AVAILABILITY OF THE CONSUMER FRAUD ACT TO BUSINESS PURCHASERS
When people hear the words “consumer fraud,” they often assume that the provisions of the New Jersey Consumer Fraud Act (CFA) protect only individuals, not business entities. Others think that the CFA applies to business entities as a matter of course because, after all, a business entity is often a consumer of goods and services. These are two extremes – the reality lies somewhere in the middle.
There are substantial advantages for a business able to assert a claim under the CFA rather than a garden-variety fraud claim, including the possibility of getting treble damages and attorneys fees, so it is in the interest of a business plaintiff to bring its claims within the CFA if possible.
As is usually the case in legal matters, a great deal depends on the definitions of terms.
The CFA provides for claims on the part of any person who suffers a loss due to a practice defined by the CFA as unlawful. It has long been settled law that the term “person” means, in most contexts, an entity as well as an individual. However, that is not the only consideration – there is also the matter of the unlawful practice on the part of a seller. The most commonly used provision of the CFA prohibits “any unconscionable commercial practice, deception, fraud, false promise. . . or the knowing concealment. . . of any material fact with intent that others rely” on it “in connection with the sale or advertisement of any merchandise. . .” which is defined as “any . . . goods . . . services or anything offered . . . to the public for sale.”
Courts usually scrutinize claims asserted by business entities more closely than those brought by individual consumers. The theory is that business transactions often involve parties who are equally knowledgeable about the merchandise being sold and so are less likely to be taken in than the individual consumer. However, when an entity makes necessary purchases outside its line of business, the buyer may not have any specialized knowledge about the merchandise.
The courts have decided that the sale of merchandise which is not usually sold to the general public is not covered by the CFA. This include, among other things, specialized goods and services such as the design of a petroleum refining process, specialized rail cars, a multi-employer benefit plan, the lease of a manufacturing facility, alternative financing of commercial property, mass shipping services, third party financing for business entities and others.
Also excluded from the scope of the CFA are goods purchased by a business entity for resale. The reasoning is that because the business purchaser is not purchasing the goods for its consumption, the purchase is not a consumer transaction. The ultimate purchaser, however, whether an entity or an individual, would qualify as a consumer able to assert CFA claims, provided that the CFA’s other requirements are met.
The trend of judicial decisions is moving away from applying the CFA in business disputes. Determining whether in any given case the CFA applies requires a very careful look at all the facts surrounding the merchandise and the circumstances of its purchase.
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Claims by a Business Under the NJ Consumer Fraud Act
AVAILABILITY OF THE CONSUMER FRAUD ACT TO BUSINESS PURCHASERS
When people hear the words “consumer fraud,” they often assume that the provisions of the New Jersey Consumer Fraud Act (CFA) protect only individuals, not business entities. Others think that the CFA applies to business entities as a matter of course because, after all, a business entity is often a consumer of goods and services. These are two extremes – the reality lies somewhere in the middle.
There are substantial advantages for a business able to assert a claim under the CFA rather than a garden-variety fraud claim, including the possibility of getting treble damages and attorneys fees, so it is in the interest of a business plaintiff to bring its claims within the CFA if possible.
As is usually the case in legal matters, a great deal depends on the definitions of terms.
The CFA provides for claims on the part of any person who suffers a loss due to a practice defined by the CFA as unlawful. It has long been settled law that the term “person” means, in most contexts, an entity as well as an individual. However, that is not the only consideration – there is also the matter of the unlawful practice on the part of a seller. The most commonly used provision of the CFA prohibits “any unconscionable commercial practice, deception, fraud, false promise. . . or the knowing concealment. . . of any material fact with intent that others rely” on it “in connection with the sale or advertisement of any merchandise. . .” which is defined as “any . . . goods . . . services or anything offered . . . to the public for sale.”
Courts usually scrutinize claims asserted by business entities more closely than those brought by individual consumers. The theory is that business transactions often involve parties who are equally knowledgeable about the merchandise being sold and so are less likely to be taken in than the individual consumer. However, when an entity makes necessary purchases outside its line of business, the buyer may not have any specialized knowledge about the merchandise.
The courts have decided that the sale of merchandise which is not usually sold to the general public is not covered by the CFA. This include, among other things, specialized goods and services such as the design of a petroleum refining process, specialized rail cars, a multi-employer benefit plan, the lease of a manufacturing facility, alternative financing of commercial property, mass shipping services, third party financing for business entities and others.
Also excluded from the scope of the CFA are goods purchased by a business entity for resale. The reasoning is that because the business purchaser is not purchasing the goods for its consumption, the purchase is not a consumer transaction. The ultimate purchaser, however, whether an entity or an individual, would qualify as a consumer able to assert CFA claims, provided that the CFA’s other requirements are met.
The trend of judicial decisions is moving away from applying the CFA in business disputes. Determining whether in any given case the CFA applies requires a very careful look at all the facts surrounding the merchandise and the circumstances of its purchase.