Homeowners’ Complicity in Fraud Not Defense to Consumer Fraud Act Claim (NJ)

In Coluccio v. Sevas Builders, Inc., the New Jersey Appellate Division recently highlighted the potential high-stakes damages at issue in Consumer Fraud Act (“CFA”) cases.  While the objective of the CFA is to “greatly expand protections for New Jersey consumers,” the result can be costly for business.  Under the Act, the consumer is not only compensated for actual loss, but the Act also serves as a mechanism to “punish the wrongdoer” by awarding treble damages.  The Act also allows full recovery of attorney’s fees “to attract competent counsel … by providing an incentive for an attorney to take a case involving a minor loss to the individual.”

In this case, Frank and Josephine Coluccio hired a contractor to build an addition on their home to include a “classroom” to expand Josephine’s  unlicensed preschool.  The parties hotly contested whether the Coluccios told the defendant the purpose of the addition.

The defendant builder designed the addition and submitted a permit application to the town listing the homeowner, Frank, as the contractor and himself as the “responsible person to contact.”  The testimony differed as to whether the contractor had permission to sign the homeowner’s name on the permit application.  However, it was uncontested that he signed the name.

Significantly, the plans submitted to the town identified the room to be added as a “Great Room.”  Had the plans labeled the room as a “classroom,” the building department would have reviewed the plans in light of pertinent regulations for such a use.  All was well until the homeowners became dissatisfied with the construction and sued the contractor alleging various acts of negligence, breach of implied warranty and CFA violations.

The CFA makes it illegal for a business to engage in unconscionable practices as defined by an affirmative act, act of knowing omission, and certain technical regulatory violations.  This latter category involves strict liability. To succeed on a CFA claim, plaintiff must prove unlawful conduct, ascertainable loss, and causation.

Due to clear violation of regulations in this case relating to the permitting process, the court awarded plaintiffs partial summary judgment on liability under the CFA including the contractor’s personal liability.  The only issue that remained for trial was whether the plaintiffs suffered an ascertainable loss and, if so, the amount of the damages.  After a non-jury trial, the court entered judgment in favor of plaintiffs for $761,527, including treble damages of $497,868 for the claimed cost of $165,956 to demolish and rebuild the addition as well as $195,005 of “reasonable” attorney’s fees.

Defendant appealed on three grounds.  First, the defendants argued that Frank and Josephine should not be permitted to recover because plaintiffs hired the defendant to construct additions and make renovations to their private home out of which they operated an unlicensed pre-school.  However, the court confirmed that the equitable doctrine of unclean hands did not prevent a recovery under the CFA where the defendant was not the target of any fraud.  Second, the defendants argued that the trial court erred in awarding costs for the complete demolition of the addition because the weight of the evidence supported a finding that a less costly repair would have been effective.  However, the court affirmed the trial court’s findings and rejected the defendant’s expert’s opinion.  Last, the court rejected the defendant’s objections to the award of counsel fees.  It explained that the defense did not contest the reasonableness of the attorney’s fees at trial.  The attorney’s fees included all time spent on CFA issues and non-CFA issues finding that they were intertwined with each other.

Interestingly, the trial court noted that both the plaintiffs and defendant made poor witnesses.  With respect to the plaintiffs, she found that Josephine’s testimony seemed “rehearsed and strident,” Frank had “noticeable lapses.”  The defendant was “more polished” but “less than candid.”  Reading between the lines, it seems that the parties all sought to build the “classroom” on the cheap without engaging an engineer to fully specify the requirements for a classroom.  Thus, the defendant relied upon equitable principles to skirt around the CFA.  However, the strict liability applied for technical violations does not allow room for such an argument when the parties all sought to dupe the building department by the “Great Room” classification on the plans.

This case serves as a warning where technical violations are apparent with CFA claims.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at .