BRIAN HANNAN et al. v. WEICHERT SOUTH JERSEY, INC.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5525-05T5A-5525-05T5

BRIAN HANNAN and GRACE CANTERA,

Plaintiffs-Appellants,

v.

WEICHERT SOUTH JERSEY, INC.,

Defendant-Respondent.

_______________________________________________________________

 

Argued April 17, 2007 - Decided May 22, 2007

Before Judges Lisa and Holston, Jr.

On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Gloucester County, Docket No. SC-000396-06.

John W. Trimble, Jr. argued the cause for appellant (Trimble & Associates, attorneys; Mr. Trimble, on the brief).

Jay N. Varon (Foley & Lardner) of the D.C. bar, admitted pro hac vice, argued the cause for respondent (Lowenstein Sandler, attorneys; Richard D. Wilkinson and Mr. Varon, on the brief).

PER CURIAM

This is an appeal from the denial of a motion for class certification. The amended complaint alleges that defendant, Weichert South Jersey, Inc., violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 ("CFA"), by charging its real estate customers an administrative and/or regulatory fee of $150, in addition to defendant's standard 6% commission, without informing the customers that no additional services were being provided. On plaintiffs' motion for class certification, the court found that the four requirements of Rule 4:32-1(a) for class certification had been satisfied. However, the court denied class certification because it found that the individual questions of fact and law that would have to be adjudicated, specifically with respect to causation and reliance, predominated over the common questions of fact and law. The court also found that the class action procedure was not superior to other methods of adjudication. As a result, the court held that the requirements of Rule 4:32-1(b)(3) had not been satisfied. We affirm.

On March 24, 2004, plaintiff Brian Hannan, individually and on behalf of all others similarly situated, filed a two-count complaint against defendant Weichert Realtors for violations of the CFA and for defendant's breaches of fiduciary duty. The proposed class was defined as: "All persons or entities who from 1998 to the present were charged regulatory compliance fees by Defendants."

Thereafter, a first amended complaint was filed on behalf of Hannan and Grace Cantera, individually, and on behalf of all others similarly situated. The amended complaint defined the proposed class as: "All persons or entities who from 1998 to the present were charged regulatory compliance fees and/or administrative fees by Defendants."

In both complaints, plaintiffs alleged that in violation of the CFA, defendant misrepresented that its fees were accurate, proper, and necessary, and that it knew its customers were unaware that it retained fees for services that were never performed and/or required. By order dated December 16, 2005, which memorialized Judge McDonnell's oral and written opinions, plaintiffs' motion for class certification was denied. On February 24, 2006, the complaint was transferred to the Special Civil Part, Small Claims Division. On May 22, 2006, a consent final judgment in favor of plaintiffs and against defendant was entered without any admission of liability by defendant. According to the judgment, enforcement would be stayed pending appeal of the class certification issue. This appeal followed.

Defendant is in the business of acting as seller's agents, buyer's agents, and disclosed dual agents in real estate transactions in New Jersey. Its services include listing properties in the Multiple Listing Service, negotiating contracts, and advising clients of the prices of properties. In consideration for these services, defendant receives a fee in the form of a commission, which is a percentage of the price of the property being sold or bought. This commission is usually split between the seller's agent and the buyer's agent. Each real estate company further splits its respective portion of the commission with the sales associate who worked on the transaction.

Beginning in January 2001, defendant began charging an administrative fee, sometimes referred to as a regulatory fee, in the amount of $150 to all of its clients in the South Jersey region. The fee was introduced to cover increased costs of automation and technology enhancements, internet listings, retaining and storing records, and compliance with governmental regulations. The increased costs of doing business were more pronounced in the South Jersey region because of the lower home prices there. Defendant was the only Weichert-related entity in New Jersey to institute this fee.

Prior to introducing the fee, defendant's management had discussed how best to "enhance revenue." According to defendant's response to interrogatories: "Internally, it was decided that the administrative fee was a better alternative to help cover Weichert's increased costs, and a less expensive one for the client than raising its normal real estate commission."

According to Kathleen Williams, defendant's South Jersey regional vice president, although defendant's commission rate was negotiable, it was generally six percent. Since full-service companies, like defendant, charged a commission of six percent, if defendant had instead raised its commission to 6 1/4%, the increased commission would have affected its ability to compete against other full-service real estate companies.

