertainable losses.” The Judge reasoned that if BOA “did not misrepresent facts to the Howell Township Planning Board, the planning board would not have granted the letter of compliance and section III would not have been built, or in the alternative, the drainage problems would have been corrected before the letter of compliance was granted.” Id. at 9. “Under either scenario, plaintiffs’ properties would not have been flooded.” Ibid. Therefore, it is “proper to hold BOA liable for the damages under the Consumer Fraud Act even though BOA had no contact with plaintiffs.” Ibid.

If you are interested in more information on this topic or have any questions, please contact John Randy Sawyer, Esq. at (609) 895-7349, or by email at jsawyer@stark-stark.com.

After a condominium association president declined a contractor’s request to execute a written change order and directed the contractor to proceed with the additional work, the association was barred from seeking relief under the Consumer Fraud Act (“CFA”) (N.J.S.A. 56:8-1 to -167) provisions requiring that all modifications to contracts for home improvements be in writing. B & H Securities, Inc., v. CKC Condominium Ass’n, Inc., 2008 WL 508082 (App. Div., February 27, 2008).

Defendant Association hired Plaintiff contractor to complete installation of a fire alarm system in its building that had been begun, but not completed, by a prior contractor. After Plaintiff inspected the premises, its engineer, Charles Hamburger, briefly inspected a portion of the building and estimated the time and expense necessary to complete the project. The parties entered into a time-and-materials contract for completion of the fire alarm system , which was necessary for the building to pass a municipal fire inspection.

Upon beginning its work, Plaintiff discovered that the existing installation was the wrong size and violated applicable building and fire protection codes. Accordingly, Hamburger informed the Association’s president, Robert Lyon, of the existing substandard work, informed him that additional time and materials would be necessary to make the system compliant, and suggested that the parties prepare and execute a change order. Defendant’s president declined, protesting insufficient time and the pressure to complete the installation. Plaintiff then completed the work, including making the existing portions code compliant.

Defendant paid only a portion of Plaintiff’s invoices, and Plaintiff sued to collect the balance due. The trial court found Hamburger’s testimony more credible than that of Lyons, and questioned whether a change order was even necessary when the contract clearly contemplated that Plaintiff was to complete the job to allow Defendant’s building to pass municipal inspections, and did not specify a date or time certain for completion nor set the cost. The judge found that Plaintiff had performed the contract by installing a system that satisfied the municipal inspectors and that Defendant had breached by failing to pay the full amount due.

The trial court rejected Defendant’s contention that Plaintiff had violated the CFA by failing to provide a written modification to the contract. He judge concluded that Defendant was equitably estopped from seeking sanctions under the CFA, based on Lyon’s response to Plaintiff’s request for a written change order.

The Appellate Division affirmed, holding that, even if a change order were required, Defendant was equitably estopped from asserting a CFA defense where its conduct led the Plaintiff to change its position to its detriment. In reaching its opinion, the appellate court relied on Joe D’Egidio Landscaping, Inc., v. Apicella, 337 N.J. Super. 252, 256-57 (App. Div. 2001), in which the court held that a homeowner who declined a written contract for driveway paving, based on his personal relationship with the contractor, was equitably estopped from invoking the CFA to render his agreement with the contractor unenforceable. “[O]ne who induces the alleged wrongdoing should not benefit as a result of it.” Id. at 257.

Rejecting the condominium association’s arguments, the appellate judges found no meaningful distinction between B & H Securities and Joe D’Egidio Landscaping.

When finding and hiring contractors to perform construction work, property owners rely on information provided by the contractor, especially relating to the experience, skill and specialized knowledge they possess to perform the requested job. But, what happens when the contractor does not have the adequate experience and knowledge to perform the work properly? According to the New Jersey Supreme Court Appellate Division, such a contractor may be liable to the owner for consumer fraud, which provides for triple damages as well as recovery of attorneys’ fees and costs of suit.

Wanting an outdoor tennis court, the Hudson Harbour Condominium Association hired Oval Tennis, Inc. to install an open-celled Premier Court (specific brand of tennis court) on an existing concrete slab. Oval, an “experienced” tennis court installer, represented to the Association that it was a certified Premier Court installer, was familiar with the requirements of the job, possessed sufficient experience to properly install the court and employed trained technicians to perform the work. Despite the contract calling for an open-cell court and Oval’s representations, Oval installed a closed-cell, non-breathable court, which was unsuitable for the concrete surface it was installed upon.

Immediately after installation, the Association started noticing problems with the new court, which included blisters near the net, holes, ripples, bubbling and delaminating of the court surface. These conditions were a direct result of Oval’s failure to install the court with the contracted open-cell surface material, which would allow vapor to push through the breathable court surface. Instead, the closed-cell surface did not allow vapor to pass through, ultimately resulting in a buildup of vapor and moisture trapped underneath the court which caused the problems on the surface.

Continue Reading Misrepresenting Their Qualifications, Inexperienced Contractors are Liable for Consumer Fraud

Having construction work or renovations done on your home is certainly an exciting, but undoubtedly stressful time. In fact, the process from selecting a suitable (and experienced) contractor to completion of the project can be downright daunting at times. As a homeowner myself, who coincidentally is going through this very process as we speak, I know the difficulties of sifting through countless potential contractors, negotiating prices, and coordinating schedules and the like. As daunting as it may seem, there are certain steps a homeowner can take at the outset that will mitigate potential pitfalls during construction, ensure your project is constructed properly, mitigate construction disputes, and alleviate unnecessary stress.

Continue Reading How You Can Mitigate Construction Disputes with Contractors

In late 1998 Monroe Station Associates started construction on the Belmont, a seven-story, thirty-four unit condominium building in Hoboken, New Jersey. Monroe Station served as the sponsor, developer, and general contractor of the Belmont. Prior to completing construction, Monroe Station filed a Public Offering Statement (“POS”), which stated that there were no known defects in the common elements of the Belmont building that a prospective purchaser could not determine by a reasonable inspection. Attached to the POS were certain marketing materials, which provided that the potential buyers would be getting a “Proven Developer and Construction Management Team which has overseen the building and renovation of over 400 Single Family & Condominium Homes, and over 1,000,000 Sq. Ft. of Office/Commercial/Retail Development.”

Continue Reading Condominium Association Gets Big Win Against Developer for Consumer Fraud