Beth S. Rose, Charles J. Falletta
Product Liability
October 06, 2020
In a surprising decision that opens the door for plaintiffs to pursue traditional
product liability claims under either New Jersey’s Consumer Fraud Act (“CFA”) alone,
or simultaneously under New Jersey’s Product Liability Act (“PLA”), the New
Jersey Supreme Court in Sun Chemical
Corp. v. Fike Corp., A-89, 2020 WL 4342658 (N.J. July 29, 2020) held that,
“irrespective of the nature of the damages sought, a CFA claim alleging express
misrepresentations – deceptive, fraudulent, misleading, and other
unconscionable commercial practices – may be brought in the same action as a
PLA claim premised upon product manufacturing, warning, or design
defects.” Id. at *4. In so holding,
the Sun Chemical Court concluded that
the “nature of the claims brought, and not the nature of the damages sought”
will be “dispositive of whether the PLA precludes the separate causes of action”
and that the “PLA will not bar a CFA claim alleging express or affirmative
misrepresentations.” Id. Based on this decision, many product manufacturers will now be faced
with CFA claims along with, or instead of, traditional product liability claims
under the PLA. This will subject them to not only actual damages, but also the
possibility of treble damages, attorneys’ fees and costs, which are available
under the CFA.
A.
Background
Plaintiff Sun Chemical Corporation (“Sun”) operated an
ink manufacturing business and purchased from Defendant Fike Corporation and
Suppression Systems Inc. (“Fike”) an explosion isolation and suppression system
(“Suppression System”) that would prevent and contain potential explosions in Sun’s
dust collection system. Id. A fire occurred in the dust collection system, and while the Suppression
System’s control panel activated, it failed to issue an audible alarm. Id. Sun’s employees attempted to extinguish the
fire, but there was an explosion sending a fireball through the dust collection
system’s ducts resulting in personal injuries to Sun’s employees and property
damage to the facility. Id.
Sun commenced an action under the CFA in the United
States District Court for the District of New Jersey. In its complaint, Sun alleged that Fike made
“material oral and written misrepresentations about the Suppression System,
including: “(1) the Suppression System
would prevent explosions; (2) the Suppression System would have an audible
alarm; (3) the Suppression System complied with industry standards; and (4) the
system had never failed.” Id. After discovery, the District Court granted Fike’s summary judgment
motion determining that Sun’s claims were governed by the PLA. On appeal, the United States Circuit Court
for the Third Circuit certified four questions to the New Jersey Supreme Court[1] and noted that while Sun’s
claims resembled a product liability action, the CFA “seems potentially
hospitable to Sun’s argument that ‘affirmative misrepresentations can be
brought under the CFA . . . even though the damages claimed for those
representations involve[] personal injuries to third parties and some property
damage.’” Id.
B.
Sun’s Arguments In Favor Of Applying The
CFA
Sun presented three arguments on why it should be
permitted to pursue a CFA claim. First, although
Sun conceded that five percent of its losses – damage to its facility – were
the type of “harm” included under the PLA, N.J.S.A.
2A:58C-1(b)(2)(a), Sun argued that the PLA did not apply to these losses
because they were a result of Fike’s misrepresentations, and not alleged to be
product defects. Id. Second, Sun argued that
the cost of the Suppression System did not fall under the PLA because it was an
economic loss that was not recoverable under the PLA, but recoverable under the
CFA. In particular, the PLA specifically
excludes from the definition of “harm” any “physical damage to property, other
than to the product itself.” Id. (citing N.J.S.A. 2A:58C-1(b)(2)(a)). Third, Sun argued that losses resulting from lost workhours and payment
of workers’ compensation benefits to injured employees were economic losses and
not losses from personal injuries under the PLA, N.J.S.A. 2A:58C-1(b)(2)(b) (“personal physical illness, injury or
death”) or (b)(2)(d) (“any loss of consortium or services or other loss
deriving from any type of harm described in subparagraphs (a) through (c) of
this paragraph”). Id. at *5. Sun, therefore,
argued that it should be permitted to pursue damages recoverable under the PLA
in one count and also pursue non-PLA damages in a separate count under the CFA. Id.
C.
