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Advocates hope bill takes bite out of N.J. fraud law

Suit over length of foot-long Subway sandwiches has reformers hungry for discretion in damage awards

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The automatic triple-damages award under the Consumer Fraud Act means in some cases, businesses are forced to settled when 'they did nothing wrong,' says Jim Appleton. – AARON HOUSTON
The automatic triple-damages award under the Consumer Fraud Act means in some cases, businesses are forced to settled when 'they did nothing wrong,' says Jim Appleton. – AARON HOUSTON

Most agree New Jersey's 53-year-old Consumer Fraud Act has succeeded in giving consumers leverage to fight back when they're defrauded by a business.

But if you ask Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, the law has done more than level the playing field. It's tilted it so far in favor of consumers that it actually encourages lawsuits, even for minor disputes that could be worked out amicably.

"Very often, the first (dealers) hear of a consumer complaint … is when they're served papers in a lawsuit," he said.

For example, he brought up a case involving a car that was scratched while being offloaded from the car transport. The dealer failed to notify the consumer of the scratch, but later attempted to make right by buffing and repainting the scratched spot, free of charge. The work cost the dealer about $150, Appleton said.

Not satisfied, the buyer sued.

"Ultimately, that case wound up costing the dealer, I think it was $18,000 in damages and $25,000 in attorney's fees," he said.

If that first figure — $18,000 — sounds high, here's why: The Consumer Fraud Act requires judges to give plaintiffs an award triple the amount of actual damages, plus court and attorneys' fees. In that case, the court found the scratch diminished the car's value by $6,000.

"I can tell you it is enough to force dealers to settle cases where they can identify that they did wrong," he said. "In fact, it's enough to make them settle cases where they did nothing wrong."

That could soon change. Assemblyman Craig Coughlin (D-Woodbridge) introduced a bill in the fall to amend the Consumer Fraud Act, giving judges more discretion when it comes to plaintiff's awards. The bill would also limit the law so it only applies to New Jersey residents and transactions.

Stephen DeNittis, an attorney at Shabel & DeNittis P.C., in Marlton, said changing the Consumer Fraud Act would harm consumers.

"I believe strongly that the CFA should remain as it is to be able to protect consumers of this state," he said, adding that other states have since emulated New Jersey's law.

DeNittis last month filed suit against the Subway sandwich chain, alleging his clients were defrauded when the "foot-long" sandwiches they ordered were actually shorter than 12 inches.

That may seem like a minor issue, but DeNittis said it adds up to major fraud.

"They're shorting people anywhere between 30, 40, 50 cents per sandwich," he said. "They're doing small frauds to millions of people, and it's adding up to millions of dollars."

A Subway shop in the Somerset section of Franklin. A Marlton attorney filed suit against the chain, alleging it sold sandwiches shorter than the promised 12 inches. – AARON HOUSTON

DeNittis said a tough consumer protection law encourages companies to do what they should be doing anyway — obeying the law and being honest with their customers.

"From my experience, if companies just comply with the law, they don't have anything to worry about," he said.

But Marcus Rayner, executive director of the New Jersey Lawsuit Reform Alliance, said it's not always that easy, particularly for small businesses. When a company messes up, even on a technicality, the resulting legal fees can be enough to drive the company out of business.

Even if a company can absorb the costs, Rayner said such cases help trial attorneys more than consumers.

"The costs of this litigation gets borne by the consumer," he said. "Anyone who suggests otherwise is not, in my opinion, being straightforward about it."

Rayner said suits like the Subway case are likely to result in "defrauded" consumers receiving little more than a coupon, one they might not even use.

Coughlin's bill aims to winnow the number of cases by making triple damages the maximum — not the mandatory — award, allowing courts to consider cases "where a business didn't intent to defraud someone, or when the consumer didn't actually lose value or lose money," Rayner said.

Rayner said minor infractions or poor customer service don't warrant court cases. He said the free market tends to weed out bad companies.

But Scott Leonard, president of the New Jersey Association for Justice, a trial lawyers' association, said Coughlin's bill isn't necessary.

"The court system has safeguards in place to weed out cases that don't have merit," he said. "We think this bill actually puts honest businesses at a disadvantage, because it allows their competitors who engage in unscrupulous or deceptive practices to benefit from the proposed law."

Coughlin's bill would also limit the law so it applies only to New Jersey residents and transactions. Under the current CFA, Rayner said New Jersey has become a "hotbed" for lawsuits like the Subway case.

But Leonard said limiting the law to New Jersey residents could encourage unscrupulous companies to set up shop here and defraud out-of-state customers.

"The way we read the bill, it would limit justice only to New Jersey consumers doing business with companies in New Jersey, thereby encouraging dishonest merchants to come here to do business," he said.

Rayner believes there are plenty of ways to deal with dishonest businesses. He thinks companies have little to fear from Coughlin's bill, except those in the business of litigation.

"Ultimately, it is up to the government to enforce laws on how businesses interact with consumers," he said. "Litigation should have a minor role."

E-mail to: jaredk@njbiz.com
On Twitter: @jaredkaltwasser

Write to the Editorial Department at editorial@njbiz.com

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