Archive for the ‘Consumer Fraud’ Category

Violating a Consumer Fraud Act regulation can result in individual liability for employees or owners

Written by Michael Pisauro on August 15th, 2011 in Consumer Fraud, Home Improvement | No Comments »

Recently, the New Jersey Supreme Court issued a new opinion further defining the reach of New Jersey’s Consumer Fraud Act. In Allen v. V and A Bros., Inc., the Supreme Court ruled that an employee or owners of a company who has violated a regulatory provision can be liable under the consumer fraud act.  It is not new that owner can be liable with their own intentional misrepresentation of fact and thus liable under the consumer fraud act.  What is new is that a violation of a regulation, which may be truly a technical violation and not one that requires intent, can lead to the personal liability of an owner or employee responsible for the implementation of the regulation.

It has been the law for many years that an officer or employee could be liable for their affirmative act of misrepresentation or omission under the CFA. It was the individual’s acts that created the liability against them as well as their corporate employer.  In Allen the question became, in the absence of an affirmative act of misrepresentation, could an employee or owner of a company be personally liable under the CFA for violating a regulation.  A regulatory violation is a strict liability and does not require an affirmative act.  In this case, the plaintiffs allege that the contractor violated several regulations affecting home improvement contractors.  They alleged that the contractor did not have a written contract under NJAC 13:14A – 16.2; failed to obtain final approval for the construction before obtaining final payment as is required by NJAC 13:45A-16.2 (10), and finally that the contractor failed to obtain their consent for modifying the design as required by NJAC 13:405A -16.2 (a)(3) (IV)

Each of the regulations alleged to have been violated regulated the conduct of a “seller.”  The regulation’s definition of the “seller” means a “person engaged in the business of making or selling home improvements  . . .” and included not only the business entity but “their officers, representatives, agents and employees.”  NJAC 13:45A-16.1A.  Given the regulations’ definitions and the definition of person under the CFA, the Court had little trouble finding that an employee or officer could be liable based upon the liberal interpretation required of the CFA.

In this instance the Court had little trouble finding the owners and employees could be liable for violating the particular regulations and therefore, the Consumer Fraud Act.  The Court was also quick to point out that not all regulations may result in the liability of the individual.  Individual liability would be decided based upon the wording of the regulation.  So if a regulation only regulated the conduct of the business entity and did not extend to its agents, then only the entity could be liable for the violation.  Also the Court noted that if the business entity had a “policy” of not requiring a written contract, than its employees may not be liable for carrying out that policy because the employee had little choice in the employee’s actions.

The lesson to be learned is if you are an employer make sure you and your employees understand and follow the law.  If you are an employee it is for your own protection to understand what the law requires of you and not to violate it.  Neither the employee/owner nor the business entity wants to liable to a customer for triple the customer’s damages and to pay the customer’s attorney.  Violating a regulation, even if unknowingly, could put you and the business in that position.

Principles can be liable for regulatory violations of CFA

Written by Mike Pisauro on July 16th, 2010 in Consumer Fraud, Courts | No Comments »

A couple of weeks ago the Appellate Division confirmed that employees and principals of a company can be held liable for violations of the consumer fraud act.  In Allen v. V and A Brothers, Inc the Plaintiffs alleged that the company, its principals and its employees violated the consumer fraud act by failing to comply with certain regulatory sections.  These violations included not having a written contract; failure to obtain final approval before accepting payment and failure to obtain Plaintiffs’ approval on changes.

The Court reasoned that the Consumer Fraud Act required liberal application to protect consumers.  The CFA defines person as “any natural person or his legal representative, partnership, corporation, company, trust, business entity or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, ….”  NJSA 56:8-1d.

Prior case law has found, based upon the definition of Person under the Act, a principle of a company liable for the affirmative actions the principle took to violate the act. The Court in Allen reasoned that there was no reason to treat affirmative acts and regulatory violations different under the CFA.   An owner of a company can be liable for their violations of the CFA’s regulatory requirements.

Other posts on the Consumer Fraud Act:

NJ Consumer Fraud Act – What is Merchandise

With Consumer Fraud a person really means a person

Consumer Fraud Act and Any Person

Consumer Fraud Act – The Basics

Best Buy Meet the NJ Consumer Fraud Act: Honest Mistakes

Written by Mike Pisauro on August 24th, 2009 in Consumer Fraud | No Comments »

On Wed. August 12, 2009 the Best Buy website listed a 52 inch Samsung LCD TV for a whopping $9.99.  Unfortunately, this was not the price that should have been listed and, upon discovering the error, Best Buy corrected the website and rescinded all of the orders placed using the wrong price, indicating that it will not honor the orders for those who have placed them at that price level.

