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Perth Amboy Iron Works Inc. v. American Home Assurance Co.

Decided: June 30, 1988.

PERTH AMBOY IRON WORKS, INC., A NEW JERSEY CORPORATION, AND BOCRA CHARTERS, INC., A DELAWARE CORP., PLAINTIFFS-APPELLANTS,
v.
AMERICAN HOME ASSURANCE COMPANY, ET AL., DEFENDANTS-RESPONDENTS



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.

Dreier, Baime and Ashbey. The opinion of the court was delivered by Dreier, J.A.D.

Dreier

Plaintiffs have appealed from a judgment in their favor in the amount of $181,000, alleging that their claims were unduly restricted by various limiting pretrial and trial rulings by the trial judge. Plaintiffs are family businesses, Perth Amboy Iron Works, Inc. and Bocra Charters, Inc., (referred to collectively as plaintiff) which originally filed this action in the United States District Court for the District of New Jersey, where it was dismissed for lack of subject matter jurisdiction on October 7, 1983. The action was then filed in the Superior Court of New Jersey, Middlesex County. Plaintiff's complaint alleged negligence, breach of warranty, strict liability, fraud and misrepresentation, reckless conduct, and various violations of federal and state unfair trade practice laws against 45 corporate and individual defendants. Pretrial motions and stipulations resulted in the dismissal of all defendants from the action except for three corporate defendants: Ocean Yachts, Inc., Johnson & Towers, Inc. and General Motors Corp. The trial judge also dismissed plaintiff's claims under the Magnuson-Moss Warranty Act, 15 U.S.C. ยง 2301 et seq., the Unfair Competition Act, N.J.S.A. 56:4-1 et seq. and the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. During trial the judge further dismissed plaintiff's claims of fraud, and those for lost profits and punitive damages.

The six Bocra brothers, the sole shareholders in Perth Amboy Iron Works, formed Bocra Charters, Inc. after attending a Fort

Lauderdale boat show in November 1980 where they ordered a sport fishing boat manufactured by defendant Ocean Yachts.*fn1 Bocra Charters took title to the yacht in January 1981, and Perth Amboy Iron Works began leasing the yacht from Bocra Charters for a monthly fee. The yacht's engines were manufactured by Detroit Diesel Allison (DDA), a division of defendant General Motors (GM) (the manufacturer will be referred to as GM), and supplied to Ocean Yachts (OY) by defendant Johnson & Towers (J & T), an authorized GM distributor, who modified the engines for higher performance. Plaintiff paid $331,000 for the boat plus an additional $20,000 for fuel injection modifications which generated higher horsepower.

J & T allegedly had increased the horsepower beyond factory ratings, and GM had advised its dealers that such increases were unauthorized. The engines, however, were advertised as GM approved, and plaintiff contends that it was misled to believe that the engines were fully warranted by GM. This assertion of being misled, however, has little force, since GM in fact has honored its warranty through successive repairs and even replaced one of the engines with a similar one, also containing the same J & T fuel injector modification.*fn2

On its maiden voyage, the yacht experienced mechanical and electrical problems which were repaired under warranty by Ocean Yachts. The next six months were marked by a series of engine fires and a subsequent flurry of inspections, repairs and replacements which are discussed in greater detail infra. Plaintiff asserts that in October 1981 the yacht was docked to make some fairly minor repairs which revealed, little by little,

that the boat's structure and electrical system had both been damaged by fire and/or were inherently unsound,*fn3 and which required 18 months to repair. Plaintiff expended $261,000 to repair the fire-related damage and structural unsoundness, not including the cost to replace the engines with two new engines by a different manufacturer.*fn4 Defendants allege that plaintiff exploited an unfortunate situation and took this opportunity to refurbish and upgrade the yacht. After being instructed on the sole remaining theory of breach of warranty, the jury awarded $181,000 in damages to plaintiff.

Plaintiff raises the following seven points on this appeal:

POINT I:

The trial court's dismissal of plaintiffs' claim for violation of the Consumer Fraud Act, N.J.S.A. 56:8-1, et seq. was procedurally and substantively incorrect.

POINT II:

The trial court's sua sponte dismissal of plaintiffs' claim of legal fraud against all defendants is manifestly unjust and contrary to the law.

POINT III:

The trial court wrongfully limited plaintiffs' damages and eliminated evidence by the courts own definition.

POINT IV:

Plaintiffs are entitled to pursue a remedy under the Magnuson-Moss Warranty Act.

POINT V:

The court improperly dismissed all claims for negligence, strict liability, punitive damages and fraud.

POINT VI:

The trial court erred in denying plaintiffs' motion for a new trial.

POINT VII;

The court below abused its judicial discretion and denied plaintiffs a fair trial by its misconduct.

