On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-1841-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Payne and C.L. Miniman.
Madeline L. Houston argued the cause for amicus curiae Consumers League of New Jersey (Houston & Totaro, attorneys; Ms. Houston and Melissa J. Totaro, on the brief). Michael D. Halbfish argued the cause for amici curiae New Jersey Association for Justice and AARP (Tunney & Halbfish and David M. Cedar, attorneys for New Jersey Association for Justice; Fred Shahrooz Scampato and Julie Nepveu, of the District of Columbia bar, admitted pro hac vice, attorneys for AARP; Mr. Cedar, Mr. Halbfish, Ms. Nepveu and Mr. Scampato, on the joint brief).
The opinion of the court was delivered by CUFF, P.J.A.D.
Plaintiff Nancy Z. Paley*fn1 hired a home health aide to assist her after she lost a leg to diabetes. In 2005, plaintiff discovered that the home health aide had fraudulently negotiated checks drawn on plaintiff's money market account with defendant Bank of America (BOA). In this appeal, we are asked to address whether the evidence presented by plaintiff supports a consumer fraud claim against defendant bank, and, if so, if it is preempted by the Uniform Commercial Code (UCC). We hold that the acts or business practices alleged by plaintiff are not the type of acts or business practices encompassed by the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20. In doing so, we hold that, absent a special relationship between the customer and the bank, the application of the CFA to the various claims asserted by plaintiff against defendant bank would conflict with the comparative negligence provisions of the UCC, would dilute the protections afforded to banks by the UCC, and would likely lead to inconsistent jury verdicts. We, therefore, affirm the judgment notwithstanding the verdict (JNOV) entered by the trial judge.
Plaintiff opened a money market account in her name about
thirty-five years ago with a predecessor of defendant BOA.*fn2
When she opened the account, she signed a signature card. She
testified that personnel at the bank told her the signature card would
be used to check the signatures on checks presented for cashing.
Plaintiff denied the bank ever informed her that it
would not verify signatures on checks drawn on her account or use an
automated system to guard against fraudulent activity in her account.
Plaintiff recalled being advised that the bank would exercise
reasonable care to prevent forged checks from being drawn on her
At trial, Ruta Karlson, a BOA representative, conceded the signature card could not be located. She also admitted that normal practice within the bank calls for a customer to sign a new card when the bank cannot locate the original. Plaintiff testified she was never told the original card could not be located, but admitted she had no recollection of what the bank represented concerning its policies, procedures, and reasonable commercial practices. She recalled the bank giving her "very little information . . . . It was one, two, three, four, and we're out of here."
As a money market account, federal Regulation D*fn3 governed its use, and allowed only three checks per month to be drawn on the account. Plaintiff used the account infrequently, no more than several times per year. She maintained a checking account with which she paid her ongoing bills. Plaintiff received statements on the money market account only when there had been activity on the account. In 2002, the account balance was over $45,000.
After losing a leg to diabetes at the age of seventy-four, plaintiff needed assistance. At the beginning of 2002, she hired Angela Sentore*fn4 as a home health aide. Sentore did various jobs for plaintiff, including making deposits at the bank. Plaintiff did not authorize her to undertake any other transactions.
In June 2005, plaintiff learned that a check she wrote to her husband on the money market account had been returned for insufficient funds. Because plaintiff expected the funds on deposit to easily cover the amount of the check, she investigated by ordering copies of all negotiated checks, and learned that Sentore had negotiated 188 checks from the account, totaling $48,931.83, either by making them payable to herself, or by making them payable to third parties. Sixty-two of the checks were presented in person by Sentore to a teller at a BOA branch office.
In many instances Sentore wrote more than three checks a month on this account. When an account holder exceeds the three-check limit, the bank issues a written notice. If it happens a second time, the bank sends another written notice to the account holder. If it occurs a third time, the bank converts the account from an interest-earning money market account to a checking account. The conversion may also be preceded by a telephone call from bank personnel to the customer. Plaintiff testified she received no letters and was not aware the account had been converted to a regular checking account. Karlson, on behalf of BOA, testified bank records indicated that notices were sent to plaintiff.
Plaintiff confronted Sentore, who admitted writing and negotiating checks on the money market account. Plaintiff filed a fraud claim with BOA, which it denied. BOA advised plaintiff she waited too long to report the missing funds, as she received statements, did not notify the bank of the problem upon receipt of the statements, and the "same wrongdoer" perpetrated the fraud. Plaintiff claimed she did not receive any statements and mostly did not expect to, given her limited use of the account. However, between 2002 and 2005, plaintiff called the bank approximately five times to report she had not received an expected statement. She testified the bank stated it would send another statement. She never received the requested copies and realized only in July 2005 that Sentore monitored the mail and intercepted all communications from the bank.
