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Kort v. Van Aswegan

A-2645-10T3 (N.J. Super. App. Div. 2011) (Unpublished)

CONSUMER FRAUD ACT; CORPORATIONS; SHAREHOLDERS —There is no need to pierce the corporate veil to find an employee or officer of a corporation personally liable for violations of the Consumer Fraud Act if that employee or officer had control over company practices or actually participated and had accurate involvement in the commission of a Consumer Fraud Act violation.

Homeowners entered into an agreement with a home improvement contractor to construct a second story on their home, as well as to make improvements to the existing first floor. The contract did not comply with the regulations applicable to home improvement contracts because it did not contain the contractor’s registration number, did not include a copy of its liability insurance, did not provide a start date or completion date, did not identify the materials to be used, and did not include product warranties as required. The homeowners paid a substantial portion of the contract price to the contractor, but the contractor left before the work was completed, requiring the homeowners to hire another contractor to fix their faulty work and complete the job. They sued the first home improvement contractor and its principals for breach of contract and for violation of the Consumer Fraud Act (CFA). The contractor defaulted and the homeowners submitted their proofs. The lower court found that the contractor breached the contract because the work was shoddy and was not completed. It also held that the contractor violated the CFA by failing to comply with the regulations applicable to home improvement contracts. However, the lower court concluded that the regulatory violations were not the cause of the homeowners’ losses and therefore it dismissed the CFA claim. It also dismissed the homeowners’ claims against the contractor’s principals, with prejudice, and entered judgment solely against the entity on the breach of contract claims. The homeowners appealed and the Appellate Division affirmed in part.

The homeowners argued that the lower court should have pierced the corporate veil to find the principals liable as well. In addition, they argued that their losses should have been trebled under the CFA. The Court noted that individual liability can apply to any person, including one working for a corporation that violates the CFA by means of an affirmative misrepresentation or knowing omission. However, it depends on the nature of the actions taken by the individual. An employee who has no control over a company practices may not be liable, whereas principals who set those policies may be liable for CFA violations. Individuals may be liable if they participated and had active involvement in the commission of a CFA violation.

In this case, the Court found that one of the contractor’s principals actively participated when he signed the contract that did not contain the required disclosures and because he represented to the homeowners that it was a family business, thus indicating his personal responsibility to complete the project. In addition, as president of the company, he set the unlawful company policy to provide home improvement contracts that didn’t comply with regulations. The Court, however, did not hold the other principal liable because there was no evidence of her direct participation or involvement. The Court agreed with the lower court’s finding that there was no connection between the homeowners’ losses and the Consumer Fraud Act violations, and therefore trebling of damages was not appropriate. It found that the losses were attributable only to the breach of contract claims. The attorney’s fees, however, were recoverable under the CFA claim and not the breach of contract claim. The homeowners did not need to prove ascertainable loss under the CFA to recover their attorneys’ fees. Therefore, the lower court should have awarded attorney’s fees.

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