Home Inspectors Subject To New Jersey Consumer Fraud Act

The New Jersey Appellate Division has ruled in a published opinion that home inspectors are not exempt from liability under the New Jersey Consumer Fraud Act (“CFA”) because there is “no direct and unavoidable conflict” between the CFA and other regulations governing inspectors.

In Shaw v. Shand, Docket No. A-5686-17T1 (App. Div. Aug. 15, 2019), the plaintiffs appealed from a partial summary judgment order dismissing their CFA claims against the defendants pursuant to the “learned professionals” exception. Prior to purchasing a home, the plaintiffs hired the defendants, the inspector who was the sole owner of the home-inspection company, to conduct an inspection. The defendants’ inspection report concluded that the home “appear[ed] to be very well built utilizing quality materials and professional workmanship . . . it is in need of only typical maintenance and upgrading.” The plaintiffs consummated a purchase of the property, and after occupying the home discovered that it was in poor condition and required multiple major repairs, including replacement of the roof, repair of the front deck, replacement of the driveway, and replacement of windows. The defendants acknowledged that they had observed problems with the home, but failed to include them in the inspection report. The plaintiffs filed suit against the defendants, asserting claims of negligence, common law fraud, breach of contract, and violation of the CFA.

The parties cross-moved for summary judgment, and the trial court granted partial summary judgment to the defendants on the plaintiffs’ CFA claim, concluding that home inspectors such as the defendants should be considered “semi-professionals” and therefore exempt from CFA liability pursuant to the ‘learned professional’ exception. On appeal, the plaintiffs argued that the trial court erred in ruling that home inspectors qualified as learned professionals.

Because the case required the court to interpret the scope of the CFA’s “learned professional” exception, and because the Attorney General’s office both enforces the CFA and its Division of Consumer Affairs (“DCA”) regulates home inspectors, the Appellate Division invited the Attorney General’s office to participate as amicus curiae.

The Appellate Division agreed with the Attorney General’s arguments that the expansion of the “learned professional” exception to semi-professionals is unwarranted and lacks any support in the plain text or purpose of the CFA and, if permitted, would significantly curtail the DCA’s authority to protect New Jersey consumers.

The Appellate Division ruled that the learned professional exception under the CFA should be narrowly construed to only exempt those professionals who were historically recognized as “learned” because their professions required extensive learning or erudition. The Appellate Division rejected extending the learned professional exception to “semi-professionals” simply because they were regulated by a statutory scheme.

In reaching this decision, the Appellate Division overturned its holding in Plemmons v. Blue Chip Insurance Services, Inc., 387 N.J. Super. 551 (App. Div. 2006), which applied the learned professional exception to “semi-professionals” who are subject to a separate regulatory scheme, as inconsistent with the New Jersey Supreme Court’s decision in Lemelledo v. Beneficial Management Corp. of America, 150 N.J. 255 (1997). In Plemmons, the Appellate Division “conclude[d] that an insurance broker is a semi-professional, who is subject to testing, licensing and regulation under other statutory provisions, and therefore is excluded from liability under the CFA for the performance of brokerage services.” 387 N.J. Super. at 556. In Lemelledo, the Court held that the existence of a separate regulatory scheme will “overcome the presumption that the CFA applies to a covered activity” only when “a direct and unavoidable conflict exists between application of the CFA and application of the other regulatory scheme or schemes.” 150 N.J. at 270.

The Appellate Division noted that the basis of its reliance on the “semi-professional” exception in Plemmons rested on the existence of a separate regulatory scheme that could “possibly conflict” with allegations in a CFA action. The App. Div. held that Plemmons could not be “squared” with Lemelledo (and the Court’s subsequent decision in Macedo v. Dello Russo, 178 N.J. 340 (2004)), and thus that home inspectors and other licensed semiprofessionals are not “learned professionals” and are subject to CFA liability absent a finding that “a direct and unavoidable conflict exists between application of the CFA and application of the other regulatory scheme or schemes” (quoting Lemelledo, 150 N.J. at 270).

After analyzing the Home Inspection Professional Licensing Act, N.J.S.A. 45:8-61 to -81. (“HIPLA”) and the Home Inspector Regulations, N.J.A.C. 13:40-15.1 to -15.23, the Appellate Division found that there was no evidence: (i) that HIPLA’s regulation of home inspectors is so pervasive as to render CFA liability inapplicable; (ii) of a conflict between the CFA and the HIPLA that renders compliance with both a physical impossibility; and (iii) that the application of the CFA to home inspectors would impede the achievement of HIPLA’s objectives. Therefore, the App. Div. found no direct or unavoidable conflict between the CFA and HIPLA that would bar the plaintiffs’ claims, and reversed the trial court’s dismissal of the plaintiffs’ CFA claims.

Unless and until the New Jersey Supreme Court reviews the Appellate Division’s ruling, home inspectors are subject to the CFA, and the argument that certain “professionals” or “semi-professionals” are excepted from the CFA has been substantially constrained.

The decision in Shaw v. Shand, Docket No. A-5686-17T1 (App. Div. Aug. 15, 2019) is available at:

https://www.njcourts.gov/attorneys/assets/opinions/appellate/published/a5686-17.pdf?c=9R8

To discuss litigation matters with this article’s author, please contact:

Jonathan P. Vuotto, Esq.

jpv@mcandrewvuotto.com

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