Plaintiff always signed her name with the middle initial "Z," but none of the forged checks contained her middle initial. Plaintiff contended, and Karlson conceded, that plaintiff's legitimate signature was noticeably different from the forged signature. Karlson admitted the bank did not sight-review every check to compare it to the signature card because the bank handled too many checks to make this practical. In accordance with bank policy, it did not verify signatures on checks made out for less than $500. Karlson maintained that under bank policy, a teller was under no obligation to compare each signed check to a signature card due to the low amounts of the checks. Karlson also reviewed the bank policies for detecting fraud, and opined that the bank followed those policies and none of the checks would have triggered a warning or a "red flag."
The BOA "Personal Deposit Account Agreement" sets forth the check processing standard of care. It stated:
We use automated systems that don't rely on sight review in the processing of checks in order to handle a high volume of items at a lower cost to you. You agree that, to the extent that such systems are consistent with general banking practice, their use will constitute ordinary care and we will not be liable to you for forgeries or alterations not detected by such systems. You also agree that the exercise of ordinary care will not require detecting forgeries or alterations that could not be detected by a person observing reasonable commercial standards.
This agreement was in force at BOA in 2005. Karlson testified the provision reflected the standard of care in effect between 2002 and 2005.
On May 10, 2006, plaintiff filed a complaint against BOA and Sentore. The first six counts of the complaint were against BOA and sought damages for: 1) negligence (count one); 2) breach of fiduciary duty (count two); 3) breach of contract (count three); 4) detrimental reliance (count four); 5) violation of N.J.S.A. 12A:3-420 (the UCC) (count five); and 6) violation of the CFA (count six). Plaintiff sought damages from BOA and Sentore for fraud and misrepresentation in count seven and against Sentore for conversion in count eight. The court granted BOA's motion for summary judgment in part and dismissed counts one (negligence), two (breach of fiduciary duty), seven (fraud and misrepresentation), and eight (conversion).*fn5 The court denied summary judgment to BOA on counts three (breach of contract), four (detrimental reliance), five (UCC), and six (the CFA claim). The motion judge reasoned that a liberal interpretation of the CFA would cover the bank services of "handling of negotiable instruments" and the "[c]ashing of checks," and BOA had not rebutted the presumption that the CFA applied. Finally, the judge dismissed all claims based on checks negotiated prior to August 31, 2004, based on N.J.S.A. 12A:4-406f, which provides that "a customer who does not within one year after the statement or items are made available to the customer . . . discover and report the customer's unauthorized signature . . . is precluded from asserting against the bank the unauthorized signature . . . ."
A jury trial was held on counts three, four, five, and six in February 2008 before Judge Dupuis. After both parties rested, plaintiff voluntarily dismissed all claims except the consumer fraud claim. BOA moved to dismiss this claim prior to the jury's deliberations under Rule 4:37-2, arguing that plaintiff showed no right to relief, but the judge reserved ruling until after the jury verdict.
The jury found that BOA committed a violation of the CFA, and awarded $8500 in damages. After the verdict, the judge denied BOA's motion for dismissal. However, because the damages awarded by the jury exceeded the possible award as instructed by the judge, the judge asked both parties to brief the issue of remittitur. By letter dated February 11, 2007, plaintiff consented to a remittitur, if damages were found to be $3702 and trebled under the CFA, and without prejudice to her right to appeal the ruling that limited her damages to checks negotiated after August 31, 2004.
On February 27, 2008, BOA moved for JNOV pursuant to Rule 4:40-2. After oral argument on March 28, 2008, the judge found that the UCC provided "a remedy for the precise situation presented with explicit rules," and therefore granted BOA's JNOV motion on April 2, 2008. In her opinion, the judge stated that factual questions concerning negligence remained, and ordered a new trial; however, plaintiff had voluntarily dismissed all claims other than the CFA claim, and the judge entered a final judgment at plaintiff's request. Subsequently, the judge denied BOA's motion for counsel fees and costs pursuant to Rule 1:4-8 and Rule 4:46-6.
Plaintiff seeks to invoke the CFA based on the premise that the signature card she executed in the 1970s when she opened her money market account was designed to prevent acts of fraud and misrepresentation. In other words, she contends that the purpose of the signature card was to prevent the bank from charging her account for a check bearing an unauthorized signature. This argument also assumes that each check presented by a customer is visually scanned. Plaintiff further contends that BOA failed to inform her of changes in its fraud prevention and detection practices to her detriment. In order to evaluate this argument, we consider the purpose of the CFA, the scope of Articles 3 and 4 of the UCC, and whether the CFA applies to this case.
A. The Consumer Fraud Act
The CFA, originally enacted in 1960, "is aimed basically at unlawful sales and advertising practices designed to induce consumers to purchase merchandise or real estate." Daaleman v. Elizabethtown Gas Co., 77 N.J. 267, 270 (1978). It provides:
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.]
"Merchandise" is defined as "any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale . . . ." N.J.S.A. 56:8-1(c).
The Supreme Court explained the scope of the CFA in Daaleman, supra, 77 N.J. at 271:
The act as amended and supplemented is administered by the Division of Consumer Affairs, Department of Law and Public Safety. N.J.S.A. 52:17B-124. Detailed administrative regulations have been adopted pursuant to the act, controlling selling and advertising practices in the areas of ...