Now a few NJ lawyers are looking for plaintiffs to go after Best Buy for a violation of the New Jersey Consumer Fraud Act.  For the purposes of this post, I am assuming that the price error was a genuine mistake, it being a typo and not the result of any intent to defraud its consumers.  The question for Best Buy in NJ is whether that honest mistake will subject them to the penalties of the Consumer Fraud Act.

As I have noted in past posts, the Consumer Fraud Act provides:

the act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, . . .in connection with a sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby, is declared to be an unlawful practice.  NJSA 56:8-2.

The online price listing was clearly an advertisement of merchandise. It is also, clearly, a misrepresentation of the true sales price at the very least.  News reports indicate that Best Buy does not intend to honor those orders which were made prior to Best Buy learning of the erroneous sales price; therefore, their subsequent performance (i.e., returning the money and not honoring the orders) may be an unconscionable commercial practice.

In addition to showing that Best Buy had an advertisement that was false or misleading the Plaintiffs also have to show that the price was material to the transaction and that the false price induced the Plaintiffs to buy the TV from the store.

If Best Buy is found to be in violation of the consumer fraud act, then they are subject to treble damages and attorney fees.  The damages would be the difference between what the TV was listed for and what Best Buy was willing to sell the TV for or $1,690.00 which is then trebled to: $5,070.  The plaintiffs’ would also be entitled to attorney fees and costs of suit.

But this leaves the question of “can a seller of merchandise make an honest mistake under the Consumer Fraud Act and not be liable?” It is important to note that for there to be a violation of the Consumer Fraud Act, the Plaintiff did not have to show that Best Buy intentionally or knowingly made the mistake in the advertisement.  There must only be shown that that Best Buy placed an advertisement which was not accurate.  It must be remembered that the Act was passed in order to provide broad protections to consumers against sharp practices engaged in by businesses.  Given the broad scope and purpose of the Consumer Fraud Act, there does not appear to be room for honest mistakes.  While everyone makes mistakes, the lesson here is to correct the mistake as soon as possible and honor the deals made prior to the fix.  This will reduce the chance of a lengthy legal battle that could end of paying triple the original cost, plus the plaintiff and your legal fees.

For more posts regarding NJ’s Consumer Fraud Act you can read:

NJ Consumer Fraud Act – What is Merchandise?

Written by Mike Pisauro on August 4th, 2009 in Consumer Fraud | 2 Comments »

In past posts I have written about what the Consumer Fraud Act (CFA) is and to who it applies.  In this post I will look at what kind of items or transactions fall under the CFA.  The first place to look to see what is covered is the statute itself.  NJSA 56:8-2 provides that the act applies to the “sale or advertisement of any merchandise or real estate. . .”    What is merchandise?  The Act defines merchandise as “any object, wares, goods, commodities, services or anything offered directly or indirectly to the public for sale.”  NJSA 58:8-1.

While this is not meant to be an exhaustive list the following transactions have been deemed to fall under the CFA:

  • The sale of computers
  • The sale of cars
  • The sale of a life time membership in a consumer discount program
  • Home improvement contracts for work on an existing structure
  • The sale of pets
  • The sale of real estate through a realtor

The CFA has not been applied to the following kinds of transactions:

  • The sale of securities. Although securities were going to be included when the Act was originally proposed, they were purposely removed – and, therefore, not covered.
  • Attorney services
  • Medical services
  • Construction of a new home.  It does, however, apply to renovations of current homes and to contractors hired by the homeowner to perform work on new construction.
  • Sale of businesses

The CFA also does not apply to the sale of an ongoing business, although there is some question as to whether it may apply to the purchase of a franchise.  According to a NJ Appellate Court case, the sale of a franchise is covered by the consumer fraud act when the sale is not covered by the Franchise Practices Act.  A U.S. Federal District Court for New Jersey and the Third Circuit Court of Appeals, however, have found that the CFA does not apply to the sale and purchase of a franchise.  So, for the sale/purchase of a franchise there may be a question as to whether it is likely the NJ courts would enforce the consumer fraud act.  In other words, the application of the CFA to the purchase of a franchise is likely but not guaranteed.

NJ Courts have consistently applied to the CFA in a liberal manner to provide the full protection of the law to consumers.  While the above list is not an exhaustive list, it does demonstrate that the CFA can cast a wide ranging net on sales activities.  As you plan your sale of your merchandise keep it is very likely that the CFA applies to you.

