A New Test for Defining “Merchandise” Under the Consumer Fraud Act

All the Way Towing, LLC v. Bucks County International, Inc., ___ N.J. ___ (2019). Plaintiffs (an individual and his company, treated as one plaintiff here) purchased a customized tow truck from defendant. Though it was customized, any member of the public could have ordered and purchased a similar vehicle.

When delivered, the truck’s tow body turned out to be incompatible with the truck. After making modifications, defendant tried repeatedly to deliver the truck. Each time, there were deficiencies in the truck or the towing rig. Finally, plaintiff rejected the truck and sought the return of their deposit. When defendant refused, plaintiff sued, asserting (among other causes of action) a claim under the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. (“CFA”). Plaintiff contended that the truck was “merchandise” covered by the CFA.

The Law Division granted defendant’s motion for summary judgment, holding that because the truck had been customized for plaintiffs, it did not come within the CFA’s definition of “merchandise.” The Appellate Division reversed in a published opinion, 452 N.J. Super. 565 (App. Div. 2018), as discussed here. That court held that customization, or building a product to a customer’s specifications, did not take a product out of the realm of “merchandise,” and stated that the truck need not have been “offered to consumers in the popular sense.”

Defendant then sought and obtained Supreme Court review. Today, the Supreme Court voted 6-0 to affirm the Appellate Division’s decision. Justice LaVecchia wrote the Court’s opinion.

Beginning with the very first paragraph, Justice LaVecchia strongly reaffirmed the “powerful” nature of the CFA and its “remedial purpose” to “protect consumers from prohibited unconscionable acts by sellers.” Applying de novo review, the Court ruled that “[t]he customized tow truck and rig fit within the CFA’s expansive definition of “merchandise” and, therefore, plaintiff’s CFA claim should not have foundered based on an application of that term.” Justice LaVecchia observed that “several cases have already recognized that the CFA may apply to custom-made goods,” including Czar, Inc. v. Heath, 198 N.J. 195 (2009), and three Appellate Division cases.

The Law Division had relied on two other Appellate Division cases, Finderne Mgmt. Co. v. Barrett, 402 N.J. Super. 546 (App. Div. 2008), and Princeton Healthcare System v. Netsmart New York, Inc., 422 N.J. Super. 467 (App. Div. 2011). Those cases had found that the subject matter involved there did not constitute “merchandise” under the CFA.

Justice LaVecchia “reject[ed] defendants’ characterization of Princeton Healthcare and Finderne as having placed ‘limitations on the application of the [CFA] in business-to-business transactions.’ The transactions at issue in those cases were between two businesses; however, it was the nature of the transaction between the two business entities that precluded CFA protection.”

In business-to-business transactions such as that here and in those cases, the Court today said, “it is the nature of the transaction” that determines whether its subject matter qualifies as “merchandise.” Justice LaVecchia announced a four-part test: “(1) the complexity of the transaction, taking into account any negotiation, bidding, or request for proposals process; (2) the identity and sophistication of the parties, which includes whether the parties received legal or expert assistance in the development or execution of the transaction; (3) the nature of the relationship between the parties and whether there was any relevant underlying understanding or prior transactions between the parties; and, as previously noted, (4) the public availability of the subject merchandise.” While not going as far to protect consumers as it could have, the Court’s test brings some needed clarity to these types of cases.

Defendant had sought summary judgment on bases other than the too-narrow definition of “merchandise” that the Law Division adopted. The Supreme Court therefore remanded the case to the Law Division for a determination of whether those bases had merit. But the import of today’s wise decision for CFA jurisprudence remains, irrespective of what might occur on remand.