Corporate Officers and Employees May Be Liable for Corporation’s Violations of Consumer Fraud Act

In Allen v. V and A Bros., Inc., the New Jersey Supreme Court broke new ground under the New Jersey Consumer Fraud Act (“CFA”) by holding that officers and employees of corporations and other businesses can be personally liable under the CFA for the entity’s CFA violations, even when the violations are regulatory in nature and do not require affirmative actions by the corporation’s agents and employees. Indeed “principals” of a corporation will be “broadly liable” for the corporation’s CFA violations.

Whether to impose individual liability under the CFA will depend on the extent to which the individual has “input” and “control” over the proscribed practice. An “employee who merely utilizes a form contract selected by the corporate employer that contains technical violations relating to font size” will not be personally liable. But when the violation arises out of “prohibited practices of a type that focus on the behavior of individual employees or actors,” individual liability may be appropriate.

The New Jersey Supreme Court also drew a distinction between so-called “principals of a corporation” and employees, finding that “principals may be broadly liable, for they are the ones who set the policies that the employees may be merely carrying out.”

Ultimately, the imposition of individual liability will be a case-specific determination which “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.” Because of the inherently fact-sensitive nature of the inquiry, the issue of individual liability under the CFA generally will not be appropriate for “adjudication on a record presented in the form of a summary judgment motion.”

The likely result of Allen is that, at least until the standards for imposing personal liability on corporate owners and employees are further refined in common-law fashion, principals of closely-held corporations, high-level officers responsible for setting corporate policy, and even lower-level employees who interact directly with customers will routinely find themselves having to defend themselves against CFA claims. And, to make matters worse, they will not be able to extricate themselves from such lawsuits before enduring the burdens of a full trial on the merits.