For more information on the Consumer Fraud Act, please read:

With Consumer Fraud a person really means a person

Consumer Fraud Act and Any Person

Consumer Fraud Act – The Basics

With Consumer Fraud a person really means a person.

Written by Mike Pisauro on April 9th, 2009 in Consumer Fraud, Courts | 3 Comments »

Back in January, I wrote about a case before the N.J. Supreme Court called Real v. Radir Wheels. As I discussed the case could have wide ranging impact on who was covered by the Consumer Fraud Act. Well that statement was correct. The New Jersey Supreme Court came out with its decision on Radir Wheels on Wednesday. In keeping with the broad reach of the Consumer Fraud Act’s causes of action and remedies, the Court found Mr. Conklin was subject to the act and that he had violated it.

The Court began its analysis of whether a person selling an item or items on eBay was subject to the CFA, by noting that the CFA was enacted in response to unlawful sales and advertising practices and was meant to be remedial legislation. The courts are required to give remedial legislation a very liberal interpretation.

The Court’s decision came down to a plain reading of the statute’s definition of “person.” The statute defines person as “any natural person, or his legal representative, partnership, corporation, company, trust, business entity, or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, trustee” NJSA 56:8-1(d). The Supreme Court easily found that Mr. Conklin was a person. The Court then noted that there were some exceptions to the CFA’s reach, despite a plain reading, but noted that the Defendant did not fall into those narrow exceptions. As Mr. Conklin was subject to the CFA, the Court also found that the Plaintiff pled and proved a “textbook” case of a CFA violation.

The moral of story is that whether you are a large multinational store or a single parent selling your kids used toys and clothes on the internet, you are subject to the consumer fraud act. You are subject to the CFA whether this is you one and only sale or your 10,000’s listing. As everyone would like to avoid be liability for treble damages and attorney fees, any advertisement made on the internet must be accurate. It must not only be accurate as far as you, but it must be completely accurate. It must be completely accurate because if you make a statement regarding the item, which latter turns out to be untrue that is an actionable violation of the CFA. It is actionable even if you thought the fact to be true when you made it.

For more on the CFA see my previous post on the basics of the statute.

Read the rest of this entry »

Consumer Fraud Act and Any Person

Written by Mike Pisauro on January 25th, 2009 in Consumer Fraud, Courts | 1 Comment »

The Consumer Fraud Act (CFA), NJSA 56:8-1 et seq.  is a very powerful law which benefits all consumers both what you normally would consider a consumer as well as businesses.  Generally, a consumer is defined as any person including businesses that purchase products for their own use.  This would not include a person or business that purchases products to incorporate into their own products.  The act also does not cover businesses that buy objects for resale.  One of the things that makes this law very powerful is that if it is violated the violator is subject to triple damages plus attorney fees.  While it is a very powerful act that has over thirty years of history, it may not have caught up to time and technology.  The CFA prohibits:

the act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment suppression, or omission of any material fact, with intent that others rely upon such concealment, suppression or omission, a connection with a sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby, is declared to be an unlawful practice.  NJSA 56:8-2.

I highlighted the phrase “any person” because this is where the difficulty of the act may arise.  Any person means just that.  It means you, it means me, it means the mom & pop store down the road; and it means the national retail chain.  The act’s requirements do not differentiate between a person and a large corporation but applies equally to all.

The CFA clearly applies to the computer store that sells, as its business, hardware and software.  It applies to the national retail clothing store.  It applies to the new and used car dealers.  The question is whether does the CFA apply to the sale of an isolated item through an advertisement to another party.  Under the plain meaning of the definition of “any person” a person who makes an affirmative misstatement of fact is liable under the CFA.  The currently is a case before the NJ Supreme Court, Real v. Radir Wheels, Inc., which may determine if there is a threshold number of items a person has to sell before they become liable under the CFA.

In Real v. Radir Wheels, the owner of Radir Wheels sold a 1970 Corvette on eBay.  In the eBay listing the seller noted the car had a good frame and runs strong among other descriptions.  None of these turned out to be true, as the frame was rusted, and the engine was in poor condition.  In fact the car could not have been registered to operate on the road in the condition it was in.  Testimony during the trial revealed that the seller’s hobby was to buy old vehicles and restore them.  In fact the same month that he sold the corvette he sold two other vehicles.  The trial court had no trouble finding that the Seller was subject to the CFA and had violated the statute in addition to common law fraud.  The appellate division reversed and the appeal was taken to the NJ Supreme Court.