Fike’s Arguments In Favor Of Applying The
PLA
Fike argued that the “essential nature” of Sun’s claims
were product liability claims governed by the PLA, and that Sun could not avoid
application of the PLA by pleading only economic damages. Id. Fike argued that the cost of the Suppression
System was recoverable under the PLA because the Suppression System was not
damaged during the explosion or otherwise defective and, therefore, did not
fall within the economic loss exception under N.J.S.A. 2A:58C-1)b)(2) of the PLA. Id. Fike further argued that Sun’s alleged losses
from injuries to its employees were the type of personal injuries that were
governed by N.J.S.A.
2A:58C-1(b)(2)(b) and (b)(2)(d) of the PLA.
D.
Court’s Analysis
The Court considered the following question: “[w]hether ‘a Consumer Fraud Act claim [can]
be based, in part or exclusively, on a claim that also might be actionable
under the Products Liability Act.’” Id. at *3. Because there was no authority directly
addressing the “interplay between the CFA and PLA,” the Court began its
analysis by reviewing “pertinent provisions of the CFA and PLA, their purposes,
and cases applying them.” Id. at *5.
-
Purpose And Broad Reach Of The CFA
The CFA prohibits “deceptive, fraudulent, misleading,
and other unconscionable commercial practices ‘in connection with the sale . .
. of any merchandise or real estate.’” Id. at *5 (citing N.J.S.A. 56:8-2). The CFA
broadly defines “merchandise” and the parties did not dispute that the
Suppression System fell within this definition. Id. The CFA provides consumers with private
causes of action to recover for an “ascertainable loss of moneys or property,
real or personal,” has a long history of “constant expansion of consumer protection,”
and is broadly applied. Id. at *6 (citations omitted). The CFA’s “rights, remedies, and
prohibitions” are “in addition to and cumulative of any other right, remedy, or
prohibition accorded by the common law or statutes of this State.” Id.
(citations omitted). The CFA also
enables private plaintiffs to recover “treble damages, reasonable attorneys’
fees and costs and ‘any other appropriate legal or equitable relief.’” Id. (citations omitted).
Against this backdrop, the Court reviewed two CFA cases,
Lemelledo v. Beneficial Management Corp.
of America, 150 N.J. 255 (1997) and Real
v. Radir Wheels, Inc., 198 N.J. 511 (2009). In both cases, the Court rejected arguments that the CFA did not apply
when other statutes regulating the conduct also existed (consumer loans and
Used Car Lemon Law) unless there was a “direct and unavoidable conflict . . .
between application of the CFA and application of the other regulatory scheme
or schemes.” Id. at *6-7 (citation omitted).
-
Purpose And Scope Of The PLA
The Court noted that the PLA was a tort-reform statute
codifying the common law governing product liability actions and the remedies
available for such claims. Id. at *7-8. The PLA imposes liability on a product
manufacturer or seller for a product’s “manufacturing defects, warning defects,
and design defects,” with the exception of claims for breach of an express
warranty and environmental tort actions. Id. at *7 (citations
omitted). The Court reviewed two prior
decisions, In re Lead Paint Litigation,
191 N.J. 405 (2007) and Sinclair v. Merck
& Co., 195 N.J. 51 (2008), which considered the types of claims covered
by the PLA. In In re Lead Paint, the Court, faced with a nuisance-based complaint,
determined that the PLA “subsumed the plaintiffs’ common law public nuisance causes
of action that were fundamentally PLA claims.” Id. at *8 (citing In re Lead Paint Litig., 191 N.J. at
436-37. In Sinclair, the Court, faced with plaintiffs’ attempt to certify a
nationwide class action of non-injured persons seeking medical monitoring, held
that “plaintiffs’ claimed risk of future injury was not cognizable under the
PLA because the statute ‘require[s] a physical injury,” and plaintiffs were
only asserting CFA claims to avoid the “harm” requirements of the PLA even
though “[t]he heart of [their] case [was] the potential for harm caused by
Merck’s drug.” Id. at *8-9 (citations omitted).
-
CFA Claims Are Not Subsumed By The PLA
After reviewing the purpose and history of both the CFA
and PLA, the Court noted that the CFA and PLA were “intended to govern
different conduct and to provide different remedies for such conduct” and,
therefore, there was “no direct and unavoidable conflict” between the
statutes. Id. at *9. The Court
explained that the “PLA governs the legal universe of products liability actions
as defined in that Act and the CFA applies to fraud and misrepresentation and
provides unique remedies intended to root out such conduct.” Id. As a result, the Court held:
If a claim is premised upon a product’s
manufacturing, warning, or design defect, that claim must be brought under the
PLA with damages limited to those available under that statute; CFA claims for
the same conduct are precluded. But
nothing about the PLA prohibits a claimant from seeking relief under the CFA
for deceptive, fraudulent, misleading, and other unconscionable commercial
practices in the sale of the product. . . . Said differently, if a claim is based on deceptive, fraudulent,
misleading, and other unconscionable commercial practices, it is not covered by
the PLA and may be brought as a separate CFA claim.