Defendant chose $150 as the figure to charge for the administrative fee because it believed that this was a modest amount, taking into consideration market conditions, market dynamics, customer perceptions, charges by competitors, and increased costs. Also, the $150 fee was nominal compared to a raise of one-quarter of one percent on the commission rate.

Defendant had also considered decreasing its commission splits with agents, increasing other fees, or eliminating or reducing services. It found that an administrative fee had been used in other businesses and by other real estate companies in other markets. No governmental approvals were required, or sought, by defendant to implement the fee, and defendant had never been notified by any governmental entity that the fee was improper.

Defendant admitted that there were "no additional services that are specific to the fee in question," and it maintained that it never represented to the contrary. According to Williams, the administrative fee was for all of defendant's services, not for any one specific service. Hence, it charged its customers a six percent commission plus an administrative fee for its services.

According to defendant's records, from January 2001, through November 2004, the fee was charged in approximately 12,000 to 14,000 transactions in South Jersey. During this time, approximately 8,000 transactions were completed on the seller's side and 4,600 transactions were completed on the buyer's side. There were also 1,700 completed transactions where the fee was paid by Weichert agents instead of the client. During the nearly four-year period, the amount collected totaled $1,901,036.

Defendant's accounting department kept track of the transactions in which the fee was paid, whether it was waived, whether the agent as opposed to the client paid it, and the amount collected. The payments were treated as income, against which defendant's general expenses were offset.

The administrative fee was first introduced to defendant's branch office managers in December 2000. A packet of training materials known as Continuing Education Program (CEP) # 204 was distributed, informing the managers that effective January 1, 2001 defendant would be charging their clients $150 in addition to their brokerage fee to cover company administrative expenses. These managers then held meetings with their own staff where they introduced the administrative fee orally. In turn, each individual agent was responsible for explaining the fee to each individual client whether seller or buyer. They were not given a written disclosure statement to hand out or a written "script" to use in explaining the fee. Although the office managers were employees of defendant, the individual sales agents were independent contractors. When the fee was first introduced, the South Jersey region consisted of eight offices with approximately 550 agents, but later expanded to ten offices with approximately 810 agents.

The managers were told that the fee was to be charged in every transaction unless waived by defendant's senior vice president or regional vice president, or by a branch office manager. Factors involved in the waiver decision included whether the buyer or seller had agreed to the fee in writing, whether the client objected, and other factors unique to the particular transaction. The fee was waived in approximately 7,800 transactions.

If the client were the seller, the agent's obligation was to have the seller sign an Addendum to the Listing Agreement disclosing the fee and filling in the amount by hand. Paragraph ten of the form addendum used by Weichert reads: "The Seller agrees to pay the Listing Broker, in addition to the commission due, an administrative fee of ______, payable at the time of the transfer of the property."

If the client were the buyer, the agent's obligation was to have the buyer sign an Exclusive Buyer Agency Agreement disclosing the fee with the amount filled in by hand. According to paragraph three of this document:

Buyer shall pay, in addition to any brokerage fee due Buyer's Agent, an administrative fee of ____ to Weichert, Realtors at settlement. If Buyer's Agent is a Disclosed Dual Agent, the administrative fee payable by Buyer to Weichert, Realtors shall be waived.

According to Williams, defendant left blank the amount of the administrative fee on these forms due to unspecified "regulatory requirements." She admitted that neither document explained the reason for the fee. Rather, it was left to the individual agent to fill in the amount, always $150, and to explain the fee's purpose to the client. Williams also confirmed that most, but not all, sellers and buyers executed the Addendum to Sellers Listing Agreement and Buyers Agency Agreement respectively.

Although the sales agents were trained about the fee from their office managers, they were not given any of the written materials that had been provided to the managers themselves, other than the Addendum to the Listing Agreement and the Exclusive Buyer Agency Agreement. Defendant asserts that the timing and the substance of any particular oral explanation regarding the administrative fee could differ from agent to agent and from transaction to transaction. At times the existence of the fee was conveyed by title company agents, lawyers or by draft HUD-1 forms or other written estimates of closing costs given to sellers and buyers prior to closing. On some occasions, there were challenges to the fee by an attorney at closing, which could result in a waiver of the fee, or a refund.

