New Jersey Supreme Court Clarifies Rules on Business to Business Consumer Fraud
New Jersey’s Consumer Fraud Act provides some of the strongest consumer protections in the United States. These protections have long been extended to consumers which are business entities. It is one of the strongest of New Jersey’s business law. However, the parameters of when a business, as opposed to a person, was acting as a “consumer,”have yielded conflicting decisions. The Supreme Court of New Jersey has recently issued an important decision affirming business to business consumer fraud, and establishing a test to clarify when a business should be considered to be a “consumer,” and when goods are considered “merchandise” invoking the protection under the Consumer Fraud Act.
The All The Way Towing Case: Background
On January 24, 2019, the New Jersey Supreme Court issued its opinion in the case of All the Way Towing, LLC v. Bucks County International, Inc. In that case All the Way Towing (ATW) , a limited liability company in the towing business, ordered an “International” brand all wheel drive truck from Bucks County International, Inc. (BCI), with an autoloader tow body manufactured by another company, Dynamic Towing Equipment and Manufacturing, Inc. (Dynamic). ATW spent several months negotiating the price and specifications with BCI’s salesperson, and then placed a $10,000 deposit.
After the truck was delivered to Dynamic by BCI for installation, Dynamic discovered that the truck as built was incompatible with its autoloader tow body as manufactured, so Dynamic made modifications to the autoloader. It then delivered the truck to ATW four times, but each time ATW identified deficiencies. After the fourth attempted delivery, ATW rejected the truck and demanded its $10,000 deposit back. BCI refused, and ATW and its owner sued BCI and Dynamic for multiple violations of the law, including violation of New Jersey’s Consumer Fraud Act.
The trial judge in the Law Division of New Jersey’s Superior Court dismissed the Consumer Fraud Act claim because it said the custom design did not fit within the definition of “merchandise,” and therefore ATW was not a “consumer” under the Consumer Fraud Act. The court did not address whether the defendants would have violated the Consumer Fraud Act if it had applied. ATW and its owner appealed to the Appellate Division of the Superior Court. The Appellate Division reversed. The Appellate Division found that the customized truck with the auto loader did meet the definition of merchandise, and therefore the Consumer Fraud Act applied it reversed the dismissal by the Superior Court, and ordered the judge to assume the Consumer Fraud Act was applicable, and then determine based on the evidence whether or not the defendants violated it.
BCI and Dynamic appealed to the New Jersey Supreme Court, which found that the Consumer Fraud Act did apply, and affirmed the Appellate Division’s decision.
Takeaways From the Supreme Court’s Decision
There are several important takeaways the Supreme Court’s Decision.
First, the Consumer Fraud Act applies to business to business consumer fraud, and protects “consumers” even though they may be corporations, partnerships, limited liability companies, sole proprietorships, or any other form of business entity.
Second, “merchandise” is protected under the Consumer Fraud Act if it is “offered to the public for sale.” The fact that the truck and tow rig were modified did not defeat this protection because both were offered to the public for sale and any consumer could have bought them had they so wished; how many did so does not matter. It does not matter that products are sold to a small, specific target group of potential buyers rather than the public at large. The Supreme Court distinguished this from the case where an item is specially manufactured for a buyer. Here, the merchandise was standard, but modified for the consumer’s needs, not specially manufactured. Thus, as the Court noted, “context is important,” and each case will be evaluated on its own facts.
Third, the Consumer Fraud Act is to be “liberally construed.” That means that courts, as here, will strain to find that the Consumer Fraud Act applied.
Fourth, the Supreme Court established a test for determining whether a product is “merchandise” in a business to business transaction under the Consumer Fraud Acts. Courts must consider:
(1) the complexity of the transaction, taking into account any negotiation, bidding, or request for proposals process; (2) the identity and sophistication of the parties, which includes whether the parties received legal or expert assistance in the development or execution of the transaction; (3) the nature of the relationship between the parties and whether there was any relevant underlying understanding or prior transactions between the parties; and, as previously noted, (4) the public availability of the subject merchandise.
Our New Jersey business attorneys represent businesses which have been the victims of consumer fraud, and also businesses which have been wrongfully accused of consumer fraud. Call us at (973) 890-0004, or email us in the contact section of this page to set up a consultation with one of our attorneys. We can help.