On appeal from Superior Court of New Jersey, Law Division, Atlantic County.
Brody, Muir, Jr. and Skillman. The opinion of the court was delivered by Skillman, J.A.D. Brody, J.A.D., dissenting in part
[243 NJSuper Page 594] This suit by a group of homeowners against the developer from which they purchased their homes is before us for the second time. See Chattin v. Cape May Greene, Inc., 216 N.J. Super. 618,
524 A.2d 841 (App.Div.1987), certif. den. 107 N.J. 148, 526 A.2d 209 (1987). The development, which is located in Ventnor and is known as Kings Bay West, was constructed by defendant Cape May Greene, Inc. (CMG). The windows in the development, manufactured by defendant Capitol Products Corporation (Capitol), consist of a double pane of glass set into a hollow aluminum frame. The double pane of glass has substantial insulating qualities but the frame has none. CMG described the homes in a written brochure and in oral representations to prospective purchasers as having "insulated windows." The uncontradicted evidence at trial was that a window with a double pane of glass and an uninsulated frame was referred to in the construction and window industries as an "insulated window." However, the homeowners all testified that they understood this term to mean that the entire window including the frame was insulated. There was substantial evidence presented at the retrial, as in the original trial, that the homeowners experienced significant problems with the windows, including condensation on the inside and drafty conditions in the homes.
In our original opinion we affirmed the part of a final judgment awarding the homeowners $181,642.50 in compensatory damages based on a jury's determination that CMG was negligent and breached warranties to the homeowners by installing defective windows and doors. However, we reversed the part of the final judgment awarding an additional $285,947.19 in damages based on a directed verdict entered in favor of the homeowners on their claims under the Consumer Fraud Act. Consequently, we remanded for a retrial on the homeowners' consumer fraud claims.
At the retrial, the jury determined that CMG had violated the Consumer Fraud Act, thereby causing the affected homeowners
to incur damages of $550 for each window in their homes.*fn1 The trial court molded this verdict by multiplying the total number of windows in the homes by $550, trebling this amount and deducting the compensatory damages for negligence and breach of warranty awarded in the first trial, resulting in a net award of $184,305. In addition, the court awarded the homeowners $502,469.62 in attorneys' fees and $44,610.49 in costs and thus entered a final judgment of $731,385.11 in their favor.
CMG appeals from the judgment, contending that (1) the trial court incorrectly instructed the jury as to the elements of a claim under the Consumer Fraud Act, (2) the trial court erred in allowing the jury to award replacement costs as damages for consumer fraud, (3) the trial court erred in refusing to submit to the jury the issue of codefendant Capitol's liability for consumer fraud, thereby depriving the jury of the opportunity to apportion consumer fraud damages as between CMG and Capitol, (4) the trial court erred in submitting to the jury the consumer fraud claims of six homeowners, (5) the trial court committed various errors in the conduct of the trial which were so prejudicial that a new trial on all issues must be conducted, and (6) the trial court awarded excessive attorneys' fees to the homeowners. The homeowners cross appeal, contending that (1) the trial court erred in submitting the consumer fraud claims of only sixteen rather than twenty-four homeowners to the jury, and (2) the trial court erred in denying their motion to enforce a 1978 arbitration award against CMG.
We conclude that the trial court incorrectly instructed the jury as to the elements of a claim under the Consumer Fraud Act. However, the court properly submitted the issue of damages to the jury. Therefore, the case is remanded for a retrial limited to the issue of liability. We further conclude that the trial court erred in various respects in determining the award of
attorneys' fees. Consequently, if the jury on remand again returns a verdict in favor of the homeowners, the court must redetermine the award of attorneys' fees in accordance with the guidelines set forth in this opinion. Finally, we conclude that the trial court erred in refusing to enforce the 1978 arbitration award against CMG and that a judgment in the amount of that award should therefore be entered immediately.
CMG argues that the jury verdict must be reversed because the trial court permitted the jury to impose liability for consumer fraud without any showing that CMG intended to mislead the purchasers of homes in Kings Bay West.
In reversing the trial court's order granting a directed verdict in favor of the homeowners on their consumer fraud claims, we stated in our first opinion that:
[T]he determination whether an advertisement is misleading is ordinarily for the trier of fact -- here the jury -- to decide. . . .