At some point, defendant discovered that some of the staff at Weichert Title Agency were referring to the fee as a "regulatory compliance fee," even though it was never defendant's intention to characterize it that way. On March 30, 2004, Williams sent a memo to the Weichert Title Agency, advising it that the fee should be referred to on the closing documents only as an "administrative fee" since no part of the fee was turned over to any governmental entity. However, Weichert never represented to any client that it had to pay the fee to any governmental agency.

In November 2004, defendant provided written materials for its managers to use in providing its agents with a "refresher course" on the administrative fee. Included within these materials were sample dialogues for an agent to use when presenting the paperwork to prospective sellers and buyers. For a prospective seller, the following dialogue was suggested: "As you can see, in addition to the commission, Weichert charges a nominal fee of $150.00 when you sign with us. This administrative fee helps to cover the cost of technology, document-prep, records retention and storage, and compliance with all regulatory agencies, which helps us protect our clients." Similar language was suggested for prospective buyers. If a prospective client wanted to know what the fee was for, the following was suggested: "We have introduced this modest fee to cover some of our increased costs, while at the same time continuing to offer you the best possible service. Many of the costs we have incurred actually are there to better serve and protect you [e.g.] regulatory compliance, upgraded technology, form preparation and storage, etc."

If an agent could not get the customer to pay the fee, then the agent would be responsible for the payment. It was anticipated that the fee would not put agents at a competitive disadvantage and would not jeopardize client relationships.

To support its contention that the explanation of the fee to any particular client differed from agent to agent and from transaction to transaction, defendant supplied certifications from three separate agents: Rosanne Gentile, Michael A. DeLuccia, and Megan Lopez-Swaney. Gentile claimed that she explained the fee to the client at their initial meeting, informing them that the fee was an additional charge imposed because of increasing costs related to record storage, the preparation and printing of legal forms, and technology. Most of Gentile's buyers agreed to sign the Buyer Exclusive Agency Agreement, and she refused to work with anyone who would not sign it. On occasion, she had paid the fee on behalf of a buyer. She often paid the fee on behalf of a seller, as long as the seller agreed to the full six percent commission. If an attorney for either the buyer or seller objected to the fee at closing, the problem was usually resolved when Gentile produced the signed documents.

According to DeLuccia, he explained the fee to buyers when they executed the Buyer Exclusive Agency Agreement, which did not always occur at the initial meeting. He never used a script or written materials to explain the fee and his explanation varied from customer to customer. He rarely paid a fee on behalf of a client. He would pay the fee only when it was challenged and he did not have the signed documents with him.

According to Lopez-Swaney, she explained the fee to her buyer/clients at the initial meeting and had them sign the Buyer Exclusive Agency Agreement before she would show them any properties. She had paid the fee on behalf of a buyer on only one occasion. With seller/clients, she tried to have them sign the Listing Addendum at the initial meeting and rarely paid the fee on their behalf, regardless of the commission she received. If an objection to the fee was raised at closing, the issue was usually resolved when the paperwork was produced.

Defendant acted as a buyer's agent for plaintiff, Brian Hannan, in connection with his purchase of residential real estate that closed on December 19, 2003. Hannan used the services of agent, Jill Rodano, on the recommendation of one of his friends. When he initially met Rodano, there was no discussion of her fees. However, after Hannan signed a contract of sale for the property he eventually bought, Rodano spoke to him about her commission. She explained that she was a buyer's agent for him and that the commissions would be split between the buyer's and seller's agents from the closing proceeds. Rodano did not mention any administrative fee or regulatory compliance fee that defendant charged and was never asked to sign an Exclusive Buyer Agency Agreement.

Hannan was represented by a lawyer when he signed the contract for sale and at closing. Prior to the date of closing, Hannan received from defendant an estimated list of closing costs on a "HUD-1" form. However, Rodano never discussed these costs with him. On the second page of this form, at line 1303, was a $150 "regulatory compliance" fee payable by Hannan to defendant. No one at the closing ever discussed this fee with Hannan. Although he saw that he was charged this fee, he did not know what it was. He did not ask anyone about it since this was Hannan's first purchase of a home. He thought he just had to pay it. In addition to the $150, defendant received $2,555 in commission from the proceeds of the sale of the house. Hannan's complaint about the fee was that defendant charged the fee without providing any service for it. He thus contends he was misled into thinking that he was paying for a service.

