People ex rel. James v. N. Leasing Sys., Inc.
| Decision Date | 11 February 2021 |
| Docket Number | 2020-02758,Appeal Nos. 12898,2020-02791,2020-02757,12901,Index No. 450460/16,Case Nos. 2020-02755,2020-02756,12899,12900 |
| Citation | 193 A.D.3d 67,142 N.Y.S.3d 36 |
| Parties | In the Matter of the PEOPLE of the State of New York, BY Letitia JAMES, etc et al., Petitioners-Respondents-Appellants, v. NORTHERN LEASING SYSTEMS, INC., et al., Respondents-Appellants-Respondents. |
| Court | New York Supreme Court — Appellate Division |
Rottenberg Lipman Rich, P.C., New York (Robert A. Freilich and Mark M. Rottenberg of counsel), for Joseph I. Sussman, Joseph I. Sussman, P.C. and Eliyahu R. Babad, appellants-respondents.
Dechert LLP, New York (Andrew J. Levander, Neil Steiner and Patrick Andriola of counsel) and Moses & Singer LLP, New York (Robert D. Lillienstein and Scott E. Silberfein of counsel) for Northern Leasing Systems, Inc., Lease Finance Group LLC, MBF Leasing LLC, Lease Source–LSI, LLC, Golden Eagle Leasing LLC, Pushpin Holdings LLC, Jay Cohen and Neil Hertzman, respondents-appellants.
Letitia James, Attorney General, New York (Ester Murdukhayeva and Steven C. Wu of counsel), for the State of New York and Letitia James, respondents-appellants.
Troy K. Webber, J.P., Angela M. Mazzarelli, Lizbeth González, Saliann Scarpulla, JJ.
WEBBER, J.P.
In April 2016, petitioners, the Attorney General (AG) and the Deputy Chief Administrative Judge for New York City Courts, commenced the instant proceeding against respondents Northern Leasing Systems, Inc., Lease Finance Group LLC, MBF Leasing LLC, Lease Source–LSI, LLC, Golden Eagle Leasing LLC, Pushpin Holdings LLC, Jay Cohen, and Neil Hertzman (Northern Respondents), alleging that they engaged in repeated and persistent fraud in that they tricked individuals, many of whom were small business owners, into entering into unconscionable equipment finance leases (EFLs) for credit card processing equipment.1 Although the action was commenced in 2016, the acts complained of date from 2010.
The following is drawn from an extensive and lengthy record, which includes the petition and sworn affirmations by some 873 individuals who have filed complaints with the AG's office, as well as affidavits by the then Deputy Chief Administrative Judge and New York Civil Court employees, documentary materials, respondents’ answers, affidavits by respondents’ officers and employees, and other records.
According to petitioners, banks would hire the Northern Respondents’ affiliated sales representatives, also known as "Independent Sales Organizations" (ISO), to market and sell the banks’ credit card processing services to consumers and small businesses, and, at the same time, those sales representatives, acting on behalf of the Northern Respondents, would lease credit card processing equipment that was not provided by the banks to the consumers and businesses via the EFLs. The sales representatives misrepresented to those consumers the nature and terms of the EFLs and failed to disclose that they were entering into contracts with two different companies, as well as that they were entering into an equipment lease. Many consumers did not understand the nature of the EFLs they signed.
The Northern Respondents trained their affiliated ISO sales representatives and provided them with specific EFL forms and other written materials. Those sales representatives would target owners of small businesses such as flower shops, hair salons, bodegas, and small restaurants and bars all over the country. According to petitioners, many of the targeted business owners were over 65 years old, disabled, new immigrants, or not proficient in English. The consumers were given little opportunity to review the EFLs before signing and were not provided with copies of the EFLs. Following the signing of the EFLs by the consumers, the sales representatives were unreachable. Petitioners also allege that in some instances, the sales representatives forged the names of the consumers or unilaterally altered terms of the EFLs after they were signed.
The EFLs contained hidden, one-sided onerous terms, including a "no-cancellation provision" and an automatic month-to-month renewal provision. It is also alleged that the Northern Respondents would also make it exceedingly difficult for individuals to cancel an EFL or return unwanted equipment and that they would continue collecting monthly payments after the expiration of initial EFL terms, typically for 48 months, even though the amounts paid grossly exceeded the value of the equipment, which typically was only a few hundred dollars. The EFLs also contained a personal guaranty provision, requiring all individual signers to personally guarantee the EFLs. The EFLs contained a forum selection clause requiring customers to consent to the jurisdiction of New York City Courts regardless of where the lessee was physically located and an alternate service provision that allowed respondents to initiate legal proceedings by sending certified mail to the mailing address on the EFL or the individual guarantor's current or last known address.
