Tagged: Fraud

New Jersey Supreme Court Expands Reach of the Consumer Fraud Act to Include Customized Merchandise

Relying on the remedial purpose of the Consumer Fraud Act (CFA), the New Jersey Supreme Court recently held that customized merchandise falls within the reach of the CFA. In All the Way Towing, LLC v. Bucks County International, Inc., plaintiffs, an individual and his limited liability towing company, entered into a contract with defendants for the purchase of a medium-duty 4×4 truck to be customized with an autoloader tow unit to meet plaintiffs’ particular needs. After the manufacturer attempted delivery on four occasions of a tow truck with significant problems, plaintiffs believed the situation to be “hopeless,” rejected delivery and demanded return of a $10,000.00 deposit. The manufacturer refused return of the deposit. Plaintiffs then brought suit for, among other things, violation of the CFA. The trial court granted summary judgment to the manufacturer on all claims, holding in pertinent part that a customized “tow truck was not something available ‘to the public for sale’” under the CFA. The Appellate Division reversed, holding that the line of cases that excluded “complex” goods or services from CFA claims was not applicable here because there was no showing that the tow truck at issue was any more “complex” than any other tow truck. Defendants then appealed, arguing that the CFA does not apply to transactions concerning custom-made...

Third Circuit Awards $10 Million to Plaintiff on Summary Judgment in Recent RICO Case

The Third Circuit recently affirmed a summary judgment in favor of a plaintiff for more than $10 million in damages on federal and state RICO claims. In the process, the court shed light on what evidence shows an “intent to defraud a financial institution” as required to establish bank fraud. In Liberty Bell Bank v. Rogers, et al., a bank sued an individual and entities he owned and controlled, alleging, among other things, violations of the federal and New Jersey RICO statutes. The bank alleged that the defendants developed a scheme through which they fraudulently obtained loans from the bank and further defrauded it by making payments on the loans using a check-kiting scheme. On a motion for summary judgment – in response to which the individual pro se defendant failed to file a responsive statement of material facts, thereby enabling the court to deem certain facts admitted – the district court entered summary judgment in favor of the bank, holding the defendants jointly and severally liable to the bank for more than $10 million, plus attorneys’ fees and costs. The defendants appealed, and the Third Circuit affirmed. In particular, the court affirmed the district court’s finding that defendants had committed the predicate crime of bank fraud, which makes it an offense to execute, or...

Second Circuit Clarifies Burden of Rebutting the Basic Presumption Under Halliburton II

In In re Goldman Sachs Group, Inc. Sec. Litig., the Second Circuit confirmed that, at the class-certification stage in a securities-fraud class action, the defendant bears the burden of persuasion to rebut the presumption of reliance under Basic v. Levinson by a preponderance of the evidence. The decision follows on the heels of a separate Second Circuit panel’s similar decision in Waggoner v. Barclays PLC and clarifies that a defendant need not provide “conclusive evidence” to rebut the presumption. Goldman Sachs is one of several federal court decisions interpreting Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), which declined to dispense with the Basic presumption of reliance – which is premised on the “fraud-on-the-market” theory – but held that the presumption can be rebutted by “any showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at a fair market price.” Since Halliburton II was handed down, courts have wrestled with the proof a defendant must offer to rebut the presumption. In Waggoner v. Barclays PLC, issued in November 2017, the Second Circuit resolved the question by holding that a defendant bears the burden of persuasion to rebut the Basic presumption by a preponderance of the evidence. In Goldman Sachs,...

Believe It or Not: Computer Fraud Coverage May Not Cover Fraud Involving a Computer

Is a commercial policyholder able to get insurance under the terms of its computer fraud coverage (typically offered as part of a crime policy) for a fraud based upon information transmitted by email? Not according to the Fifth Circuit’s recent decision in Apache Corporation v. Great American Insurance Company, which vacated the trial court’s judgment and left the policyholder with a $2.4 million uninsured loss. While the opinion is unpublished and therefore should have limited precedential value, it highlights the importance of reviewing your company’s coverage profile in an effort to close potential gaps in insurance coverage for security breaches and other losses involving computer use.

Ford Can’t Halt All Claims in Alleged Defective Fuel Tank Putative Class Action

In an opinion authored by Judge Debevoise, a federal district court in New Jersey denied Ford Motor Company’s attempt to toss out a putative class action regarding an alleged defect in the fuel tanks of various Ford trucks and vans. In Coba v. Ford Motor Co., Judge Debevoise held that the plaintiffs’ claims of breach of express warranty and breach of the implied covenant of good faith and fair dealing were adequately pleaded based on allegations that Ford knowingly replaced defective fuel tanks with other defective tanks. But Judge Debevoise dismissed, with leave to replead, the plaintiffs’ claims of common law fraud and violations of the New Jersey Consumer Fraud Act because there were no allegations that Ford knew the plaintiffs’ tanks were defective when they were sold.

New Jersey Appellate Division Limits Application of Parol Evidence Rule in Fraudulent Inducement Cases and Finds that Unsophisticated Fraud Claimant Can Only Be Charged With His Actual Knowledge

In a to-be-published opinion in Walid v. Yolanda for Irene Couture, Inc., the New Jersey Appellate Division reaffirmed and clarified the scope of the fraudulent inducement exception to the parol evidence rule. The court also clarified the level of knowledge to be imputed to a contracting party when assessing the reasonableness of that party’s reliance on the alleged misrepresentations.

Representations That Product’s Effectiveness is “Clinically Proven,” Though Not “Puffery,” Fail to Support State New Jersey Consumer Fraud Act and Implied Warranty Claims

In Lieberson, the District Court for the District of New Jersey held that where a complaint does not allege whether or when the allegedly false advertisements appeared in magazines, and whether or when the plaintiff may have viewed them, they were “patently insufficient” to plead a New Jersey Consumer Fraud Act, N.J.S.A. 56:8-2, claim and otherwise fail to satisfy Rule 9(b) . The Plaintiff in Lieberson alleged that Johnson & Johnson’s baby wash products falsely stated that they were “clinically proven” to help babies sleep better. The Lieberson court held that to properly plead a New Jersey Consumer Fraud Act claim with the specificity required under Rule 9(b), a plaintiff must identify the origin of the statements and that they were actually viewed by the plaintiff. Notably, however, the Lieberson court declined to conclude that the product label’s statements that the product was “clinically proven” to help babies sleep better was mere non-actionable “puffery.” On the contrary, the court found that “incorporation of the words ‘clinically proven’ . . . a statement that might otherwise be considered puffery, i.e., that the products will help babies sleep, was transformed into something that appears ‘both specific and measurable.’”

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.