The recent Appellate Division decision in Shaw v. Shand, 460 N.J. Super. 592 (App. Div. 2019), has upended the "learned professional" exception to the Consumer Fraud Act (CFA). The Shaw decision dramatically eroded the availability of the CFA exemption for "semi-professionals" by requiring a semi-professional to establish a clear conflict between the CFA and any applicable licensing regulations before the semi-professional is entitled to the exemption. Depending upon how future courts interpret Shaw, the case could have a broader effect on other licensed professionals, like accountants, architects, and engineers.

To fully understand the significance of the Shaw decision, some background is in order.

What is today known as New Jersey's CFA was enacted in 1960 and was designed to prohibit unlawful conduct or practices, which are broadly defined, in N.J.S.A. 56:8-2, as:

The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged hereby.

The remedial goal of the CFA is to establish a broad business ethic promoting a standard of conduct that contemplates good faith, honesty in fact, and observance of fair dealing. Liability is imposed even if the prohibited conducted was committed in good faith. A practice may be declared unlawful whether or not a person has in fact been misled, deceived or damaged.

The far-reaching scope of the CFA, its liberal construction by courts, and the availability of treble damages and attorney fees strikes fear into the hearts of anyone subject to its remedies. This is especially true because defendants' insurance policies are unlikely to cover any fraud-based claims, and almost certainly won't cover any attorney fee award or treble damage award. Thus, the job of insurance defense counsel assigned to handle a matter becomes more complicated and conflict-prone when the complaint includes a CFA count.

From the defense perspective, one of the few bright spots in CFA jurisprudence has been a judicially-created "learned professional" exception.

Origins of the "Learned Professional" and "Semi-Professional" Exclusion

The "learned professional" exception can be traced to Neveroski v. Blair, 141 N.J. Super. 365 (App. Div. 1976). There, the Appellate Division determined that the CFA was inapplicable to real estate brokers because the broker, as a "semi-professional" subject to testing, licensing regulations and penalties, was deemed to be in a far different category from car salesmen or home improvement contractors. The Neveroski court recognized that brokers were something beyond the ordinary commercial seller of goods or services. As an aside, Neveroski was abrogated by a 1976 amendment that added the sale of real estate to N.J.S.A. 56:8-2. Later, in 1999, the legislature passed N.J.S.A. 56:8-19.1, which exempted brokers from consumer fraud law provided they met certain criteria concerning their "actual knowledge" and "reasonable diligence."

In a subsequent New Jersey Supreme Court decision, Macedo v. Dello Russo, 178 N.J. 340 (2004), the court reaffirmed that "learned professionals," in that case doctors, are beyond the reach of the CFA provided they are operating in their professional capacities. The Macedo court noted the "Legislative acquiescence" to the professional services exception to the CFA and concluded that the legislature would have taken action to amend the statute if it disapproved of the doctrine. Id. at 346.

Thereafter, in Plemmons v. Blue Chip Ins. Services, 387 N.J. Super. 551 (App. Div. 2006), the Appellate Division expanded the exception when it determined that insurance brokers were subject to testing, licensing and regulation comparable to real estate brokers and thus were "semi-professionals" exempt from liability under the CFA.

The exception had provided a refuge to licensed professionals for over a generation until the Shaw decision.

The 'Shaw' Decision

The Shaw court held that the expansive interpretation of "professional" set forth in prior decisions including Plemmons was inconsistent with the Supreme Court's decision in Lemelledo v. Beneficial Management Corp. of Am., 150 N.J. 255 (1997). In Lemelledo, the court held that the CFA would apply to a defendant unless that defendant was subject to a separate regulatory scheme and a "direct and unavoidable conflict" existed between application of the CFA and the application of that regulatory scheme. Id. at 270.

In Shaw, the question was whether the CFA applied to home inspectors. The court determined that home inspectors were not historically recognized as "learned professionals" and concluded that, because there was no direct and unavoidable conflict between the CFA and the regulations governing home inspectors, the CFA applied to home inspectors. Prior to Shaw, several unreported Law Division cases had come to the opposite conclusion.

