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Arc Networks, Inc. v. The Gold Phone Card Co., Inc.

333 N.J. Super. 587, 756 A.2d 636 (Law Div. 2000)

CONSUMER FRAUD—The sale of telephone services to a reseller is not covered by the Consumer Fraud Act.

A distributor of pre-paid telephone cards which were sold to retail outlets under its own and other brand names purchased computer network and bulk telephone switching services for long distance telephone calls from a network company. After a dispute arose between the phone card company and its service provider, the service provider cut off service even though the cards had already been distributed to consumers. The card company alleged that its service provider violated the Consumer Fraud Act which is intended to protect consumers who purchase “goods or services generally sold to the public at large.” While the term “consumer” has historically connoted an individual purchaser, the Act has been interpreted to afford protection to corporate and commercial entities who purchase goods and services for use in their business operations. Here, however, the Court found that the bulk telephone and computer services purchased by the card company were not available to the general public. As such, the transactions between the card company and its provider contained none of the characteristics or indicia of the “consumer transactions” defined under the Act. Consequently, the card company did not qualify as a “consumer” for purposes of maintaining its counterclaim. Case law defines a consumer as “one who uses (economic) goods and so diminishes or destroys their utilities.” The business purpose of the card company in purchasing the services was to make them available to users of its phone cards. “In so doing, it did not diminish, destroy or consume [the] services.” When the card company argued that it was a consumer because it supplied telephone cards to its own employees for their own use, the Court responded that such use of the cards “was at best incidental to the essential purposes of a contract.”


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