The New Jersey Supreme Court recently in a unanimous decision, Allen v. V&A Brothers, held that employees and officers of a home improvement contracting business may be individually liable under the New Jersey Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-1 et seq., for affirmative acts, knowing omissions, and regulatory violations, including violations of the Home Improvement Practices Act ("HIP"), N.J.A.C. 13:45A-16 et seq. The decision places home improvement contractors on notice that they may be personally responsible for the treble damages awardable under the CFA.
In Allen, the Court had to consider whether a corporate officer or an employee could be personally liable for three violations of the HIP: failure to have a written contract, failure to obtain inspections, and substitution of inferior material without the homeowners' written consent. The Court considered the statutory language of the CFA and the HIP, their relationships to the corporate veil-piercing doctrine, and the tort participation theory to hold that the officer and the employee could be personally liable. The Court recognized that the "CFA broadly contemplates imposition of individual liability," based on its statutory language. However, as the definition section of the CFA does not create a cause of action, the Court then analyzed the broad remedial scope of the CFA - to stamp out fraud in connection with the sale of goods. The Court reasoned that officers and employees of corporations should not be shielded from individual liability merely because the corporation was also liable for breaching the CFA.
The Court also recognized the argument that Porzio, Bromberg & Newman made as amicus curiae counsel for several home improvement contracting associations, that cases such as this one that involve allegations of HIP violations differ from cases involving the more traditional CFA violations (affirmative acts and knowing omissions). The Court noted this distinction and held that to impose personal liability on an employee or corporate officer for a CFA regulatory violation requires a focused analysis of the HIP regulation. For example, if a principal of the corporation establishes a uniform policy that written contracts should not be used (in direct contravention of the HIP), an employee generally should not be held liable for an employment practice he is required to follow. Likewise, a principal may not be individually liable when an employee makes a unilateral, on-the-job decision (substitution of an inferior product) that violates the CFA. In this latter instance, the employee and the corporation more than likely would be liable for the CFA violation, but not the corporate officer.
The overall outcome of the Court's decision is significant and will extend to all CFA regulations, not just the home improvement regulations. However, the distinction between traditional CFA violations (affirmative misrepresentations and knowing omissions) and CFA regulations cannot be overlooked. In future suits, homeowners will have to prove more than mere knowledge of a CFA violation to impose personal liability against a corporate officer or employee. To avoid personal liability and safeguard their employees, home improvement contracting businesses must educate themselves on the scope and the elements of HIP violations.