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Economic Damages May Now Be in Play for Construction Defect Claims Alleging Express Misrepresentation

Posted on: October 23rd, 2020

By: Matthew Wachstein

The recent New Jersey Supreme Court decision in Sun Chemical put defense counsel on notice of the potential for valid Consumer Fraud Act (“CFA”) claims to arise in cases involving allegations of express misrepresentation regarding the sale of defective products. Sun Chemical Corporation v. Fike Corporation, 2020 N.J. LEXIS 880 (N.J. July 29, 2020). Previously, almost all such claims were subsumed by New Jersey’s Product Liability Act (“PLA”). N.J. Stat. §2A:58C-2. This development is particularly worrisome to litigants facing similar allegations – including product manufacturers sued for construction defect claims as their exposure may now include treble damages and attorneys’ fees in addition to the enumerated recovery permitted under the PLA.

Prior to Sun Chemical, the trend of the courts was towards preclusion of CFA claims where the essence of a claim stemmed from harm caused by an allegedly defective product. As stated by the Court in Sinclair, where “[t]he language of the PLA presents a clear legislative intent that, despite the broad reach we give to the CFA, the PLA is paramount when the underlying claim is one for harm caused by a product. Sinclair et. al. v. Merck & Co. Inc., 195 N.J. 51, 66 (2008). There, the heart of the claim was the alleged harm caused by Merck’s prescription drug, and therefore, the CFA did not apply. The rationale of the various court holdings that preceded and followed Sinclair was in part to ensure that the right to recover economic damages provided by the CFA was not extended to PLA claims. In enacting the CFA, the Legislature specifically provided for such a right to recovery of damages; that was not the case under the PLA.

With the backdrop of that ongoing trend, the Third Circuit Court of Appeals presented the New Jersey Supreme Court with a question of law regarding the interplay between the CFA and PLA in Sun Chemical. The facts at issue involve the sale/installation of an explosion suppression system by Fike Corp in Sun Chemical’s facility. Sun Chemical alleged that a fire occurred on the first day the suppression system was operational. Id. at 11-12. Moreover, the suppression system’s alarm was inaudible, resulting in an explosion that caused injuries to seven employees of Sun Chemical and damage to its facility. Id. In its complaint, Sun Chemical included a single allegation under the CFA based on certain affirmative misrepresentations made by Fike Corp. directly related to the performance of its suppression system. The Court held that the CFA claim was therefore valid, and could proceed even in the same pleading as a PLA claim. 

Although the holding in Sun Chemical eliminated an almost automatic preclusion of plaintiffs’ ability to raise CFA and PLA theories of liability in one pleading, the exception carved out by the Court was narrowly defined. In particular, the Court limited the type of CFA claims brought in a PLA action to those “alleging express misrepresentations – deceptive, fraudulent, misleading, and other unconscionable commercial practices – [which] may be brought in the same action as a PLA claim premised upon product manufacturing, warning, or design defects.” Sun Chemical, 2020 at 30. In such instances, “the PLA will not bar a CFA claim alleging express misrepresentations.” Id.  

While the decision in Sun Chemical is a diversion from the previous trend in New Jersey and may open the door for the inclusion of more CFA claims in cases involving product defects, all is not lost for defense litigants. The threshold question required to properly assert such a claim includes a showing of express misrepresentation and/or fraud to sustain a CFA claim. However, the lessons from Sun Chemical provide a clear warning to practitioners that the days of reliance on the PLA as a shield to CFA claims is no more. The Sun Chemical decision reinforces the need for construction industry manufacturers to use best practices when making representations about their products.

If you have questions or would like more information, please contact Matthew Wachstein at [email protected].

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