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Automall 46, Inc. v. The Captus Group, Inc.

A-1000-04T1 (N.J. Super. App. Div. 2005) (Unpublished)

CONSUMER FRAUD; LEASES; AUTOMOBILES—Although not considered a “classic consumer” under the New Jersey Consumer Fraud Act, business entities can still be entitled to the protections under the Act.

A retail automobile dealer entered into an agreement with a finance company wherein the finance company agreed to pay the dealer for vehicles leased and sold by the dealer. The agreement provided that the dealer would negotiate a lease with a retail customer, and after the lease was executed, the finance company would purchase the vehicle. The dealer would then transfer title to the vehicle to the finance company and assign the lease to the finance company in exchange for payment in full. Thereafter, the finance company would collect the lease payments directly from the customer. Pursuant to this arrangement, the dealer successfully negotiated lease agreements with three customers. The dealer then assigned the leases and transferred title to the vehicles to the finance company. The dealer requested full payment for the vehicles from the finance company. The finance company refused to pay for the three vehicles and the dealer contacted the customers and requested that the vehicles be returned. The customers returned the vehicles to the dealer and entered into new lease agreements with the dealer. The dealer then filed a complaint against the finance company for, among other things, violation of the New Jersey Consumer Fraud Act, fraudulent inducement, and breach of contract. In addition, it filed an order to show cause against the finance company seeking temporary restraints. The dealer also sought a determination from the lower court that the three lease contracts were void because of fraud. The finance company failed to appear at the hearing and the lower court entered an order temporarily enjoining and restraining the finance company from contacting the customers or collecting any lease payments. The court then set down a return date for the order to show cause, and the finance company once again failed to appear at the hearing or file an answer to the complaint. The Court ordered that the restraints against the finance company be continued and declared the lease contracts void ab initio. It directed the finance company to deposit the lease payments it previously received into the court and ordered the finance company to forward the court order to credit bureaus. A default was entered against the finance company and the dealer moved for a proof hearing. At the proof hearing, the lower court ruled in favor of the dealer, but it refused to award punitive or treble damages. Relying on Hundred East Credit Corporation v. Shuster, 212 N.J. Super. 350 (App. Div. 1996), the Court refused to award treble damages under the Act, holding that the dealer was not afforded protection under the Consumer Fraud Act because it was a business entity and not a “classic consumer.” The dealer appealed this decision, asserting that the lower court erred in not awarding it treble damages under the Act. It further argued that the lower court erred in not awarding it punitive damages after finding that the finance company had engaged in a scheme to defraud.

The Appellate Division disagreed with the lower court’s interpretation of Hundred East Credit Corporation v. Shuster by holding that it permitted only “classic consumers” and not business entities to recover damages under the Act. The Court held that the court in Hundred East Credit Corporation v. Shuster recognized that unlawful practices can victimize business entities, and therefore business entities should be entitled to the same protections under the Act as a classic consumer would be entitled to receive, such as treble damages. Accordingly, the Court remanded the case to the lower court to determine the dealer’s remedies under the Act.


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