Homeowners who sue home improvement contractors win even when they lose. A New Jersey Appellate Division panel recently held that homeowners are entitled to recover attorneys' fees and costs for technical violations of the New Jersey Consumer Fraud Act, ("CFA"), N.J.S.A. 56:8-1 et seq., even when the home improvement contractor successfully dismisses the homeowner's consumer fraud claims at trial. The import of this decision is two-fold: home improvement contracts must comply with the CFA's home improvement regulations, and contractors should carefully consider pre-trial settlement of consumer fraud claims to avoid paying the unsuccessful homeowner's attorneys' fees.
The CFA is a consumer protection law that applies to the home improvement industry. The CFA punishes home improvement contractors who lie, knowingly fail to disclose information material to the transaction, and violate its regulations. For home improvement contractors, the Home Improvement Practices Act ("HIP") is the CFA regulatory act that governs their business practices and documents. If a consumer proves that the contractor violated the CFA, he automatically recovers attorneys' fees and costs. Treble ("triple") damages are awarded when the consumer causally connects the CFA violation to an ascertainable loss-an out-of-pocket expenditure.
All is not lost for contractors. A consumer must have standing to sue to seek these damages. Standing under the CFA requires the consumer to successfully claim, at the outset, that the contractor's alleged CFA violation resulted in an ascertainable loss. For example, the consumer must show that the contractor's misrepresentation caused him to spend money to hire another contractor to perform the work. The ascertainable-loss standing requirement allows contractors to cut-off frivolous CFA claims before they begin. A home improvement contractor can halt the consumer's claim by convincing the court, before or at trial, that the consumer has not suffered an ascertainable loss. A consumer that cannot plead an ascertainable loss in his complaint does not have standing to sue. Likewise, a consumer that fails to prove an ascertainable loss at trial will have his claims dismissed. But, if the consumer-turned-plaintiff defeats the motion, or successfully persuades the court that the contractor violated the CFA, the case will proceed to trial, barring a settlement.
In Perez v. Professionally Green, LLC, this exact scenario occurred. The homeowners sued a professional landscaping company and swimming pool installer, alleging breach of contract and warranty, negligence, and consumer fraud. Specifically, the Perezes alleged that the contractors failed to include start and completion dates in their contracts, a HIP violation. N.J.A.C. 13:45A 16.2(a)(12). Before trial, the court held that the contracts failed to include these dates, entitling the homeowners to attorneys' fees and costs.
At trial the homeowners could not connect the HIP violation to an ascertainable loss. The trial court thus granted the swimming pool installer's motion to dismiss the Perezes' consumer fraud claims, because they failed to prove that the lack of start and completion dates in the contract caused them to suffer any damages. (On appeal, the parties did not raise the question of whether the loss of a swimming pool for a period of time constitutes a compensable loss under the CFA). Despite the dismissal of their CFA claims, the Perezes still recovered their attorneys' fees and costs for proving that the contract violated the HIP regulations.
The swimming pool contractor appealed the award of attorneys' fees and costs to the Perezes; the landscaping company settled before trial. The contractor argued that the trial dismissal of the homeowner's consumer fraud claims meant that the Perezes did not have standing to recover their attorneys' fees and costs. The contractor advocated requiring consumers to prove both a CFA violation and an ascertainable loss before a consumer recovers attorneys' fees and costs. The appellate court disagreed. It held that once a consumer pleads a bona fide claim of ascertainable loss-which the Perezes did by claiming they did not have use of their swimming pool-the consumer has standing to recover his attorneys' fees and costs for the contractor's CFA violation.
At first glance, the decision is not overly significant; it clarified CFA standing requirements and reinforced that consumers automatically recover attorneys' fees and costs when they prove technical violations of the CFA regulations. A closer reading, however, reveals its worth. For starters, the decision underscores that most HIP violations can be eliminated with proper contract drafting and review. Many HIP regulations are violated without the contractor committing, and the consumer proving, actual fraud. The lack of start and completion dates is an excellent example. The consumer fraud claims and the attorneys' fee award in Perez could have been avoided had the contractors simply included start and completion dates in the contracts. Moreover, consumers are often hard pressed to prove an ascertainable loss related to many of the HIP regulations. As a result, they might not have standing to sue at trial. However, if the consumer can plead an ascertainable loss, significant attorneys' fees will be incurred defending the case up to trial.
The last take-away focuses on the decision to try a case. Contractors are fiercely proud of their work. They rightfully believe that they can defend and defeat construction defect claims. Unfortunately, contractors often decide to litigate cases instead of settling them because the homeowner has abused them throughout the construction project. The last thing the contractor wants to do is to pay the abusive consumer any money. However, when consumers prove that CFA violations caused ascertainable losses, many times the jury awarded attorneys' fees and treble damages will overwhelm the actual judgment amount. Thus, the contractor should seriously consider whether trying the case is in its best interest when the consumer/plaintiff pleads a CFA violation and a connected ascertainable loss. To avoid these pitfalls, contractors need to carefully examine whether their contract and business practices conform to the CFA's regulations. Attorney review of home improvement contracts is a must for contractors to avoid paying attorneys' fees awarded to consumers who cannot prove an ascertainable loss.