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Changes to the New Jersey Consumer Fraud Act

On September 12, 2013, in Perez v Professionally Green, LLC, (215 N.J. 388), the New Jersey Supreme Court made a major change to the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq.

Under the Act, a consumer could be entitled to attorney fees if the consumer prevailed in a lawsuit against a contractor if the consumer could prove: (1) a violation of Act, and (2) an out of pocket loss related to the violation. The award of attorney fees in Consumer Fraud actions is important because, in many cases, the amount of damages suffered by the consumer seems too small to hire an attorney. Over the years, the courts had a difference of opinion as to when attorney fees were to be awarded against a contractor. Some courts, very narrowly reading the Act, found that attorney fees could be awarded if there was any violation of the Act and the consumer suffered a loss. Thus, if there was a technical violation of the Act, (for example the failure of the contractor to insert its address or the contractor's state registration number in the contract) and the consumer suffered damages for other reasons (such as for sloppy or incomplete work), a consumer could be awarded attorney fees.

However, other courts held that the violation of the Act had to actually result in the damages suffered by the consumer. Thus, for example, the consumer could not be awarded attorney fees if the contract failed to state the start and end date, but that failure was not the cause of the damages suffered by the consumer.

In Perez, the Court held that, in order for the consumer to be awarded attorney fees, the consumer must show that the loss or damages which the consumer incurred must have arisen from the violation of the Act. If the violation did not result in damages to the consumer, then attorney fees are not to be awarded.

The practical effect of the Perez decision is that consumers will probably bring fewer Consumer Fraud actions, as they have to pay for the litigation costs and attorney fees themselves unless they can prove that the violation was the cause of the damages. Some people feel that the decision is correct, in that a contractor should not have to pay the consumer's attorney fees unless the damages were caused by the violations of the Act, rather than because there was a technical violation of the Act. Others feel that this decision runs contrary to the Legislature's intent in the Act because the award of attorney fees was seen by some as an incentive to contractors to make certain their contracts comply with the requirements of the Act. In either case, the Legislature may have to amend the Act to clarify its intent as to when attorney fees should be awarded.