Factoring, Not Fraud: Why the New Jersey Consumer Fraud Act Does Not Apply to Estoppel Agreements for Factoring Relationships

Factors who rely on payment verification applications, otherwise known as estoppel agreements, can rest easier knowing their validity and enforcement is more secure, at least in New Jersey.[1] Recently, Daniel Cragg and I won a motion to dismiss establishing that the New Jersey Consumer Fraud Act (“NJCFA”),[2] while broad, does not extend to and cover estoppel agreements for factoring relationships brought by the account debtor as a party to the estoppel agreement.[3] There are three fundamental reasons why financial agreements such as estoppel agreements (and the underlying factoring agreement) between businesses are not subject to the NJCFA. The first reason is that there must be a sale under the NJCFA, and an estoppel agreement is not a sale, nor does an account debtor sell anything to the factor. The second reason is that the NJCFA only applies to goods or services available to the average consumer, and a complicated financial agreement between sophisticated business entities such as an estoppel agreement is not available to the average consumer. Lastly, the NJCFA does not apply to transactions between sophisticated business entities with knowledge of the industry. In simpler terms, since someone can’t walk in off the street or put an order in to get a factoring or estoppel agreement on their way home, it is not subject to the NJCFA.

Succeeding on a Claim Under the NJCFA

            To succeed on a claim under the NJCFA, an injured party must allege specific facts that, if proven, would satisfy three elements: (1) there must be “unlawful conduct,” (2) there must be an “ascertainable loss,” and (3) there must be a “casual relationship” between the unlawful conduct and the ascertainable loss.[4] The first prong of the test encompasses a wide range of fraudulent or deceptive behavior, but is nonetheless constrained by the language of the statute. Specifically, the statute prohibits any commercial practices that employ “deception, fraud, false pretense, false promise, [or] misrepresentation” in connection to “the sale or advertisement of any merchandise or real estate.”[5]

            One of the most litigated portions of the statute pertains to what is considered “merchandise” under the NJCFA. The NJCFA defines merchandise as anything offered “directly or indirectly to the public for sale”[6] and has been limited by the courts to apply to “consumer goods or services” that “are purchased for consumption.”[7] In 2019, the New Jersey Supreme court, in All the Way Towing, LLC v. Bucks County International, Inc., set forth the following factors to determine if something is considered merchandise:

(1) the complexity of the transaction, taking into account any negotiation, bidding, or request for proposals process;

(2) the identity and sophistication of the parties, which includes whether the parties received legal or expert assistance in the development or execution of the transaction;

(3) the nature of the relationship between the parties and whether there was any relevant underlying understanding or prior transactions between the parties; and

(4) the public availability of the subject merchandise.[8]


            This decision provides clarity on the approach that New Jersey courts will take to determine whether something will be considered merchandise. However, it also potentially expands the ambiguity of what is encompassed under the NJCFA, and increases judicial discretion, since there is now a four-factor, non-dispositive test used for the analysis. Regardless, the test was clear enough to establish that estoppel agreements are not covered by the NJCFA.

What the NJCFA Covers

            The NJCFA generally covers all transactions for the sale of consumer goods or services to the public. If it is available for purchase to your average person, it is likely covered by the NJCFA. While the NJCFA can apply to commercial transactions such as consumer loans,[9] whether it applies is typically a fact and context specific inquiry.[10] The important question in determining if the NJCFA covers a commercial transaction is if “a member of the public could, if inclined, purchase” the contents of the transaction.[11]

            New Jersey courts have held that the NJCFA applies to faulty tires,[12] custom built trucks,[13] vintage cars,[14] auto repair work,[15] falsely advertised clothing discounts,[16] consumer loans,[17] kitchen renovations,[18] ink cartridges,[19] computers,[20] computer software,[21] exterior walls,[22] insurance,[23] subcontractor work,[24] residential or non-commercial property,[25] and mortgage foreclosure rescue plans,[26] to name a few. Now, however, at least one court has held that it does not apply to estoppel agreements (and impliedly factoring agreements).

What The NJCFA Does Not Cover

            The NJCFA does not cover transactions that are between sophisticated parties (generally), things that are not sold, and transactions that do not constitute merchandise. The NJCFA coverage for transactions between sophisticated parties needs to be qualified because there is an exception when the sophisticated parties lack sufficient knowledge on the subject to the point it essentially puts them “in a consumer oriented situation.”[27] For example, the NJCFA was found to apply to a small business owner that utilized a credit card software for this first time.[28] However, when two sophisticated businesses enter into an agreement in a field where they have prior experience or knowledge, they will likely not be subject to the NJCFA. In the case of financial agreements such as estoppel and factoring agreements, the parties entering into them are generally sophisticated enough that they would not qualify for NJCFA coverage.

There is not an analogous exception under the requirement for a sale, however. This is one of several reasons why estoppel agreements do not fall within the statute: they are a promise to pay what is owed, and nothing is being sold. There is a categorical difference between purchasing something for consumption and agreeing to pay debts already assumed. While the NJCFA’s applicability has been stretched quite far by the courts, attempting to claim that the statute covers non-sales was appropriately rejected by the court.

The most nuanced arguments often pertain to the merchandise requirement of the NJCFA. The ambiguity is derived from the language of the statute because it includes the catch-all provision “anything offered, directly or indirectly to the public for sale.”[29] This has allowed for the NJCFA to cover a wide variety of different transactions. Although the four-factor test under All the Way Towing provides some clarity on where the line is drawn, it is still not explicitly clear However, financial agreements (such as factoring and estoppel agreements) as well as business-to-business transactions that an ordinary person would not engage in are, according to at least one court, excluded from the NJCFA.

