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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