October 21, 2019

October 21, 2019

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October 18, 2019

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

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?

It depends—according to the Appellate Division, who reversed a trial court’s grant of summary judgment to the plaintiff in Akhtar v. JDN Props. at Florham Park, L.L.C. on that very issue. The New Jersey Consumer Fraud Act (the “CFA”) provides that:

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 an unlawful practice[.] [N.J.S.A. 56:8-2 (emphasis added).]

Notably, unlike acts of omission, consumer fraud violations by affirmative actions do not require proof of intent to mislead. This is because the evils targeted by the statute are any commercial practices that have the “capacity to mislead.” This is from Lemelledo v. Beneficial Mgmt. Corp. of Am., 150 N.J. 255, 263 (1997), which explains that the statute is intended to protect consumers “by eliminating sharp practices and dealings in the marketing of merchandise and real estate.”

An unconscionable commercial practice under the statute necessarily entails a lack of good faith, fair dealing and honesty. Our courts have been careful to constrain the CFA to “fraudulent, deceptive or other similar kind of selling or advertising practices.” D’Agostino v. Maldonado, 216 N.J. 168, 189 (2013). Whether a particular act qualifies remains a fact-sensitive inquiry.

Generally, in order to succeed on a consumer fraud claim, a plaintiff must demonstrate three elements:

  1. Unlawful conduct by the defendants;

  2. An ascertainable loss on the part of the plaintiff; and,

  3. A causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss. Accordingly, the plaintiff must show that he or she suffered an ascertainable loss as a result of the unlawful practice, J.S.A. 56:8-19, but need not prove that the defendant’s unlawful behavior was the sole cause of that loss. Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super. 31, 48 (App. Div. 2000).

In the case at hand, the trial court reasoned that by means of the plans and specifications attached to the contract, defendants had made representations to plaintiffs as to the quality of the soil. Additionally, the court reasoned that the builder knew, or should have known, the extent of his obligations. The court specified that the builder had knowingly violated the plans and specifications by failing to comply with his contractual obligation to test the soil before construction, which constituted a CFA violation.

Conduct constituting a breach of contract may certainly present grounds for a consumer fraud claim, but not invariably so. Josantos Constr. v. Bohrer, 326 N.J. Super. 42, 47 (App. Div. 1999). In that regard, our Supreme Court explained that:

… unconscionability is an amorphous concept obviously designed to establish a broad business ethic. The standard of conduct that the term “unconscionable” implies is lack of good faith, honesty in fact and observance of fair dealing. However, a breach of warranty, or any breach of contract, isnot per se unfair or unconscionable [] and a breach of warranty alone does not violate a consumer protection statute. Because any breach of warranty or contract is unfair to the non-breaching party, the law permits that party to recoup remedial damages in an action on the contract; however, by providing that a court should treble those damages and should award attorneys’ fees and costs, the Legislature must have intended that substantial aggravating circumstances be present in addition to the breach. [Cox v. Sears Roebuck & Co., 138 N.J. 2, 18 (1994) (citations and internal quotation marks omitted) (emphasis added).]

Thus, a simple breach of warranty or contract is not per se “unconscionable,” and by itself will not result in a violation of the CFA. There must be some aggravating circumstance that qualifies the breach as a prohibited act. Here, defendants breached a requirement set forth in the architect’s plan attached to the contract, however, without the existence of an aggravating factor bringing the breach within the purview of the CFA, plaintiff’s claims and recovery were limited to those sustainable under a breach of contract theory.

Even though the breach was devastating to the construction, the extent of the damages ($1.57 million home) does not in itself prove a CFA violation. Remanding the case back to the trial court, the Appellate Division recognized that a factfinder could find that the circumstances surrounding the breach were so egregious as to constitute a violation of the CFA, but that record before it was devoid of evidence to support that conclusion.

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Gene Markin Attorney Stark & Stark Law Firm
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Gene Markin is a Shareholder in Stark & Stark’s Complex Commercial, Intellectual Property, and Cannabis Litigation Groups where he concentrates his practice on complex litigation matters involving copyright protection and infringement, trademark and trade dress infringement and enforcement, trade secret litigation, false advertising, domain name disputes, unfair competition, class actions, fraud and consumer fraud, shareholder and partner disputes, breach of contract, cannabis business disputes, cannabis intellectual property matters, cannabis insurance coverage...

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