Allen v. V and A Bros., Inc.., 208 N.J. 114 (2011). The New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. (“CFA”), makes liable any “person” who violates the CFA. In this case, a unanimous Supreme Court, speaking through Justice Hoens, held that owners, officers or employees of corporate defendants who take sufficient affirmative action can be liable individually for violations of regulations promulgated under the authority of the CFA. The decision is not revolutionary. It merely extends to the context of regulatory violations prior caselaw that had allowed individual liability under the CFA for misrepresentations or intentional omissions. Moreover, as Justice Hoens made clear, liability is not automatic, but will depend on the particular regulation allegedly violated and the nature of the individual’s conduct. The decision is good for consumers and treats sellers fairly.
Plaintiffs hired defendant V and A Bros., Inc. (“V&A”) to construct a retaining wall for a pool that was to be installed on plaintiffs’ property by another contractor. Plaintiffs paid the full amount due to V&A but later, after noticing bulging and cracking in the wall, alleged that the wall was defective.
Plaintiffs sued V&A for breach of contract. They also sued V&A, its two principals and the V&A employee who had been V&A’s primary contact with plaintiffs in connection with the wall, for violations of three regulations, promulgated under the CFA, that governed home improvement contractors. The alleged regulatory violations were failure to execute a written contract, failure to obtain final approval of the construction before accepting final payment, and failure to obtain plaintiffs’ consent before modifying the design of the wall and for using inferior backfill material.
The individual defendants moved for summary judgment, asserting that only V&A could be liable under the CFA. The Law Division agreed. That court ruled that plaintiffs could prevail against the individuals only by piercing the corporate veil, and that plaintiffs had not met the standards for doing that. Plaintiffs won summary judgment against V&A on the regulatory violation involving the lack of a written contract. The other claims went to trial, and plaintiffs won $490,000 against V&A. Plaintiffs then appealed the dismissal of the individual defendants.
The Appellate Division reversed that dismissal, holding that if the individuals had actively participated in the wrongdoing, they could be liable under the CFA along with V&A. The panel remanded for further proceedings to determine whether any of the individuals had participated in the regulatory violations. The Appellate Division also ruled that the individuals were collaterally estopped from relitigating the amount of damages at issue, in light of the result at the trial of those same violations at which only V&A participated. The Supreme Court granted review.
After noting the broad sweep of the CFA and the comprehensive definition of “person” in that statute, Justice Hoens concluded that “an individual who commits an affirmative act or a knowing omission that the CFA has made actionable can be liable individually. Although the statute would also impose liability on the individual’s corporate employer for such an affirmative act, there is no basis on which to conclude that the statute meant to limit recourse to the corporation, and thereby to shield the individual from any liability in doing so.” The Court cited prior cases in which individuals who had actively participated in wrongdoing were held liable under the CFA .
The question whether individuals can be liable under the CFA for regulatory violations was more complex. Justice Hoens held that “individual liability for regulatory violations ultimately must rest on the language of the particular regulation in issue and the nature of the actions undertaken by the individual defendant.” The Court contrasted regulatory violations “over which an employee … will have no input and therefore no control,” such as the use of a form contract selected by the employer that violates regulations as to font size, with regulations that “focus on the behavior of individual employees or actors and that therefore might support personal liability.”
The Court saw these issues as very fact-sensitive. Since no record had been developed as to the individuals in this case, the Court remanded the matter for further proceedings as to whether any or all of the individuals might be liable for any regulatory violation. The Court also reversed the Appellate Division’s ruling on collateral estoppel and left the question of damages, if liability were found, to the trial court.