Cantera and her husband used the services of agent, Donna Weinstein, when purchasing their house. Although Cantera claimed that she and her husband did not discuss Weinstein's services or fees, on July 2, 2003, Cantera signed an Exclusive Buyer Agency Agreement. According to this agreement, Weinstein was authorized to negotiate and receive a commission or fee to be paid by the seller. In addition, the agreement provided that the Canteras would be charged an "administrative fee." However, there was a blank next to the amount to be charged, with an "X" drawn through the blank.

The closing took place on August 5, 2003, at which time the Canteras were represented by an attorney. Cantera denied receiving a written estimate of the closing costs ahead of time, but nevertheless was aware of what these costs would be. The HUD-1 form showed that defendant charged Cantera $150 as an "administrative fee" and received $5,497 as a commission from the proceeds of the sale. Cantera admitted that she knew she was being charged a $150 fee. She asked the seller's attorney about it, but he did not know what it was for. However, she did not ask her own agent, her own attorney, or the title agent about it. She just paid it, because she was ready to move and really had no choice.

Shortly after her closing, Cantera saw a newspaper article about Hannan's suit. She contacted Hannan's attorney and joined him in instituting this litigation. She believed that the $150 charge was unfair and a "rip-off" because administrative work was part of defendant's job, for which it received a commission.

Plaintiffs contend that the court erred in denying their motion for class certification on the grounds that plaintiffs failed to meet the predominance and superiority requirements of Rule 4:32-1(b)(3). Plaintiffs claim that the court erred by analyzing this issue based on causes of action that were not in plaintiffs' complaint and by converting the ascertainable loss element of a CFA action into a reliance element.

Defendants argue that the court correctly found that neither the predominance requirement nor the superiority requirement was met, and that the denial of class certification may also be affirmed because the court erred in finding that the typicality and adequacy of representation requirements were satisfied. Because we are convinced Judge McDonnell properly exercised her discretion in finding plaintiffs failed to meet the predominance requirement of Rule 4:32-1(b)(3), we do not address the superiority or typicality contentions.

According to the version of Rule 4:32-1 that was in effect when plaintiffs' complaint was filed, a class action suit must meet all four requirements of Rule 4:32-1(a), and one of the three alternative requirements of Rule 4:32-1(b). In re Cadillac V8-6-4 Class Action, 93 N.J. 412, 424-26 (1983); Carroll v. Cellco P'ship, 313 N.J. Super. 488, 494-95 (App. Div. 1998). Here, plaintiffs relied only on the third alternative, Rule 4:32-1(b)(3), which has two parts. It requires both that common questions of law and fact predominate over individual claims and that the class action be superior to other methods of adjudication.

The party seeking class certification bears the burden of establishing that the requirements of the rule have been met. Iliadis v. Wal-Mart Stores, Inc., 387 N.J. Super. 405, 415 (App. Div.), leave to appeal granted, 188 N.J. 570 (2006). The rule should be liberally construed and a class action should be permitted unless there is a clear showing that it is inappropriate or improper. Id. at 415-16; Muise v. GPU, Inc., 371 N.J. Super. 13, 34 (App. Div. 2004). The "overarching principle of equity" is that "class actions should be liberally allowed where consumers are attempting to redress a common grievance under circumstances that would make individual actions uneconomical to pursue." Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super. 31, 45 (App. Div. 2000).

It is recognized that "certification can aid the efficient administration of justice by avoiding the expense, in both time and money, of relitigating similar claims," In re Cadillac, supra, 93 N.J. at 435, and that class actions "equalize adversaries and provide a procedure to remedy a wrong that might otherwise go unredressed." Id. at 424.

Certification should not be denied based on a preliminary determination of the merits of the underlying claims. Id. at 426. Rather, the court must take the substantive allegations of the complaint as true and accord them "every favorable view." Int'l Union of Operating Eng'rs Local #68 Welfare Fund v. Merck & Co., Inc., 384 N.J. Super. 275, 284 (App. Div.), leave to appeal granted, 188 N.J. 215 (2006). Nevertheless, the court must undertake some examination of the claims, defenses, salient facts, and substantive law in order to make a meaningful determination of the certification issue. In re Cadillac, supra, 93 N.J. at 426; Iliadis, supra, 387 N.J. Super. at 416.

