People ex rel. James v. N. Leasing Sys., Inc.
| Decision Date | 29 May 2020 |
| Docket Number | 450460/2016 |
| Citation | 133 N.Y.S.3d 389,70 Misc.3d 256 |
| Parties | The PEOPLE of the State of New York, BY Letitia JAMES, Attorney General of the State of New York, and George J. Silver, Deputy Chief Administrative Judge for New York City Courts, Petitioners, v. NORTHERN LEASING SYSTEMS, INC., Lease Finance Group LLC, MBF Leasing LLC, Lease Source-LSI, LLC a/k/a Lease Source, Inc., Golden Eagle Leasing LLC, Pushpin Holdings LLC, Jay Cohen a/k/a Ari Jay Cohen, individually, as a principal of Northern Leasing Systems, Inc., as a member of Lease Finance Group LLC, and as an officer of Pushpin Holdings LLC, Neil Hertzman, individually and as an officer of Northern Leasing Systems, Inc., Joseph I. Sussman, P.C., Joseph I. Sussman, individually and as a principal of Joseph I. Sussman, P.C., and Eliyahu R. Babad, individually and as a principal or associate of Joseph I. Sussman, P.C., Respondents. |
| Court | New York Supreme Court |
Jane M. Azia Esq., Bureau Chief, Laura J. Levine Esq., Deputy Bureau Chief, Mary Alestra Esq., Special Counsel, Mark Ladov Esq., Assistant Attorney General, Office of Attorney General Letitia James, 28 Liberty Street, New York, NY 10005, For Petitioners
Thomas J. Kavaler Esq., Cahill Gorden & Reindel LLP, 80 Pine Street, New York, NY 10005,Robert Lillienstein Esq., Scott Silberfein Esq., Moses & Singer LLP 405 Lexington Avenue, New York, NY 10174, For Respondents Northern Leasing Systems, Inc., Lease Finance Group LLC, MBF Leasing LLC, Lease Source-LSI, LLC, Golden Eagle Leasing LLC, Pushpin Holdings, Cohen, and Hertzman
Robert A. Freilich Esq., Mark M. Rottenberg Esq., Rottenberg Lipman Rich, P.C., 369 Lexington Avenue, New York, NY 10017, For Respondents Joseph I. Sussman, P.C., Sussman, and Babad
Petitioner James, New York Attorney General, sues pursuant to New York Executive Law § 63(12) for respondents' fraud and other illegal conduct in leasing equipment. The lessors are respondents Northern Leasing Systems, Inc., Lease Finance Group LLC, MBF Leasing LLC, Lease Source-LSI, LLC, Golden Eagle Leasing LLC, and Pushpin Holdings (Northern Leasing respondents). Respondents Cohen and Hertzman are officers of the Northern Leasing respondents. Respondents Joseph I. Sussman, P.C., Sussman, and Babad (attorney respondents) enforced the leases through litigation. Petitioner James also seeks dissolution of Northern Leasing, Inc., based on its fraud and illegal conduct.
NY Bus. Corp. Law (BCL) § 1101(a)(2). Petitioner Judge Silver seeks to vacate the default judgments respondents have obtained in actions to enforce the equipment leases. C.P.L.R. § 5015(c).
Petitioners move for a judgment for the relief sought in their petition based on the supporting evidence presented. C.P.L.R. § 409(b). Respondents move for a judgment dismissing the claims against them, id. , or, to the extent that petitioners' claims are not dismissed, for a trial on the surviving claims, C.P.L.R. § 410, and for pre-trial disclosure. C.P.L.R. § 408.
Petitioners present 873 affidavits by equipment lessees or their guarantors complaining about the Northern Leasing respondents and the salespersons through whom the Northern Leasing respondents' leases were entered. The disputes arose from equipment finance leases (EFLs) of point of sale credit card processing equipment, of check reading machines, and of signs. While the affidavits recount the salepersons' misrepresentations to the lessees and guarantors, since those statements are not offered for their truth, they are not hearsay. People v. Patterson , 28 N.Y.3d 544, 549, 46 N.Y.S.3d 511, 68 N.E.3d 1242 (2016) ; People v. Becoats , 17 N.Y.3d 643, 655, 934 N.Y.S.2d 737, 958 N.E.2d 865 (2011) ; People v. Bautista , 132 A.D.3d 523, 525, 18 N.Y.S.3d 47 (1st Dep't 2015), aff'd , 30 N.Y.3d 935, 66 N.Y.S.3d 146, 88 N.E.3d 304 (2017) ; Bruckmann, Rosser, Sherrill & Co., L.P. v. Marsh USA, Inc. , 87 A.D.3d 65, 68 n.*, 926 N.Y.S.2d 471 (1st Dep't 2011).
