The Consumer Fraud Act (“CFA”) aims to protect New Jersey consumers from unfair and unethical trade practices. In part, the CFA attempts to do this by requiring businesses to disclose certain information in writing when dealing with consumers. The CFA’s goal is to promote truth and fair dealing in the market place.
In Gemini Restoration Inc. v. Dr. Joseph Leone, et. al., A-6171-09T4 (N.J.Super. App. Div., August 3, 2012), a dispute arose between a homeowner (“Defendant”) and a contractor (“Plaintiff”) in regard to the performance of home renovations. Defendant hired Plaintiff to perform extensive renovations on his home because Defendant’s architect and friend, Christine Miseo (“Miseo”), recommended him for the job. The original contract between the parties was for the estimated total of $221,735.55. Id. at 2.
After Plaintiff began the renovations, Miseo sought a series of additions to the scope of the renovations. Plaintiff did not prepare a subsequent contract incorporating the additional work. However, he did submit to both Defendant and Miseo detailed bills reflecting the additional cost of labor and materials incurred each month. He submitted the bills to Miseo because Defendant explicitly told him that she was authorized to approve the bills each month. Indeed, she authorized various changes to the plan as the project progressed and accordingly, Plaintiff continued to work. Id. at 3-5.
Plaintiff sought payment from Defendant for the additional completed work that was not included in the initial contract. Defendant paid him for a portion of the additional cost; however he refused to pay Plaintiff the remaining $89,581.36. Id. at 3. Plaintiff filed suit in the Law Division of the Superior Court of New Jersey (the “Lower Court”) against Defendant for the balance due on a theory of breach of contract. Defendant asserted the defense to that claim by alleging Plaintiff’s contract violated the CFA in his counterclaim.
The Lower Court dismissed the breach of contract claim because it determined that the contract violated the CFA regulations that govern home improvement contractors. However, the Lower Court permitted Plaintiff to proceed under quantum meruit against Defendant. Quantum meruit is an equitable principle that allows a person to recover for the reasonable value of his or her services that he or she has rendered. It applies when there is, either, no contract or the contract is deemed unenforceable. Based on that principle, the jury returned a $92,000.00 verdict in Plaintiff’s favor. Id. at 1.
Defendant argued that Plaintiff should not have been allowed to proceed to the jury under quantum meruit because he violated the CFA. The Lower Court rejected that argument. It explained that Defendant was prohibited, based upon notions of fairness (equitably estopped), from invoking the CFA against Plaintiff because he was the one who induced the behavior. For example, Miseo, as Defendant’s representative, approved the bills, did not object to the fairness of the bills, nor did she indicate to Plaintiff that he should cease performance of the renovations. Id. at 4.
Defendant appealed to the Superior Court of New Jersey, Appellate Division (the “Appellate Court”). The Appellate Court explained that the CFA regulations governing home improvement contracts required the changes to the terms and conditions of a home improvement contract to be in writing and signed by all parties. Also, the regulations required that time and material contracts must clearly state the hourly rate for labor along with all other terms and conditions of the contract that affected the price. Furthermore, it stated that a violation of the CFA regulations were a per se violation of the Act. Id. A “per se” violation was a violation that was unlawful on its face, requiring no further inquiry into the facts. Id. at 5.
However, one may be equitably estopped from asserting the CFA as a defense to withhold payment from a general contractor when it would be unjust to do so. In its holding, the Court cited D’Edgio Landscaping v. Apicella, 337 N.J. Super. 116 (App.Div.2004). In D’Edgio, the defendant homeowner was equitably estopped from invoking the CFA against a contractor because defendant was the one who insisted that a written contract was unnecessary in light of their longstanding relationship. Id. at 6.
The Court also referenced Messeka Sheet Metal Co. Inc. v. Hodder, 368 N.J. Super. 116 (App.Div.2004) in which the plaintiff-subcontractor sued the defendant-homeowner to collect on a bill for installing air conditioners. In Messeka, the homeowner was not the one who hired the plaintiff. Rather, it was the homeowner’s general contractor who hired and directly dealt with the plaintiff. Therefore, because the CFA was designed to protect homeowners who deal directly with contractors, the defendant could not assert the CFA as a defense. Id.
Accordingly, in this case, the Court explained that Defendant was equitably estopped from bringing a CFA counterclaim because:
1) Similar to the defendant in Messeka, Defendant interposed his construction professional, Miseo, as an expert intermediary between himself and Plaintiff. Therefore he was not a vulnerable consumer who needed the CFA’s protection;
2) Plaintiff disclosed the amended work and the rates charged for that work;
3) Defendant and Miseo were aware of those rates and Miseo approved them on behalf of the Defendant; and
4) Miseo recognized the rates as fair and reasonable within the industry.
Id. at 7-8.
Furthermore, the Court addressed Defendant’s argument that the Lower Court should not have allowed Plaintiff to proceed to the jury based on quantum meruit after determining that he committed consumer fraud. Id. at 14. The Court rejected Defendant’s argument. It stated that when a claim was stricken for failure to comply with the CFA regulations, the contractor could, under certain circumstances, proceed in quantum meruit. Thus, the Court upheld the jury verdict in favor of Plaintiff. Id. at 12.