Legal Fees Incurred Defending Against Counterclaim Recoverable Under New Jersey Consumer Fraud Act

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Perhaps no three letters strike fear in the heart of New Jersey defense attorneys more than C-F-A. It is the common abbreviation for the New Jersey Consumer Fraud Act, a consumer protection statute that, among other things, allows successful plaintiffs to recover their attorney's fees. Until recently, however, it was not clear whether the fees incurred in defense of a counterclaim raised in response to a CFA lawsuit, as opposed to fees incurred in prosecuting the affirmative CFA claim, were recoverable. In Garmeaux v. DNV Concepts, Inc., a case of first impression, the Appellate Division held that they are, provided that the counterclaim is "inextricably caught up with" the CFA claim.

Plaintiffs in Garmeaux visited a store named The Bright Acre (operated by defendant, DNV Concepts Inc t/a The Bright Acre) for the purpose of replacing their gas fireplace which had been damaged in a storm. The store manager agreed to sell them a new fireplace and help them file an insurance claim for the costs associated with the purchase and installation. During the visit, Plaintiffs met defendant, James Risa, who the manager introduced as "[plaintiffs'] installer Jim." What plaintiffs did not know at the time, however, was that Risa owned and operated an independent fireplace installation company — defendant, Professional Fireplace Services — and that Bright Acre had a practice of referring installation work to its own employees who, like Risa, owned installation service companies. In other words, Risa would be installing the fireplace in his capacity as the owner of Professional Fireplace Services, not as an employee of Bright Acre.

Shortly after their visit to the store, plaintiffs received a proposal from Risa for the installation. They accepted and made the first installment payment. Unfortunately, not long after he began the installation, plaintiffs became dissatisfied with Risa's work habits — they alleged that he "kept an unpredictable schedule" — and the quality of his workmanship. Around the same time, they also learned that he was performing the installation in his capacity as owner of Professional Fireplace Services, not Bright Acre. After several calls to Bright Acre to attempt to resolve their issues were ignored, plaintiffs sued. 

In their complaint, plaintiffs alleged that defendants violated the CFA by concealing the capacity in which Risa would be performing the installation. Defendants filed a counterclaim, alleging "fraudulent concealment of alteration of evidence." This claim was based on the proposal that Risa sent to plaintiffs. During discovery, plaintiffs produced a copy that did not have the Professional Fireplace Services masthead, but, at plaintiffs' deposition, defendants' counsel produced a different copy that contained the masthead. Although not entirely clear from the Appellate Division opinion, it appears that the counterclaim alleged that plaintiffs either withheld the proposal with the masthead from their production or altered the original document by removing the masthead. Regardless, plaintiffs acknowledged receiving the version with the masthead but denied having altered the document they produced to remove the masthead. 

After a five-day trial, the jury found in favor of plaintiffs and rejected the counterclaim. After the verdict, plaintiffs' counsel filed an affidavit of services, seeking more than $70,000 in legal fees. The court granted the application, and in doing so agreed that plaintiffs were entitled to fees in connection with their defense of the counterclaim, but reduced the amount of fees to $20,000. Both sides appealed. Although each raised a number of issues, this post is limited to defendants' contention that plaintiffs were not entitled to fees in connection with the defense of the counterclaim.

The Appellate Division began its opinion by noting that the question of whether a plaintiff is entitled to fees for the defense of a counterclaim in a CFA lawsuit was a matter of first impression. But, it noted that New Jersey courts have long parsed the causes of action in multi-count lawsuits and awarded legal fees on the CFA claims but not on the other, non-CFA claims: "[W]here a party presents 'distinctly different claims for relief' in one lawsuit, work on [the] non-CFA claims are not counted against a defendant." The test in such cases is whether the non-CFA claims "involve the common core of the CFA-related facts." If they do, then the lawsuit "should not be viewed as a series of discrete claims, rather the attorneys' fees related to the common core of CFA-related work may be considered by a court when calculating the award."

The Appellate Division then compared the facts of Garmeaux to a case decided by a Wisconsin court under a Wisconsin unfair trade practices statute that also allows for fee shifting. In that case, plaintiff sought recovery of his legal fees both for prosecuting his affirmative claim and for defending against defendant's counterclaim. The court agreed, holding that the award was appropriate because "the relief sought by the counterclaim was the 'very crux' of [plaintiff's] claim" and that the competing claims were, therefore, "inextricably caught up with each other." 

Applying these two principles, the Appellate Division held that, as a matter of law, a plaintiff can recover fees incurred in defending against a counterclaim to a CFA lawsuit if the counterclaim is "inextricably caught up with" the CFA claim, if the counterclaim is related to the "common core" of the CFA claim, or both. Applying this standard to the facts of Garmeaux, the Appellate Division held that plaintiffs were entitled to recover the fees they incurred defending against the counterclaim. It described the nature of the competing claims as follows:

Plaintiffs' CFA claim was premised on a fraudulent omission. Plaintiffs averred they were never advised by Bright Acre that the installation performed by Risa would be in his capacity as owner of Professional Fireplace Services; not as its employee. In defending this claim and in prosecuting its counterclaim, Bright Acre proffered the two invoices; one with and one without the Professional Fireplace Services masthead. These "conflicting" invoices were the lynchpin of Bright Acre's defense intended to demonstrate that plaintiffs were aware of Risa's employment capacity for purpose of the installation. Bright Acre's fraudulent alteration counterclaim was premised upon an alleged alteration by plaintiffs of the same invoice.

It then held: "Bright Acre's utilization of the invoices for the dual purpose of both shield and sword rendered counsel fees incurred by plaintiffs in response thereto compensable as both 'inextricably caught up with' and related to the common core of the CFA claim." Accordingly, the Appellate Division affirmed the trial court's award of fees (although, for reasons not related to this issue, it remanded the case back to the trial court to recalculate those fees).

[NOTE: I was tempted to refer to CFA as an acronym, but it now seems to me that it is just an abbreviation or maybe an initialism, not an acronym because acronyms apparently must be pronounceable as words — e.g., laser, NATO, and TCCWNA(?). Click here or here for more on this subject.]