Ramapo Brae Condominium Association, Inc. v. Bergen County Housing Authority

328 N.J. Super. 561, 746 A.2d 519 (App. Div. 2000)
  • Opinion Date: March 1, 2000

CONSUMER FRAUD; PUBLIC AUTHORITIES—A public housing authority can act as a developer in creating housing, but is not subject to the consumer fraud act as would be a private developer for the same type of project.

A public housing authority developed and constructed a condominium housing project. It used modular units in the project’s design. Those units were installed by a contractor and were inspected by a third party quality control organization. Professional design was provided by an architectural firm. The buyers of the condominium units complained that the construction was “of poor quality and not keeping with construction industry standards.” They alleged that the roof framing was not properly installed, and that some of the roofs were in imminent danger of collapse. They also complained that the modular units had not been properly anchored to one another, and that weight levels and stress were not evenly distributed among the two-story units. For those reasons, their Condominium Association filed suit against the housing authority (which acted as general contractor for the development), the manufacturer of the modular units, the inspection service, the architectural firm, and a landscaper. At the outset, the court needed to address whether any portion of the claims against the public housing authority were subject to the Tort Claims Act. Traditionally, housing authorities have been considered public entities for purposes of that statute. The question presented was whether the Authority, when it commenced development, and “took upon itself the role of general contractor, lost the public entity defenses to which it would otherwise unquestionably be entitled.” The Court found difficulty with the question because there was no clear law and there were strong countervailing policy considerations on both sides. Nonetheless, the Court held for the Authority, because of its concern about the potential ramifications of the decision abrogating immunity in instances where a public housing authority constructs a project in an attempt to provide affordable housing. To the Court, “[i]mposing tort liability on the Authority in such an instance could have the result of discouraging development of innovative and creative techniques to deal with a critical shortage of affordable housing.” While there have been some instances where courts have been reluctant to deprive an injured party of a cause of action against a public entity when the same party could have a cause of action if the injury had occurred on private land, on balance, the Court considered that the greater weight of the policy factors came down on the side of permitting the Authority to invoke the protections of the Tort Claims Act.

The Association also made claims under the Consumer Fraud Act. While there was no reported New Jersey case directly analyzing the question as to whether a public housing authority may be subject to liability under that Act, the Court was satisfied that “the Authority is not subject to suit under the consumer fraud statute for its activities in connection with this development.” While a public entity can be held liable for punitive damages under a claim presented pursuant to the Law Against Discrimination and a claim presented pursuant to the Conscientious Employee Protection Act, the Appellate Division did not read the law to indicate, however, that public entities can be exposed to the treble damage and attorneys fee provisions of the consumer fraud statute. Among other reasons, the Court believed that there was no comparison to punitive damages standards because consumer fraud actions do not require a heightened standard of proof. Further, it did not believe that a public entity should be liable for an “unwitting regulatory violation” that might be sufficient to trigger strict liability for consumer fraud. In the Court’s view, “it would be contrary to the expressed policies of the Tort Claims Act if we were to conclude that the Authority could be held responsible under the Consumer Fraud Act.”

The Court then turned to the claims against the manufacturer of the modular units and the inspection service. Whereas the lower court concluded that each of these entities were entitled to share in the Authority’s public entity defenses under the principle derivative of immunity, the Court found error in that decision. The general principle is “[w]hen a public entity provides plans and specifications to an independent contractor, the public contractor will not be held liable for work performed in accordance with those plans and specifications.” Here, however, the record was insufficient to demonstrate that the modular units were manufactured, assembled, and erected in accordance with plans and specifications provided by the Authority. Apparently, the modular units were “off-the-shelf.” Further, the manufacturer’s engineer oversaw the drawings. To the Court, it didn’t matter that the Authority had “approved” the design of the modular units, because it was not shown that the units were fabricated and erected in accordance with plans and specifications provided by the Authority. Similarly, the claims for protection of the inspection service were also deficient. There was absolutely no showing that the manner in which the inspection service performed these inspections was directed and controlled by the Authority.

The new home warranty program was administered by one company and insured by another. Prior to the filing of the claims, the insurance company entered into an agreement with the warranty company, and, by terms of that agreement, a premium refund was issued to the warranty company and the insurance company was released from liability. The warranty company continued to acknowledge its responsibility under the terms of the warranty agreement. The Association and the individual unit owners pointed to this commutation agreement and claimed that it constituted a breach of warranty and a consumer fraud. The Court disagreed because there was no showing of any connection between this agreement and the purchase of their units. They did not purchase the warranty and the record on appeal made clear that the existence of an insurance-backed warranty was immaterial to their decision to purchase. Further, they were unable to show that the commutation agreement had resulted in any loss to them in light of the warranty company’s explicit acknowledgment that it remained fully responsible to comply with the terms of the warranty it issued.