Owners May Be Individually Liable for Business’s Violation of Consumer Fraud Regulations, New Jersey Supreme Court Holds

Owners May Be Individually Liable for Business’s Violation of Consumer Fraud Regulations, New Jersey Supreme Court Holds

 

Last month, in  Allen v. V & A Brothers, Inc., No. A-30 Sept. Term 2010, 066568 (N.J. July 7, 2011), [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law] the New Jersey Supreme Court, New Jersey's court of last resort, modifying and affirming in pertinent part the judgment of 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"), and when principals or officers of the company "set the policies" that breached the regulations, "adopted a course of conduct" that violated the regulations, or "participat[ed]" or "engaged in" any of the regulatory breaches, the company's officers are personally liable for (treble) damages for those violations, at least where the breached regulations do not, by their terms, preclude such individual liability.

For further discussion of the New Jersey Consumer Fraud Act, see here.  For this author's June 29, 2010 post on the judgment of New Jersey's Appellate Division in the Allen case that the New Jersey Supreme Court modified and affirmed, see here.

In Allen, the trial court's order had granted summary judgment dismissing the plaintiff homeowners' claims against the two owners of a landscaping company which had secretly substituted inferior backfill for that specified in the construction plans for a retaining wall.  The purpose of the retaining wall was to enable the plaintiffs to build an in-ground swimming pool in their backyard.

A jury already had determined that the landscaping company was liable to the homeowners for (trebled) damages of $490,000 for failing to put in writing the plans for the work, for failing to obtain final approval for the work before taking final payment from the homeowners, and for altering the design of the retaining wall and surreptitiously substituting inferior backfill material for that agreed upon, 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 breaches of these regulations, the retaining wall showed excessive bulging.  The plaintiff's expert engineer opined that the retaining wall would continue to move and that it would eventually cause the homeowners' swimming pool to crack and leak.

In the judgment in Allen that was appealed to New Jersey's highest Court, the Appellate Division had reversed the trial court's order, and had remanded the case to the trial court with instructions to determine whether the landscaping company's principals personally had participated in the company's proven breaches of the above-described regulations.

The New Jersey Supreme Court modified and affirmed that portion of the Appellate Division's judgment reversing the trial court's grant of summary judgment in favor of the owners of the landscaping company, and remanded the case to the trial court with instructions to determine whether either of the company's owners "engaged in acts that suffice for th[e] purpose" of imposing imposing individual liability on the owners for the company's violations of the above-mentioned regulations.

The New Jersey Supreme Court determined that "[o]ur clear precedents . . . in the [Consumer Fraud Act] context . . . demonstrate that employees and officers of a corporation may be found to bear individual liability to consumers," even if common law grounds for piercing the corporate veil are absent.  For further discussion of the circumstances under which, in New Jersey, shareholders may be held personally liable for a corporation's acts, see this author's August 31, 2010 post.

In holding that a triable issue of fact existed as to whether the defendant owners of the landscaping company are individually liable for the company's breach of regulations promulgated under the Consumer Fraud Act, the New Jersey Supreme Court gave significant weight to the above-mentioned regulations' broad language, which did not, by its terms, foreclose such personal liability.

In light of the New Jersey Supreme Court's Allen opinion, owners of small and mid-sized companies should consult with knowledgeable counsel to make sure that their companies' policies and practices comport with their state's consumer protection laws.

 

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