In this case it was undisputed that the windows installed in the homes sold to plaintiffs have a double pane of glass which provides insulation. It was also undisputed that the aluminum frames of the windows have no insulating features. The factual issue which should have been submitted to the jury was whether the average consumer would understand the term "insulated aluminum windows" to refer only to the glass or to the entire window unit. [216 N.J. Super. at 639-640, 524 A.2d 841].
But since the trial court failed to submit the homeowners' consumer fraud claims to the jury in the first trial, we had no occasion in our first opinion to consider the appropriate form of jury instructions.
N.J.S.A. 56:8-2 states in pertinent part:
The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, 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; . . .
N.J.S.A. 56:8-2 thus creates two categories of prohibited acts. The first category (unconscionable commercial practice, deception, fraud, false pretense, false promise or misrepresentation) consists of affirmative acts, and the second category (concealment, suppression or omission of any material fact) consists of acts of omission. The Supreme Court indicated in Fenwick v. Kay American Jeep, Inc., 72 N.J. 372, 378, 371 A.2d 13 (1977) that those kinds of consumer fraud consisting of affirmative acts do not require a showing of "intent":
The capacity to mislead is the prime ingredient of deception or an unconscionable commercial practice. Intent is not an essential element.
See also D'Ercole Sales, Inc. v. Fruehauf Corp., 206 N.J. Super. 11, 22, 501 A.2d 990 (App.Div.1985). However, by the express terms of N.J.S.A. 56:8-2, an essential element of a consumer fraud consisting of an act of omission is that a defendant's act be "knowing." See Fenwick v. Kay American Jeep, Inc., supra, 72 N.J. at 377, 371 A.2d 13 ("[T]he requirement that knowledge and intent be shown is limited to the concealment, suppression or omission of any material fact").
Therefore, where a defendant's alleged consumer fraud may be viewed as either an affirmative act or an omission, the court must clearly inform the jury that it can hold defendant liable without a finding of intentional wrongdoing only if it finds that defendant committed a kind of consumer fraud consisting of an affirmative act.*fn2 Moreover, the court must clearly explain to the jury the difference between the kinds of consumer fraud consisting of affirmative acts, which may be committed without a showing of intent, and acts of omission, which must be
committed "knowingly" in order for liability to be imposed under the Consumer Fraud Act.*fn3
The trial court's jury instructions in this case failed to satisfy these requirements. The court described the elements of a cause of action for consumer fraud under N.J.S.A. 56:8-2 as follows:
I said I was going to define the concept of consumer fraud to you, and here goes. The so-called consumer fraud remedy arises out of an act of our legislature, and that act provides in its pertinent part . . . consumer fraud is the act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing 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, and in this case, real estate.
Our courts have determined that this is a remedial act and should be liberally construed in favor of protecting consumers. I will advise you, as well, that with regard to this statute there has been no specific regulations developed implementing it, nor I think beyond this particular case, which aspects of it are reported, there is no other case law on it.
With regard to consumer fraud in our present context, the capacity to mislead is the prime ingredient of deception or unconscionable commercial practice. Intent is not an essential element with regard to the misleading, it is, as you heard from the statute, as to a portion of it. I will get into that later. But since consumer protection is the ultimate goal, the standard of conduct established by the act must be met regardless of intent, except when the act specifically requires there to be intent.
The standard of conduct contemplated by the unconscionability clause is good faith, honesty in fact, and fair dealing. In the context of the selling to the uneducated, the inexperienced, people of low incomes, by a professional seller, a material departure from the unconscionable standard puts a badge of fraud on the transaction, and in such a case then the concepts of fraud and unconscionability would be interchangeable.
With respect to misrepresentation, misrepresentation means to represent incorrectly or improperly, to give a false, improper, or imperfect representation. Now, in this context I use imperfect not to require perfection of a human being, but imperfect in the sense it is missing a necessary element or ingredient, like if you bought a product and it was missing a piece, in that sense, imperfect.
As well, misrepresentation has been defined as an untrue, incorrect, or misleading representation of fact, a representation that under the existing
circumstances amounts to an assertion not in accordance with the facts. So this is what is meant by misrepresentation. So we are dealing with unconscionability, misrepresentation. A violation of the act is also established if there is any knowing concealment, suppression, or omission of any material fact with the intent that others rely upon such concealment, suppression or omission.