I

The consumer fraud issue raises two questions: whether this case falls within the scope of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq., and, if so, whether there were issues of fact precluding summary judgment. Plaintiff asserts that it was prepared to prove (1) that even though GM knew its distributors' modifications to GM engines were unsafe and defective, it permitted the GM and DDA logos to remain on the engines (and even gave written approval of the modification, although it was later retracted and the purchaser was not advised); (2) that GM and J & T concealed the defective nature of the engines after the sale; (3) that OY induced plaintiff into purchasing the yacht by knowingly and falsely representing the yacht's speed, charterability and seaworthiness; and (4) that OY covered up the yacht's fire damage and structural defects.

The judge granted defendants' pretrial summary judgment motion on plaintiff's consumer fraud claim, although the judge failed to find the facts and state his conclusions in accordance with R. 1:7-4 and R. 4:46-2. However, in an extended later exchange with plaintiff's attorney, the trial judge gave the following reasons for dismissing plaintiff's consumer fraud claim, raising additional issues to be addressed: (1) there were no facts in this case that would give rise to a consumer fraud claim based on D'Ercole Sales, Inc. v. Fruehauf Corp., 206 N.J. Super. 11 (App.Div.1985), and DiBernardo v. Mosley, 206 N.J. Super. 371 (App.Div.), certif. den. 103 N.J. 503 (1986); (2) if the consumer fraud claim against Ocean Yachts should be dismissed,*fn5 the claims against the other two parties should also

be dismissed;*fn6 (3) plaintiff failed to present any affidavits in reply to a motion for summary judgment on plaintiff's consumer fraud claim.

The Consumer Fraud Act, N.J.S.A. 56:8-2, provides:

The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, [ sic, as to ","] concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice. . . .

Any "person" who is injured "as a result of the use or employment by another person of any method, act, or practice declared unlawful under this act" may recover treble damages, reasonable attorney's fees, filing fees and reasonable costs of suit. N.J.S.A. 56:8-19.*fn7 The Act is applicable if the nature of the transaction comes within the purview of the Act, DiBernardo, supra, 206 N.J. Super. at 375-376, and if defendants' conduct amounted to

an unconscionable commercial practice, D'Ercole, supra, 206 N.J. Super. at 29-31.*fn8

The Act is intended to apply both to the "sale or advertisement of any merchandise or real estate," and to "the subsequent performance of such person as aforesaid." N.J.S.A. 56:8-2. The Act, therefore, can be applicable to OY as the direct seller of the yacht. Plaintiff contends that the Act also is applicable to GM, the manufacturer of the yacht's engines, and J & T, the distributor, because GM and J & T "marketed the engines under the GM and DDA label, representing through advertising and by placing this product on the market that it was a GM engine warranted by GM." Since the GM and J & T warranty was honored, this allegation properly could have been stricken. But the active concealment of known safety or significant operational problems would still have satisfied the Act.

After factual development, the issue might well have been decided in favor of GM and J & T, given the warranty repairs and subsequent use of the yacht; but the jury was mistakenly precluded from hearing the proofs and resolving the issue.

Plaintiff further alleges that GM and J & T later assured plaintiff that the engines were properly repaired, concealing their knowledge that the engines were defective, rendering the yacht unseaworthy. Defendants GM and J & T argue that the Act is inapplicable to their conduct because the plain language of the Act does not include the subsequent performance of a party unless that party also participated in the sales transaction, and they argue that there was an undisputed absence of literature or sales representatives from GM or J & T. Any other interpretation of the statute's words "of such persons as aforesaid", they argue, violates the legislative intent of the provision. This is, in effect, a claim of lack of privity.

Plaintiff raises three points in response. First, the case law has repeatedly emphasized that the Act is aimed not only at the "shifty, fast talking and deceptive merchant" but also at the "nonsoliciting artisan," giving credence to plaintiff's claim that the phrase "subsequent performance of such person as aforesaid" does not require defendant to be an advertiser or seller. Hyland v. Zuback, 146 N.J. Super. 407, 413 (App.Div.1976) (Act applicable to boat repair work). Second, even if defendants' statutory construction is sound, the GM label represents significant pre-sale deceptive advertising since the engines had been altered by J & T with the knowledge of GM which revoked the GM warranty. (This second claim must be rejected, since the warranty remained effective.) Third, defendants' actions may have amounted to a "sale" under the Act, since the term "sale" encompasses any "attempt directly or indirectly to sell, rent or distribute." N.J.S.A. 56:8-1.

We note the Supreme Court's abandonment of the privity limitation in the interpretation and scope of the U.C.C. implied warranties, Spring Motors Distributors, Inc. v. Ford Motor

Co., 98 N.J. 555, 586 (1985), and in the warranty of good workmanship in the area of real property, Aronsohn v. Mandera, 98 N.J. 92, 98 (1984). We have no reason to limit this trend in the application of the Consumer Fraud Act, especially where the Legislature has used the expansive term "indirectly" in defining the scope of the Act's coverage. We therefore interpret the Consumer Fraud Act to encompass the acts of remote suppliers, including suppliers of component ...


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