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Very recently, in Allen v. V & A Bros., Inc., the appellate division of the New Jersey Superior Court took a step to expand the reach of its Consumer Fraud Act by holding that principals of a company--and even the company's employees--can be held personally liable for treble damages if the company does not comply with regulations promulgated under the Consumer Fraud Statute. New Jersey courts have, for decades, interpreted the Consumer Fraud Act liberally in favor of consumers, and the consumer plaintiff's bar has historically viewed this as a license to develop ever more creative theories of recovery against businesses operating in that state. However, this new ruling extends the reach of this strict liability statute in a way that seems patently unfair.
The New Jersey Consumer Fraud Act provides that, with a very narrow exception, "[t]he act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promis, 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." A "person" is broadly defined under the Consumer Fraud Act as "any natural person or his legal representative, partnership, corporation, company, trust, business entity or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, trustee or cestuis que trustent thereof." N.J.S.A. 56:8-1d. Persons who violate the Consumer Fraud Act are subject to treble damages.
In Allen, the plaintiff sued V & A Brothers for breach of contract in connection with the construction of a retaining wall and use of allegedly inferior backfill that differed from what was specified in the contruction plans. After the retaining wall failed, the plaintiff attributed the failure and resulting property damage to the breach. Additionally, the plaintiff sued V & A Brothers, the principals of the company, and a company employee, for violation of the Consumer Fraud Act, claiming that they were each liable for failing to execute a written contract for the work in violation of regulations promulgated under the Consumer Fraud Act. The theory of the Consumer Fraud Act claim was that the defendants failed to execute a written work contract pursuant to regulations promulgated under the Consumer Fraud Act. Violating such regulations gives rise to liability under the Consumer Fraud Act and and the possibilty of treble damages. Thus, plaintiff managed to convert a simple breach of contract claim into a tort claim that would, if successful, provide plaintiff with a monetary judgment equal to three times the value of the plaintiff's actual damages.
The defendants argued that no liability should be imposed on the individuals for the company's alleged failure to comply with the Consumer Fraud Act. However, the court refused to be constrained by the corporate veil, and expressed its view that all principals and employees of a company could be liable for treble damages under the Consumer Fraud Act if they committed a prohibited act. Of course, where individuals commit some affirmative act, such as a knowing misrepresentation, it is not far-fetched to hold those individuals accountable. But here the prohibited act is actually an omission (i.e., the absence of any written contract), and the plaintiffs were suing for the company's failure to act. The court's ruling opens the way for plaintiffs to launch broad lawsuits not just against the company and principals, but against every employee of the company. Although the court rejected plaintiff's attempt to impose liability on the individuals, as opposed to the business, without first determining whether the individuals personally participated in the particular regulatory violation, the court's holding has the potential to wreak havoc on businesses and their employees by allowing plaintiff's to leverage their lawsuits by dragging unsuspecting employees into high-stakes litigation.
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