The Attorney General's office, in arguing that the Appellate Division in Shaw should narrow the scope of the "learned professional" exception, noted that home inspectors "are not even required to have a college degree." 460 N.J. Super. at 605. The Attorney General's office argued that the "learned professional" exception should be limited to the narrow class of professionals identified in Macedo as exempt: physicians, attorneys and similar "learned" professionals who were not permitted to advertise when the legislature enacted the 1960 precursor to the CFA. Ibid.

The Appellate Division agreed with the Attorney General that nothing in the text of the CFA would support a blanket exception for semi-professionals based solely on the existence of a separate regulatory scheme that regulates the subject industry. And the Appellate Division also agreed with the Attorney General that "ideally" the doctrine should be narrowly construed to include only those professions who have historically been recognized as "learned" based on the requirement of "extensive learning or erudition." Id. at 618-19. Finally, the court noted that it was "unpersuaded" by the Macedo court's reliance upon the perceived "Legislative acquiescence" to the expansion of the "learned professional" exception. Id. at 619.

The core of the Shaw decision was its holding that: "[H]ome inspectors and other licensed semi-professionals are not learned professionals simply because they are otherwise regulated, and that they remain subject to CFA liability absent a finding that 'a direct and unavoidable conflict exists between application of the CFA and application of the other regulatory scheme.'" Id. at 620. Quoting Lemelledo, the Shaw court explained that, for such a conflict to exist, the other regulations must deal "specifically, concretely and pervasively with the particular activity, implying a legislative intent not to subject parties to multiple regulations that, as applied, will work at cross purposes." Ibid. The conflict must be patent and sharp, not a mere possibility.

The Effect of 'Shaw' on Other Professionals

Arguably, in the wake of Shaw, the only professionals entitled to the "learned professional" exception to the CFA are those that are "historically recognized" as such. In light of the fact that the Shaw decision noted that the historical "learned" professions were law, medicine and theology, an extreme interpretation of Shaw would be that the court is questioning the applicability of the CFA exemption to other seemingly "learned professionals," such as accountants, architects and engineers.

An even more difficult question is whether and when any professional that previously fell under the category of "semi-professional" under the CFA will ever be able to prove a "direct and unavoidable conflict" sufficient to warrant CFA exemption. Given that the Shaw court ruled that such decisions are to be made on a case-by-case basis, a finding that a semi-professional is exempt on one issue is not dispositive as to another in the same profession where the underlying conduct or issue is subject to a different regulatory provision. Thus, the CFA exemptions for ambulance service providers, lab testing services, hospital services and nursing homes, to name a few, are now in question.

And finally, the Shaw decision seems to leave insurance brokers most in the lurch. Plemmons ruled that insurance brokers were exempt. Shaw chose to "depart" from Plemmons. Judge Sabbatino, who sat on both panels, acknowledged that he "changed [his] mind." But Judge Sabbatino's concurrence references the fact that the licensure requirements for insurance brokers are more stringent than those governing home inspectors. His concurrence suggests that insurance brokers have a stronger basis for a blanket occupational exemption from the CFA. But as semi-professionals, insurance brokers under Shaw would still be subject to the "direct and unavoidable conflict test" so the test would be not whether the industry is highly regulated, but whether one of those regulations directly conflicts with the CFA under a particular set of facts.

Judge Sabbatino's concurrence mentions that this case may present a suitable opportunity for the Supreme Court to provide additional guidance on the "learned professional" doctrine. He is correct. As it stands, except for lawyers, doctors and theologians, there is no clear answer as to whether a professional or semi-professional remains subject to the CFA or is exempt. The practical implication of this uncertainty is that smart plaintiff's attorneys (attorneys are one of the few learned professionals, after all) will continue to include CFA claims, and defense attorneys will feel less confident of having those claims dismissed.

Jeffrey LaRosa and Eric Inglis are co-chairs of the Professional Liability Practice Group at Schenck Price Smith & King in Florham Park. Inglis also co-chairs the firm's Litigation Department.