A Wise Decision Under the Consumer Fraud Act

D’Agostino v. Maldonado, 216 N.J. 168 (2013).  The requirement of the Consumer Fraud Act, N.J.S.A. 56:8-19 (“CFA”), that a consumer sustain an “ascertainable loss” as a prerequisite to recovery has long been one of the most elusive concepts in CFA law.  In this case, however, the Supreme Court clarified the ascertainable loss requirement.  The Court split 5-2, with Justice Patterson writing the majority opinion, in which Chief Justice Rabner, Justices Lavecchia and Albin, and Judge Rodriguez joined.  Justice Hoens, joined by Judge Cuff, dissented in part and concurred in part.

The case involved a mortgage foreclosure rescue plan.  Plaintiffs had defaulted on their residential mortgage.  Defendant, who had a business buying homes from financially distressed owners, fixing up those homes, and then selling them, inveigled plaintiffs, in essence, into conveying their property to him for $10, giving him the right to repair the home, collect rent for it, and pay the mortgage and taxes, while one of the plaintiffs remained personally liable to pay the mortgage balance.  Plaintiffs had the “right,” for one year, to reacquire the property by paying defendant $400,000.  Defendant did make repairs, using  over $40,000 of his own money.  Several months after the original documents were signed, defendant prepared a quitclaim deed that gave him full title to the property.  The deed recited that he had paid plaintiffs $360,000 when, in fact, he had not paid anything.

Plaintiffs testified that the deal was to have been that plaintiffs would pay defendant $40,000 and defendant would repair the property and use rental payments from tenants to bring the mortgage current.  Defendants’ documents, however, which plaintiffs signed without reading and without consulting counsel, created the very different deal described above.  Plaintiffs eventually offered to pay defendant $40,000 to get the property back.  Defendant insisted on $400,000, in accordance with the documents.  Plaintiffs declined to pay that amount and instead sued defendant.

Plaintiffs’ claims were made under the CFA and on common law theories, seeking to invalidate the transfer of the property to defendant, as well as an award of damages.  After a bench trial, the trial court rejected the common law claims but found for plaintiffs on the CFA claim.  The judge found defendant’s conduct to constitute an “unconscionable commercial practice in violation of the CFA, voided the conveyance of the property to defendant, and awarded damages representing the loss in plaintiffs’ equity in the property as a result of defendant’s conduct less the money defendant spent on repairs.  The judge then trebled that damage figure, as mandated by the CFA, but subtracted out one-third of the total, the value of the equitable remedy that the court had awarded.

Defendant appealed, and plaintiffs cross-appealed, arguing that their full lost equity, $120,000, should have been trebled, with no deduction for defendant’s repairs.  The Appellate Division agreed that defendant had violated the CFA.  But that court concluded that because the equitable remedy restored title to plaintiffs, they had not suffered any ascertainable loss.  As a result, the Appellate Division awarded plaintiffs only their attorneys’ fees, not any damages.

Both parties’ petitioned for review by the Supreme Court, and both petitions were granted.  Applying the deferential standard of review applicable to a bench trial, the Court agreed that defendant had perpetrated an unconscionable commercial practice, and that the “unique combination of terms” created by defendant through his complex set of documents did not remove the transaction from “the broad statutory definition of a ‘sale’ of ‘merchandise'” covered by the CFA.  In reaching that conclusion, Justice Patterson exhaustively discussed the language and purpose of the CFA in an analysis that will be very useful to parties in future CFA cases.

The majority, however, rejected the Appellate Division’s conclusion that plaintiffs had no ascertainable loss.  Justice Patterson found “sparse guidance in the statutory text” and turned instead to a comprehensive review of the Court’s prior “ascertainable loss” cases.  The Appellate Division, she concluded, erred in failing to focus on plaintiffs’ “economic position resulting from the defendant’s consumer fraud– not [their] after a judicial remedy has been imposed.”  In a memorable sentence that rightly captured the essence of the CFA, Justice Patterson wrote that “[i]t would contravene the goals of the CFA if a plaintiff, who proves an unlawful practice and ascertainable loss and is awarded equitable relief premised upon that loss, is rendered ineligible for the mandated award of treble damages by virtue of that equitable remedy.”

The majority rejected the dissent’s view that the concepts of “ascertainable loss,” a requirement for recovery, and “damages sustained,” the measure of that loss, were two different animals.  Justice Patterson rightly saw the Court’s prior precedents as establishing the principle that “[w]hen an unconscionable commercial practice has caused the plaintiff to lose money or other property, that loss can satisfy both the ‘ascertainable loss’ element of the CFA claim and constitute ‘damages sustained’ for purposes of the remedy imposed by the CFA.”

Finally, the majority went on to conclude that the trial court’s damage calculation was appropriate, rejecting plaintiffs’ effort to get a larger damage award, and to rebuff defendant’s argument that equitable estoppel barred plaintiffs’ claims.  Those were fact-sensitive decisions, as opposed to the broader legal principles described above.

This is one of the most important CFA decisions that the Court has issued in some time.  The majority’s detailed and scholarly analysis of ascertainable loss is well worth reading and absorbing in full.  The Court correctly reaffirmed the CFA as broadly protective of consumers, and rejected unrealistic arguments that would have sapped the statute of its potency.