Negotiated Sale of Customized Computer to Sophisticated Business Is Not a Sale of “Merchandise” Within the Meaning of the New Jersey Consumer Fraud Act

New Jersey courts have long held that businesses may assert claims under New Jersey’s Consumer Fraud Act (“CFA”) in appropriate circumstances. See Hundred E. Credit Corp. v. Schuster. Whether a business is entitled to assert a CFA claim typically turns on the specific facts of the case and whether the transaction at issue constitutes a “sale of merchandise” within the meaning of the CFA. See N.J.S.A. § 56:8-2. In Princeton Healthcare System v. Netsmart New York, Inc., the Appellate Division confronted this precise issue in holding that Princeton Healthcare, a sophisticated business entity, was not entitled to assert a CFA claim against Netsmart arising out of the sale and implementation of a customized computer system.

The CFA defines “merchandise” as including “any objects, wares, goods, commodities, services, or anything offered directly or indirectly to the public for sale.” N.J.S.A.§ 56:8-1(c). Thus, as the Court explained in Princeton Healthcare, the critical issue in determining whether Princeton Healthcare was permitted to assert a CFA claim against Netsmart was the nature of the transaction (i.e. whether the contract at issue involved something that is offered to the public at large for sale). In concluding that Princeton Healthcare’s CFA claim should be dismissed because the contract between Netsmart to Princeton Healthcare was not a “sale of merchandise,” the Court noted that:

  • Princeton House had hired a computer consultant to help it prepare a request for proposals that was sent to potential vendors;
  • Princeton House spent two years evaluating the responses it received, which included a 149-page response from Netsmart;
  • The contract between Princeton House and Netsmart was negotiated over some time and Princeton House’s attorneys and computer consultant were both actively involved in those negotiations; and
  • The contract between Princeton House and Netsmart did not involve the sale and installation of a standardized computer system, but instead involved the design and installation of a customized computer software program that was specifically tailored to meet Princeton Mart’s unique needs.

As the Princeton Healthcare decision illustrates, while a business entity can qualify as a CFA plaintiff, courts will closely scrutinize the underlying transaction to determine whether it falls within the types of transactions that the CFA is intended to address. The more complex the transaction and the more sophisticated the business entity, the less likely it is that a court will find that a CFA claim exists. At a minimum, where the transaction involves customized goods or services that are designed for the plaintiff and are not offered to the public at large, courts will almost certainly conclude that the business entity is not entitled to assert a CFA claim.

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