On appeal of a class certification grant or denial, an appellate court applies the abuse of discretion standard of review. In re Cadillac, supra, 93 N.J. at 436; Iliadis, supra, 387 N.J. Super. at 422. Judge McDonnell found that plaintiffs failed to meet the predominance requirement because their ability to prove "fraud and negligent misrepresentation, and possibly violations of the Consumer Fraud Act, is dependent on an individual examination of each buyer and seller contract agreement." The court acknowledged that, under the CFA, plaintiffs did not have to prove reliance; rather they had to show only "an ascertainable loss as a result of defendant's conduct and a causal relationship." The court nevertheless found that "each plaintiff had a different interaction with defendant's representatives, and the ability to prove reliance depends on circumstances peculiar to each plaintiff." We are satisfied that the judge's evaluation of the legal requirements for predominance against the evidence before her tending to establish them supports her exercise of discretion.

Plaintiffs first argue that the court erred in focusing on causes of action other than the one brought under the CFA. Although it is true that the court began its analysis by referring to causes of action for fraud and negligent representation, the court's ultimate decision was grounded on a recognition of the elements of a CFA action.

Plaintiffs next argue that the court erred in holding that proof of individual reliance would be necessary to sustain a CFA cause of action. A predominance inquiry "requires an evaluation of the legal issues and the proof needed to establish them." In re Cadillac, supra, 93 N.J. at 430. "If a 'common nucleus of operative facts' is present, predominance may be found." Id. at 431 (quoting 7A Wright & Miller, Federal Practice & Procedure 1778 at 53 (1972)). All issues need not be identical; rather, common questions must simply predominate. Saldana v. City of Camden, 252 N.J. Super. 188, 197 (App. Div. 1991).

Nevertheless, the predominance requirement is "more demanding than the commonality requirement" because a plaintiff must show that the common issues outweigh the individual ones. Iliadis, supra, 387 N.J. Super. at 416 (quoting Muise, supra, 371 N.J. Super. at 37). The focus is on whether the class is "sufficiently cohesive to warrant adjudication by representation." Carroll, supra, 313 N.J. Super. at 499 (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623, 117 S. Ct. 2231, 2249 138 L. Ed. 2d 689, 712 (1997)). Specifically in cases alleging fraud, the critical question is "whether the benefit from the determination in a class action of the existence of . . . a common pattern of fraud outweighs the problems of individual actions involving such other issues as causation, reliance, and damages." In re Cadillac, supra, 93 N.J. at 430.

In order to demonstrate that common issues predominate over individual ones, plaintiffs have to demonstrate individual reliance. Although it is not disputed that causes of action under the CFA do not require proof of reliance, some New Jersey courts have nevertheless denied class certification on the ground that the element of "ascertainable loss" necessarily entails an examination of how individual members relied on the defendant's fraud or misrepresentation. See e.g., Carroll, supra, 313 N.J. Super. at 499; Fink Recoh Corp., 365 N.J. Super. 520, 531 (Law Div. 2003). Other courts in this State have clearly ruled that class certification should not be denied on this basis. See e.g., Int'l Union of Operating Eng'rs Local #68 Welfare Fund, supra, 384 N.J. Super. at 288-89; Varacallo, supra, 332 N.J. Super. at 45-51.

N.J.S.A. 56:18-19 sets forth the requirements for a private cause of action under the CFA. A private plaintiff must show that he or she suffered an "ascertainable loss . . . as a result of" the unlawful conduct. Weinberg v. Sprint Corp., 173 N.J. 233, 249-50 (2002). However, the plaintiff must be able to survive a summary judgment motion on the issue of ascertainable loss. Id. at 253. See also Pron v. Carlton Pools, Inc. 373 N.J. Super. 103, 112-13 (App. Div. 2004).

In a class action, it is the putative class representative who must be able to present sufficient evidence of ascertainable loss to withstand a motion for summary judgment. Laufer v. U.S. Life Ins. Co. in the City of N.Y., 385 N.J. Super. 172, 186-87 (App. Div. 2006). The class representative is usually not in a position to present evidence that unnamed members suffered ascertainable losses. Id. at 187. A determination of whether the representative can satisfactorily represent other class members, however, will depend on other criteria of the class action rule. Id. at 186.

