Consumer Fraud: Strict Consumer Protection Laws Have a Serious Impact on the Kitchen and Bath Industries

Consumer Fraud: Strict Consumer Protection Laws Have a Serious Impact on the Kitchen and Bath Industries

By: Peter J. Lamont, Esq.

In the past, when a kitchen or bath company was sued the allegations generally sounded in breach of contract or negligence. The defendant kitchen and bath company typically did not have to worry about payment of attorney’s fees or punitive damages. In essence, the parties were on an equal playing field in the prosecution and defense of the claims. However, over the past five years, there has been a dramatic increase in pro-consumer laws passed by a majority of states which have greatly shifted the playing field in favor of the consumer plaintiff.

Legislative Shift

Unfortunately, most people have fallen prey to some form of deceptive business practice at one time in their lives. It may have been as simple as a loss of $10 on a product that a deceptive television advertisement duped you into buying or a serious as being bilked out of thousands of dollars by an unscrupulous contractor or failed to finish construction on your house. Five to ten years ago, people would generally complain to the Better Business Bureau or retain a private attorney. However, as the Internet developed it became much easier to e-mail local government officials or file claims online with the Federal Trade Commission. As a result, state and federal agencies became overwhelmed with consumer fraud claims. The legislature’s response, both at the state and federal levels, was to enact strong consumer protection laws which had “teeth” and that would act as a deterrent against fly-by-night companies and general deceptive business practices.

The “teeth”, in most states, was the possibility of double or triple damages against a company found to have committed a deceptive business practice and the repayment of the plaintiff’s attorney’s fees by the defendant. For example, under New Jersey law, which is at the forefront of consumer protection legislation, if a cabinet company was found to be liable to a plaintiff for a deceptive practice and the actual damages were $100,000, the Court could award three times the damages, up to $300,000, plus award attorney’s fees to the plaintiff’s counsel. Depending upon the length of the case, attorney’s fees could exceed $50,000. Thus, a $100,000 claim could end up costing the cabinet company $350,000 (not to mention the defense costs to its own attorney).

Increase in Consumer Rights Practice

Plaintiffs attorneys quickly focused on the potential to cash in on the new consumer protection laws. As a result, many plaintiff attorneys have devoted their practices to consumer rights. Obviously, the draw for the attorney is the ability to recover most if not all of his fees as opposed to the typical 1/3% recovery of the total amount awarded in a regular negligence action. Type in “consumer fraud attorney” into any search engine and you will find pages of plaintiff-oriented law firms who are eager to speak with you about your consumer rights.

In addition to their websites, many attorneys actively seek out potential plaintiffs on consumer complaint websites such as the squeakywheel.com and complaints.com. The result is that more and more cabinet and bath companies are being sued by these over-aggressive plaintiff attorneys.

Understanding Your States Consumer Protection Laws

It is critical that you research and understand your state’s consumer protection laws. Many kitchen and bath companies are hiring attorneys to make sure that there practices and procedures comply with their state’s consumer protection laws. These new laws can be rather tricky to understand and have broad sweeping language which is detrimental to the kitchen and bath industry. For example, numerous states have enacted home improvement laws which directly impact the industry.

While you may not think of your company as a “home improvement” company, the statues may say otherwise. For example, New Jersey law defines a “home improvement” as:

the remodeling, altering, painting, repairing, renovating, restoring, moving, demolishing, or modernizing of residential or noncommercial property or the making of additions thereto, and includes, but is not limited to, the construction, installation, replacement, improvement, or repair of . . . cabinets, kitchens, bathrooms, . . . , and other changes, repairs, or improvements made in or on, attached to or forming a part of the residential or noncommercial property, but does not include the construction of a new residence. . .

Clearly, kitchen and bath companies are considered “home improvement” contractors under New Jersey law. Similar definitions and laws have bee enacted in numerous states including, New York, Pennsylvania, Illinois, Florida and California. In fact, Pennsylvania recently began enforcing its new home improvement contractor’s registration act which provides for criminal penalties for non-compliance.

