New Jersey Appellate Division Confirms That the Consumer Fraud Act Does Not Apply to the Sale of Business

Consumer Protection Law: The New Jersey Appellate Division recently evaluated a claim arising from allegations of fraud in connection with the sale of business and associated real estate. In 539 Absecon Boulevard, LLC. v. Shan Enterprises, et. al., 2009 WL 774474, the defendants had sold the plaintiff a motel business; the real estate upon which the motel resided; and adjacent property. The plaintiff, the purchaser in the transaction, claimed that the seller had falsified its income figures and therefore, defrauded the purchaser in the sale transaction. Among its other claims, the plaintiff-purchaser sued the seller for fraud and a violation of the New Jersey Consumer Fraud Act (“CFA”).

The CFA is a broad, remedial statute aimed at protecting New Jersey consumers from a seller’s wrongdoing in connection with the sale of merchandise and other services. However, while the CFA specifically applies to sales of real estate, it has previously been construed not to apply to sales of businesses. Nevertheless, the lower Court made the determination that the CFA applied to this sale transaction. Its analysis was based upon its conclusion that “a distinction could be made when, as here, the transaction involved both the sale of a business and the sale of real estate.” The Court viewed the transaction as primarily being real estate driven with the business operating thereon to simply be an “improvement” attached to the property. The Court awarded treble damages and attorney’s fees to the plaintiff accordingly.

However, the Appellate Division reversed the decision, specifically finding that the CFA was not aimed at transactions involving the sale of a business. The Appellate Division specifically noted that the New Jersey legislature determined that it wanted to extend the CFA’s reach to real estate, but had specifically not addressed the sale of business. The Appellate Division concluded that had the legislature wanted such a transaction addressed, they would have included it within the statutory language.

Moreover, the Appellate Division noted that the real estate was not the main draw of the transaction but instead was “incidental to the motel business” that had been sold. Accordingly, it dismissed the lower Court’s rationale for applying the CFA. The Appellate Division specifically noted that the CFA is aimed at sellers of merchandise that are offered to the public as a whole, and that a one-time business sale transaction was of a nature not covered by the Act. Accordingly, the Appellate Division specifically concluded that the CFA does not apply to the sale of a business, even if that sale includes a sale of real estate. The New Jersey Supreme Court denied certification in June, so the ruling stands.

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