New Jersey’s Highest Court Holds That a Consumer Fraud Claim Alleging Express Misrepresentations May be Brought in the Same Action as a Product Defect Claim Alleging Physical Harm

In a recent unanimous decision, the Supreme Court of New Jersey ruled that the New Jersey Products Liability Act (the “PLA”) does not preclude a plaintiff from bringing one action alleging both express misrepresentations constituting consumer fraud under the New Jersey Consumer Fraud Act (the “CFA”) and product defect causing physical harm to persons or property under the PLA. Until now, it had long been argued that the PLA subsumed, and thus precluded, any CFA claims asserted with claims for physical harm caused by a product. No longer. The Supreme Court’s holding marks a clear shift in New Jersey products liability law, with plaintiffs now free to pursue concurrent claims under the PLA and CFA for damages arising from the same product-related incident. No matter the strength of a CFA claim’s merits, its pleading will certainly alter the risk and cost calculations of plaintiffs and product manufacturers litigating product defect claims in New Jersey.

The question of the compatibility of PLA and CFA claims arose in Sun Chemical Corp. v. Fike Corp., filed in the U.S. District of New Jersey. Plaintiff Sun Chemical purchased an explosion isolation and suppression system from Fike that was designed to prevent and contain potential explosions in Sun’s dust collection system. A fire occurred on the first day of the system’s operation. The system’s alarm activated but was inaudible. An explosion then caused damage to the facility and injured seven employees. Sun claimed it incurred economic losses resulting from property damage, lost work hours, and expenses and costs associated with workers’ compensation benefits claims.

In a single-count complaint alleging violation of the CFA, Sun claimed that Fike made oral and written misrepresentations concerning the suppression system, specifically that: (1) the system would prevent explosions; (2) the system would have an audible alarm; (3) the system complied with industry standards; and (4) the system had never failed. Fike moved for summary judgment, arguing that the action was governed by the PLA, and that Sun could not avoid the requirements of the PLA by limiting its complaint to a single count under the CFA. The District of New Jersey agreed and granted summary judgment in favor of Fike. Sun appealed. The Third Circuit, determining that extant New Jersey law was unclear regarding which of the two statutes applied, certified the issue to the Supreme Court of New Jersey.

The Supreme Court held that a plaintiff is not barred from alleging violations of both the PLA and CFA in a single action, where the plaintiff alleges that the defendant made express or affirmative misrepresentations concerning the product that are actionable under the CFA, and harm caused by a design, manufacturing, or warnings defect cognizable under the PLA. In reaching this decision, the Court revisited its prior decisions in In re Lead Paint Litigation, 191 N.J. 405 (2007) and Sinclair v. Merck & Co., 195 N.J. 51 (2008). In both Lead Paint and Sinclair, the Supreme Court reviewed the “nature of the plaintiffs’ allegations” involving harm caused by products but pled under alternative legal theories (public nuisance and the CFA, respectively) instead of the PLA. In both cases, the Supreme Court concluded that product-defect claims, even those purportedly seeking only economic losses, were encompassed by the PLA. Plaintiffs’ efforts to avoid the requirements of the PLA by recasting the facts alleged under different theories would not prevent the claims’ dismissal.

In Sinclair, the plaintiffs alleged that they had taken an arthritis drug known to cause heart conditions but had not yet sustained an injury. The plaintiffs alleged they were at an increased risk for serious heart conditions and illnesses, and therefore claimed the economic costs of medical monitoring under both the CFA and PLA. Recognizing that the PLA “is paramount when the underlying claim is one for harm caused by a product,” the Supreme Court held that the CFA theory could not be maintained because at the “heart of plaintiffs’ case” was harm caused by a product.

Now, in Sun Chemical, the Supreme Court put aside its “paramount” regard for the PLA, and held that the “theory of liability underlying the claim,” rather than the cause of the harm alleged, will determine the recoverable damages and, presumably, whether CFA and PLA claims can be brought in tandem. In coming to this decision, the Court focused on the underlying purposes of the statutes. The Court reasoned that the statutes were intended to govern different conduct and provide different remedies, and that there was no direct and unavoidable conflict between the CFA and PLA that would preclude a plaintiff from seeking to recover damages under both statutes in a single action.

In prior Court decisions, CFA claims were precluded by the PLA, which limited the remedies available to a plaintiff for harm caused by a product. Unlike the CFA, the PLA provides no enhanced damages or fee-shifting to successful claimants. Sun Chemical now opens the door for traditional product defect claimants to also pursue claims of misrepresentation based on a manufacturer’s description of a product’s purpose, capabilities, service life, guarantees, or compliance with industry standards in its packaging or marketing materials. When pled as a breach of express warranty, such a claim would not entitle the plaintiff to any greater relief than would be afforded to a claimant alleging defect under the PLA. If pled under the CFA, however, the same claim would entitle the plaintiff to treble damages, attorneys’ fees, and costs, if successful. This has the potential to alter the fundamental character of product-related litigation in New Jersey.

Knowing that the CFA allows such a disproportionate reward of damages, plaintiffs will be encouraged to bring suits alleging both product defect under the PLA and fraud under the CFA. The associated costs of litigation will likely increase, as the addition of a CFA claim will incentivize plaintiffs to seek discovery beyond product design and manufacture, to marketing issues. In response, product manufacturers and sellers will need to reevaluate their consumer-facing product literature and statements, which plaintiffs will mine for errors that could reinforce CFA claims related to the product’s performance, function, safety, or compliance with industry standards.

Sun Chemical’s holding raises the stakes considerably for product defect litigation in New Jersey. Manufacturers would be well-served to critically examine any assertions made in conjunction with marketing their products, and to reexamine their risk management policies and litigation strategies in light of this development.