CAYUGA PROPERTIES, L.L.C., and CHARLES TOUTANT, Plaintiffs–Appellants, v. WALTER S. POLLARD and BETTER CHOICE CONSTRUCTION, L.L.C., Defendants–Respondents.
Plaintiffs appeal from one provision of the Law Division's January 24, 2013 order entering default judgment, which found no cause of action against defendant Walter S. Pollard. We reverse and remand for further proceedings.
We glean the facts mostly from the second proof hearing that was conducted in this case on January 18, 2013, because that was the basis for the entry of the final default judgment.
Plaintiffs' grievance stems from a failed home improvement contract dated May 12, 2011, between defendant Better Choice Construction, L.L.C. (Better Choice) and plaintiff Cayuga Properties, L.L.C. (Cayuga). The contract outlined the contours of an arrangement between those parties for certain construction and rehabilitation work to be performed on Cayuga's residential property located in Burlington.
In exchange for $20,930, Better Choice promised to “furnish all of the materials and perform all of the work shown on Drawings and/or Estimate provided and attached” to the contract. The contract was negotiated and signed by representatives of the two limited liability companies: Charles Toutant on behalf of Cayuga, and Pollard on behalf of Better Choice. Before the contract was signed, Pollard represented to Toutant that Pollard was “someone who was experienced and knew how to do this sort of thing and would do a high quality job.” Additionally, Pollard said that the job would be completed “promptly and quickly.” According to Toutant's testimony, Pollard “started ․ doing the work regularly, but then he stopped showing up on the job.” After a while, Toutant “realized that [Pollard] seemed to have abandoned the job.”
During the partial construction period, Cayuga issued three checks to Better Choice totaling $17,441.67. Toutant ultimately testified that the work languished for months, was never completed, and most of Better Choice's work was defective, which required Cayuga to enlist another contractor to complete and remediate the work at an additional cost of $14,959.55.
On August 1, 2011, plaintiffs filed an eleven-count complaint in the Law Division against Pollard and Better Choice. Among the theories of liability alleged against both defendants, plaintiffs asserted breach of contract, common law fraud, violations of the Consumer Fraud Act (the CFA), N.J.S.A. 56:8–1 to –20, and unjust enrichment. Because an answer to the complaint was never filed, default was entered against both defendants on October 17, 2011. For reasons that are unclear, a proof hearing pursuant to Rule 4:43–2(b) was not conducted until almost one year later, on September 28, 2012.1
At this first proof hearing, the only witness who testified was Toutant. Notwithstanding both defendants' default status, and even in the face of plaintiffs' objection, the Law Division permitted Pollard and his non-party spouse to address the court with affirmative evidence. At the end of the proceeding, the court dismissed the complaint against Better Choice because “Better Choice went through bankruptcy.” Additionally, the court dismissed all claims against Pollard, including the CFA claim, “because there is no proof that [Pollard] did anything other than in his capacity as an employee and officer of Better Choice.”
Plaintiffs filed a timely motion for reconsideration, and on November 18, 2012, the Law Division reinstated the complaint against both defendants. The court held that “because ․ what happened in the last listing of the proof when it was dismissed because there was confusion as to who went bankrupt and who didn't, I will ․ reschedule a proof, and [the parties] can come in and put in what [they] want similar to what [they] did today or earlier.”
The second proof hearing was conducted on January 18, 2013. Again, the only witness who testified under oath was Toutant, but, again, the Law Division permitted —— over plaintiffs' objection —— Pollard and his spouse to present evidence and arguments with respect to liability. At the conclusion of the proceeding, the court entered a judgment against Better Choice,2 but ruled as follows:
Better [Choice], I don't know what you want to do with that. It's here. The lady [ (Pollard's spouse) ] says it's going through bankruptcy. I don't know if it did or if it didn't. The thing is there. It's not what I was used to seeing in bankruptcy, but it never says, that piece of paper, that Better [Choice] is discharged in bankruptcy. It says the case was dismissed. So that means it's still open against Better Construction. So anyway I'm bewildered. I don't know what to do as far as Better [Choice] Construction, L.L.C. is concerned. If it's not discharged in bankruptcy, then he's going to get his judgment against Better [Choice].
