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Jury finds Developer Guilty of Consumer Fraud in Marketing High Rise Condominium

Jury finds Developer Guilty of Consumer Fraud in Marketing High Rise Condominium

 

In Etelson v. Shore Club Urban Renewal LLC, a Hudson County jury found that the developer, the LeFrak Organization, Inc., Newport Associates Development Company and James LeFrak violated the Consumer Fraud Act and Planned Real Estate Development Full Disclosure Act ("PREDFA") in their advertising and marketing of a luxury high rise riverfront condominium in Jersey City (Shore Complex, North and South Towers). The jury found that the developer and its marketing materials misled purchasers of condominium units by advertising breathtaking and panoramic views of the water and Manhattan skyline when the developer knew those views would be blocked in the near future.

The jury relied upon several key facts in order to find the Developer liable for consumer fraud.  The developer's marketing materials included a painting of the Shore Complex showing a smaller 11- 12 story building to be constructed across the street and northeast, between the Shore Complex and the Hudson River.  The developer's sales brochure and website did not show any buildings located between the shore Complex and the Hudson River. There were some drawings that showed a smaller building to be constructed in the future.  In addition, to the Developer's marketing materials, the developer's sales staff told potential purchasers that a smaller building (12-15 story) might be constructed on the nearby parcel. All the while the Developer was constructing a larger building that would block the view of the river and the Manhattan skyline.  

The unit owners testified that they purchased these units for the views of the river and the Manhattan skyline. The unit owners also testified that they would not have purchased the units if they were informed that a taller building was going to be constructed across the street blocking their views.

 The jury awarded the unit owners $1,253,420 in damages representing the reduction in value of their units without the views. Because the jury found that the developer violated the Consumer Fraud Act, the plaintiffs were awarded treble damages, plus their costs and attorneys fees for a total damage award of $4,817,638.12.  The developer appealed and the Appellate Division affirmed the jury verdict and found that it was supported by the evidence. 

 The evidence at trial showed that while actively marketing the Shore Complex, the developer had submitted plans to the City planning board seeking approval for a 31 story rental apartment building tower to be constructed which would block the Shore Complex unit owners' views of the river and the Manhattan skyline. The developer did not change its marketing material and did not disclose this to potential purchasers. Instead the developer continued to market the units by advertising spectacular views knowing that they would not last for long.     

The jury found that the developer had misrepresented the views and failed to disclose their plan to develop the taller 31 story tower that would block the views. None of the developer's sales agents told prospective purchasers that a taller building would be constructed between the Shore Complex and the Hudson River.  The Developer's sales staff was not told about the plans to construct a 31 story tower.  They assured potential purchasers that the building to be constructed in the future would not block views for anyone residing on the 15th floor or higher.  Interestingly, the Developer's sales staff testified that if they had known of plans to construct a 31 story tower between the Shore Complex and the river, they would have disclosed this to potential purchasers.  

 At trial, the developer argued that it did not mislead the purchasers because there were disclaimers on the marketing material and in the Public Offering Statement. The Appellate Court noted that these disclaimers were not dispositive on the issue of misrepresentation and indicated that the developer would still be liable if the jury found that there were misrepresentations or omissions that induced a purchaser to buy a unit.  

This case is significant to Associations who are in the process of transition, the transfer of control from the developer to the Association and the identification and resolution of construction defects and financial defects.  The court affirmed that a developer can be liable to individuals for consumer fraud in the marketing and advertising of the condominium. The court also noted the significance of marketing materials, advertisements and conversations that were not part of the sales contract or the POS.