The Consumer Fraud Act in Condominium Construction Defect Litigation

Belmont Condominium Ass’n, Inc. v. Geibel, 432 N.J. Super. 52 (App. Div. 2013).  This case resulted in another magnum opus by Judge Parrillo.  Plaintiff sued over defective construction of a condominium in Hoboken.  Plaintiff also attacked certain statements that the builder-developer had made about its experience and the quality of the construction.  The case relied on the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. (“CFA”), the Planned Real Estate Full Disclosure Act, N.J.S.A. 45:22A-21 et seq., and claims of negligence and fraud.

After a jury trial, plaintiff prevailed on its negligence claim, with defendants being found 80% responsible.  The jury also found defendants liable under the CFA for two deceptive statements.  As a result, plaintiff won treble damages and attorneys’ fees.  Prejudgment interest was assessed on the entire damage award, including the treble damages.  The defective construction included both common elements and individual unit windows.

Defendants appealed on various grounds.  In another of his many comprehensive opinions, Judge Parrillo affirmed most of the result below.

The most important part of the decision relates to various CFA-related challenges that defendants raised.  The panel rebuffed the oft-asserted, and oft-rejected, argument that the Association had not shown reliance.  Citing numerous CFA cases, led by Gennari v. Weichert Co. Realtors, 148 N.J. 582 (1997), a case comparable in many ways to this one, Judge Parrillo reiterated that “the Association was not required to demonstrate reliance for defendant to be liable under the CFA.”  [Disclosure:  I represented an amicus curiae in Gennari].

Defendants also asserted that the statements that the jury had found deceptive were literally true, such as the statement, made before any construction had occurred, that “[t]here are no known defects in the building (a part of which) you are purchasing, nor in the common areas and facilities, that you could not determine by a reasonable inspection.”  But those statements “clearly had the capacity to mislead an average reader” of the offering documents.  The “capacity to mislead” is all that is necessary for liability under the CFA.  No false statement is necessary for liability for an affirmative misrepresentation.

Judge Parrillo also dispatched defendants’ argument that their deceptive statements constituted warranties, and that “aggravating factors” are required before a breach of warranty can constitute a CFA violation.  The second part of that argument is correct, but defendants’ statements were affirmative misrepresentations, for which no aggravating circumstances are required.

Defendants also advanced a statute  of limitations argument, contending that the CFA claims were barred because the Association, or its members, knew more than six years before this suit was filed that the statements were false or deceptive.  Judge Parrillo ruled, however, that “plaintiff’s CFA claim did not accrue when it learned of the falsity of defendant’s representations; rather, the cause of action accrued when plaintiff suffered an ascertainable loss,” an essential element of a CFA claim.  That did not occur until the “true nature and extent” of the construction defect problems “first became evident.”

Also highly significant is Judge Parrillo’s discussion of the standing of plaintiff, a condominium association, to assert claims on behalf of association members who were not original purchasers from defendants and, therefore (according to defendants) could not show any causal connection between defendants’ deceptive statements and any ascertainable loss that those association members had.  New Jersey’s liberal standing rules, the plain language of the Condominium Act, N.J.S.A. 46:8B-16(a), and Siller v. Hartz Mountain Assocs., 93 N.J. 370 (1983), combined to lead to the conclusion that defendants’ argument lacked merit.  “[A] condominium association, acting in a representative capacity on behalf of the individual unit owner, has the exclusive right to sue a developer for construction defects related to the common elements” of the condominium, and unit owners lack standing as to the common elements, though they do have standing as to “defects pertaining to their own units.”  Nothing in that principle forecloses a CFA action by the Association.  Indeed, the panel cited Port Liberte Homeowners Ass’n v. Sordoni Const. Co., 393 N.J. Super. 492 (App. Div. 2007), as allowing a CFA claim by an Association in a representative capacity.

However, the panel reversed that portion of the damage award that dealt with the windows.  They were not common elements, and the Association therefore could not obtain an award as to the windows.

Defendants had objected that damages could not validly be apportioned among unit owners who had bought directly from defendants and those who were subsequent purchasers.  Citing persuasive authority from other jurisdictions, as well as New Jersey law saying that apportionment is favored even when precise allocation is difficult, Judge Parrillo rejected defendants’ contention.  The Association was entitled to collect the entire sum, on behalf of all unit owners.  A contrary result would have given the wrongdoing defendants a windfall reduction in the damages payable.

The other issue on which defendants prevailed was the imposition of prejudgment interest on the treble damages portion of the award.  Belinski v. Goodman, 139 N.J. Super. 351 (App. Div. 1976), had held that prejudgment interest on a punitive damages award is improper.  Noting that the CFA’s treble damages remedy is punitive, Judge Parrillo applied Belinski to reverse the award of prejudgment interest on the treble damages here.  Though the abuse of discretion standard of review applied to awards of prejudgment interest, that did not save the ruling below on this issue.

An evidentiary objection did not fare so well for defendants.  Applying the abuse of discretion standard of review, Judge Parrillo found no error in the admission of the evidence.

Finally, the panel refused to consider an issue that was not raised in the notice of appeal.  “It is a fundamental of appellate practice that we only have jurisdiction to review orders that have been appealed to us.”  This case thus reminds appellants to be sure to list in the notice of appeal all orders appealed from.

This is a superlative and highly useful opinion, though it has one minor flaw.  In the panel’s discussion of the punitive nature of CFA treble damages, the opinion in at least one place mistakenly states that “the purpose and intent of the CFA” is punitive.  That is not so.  Consumer protection legislation is remedial, even where some portion of the statutory remedy can be considered punitive.  The Supreme Court reiterated that earlier this week in Shelton v., Inc., 214 N.J. 419 (2013), discussed here, which involved another consumer protection statute, the Truth in Consumer Contract, Warranty, and Notice Act.  This misstatement should not detract from an excellent opinion, but it also should not be perpetuated.