Posts Tagged ‘Consumer Fraud’

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this was not the price that should have been listed and, upon discovering the error, Best Buy corrected the website and rescinded all of the orders placed using the wrong price, indicating that it will not honor the orders for those who have placed them at that price level.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

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.

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.