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

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

FireplacePerhaps 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. 

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A Rare Narrowing Of The Consumer Fraud Act’s Scope: Medical Malpractice Insurance Not Covered

 by:  Peter J. Gallagher (@pjsgallagher)

It is not every day that a New Jersey court limits the scope of the New Jersey Consumer Fraud Act (“CFA”), so when one does, it is worth writing about. Anyone who litigates in New Jersey knows about the CFA and, depending on whether you are on the plaintiff’s side or the defendant’s side, either loves it or hates it. (I am mostly on the defendant’s side, but occasionally find myself representing a plaintiff, so my relationship with the CFA is “complicated.”) Because it is remedial legislation, the CFA is liberally construed to afford the greatest protection to consumers. This philosophy has led courts to apply the CFA (and its treble damages and prevailing party’s attorney fees) to a seemingly ever growing, and very rarely contracting, variety of disputes. In fact, many years ago, the New Jersey Supreme Court observed that: “The history of the Act is one of constant expansion of consumer protection.”

With this in mind, we turn to the Law Division’s published decision in Khan v. Conventus Inter-Insurance Exchange. That case was a putative class action in which plaintiff, a doctor, alleged that defendant violated the CFA in connection with the sale of medical malpractice insurance and the administration of the policy after it was purchased. Plaintiff purchased a policy from defendant and, as part of her initial membership, was required to make a one-time contribution, equal to the first year’s premium, to defendant’s surplus fund. (Defendant is not a traditional insurance carrier, but is instead a “non-profit physician member-owned risk sharing exchange.”) Plaintiff elected to make this contribution in installments over a ten-month period, with the understanding that if she cancelled her policy before the final payment was made, she would still be responsible for the full surplus fund contribution. Plaintiff eventually cancelled her policy before the ten-month period passed and defendant demanded that she immediately pay her entire surplus fund contribution rather than allowing her to pay it off in installments as originally agreed upon by the parties. Plaintiff sued alleging that this attempt to accelerate the surplus fund payment was a breach of contract and a violation of the CFA. She sought to bring her claims as a class action.

Before addressing whether plaintiff could sustain a class action and be appointed class representative, the court first had to decide whether the CFA applied to “transactions involving the purchase and sale of medical malpractice insurance.” Because the court held that it did not, it never had to reach the class certification issues.

 

 

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Another Reminder That Even When You Win You Still Lose Under The New Jersey Consumer Fraud Act

by:  Peter J. Gallagher

The Appellate Division issued an unpublished decision today that again emphasizes the power (some might say, inequity) of the New Jersey Consumer Fraud Act.  In Logatto v. Lipsky, plaintiffs hired defendant to build an addition on their home and perform other renovations.  Although defendant prepared a written proposal with cost estimates, he never prepared a written contract.  After the project was 90% complete, and plaintiffs had paid him $247,500, defendant notified plaintiffs that actual expenses exceeded the proposed costs, and therefore he required an additional $78,469.37 to complete the project.  Plaintiffs refused and, when the parties could not come to a resolution on the issue, defendant left the job.  Plaintiffs then sued defendant under the Consumer Fraud Act for the costs of completion of the project, and defendant counterclaimed for $50,000 in unpaid costs.  Both parties moved for summary judgment, but both motions were denied.

The case was tried to a jury.  After plaintiffs put on their evidence, they moved for judgment on liability in connection with their Consumer Fraud Act Claims.  The trial court granted the motion, finding that there were technical violations of the Act (failure to have a signed contract and change orders).  However, the trial court left the question of whether plaintiffs had suffered an "ascertainable loss," a requirement under the Consumer Fraud Act, to the jury.  The jury ultimately returned a verdict in favor of defendant, finding that plaintiffs did not suffer any ascertainable loss.  After the verdict, however, plaintiffs moved for, among other things, fees and costs under the Consumer Fraud Act.  The trial court denied the motion, but the Appellate Division reversed the trial court and remanded the issue back to the trial court for disposition of the fee motion. 

You may be asking yourself – how is this possible?  How can a defendant prevail at trial but still be responsible for the plaintiffs' legal fees?  What happened to the "American Rule"?  The answer to all of these questions is, the New Jersey Consumer Fraud Act.  Under the Act, as it has been interpreted by the New Jersey Supreme Court — in cases like Cox v. Sears Roebuck & Co. and Weinberg v. Sprint Corp. — plaintiffs can recover costs and fees if they prove that a defendant committed an unlawful practice, even if the victim cannot show any ascertainable loss.  While a plaintiff cannot recover treble damages under the Act without an ascertainable loss, it can still recover its costs and fees.  What this means is that if a plaintiff survives summary judgment and presents a prima facie case of ascertainable loss, it will be able to recover its costs and fees even if, as in the Logatto case, it ultimately loses on the merits at trial. 

This case, like seemingly every other decision handed down in connection with the Consumer Fraud Act, should be a cautionary tale for any business or entities that sell products or provide services that are covered by the Act.