There is a third alternative theory advanced, and this is the one where there has to be knowledge, there has to be intent on this one. Here proof of intent, as I said, is required. Now, a corporation can act only through its agents and employees, and it is responsible for their conduct in the course of their agency or employment. And a corporation is chargeable with the knowledge of its employees who act in a managerial or supervisory capacity.
Thus, to recapitulate on the issue of consumer fraud, there are certain essential elements which have to be established by the respective claimants by a preponderance or greater weight of the credible evidence. And the elements of this cause of action are that the defendant represented to the plaintiff in question either orally or through a brochure, or indeed through both, that the windows being sold were insulated windows. Some of the oral representations alleged in this case may have been different, but it is your recollection of what the testimony was which will govern.
So, first, that there was either a written or oral representation as to the insulated nature of the windows. Secondly, that each individual plaintiff, or as the case may be plaintiff couples, heard and/or read the representation regarding the windows. Thirdly, that this representation was false, or it had the capacity to mislead an average consumer into believing that he was getting something other than that which in fact the consumer purchased, or, indeed, as I said, with the knowing concealment, suppression, or omission of a material fact with the intention that the home buyer rely on that concealment, suppression, or omission in connection with the purchase of his or her home. And, finally, that the representation in question was a proximate cause of an ascertainable loss to the plaintiffs.
This instruction is confusing in structure and fails to explain the difference between the kinds of consumer fraud which require "knowing" action and those which may be established without any showing of scienter. In fact, the court's statement that the term "misrepresentation" includes an "imperfect representation . . . in the sense it is missing a necessary element or ingredient" completely blurs the distinction between an affirmative act of misrepresentation and a "concealment, suppression or omission of any material fact." Moreover, beyond reciting the language of the statute, the court never described to the jury the kind of consumer fraud which must be "knowing." Therefore, the jury may have held CMG liable under the mistaken
impression that the unknowing omission of a material fact constitutes consumer fraud.
The confusion caused by the court's failure to adequately describe the kinds of consumer fraud which do not require a showing of intent was compounded by its discussion of "unconscionable commercial practice." The court stated that "[i]n the context of the selling to the uneducated, the inexperienced, people of low incomes, by a professional seller, a material departure from the unconscionable standard puts a badge of fraud on the transaction, and in such a case then the concepts of fraud and unconscionability would be interchangeable." This general statement of law was not in any way related to the facts of this case and undoubtedly only increased the jury's confusion.
In fact, a court should be hesitant to make any reference to the general concept of an "unconscionable commercial practice" in a case such as this, where there is substantial evidence that defendant breached its warranties to plaintiffs, to avoid conveying the impression that plaintiffs are entitled to prevail on their consumer fraud claims even though defendant's advertising has not been shown to contain misrepresentations or omissions of material facts. We have held that a breach of warranty is not an unconscionable commercial practice unless plaintiffs establish the presence of "substantial aggravating circumstances." D'Ercole Sales, Inc. v. Fruehauf Corp., supra, 206 N.J. Super. at 21-32, 501 A.2d 990; see also DiNicola v. Watchung Furniture, 232 N.J. Super. 69, 72-73, 556 A.2d 367 (App.Div.1989), certif. den. 117 N.J. 126, 564 A.2d 854 (1989). Therefore, the trial court's statement to the jury that it could hold defendant liable under the Consumer Fraud Act for an "unconscionable commercial practice," without any explanation of the relevancy of this theory of liability to the specific facts of this case, could have led the jury to impose liability for consumer fraud based upon a simple breach of warranty. [243 NJSuper Page 602] We disagree with our dissenting colleague's view that the deficiencies in the trial court's explanation of the requirements of consumer fraud were harmless error, because the jury's findings in response to special interrogatories that the "average consumer" would understand that the terms "insulated aluminum windows" and "insulated windows" to refer to the "entire window unit" rather than "only the glass" required a verdict in favor of the homeowners. The jury's responses to the special interrogatories indicate that it found CMG's brochure to be misleading. However, those responses do not indicate whether the jury found the brochure misleading because it contained an affirmative misstatement of fact or because it omitted a material fact. As we noted in In re Shack, 177 N.J. Super. 