Appellate Division of New Jersey Upholds Jury Verdict in Connection with Misrepresentations Made by Developer

By Christopher A. Barbarisi, Loly G. Tor, and Christopher J. Archer, K&L Gates, Newark

Builders and real estate developers should take note of a recent decision of the Appellate Division of New Jersey (the state’s intermediate appellate court), in which the Court upheld a jury verdict of $4,817,638.12 in connection with misrepresentations made by a developer in its marketing materials relating to the nature and quality of the views from high-rise riverfront condominium units.

Etelson v. South Shore Urban Renewal, L.L.C.[1], involved a group of sixteen purchasers of ten upper-floor condominium units (“Plaintiffs”) in the South Shore Club building in Jersey City, New Jersey. Plaintiffs contracted to purchase their pre-construction units in 2005. During sales negotiations, the developer (“Developer”), through its sales agents and marketing materials, represented to the Plaintiffs that their units—all east-facing and located on the 19th through 22nd floors—would enjoy unobstructed, panoramic views of the Manhattan skyline. At the time that the Plaintiffs entered into their sales contracts, there were no buildings in the area capable of obstructing the views of Plaintiffs’ units.

Just months after Plaintiffs entered into their sales contracts, the Developer sought approval from the municipal planning board to build a 31-story building on another parcel situated between the South Shore building and the river. The Developer obtained the approvals and, after the Plaintiffs closed on their units in 2007, constructed the Aqua Blue building, which was taller than the South Shore building and obstructed the views on the Manhattan skyline from the Plaintiffs’ units.

Plaintiffs filed a complaint against the Developer in which they asserted that the Developer’s failure to disclose its plan to build the Aqua Blue building and its affirmative representations regarding the views from the South Shore building violated the New Jersey Consumer Fraud Act (“CFA”), N.J.S.A. 56:8-1 to -20, and the New Jersey Planned Real Estate Development Full Disclosure Act (“PREDFDA”), N.J.S.A. 45:22A-21 to -56. Plaintiffs sought damages for the diminution of the value of their units resulting from the obstruction of their views as well as treble damages, attorneys’ fees, and costs pursuant to the CFA and PREDFDA.

In its defense, the Developer relied on language contained in the Public Offering Statement (“POS”) for the South Shore building, the Master Deed, the Plaintiffs’ sales contracts, and a two-page form that the Plaintiffs were asked to complete and sign upon their first visit to the sales office, which the Developer contended expressly disclaimed any rights to any particular views from the units. The Developer also argued that the integration provision contained in Plaintiffs’ sales contracts barred Plaintiffs from relying on representations made by the Developer’s sales agents or in the South Shore marketing materials.

Following trial, the jury awarded Plaintiffs $1,253,420 in damages. The trial court entered final judgment in Plaintiffs’ favor for $4,817,638.12, which included a trebling of the jury award pursuant to the CFA, attorneys’ fees and costs.

The Developer appealed the judgment on several grounds, including the trial court’s denial of the Developer’s motion to dismiss Plaintiffs’ CFA and PREDFDA claims as a matter of law, which the Developer made at the conclusion of plaintiffs’ case at trial. The Developer argued, as it did before the trial court, that the Plaintiffs could not show that the Developer knowingly omitted material information about the development of the Aqua Blue building—a prima facie element of claims brought under the CFA and PREDFDA—because of the disclaimers made by the Developer.

The Appellate Division rejected the Developer’s argument and held that “given the deliberately misleading nature of the South Shore marketing materials, [the Developer] could not hide behind generalized warnings and disclaimers which in no way reflected defendants’ actual knowledge regarding their specific plans” for the site where the Aqua Blue was later built. The Appellate Division held that Plaintiffs’ claims were not precluded by the disclaimers as a matter of law and that “it was for the jury to decide what effect to give the various clauses contained in the ‘disclosure’ form, the POS, the master deed, and plaintiffs’ signed contracts.” It similarly rejected the Developer’s argument that Plaintiffs should have been barred from introducing evidence of statements made by the Developer’s sales agents regarding the views pursuant to the parole-evidence rule and the integration provisions in the Plaintiffs’ sales contracts finding the evidence was admissible because “plaintiffs were not offering the testimony as proof of enforceable promises that varied the terms of their integrated sales contracts” but instead to support their claims that they were fraudulently induced into entered their contracts with the Developer.

The Etelson decision leaves builders and developers open to the possibility for liability under New Jersey’s CFA and PREDFDA for misrepresentations made in marketing materials, even when contract documents and related disclosures contain disclaimers to the contrary.

[1] Docket No. A-0570-11T4 (App. Div. Mar. 10, 2014).