December 7, 2010
PETER AND MONICA GRAHAM, PLAINTIFFS-APPELLANTS,
WILLIAM MULDOON, BRIAN MALAT, 17 HELLER DRIVE, LLC, AND RHODES, VAN NOTE AND COMPANY, DEFENDANTS-RESPONDENTS, AND ANDREW GIULIANO, GIULIANO CONTRACTING,
JOSEPH J. BRUNO, AND MCCORMACK PLUMBING AND HEATING, LLC, DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-2240-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 29, 2010 -- Decided Before Judges Wefing, Payne and Baxter.
Plaintiffs appeal from a trial court order granting summary judgment to defendants 17 Heller Drive L.L.C. ("Heller Drive") and its principals, William Muldoon and Brian Malat, and to defendant Rhodes, Van Note and Company ("Rhodes"). After reviewing the record in light of the contentions advanced on appeal, we affirm.
Muldoon and Malat, together with Domenic Bullaro who is not involved in this litigation, formed Heller Drive to purchase the existing house located at 17 Heller Drive in Montclair, which had been built in the 1950s. The plan was to knock down that existing house and then build and market a new one. When the project was completed, Rhodes served as the listing broker and prepared a marketing brochure that described the property as an "[e]xtraordinary new colonial." Plaintiffs purchased the home for a price in excess of $1.6 million and moved in on December 1, 2006. Approximately two weeks later, the sewer system backed up, and sewage leaked throughout the basement. A subsequent inspection revealed that the sewer line was the one installed in the 1950s when the original house had been constructed, that it had been improperly pitched at the outset and had, in addition, become blocked over the years with tree roots. Plaintiffs incurred significant expense to repair the damage to the basement and to fix this sewer line. They filed suit for damages and named as defendants Heller Drive, Muldoon, Malat, and Rhodes, as well as the contractor, architect and plumber involved in the renovations. They included in their complaint counts alleging consumer fraud, negligent misrepresentation, malicious misrepresentation, equitable fraud, and intentional fraud.
The contractor defaulted. We infer from portions of the record before us that plaintiffs' claim against the architect was dismissed for failure to file an affidavit of merit. Plaintiffs eventually settled their claims against the plumber and Heller Drive, reserving their right to appeal the trial court's grant of summary judgment with respect to consumer fraud. They now appeal from the trial court's order that granted summary judgment to defendants Muldoon, Malat, and Heller Drive on their consumer fraud claim; they also appeal from the trial court's order granting summary judgment to Rhodes on plaintiffs' claims of consumer fraud, misrepresentation and fraud.
I We turn first to plaintiffs' claim of consumer fraud, presented under New Jersey's consumer fraud statute, N.J.S.A. 56:8-1 to -106. N.J.S.A. 56:8-2 declares unlawful "[t]he act, use or employment . . . of any . . . 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 . . . in connection with the sale or advertisement of . . . real estate. . . ." There is no question that the actions of these defendants in marketing this property come within the scope of the consumer fraud statute. Strawn v. Canuso, 140 N.J. 43 (1995); Byrne v. Weichert Realtors, 290 N.J. Super. 126 (App. Div. 1996). We reject the assertion of defendants Muldoon and Malat that they were not engaged in the regular course of selling real estate, as was defendant Rhodes, and thus fall outside the protections of the consumer fraud statute. They rely upon the principle that the consumer fraud statute does not apply "to non-professional sellers of real estate, i.e., to the homeowner who sells a house in the normal course of events." Byrne, supra, 290 N.J. Super. at 134 (citations omitted).
The actions of Muldoon and Malat cannot be equated, in our judgment, with those of an individual home owner who sells his residence privately, that is, without the assistance of a broker or agent. Rather, they engaged in this business venture with the undeniable purpose of making a profit. Given the remedial purpose of the consumer fraud statute, it must be construed liberally. Scibek v. Longette, 339 N.J. Super. 72, 78 (App. Div. 2001). We would be acting counter to that purpose if we were to accept this portion of their argument.
A party alleging consumer fraud must establish three elements in order to prevail: "(1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants' unlawful conduct and the plaintiff's ascertainable loss." N.J. Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 12-13 (App. Div.), certif. denied, 178 N.J. 249 (2003). While a party need not prove reliance upon the alleged unlawful conduct to establish a statutory consumer fraud claim, the party must prove, nonetheless, a causal connection between the alleged unlawful conduct and an ascertainable loss. Int'l Union of Operating Eng'rs Local 68 Welfare Fund v. Merck, 192 N.J. 372, 389 (2007). Thus, while plaintiffs need not have proved they relied upon the marketing of this house as "new" in making their purchase, they were required to prove a causal link between the marketing they claim to be unlawful and their loss.
Pron v. Carlton Pools, Inc., 373 N.J. Super. 103 (App. Div. 2004), illustrates the principle. Plaintiff engaged defendant to install a new in-ground pool on his premises; part of his decision to select defendant for the project was the representation that it did not use subcontractors to perform the work. Id. at 106. Approximately one year after completion, plaintiff experienced problems with the pool's plaster finish, and defendant refused to perform repairs, saying the problems were due to the improper use of pool chemicals, rather than any defect in workmanship. Ibid. Plaintiff sued for damages, and it developed during the litigation that defendant had used an electrician and a plumber who were not its employees, in apparent contradiction to its earlier representations. Ibid. Plaintiff, however, was not entitled to any recovery because there was no causal link between defendant's use of these subcontractors and the problems with the pool plaintiff had experienced. Id. at 111.