In Int'l Union of Operating Eng'rs Local #68 Welfare Fund, supra, 384 N.J. Super. at 288-89, we held that all that is required to establish a cause of action under the CFA is proof of a causal nexus between the misrepresentation or concealment of a material fact and the loss suffered. "It is not necessary to prove that each class member specifically relied upon [the defendant's] omissions or misrepresentations." Id. at 289. In that case, the putative class consisted of third-party payors who had paid for a prescription drug and got something less than what had been promised. Id. at 291. The court found that this loss was not dependent on any injury to individual patients who were prescribed the drug and that the cause of action was thus not premised on any "fraud-on-the-market" theory. Ibid. Similarly, in Varacallo, supra, 332 N.J. Super. at 47, where the plaintiffs were a group of policyholders who had purchased vanishing life insurance premium policies, we held that the predominance requirement was met despite the defendant's argument that sales presentations to each policyholder differed from agent to agent and from client to client. We found that there was no evidence in the record that the agents made sales pitches that went beyond the written literature provided by the defendant, and that it was the written literature itself that contained the alleged misrepresentations. Ibid. We also concluded that there is a presumption of reliance and causation where omissions of material facts are common to the class. Therefore, "if the plaintiffs . . . establish the core issue of liability, they will be entitled to a presumption of reliance and/or causation." Id. at 51.

By contrast, in Carroll, supra, 313 N.J. Super. at 492, the plaintiffs who represented members of a class that had purchased cellular telephone services from the defendant, claimed that the defendant's advertising, marketing, and promotional materials had misrepresented facts relating to its services and billing practices, thus making it appear that the defendant's services were more economical than those of its competitors. We held that the ability of each plaintiff to prove common law fraud, negligent misrepresentation, or fraud under the CFA depended upon an individual examination of each contract, representations made by the defendant's agents to customers to encourage them to subscribe, reliance on these representations, and the amount of damages. Id. at 501-02. Although we recognized that reliance was not a necessary element of a CFA action, the plaintiffs still had to prove that they suffered an ascertainable loss "as a result of" the defendant's conduct. Id. at 502.

We held the plaintiffs had to identify that the same or similar representations were made to the entire class and had to prove how these representations induced them to buy the defendant's services. Id. at 502-03. This, in turn, would require a court to look at the different contracts, brochures, advertisements, and oral representations that were made by the defendant's sales agents. Ibid. "[W]hen considering the variance in representations made to each plaintiff before purchase, proving reliance becomes extraordinary." Id. at 503. We concluded that "[e]ach plaintiff had a different interaction with defendant's representatives, and the ability to prove reliance depends on circumstances peculiar to each plaintiff." Id. at 505. In addition to the different degrees of reliance and the varying amount of information given to each plaintiff, there were also wide discrepancies in the amount of loss ascertained by each plaintiff and in the form of recovery sought. Id. at 503-04.

We acknowledged that "[t]here may . . . be a different analysis under the [CFA], where reliance may not be [a] factor." We noted, however, that, even under the CFA, questions of actual individual disclosures might preclude the class action, id. at 505, and we left this issue for the trial judge to determine upon remand as to the CFA claims.

In Fink, supra, 365 N.J. Super. at 531, the putative class was a nationwide class of purchasers of a particular digital camera who alleged that they suffered economic loss as a result of the defendant's false and misleading advertising. The court held that the plaintiffs, in order to sustain a cause of action under the CFA, had to demonstrate that each class member read one or more of the advertisements and that these ads constituted the proximate loss of an ascertainable amount of money. Id. at 545. To allege proximate cause, a plaintiff would have to show that he or she was deceived by the ads in question, even if the ads were not the sole determinant in causing the purchase. Id. at 546.

The Fink court noted that the Varacallo court's reliance on a presumption of causation was premised on a plaintiff's establishing the "core issue of liability." Id. at 548-49. In Fink, the plaintiffs had failed to present any proofs that affirmative misrepresentations proximately caused any class member to sustain an ascertainable loss. Id. at 550. The causal nexus requirement of the CFA requires proof that the prohibited act in fact misled, deceived, induced, or persuaded the plaintiff to buy the defendant's product or service. Id. at 574; see also Gennari v. Weichert Co. Realtors, 148 N.J. 582, 607 (1997). See also W. Morris Pediatrics, P.A. v. Harry Schein, Inc., 385 N.J. Super. 581, 585 (Law Div. 2004); Gross v. Johnson & Johnson-Merck Consumer Pharms Co., 303 N.J. Super. 336, 339 (Law Div. 1997).

We are convinced that Varacallo, supra, which articulated a presumption or inference of reliance and causation in CFA class action cases, is distinguishable from this case, because misrepresentations in that case were contained in written and uniform materials presented to each prospective purchaser. Both federal and out-of-state cases support the view that, if a presumption of reliance is to be applied in class actions premised on consumer fraud, it should not be done where the claims are premised on oral misrepresentations that differed from one sales transaction to the next.

