Cinching Personal Liability for Consumer Fraud in Construction Cases
The second question that the practicing attorney should ask before starting a lawsuit is whether the defendant is good for the judgment, i.e., can she pay it voluntarily or involuntarily. New Jersey is eyebrow deep in uncollected judgments, and it would be embarassing for you to pile on with yet one more. Factor in the corporate shield against personal liability, and you will conclude that a lawsuit against a small business operated as a limited liability company or corporation is a very risky business proposition.
It gets a bit less risky if you revisit that mountain of regulations and statutes. For example, that fountain of liability, the Home Improvement Practices regulations found in the New Jersey Administrative Code at N.J.A.C. 13:45A-16.1 to 16.2, outlaws certain “acts and practices involving the sale, attempted sale, advertisement or performance” by a “seller” of home improvements. To identify the proper defendants to a CFA claim, you need to know that “seller” is defined by the regulations in a manner which extends far beyond the traditional contractual sense of legal party to an exchange:
“Seller” means a person engaged in the business of making or selling home improvements and includes corporations, partnerships, associations and any other form of business organization or entity, and their officers, representatives, agents and employees. (N.J.A.C. 13:45A-16.1A)
This definition does away with any corporate shield against contractual liability ordinarily afforded to an agent of a fully disclosed principal, and leaves no doubt that the individuals associated with a consumer fraud bear personal responsibility in much the same manner as they would for tortious misconduct. When presenting a CFA claim against a contractor, don’t just sue the company – sue the person responsible.
In addition, the HIP regulations define “sales representative” to mean a person employed by or contracting with a seller for the purpose of selling home improvements. The HIP regulations mandate that all home improvement contracts for a purchase price in excess of $500.00, and all changes in the terms and conditions thereof, clearly and accurately state the legal name and business address of the seller, including the legal name and business address of the sales representative or agent who solicited or negotiated the contract for the seller. Even though the sales representative might be an independent contractor, as many are, he is still a proper party defendant if he negotiates a noncompliant contract. Arguably, every sales representative is a “seller” within the ambit of the above definition.
The past practice of the remodeling industry had been to employ high-pressure sales reps known as “tin men,” specialists in selling on a one-call close. One response of government to misconduct by these sales representatives was to pass the Home Repair Financing Act, N.J.S.A. 17:16C-62 et seq., in 1960, and the Door-to-Door Home Repair Sales Act of 1968, N.J.S.A. 17:16C-95 to 103, as a supplement to it. The much older (1960) Home Repair Financing Act requires licenses for both home repair contractors and home repair salesmen (N.J.S.A. 17:16C-77(a)), and prohibits a home repair salesman selling financed jobs from representing more than one contractor. Whether on a financed or unfinanced job, the sales representative who procures a non-compliant contract is a natural defendant.
Your goal here is to have natural people as defendants in addition to the company with whom your client contracted for the work. If all you have is a corporate contractor in your sights, you may expect the people behind it to sacrifice the company and reinvent themselves up the road with a different company. In the real world, this may happen any way, with or without a company on either end.
Finally, keep in mind the universe of personal liability outside of consumer fraud. Those sources include fraudulent transfers, negligent supervision, directors’ and officers’ liability to creditors of insolvent corporations, business torts, and the regulated responsibilities of qualifying licensees of corporate electrical contractors (N.J.A.C. 13:31-3.4) and licensed master plumbers acting as bona fide representatives of corporate plumbing contractors (N.J.A.C. 13:32-3.3).