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Mitigation Services, Inc. v. McErlean

A-2891-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

CONSUMER FRAUD; CONTRACTORS — Contractors who specialize in mitigating flood damage are in the business of performing “home improvements” and are covered by the Consumer Fraud Act, even for activities performed under emergency conditions.

A homeowner’s sump pump failed, causing extensive flooding. The homeowner spoke to a contractor that specialized in mitigating flood damage. There was a dispute as to what the pricing structure would be to perform the work. The resulting agreement was silent as to the cost of services. Instead, it provided that the homeowner would pay any charges that its insurance company failed to pay. The homeowner contended that the parties had agreed to a fixed hourly rate, while the bill sent to them reflected the contractor’s belief that it was entitled to a rate higher than that fixed hourly rate. When the homeowner refused to pay the invoice, the contractor sued. The homeowner counterclaimed, alleging that the contractor had violated the Consumer Fraud Act (CFA) by charging more than the agreed-upon price.

The Law Division granted partial summary judgment in favor of the homeowner, declaring the agreement void by reason of the contractor’s failure to comply with the CFA’s price disclosure requirements. It also granted the homeowner’s motion for summary judgment, dismissing the contractor’s complaint. In doing so, it held that a party who violates the CFA is prohibited from recovering damages for services rendered, regardless of the cause of action it asserts. The lower court also ruled that because the homeowner had received an enormous benefit for which it did not pay, it was only entitled to the mandatory minimum penalty amount under the CFA. It awarded attorney’s fees because the contractor had filed numerous motions, and the homeowner was always the successful party. The contractor appealed, arguing it was not a home improvement contractor subject to the CFA.

The Appellate Division affirmed, holding that the lower court was correct in finding that the contractor was subject to the CFA. It noted that New Jersey’s CFA is one of the strongest consumer protection laws in the country and the statute should be construed liberally in favor of consumers. It held that the acts of “altering” and “restoring” homes, which was the nature of the business of the contractor, was specifically covered under the CFA’s definition of “home improvements.” It rejected the contractor’s contention that the word “improvement” in the regulations implied some type of alteration to the premises as opposed to cleaning of the premises. Moreover, the Court found that the contractor’s actions amounted to more than cleaning in any event - the contractor was found to have restored the home as well. Further, the Court ruled that the home improvements performed under emergency conditions fell within the broad scope of the CFA.

The Court also rejected the contractor’s assertion that it was contrary to public policy to allow a three day right of rescission for such types of emergency contracts. The Court held that the statute did not provide for such an exception and noted that the definition of home improvement included activities performed under emergency conditions. It stated that the Legislature is presumed to have known the law when it later adopted the three-day right of rescission period and did not exempt home improvement contracts performed under emergency conditions. It agreed with the lower court that, although the homeowners had received an “enormous benefit,” the contractor could not recover for its services because it violated the CFA. It noted that, generally, even a technical violation, done in good faith, deprives a violating contractor of any enforcement capacity. An exception to this rule is where there is no dispute as to the work authorized to be done and as to the agreed-upon price. In such circumstances, which was not the case here, the Court believed it would be highly unfair to deny the repairman the right to recover merely because of a technical, inadvertent violation of the CFA. It also held that it is only when a consumer’s act is “so egregious” that the consumer can be estopped from claiming the Act’s protection. The Court ruled that was not the case here.


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