In construction defect litigation, plaintiffs’ attorneys frequently include Consumer Fraud Act (“CFA”) violations (N.J.S.A. 56:8-1 et seq.) along with negligence and breach of contract claims. New Jersey’s CFA is one of the most expansive in the nation and can include strict liability when based upon a violation of its regulations.  With the potential for treble damages and attorneys’ fees, these claims apply pressure on defendants -particularly in the construction defect arena.

Recently, in Hackerman v. LaRusso, the Appellate Division considered whether a CFA claim could be supported where the plaintiffs had not directly contracted with the defendant homebuilder.  In Hackerman, nearly a year after the plaintiffs bought a home, they had  a basement flooding incident.  The home had been constructed new for the prior owner about eight years earlier.   The plaintiffs’ home inspector had issued a report indicating that the moisture in the basement was “satisfactory,” and noted the presence of two sump pumps.

Through discovery, the plaintiffs learned that the seller’s had had a flooded basement about five years before they sold the home.  The sellers contracted with a waterproofing company who installed the sump pumps as well as a sub-floor drainage system.  The waterproofer returned two times over the next several years to maintain the drainage system.  The sellers did not disclose flooding in the basement prior to the sale.

When the basement flooded, the plaintiffs sued the sellers as well as the homebuilder including a CFA count along with negligence and breach of contract claims.  The trial court granted summary judgment to the builders on the CFA, negligence and breach of contract claims.  Plaintiffs appealed.

To prevail on a CFA claim, plaintiffs must establish unlawful conduct, an ascertainable loss and a causal relationship between the conduct and the damage.  The Appellate Division upheld the dismissal of the CFA claims explaining that since there was no evidence of any contact between the builders and the plaintiffs, “it could not be said that the builders made an affirmative misrepresentation” to them.  On the other hand, plaintiffs’ negligence claim survived because “a legal duty may exist where a builder fails to exercise care even in the absence of privity.”

This decision emphasizes that in order to proceed on strict liability CFA claims, plaintiffs must demonstrate privity.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at .