Id.
at *9. Furthermore, the Court noted that “PLA and
CFA claims may proceed in separate counts of the same suit, alleging
different theories of liability and
seeking dissimilar damages.”
Id.
With regard to how a
particular claim must be pled, the Court explained that it will depend on “what
is at the ‘heart of plaintiffs’ case’ – the underlying theory of
liability.” Id. at *10 (citing Sinclair,
195 N.J. at 66). The Court explained
that “[i]t is the nature of the action giving rise to a claim that determines
how a claim is characterized” and, therefore, “[t]he nature of the plaintiff’s
damages does not determine whether the cause of action falls under the CFA or
PLA; rather it is the theory of liability underlying the claim that determines
the recoverable damages.” Id. at *10-11
E.
Conclusion
Although the New Jersey Supreme Court had not previously
addressed the specific question presented – “whether tort-based claims that can
be pled under the PLA can also – or instead – be pled under the CFA,” id. at *9, many New Jersey courts
previously have held that CFA claims were subsumed by the PLA where the claims
involved harms alleged to have been caused by consumer and other products. See Sinclair v. Merck & Co., 195 N.J. at 66 (2008) (“the
heart of plaintiffs’ case is the potential for harm caused by Merck’s
drug. It is obviously a product
liability claim. Plaintiffs’ CFA claim
does not fall within an exception to the PLA, but rather clearly falls within
its scope. Consequently, plaintiffs may
not maintain a CFA claim.”); In re Lead Paint Litig., 191 N.J. at
436-37 (the PLA “encompass[es] virtually all possible causes
of action relating to harms caused by consumer and other products”); McDarby v. Merck & Co., 401 N.J.
Super. 10, 98 (App. Div.), certif. den.,
196 N.J. 597 (2008) (“[W]e find no basis, in legislative
history, statutory language or Court decisions, to conclude that plaintiffs can
maintain separate causes of action under the PLA and the CFA in this case. . .
. [T]o permit such an expanded form of
relief would be to destroy the balance established between the interests of
manufacturers, the public and individuals established by the Legislature in
enacting the PLA by introducing an otherwise unavailable treble-damage remedy
for harms resulting from a failure to warn . . . .”).
With the
Sun Chemical decision, many plaintiffs are likely to assert product
liability claims under the CFA and/or the PLA because the CFA affords
plaintiffs with the ability to recover treble damages, attorneys’ fees and
costs, which are not available under the PLA. What have been traditional failure to warn claims will undoubtedly be
recast as CFA claims as a “misrepresentation or the knowing[] concealment,
suppression or omission of any material fact.”
SeeN.J.S.A. § 56:8-2. It
remains to be seen whether plaintiffs will be able to sustain failure to warn
and other product liability claims under the CFA, but it seems clear that the
Sun Chemical Court has opened the door,
if not the flood gates, to a new wave of CFA claims being asserted against
product manufacturers in cases that have been traditionally governed solely by
the PLA.
----
[1]
The Third Circuit posed the following four questions:
(1) When a court decides a CFA claim based on
affirmative and material misrepresentation about the features of a product, but
the plaintiff is seeking damages for harm caused by the product's failure to
conform to those features, what criteria should the court consider to determine
whether the claim may proceed as a CFA claim or is subsumed under the PLA?
(2) In determining whether a claim may proceed under
the CFA or is subsumed under the PLA, what significance should a court place on
a plaintiff's assertion that its harm resulted primarily from physical injury
to third parties (like employees) rather than property damage or personal
physical injury?
(3) Where a complaint pleads a single CFA claim that
asserts multiple harms, some of which fall within the ambit of the PLA, and
others which do not, is the entire claim subsumed by the PLA or should the
distinct categories of harm be deemed severable claims, some of which would not
be subsumed and could instead be pursued under the CFA?
(4) Under the CFA, when can a commercial purchaser of
a product recover consequential economic losses -- such as workers'
compensation payments, attorneys' fees incurred in litigation, fees incurred in
government investigations, and increased labor or production costs -- based on
alleged misrepresentations the seller made about the features and capabilities
of the product?
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