Alternatively, the court dismissed the complaint against Pollard, finding “no cause of action.” The court explained:
In th[e] contract Mr. Pollard signed for Better Choice Construction, L.L.C. It's corporate law. He signed —— he was an officer of [the] L.L.C. and he signed as an officer of [the] L.L.C. for [the] L.L.C. not in an individual capacity.
Now counsel is arguing, we ․ only dealt with him. He's the only one we ever dealt with. He was or is [the] L.L.C. and it's probably true. He is and was. So but still in his capacity in this lawsuit he signed the contract as an officer of Better Choice Construction and I'm dismissing the case as to Mr. Pollard.
This appeal followed.
On appeal, plaintiffs argue that the Law Division improperly allowed defendants to offer evidence and affirmative defenses during the proof hearing, and incorrectly failed to impose individual liability upon Pollard under the CFA and common law fraud theories. Because we conclude that the Law Division mistakenly abused its discretion in the manner of conducting the proof hearing and erroneously applied the law to the facts adduced at that hearing, we reverse and remand for further proceedings.
In the context of a proof hearing, the trial court is obliged to view a plaintiff's proofs indulgently, and the general practice is “to require only a prima facie case.” Heimbach v. Mueller, 229 N.J.Super. 17, 20 (App.Div.1988); see also Pressler and Verniero, Current N.J. Court Rules, comment 2.2.2 on R. 4:43–2 (2014). A plaintiff is nevertheless required “to furnish proof on the issue of damages as well as liability.” Johnson v. Johnson, 92 N.J.Super. 457, 464 (App.Div.1966); accord Slowinski v. Valley Nat'l Bank, 264 N.J.Super. 172, 183 (App.Div.1993).
“It is axiomatic that where, following the entry of a default, a plaintiff seeks unliquidated damages, judgment should not ordinarily be entered without a proof hearing, ․ although the question of what proofs are necessary is inherently within the judge's discretion.” Chakravarti v. Pegasus Consulting Grp., Inc., 393 N.J.Super. 203, 210 (App.Div.2007) (citations omitted). This is in accord with Rule 4:43–2(b), which gives the court authority to “determine the amount of damages” through a proof hearing “as it deems appropriate.”
Indeed, we stated that after a default, a plaintiff is entitled to “all of the damages” that can be “prove[d] by competent, relevant evidence.” Heimbach, supra, 229 N.J.Super. at 28.
The Law Division exceeded the appropriate bounds of discretion in the proof hearing in two ways. First, it permitted Pollard's spouse —— a non-party, non-attorney —— to speak and present evidence. Second, it entertained Better Choice's claim that it was discharged in bankruptcy, which as an express affirmative defense under Rule 4:5–4, was barred from consideration due to the entry of default. Although these gaffes did not materially affect the question of Pollard's individual liability, they clearly had the capacity to negatively infect the proceedings.
Of greater concern is the Law Division's incorrect assessment of law with respect to Pollard's individual liability under the CFA. The New Jersey Supreme Court has interpreted a CFA claim to include three elements: “(1) unlawful conduct ․; (2) an ascertainable loss ․; and (3) a causal relationship between the defendants' unlawful conduct and the plaintiff's ascertainable loss.” Int'l Union of Operating Eng'rs Local No. 68 Welfare Fund v. Merck & Co., Inc., 192 N.J. 372, 389 (2007) (quoting N.J. Citizen Action v. Schering–Plough Corp., 367 N.J.Super. 8, 12–13 (App.Div.), certif. denied, 178 N.J. 249 (2003)).
