The New Jersey Consumer Fraud Act (“CFA”) protects consumers against unconscionable and fraudulent practices in the marketplace. Originally enacted in 1960 to allow for the Attorney General to enforce its provisions, it was amended in 1971 to allow for a private right of action, treble damages, costs and attorneys’ fees. http://www.njconsumeraffairs.gov/Statutes/Consumer-Fraud-Act.pdf. While the CFA is intended to be liberally construed in favor of consumers, CFA claims are not without boundaries.
In connection with the sale or advertisement of merchandise, services or real estate, the CFA forbids, as unlawful conduct, “[t]he 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 . . . .” N.J. Stat. §56:8-2. Although “consumer” is not defined in the CFA, the term “person” is employed and includes both individuals and corporations. N.J. Stat. §56:8-1(d).
The CFA does not cover every sale in the marketplace, however. See, Papergraphics Intern. Inc. v. Correa, 389 N.J. Super. 8, 13 (App. Div. 2006). The CFA is directed primarily at deception, misrepresentation and unconscionable practices by professional sellers seeking “mass distribution” of “consumer goods” to the public at large. Kugler v. Romain, 58 N.J. 522, 536 (N.J. 1971). But such prohibited commercial practices are not limited to the initial transaction alone. They also include acts pertaining to subsequent performance by persons involved in the subject transaction. N.J. Stat. §56:8-2.
As developed and interpreted by a quickly-growing body of case law, a plaintiff must satisfy three elements to establish a viable CFA claim: (1) unlawful conduct by the defendant; (2) an ascertainable loss by the plaintiff; and (3) a causal connection between the defendant’s unlawful conduct and the plaintiff’s ascertainable loss. According to the statute, a practice is unlawful whether or not a person was misled, deceived or damaged. N.J. Stat. §56:8-2. There need only be a causal nexus to the plaintiff’s loss because the purpose of the CFA is to proscribe practices that have the capacity to mislead. Cox v. Sears Roebuck & Co., 138 N.J. 2, 17 (N.J. 1994).
Unlawful conduct proscribed by the CFA has been interpreted to fall into three general categories, namely affirmative acts, knowing omissions, and the violation of regulations promulgated under the CFA. An unlawful act consisting of affirmative acts does not require proof of intent. However, an unlawful act comprised of omissions requires a showing that it was knowing and intentional. Cox, 138 N.J. at 17-18.
Can a CFA claim impose liability for any sale or provision of goods or services in the marketplace?
In Princeton Healthcare Sys. v. Netsmart N.Y., Inc., 422 N.J. Super. 467 (App. Div. 2011), the New Jersey Appeals Court observed that not every contract entered into by a company may be the subject of a CFA claim. The court found that the character of the transaction, not the identity of the purchaser, is the determinative factor for CFA jurisdictional purposes. In ruling for the defendant and dismissing the CFA claim, the court concluded that the contract at issue between the parties was heavily negotiated, by two sophisticated corporate entities. Further, the court found that the subject transaction was for the installation and implementation of a complex and customized computer software system, and was not a simple purchase of merchandise otherwise sold to the public at large. For these reasons, the court concluded that the transaction was not a sale of merchandize within the meaning of the CFA.
Similarly, in Genda Indus., LLC v. Crown Bank, 2015 N.J. Super LEXIS 295 (Sup. Ct. 2015), the New Jersey Superior Court denied a request to amend a complaint to interpose a CFA claim relating to a complex loan agreement. The court found that the plaintiff had extensive experience in commercial financing and was not an unsophisticated buyer suffering from a disparity of industry knowledge. Moreover, the applicable loan documents were tailored to the particular needs of the plaintiff based on a specific project under development. In denying leave to amend, these considerations led the court to conclude that assertion of the CFA claim before it would be futile.
Do you have CFA Claim Exposure?
The CFA is a very nuanced statute, the interpretation of which is playing out in New Jersey cases on a weekly basis. Given the changing landscape, it is crucial to consult with knowledgeable counsel to determine whether one’s business is subject to the CFA and, if so, to establish business practices that are compliant with the law’s proscriptions.