Petitioners allege that when lessees refused to pay, the Northern Respondents and their lawyers, Joseph I. Sussman, P.C., Joseph I. Sussman, and Eliyahu R. Babad (Attorney Respondents) would harass the lessees and guarantors and threaten litigation to collect on the debts, threaten the individual guarantors with harm to their personal consumer credit scores, and employ harassing debt collection practices aimed at individuals. They commenced actions in New York City Civil Court in New York County (New York County Civil Court), making it difficult for nonresidents to appear (more than 95% of consumers sued by the Northern Respondents resided outside of New York), resulting in thousands of dollars of default judgments against them, they obtained default judgments by serving summonses and complaints at addresses they knew were outdated, and they filed lawsuits that were untimely.
According to petitioners, since 2010, the Northern Respondents have filed more than 30,000 actions in New York County Civil Court and obtained more than 19,000 default judgments, accounting for a large portion of the total general, commercial, and consumer debt filings and default judgments in New York County Civil Court.2 Consumers made 1,643 complaints to the AG for the period from January 1, 2010 to December 31, 2015.
The State brought this special proceeding against respondents under Executive Law § 63(12) for engaging in repeated and persistent fraud and under Business Corporation Law (BCL) § 1102(a)(2) to have Northern Leasing System dissolved, seeking to permanently enjoin respondents from engaging in the above-described deceptive business practices and from conducting any business or performing any act in and from the State of New York involving equipment finance leasing and/or debt collection (or, alternatively, provide a performance bond), to rescind all of the EFLs obtained by fraud or misrepresentation, and to direct respondents to pay restitution, damages, disgorgement, civil penalties, and costs, and provide an accounting. The Administrative Judge seeks to vacate thousands of default judgments that respondents have obtained in New York County Civil Court, to stay all executions to collect on those judgments, and to compel respondents to pay restitution of all amounts collected based on those judgments, pursuant to CPLR 5015(c) and (d).
The Northern and Attorney Respondents separately moved to dismiss the petition. The motion court denied the Northern Respondents’ motion but granted the Attorney Respondents’ motion to dismiss the cause of action based on violations of General Business Law § 349. On appeal, this Court affirmed the denial of the Northern Respondents’ motion to dismiss but reversed the granting of the Attorney Respondents’ motion to dismiss ( Matter of People v. Northern Leasing Sys., Inc., 169 A.D.3d 527, 94 N.Y.S.3d 259 [1st Dept. 2019] ). While that appeal was pending, the Northern Respondents moved for disclosure and a trial, and petitioners sought a summary determination against the Northern Respondents. Following our decision, the Attorney Respondents moved for summary judgment, and petitioners sought a summary determination against the Attorney Respondents.
We find that Supreme Court correctly denied respondents’ motions and granted petitioners’ motion for summary determination of their claims, as no material issues of fact exist warranting a trial (see e.g. Matter of People v. Trump Entrepreneur Initiative LLC, 137 A.D.3d 409, 418–419, 26 N.Y.S.3d 66 [1st Dept. 2016], appeal withdrawn 31 N.Y.3d 1011, 78 N.Y.S.3d 712, 103 N.E.3d 783 [2018] ). The Northern Respondents’ evidence failed to raise factual issues as to their liability.
As a threshold matter, Supreme Court properly denied the Northern Respondents’ request for additional discovery, finding that there was no showing of need. "A special proceeding, as authorized by Executive Law § 63(12), is intended as an expeditious means for the Attorney General to prevent further injury and seek relief for the victims of business fraud" ( People v. Apple Health & Sports Clubs, Ltd., Inc., 206 A.D.2d 266, 268, 613 N.Y.S.2d 868 [1st Dept. 1994], lv dismissed in part, denied in part 84 N.Y.2d 1004, 622 N.Y.S.2d 908, 647 N.E.2d 114 [1994] ). Contrary to the Northern Respondents’ assertions, they are not automatically entitled to conduct depositions or to engage in other discovery (see CPLR 408 ; Hirsch v. Stewart, 63 A.D.3d 74, 81, 877 N.Y.S.2d 285 [1st Dept. 2009] ; Matter of Allocca v. Kelly, 44 A.D.3d 308, 309, 844 N.Y.S.2d 195 [1st Dept. 2007] ; Stapleton Studios, LLC v. City of New York, 7 A.D.3d 273, 274–275, 776 N.Y.S.2d 46 [1st Dept. 2004] ). Discovery is disfavored in a special proceeding and is permitted only on leave of court upon a showing of "ample need" ( Matter of Shore, 109 A.D.2d 842, 843–844, 486 N.Y.S.2d 368 [2d Dept. 1985] [internal quotation marks...
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