Contract doesn't defeat consumer protection claim

DeAngelis v. Timberpeg East, Inc., -- N.Y.S.2d --, 2008 WL 1969676 (N.Y.A.D. 3 Dept.)

Timberpeg advertised “Timber Frame Homes.” After plaintiffs attended a Timberpeg open house, they met John S. Shafer and John H. Shafer. Both Shafers and a Timberpeg manager told plaintiffs that the Shafers were authorized Timberpeg representatives, and experienced and specially trained Timberpeg builders. Plaintiffs were led to believe that Timberpeg would be involved in the design and construction of their home, supervising the Shafers. Based on these statements, plaintiffs signed an order form containing a limited warranty. The form stated that Timberpeg was merely a supplier of design plans and didn’t guarantee the Shafers’ work. However, plaintiffs claimed that even after they signed, Timberpeg assured them that it would conduct on-site visits and otherwise monitor the construction.

As you can guess, things didn’t work out so well. Plaintiffs ultimately fired the Shafers and hired another contractor to complete the construction.

Plaintiffs’ claims for deceptive practices and false advertising under New York’s General Business Law required allegations of consumer-oriented acts or practices that were materially deceptive or misleading and that caused injury. The test was whether defendants’ representations or omissions were likely to mislead a reasonable consumer under the circumstances. The court found that plaintiffs’ allegations satisfied those requirements. Timberpeg’s ads in a regional magazine, flyers, and open houses touted a “package” of products and services that would produce a completed Timberpeg home. This was consumer-oriented conduct, and Timberpeg’s representations were adequately alleged to be false and misleading.

Timberpeg argued that the contract plaintiffs signed contained a merger clause and specifically disclaimed liability for the performance of the representative who assembled the home. But that doesn’t defeat claims under the General Business Law based on deceptive business practices or false advertising. Moreover, the standard for misleadingness takes into account the reactions of “the ignorant, the unthinking and the credulous who, in making purchases, do not stop to analyze but are governed by appearances and general impressions” (citations and quotations omitted).

The court agreed, however, that plaintiffs’ common-law fraud claim failed. The Timberpeg order form, though insufficient to defeat the statutory claims, disclaimed any agency relationship with Timberpeg representatives and contained a merger clause as well as other limiting language. This prevented any claim of justifiable reliance, as required for fraud.

Once again, we see that statutory consumer protection law is powerful, and quite distinct from the common-law fraud actions with which commercial speech absolutists reassure us when arguing for eliminating the 20^th century’s consumer protection measures.