In Stephenson v. Bell Atl. Corp., 177 F.R.D. 279 (D.N.J. 1997), a case relied on by Judge McDonnell in her letter opinion, the district court held that proving allegations of deception based on "a series of oral and written misrepresentations and omissions of material fact . . . in the class action context poses special problems . . . [because] 'there is a significant risk that individual issues will overwhelm those common to the class.'" Id. at 290 (quoting Davis v. S. Bell Tel. & Tel. Co. 158 F.R.D. 173, 175 (S.D. Fla. 1994)). The District Court concluded that to satisfy the predominance requirement of the class action criteria, plaintiffs would have to "identify a small core of misrepresentations and omissions made to all, or most, of the class members." Id. at 291.

Similarly, in Szczubelek v. Cendant Mortgage Corp., 215 F.R.D. 107, 121 (D.N.J. 2002), the District Court held that an action based substantially on oral rather than written communications is inappropriate for treatment as a class action because individual inquiry regarding such communications precludes a finding of predominance. The Szczubelek case is particularly apposite here, since it was premised on claims made by home buyers under the CFA that a mortgage company had unlawfully overcharged its borrowers by lumping together the actual cost of a property appraisal with the administrative costs associated with that appraisal and by charging only one fee. Id. at 112, 114.

The named plaintiff in Szczubelek did not claim that the written disclosures given to her contained any actual misrepresentations. Id. at 121. Rather, she alleged only that she was confused by the disclosures and that oral statements made to her by the defendant's representatives had given her a misleading impression. Ibid. The complaint did not allege, however, that all members of the class had received similar oral statements from the defendant's employees. Ibid.

The District Court found that "certainly" there were some home buyers who had read the defendant's disclosure, understood exactly what it meant, and decided to use the defendant's appraisal service anyway. Id. at 122. Also, there could have been some home buyers who did not understand the language of the disclosures and who paid the appraisal fee, but who did not experience any ascertainable loss. Ibid. In other words, underpinning the court's analysis in Szczubelek is that the loss must be caused by a course of deceptive conduct and the deceptive conduct was the same for everyone.

The following out-of-state cases support the requirement of uniform representations. Vos v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 44-46 (Iowa 2003) (in vanishing premium case, noting that presumption of reliance should not be applied where evidence fails to establish essentially uniform misrepresentations); Russo v. Mass. Mut. Life Ins. Co., 746 N.Y.S.2d 380, 385 (N.Y. Sup. Ct. 2002) (refusing to apply presumption of reliance in vanishing premium case based on different oral sales presentations); Aronson v. Greenmountain.com, 809 A.2d 399, 404-05 (Pa. Super. Ct. 2002) (whether reliance can be established indirectly, as in Varacallo, depends on whether misrepresentations were "varied or oral as opposed to uniform or written").

Even the cases relied upon by plaintiff, where the courts did apply a presumption of reliance, make this distinction clear. See e.g., Vasquez v. Superior Court of San Joaquin County, 484 P.2d 964, 973 n.10 (Cal. 1971) (finding that plaintiffs alleged a "community of interest" as to misrepresentations, and distinguishing cases where alleged misrepresentations to class members were not similar); Cope v. Metropolitan Life Ins. Co., 696 N.E.2d 1001, 1006 (Ohio 1998) (allowing presumption of reliance where it was alleged that defendant had intentionally omitted state-mandated written disclosure warnings and where plaintiffs' claims were not based on any oral misrepresentations).

In this case, plaintiffs' amended complaint alleged that defendant's fee misled customers into believing that there were services performed in addition to those provided by defendant in exchange for receiving a commission. Prior to closing, plaintiff Hannan never signed any document agreeing to pay the $150 fee. His broker never mentioned the fee to him orally and he paid it without objection at the time of closing, even though he did not know what it was for. His settlement statement listed it as a regulatory compliance fee, a practice that defendant later changed. His objection to the fee was that, regardless of what it was called and regardless of what anybody told him, it was improper because even if defendant's real estate salesperson had told him that defendant's fee was a commission plus $150, he would have been deceived into thinking that he was getting an additional service.

