Owners May Be Personally Liable For Company’s Violation Of Consumer Fraud Regulations, New Jersey Appeals Court Holds

Last week, in Allen v. V & A Brothers, Inc., No. A-4427-08 (N.J. App. Div. June 23, 2010), New Jersey’s Appellate Division held that when a company violates regulations issued under the New Jersey Consumer Fraud Act, N.J.S.A. §§ 56:8-1 – 56:8-184 (the “Consumer Fraud Act” or the “NJCFA”),  “individuals who were principals or employees of” the company and who “personally participat[ed]” in any of the company’s regulatory violations are individually liable for (treble) damages for those violations.

In the Allen case, New Jersey’s Appellate Division further held that a company’s principals “are assumed to be familiar with” regulations promulgated under the Consumer Fraud Act, and that plaintiffs need not prove that the principals “inten[ded]” to violate the NJCFA in order to hold the principals responsible.

The Allen Court reversed the trial court’s order, which had granted summary judgment dismissing the plaintiff homeowners’ claims against the principals of a landscaping company which had surreptitiously substituted inferior backfill for that specified in the construction plans for a retaining wall.

A jury had already found that the landscaping company was liable to the homeowners for (trebled) damages of $490,000 for failing to execute a written contract for the work, for failing to get final approval of the project before accepting final payment from the homeowners, and for modifying the design of the retaining wall and secretly substituting inferior backfill material for that specified, all in violation of regulations issued under the Consumer Fraud Act.  See N.J. Admin. Code §§ 13:45A-16.2(a)(12), 13:45A-16.2(a)(10)(ii), 13:45A-16.2(a)(3)(iv).  Because of the landscaping firm’s violations of these regulations, the wall had collapsed, causing substantial property damage.

The Allen Court remanded the case to the trial court with instructions to determine whether the landscaping company’s principals had personally participated in the company’s proven violations of the above-mentioned regulations.

The Appellate Division explained that the New Jersey Consumer Fraud Act prohibits “any person” from engaging in unconscionable or fraudulent practices in connection with the sale or advertisement of any merchandise or real estate, and that the NJCFA defines a “‘[p]erson'” so as to include “any natural person, . . . partner, officer, director, [or] member.”  The Allen panel observed that these expansive statutory definitions authorize the courts to “impos[e] liability for violation of the CFA on individuals” regardless of whether grounds exist “to pierce the corporate veil.”

In light of the Appellate Division’s Allen decision, owners of small and mid-sized businesses are well advised to consult with experienced counsel to ensure that their businesses’ practices comply with their state’s consumer protection laws.

If your company wants to bring, or needs a lawyer to defend it in, business litigation and you are located in the New Jersey area, call Attorney David S. Rich at (347) 941-0760.