Further defining what constitutes the unlawful conduct element, the CFA provides:
The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation ․ in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid ․ is declared to be an unlawful practice․
There are three general categories of consumer fraud violations: affirmative misrepresentations, knowing omissions, and regulatory violations. Allen v. v. & A Bros., Inc., 208 N.J. 114, 131 (2011); Bosland v. Warnock Dodge, Inc., 197 N.J. 543, 556 (2009); Cox v. Sears Roebuck & Co., 138 N.J. 2, 17 (1994). An “unconscionable commercial practice” satisfies the unlawful act requirement under N.J.S.A. 56:8–2. Although the term “unconscionable commercial practice” is not defined in the CFA, the Court has held it to be an “amorphous concept obviously designed to establish a broad business ethic.” Cox, supra, 138 N.J. at 18 (quoting Kugler v. Romain, 58 N.J. 522, 543 (1971)). The word “unconscionable” is generally interpreted liberally to “effectuate the public purpose of the CFA.” Assocs. Home Equity Servs., Inc. v. Troup, 343 N.J.Super. 254, 278 (App.Div.2001) (quoting Kugler, supra, 58 N.J. at 543). However, it implies a “lack of ‘good faith, honesty in fact and observance of fair dealing.’ ” Cox, supra, 138 N.J. at 18 (quoting Kugler, supra, 58 N.J. at 544). Moreover, whether a particular practice is unconscionable must be determined on a case-by-case basis. Troup, supra, 343 N.J.Super. at 278 (citing Kugler, supra, 58 N.J. at 543).
The claims asserted by plaintiffs against Pollard at the proof hearing involved unconscionable business practices by dint of the deception and misrepresentations made by said individual. In New Mea Construction Corp. v. Harper, 203 N.J.Super. 486, 501–02 (App.Div.1985), we concluded that the CFA “applies to a builder of a single-family home who uses substandard materials in violation of a contract,” reasoning that the materials used in the house were “ ‘merchandise sold’ to the owners within the contemplation of N.J.S.A. 56:8–1(c) and (e).” We reversed and remanded the CFA counterclaims for the judge to review and determine whether the builder was liable under the CFA, and further directed the judge to assess damages against the principal if he found she “meets the test for liability under the Act.” Id. at 502.
Individual liability has been found to apply to any person, including an individual working for a corporation, who violates the CFA by means of affirmative misrepresentation or knowing omission. Allen, supra, 208 N.J. at 131–32; see, e.g., Gennari v. Weichert Co. Realtors, 148 N.J. 582, 609–10 (1997); New Mea Constr. Corp., supra, 203 N.J.Super. at 502; Hyland v. Aquarian Age 2,000, Inc., 148 N.J.Super. 186, 193 (Ch. Div.1977). Although the CFA can impose liability upon an individual, that individual can only be liable for his or her own affirmative acts or knowing omissions. Allen, supra, 208 N.J. at 131–33 (2011). Such an individual may not be held liable under the CFA “merely because of the act of the corporate entity.” Id. at 132. The Supreme Court expressly instructed that “individual liability for a violation of the CFA will necessarily depend upon an evaluation of both the specific source of the claimed violation that forms the basis for the plaintiff's complaint as well as the particular acts that the individual has undertaken.” Id. at 136.
The Law Division discounted Pollard's individual liability simply because he was a mere signatory on the contract, and nothing more. However, plaintiff's proofs demonstrated substantial affirmative conduct to the contrary, which, if believed, would be sufficient to meet Rule 4:43–2's prima facie standard. Moreover, the Law Division did not address plaintiffs' common law fraud claim, which independently would, if proven, be sufficient to impose individual liability upon Pollard.
Accordingly, we reverse the finding of no cause of action as contained in the July 24, 2013 order entering default judgment. On remand, utilizing the record already made and excluding all incompetent evidence, the Law Division shall reconsider the entry of a default judgment in favor of plaintiffs against Pollard individually. Before making its findings and conclusions, the court, in its discretion, shall give the parties the opportunity to present any final arguments either in writing or in person.
Reversed and remanded for further proceedings in accordance with this opinion. We do not retain jurisdiction.
1. FN1. It is possible that Better Choice's bankruptcy filing, which commenced in October 2011, delayed the proof hearing.
2. FN2. The default judgment was entered in favor of both plaintiffs in the amount of $44,878.65 (compensatory damages of $14,959.55 trebled pursuant to the CFA) plus $33,344.56 attorneys' fees (pursuant to the CFA). Better Choice did not appeal from the default judgment.