The Supreme Court heard oral arguments on January 21st.  Oral argument showed that the Justices were concerned that a plain reading of the statute would subject everyone who ever says an item on eBay, classifieds ad or otherwise could come under the liability of the CFA.    The Supreme Court will be deciding whether to hold everybody that makes a misstatement in an ad to treble damages and attorneys fee; or whether there is some threshold activity a seller must reach before the CFA protection against unconscionable commercial practices.

One of the keys to understanding the ultimate decision from the Supreme Court, the seller made affirmative statements on the condition of the product.  Under the CFA if a person make statements and those statements turn out to be false there is a violation of the CFA.  The Seller does not need to know the statements are false when made only that the statements are false.  Therefore even if the Seller in Real did not know there was rust on the frame, his statement that it had a good frame was false and would subject him to the CFA.

The moral of the story may be that if you are going to be selling items online or in the newspaper make sure what is posted in that listing is accurate.  If you are unsure or cannot verify the information even if you think it to be true, it would be better not to post the information.

Consumer Fraud Act- The Basics

Written by Mike Pisauro on December 22nd, 2008 in Basics, Consumer Fraud | 1 Comment »

The Consumer Fraud Act (CFA), NJSA 56:8-1 et seq.  is a very powerful law and one which business owners need to be aware of. In New Jersey, the CFA applies to persons who, in general, sell products to consumers. That is a very broad definition and it applies not only to individuals but can apply to a business as well.

Generally, a “consumer” is defined as any person or business that purchases products for their own use.  This does not include persons or businesses that purchase products to incorporate into their own products, nor does the act cover businesses that buy objects for resale.   (I will discuss further who is covered by the statute in a later post).

Specifically, the CFA prohibits:

the act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment suppression, or omission of any material fact, with intent that others rely upon such concealment, suppression or omission, a connection with a sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby, is declared to be an unlawful practice.  NJSA 56:8-2.

There are three categories of CFA violations: affirmative acts, omissions and regulatory violations.   For affirmative acts and violations of regulations, it does not matter whether the business made an honest mistake.  For example, the Courts have found that a realtor’s statement as to which section of town the property was in was a violation of the CFA – even though the Realtor honestly believed in the statement she made.  In another case, an advertising agency accidently omitted the odometer reading on vehicles in an ad and, since this is contrary to state regulations, the agency was found to be in violation of the CFA.   This is one aspect of the law that makes it so powerful and so very important to be aware of.

Acts of omissions, on the other hand, must include proof that the business intended to mislead the consumer.  Therefore, as an example in the realtor’s case, if the realtor never told the plaintiff that the property was in a specific section of town, the plaintiff would have had to show that the realtor knew the property was not in the particular section of town requested and that the buyer based their decision to purchase the property on this incorrect information. Further, since the realtor omitted the information regarding which section of town the property was in order to encourage the buyer to buy, the realtor may have committed a violation of the act.

What are the penalties for violating the CFA?  Upon demonstration of an ascertainable loss, the person is entitled to treble those damages.  Additionally, the Court is required to award attorney fees and costs.  Even if a plaintiff cannot show an ascertainable loss, if they can prove a violation of the act, the plaintiff is entitled to attorney fees and costs.  The trebling of damages and the award of attorney fees and costs is not discretionary but is required under the statute.  It is always possible that the damages caused by the violation of the CFA could, even if trebled, quickly be overshadowed by the award of attorney fees and costs.

In short, every retail business (and many other businesses, as well) should become familiar with the Consumer Fraud Act and any regulations governing their business.   By being familiar with these laws a business can, at least, minimize the risk of finding itself trying to avoid a claim under the Act.

Identity Theft Prevention Act regulations

Written by Mike Pisauro on December 11th, 2008 in Consumer Fraud, Identity Theft, Regulations | No Comments »

In July 2006 I wrote about New Jersey’s Identity Theft Prevention Act (business-newsletter-vol-1).  I also gave a presentation to the Pennington Business & Professional Association on the Act (pbpa-presentation).  At that time the Act still required that rules be proposed.  Since then the Division of Consumer Affairs, in conjunction with the Department of Banking and Insurance, proposed rules implementing the Act in April of 2007 and partially adopted those rules one year later.  Although the DCA decided not to adopt the rules setting forth the hardware and software requirements of the law, this article seeks to examine the proposed rules regarding a company’s obligations to maintain the confidentiality of a person’s private data.  Even though it was not adopted, I think what was proposed is instructive because DCA will have to re-propose standards at a later date.

