In re Salvatore, 2011 WL 2115816 (Bankr. D.N.J.)
Plaintiff Green alleged that the debtor/defendant violated the New Jersey Consumer Fraud Act by fraudulently inducing her to sign a home improvement contract by making false representations concerning the scope of services and the quality of workmanship that he and/or his company would provide. She sought trebled damages and a determination that her damages were nondischargeable in bankruptcy. She won a judgment under the NJCFA but not a declaration of nondischargeability.
Salvatore promoted his business as having highly skilled, conscientious technicians” performing "guaranteed work" with no "maintenance headaches." His ads also said, “We handle all phases of the job, from getting the permits to cleaning up the site and hauling away all debris. You will receive a written proposal for you[r] project. You'll always know what we're doing and why we're doing it. Everything is included, no hidden surprises.”
Salvatore, however, did not secure the required permits. Salvatore claimed that Green was the one who didn’t want to bother with permits, which he testified he told her would involve additional cost. In the normal course, he admitted, he wouldn’t have started work without a permit. Though the court found that credibility didn’t affect the outcome, it credited Green’s version. The debtor destroyed his own credibility when he proffered a “Certificate of Completion” allegedly signed by Green and expressing her satisfaction with the work; comparing the signature on that document with other examples of Green’s signature in the record raised serious questions of authenticity.
Green ultimately identified significant deficiencies in Salvatore’s work, including large white stains appearing on her kitchen panels, buckling laminate, missing or poorly aligned trim, faulty wiring and plumbing, and so on. Salvatore refused to return to fix the problems. Green sued. Two years later, Salvatore filed under Chapter 13, listing Green as a non-priority unsecured claimant.
Liability for affirmative acts under the NJCFA doesn’t require proof of intent or evidence of actual deception, as long as a statement is material, made to induce the plaintiff to enter the agreement, and false. Salvatore argued that the ads here weren’t part of the final formal agreement between the parties. But that’s not a defense under the NJCFA, if the ad has the capacity to mislead the average consumer.
The claim that "We handle all phases of the job, from getting the permits to cleaning up the site and hauling away all debris," was material, made to induce the plaintiff to enter into the agreement, and made contemporaneously with the agreement. Getting the permits was material because permits are prerequisites for most home renovation projects under the law.
So, did the ad have the capacity to mislead the average consumer? The reference to "handle all phases of the job" could include getting the permits, but the defendant argued that it was something they could contract to do, not would. The court found that the potential was there for the plaintiff’s interpretation, especially with the additional statement that "[e]verything is included, no hidden surprises." This was a factual claim, not puffery, and thus an affirmative misrepresentation.
What about the statement that the work would be performed in a "good workmanlike manner"? The plaintiff argued that this was a misrepresentation of quality, and that the poor quality of the work itself was an unconscionable commercial practice. The claim of performance in a "highly skilled, conscientious manner" was puffery, made in a vacuum without reference to particular work, and thus nonactionable. Poor workmanship was also not unconscionable under the NJCFA absent any bad faith or lack of fair dealing.
The defendant’s regulatory violations were also an unlawful practice under the NJCFA; regulatory violations make a defendant strictly liable. Here, the law required him to state the dates/time period in which work was to begin and be completed in written proposals. He argued that he failed to obtain permits and copies of inspection certificates, as required by law, because it was the plaintiff’s choice to forego permits, which would have triggered inspections. New Jersey regulations don’t place the burden on the contractor to obtain permits, but they do ban commencing work before the contractor is “sure” that any required permits have been obtained. This duty can’t be contracted away, and thus defendant violated the law by failing to ensure that the permits were in place and that the work was properly inspected.
Plaintiff also suffered ascertainable loss causally related to the unlawful practices. The question was not whether the poor workmanship caused the loss, but whether the misrepresentations and regulatory violations did so. Failure to obtain permits/inspections allowed substandard work to continue unimpeded, and thus the necessary causal connection existed.
Was this debt dischargeable in bankruptcy? The burden is on the plaintiff to show this. Debts obtained through fraud are generally nondischargeable. For bankruptcy purposes, fraud requires moral turpitude or intentional wrong. Intent, reliance and materiality—elements of common law fraud—are routinely required. Here, the plaintiff failed to show a material misrepresentation, knowledge of falsity, or intent to deceive.
General representations regarding a contractor-debtor’s expected work performance and quality of workmanship don’t qualify as misrepresentations, just as broken promises, without more inidcation that the debtor knew of the falsity of the representations when they were made or made them with gross recklessness. Though these claims may have been material, plaintiff still failed to show knowledge of falsity and intent to deceive.
The claims to “handle all phases of the job,” including necessary permits, were made in an ad mailed to an unknown number of recipients. At the time, the debtor had no way of knowing whether permits would be required. There wasn’t enough evidence of reckless disregard, even though the ad was potentially misleading. The same with intent to deceive.
So, the plaintiff ended up with a dischargeable claim for slightly over $130,000 plus attorneys’ fees.