NJ Supreme Court Narrowly Defines “Aggrieved Consumer.” End Of The Road For One Type Of “No Injury” Class Action?

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

I have written a number of times about New Jersey's Truth in Consumer Contract, Warranty and Notice Act (TCCWNA). (Here, here, and here for example.) This statute, which was largely ignored after it was enacted in 1981, became increasingly popular in recent years as part of so-called no injury class actions. (So-called mostly by defense counsel, not plaintiff's counsel.) Its popularity may now have come to an end, however, because the New Jersey Supreme Court recently issued its opinion in the highly-anticipated case, Spade v. Select Comfort Corp., which answered two questions certified to it by the U.S. Circuit Court of Appeals for the Third Circuit, one of which appears to hamper, at the very least, the ability of plaintiffs to sue for alleged violations of the act.

By way of brief background, the TCCWNA was enacted to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties. It provides:

No seller . . . shall in the course of his business offer to any consumer or prospective consumer or enter into any written consumer contract . . . or display any written . . . notice or sign . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller . . . as established by State or Federal law at the time the offer is made . . . or the . . . notice or sign is given or displayed.

To state a claim under the TCCWNA, a plaintiff must prove four elements: (1) that it is a consumer; (2) that defendant is a seller; (3) that the seller offered a consumer contract containing a provision that violated a legal right of the consumer or a responsibility of the seller; and (4) that it was an "aggrieved consumer." Any party found to have violated the TCCWNA is liable for a civil penalty of not less than $100, actual damages, or both, and reasonable attorneys' fees and court costs.

The questions certified to the Supreme Court in Spade arose out of two cases that had been consolidated by the district court. Each involved plaintiffs who ordered furniture pursuant to contracts that violated certain regulations promulgated by New Jersey's Division of Consumer Affairs. The regulations require, among other things, that furniture sellers deliver furniture to customers by or before the promised delivery date or provide written notice that they will not be able to do so. Sellers must also provide notice to the purchaser that if the delivery is late, the consumer has the option of canceling the order and receiving a full refund, or agreeing to accept delivery at a specified later date. The regulations also prohibit sellers from including certain language in their contracts, such as "all sales final," "no cancellations," and "no refunds." In Spade, plaintiffs alleged that the contracts they entered into with defendants did not contain language required by these regulations, contained language prohibited by these regulations, or both. Notably, however, plaintiffs received their furniture deliveries on time.

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“Swimmers Only Between Flags” (Or The Problem With “Plain Meaning”)

by: Peter J. Gallagher

Here is a link to one of my articles that was recently published on Law360.com. The original title was "'Swimmers Only Between Flags' Or The Problem With 'Plain Meaning'" but the editors shortened it by removing the part about the swmmers. The sign that inspired the article (if "inspired" is not too obnoxious) is at the top of this post, and here is the opening paragraph of the article:

I was at the beach recently and passed a sign that read “Swimmers Only Between Flags.” Being a lawyer, I could not simply nod knowingly at the sign and keep walking. Instead, I thought: “well, that is ambiguous.” Did it mean that swimmers were only allowed between the flags (and not outside them) or that only swimmers were allowed between the flags (and not, for example, surfers or boogie boarders)? I mentioned it to my wife, who told me to make sure I put sunscreen on the kids. But, the sign stuck with me that day, and again when I read the Supreme Court’s recent decision in Abramski v. United States (No. 12-1493), a decision that involved competing interpretations of the “plain meaning” of a statute regulating the purchase of guns.

I hope you enjoy the article.

When Do Condominium Associations Have Standing To Sue Under The Consumer Fraud Act?

by: Peter J. Gallagher

In a recent decision, the Appellate Division restated and clarified the rules regarding when a condominium association has standing to sue a developer. In Belmont Condominium Association v. Geibel, an association sued the sponsor/developer/contractor of the Belmont, a seven-story, thirty-four unit condominium in Hoboken, asserting common law fraud and negligence claims along with statutory claims under both the New Jersey Consumer Fraud Act (“CFA”) and The Planned Real Estate Development Full Disclosure Act (“PREDFDA”). The claims arose out of the allegedly faulty construction of the Belmont, and certain pre-construction statements from the developer, including that it had “overseen the building and renovation of Over 400 Single Family & Condominium Homes.” (Although largely irrelevant to the issues addressed by the Appellate Division, it turned out that the Belmont was actually the first building that the developer’s owner and general manager had ever constructed.) As it relates to the faulty construction, the association alleged that the building was “plagued by water leaks” almost immediately after construction was complete. These leaks impacted both the individual units and the common elements. After years of repairs that did not correct the problem, the association sued the developer. The association argued that construction defects were the cause of the water filtration, while the developer blamed the problems on poor and inadequate maintenance.