Plaintiffs contend that defendants marketed this house as "new," knowing that it was a "knock-down" renovation. This, they assert, was unlawful conduct which caused them an ascertainable loss. Defendants do not dispute that plaintiffs suffered an ascertainable loss but argue that their conduct was neither unlawful nor a cause of plaintiff's loss. We need not decide whether the marketing of this house fit within the statute's description of an unlawful practice, N.J.S.A. 58:8-2, for we are satisfied that plaintiffs are unable in any event to establish a causal link between that marketing and their loss.
Plaintiff Peter Graham testified along the following lines at his deposition.
A. The - - one of the things that was on our list was new construction in terms of criteria for a new house. And our understanding - - my understanding of the condition was that the street Heller Drive had a number of ranch homes that were built in the early 1950s, that several of them had been deconstructed to a point and then reconstructed, and 17 Heller Drive I understood to be the exact same - - in that category, that it was deconstructed to a point and then reconstructed.
Q. Was your understanding then that certain portions of 17 Heller Drive were not new?
Q. And which portions were not new prior to your purchasing 17 Heller Drive?
A. It was my understanding that the basement or the foundation of the home was original, and the garage structure, meaning not the roof because there was a second addition put on top, but that the garage structure was original, the floor, walls.
Q. And were you aware prior to purchasing the property of any other section of the home being pre-existing?
A. I don't have details as to what may have been there and rebuilt. Those were the points that were obvious. I am not sure they were pointed out to us, they may have been, but by observation those two were clear. The rest of the house was as if it was completely new construction, so the difference was apparent.
Q. So what was your basis for your understanding of the condition of the property?
A. The condition of the property, my understanding was that it was very good. That it sold like a new home, it looked like a new home. It was in move-in condition.
He testified that a standard house inspection was performed, without inspection of the sewer line.
The following took place on cross-examination regarding the sewer line:
Q. What was your understanding of the condition of the sewer lines and sewer main prior to closing with respect to 17 Heller Drive?
A. I had no understanding as to the condition of the line. Simply an expectation.
Q. And what was your expectation?
A. Simply that it would work. . . . .
Q. Did anyone from Rhodes, Van Note and Company specifically state to you that the sewer lines and/or the sewer main were new?
Q. Did Andrew Giuliano ever state to you prior to closing that the sewer lines and/or sewer main were new?
Q. Did anyone else ever state to you that prior to closing that the sewer lines and/or the sewer main were new?
This deposition testimony establishes beyond any doubt that plaintiff was aware at the time of purchase that not all elements of the house represented new construction. He was specifically aware that the foundation (through which the sewer line presumably had to pass) was the original foundation. He also clearly admitted he had no understanding or expectation that the sewer line was new construction.
Plaintiff's knowledge that not all elements of the house were entirely new is also demonstrated by the home inspection report he received prior to closing. This report noted that the furnace was nine years old and that the air conditioning condenser in the basement was six years old. It also indicated that there were signs of dampness in the basement.
After defendants moved for summary judgment, plaintiff, in conjunction with opposing the motion, submitted a supplementary affidavit from Peter Graham in which he stated in pertinent part, "Had I known that the home and its systems, including the sanitary sewer system were not new, I would not have purchased the house." We concur with the trial court that this affidavit was insufficient to create a question of material fact and thus defeat summary judgment.
The trial court rejected this submission under the sham affidavit doctrine, which "refers to the trial court practice of disregarding an offsetting affidavit that is submitted in opposition to a motion for summary judgment when the affidavit contradicts the affiant's prior deposition testimony." Shelcusky v. Garjulio, 172 N.J. 185, 194 (2002) (citation omitted). In sanctioning the use of the sham affidavit doctrine, the Court cautioned that it should not be applied mechanically; the trial court should conscientiously determine whether there is a genuine issue of material fact notwithstanding the prior deposition testimony. Id. at 201. "Courts should not reject alleged sham affidavits where the contradiction is reasonably explained, where an affidavit does not contradict patently and sharply the earlier deposition testimony, or where confusion or lack of clarity existed at the time of the deposition questioning and the affidavit reasonably clarifies the affiant's earlier statement." Id. at 201-02. We are satisfied that the trial court here did not run afoul of these words of caution. The affidavit directly contradicts plaintiff's deposition testimony, and nothing within the deposition transcript indicates any confusion or lack of understanding when the deposition questions were posed and answered. The trial court's conclusion in this regard was correct.
II Having decided that the trial court correctly granted summary judgment to these three defendants on plaintiffs' claims under the consumer fraud statute, we turn now to plaintiffs' claims for fraud and misrepresentation, which they press solely against defendant Rhodes. There are two forms of fraud, equitable fraud and what plaintiffs refer to as "intentional" fraud, or common law fraud. There are three elements to a claim for equitable fraud: "(1) a material misrepresentation of a presently existing or past fact; (2) the maker's intent that the other party rely on it; and (3) detrimental reliance by the other party." Liebling v. Garden State Indem., 337 N.J. Super. 447, 453 (App. Div. 2001) (citation omitted).
There is an added element to a claim for common law fraud, that the party making the material misrepresentation of a presently existing or past fact know of the falsity of the statement. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997). The principle of detrimental reliance, however, is equally essential to both.
Here, for the reasons we have set forth previously in this opinion, it is clear that there was no reliance by plaintiffs on a belief that the sewer system to this house was new at the time of their purchase. Thus, their claims for fraud must fail.
We reach the same result with respect to plaintiffs' claims for misrepresentation. Restatement (Second) of Torts defines negligent misrepresentation in the following terms.
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. [§ 552(1) (1977).]
The Supreme Court has recognized that reliance is an essential element of a claim based upon misrepresentation. Kaufman v. i-Stat Corp., 165 N.J. 94, 109 (2000) ("The element of reliance is the same for fraud and negligent misrepresentation.").
The trial court correctly granted summary judgment to defendant Rhodes on each of these claims.
The order under review is affirmed.
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