Home > Appellate Division, Law, Litigation, Supreme Court > Court Wrestles With Proofs Needed For B2B Consumer Fraud Act Claims

Court Wrestles With Proofs Needed For B2B Consumer Fraud Act Claims

Court Wrestles With Proofs Needed For B2B Consumer Fraud Act Claims

Michael Booth

05-09-2011

New Jersey’s high court is considering whether the state’s Consumer Fraud Act, with its potent treble-damages remedy, is available to a large-scale purchaser that claims to have been bilked by a supplier in a bait-and-switch scheme.

The case, Pomerantz Paper Corp. v. New Community Corp., A-41/42-10. argued May 4, raises the issue of the standard of proof to be applied in business-to-business claims under the act, especially between entities that have a longstanding relationship.

New Community Corp. is a federally funded non-profit that manages Newark properties with low-income tenants, and its beef is with Pomerantz Paper Co. of Kearny, its supplier of janitorial products for more than a decade.

In 2007, the relationship soured when Pomerantz sued over a $700,000 account due. New Community countersued, alleging the goods in question had never been delivered and that Pomerantz had substituted lower-quality items for the ones ordered but at the same price.

After a nonjury trial, Hudson County Superior Court Judge Shirley Tolentino ruled Pomerantz had failed to prove it had delivered all of the products New Community ordered and she reduced its $700,000 demand to $10,500. She further found the existence of a bait-and-switch scheme that violated the Consumer Fraud Act and awarded treble damages of $214,711 and counsel fees of $86,015.

The Appellate Division reversed Tolentino’s finding on the failure to deliver, saying New Community did not object until well after an accepted time period and was barred by the Uniform Commercial Code from later making that claim. But the panel upheld the Consumer Fraud Act ruling, finding credible evidence that Pomerantz shipped lower quality items and inflated its prices by up to 30 percent.

At oral argument before the Supreme Court, Pomerantz’s lawyer said the fault lay with New Community. “The only reason the relationship ended was because Pomerantz extended New Community credit and it did not get paid,” said Steven Adler, of Jan Meyer’s law office in Teaneck.

He said Pomerantz would use generic products instead of brand-name products if they were available, and New Community never objected.

“It’s like ordering a Coke in a restaurant and getting whatever soft drink they have,” suggested Appellate Division Judge Edwin Stern, temporarily assigned to the Court.

“Yes, that’s correct,” Adler said.

“That sounds like a classic bait-and-switch,” said Justice Roberto Rivera-Soto.

“They kept ordering the same products without objection,” Adler said. “They knew what they were ordering. The CFA should not apply here because … there was no ascertainable loss.”

New Community’s lawyer, Timothy Saia, said Pomerantz was able to get away with the scheme because it had a friend in New Community’s business office that would pay the invoices, even though cheaper items had been substituted in for the better ones.

“That is the fraud that was taking place,” said Saia, of Livingston’s Morgan Melhuish Abrutyn.

For example, New Community would order Delta faucets and get shipped cheaper Chinese knockoffs, but at the higher Delta price. Or New Community would order stainless steel fixtures, marked SS on the invoice, and get items painted to look like stainless steel, Saia said.

But responding to questions from Stern and Rivera-Soto, Saia acknowledged that New Community officials did not always know the prices of the items they were ordering. He attributed that to a lack of business sophistication.

“That’s not a lack of sophistication, that’s stupidity,” Rivera-Soto said.

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