On July 3, 1997, the Supreme Court decided Lemelledo v. Beneficial Management Corp. of America, 150 N.J. 255 (1997). Justice Handler’s opinion in that case, for a 6-0 Court, is a key Consumer Fraud Act (“CFA”) case. It is also the leading authority as to when a CFA claim is, or is not, pre-empted by the fact that the conduct complained of is regulated by multiple state agencies.
The case, a class action, involved “loan packing,” which Justice Handler defined as “a practice on the part of commercial lenders that involves increasing the principal amount of a loan by combining the loan with loan-related services, such as credit insurance, that the borrower does not want.” Plaintiff brought a number of claims, including a CFA claim, which was the focus of the Supreme Court proceedings.
Defendants moved to dismiss the CFA claim (and some, but not all, of the others, which will not be discussed further here) at the threshold. The Law Division granted that motion as to the CFA claim. The Appellate Division reversed. Defendants obtained leave to appeal to the Supreme Court, which affirmed the reinstatement of the CFA claim.
The first issue that Justice Handler addressed was whether the CFA covered loan packing. He did not find it difficult to conclude that the CFA does cover that practice. After noting “the broad legislative intent evident from the language and policy goals of the CFA,” Justice Handler observed that the CFA “specifically includes loans in its definition of what constitutes an ‘advertisement.’ N.J.S.A. 56:8-1(a). Moreover, its definition of ‘merchandise’ as ‘anything offered, directly or indirectly to the public for sale’ is more than sufficiently broad to include the sale of credit.” Though some Appellate Division cases had held that the CFA did not cover claims regarding the payment of insurance benefits, “the statute’s language is ample enough to encompass the sale of insurance policies as goods and services that are marketed to consumers.”
Defendants had argued that the fact that the CFA and its implementing regulations did not specifically cover insurance meant that insurance fell outside its scope. Justice Handler did not agree. “Given that ‘[t]he fertility of [human] invention in devising new schemes of fraud is so great …,’ the CFA could not possibly enumerate all, or even most, of the areas and practices that it covers without severely retarding its broad remedial power to root out fraud in its myriad, nefarious manifestations.” Since the CFA covered both credit and insurance, loan packing, a combination of the two, was embraced within the CFA.
But that did not resolve the case. The Court still had to resolve defendants’ “contention that, because lenders offering credit insurance are regulated by several State agencies, to subject them to CFA liability would run counter to our traditional reluctance to impose potentially inconsistent administrative obligations on regulated parties.”
Defendants based that argument on Daaleman v. Elizabethtown Gas Co., 77 N.J. 267 (1978). There, the defendant utility company was pervasively regulated by the Public Utilities Commission, and the Court in that case referred to the “real possibility of conflicting determinations, rulings and regulations,” which would put the defendant into an untenable position if the CFA also applied.
Justice Handler stated that “[i]n determining whether the existence of other regulations creates an exemption to the CFA for particular conduct that otherwise would fall within its provisions, it should ordinarily be assumed that the CFA applies to the covered practice. That assumption is appropriate because of the strong and sweeping legislative remedial purpose apparent in the CFA. The CFA explicitly states that the “rights, remedies and prohibitions” that it creates are cumulative to those created by other sources of law. N.J.S.A. 56:8-2.13.” Furthermore, he added, “the CFA, in allowing for private suits in addition to actions instituted by the Attorney General, contemplates that consumers will act as ‘private attorneys general.’ [Citation].
Those two aspects of the CFA– cumulative remedies and private attorney general enforcement– showed a legislative intent to “enlarge fraud-fighting authority and to delegate that authority among various governmental and nongovernmental entities, each exercising different forms of remedial power.” The Court was “loathe to undermine the CFA’s enforcement structure … by carving out exemptions for each allegedly fraudulent practice that may concomitantly be regulated by another source of law.”
Instead, the CFA would be presumed applicable unless the defendant shows “that a direct and unavoidable conflict exists between application of the CFA and application of the other regulatory scheme or schemes.” Justice Handler emphasized that the conflict must be “patent and sharp, and must not simply constitute a mere possibility of incompatibility.” The Court ultimately concluded that the multiple regulatory schemes applicable to loan packing were in fact complementary, and that the agencies and the courts could readily cooperate to ensure that regulated businesses are treated fairly.
A contrary result would have undermined much consumer protection regulation. Lemelledo thus represents an important bulwark in the structure of New Jersey’s strong and appropriate consumer protection jurisprudence.