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Schmoll v. J.S. Hovnanian & Sons, LLC

394 N.J. Super. 415, 927 A.2d 146 (App. Div. 2007)

CONSUMER FRAUD ACT; CONTRACTORS; ATTORNEY’S FEES—An award of attorney’s fees under the New Jersey Consumer Fraud Act does not require an adjudication of liability as long as the relief obtained in the settlement is substantially the same relief as is sought in the complaint.

A class action suit was brought by a number of individual homeowners against the builder that constructed their homes. The suit alleged that unsafe and unhealthy conditions existed as a result of improper ventilation in the houses’ utility rooms, each of which contained a gas furnace, a hot water heater, and a dryer. The homeowners sought injunctive relief in the form of a program, to be overseen by the courts, which, at the builder’s expense, would have called for the inspection and testing of the equipment in the utility rooms, and if necessary, would have mandated repairs to remedy any municipal code violations. The homeowners also brought claims of negligence, breach of warranty, and consumer fraud.

The builder’s motion for dismissal of all claims was denied. At trial, the homeowners dropped their claims of negligence and breach of warranty, but pursued their claims for injunctive relief and of consumer fraud. The parties subsequently entered into a settlement calling for the inspection and repair program at the builder’s expense. In the agreement, the builder denied any wrongdoing. The agreement provided that arguments over attorneys’ fees would take place after inspections were conducted. The lower court reviewed and approved the settlement, but awarded attorneys’ fees to the homeowners without awaiting results of the inspections on the grounds that the homeowners had prevailed on their consumer fraud claims.

On appeal, the builder argued that the homeowners had not prevailed on their consumer fraud claims and, as a result, were not entitled to receive attorneys’ fees. In response, the Court pointed out that an adjudication of liability was not necessary under laws allowing awards of attorneys’ fees as long as the relief obtained in a settlement was substantially the same relief as was sought in the complaint. Here, the inspection and remediation program agreed to in the settlement was the primary form of relief that homeowners sought in their complaint and that the homeowners dropped their claims for damages. The Court further pointed out that the builder had rejected a pre-trial opportunity to settle the matter, but ultimately settled during trial on terms similar to the pre-trial offer.

The builder also argued that determining who was the prevailing party should have been delayed until after the inspections were conducted because the inspections could have revealed that there were no violations or that there was no need for repairs. The Court rejected this argument, finding that the remedy sought by the homeowners was the assurance and implementation of the testing program, at the builder’s expenses, with repairs if necessary, and that the need for repairs alone was not the trigger for the homeowners to have prevailed. The Court also pointed out that, during trial, proof of the dangerous conditions surfaced. It noted that an award of injunctive relief, alone, is sufficient to award attorneys’ fees under fee shifting statutes.

The Court also rejected the builder’s argument that the homeowners’ claims of fraud, which triggered the award of attorneys’ fees, were never adjudicated. It noted that the builder’s motion to have the fraud claims dismissed was denied, that the builder never preserved the right to appeal the denial of summary judgment on the fraud claims, and that the fraud claims were still pending when the matter was settled, even though they had later become moot. The Court did not have access to the evidential record of the builder’s motion to dismiss the fraud claims and chose not to rule on whether the evidence at trial would have resulted in fraud violations. It also disagreed with the builder that the fraud claims should have been adjudicated following the settlement between the parties. According to the Court, the builder had the option to reject the settlement and fight the allegations of fraud by continuing the trial. Had it done that, and if the lower court had found that fraud occurred, the Court could have then decided whether a finding of fraud was appropriate on appeal. Consequently, all of the lower court’s findings were affirmed.

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