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Judge v. Blackfin Yacht Corporation

357 N.J. Super. 418, 815 A.2d 537 (App. Div. 2003)

CONTRACTS; FRAUD—It wasn’t fraud when a boat dealer didn’t tell its customer that the boat manufacturer was in bankruptcy because there was no evidence that the manufacturer couldn’t build the customer’s boat.

A boat buyer specially ordered a $300,000 boat from a dealer and posted a ten percent non-refundable deposit. The boat was to have specified personalized options. The dealer purchased the boat from the manufacturer and then resold it to its customer. Then, the manufacturer filed for Chapter 11 bankruptcy. The buyer claimed that he did not know about the bankruptcy until after he executed the sales contract. Upon learning of the bankruptcy, he contacted the dealer “strongly” intending to cancel the contract. The dealer put the buyer in touch with the manufacturer. The buyer and the manufacturer had a discussion and the buyer reviewed the litigation papers and the manufacturer’s marketing plan. “Satisfied with this information, [the buyer] then contacted [the dealer] and advised that he would proceed with the contract.” Eventually the purchase closed.

The buyer tested the boat together with the dealer’s technician and later with the manufacturer’s production manager. A number of problems were discovered and corrected but the buyer continued to complain. No additional repairs were made and the buyer placed the boat for resale with a broker. The boat was sold as-is for about $258,000. The buyer filed a complaint, alleging breach of warranty, and breach of the New Jersey consumer fraud act against the dealer, the manufacturer, the defendant’s and the dealer’s president. At the close of evidence, the lower court dismissed all but the consumer fraud claim. A jury awarded damages, which were adjusted and then trebled under the consumer fraud act. The dealer asked for a judgment notwithstanding the verdict or alternatively, a new trial. The Court refused to set aside the judgment, but granted a new trial on the issue of “proximate cause with respect to damages and damages only.” All parties appealed. On appeal, the issues were whether the evidence, together with all legitimate inferences sustained a judgment in favor of the defendant and also whether the jury verdict was “a miscarriage of justice under the law” to warrant a new trial.

The buyer alleged two affirmative acts: first, that the dealer required a non-refundable deposit, claiming that the sale was a “special deal.” Eventually, the buyer argued that the demand for a non-refundable deposit “was intended to deceive him and force him into paying the full purchase price for the boat even though [the dealer] knew that [the manufacturer] was in a liquidation.” The dealer argued that the non-refundable deposit was required because the boat was a special order and, therefore, demand for a non-refundable deposit did not constitute an act of consumer fraud. The Appellate Division agreed, holding that because “the boat included various expensive electronics and other custom features specifically ordered by [the buyer], the deposit was a legitimate method of financial assurance for the [dealer].”

The basis for the buyer claiming that the dealer fraudulently presented the transaction as a “special deal” was that the dealer stated: “Marty, please call me ASAP! Myself – Blackfin – my sale mgr. jumped through hoops yesterday to get you this deal. Please call me to confirm if you want to hold this boat. Best regards, George.” The record demonstrated that the buyer took his specifications to this dealer and another dealer in Florida. The Florida dealer gave a better price and the buyer told the actual selling dealer that he would only buy the boat from that dealer if the Florida dealer’s price was met. The evidence demonstrated what the facts essentially said: that the price could be met. As a result, the Court held that the facts did not support a showing of an affirmative act of consumer fraud.

Lastly, the buyer alleged acts of omission regarding the financial status of the manufacturer. Its theory was that the dealer did not advise him that the manufacturer was in bankruptcy or that another company had acquired the manufacturer’s assets prior to delivery of the boat. The Court stated the standard needed to prove that acts of omission constitute consumer fraud; a buyer “must show that the [dealer] intentionally concealed the information about [the manufacturer’s] bankruptcy with the intention that [its buyer] would rely on the concealment and that the information was material to the transaction.” The dealer argued that, “as a retailer, it had no duty to disclose the financial status of a manufacturer/supplier to a customer.” The Court said that such a determination would be based on the facts and circumstances and if, at the time the dealer asked for a non-refundable deposit, the dealer knew that the manufacturer’s bankruptcy “would affect its ability to produce the boat,” the dealer clearly had a duty to disclose. Here, the evidence was that the manufacturer had notified the dealer that it filed a bankruptcy petition under Chapter 11 “as a defensive measure to protect [the manufacturer] in its litigation with [the company that eventually acquired the manufacturer].” The dealer was assured that the manufacturer would continue business as usual and was no evidence that it did not do so. There also was no evidence that the dealer would not deliver the boat to the buyer’s specifications. Consequently, the Court held that the dealer “had no duty to disclose [the manufacturer’s] bankruptcy to [its buyer] before the contract was signed because there was no foreseeable risk that [the manufacturer] would not deliver the boat.”

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