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Authored - NJ Contract Law Update - The Scariest Contract-Substitute Claim?
SEPTEMBER 21, 2012 | Windels Marx - Commercial Litigation

Suarez v. Eastern International College

Contract-substitute claims include common-law fraud and the New Jersey Consumer Fraud Act ("CFA"). These were the claims adjudicated in Suarez v. Eastern International College, 2012 WL 3600003 (N.J.App.Div. August 2012).

Although a contract claim apparently was not pleaded, Suarez clearly involved an agreement between the parties for enrollment at a for-profit training school. Yet the case features neither contract nor quasi-contract claims, nor a discussion of the economic loss doctrine.1 Rather, the plaintiff apparently pleaded two Counts only: (1) common-law fraud, and (2) the CFA.

The Appellate Division upheld dismissal of the common-law fraud claim, but reversed and reinstated the CFA claims; explaining its rationale as follows:2

1. A common-law fraud could not succeed, because:

  • (a) "[T]here is no evidence that [defendant's representative] ... knew any statement he made was false", or "was aware" that any omissions were "material[]", or "knowingly omitted those facts from his representations".
  • (b) Moreover, those statements "were not statements of present or previously existing facts and therefore cannot provide the basis for a claim based on common law fraud".3

2. However, the CFA claim was valid, because:

  • (a) Intent is irrelevant to prove a CFA claim.
  • (b) The CFA is "intended to protect consumers from deception and fraud, even when committed in good faith."
  • (c) CFA claims are valid when they focus on "the capacity to mislead", regardless of traditional fraud criteria, as long as the plaintiff can prove "the omission of accurate" or non-misleading "information about [a] ... material fact"; "a literally true statement can still have the capacity to mislead the average consumer and therefore, fall within the purview of the CFA".
  • (d) "A half-truth can be as deceptive as a positive misrepresentation" (a statement of law normally applicable to common-law fraud claims).
  • (e) Federal regulations help delineate what would be considered important information by students--such as the plaintiff student in Suarez, complaining that she was misled as to her employability in a particular vocation following graduation.
  • (f) "The reasonable expectations of the consumer" were "thwart[ed]".
  • (g) Plaintiff theoretically could prove, in Suarez, that the defendants "present[ed] information in a manner that deprived the consumer of material facts necessary to make an intelligent decision in selecting the product or service to purchase."
  • (h) The student could have been misled into believing that she would be immediately employable in her area of training following graduation, rather than needing to fulfill additional requirements for the requisite "certification".
  • (i) "If a jury accepted plaintiff's proofs, it could find the statement that plaintiff would be employable ... was a statement of fact, material to her decision to enroll and made to induce her to do so"--and was "false", such that she was nearly unemployable.

There was one more branch of the Court's decision: namely, whether the "learned-professional" exception to the CFA applied. That exception "excludes certain transactions from the purview of the CFA because they involve services provided by learned professionals in their professional capacity", who are "subject to regulation specifically applicable to their profession, which might conflict with the regulation of activities under the CFA"--to the point "that a direct and unavoidable conflict exists between application of the CFA and application of the other regulatory scheme or schemes."4

The Suarez Court found the "learned-professional" exception inapplicable due to "the lack of uniform regulations"; i.e., the absence of a "regulatory body that defines uniform standards for the services [defendant] ... provides for its activities as a for-profit training school, let alone regulation that would present a patent and sharp conflict with the application of the CFA." Id. The Court ruled that the federal regulations it had cited in support of CFA liability did not constitute such a pervasive regulatory scheme.

Morals of the Story

The morals of the story are these:

  1. The CFA is powerful medicine--permitting treble damages and attorneys fees.
  2. Required common-law elements are alleviated for the benefit of the plaintiff.
  3. The CFA may apply to many commercial transactions (a highly complex subject for another article).
  4. Parties defending a CFA claim must be aware of the case-law about the applicability vel non of commercial transactions; the learned-professional exceptions: the interplay among materiality, causation, and the ostensible lack of need to prove reliance; the various types of transactions (not just those discussed in Suarez) to which the CFA may apply; and a host of other matters.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Each of these subjects is discussed in prior Articles in this series.

2 Citations and quotation delineations omitted below.

3 The Court (and thus presumably the parties) omitted mention of easier-to-prove contract-substitute claims; such as negligent misrepresentation, equitable fraud, and promissory estoppel.

4 Citations and quotation delineations are omitted; including citations from Lemelledo v. Benefit Management Corp., 150 N.J. 255, 270 (1977), in which this author submitted an amicus brief for a trade association.

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