358, 363, 426 A.2d 1031 (App.Div.1981), certif. den. 87 N.J. 352, 434 A.2d 95 (1981), "[a] failure to disclose material information may cause an advertisement to be false or deceptive even though it does not state false facts." Thus, the capacity to mislead is a common feature of both a misrepresentation of fact and an omission of a material fact. Consequently, the jury's verdict in favor of the homeowners could reflect a finding that CMG's representation that the windows were insulated was true, because the glass panes were insulated, but that it was misleading, because it omitted to state that the aluminum frames were uninsulated. It was within the province of the jury to find a violation of the Consumer Fraud Act on this basis, but only if it found that omission was made knowingly with the intent to deceive the purchasers. It was the need for this finding which the court failed to adequately explain to the jury. And the need for that finding was not obviated by the jury's responses to the court's interrogatories regarding the average consumer's understanding of the terms "insulated aluminum windows" and "insulated windows." Indeed, our conclusion that the jury was not adequately instructed concerning the elements of a consumer fraud violation is reinforced by the interrogatories, because it is quite possible that the jury, like our dissenting colleague, assumed that an affirmative response
to the interrogatories automatically required the imposition of liability upon CMG, without any finding that it either made an affirmative misrepresentation of fact or acted knowingly with an intent to deceive.
Moreover, this is not an appropriate case for a finding of harmless error. Although the plaintiff in a common law fraud action is required to show that the alleged tortfeasor acted knowingly, with an intent to deceive, in order to recover money damages, Jewish Center of Sussex County v. Whale, 86 N.J. 619, 624, 432 A.2d 521 (1981), the Consumer Fraud Act, as construed in Fenwick, permits a finding of a violation of the Act, and the consequent imposition of treble damages and attorneys' fees, without any showing of an intent to deceive or even negligence on the part of a seller of consumer goods or services. However, the Legislature limited this significant departure from common law principles of liability to situations where sellers make affirmative misrepresentations of fact.*fn4 This limitation constitutes an important safeguard against the imposition of liability upon sellers of goods and services for the innocent failure to make a complete disclosure of facts material to a transaction. Therefore, it is imperative that the trial court clearly and fully explain this limitation to the jury. In our view, the court's instructions were seriously deficient in this regard and had the clear capacity to lead to a jury verdict imposing treble damages and attorneys' fees upon CMG for conduct which did not violate the Consumer Fraud Act.
Consequently, we conclude that the jury verdict in favor of the homeowners on their consumer fraud claims must be reversed
and the case retried. However, we further conclude for the reasons set forth in sections II and III of this opinion that the trial court properly submitted the issue of damages to the jury. And since the error in the court's instructions with respect to the determination of consumer fraud did not have the capacity to affect the jury's deliberations on the issue of damages, there will be no need at the retrial to resubmit any issue of damages to the jury.*fn5
CMG argues that the trial court erred in allowing the jury to award replacement costs as damages for consumer fraud, because the jury at the first trial already awarded the same damages based on a finding of negligence.
In our prior opinion, we concluded that unless it was established that the parties had entered into an enforceable stipulation to calculate consumer fraud damages in a different manner, the jury should be asked at the retrial to separately determine the damages proximately caused by CMG's alleged violation of the Consumer Fraud Act. 216 N.J. Super. at 642-643, 524 A.2d 841.
The trial court instructed the jury as follows regarding its determination of damages proximately caused by any consumer fraud committed by CMG:
And what is the measure of damages? There are basically two approaches that can be taken in a so-called fraud or concealment case. One approach is the so-called out of pocket approach, the other is the benefit of the bargain rule. In either, the basic objective is to make the injured party whole; that is to say, fairly and reasonably compensate the injured party for the damages or losses proximately caused by the alleged consumer fraud in this case.
Under the out of pocket approach recovery would be permitted for the difference between the price paid and the actual value of the property acquired. Under the benefit of the bargain approach recovery is allowed for the difference
between the price paid and the value of the property had the representations made been true; that is to say, to put the person in the same position that person should have enjoyed had the representations been true. And, in any event, under either approach, you may use as a measure of this the reasonable cost of any repairs, or ...