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Graham v. Muldoon

A-2291-09T3 (N.J. Super. App. Div. 2010) (Unpublished)

CONSUMER FRAUD ACT — Even though marketing materials may list a house as newly constructed, if the buyers knew, at the time of the purchase, that parts of the house, such as its foundation and basement, were pre-existing, and not newly constructed, then the buyer cannot sustain a Consumer Fraud Act claim because the buyer would not have relied on any objective belief that the given component was not entirely new.

A developer purchased and knocked down an existing house to build and market a new one. When the project was completed, a listing broker prepared a marketing brochure describing the property as an extraordinary new colonial home. A husband and wife purchased it for $1.6 million. Approximately two weeks after they moved in, the sewer system backed up and sewage leaked throughout the basement. Subsequent inspection revealed that the original, reused sewer line had been improperly pitched at the outset and had become blocked with tree roots over the years. The buyers spent a great sum of money to repair the damage to their basement and to fix the sewer line. They then sued the developer under the New Jersey Consumer Fraud Act (CFA) and sued the broker on claims of consumer fraud, misrepresentation, and fraud. The buyers chiefly alleged that they relied on the marketing of the house as “new” to their detriment. The lower court dismissed the claims on summary judgment.

The buyers appealed, but the Appellate Division affirmed, finding that, under the CFA, a party must prove a causal connection between the alleged unlawful conduct and an ascertainable loss. Therefore, the buyers were required to prove a causal link between the marketing they claimed to be unlawful (the developers and broker having marketed the house as new, knowing that it was a “knock-down” renovation) and their ascertainable loss. The Court reviewed the record (including the deposition testimony of the buyer-husband). It found the buyers, at the time of their purchase, were aware that not all elements of the house were actually new construction – specifically the foundation (through which the sewer lines passed) was original. The buyers also received a home inspection report prior to closing showing that the furnace was nine years old and the air conditioning condenser in the basement was six years old. The report also indicated there were signs of dampness in the basement.

After the developers and broker had moved for summary judgment, the buyers submitted a supplementary affidavit from the husband stating that, had he known that the home and its systems, including the sanitary sewer system were not new, he would not have purchased the house. The Appellate Court affirmed the lower court’s ruling that this was a “sham affidavit” and thus it was insufficient to create a question of material fact to defeat a summary judgment motion, as the affidavit directly contradicted the husband’s deposition testimony in response to clearly understood questions.

In the end, the Appellate Division affirmed the dismissal of the CFA claim against the developer and the fraud and misrepresentation claims as to the broker, as the record was clear that the buyers had not relied on any objective belief that the sewer system was new at the time of the purchase.

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