Cantera signed an agreement acknowledging her liability for an administrative fee, but the amount was left blank. She did not allege any oral misrepresentations made to her by her broker and, at closing, she paid the fee after voicing an objection to the seller's attorney.

At oral argument before Judge McDonnell on the certification motion, plaintiffs' attorney represented to the court that the underlying theory of the case was that defendant, by breaking down its commission into two sub-parts, a percentage commission and a flat fee, was misleading consumers as to the true commission. Counsel did not dispute defendant's right to increase its commission; however, he alleged that defendant was being deceptive by calling the increase something else and by implying that an additional service was being provided. For that reason, counsel argued that it did not matter what was said to any individual plaintiff or what was in the written disclosures. All they had to show was that customers were charged a commission plus a fee. Because defendant admitted that the fee was designed to recoup its increased expenses, and because defendant did not allege that any customer was told that the fee really represented an increased commission, there were no individual issues to adjudicate.

However, plaintiffs have not alleged any per se violation of the CFA or any actual misrepresentation by defendant of what it charges. Indeed, paragraph 10 of the form Addendum to Listing Agreement states, "[t]he Seller agrees to pay the Listing Broker, in addition to the commission due, an administrative fee of _______, payable at the time of the transfer of the property." (Emphasis added). Similarly, paragraph 3 of the form Exclusive Buyer Agency Agreement contains the language, "[b]uyer shall pay, in addition to any brokerage fee due buyer's agent, an administrative fee of _____ to Weichert Realtors at settlement. If buyer's agent is a disclosed dual agent, the administrative fee payable to Weichert Realtors shall be waived." (Emphasis added).

Like the new home buyers in Szczubelek, plaintiffs do not allege any written misrepresentations. Nor do they allege any oral misrepresentations. Although plaintiffs' attorney alleged that the putative class was made up of people who were given a false impression of the nature of defendant's fee, the two named plaintiffs actually admitted that their objection was to the fee itself, regardless of what it was called or what it was for. Thus, they appeared to be challenging defendant's right to even collect such a fee.

We are likewise convinced this case is distinguishable from Varacallo, where a presumption of reliance was applied. Although the CFA does not require proof of reliance, the cases agree that the requirement that there be a causal nexus between the alleged misrepresentation and the ascertainable loss means that the misrepresentation must have, in fact, caused the plaintiffs to pay something, or lose something of value, that would not have otherwise been paid or lost absent the unlawful conduct. Varacallo acknowledged that the presumption does not apply unless the plaintiffs can prove the "core issue of liability." Varacallo, supra, 332 N.J. Super. at 51.

In Varacallo, the core issue of liability was established by the fact that uniform written disclosures were given to all prospective customers, which contained grossly misleading statements that reasonably could be said to have made a difference in anyone's decision to purchase the life insurance policies in question. Such evidence is not present here. The evidence showed that the brokers' commissions are usually paid only by sellers and even those commissions may be negotiable. Although plaintiffs argue that everybody suffered a clearly ascertainable loss of $150, what is not shown by the evidence is that this loss was suffered "as a result of" anything unlawful that defendant said or did.

At best, plaintiffs might be able to establish a putative class of members of people who paid the fee without being told about it prior to closing, that is, sellers who were not asked to sign an Addendum to the Listing Agreement and buyers who were not asked to sign an Exclusive Buyer Agency Agreement. As to those plaintiffs, it could be argued that they relied on the representations that the brokerage fee would be paid by the sellers and would consist only of a flat percentage of the sales price of the home. The named plaintiffs do not fall within such a hypothetical putative class and plaintiffs do not propose to limit the class to such members. In fact, Williams' testimony and that of the three salespersons deposed discloses that the vast majority of the members of the proposed class signed either the Addendum to Listing Agreement or the Exclusive Buyer Agency Agreement.

Accordingly, we are convinced that Judge McDonnell correctly found that class certification should not be granted. Plaintiffs have failed to prove that questions of law or fact common to the members of the class predominate over any questions affecting only individual members as required by Rule 4:32-1(b)(3).

Affirmed.

 

The four general requirements for class certifications established by Rule 4:32-1(a) are (1) numerosity, (2) common questions of law and fact, (3) the typicality of the representative's claims or defenses, and (4) the ability of the representative and the experience of the representative's counsel to protect the interests of the class. The judge's findings with respect to these prerequisites being met are not challenged on this appeal.

In this opinion, we address only the predominance requirement.

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A-5525-05T5

May 22, 2007