SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Margaret L. Lee v. First Union National Bank, et al. (A-58-08)
Argued February 18, 2009 -- Decided June 3, 2009
LaVECCHIA, J., writing for a unanimous Court.
In this appeal, the Court determines whether the purchase of securities comes within the scope of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106.
Because this appeal arises from an order granting summary judgment to defendants, the Court views the evidence in the light most favorable to the non-moving party, plaintiff Margaret Lee. In late May 2000, Lee went to a branch of defendant, First Union National Bank (First Union), where she deposited a portion of a check into her checking account and took the remaining $7,000 in cash. Lee asked about making an investment and was referred to defendant, Gregory Mack, an investment counselor at First Union. Mack also served as a registered representative for First Union Brokerage Services, Inc. Lee met with Mack and, based on his recommendation, decided to purchase $2,000 of mutual fund shares. She opened a brokerage account and gave Mack $2,000 cash to effectuate the purchase. He did not deposit the cash into Lee's brokerage account, resulting in insufficient funds to complete the transaction. The bank applied $500 from her checking account as partial payment for the purchase and liquidated $1,500 of the mutual fund units that had been allocated to Lee's brokerage account, reducing her total trade amount to a $500 interest in the mutual fund. Lee claims that when she became aware of those events and spoke to Mack, he admitted that he took the cash for personal use and offered to give her $1,500 if she would agree not to tell his supervisor. Lee would not accept less than the entire $2,000, which Mack refused.
In May 2006, Lee filed a two-count complaint. In Count One, she claimed that Mack induced her to give him $2,000 cash for the purchase of securities, and that defendants misapplied those funds. In Count Two, Lee alleged that she suffered economic loss as a result of the misapplication of funds, which constituted an unconscionable commercial practice in violation of the CFA. The trial court dismissed the complaint. The court concluded that Count One was barred by a two-year statute of limitations, and that Count Two failed to state a claim because the CFA is inapplicable to the sale of securities.
The Appellate Division reversed. Lee v. First Union Nat'l Bank, 402 N.J. Super. 346 (App. Div. 2008). The panel reinstated Count One of the complaint, concluding that it was subject to the six-year statute of limitations found in N.J.S.A. 2A:14-1 because it concerned the unlawful taking of personal property. The panel also reinstated Count Two. Although the panel agreed that securities are not "merchandise" subject to the CFA, it explained that it was Mack's "misappropriation" of money that constituted the unlawful practice that Lee claimed violated the CFA; and that "services" are included in the CFA's definition of "merchandise." The panel also held that Mack's services were not exempt from CFA liability under the judicially crafted "learned professionals" exception.
The Court granted certification to consider only whether the purchase of securities comes within the scope of the CFA. 197 N.J. 16 (2008). The panel's decision in connection with Count One is not before the Court.
HELD: The sale of securities is not included within the Consumer Fraud Act's definition of "merchandise," and defendants' conduct in connection with the sale of securities cannot be characterized as a "service" covered by the CFA because that would thwart the statute's design to keep the sale of securities beyond the CFA's application.
1. The CFA prohibits the use of any unconscionable commercial practice, fraud, or misrepresentation "in connection with the sale or advertisement of any merchandise or real estate." N.J.S.A. 56:8-2. "Merchandise" includes "any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale." N.J.S.A. 56:8-1. Although the CFA is construed liberally to protect consumers from deceptive practices, courts must abide by the definitions that control the boundaries of the CFA's reach. The goal in interpreting a statute is to determine the Legislature's intent by looking first to the statute's plain language, while striving to avoid a literal interpretation of individual provisions that would be inconsistent with the statute's overall purpose. (pp. 7-9)
2. The CFA's definition of merchandise does not include securities. That omission, although plain on its face, carries a measure of ambiguity because the CFA is intended to have a broad reach. The original definition of merchandise included "any objects, wares, goods, commodities or services." An amendment, proposed in 1967, would have augmented the definition to include "any objects, wares, goods, commodities, real estate, securities, services or anything offered directly or indirectly to the public for sale." The final amendment that was enacted did not include the terms "real estate" or "securities." In 1976, the Legislature amended N.J.S.A. 56:8-2 to prohibit fraudulent or deceptive practices "in connection with the sale or advertisement of any merchandise or real estate." The Governor's press release stated that the amendment "would correct the present omission of `real estate' from coverage" under the CFA. Securities were not included in the definition of merchandise or in the text of N.J.S.A. 56:8-2. Based on that history, the Appellate Division, in Neveroski v. Blair, 141 N.J. Super. 365 (1976), held that deletion of the words "securities" and "real estate" from the 1967 amendment was "a meaningful act on the part of the Legislature eliminating these two areas of commercial activity from the purview of the statute." That analysis is unassailable. That "real estate" was reinserted into the CFA, while "securities" was not, indicates an intent that securities were not meant to be covered by the CFA. (pp. 10-14)
3. Similarly, CFA coverage cannot be achieved by calling Mack's conduct a fraudulent "service" because that would thwart a clear legislative plan to leave the securities marketplace beyond the CFA's reach. Although the CFA protects consumers against certain deceptive practices in the regulated world of the financial industry, reasonable limits are placed upon the CFA's operation so that its enforcement properly reflects legislative intent. The CFA was not meant to reach the sale of securities and that limitation prevents plaintiff from characterizing Mack's behavior as a "service" connected with the sale of securities. Any transaction involving "merchandise" (whether CFA-covered or not) would involve the "service" of providing the merchandise; and, therefore, permitting CFA liability for "services" in connection with items that are not "merchandise" under the CFA would provide an end-run around the statutory definition of "merchandise." The Court's interpretation does not render the term "services" superfluous because it is limited in the context of an excluded category of "merchandise." (pp. 14-16)
4. In light of its holding, the Court need not consider the "learned professionals" exception to the CFA. (pp. 16-17)
The judgment of the Appellate Division in respect of Count Two of plaintiff's complaint is REVERSED, the Law Division's dismissal of Count Two is REINSTATED, and the matter is REMANDED to the Law Division for further proceedings in respect of Count One of the complaint.
CHIEF JUSTICE RABNER and JUSTICES LONG, ALBIN, WALLACE, RIVERA-SOTO and HOENS join in JUSTICE LaVECCHIA's opinion.