One part of the proposed regulations, which was not adopted, defined personal information as any information that combines a person’s first name or initial and last name with any of the following information: social security number, driver’s license number, or account/credit card numbers.  Another section of the regulations, which was adopted, defined “business” in a manner that included any and all businesses – no matter the size.  The rules would have applied to a sole proprietorship all the way up to the largest corporation in the State.  The adopted regulations provides that any business that maintains a client’s credit card information or social security number must have in place technology and office policies to protect the privacy of this information.  With one minor and unimportant exception the regulations do not differentiate between the size of the business – this applies whether the business is a three person operation or a 1000 person operation.

The Department did not adopt the Section 3 requirements due to the large number of negative comments.  While the department did not publish all of the comments, it did indicate the objections ranged from the cost of implementing the requirements to the ability of businesses and public entities to comply.  Other commentators from large entities noted that they already had extensive systems in place and complying with the proposed regulations would be counterproductive.

Other provisions in Section 3 that were not adopted set forth business practice requirements or policies that should be in place.  While these sections were not adopted, the business practices that were suggested should be examined as they will likely find their way, in a modified form, upon re-proposal.  First, only those who need access to the personal data should be allowed access to the data.  Former employee’s user ids and passwords should be deactivated immediately.  This is not only required for compliance with the act and proposed regulations, but is a good business practice in and of itself.  Employees should be trained on how to recognize personal information and understand how that information should be treated.  Businesses with five or more employees must have a written information security policy that details the security of computerized personal information and explains each employee’s responsibilities regarding the use and maintenance of that information.

The systems in place need to be regularly reviewed because the proposed rules require daily scans.  In other words, the business needs to ensure that the antispyware and antivirus programs are actually up-to-date and running daily scans.  The proposed rules require that the firewalls keep logs of incoming and outgoing communications and ensure that those communications are authorized and not the result of a breach in security.  Documentation must be maintained detailing the business’ security protocols and audits.

As I noted in the last article, in the unfortunate event of a breach, the particulars of the breach must be reported to the Division of State Police of the Department of Law and Public Safety.  The proposed, but not adopted, regulations require that this report be made within six hours of discovery of the breach.  Despite the amount of press identify theft receives, it continues to occur on sometimes scary scales.  These thefts are the result not only of direct malicious attacks, but also of negligence on the part of employees and contractors or just bad luck.  There have been several instances when an employee has taken home a business laptop only to have that laptop stolen when the employee stopped along the way to pick something up.  For this reason, laptops should be encrypted – and it may also be a good practice to use a cable lock to secure the laptop within your car if you plan on making stops on the way home.  While it may be a pain to secure your laptop that “pain” is negligible when compared to the headaches of having to report the theft and explain to your customers, employee and others why their identities may be at risk.

Subsection 3.5 of the proposed regulations detailed how personal information should be destroyed.  The proposed regulations provides that the records, whether paper or electronic, must be destroyed in such a way (such as shredding, erasing or otherwise modifying the information) so that it is “unreadable, undecipherable or noreconstructable.”  The business must keep track of how the records were destroyed and when and these records must be maintained for a period of five years.  Keep in mind that hitting the delete key on your computer is not the same as placing a piece of paper through a shredder.  “Deleting” a file on a hard drive really does not delete the record.  In fact, the deleted record can be recovered fairly easily.  There are programs available at little or no cost, however, which will ensure that the record should be unrecoverable.  This is important to remember when you need to have hard drives replaced or when you are donating or discarding old computers.  This will probably be something to consider when the DCA issues a new proposal.

As if all of the possible repercussions of violating the act are not significant enough, Section Five of the regulations, that were adopted, set forth the penalties for violating the act or its regulations.  Failure to comply with the time lines for reporting a breach, failure to maintain the required records, or failure to maintain the required computer security systems is deemed to be a willfully, knowingly or recklessly violation the act.  It will also result in liability under the consumer fraud act.    A violation of the consumer fraud act will result in triple damages, possible punitive damages and attorney fees.  That can be a very hefty price to pay for not maintaining proper records and security procedures.

Taking a proactive approach to maintaining personal information has the potential to save you thousands of dollars and lots of headaches in the future.  If you have any questions regarding how to comply with the law contact your attorney and your technology consultant and ask them to walk you through the policy and hardware/software you need to ensure a headache free future.