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Allen v. V and A Brothers, Inc.

414 N.J. Super. 152, 997 A.2d 1067 (App. Div. 2010)

CONSUMER FRAUD ACT; PERSONAL LIABILITY — Under the Consumer Fraud Act, because a “Person” includes any natural person, including officers, directors, and stockholders of a corporation, it is not necessary to pierce the corporate veil or to look to a tort participation theory in order to find a shareholder liable in a Consumer Fraud Act if the shareholder personally participated in the violation of the Act.

A homeowner alleged that its contractor improperly constructed a retaining wall and substituted “inferior backfill for that specified in the plans, resulting in the failure of the wall and substantial property damage.” The customer also alleged that the contractor’s corporation as well as its two principals had violated New Jersey’s Consumer Fraud Act (CFA). In the lower court, the customers prevailed against the corporation both on the breach of contract claim and on the claim that the contractor had violated the CFA. The basis for the CFA violation was the failure of the contractor “to obtain final approval for the project before accepting final payment.” This violated an administrative regulation. The damages under the CFA were trebled and attorney’s fees were awarded. The lower court, however, dismissed the CFA claims against the individual shareholders of the contractor-corporation.

The customer appealed the lower court’s dismissal of the claims against the two individual shareholders and the Appellate Division agreed with the customer, reversing the lower court’s decision and remanding the matter to the lower court. Under the CFA, “[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 on such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, ... is declared to be an unlawful practice.” More importantly, under the CFA, a “Person” includes “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.”

New Jersey law requires courts to interpret the CFA broadly in favor of consumers. This is because it has been declared to be “remedial legislation.” Under New Jersey law “to violate the CFA, a ‘person’ must commit an ‘unlawful practice’ as defined in the legislation, and that [] unlawful practice can consist of an affirmative act, a knowing omission or a regulatory violation.” Intent is not an element of the unlawful practice, and regulations under the CFA “impose strict liability for such violations.”

In a series of prior decisions, New Jersey courts “have imposed liability upon individuals who are principals or employees of corporations sued for consumer fraud and who directly participate in the conduct giving rise to CFA liability.” Further, “[i]n imposing liability for violation of the CFA on individuals or finding legal ground for doing so, courts have not found it necessary to pierce the corporate veil in order to reach corporate principals and employees. Instead, they have interpreted the CFA, by its use of the term ‘person’ in the liability provisions [of the CFA set forth above] and the definition of ‘person’ in [the administrative regulations – as set forth above], as providing sufficient statutory authority for the imposition of individual liability in circumstances in which the individual committed the unconscionable commercial practice or other prohibited act and an ascertainable loss resulted.”

Even though the conduct in all of the prior cases cited by the Court were “comprised of affirmative acts, rather than regulatory violations,” the Court found “no principled basis for distinguishing between the two for purposes of the imposition of individual liability.” Consequently, the Court did not find it necessary to determine whether the “tort participation theory” applied because the underlying matter involved a breach of contract, “making the participation theory of individual [tort] liability inapplicable.” Basically, the Court held that CFA “[l]iability can be imposed only upon proof of personal participation by an individual in a particular regulatory violation.” Consequently, the matter was remanded to the lower court for determination as to whether the two individuals had personally participated in the CFA violation.

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