New Jersey Appellate Division Issues Opinion on Apportioning Damages in Construction Law Consumer Fraud Cases

The Appellate Division of New Jersey’s Superior Court recently issued an important construction law decision examining the effect of New Jersey’s Consumer Fraud Act in cases also involving the breach of a construction contract or negligent construction.

 

By way of background, coverage under New Jersey’s Consumer Fraud Act was expressly extended to include contractors engaging in home improvements and home repair.  The New Jersey Department of Community Affairs issued regulations requiring specific items in contracts between home improvement contractors and homeowners.  Violation of these technical requirements are “per se” violations of the Consumer Fraud Act, entitling the homeowner to triple damages and reimbursement of their attorneys fees by the contractor.

 

Under these regulations, the  specific requirements which home improvement contracts must contain include the following.

 

 

• The contract must be written and signed by both parties.
• The contract needs to include the home improvement contractor’s name, registration number and address.
• The homeowner cannot be required to pay in full before completion.
• Change orders must be written and signed.
• The contract must include:
  • Specific language about the owner’s right to cancel the contract within three days
  • The contractor must provide the homeowner with its general liability insurance policy, and phone number of its insurance carrier.
  • Start and completion dates.
  • The full price and what is included.
  • The specific brand, type and quantity of materials must be described in the contract.
  • All warranties on both goods and materials.

 

The regulations contain these additional provisions.

• Home improvement contractors are required to register with the Department of Community Affairs.
• All written communication with the customer must include the contractor’s registration number.
• All permits required must be obtained before starting work.
• Contractors cannot disparage their competitors.
• The written contract must be fully signed before the contractor may commence working on the project.

 

In construction projects, however, consumer fraud issues rarely come up by themselves.  Rather, they generally come up when the homeowner doesn’t pay the contractor, or believes that the contractor hasn’t performed the work correctly or didn’t complete the project.  Often, it’s a combination of both.  The question then becomes if the homeowner has damages, are they attributable to the consumer fraud violations, which entitle the homeowner to their attorneys fees and triple damages, or to the contractor’s negligence or breach of contract, which don’t.

 

This is the background to the Appellate Division’s recent decision on this issue in Houghton v. Horan.  Although unpublished, the opinion provides clarity on a much litigated issue.

 

In that case a homeowner sued a home improvement contractor for breach of contract and violation of the consumer fraud regulations.  The court found in favor of the homeowners that the contractor had both breached the contract and violated the regulations.  However, the court found that the homeowner’s damages came from the breach of the contract, and that the consumer fraud violations were technical and did not cause damage.  Therefore. the trial judge properly refused to award triple the homeowners’ damages, but ordered the contractor to pay all of the homeowner’s attorneys fees.  On appeal, while the Appellate Division did not find error in the allocation of the damages to the breach of contract claim, it explained that all the homeowners’ attorneys fees could not be awarded because the breach of contract did not entitle them to attorneys fees, just the consumer fraud violations.  Therefore, the Appellate Division remanded the case back down to the trial court so that it could conduct an analysis and determine which portion of the attorneys fees were reasonably attributable to the technical, regulatory violations.

 

So what are the takeaways?

• The consumer fraud home improvement contractor regulations have severe consequences. Violations can cost the contractor triple damages and responsibility for paying the homeowner’s attorneys fees and litigation expenses.
• However, the contractor will only be responsible for triple damages on those portions of the damages which are attributable to consumer fraud violations. If the damages relate solely to breach of contract or negligence, there will be no award of triple damages or attorneys fees (although attorneys fees could be awarded if the contract calls for it).  If some of the damages are the result of the regulatory violations and some are not, triple damages and attorneys fees will be awarded solely for that portion.

 

Our construction law attorneys represent both owners and contractors in construction litigation and negotiations, including claims of negligent construction, breach of construction contracts, and regulatory violations of the Consumer Fraud Act.  Call us at (973) 890-0004 or fill out the contact form to schedule a consultation.  We can help.