Business Owners And Employees Now Subject To Personal Liability For Violation Of New Jersey’s Consumer Fraud Act

This article was featured in a recent issue of the Mercer County Woman. It was written by Brian A. Mills, a partner with the firm.

A recent Court decision has extended the reach of New Jersey’s Consumer Fraud Act,
(the “CFA”) through the corporate shield and into the pockets of the individual owners and
employees of the company with whom a consumer has a contract. In the wake of this important decision, the corporate or LLC structure alone is insufficient to protect business owners and employees from personal exposure for business liabilities arising under the CFA.

The case Allen v. V and A Brothers, Inc., 414 N.J.Super. 152 (App.Div 2010), was brought
by homeowners against a landscape contracting corporation, its sole individual shareholder
and two of its employees alleging breach of contract and consumer fraud in connection with
the construction of a retaining wall on their home. In holding the three individuals liable
for damages in excess of $600,000, the Court interpreted the Consumer Fraud Act to permit
the imposition of damages against the individual owner and employees of a company even
though the contract was with a corporation and even though no individual was deemed to have
committed any wrong “affirmative act.” The individuals were deemed personally liable for the
damages by virtue of the company’s failure to adhere to certain “technical requirements” under
the CFA. The Court stated that it is not necessary to pierce the corporate veil in order to impose personal liability.

The CFA was adopted in 1960 as remedial legislation to be liberally construed in favor of
consumers to punish “unconscionable commercial practices.” In short, the consumer is entitled
to the benefit of every doubt whenever a potential CFA claim or issue arises. The act is intended to “increase the attractiveness of consumer actions to attorneys” by allowing a consumer to recover damages equal to 300% of their actual losses plus attorney fees in prosecuting the case. In essence, the legislation removes the cost-prohibitive barrier to bringing a lawsuit against a business where the damages are trivial. Lawyers for consumers are likely to bring small cases knowing the Court will force the defendant to foot the bill for the plaintiff’s lawsuit. Moreover, damages awarded under the CFA are not covered by insurance.

Further, the New Jersey Division of Consumer Affairs has enacted a number of regulations
elaborating on the CFA obligations of providers of certain types of goods and services. Taken
together, the CFA statutes and regulations bring almost any business that does business
with consumers within the sights of the CFA and its remedial objectives designed to punish
businesses for actions deemed unconscionable.

Most significantly, what is deemed an unconscionable business practice under the CFA and
its regulations may not be obvious to business owners. For instance, the regulations enacted
pursuant to the CFA make special provision and impose specific obligations on the following
types of businesses- mail order businesses, retailers of meats, furniture and household furnishing retailers, internet dating services, prepaid calling cards, home appliance repair services, sellers of animals, home improvement contractors, food and dining establishments, automobile and watercraft dealers and repair facilities, tire retailers, toy stores, health clubs, towing companies, realtors, ticket sales, and sellers of motorized wheelchairs. Seemingly benign things such as failing to provide a starting and ending date for a construction project, certain disclosures or insurance information on a construction contract are “technical violations” of the CFA and deemed unconscionable business practices.

In addition, duties are imposed on all retailers with respect to refund policy, marketing by
facsimile, disclosure of unit pricing and advertising generally.

Benjamin Franklin may have been speaking directly to consumer businesses in New Jersey
when he said “an ounce of prevention is worth a pound of cure.” Preventative measures are the key to avoiding exposure to significant liability under the CFA which, under the Court’s recent decision, now extends to the owners and employees of the business as well.

Accordingly, it is now more important than ever for businesses that transact with consumers to
take steps to ensure it does not run afoul of the CFA. Business owners and managers should
consult with an attorney familiar with the requirements of the CFA to conduct a CFA audit and
review contracts, advertising and business practices for potential areas of exposure.

And CFA considerations aside, regular review of a business’ terms and conditions is an
essential exercise. What could be more important that defining the scope and parameters of the relationship between a business and its customers? Ensuring the customer’s expectations are consistent with the business’ offer is one of the most important keys of business and is also a way to avoid CFA claims.

Maselli Warren, P.C. has taken the Allen v. V and A Brothers, Inc, case to the New Jersey
Supreme Court on behalf of the individuals deemed liable for the company’s CFA violations. A
successful appeal would be a tremendous and important victory for business in New Jersey.

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