Florida Sues 12 Leasing Companies In NorVergence Case

October 21, 2004

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Florida Attorney General Charlie Crist has filed a civil complaint against 12 leasing companies, accusing them of violating Florida's deceptive and unfair trade practices statute. The leasing companies demanded payments from consumers for services despite knowing that services were not being provided, Crist charged.

The leasing companies purchased contracts from NorVergence beginning in 2003 after NorVergence had entered into agreements with approximately 700 small Florida businesses to provide local telephone, mobile phone and high-speed Internet services at reduced rates.

NorVergence allegedly used high-pressure sales tactics, including claims that the offer was for a limited duration and available only to a few select companies, in order to finalize contracts that cost consumers as much as $1,000 per month.

"Small businesses were hurt by the false, deceptive, misleading and unfair sales tactics used by NorVergence," said Crist. "The leasing companies knew the scheme and compounded the harm by making intolerable demands to be paid for services that were unconscionably priced and never provided."

NorVergence targeted small businesses that had good credit ratings and that were owned by persons who were age 60 or older but lacked in-house legal and technology personnel to protect them. The small business owners agreed to sign contracts with NorVergence with an understanding of the following terms:

• They were obtaining telephone services directly from NorVergence;
• NorVergence would provide the consumers with unlimited long distance, cell phone and high-speed Internet at greatly reduced rates; and
• In order to use the NorVergence services, customers would have to rent a "Matrix" box.

These business terms were later found to be inaccurate. Many consumers never received telecommunication service, and in any event NorVergence terminated service when it went into bankruptcy. The company failed to install the Matrix box for consumers who had entered the agreement and thus failed to deliver the promised reduced rates.

Additionally, it was found that the Matrix was nothing more than a commercial router that sells for $500 to $1,200, creating an unconscionably large disparity between the value of the box and the $1,000-per-month lease payments due under the rental agreement.

In further violation of the agreement, the leasing companies then began demanding payments for services that were never provided. When customers missed their monthly bills, the leasing companies accelerated payments and demanded payment in full, in sums ranging from $10,000 to more than $90,000.

After receiving subpoenas from the Attorney General, three leasing companies – CIT Technology Financial Services, Inc., Northland Capital Financial Services and BB&T Leasing Company – agreed to a moratorium of the payment demands and are not currently facing charges.

The 12 leasing companies that the Attorney General is suing are: Wells Fargo, Commerce Commercial Leasing, LLC, Court Square Leasing Corporation, Dolphin Capital Corporation, IFC Credit Corporation, National City Commercial Capital Corporation (formerly known as Information Leasing Corporation), Irwin Business Finance, Liberty Bank Leasing, Patriot Leasing Co. Inc., Popular Leasing U.S.A., Inc., Preferred Leasing, LLC and Sterling National Bank.

Each is charged with two counts of violating Florida's unfair and deceptive trade practices statute. If convicted of the charges, the companies face a $10,000 fine for each violation of the statute and a $15,000 fine for each violation involving a senior citizen, as well as consumer restitution and attorney fees and costs.

The Attorney General is also seeking an injunction to prevent the leasing companies from making further efforts to collect on these unconscionable agreements.

Colorado Investigates

Colorado Attorney General Ken Salazar is urging Colorado business customers of NorVergence to file a written complaint with supporting documents with his office, after businesses complained that the state was not helping them in their struggle with the leasing companies.

“The NorVergence bankruptcy has created significant financial problems for several thousands of businesses nationally,” Salazar said. “Because NorVergence entered into telecom leases with Colorado companies, most of which did not receive the promised equipment or services, my office has been working with other state and federal law enforcement agencies on investigative and legal options to assist them.”

One major issue in this matter concerns the legal enforceability of the equipment leases signed by NorVergence customers. The equipment leases in question obligate the business customers to pay the leasing companies regardless of whether the equipment and services were ever provided by NorVergence. The leases also require the customers to waive all rights, claims and warranties.

The leases also stipulate that any legal disputes must be litigated in the home state of the leasing or finance company holding the assigned lease contract. The leasing and finance companies that purchased the leases from NorVergence are now seeking payment under the lease terms, and in some cases have filed collection lawsuits against the business customers for full payment.

Salazar’s office has also been in contact with the Federal Trade Commission regarding possible combined or separate legal action by the federal government, Salazar said.

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