Over the past year there has been a flurry of lawsuits filed against kitchen cabinet companies alleging consumer fraud. In fact, the New Jersey Supreme Court recently held that the Consumer Fraud Act and its treble-damages remedy can apply to contractors performing interior work on new homes, a ruling that expands the already broad power of the statute. It is expected that many states will follow the New Jersey Supreme Court’s ruling.

Conclusion

It is imperative that you become familiar with your state’s consumer protection laws and stay abreast of recent developments in the law. It may be beneficial to consult with an attorney to ensure that your current business practices, contracts, and customer interactions comply with consumer protection laws. Failure to do so could be very costly to your business.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Critical Collections:Successful sales is about more than just selling

Critical Collections:Successful Sales is About More than Just Selling

By Peter J. Lamont July 09, 2009

The president of a mid-size kitchen cabinet company once noted that the most important facet of his business is sales. He explained that he employs some of the best salespeople in the tri-state area and that their sales have been increasing even in this economy. In his estimation, product knowledge, persistence and absolute commitment to customer satisfaction have been the keys to his success. And many in the industry might agree. After all, if you don't sell, you don't make money.

But while sales are extremely important, there is another component of business that is far more critical. In fact, when the same sales-driven president was asked, "How are your receivables looking?" he stopped in his tracks and responded, "Well, we have been paid on 60 percent of our sales over the last year." Sales are critical, but collecting payment in full for your sales is paramount.

Unfortunately, far too many business owners think, as did our sales-driven friend, that in order to obtain success, all of their focus should be on sales. Nothing could be further from the truth. You can sell 50 kitchens per day, but if you don't get paid for your efforts, your successful sales strategies mean nothing. So now that we have established that collecting full payment for your sales is the most important element of a successful business, what should you be doing to make sure that your receivables are current?

For most of you, your sales are made either to the individual residential customer or a contractor or building owner on larger multi-unit projects. The techniques and mechanisms used to collect outstanding balances differ greatly, depending upon whether it's a homeowner or general contractor that owes you money.

INDIVIDUAL SALES

For individual customer sales, it is wise to ship or deliver all merchandise with an accompanying invoice. In fact, send a duplicate, as many customers find it helpful to receive two copies, one to keep for their records and the other to send with their payment.

Aside from invoices, it is prudent to send monthly statements listing your customer's payments and all unpaid invoices. You will find some customers may not keep accurate records, even losing or forgetting to record your invoices. Sending statements will also alert your customers that you are aware of outstanding invoices and you expect prompt payment.

It goes without saying that it is critical for you to keep an accurate payment history for each customer. To do so, establish a method to monitor your accounts receivables. One great option is to use small business accounting software. Remember, you need to know who owes you money, how much they owe you and how long they have owed it to you.

TAKING ACTION

To collect your money, you will find that you must also aggressively manage your receivables with consistent collection activity. Following are three tactics that work for general collections:

1. As soon as payment is past due, send a copy of the invoice to the customer along with a notation requesting the payment. When you send out your statements, circle the past due invoices.

2. Generally, a handwritten note on a statement or invoice is more effective than computer-printed messages or past-due stamps and stickers.

3. Call your customers yourself. Explain that you are looking for payment of the outstanding invoices and ask when you can expect payment. Daily calls usually get the customer's attention.

If none of these basic techniques work, you will need to be more aggressive. In cases where the customer refuses to respond to your communications, the following techniques are appropriate:

1. Telephone your customer, demanding a check and threaten to turn the account over to a collection agency.

2. If your customer claims to have no money, ask for a post-dated check. If the check bounces, contact your attorney, as there are civil and criminal penalties for passing a bad check. Typically, threats from an attorney will help you recover the money.

3. Pay a personal visit to the customer and demand payment.

4. Finally, if all else fails, file a lawsuit for the full amount owed. If you have a good sales contract, you may be able to demand interest and attorney's fees. While smaller collection matters can be handled pro se, without an attorney, moderate to large amounts should be handled by a competent attorney.

Whether you decide to deal with collection issues yourself or with the assistance of an attorney, remember that your success in business is driven by money in the door, not solely by making sales. The two most important actions to take after you land a sale are (1) keep meticulous and accurate records for that transaction and (2) take immediate action when the customer fails to timely pay an invoice. The longer you wait to collect a paid due account, the less likely you will be to recover the money.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.