Among other things, the developer in Belmont argued that the association lacked standing to bring claims under the CFA. At the outset, the Appellate Division observed that New Jersey courts take a liberal approach to standing, and have historically given wide recognition to suits by condominium associations. It then analyzed the language of the New Jersey Condominium Act (“NJCA”) to determine whether the association had standing. As it related to claims arising out of damage to the common elements, the Appellate Division held that the association had standing to sue because the NJCA vests condominium associations with the “exclusive right”(emphasis in original) to sue a developer for defects pertaining to the common elements, and generally prohibits individual unit owners from doing so.

The Appellate Division rejected the developer’s argument that the association lacked standing because it could not demonstrate reliance by the original purchasers on any of the alleged misstatements. On this point, the Appellate Division noted that reliance is not an element required to sustain a claim under the CFA. The Appellate Division also rejected the developer’s argument that the association could only recover damages for the unit owners who actually sustained damage as a result of the developer’s alleged misrepresentations. The Appellate Division held that because the NJCA allows associations to sue for damages to the common areas sustained by “any or all” of the unit owners, it was entitled to recover all of the damages necessary to repair any damages, not a prorated amount based on the number of unit owners who identified damages.

However, the Appellate Division held that the association lacked standing to sue for damages to the individual units because the NJCA only vests it with authority to sue or be sued in connection with damages to common elements. In Belmont, the damages associated with individual units all related to the windows, which the Appellate Division held were “personal to the unit owners,” and therefore not part of the Belmont’s common elements. On this point, the Appellate Division reviewed the definition of common elements contained in both the NJCA and the master deed for the Belmont, neither of which identified windows as common elements. Once the Appellate Division concluded that the windows were unit elements, not common elements, its decision on standing was a simple one because it had already concluded that an association has standing to sue for damage to common elements, but lacks standing to sue for unit elements.

Reducing the Cost of Going Where No Man Has Gone Before

by: Katharine A. Muscalino

Under existing Board of Public Utilities Rules, developers seeking to build in undeveloped areas have been forced to bear the full cost of utility extension, while developers building in more developed, metropolitan areas, have enjoyed the benefit of sharing the expense of utility extension with existing ratepayers in the area. The rule was designed to encourage smart growth and reduce sprawl. The result was that developers in rural and less developed areas of New Jersey were facing massive, if not prohibitive, infrastructure expenses.

After getting an $8 million bill for utility extension for a 555 home development in Howell, one developer sued the BPU, challenging its authority to adopt such a rule, codifying disparate treatment of developers based on the existing development and infrastructure in a given area. The Appellate Division ultimately ruled that such a rule, treating development in some areas of the state differently than others at the developer’s expense, is beyond the state agency’s statutory authority.

In response to the Appellate Division’s opinion, the BPU has introduced a new rule, still in draft, that would allow developers to share the cost of utility extension over the entire ratepayer base. The new rule will make large-scale development in rural areas possible, and offers the possibility of utility service to both new and existing homeowners and businesses in these areas. The details of the new rule’s implementation will be discussed at the BPU’s meeting on Tuesday, October 18, 2011, including what portion of the extension costs should continue to borne by the developer and whether the developer should pay a deposit for the extension. Developers with plan to build in areas that are not served by existing infrastructure, or in rural areas may want to consider attending the meeting or contacting a BPU stakeholder to express support for the proposed rule. The meeting is expected to draw critics of the proposed rule who argue that it will lead to sprawl, compromise smart growth, and endanger scarce resources. To review a copy of the draft rule, click here.

Handicapped Access: What Is A Condo Association’s Obligation To Its Members?

"Now more than ever, community associations, especially those managing age-restricted developments, must be familiar with the various statutory controls concerning handicapped accessibility. In a time when many are looking to cut costs, the last thing an association needs is to be assessed civil penalties after being found in violation of an anti-discrimination statute. Rather, an association must collectively understand its obligations, options and appropriate responses when crafting a response to a complaint of deficient handicapped access."

So begins an article, entitled Handicapped Access: What is an Association’s Obligation to its Members?, written by Steven P. Gouin in Community Trends magazine. Click on the link for more details on this important issue.