            Importantly, the Third Circuit, District of New Jersey, and New Jersey state courts have held that third parties cannot assert another party’s NJCFA rights,[30] and that the NJCFA does not cover franchising agreements,[31] agency arrangements,[32] licensing agreements,[33] contracts for the sale of goods between purchasers and wholesalers,[34] check cashing services,[35] contracts that have lengthy RFP and evaluation periods,[36] services by learned professionals,[37] and telephone switching services,[38] to name a few. This effectively removes any argument that estoppel agreements could be covered by the NJCFA.

If you are a factoring business seeking legal advice or are facing litigation (including a Consumer Fraud Act claim), please do not hesitate to contact the experienced factoring attorneys at Eckland & Blando, LLP.

[1] Research and drafting assistance provided by Daniel Cragg, partner at Eckland & Blando, and Jacob Bourgault, law clerk at Eckland & Blando.

[2] N.J.S.A. 56:8-1.

[3] See FK Construction Funding LLC v. CS Energy LLC¸ No. MID-L-000696-23 (N.J. Super 2023).

[4] N.J.S.A. 56:8-19; see also Hoffman v. Hampshire Labs, Inc., 405 N.J. Super. 105, 113, 963 A.2d 849, 854 (App. Div. 2009) (describing the test used be courts to analyze a claim under the NJCFA).

[5] N.J.S.A. 56:8-2 (emphasis added).

[6] N.J.S.A. 56:8-1(c).

[7] J & R Ice Cream Corp. v. California Smoothie Licensing Corp., 31 F.3d 1259, 1274 (3d Cir. 1994).


[8] All the Way Towing, LLC v. Bucks Cnty. Int’l, Inc., 236 N.J. 431, 447–48, 200 A.3d 398, 408 (2019).


[9] Lemelledo v. Beneficial Mgmt. Corp. of Am., 150 N.J. 255 (1997); Gonzalez v. Wilshire Credit Corp., 207 N.J. 557 (2011).

[10] All the Way Towing, 200 A.3d at 406 (“Plainly, however, context is important. We do not suggest that all business-to-business transactions automatically fit the intendment of a sale offered to the public.”).

[11] Id. at 408.

[12] Talalai v. Cooper Tire & Rubber Co., 360 N.J. Super. 547 (Law Div. 2001).

[13] All the Way Towing, 200 A.3d. at 406.

[14] Real v. Radir Wheels, Inc., 198 N.J. 511 (2009).

[15] Sprenger v. Trout, 375 N.J. Super. 120, 866 A.2d 1035 (App. Div. 2005).


[16] Robey v. SPARC Grp. LLC, 474 N.J. Super. 593 (App. Div. 2023).

[17] Lemelledo v. Beneficial Mgmt. Corp. of Am., 150 N.J. 255 (1997); Gonzalez v. Wilshire Credit Corp., 207 N.J. 557, 586 (2011).

[18] Cox v. Sears Roebuck & Co., 138 N.J. 2 (1994).

[19] Papergraphics Int’l Inc. v. Correa, 389 N.J. Super. 8 (App. Div. 2006).

[20] Hundred E. Credit Corp. v. Eric Schuster Corp., 212 N.J. Super. 350 (App. Div. 1986).

[21] Stockroom, Inc. v. Dydacomp Dev. Corp., 941 F. Supp. 2d 537 (D.N.J. 2013); Dreier Co., Inc. v. Unitronix Corp., 218 N.J. Super. 260 (App. Div. 1986).

[22] Coastal Grp., Inc. v. Dryvit Sys., Inc., 274 N.J. Super. 171 (App. Div. 1994).

[23] Daloisio v. Liberty Mut. Fire Ins. Co., 754 F. Supp. 2d 707 (D.N.J. 2010). 

[24] JD James Constr., LLC v. PDP Landscaping, LLC, No. A-4903-18T3, 2020 WL 5587439 (N.J. Super. Ct. App. Div. Sept. 18, 2020).


[25] Marascio v. Campanella, 298 N.J. Super. 491, 689 A.2d 852 (App. Div. 1997).

[26] D’Agostino v. Maldonado, 216 N.J. 168, 173, 78 A.3d 527, 530 (2013).

[27] Papergraphics Int’l Inc, N.J. Super 8 at 12 (citing BOC Group, Inc. v. Lummus Crest, Inc., 251 N.J. Super. 271, 277, 597 A.2d 1109 (Law Div. 1990)).

[28] Stockroom, Inc., 941 F. Supp. 2d.

[29] N.J.S.A. 56:8-1(c).

[30] Abbott ex rel. Abbott v. Burke, 206 N.J. 332, 371, 20 A.3d 1018, 1042 (2011).

[31] J&R Ice Cream Corp. v. CA Smoothie Licensing Corp., 31 F.3d 1259 (3d Cir. 2004).

[32] A.H. Meyers & Co. v. CNA Ins. Co., 88 F. App’x 495 (3d Cir. 2004).

[33] BOC Group v. Lummus Crest, Inc., 251 N.J. Super. 271, 597 A.2d 1109 (Law Div. 1990).

[34] Bracco Diagnostics, Inc. v. Bergen Brunswick Drug Co., 226 F.Supp.2d 557 (D.N.J. 2002).

[35] City Check Cashing, Inc. v. National State Bank, 244 N.J. Super. 304, 582 A.2d 809 (App. Div. 1990).

[36] Princeton Healthcare Sys. v. Netsmart New York, Inc., 422 N.J. Super. 467, 29 A.3d 361 (App. Div. 2011).

[37] Macedo v. Dello Russo, 178 N.J. 340, 840 A.2d 238 (2004).

[38] Arc Networks, Inc. v. Gold Phone Card Co., Inc., 333 N.J. Super. 587, 756 A.2d 636 (Law Div. Apr. 27, 2000).