New Jersey Consumer Fraud Act Does Not Apply to Architects, Appeals Court Says’

 

Under New Jersey construction law, the New Jersey Consumer Fraud Act applies to most residential and commercial construction projects.  It is applicable to contractors, subcontractors and suppliers.  However, a New Jersey Appeals Court held in a recent decision that architects are not subject to the Consumer Fraud Act because of the “learned professional” exemption.

 

Background

The Borough of Caldwell contracted with Cozzarelli Cirminiello Architects, LLC for architectural services including design, construction and rehabilitation of Borough-owned facilities.  CCA’s invoices were approved by municipal officials before being submitted to and approved by the Council before they were paid.  After a new Council was elected, the Borough terminated its contracts with CCA.  Caldwell then sued CCA in the Law Division of the Superior Court of New Jersey in Essex County for breach of contract, unjust enrichment and violation of the New Jersey Consumer Fraud Act. Caldwell claimed that CCA failed to perform its services, failed to produce “products,” failed to support the Borough on construction bids, failed to produce construction documents, double billed the Borough, and billed it above the agreed upon rate.

CCA filed a motion to dismiss the Borough’s lawsuit on various grounds.  The judge denied the motion.  CCA appealed to the Appellate Division of the Superior Court.  In a published opinion on New Jersey construction law, the Appellate Division denied the appeal on the breach of contract and unjust enrichment counts and allowed the case to proceed on all matters except for the claim for violation of the New Jersey Consumer Fraud Act, on which it reversed the lower court’s refusal to dismiss that part of the Borough’s lawsuit.

 

The Appellate Decision: The New Jersey Consumer Fraud Act in Construction Cases

The New Jersey Consumer Fraud Act provides for treble damages and attorneys fees when a party engages in an unconscionable or deceptive commercial practice.  (There are specific regulations, not applicable here, which make certain matters per se consumer fraud violations in residential home improvement construction projects.)  However, “learned professionals” are exempt from liability under the Act.  CCA argued that as architects they were entitled to that exemption, but the trial judge disagreed.

The Appellate Division explained that: “The CFA was enacted to provide relief to consumers from fraudulent practices in the marketplace.”   The learned professional exemption is “a judicially crafted rule, whereby certain transactions fall outside the CFA’s purview because they involve services provided by learned professionals in their professional capacity.”  The reason for the exemption is that “uniform regulation of an occupation, where such regulation exists, could conflict with regulation under the CFA.”

The Court then examined the requirements to meet the learned professional exemption as applied to CCA.  First, architects are “learned professionals” requiring extensive   knowledge.  Second, CCA was operating as architects in the dispute, not in some other business role.   Third, architects are subject to statutorily required licensing requirements which require education, testing and competency, and must maintain their competency requirements.  The Appellate Division therefore found that CCA, as a firm of practicing architects, was exempt from the Consumer Fraud Act under the learned professionals exemption.  The Appellate Division therefore reversed the Trial judge’s order dismissing the consumer fraud claim and returned the matter back to the Law Division for discovery and trial on the breach of contract and unjust enrichment claims.

 

The Takeaway

The bottom line is that the New Jersey Consumer Fraud Act still remains applicable to contractors, subcontractors and suppliers on construction projects.  However, as the Appellate Division explained: “We conclude that where architects provide services consistent with the tenets of their profession and do not venture into unrelated endeavors outside of their field, they are exempt from liability under the CFA under the learned professionals exception.”

 

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