Lawsuits alleging Consumer Fraud Act (CFA) violations could become more costly for New Jersey businesses. In a case of first impression, the Superior Court of New Jersey, Appellate Division held that the prevailing plaintiffs in a CFA litigation were entitled to attorney's fees incurred in defense of a counterclaim.

New Jersey’s Consumer Fraud Act

Under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-2, consumer fraud is defined broadly as "any unconscionable commercial practice, deception, fraud, false pretense, false promise or misrepresentation . . . " in connection with the sale of goods, services or real estate. Prohibited conduct can take a variety of forms, including knowing omissions, affirmative misrepresentations, and certain statutory violations. Successful CFA plaintiffs are entitled to treble damages and payment of their attorney’s fees.

In de Garmeaux v. DNV Concepts, Inc., Andre de Garmeaux and Paula Kugler (collectively, the plaintiffs) alleged that defendant DNV Concepts Inc., t/a The Bright Acre (Bright Acre) violated the CFA by failing to disclose that the individual who installed the fireplace purchased from Bright Acre was not an employee. According to court documents, the plaintiffs visited Bright Acre in early 2010 to replace their storm-damaged gas fireplace. During one of several visits, the store manager introduced defendant James Risa as "your installer Jim." Risa was employed by Bright Acre as an operations manager, and he also owned and operated an independent company, Professional Fireplace Services. Bright Acre frequently referred installation to its own employees who owned their own installation service companies.

After selecting a fireplace, the plaintiffs wrote a check to Bright Acre for the equipment cost and wrote a second check to Professional Fireplace Services for the first installment on the $3,700.00 installation cost. During the installation process, the plaintiffs became dissatisfied with Risa, noting that he kept an unpredictable schedule and that he was working a couple of hours at a time, mixed with stretches of days of complete absence. Plaintiffs were also unhappy with the quality of Risa’s workmanship. After Bright Acre failed to address the foregoing issues raised by plaintiffs, the plaintiffs filed suit.

Consumer Fraud Act Counterclaim

In response, Bright Acre filed a counterclaim, seeking damages from the plaintiffs for fraudulent concealment or alteration of evidence, defamation, and filing a frivolous lawsuit.

The fraudulent concealment or alteration of evidence claim involved the existence of a masthead on the installation quote from Risa to the plaintiffs. In the form provided by plaintiffs in discovery, the quote did not reference a business masthead. However, Bright Acre's counsel produced a form of the Risa quote that referenced "Professional Fireplace Services" in its masthead. One plaintiff acknowledged receipt of this invoice during her trial testimony, but both plaintiffs denied altering the document.

After a five-day trial, the jury found, among other things, that Bright Acre, Professional Fireplace Services, and Risa committed an act of omission of consumer fraud that proximately led to plaintiffs' damages. The jury found no cause for action on the counterclaim.

The trial court subsequently entered judgment in favor of plaintiffs, awarding $20,000 to plaintiffs' counsel as reasonable attorney's fees. In calculating the fee award, the trial court included fees generated in defense of the counterclaim, concluding that the counterclaim related to "the transaction that gave rise to plaintiffs' affirmative claims." 

Appeals Court Awards Fees for Counterclaim Defense

The Appellate Division concluded that the plaintiffs were entitled to fees in connection with the defense of the counterclaim. “As we conclude that the defense of the counterclaim was inextricably intertwined with the defense of the CFA claim, consideration by the trial court of the attorney's fees incurred by plaintiffs for that purpose was proper,” the appeals court held.

In reaching its decision, the Appellate Division highlighted that fee shifting is permitted statutorily by the CFA. “A court may shift fees on the CFA claim or claims that involve the common core of CFA-related facts,” the court wrote. “Such a suit should not be viewed as a series of discrete claims, rather the attorneys' fees related to the common core of CFA-related work may be considered by a court when calculating the award.” Conversely, where a party presents "distinctly different claims for relief in one lawsuit, work on those non-CFA claims are not counted against a defendant.”

With regard to the treatment of counterclaims, the Appellate Division looked at how the Wisconsin Appeals Court interpreted Wisconsin's unfair trade statute, which is also remedial in nature and contains a fee shifting provision. In Benkoski v. Flood, 626 N.W.2d 851, 862 (Wis. Ct. App. 2001), the Wisconsin Appeals Court held that awarding attorney’s fees for a counterclaim was appropriate because "the relief sought by the counterclaim was the 'very crux' of [plaintiff's] claim" and that the competing claims were "inextricably caught up with each other."

The Appellate Division adopted a similar approach. “Consistent with the CFA's intent and in adopting the analysis of Benkoski, we hold that Bright Acre's utilization of the invoices for the dual purpose of both shield and sword rendered counsel fees incurred by plaintiffs in response thereto compensable as both ‘inextricably caught up with’ and related to the common core of the CFA claim,” the court wrote.

As the opinion further explained:

Plaintiffs' CFA claim was premised on a fraudulent omission. Plaintiffs averred they were never advised by Bright Acre that the installation performed by Risa would be in his capacity as owner of Professional Fireplace Services; not as its employee. In defending this claim and in prosecuting its counterclaim, Bright Acre proffered the two invoices; one with and one without the Professional Fireplace Services masthead. These "conflicting" invoices were the lynchpin of Bright Acre's defense intended to demonstrate that plaintiffs were aware of Risa's employment capacity for purpose of the installation. Bright Acre's fraudulent alteration counterclaim was premised upon an alleged alteration by plaintiffs of the same invoice.

Message for New Jersey Businesses

Frequently, the attorney’s fees associated with litigating CFA suits are far more than the actual damages. The addition of fees associated with defending counterclaims will make such suits even more costly to defend and should incentivize New Jersey businesses to make CFA compliance a priority.