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Holt v. Laube

A-1331-10T2 (N.J. Super. App. Div. 2011) (Unpublished)

CONSUMER FRAUD ACT; BROKERS — A real estate broker is typically not in violation of the Consumer Fraud Act with respect to misrepresentations on a Seller’s Disclosure Statement because, when a claim is based on an omission, the homeowner must show that the broker had actual knowledge of the material fact and acted knowingly with an intent to deceive.

Following their purchase of residential real estate, the buyers sued their sellers, the sellers’ agent, and various others allegedly involved with defectively constructed retaining walls. According to the buyers, following their purchase of the property, the retaining walls began to collapse. A licensed engineer, advised the buyers that the retaining walls were constructed defectively and needed replacement.

The buyers’ suit claimed that the sellers made material misrepresentations on the Seller’s Disclosure Statement (SDS) regarding the original construction of the retaining walls. In the section of the SDS entitled “Additions/Remodels,” the sellers responded “No” to the question “Have you made any additions, structural changes, or other alterations to the property?” Because they answered “No” to that question, the sellers did not address the questions that followed. Those questions required the sellers to state whether they had obtained “all necessary permits and approvals” and whether “all work was in compliance with building codes.” The buyers alleged that the sellers constructed the retaining walls without any permits or approval, and that the construction did not comply with applicable building codes.

The lower court granted the sellers’ agent’s motion for summary judgment and dismissed the buyer’s Consumer Fraud Act (CFA) claims against it. On appeal, the buyers argued that sellers’ agent had a duty to investigate statements contained in the SDS because the statements were inherently inconsistent. The buyers also argued that the inconsistent statements constituted affirmative, material misrepresentations by the sellers’ agent sufficient to sustain the CFA claims.

The Appellate Division was not persuaded by the buyers’ arguments and upheld the dismissal. The CFA “is intended to protect consumers from deception and fraud, ‘even when committed in good faith.” To establish a prima facie case under the CFA, a plaintiff must show “1) unlawful conduct by defendant; 2) an ascertainable loss by plaintiff; and 3) a causal relationship between the unlawful conduct and the ascertainable loss.” Unlawful conduct under the CFA can consist of “an affirmative act, an omission, or a violation of an administrative regulation.” Proof of a regulatory violation is proof of unlawful conduct. Nonetheless, a CFA plaintiff still must show a causal relationship between the regulatory violation and the ascertainable loss. Where a CFA claim is based on an affirmative misrepresentation, the claimant must show that the statement was material to the transaction and was made to induce the purchase. When a claim is based on an omission, the claimant must show that the defendant had actual knowledge of the material fact and acted knowingly with an intent to deceive.

In this matter, the Court focused on an important distinction between when a claim under the CFA is based upon an “omission” instead of an “affirmative act.” Since there was no evidence that the sellers’ agent had “actual notice” of any problem with the retaining wall and/or acted to conceal it, the Court found that dismissal was warranted and upheld the lower court’s decision.

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