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The Appellate Division issued an unpublished decision today that again emphasizes the power (some might say, inequity) of the New Jersey Consumer Fraud Act.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.

 

When Can Foreclosing Lenders Be Accused Of Acting In Bad Faith?

 by:    Peter J. Gallagher

In a recent decision, the Chancery Division denied a lender’s motion to strike a borrower’s contesting answer in a foreclosure lawsuit, holding that the borrower had adequately pled a claim that the lender acted in bad faith.  While this decision is unique based on the facts of the underlying dispute, it does, by contrast, serve as a reminder that lenders generally cannot be held to have acted in bad faith when they simply attempt to enforce the terms of loan documents as written. 

In Wells Fargo Bank, N.A. v. Schultz, plaintiff obtained a mortgage from World Savings Bank (which later changed its name to Wachovia Mortgage, FSM, which was later acquired by and merged into Wells Fargo) under a “Pick-a-Payment” mortgage program.  Several years later, this program became the subject of a class action lawsuit, the settlement of which provided that Wells Fargo both pay class members, including defendant Schultz, a small sum and also make loan modifications available to them.  It is the second of these requirements that ended up getting Wells Fargo in trouble.  Defendant presented evidence to the court that led Judge Doyne to conclude that she was “getting the run around” from Wells Fargo, including by being told that she failed to submit documents that she certified that she had submitted, and when Wells Fargo eventually confirmed that she had submitted the documents, telling her that the modification program was no longer available.  Judge Doyne observed that defendant may not have a right to be approved for a specific modification, but that once Wells Fargo made one available to her, it was obligated to “act in good faith as to the provision of the modification.”  To be clear, Judge Doyne did not rule that Wells Fargo had acted with bad faith; instead, he simply ruled that defendant had pled enough in connection with her claims related to the modification that her answer could not be stricken. 

While this case presents a situation where a lender is alleged to have acted in bad faith after agreeing to entertain an application for a loan modification, the law in New Jersey is well settled that a lender cannot generally be deemed to have acted in bad faith when it seeks to enforce the terms of a note or mortgage as written.  Stated differently, lenders cannot be barred from enforcing loan and mortgage documents merely because they seek to enforce their express contractual rights.  Indeed, “a creditor's duty to act in good faith does not extend to foregoing its right to accelerate upon default or otherwise compromising its contractual rights in order to aid its debtor.” Glenfed Financial Corp. v. Penick Corp.   For instance, in Creeger Brick & Building Supply, Inc. v. Mid-State Bank & Trust Co., — a decision cited by the Appellate Division with approval in Glenfed — a Pennsylvania appeals court held:

. . . a lending institution does not violate a separate duty of good faith by adhering to its agreement with the borrower or by enforcing its legal and contractual rights as a creditor. The duty of good faith imposed upon contracting parties does not compel a lender to surrender rights which it has been given by statute or by the terms of its contract. Similarly, it cannot be said that a lender has violated a duty of good faith merely because it has negotiated terms of a loan which are favorable to itself. As such, a lender generally is not liable for harm caused to a borrower by refusing to advance additional funds, release collateral, or assist in obtaining additional loans from third persons. A lending institution also is not required to delay attempts to recover from a guarantor after the principal debtor has defaulted.

In other words, if the defendant in Schultz was accusing Wells Fargo of bad faith simply because the lender was seeking to enforce its rights under the plain language of the relevant note and mortgage, the result would likely have been different. 

More Stories On Wellington’s Millions

by:  Peter J. Gallagher

Last week, we featured a post about the estate of grumpy Saginaw, Michigan lumber baron Wellington Burt ("Worth The Wait? Midwest Lumber Baron's Fortune Passes To Heirs 90 Years After His Death").  You might recall that Burt decreed, in his hand written will, that none of his heirs would receive a cent of his $90 million fortune (calculated in 1919 at the time of his death) until 21 years after the death of his last then-living  grandchild.  Since then there have been a number of stories about this colorful character and his estate.  The Today show featured it in a short piece that aired at the end of last week ("After 92 Years, Millionaire Miser's Heirs Finally Split $100M") and the Saginaw News has a number of stories that provide even more detail into both the man ("92 Years After His Death, Saginaw Lumber Baron's Vindictive Testament Nears Endgame"), and the tortured history of his estate ("Great-great-great Granddaughter Calls Saginaw Lumber Legacy A 'Curse" On Family") and its administration ("Saginaw Judge Carries Out Century-Old Wishes Of Unusual Lumber Tycoon").