Contractors engaged in home improvement and remodeling jobs are well aware that their work is subject to the Consumer Fraud Acti ("CFA") and, specifically, to the 2004 enactment of the Contractor's Registration Actii , which regulates contractors engaged in the home improvement business. Whether those statutory provisions extend to new home construction has been unclear. On March 4, 2009, in Czar, Inc. v. Jo Anne Heath, the Supreme Court held (with a strong dissent by Justice Rivera-Soto) that certain limited construction work by a trade contractor hired by a homeowner to design and install a kitchen in a new home being built by a different general contractor was engaged in the business of home improvements and subject to the remedies of the CFA. Perhaps more importantly, the Court examined the relationship of the CFA, the Contractor's Registration Act and the New Home Warranty and Builders' Registration Actiii ("New Home Warranty Act") and their implementing regulations and found that they constitute an integrated scheme of protections for homeowners. A fair reading of the case leads to the conclusion that the Court does not consider new home constructioniv to fall under the umbrella of CFA protection.
The Heaths hired a general contractor to build a new home for them. After much of the home was completed, they hired Czar to design and install a custom kitchen and perform other interior work. After a dispute over payment, Czar filed a complaint and the Heaths counterclaimed asserting that they were entitled to relief under the CFA for unsatisfactory work. Czar moved to dismiss the CFA count, arguing that its work was part of the construction of a new home and thus specifically excluded from the CFA. The Heaths asserted that the work was properly categorized as home improvements.
The trial court dismissed the CFA claim, finding that Czar's services were properly classified as the "construction of a new residence" and thus the Heaths could not seek CFA remedies against Czar. The Appellate Division, in a published opinion, reversed.v The panel held that the exemption for construction of a new residence found in the CFA's home improvement regulations did not apply to the work performed by Czar because Czar was not the general contractor hired to build a new residence and was hired directly by the Heaths for the installation of specific interior work. Consequently, the buyers of the new home could assert CFA claims against a contractor who provided services for a limited portion of the new home construction.
The Supreme Court affirmed that decision by reviewing the various statutory schemes that cover residential construction:
(1) The CFA, which is designed to protect consumers of a variety of goods and services, including home remodeling projects. The CFA covers, among other acts, the "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 …"vi
(2) The Contractor's Registration Act, adopted in 2004, which requires any contractor engaged in "remodeling, altering, renovating, repairing, restoring, modernizing, moving, demolishing, or otherwise improving or modifying of the whole or any part of any residential or non-commercial property" to register with the Division of Consumer Affairs. Any violation of the statute's provisions, including the detailed regulations adopted to implement the Actvii, is an "unlawful practice" subject to the CFA's remedies, including the potential assessment of treble damages and an award of attorneys' fees; and
(3) The New Home Warranty Act, which includes a registration requirement for new home builders through which their participation in a warranty program is assured.viii The New Home Warranty Act guarantees that all new homes will be covered by a warranty which "standardizes the responsibilities of the new-home builders" and "protect[s] homeowners by providing a source of payment to correct deficiencies caused by culpable builders." Home buyers have a right to an election of remedies by choosing either to file a warranty claim or bring suit against the contractor for defective work.
Notably, the Contractor's Registration Act applicable to home remodeling projects exempts from its provisions any person required to register under the New Home Warranty Act. In analyzing whether the defendantcontractor who worked on a limited portion of a new home construction project was subject to the strictures of the CFA, the Court emphasized that:
it is plain that the Legislature intended to create complementary protections for people who were, on the one hand, either building or buying new homes or, on the other hand, using the services of persons or entities who were engaged in making home improvements.x
Since the defendant in Czar was not the general contractor for the construction of the new home, it was exempt from the warranty remedy that the New Home Warranty Act requires. Under those circumstances, the Court held that "[i]n light of the expansive approach taken in the realm of homeowners' protections, there is no basis on which to conclude that the Legislature intended that a contractor engaged by a homeowner could escape registration and participation in the warranty program applicable to new home builders and also avoid registration and compliance with the applicable remedies available under the statute and regulations that govern home improvement contractors."xi In order to close the door on that "escape", the Court found the work performed by Czar subject to the CFA's remedial scope.
The Court's ruling is limited to work performed by a trade contractor whose work is not covered by the New Home Warranty Act. Although there was no direct holding on whether CFA claims may be asserted against new home builders who are covered by that Act, the entire thrust of the Opinion seems to indicate that the Court believes that the CFA should not apply to such work. The Court noted that the Appellate Division had expressed the view that new home construction is covered by the CFA and, in a footnote, the Court stated that "we neither consider nor endorse" that opinion.xii Nevertheless, the Court stated that the "Legislature [ ] found it appropriate to relieve new home builders of the obligation to comply with the regulatory scheme created to regulate home improvers that it chose to include within the CFA", because sufficient protection was provided to new home buyers through the Warranty Act.xiii
In a strong and thoughtful dissent, Justice Rivera-Soto, criticized the majority for finding a way to "shoehorn construction work on a new home that had not been completed, permitted, or even ever occupied into the CFA …"xiv His dissenting opinion notes that some claims may not fall into either statutory scheme, but that the majority "ignores our common law, which is designed to fill the gaps that may exist between the coverage of dissimilar statutes."xv
Of particular importance to the question whether the CFA applies to new home construction, Justice Rivera- Soto emphasized that the home buyers retained their claims for breach of contract, negligence, fraud and other causes of action. He does not believe, however, that new home construction work is covered by the CFA, stating:
Success on any one of these claims will provide the homeowners complete relief, although admittedly not the windfall of the additional penalties of treble damages and attorneys' fees recoverable under the CFA.
It may take another case before the Supreme Court to finally put this matter to rest. However, a careful reading of both the majority and dissenting Opinions in Czar leads to the conclusion that new home construction is not subject to the CFA.