No “Fraud” Required for Consumer Fraud Act Violations

Most contractors are familiar with the Consumer Fraud Act, but likely by name only. Nearly every lawsuit against a contractor includes claim of Consumer Fraud Act violations. It seems a normal reaction that most of these contractors are not worried because they did not perform their job by any deceptive or fraudulent actions. That, however, is an unfortunate and incorrect reaction. The Consumer Fraud Act is really a misnomer. Although the Act punishes the typical fraudulent behavior such as “bait and switch” of materials, most contractors fall victim to the minor, technical violations. To make matters worse, these allegations are generally not covered by insurance.

N.J.A.C. 13:45A-16.2(a)(12)(ii) requires, among other things, that your contract be in writing, signed by all parties and set forth with specificity the description of the job and materials. Moreover, all change orders for the job must meet the same requirements. That means you are in violation of the Consumer Fraud Act by simply performing some extras on a job for a minimal fee without executing a formal change order signed by the homeowner. You are also required to provide a start and end date in the contract and, if not started or completed within that specified time, you are to provide timely, written notice to the homeowner with a new timeline.

The reason these claims are pursued by attorneys against contractors is the harsh penalties included within the Act. A minor, technical violation like a failure to formally execute a change order often results in penalties in the thousands of dollars. That is because the Act instructs judges and/or juries to award treble (triple) damages to the homeowners AND to award the homeowner attorney’s fees. As a result, a $1,000 add-on done without a formal change order could award the homeowner treble damages of $3,000 plus an award of attorney’s fees to be paid by the contractor. And that is even if the homeowner got exactly what he or she requested. Our legislature and Court has made it clear that the statute mandates an award of counsel fees and costs for any violation of the Act, even if that violation caused no harm to the consumer.

Luckily,  some courts have expressed their displeasure in the current state of the Consumer Fraud Act and are shying away from these excessive penalties as best as they can. Until the Legislature reforms the Act, however, there is little that can be done. An attorney well-versed with the Consumer Fraud Act and the case law on the subject can assist contractors to avoid these technical violations and fight the excessive penalties associated with the Act.  For questions, concerns or more information, feel free to reach out to our General Liability Attorneys or call (732) 545-4717.