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New Jersey Consumer Fraud

Can the officer, shareholder, or employee of a corporation be individually liable for a violation of the Consumer Fraud Act?

Yes, depending on the nature of the violation. The New Jersey Supreme Court, in Allen v. V and A Brothers, determined the execution of a home improvement contract by a corporation does not provide protection against the imposition of individual liability under the New Jersey Consumer Fraud Act ("CFA").

In Allen, a homeowner contracted with V and A Brothers to level the homeowner's property and build a retaining wall for the installation of a pool. The homeowner paid V and A in full, but it was subsequently determined the work was not performed properly. The homeowners sued for damages because of negligent work and also because of alleged violations of the CFA.

The homeowners raised three violations of the CFA: (1) failure to execute a written contract (2) failure to obtain prior approval for the construction before accepting final payment, and (3) failure to obtain the homeowner's consent before modifying the design of the retaining wall and substituting inferior backfill material. The jury found V and A liable on all three violations, and awarded the homeowner damages of $130,000. These damages were trebled, to $490,000, and the homeowner was also awarded attorneys fees in the amount of $78,632.10.

The trial court dismissed all claims against the two brothers who owned V and A, but the Supreme Court reversed, finding the brothers could be individually liable for violations of these regulations. Prior case law held the individual principals of a corporation could be held liable for acts of negligence or common law fraud, or under the CFA for misrepresentations or omissions. However, case law had not previously established the possibility of individual liability for violations of regulations written by the New Jersey Attorney General. The three alleged violations pled here were violations of these regulations.

The Supreme Court made a distinction between the employees and the principals of a corporation. A principal can be individually liable for setting policy which caused the violations, even if they did not participate in the transaction which is the subject of the suit. An employee should not be individually liable for merely obeying corporate policy.

This decision clearly encourages the use of corporate policies which are not in violation of the CFA. Principals or management of a corporation now have an greater incentive to make sure corporate policies are consistent with this law.

Categories: Business Law

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