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Etelson v. Shore Club South Urban Renewal, L.L.C.

Posted on Wednesday, April 23, 2014 by E. Neal  Zimmermann , James M. Spanarkel

In a recent unreported case entitled Etelson v. Shore Club Sourth Urban Renewal, L.L.C., (Docket No. A-0570-11T4 – Decided March 10, 2014), the Appellate Division ruled on issues involving the state Consumer Fraud Act (“CFA”) and the state Planned Real Estate Development Full Disclosure Act (“PREDFDA”).  PREDFDA is the statute which requires the developer of most condominium developments to register with the Department of Community Affairs (“DCA”) and to provide extensive disclosure to prospective purchasers in the form of a Public Offering Statement (“POS”).

The Etelson plaintiffs were purchasers of condo units who claimed that they were misled in advertising materials for the development provided to them by salespeople for the developer.  The developer countered that the purchasers were not misled because of substantial disclosure provided in the POS, the sales contract, the Master Deed and other materials.  At the trial level, the jury ruled in favor of the plaintiff purchasers.  The defendant developer appealed, but the Appellate Division affirmed the jury verdict.

The plaintiffs were sixteen purchasers of ten upper-floor condominium units in The Shore Condominium Residences at Newport (the “Shore”), a newly-constructed Jersey City luxury riverfront luxury high-rise building owned/developed by the defendants in this case.  The plaintiffs all specifically sought to purchase a unit with a view of the Hudson River/Manhattan skyline. Plaintiffs’ alleged that they all decided to purchase upper-floor units at the Shore because the brand new Shore condo offered, and prominently advertised, such views. The plaintiffs signed the sales and purchase contracts primarily in late 2005 and took title to their units in 2007.

In 2009, plaintiffs filed suit against the building’s owners/developers alleging violations under the CFA and PREDFDA when the defendants’ construction of the Aquablu Complex (“Aquablu”), a new thirty-one story residential building directly across the street from the Shore, caused the plaintiffs’ Hudson River/Manhattan skyline views to be partially blocked. Plaintiffs’ claimed that defendants, who knew the importance plaintiffs’ placed on Hudson River/Manhattan views in deciding which units to purchase, acted in violation of the CFA and PREDFDA when they failed to disclose to plaintiffs in the Shore’s extensive marketing and sales materials that they had been in the process of developing and constructing Aquablu since 2000. Plaintiffs claimed that they made their decisions to purchase at the Shore in reliance upon the defendants’ representations that their units’ Hudson River/Manhattan views would remain unobstructed.

New Jersey has a very stringent CFA. Under the CFA, if a defendant committed a consumer fraud by making an affirmative misrepresentation, intent is not an essential element of the cause of action.  If the alleged consumer fraud is the result of defendant’s omission, the plaintiff must prove that defendant acted with knowledge and intent is an essential element of the fraud.  A practice can be unlawful, even if no person was, in fact, misled or deceived   

At trial defendants attempted to defend their actions by claiming that while plaintiffs were entitled to rely upon the marketing and sales materials for “some amount of accuracy,” the literature should have been viewed in the context of the relevant sale documents provided to plaintiffs, including the POS, disclosure forms, and sales contracts, all of which allegedly contained language affirmatively stating that there was no guarantee as to what would be built in the immediate vicinity of the Shore and noting that the area was residentially zoned. Defendants further denied conspiring to conceal intentions to build on the Aquablu site, and alleged that plaintiffs took certain aspects of the marketing materials out of context.           

After an eight week trial, the jury found the defendants had violated both the CFA and PREDFDA by both affirmatively representing and advertising the Hudson River/Manhattan views from the plaintiffs’ units and by knowingly omitting information about the construction of Aquablu.  The jury awarded plaintiffs an aggregate of $1,253,420 in damages. The court, on plaintiffs’ motion, also awarded counsel fees of $914,174.47, plus costs of $40,084.85 under the CFA and PREDFDA, making the final judgment $4,817,638.12, which included treble damages under the CFA and prejudgment interest.

On appeal, in addition to unsuccessfully raising several procedural issues (the substance of which are not the subject of this article), the defendants challenged the trial court’s decision to deny their trial motion to dismiss plaintiffs’ CFA and PREDFDA claims.

In denying that motion to dismiss, the trial court ruled that, despite the disclaimer language contained in (a) the disclosure forms provided to plaintiffs prior to their purchase of their respective units, (b) the Shore POS, (c) the Master Deed and (d) the signed purchase and sales contracts, the issue of whether plaintiffs were misled was properly before the jury. The Appellate Division affirmed, based largely on the principle that the plaintiffs were entitled to the benefit of all reasonable inferences from the evidence.

In analyzing the plaintiffs’ CFA claims, the Appellate Division noted that the CFA is “aimed at promoting truth and fair dealing in the market place, and is intended to promote the disclosure of all relevant information to enable the consumer to make intelligent decisions in the selections of products and services.” Under the CFA, any unconscionable commercial practice, including, but not limited to, deceptions, misrepresentations, or the knowing concealment, suppression, or omission of any material fact with the intent that others rely on it, is declared to be an unlawful practice. All violations of the CFA that result in an ascertainable loss are subject to the mandatory punitive trebling of damages and attorneys’ fees.  The Appellate Division supported the jury verdict under PREDFDA, under similar reasoning.

The Appellate Division determined that jury was entitled to find that, given the deliberately misleading nature of the Shore South marketing materials, all of which demonstrated unobstructed views, defendants could not hide behind generalized warnings and disclaimers which in no way reflected their actual knowledge regarding their specific plans for the Aquablu site. The jury could also have reasonably discounted the disclaimers, in light of the fact that the two page disclosure form was not discussed with plaintiffs, provided to plaintiffs’ to keep, or reviewed by plaintiffs’ counsel, as well as the fact that disclaimers cited by the defendants in their materials dealt only with adjacent property owner actions and easement entitlements that did not apply to plaintiffs in this case.

Etelson stands as a serious warning to all developers of condominium developments.  No matter how well drafted disclaimer and warning language in the POA, Master Deed. sales agreement and other legal documents may be, developers must take special care to ensure that the information provided in their sales and marketing materials is both accurate and forthcoming with respect to all material facts.  Failure to take such precautions can leave developers at risk of substantial judgments under the CFA and PREDFDA.

Comments or questions?  Contact Neal Zimmermann ( ) or Jim Spanarkel ( )

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