Lessees attest that they signed an EFL on a single page and later received additional pages with their signatures on them or an EFL with terms different than the salespersons described. Salespersons failed to leave a copy of the signed EFL with lessees and informed them that they were signing credit applications or price quotation documents. Lessees reported not receiving a copy of the EFL even after requesting one or receiving copies (1) that were illegible due to poor facsimile quality or small print, (2) only after requesting a copy from the Northern Leasing respondents, or (3) after the renegotiation or cancellation period expired.
Most lessees believed they were purchasing credit card processing services, renewing those services at a better rate, or upgrading or replacing current equipment and were completely unaware of entering any agreement with the Northern Leasing respondents. Salespersons represented to lessees that the EFL was required for lower rates on credit card processing services.
Lessees complained of not receiving equipment or receiving equipment that was not the type they had agreed to, did not function, or ceased functioning, which the salespersons failed to remedy. Many lessees further complained of paying thousands of dollars for equipment that costs only hundreds of dollars and of the Northern Leasing respondents charging for equipment that was inoperative or obsolete or that the lessees never received, never used, or returned, charges that continued years after the EFL expired or the lessee's business was sold or closed.
Lessees reported forgery, fraud, or misrepresentation to the Northern Leasing respondents without a response, even though the lessees completed the affidavits that the Northern Leasing respondents required, and complained that they ignored inquiries into the debts owed. The Northern Leasing respondents attempted to collect the claimed debts from guarantors who were not owners of the business for which the equipment was leased, but were employees, volunteer workers, visitors, or identity theft victims with no connection to the business.
Regarding the collection actions commenced to enforce the EFLs and the resulting default judgments, many lessees and guarantors attest that they never received notice of the action or that it was commenced many years after the EFL expired. Most of the lessees and guarantors, most of whom did not reside in New York, attest that defending the action in New York was cost prohibitive. Lessees and guarantors further complained that the Northern Leasing respondents made excessive demands for payment via written correspondence and via telephone, threatened to collect from family members or report the lessees and guarantors to credit reporting agencies, and actually made such reports.
According to Cohen, Northern Leasing Systems' founder and chief executive officer, the Northern Leasing respondents' business is to finance leases of equipment. Four parties are involved in the EFLs that the Northern Leasing respondents finance: the merchant-lessees, the personal guarantors, independent sales organizations (ISOs), and the lessors, the Northern Leasing respondents. The Northern Leasing respondents, which employ no salespersons, rely on the ISOs to secure EFL applications from lessees. Typically, the ISOs sell credit card processing services on a bank's behalf. The ISOs acquire, deliver, and install the equipment for the lessees. After the lessee and guarantor sign the EFL application, the ISOs present it to the Northern Leasing respondents with a voided check to allow for automatic debits of the monthly EFL payments. The Northern Leasing respondents verify the EFL application through a credit report. The signed EFL applications become EFLs only when the Northern Leasing respondents sign them. After the Northern Leasing respondents approve an EFL, they pay the ISO the full amount of the EFL, and the ISO transfers title of the equipment to the Northern Leasing respondents, which then sign the EFL.
In a special proceeding: "If triable issues of fact are raised they shall be tried forthwith and the court shall make a final determination thereon." C.P.L.R. § 410 ; Matter of Pharmacia & Upjohn Co. (Elan Pharms., Inc.) , 10 A.D.3d 331, 334, 781 N.Y.S.2d 95 (1st Dep't 2004). See People ex rel. Robertson v. New York State Div. of Parole , 67 N.Y.2d 197, 202, 501 N.Y.S.2d 634, 492 N.E.2d 762 (1986). The Northern Leasing respondents maintain that their verification telephone calls and "welcome letters" to lessees and the equipment delivery and acceptance receipts confirm execution and receipt of the EFL, its terms, and receipt of functioning equipment and, together with their logs confirming lessees' payments, belie the lessees' complaints. Aff. of Oksana Arkhipova ¶¶ 12-146 (Apr. 5, 2019).
The transcripts of recorded verification telephone conversations with lessees on which the Northern Leasing respondents rely to refute the lessees' complaints, however, are certified by the transcriber as an accurate transcription of the recording, but lack any foundation for the authenticity of the recording transcribed. Neither participant in the recorded conversation attests that the recording is a fair and accurate reproduction of the conversation. Grucci v. Grucci , 20 N.Y.3d 893, 897, 957 N.Y.S.2d 652, 981 N.E.2d 248 (2012) ; People v. Ely , 68 N.Y.2d 520, 527, 510 N.Y.S.2d 532, 503 N.E.2d 88 (1986). See People v. Dicks , 100 A.D.3d 528, 528, 954 N.Y.S.2d 83 (1st Dep't 2012). The transcript does not even identify the Northern Leasing respondents' participant.
Even if the court considers the recorded conversations, the Northern Leasing respondents do not show that these conversations occur with any regularity. Northern Leasing Systems director of information technology admits that the Northern Leasing respondents...
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