FTC Asks for $181 Million NorVergence Enchilada
by Kit Menkin
NorVergence, Inc., a telecommunications company based in Newark, New Jersey, offered businesses discounts on telecommunications services through long-term leases on so-called "matrix" boxes. When the provider filed Chapter 11 on July 7, 2004 and then Chapter 7 on July 15, 2005 primarily at the demand of three leasing companies, the boxes failed to deliver the promised discounts as the telephone companies announced they were shutting off their services, leaving businesses stuck with expensive years-long leases.
Allegedly there were over 11,000 such “Equipment Rental Agreements” to primarily small business throughout the United States worth $200 million dollars, all arranged by NorVergence, with the contract discounted at additional profit to the seller for the “private label contract.” 23 states attorneys general and District of Columbia then won settlements against the top leasing companies of CIT Financial, GE Capital, and USbancorp, among others based on the fact the leases were fraudulent, based on one piece of equipment, a matrix box, but with different dollar amounts. The contention was the leasing companies should have realized that hundreds of leases with one description and various dollar amounts should have been discovered as deceptive, that the contracts costs were based on service by various telephone companies and not the equipment itself. Questions arose about their involvement in the process.
May 3, 2005 Federal Trade Commission filed for a judgment in the U.S. District Court, District of New Jersey and it appears it was certified by the deputy court clerk Charlie Sanders on May 20, 2005 as the defendant NorVergence, Inc., in bankruptcy, failed to appear.
This leads into the June 8, 2005 notice “...that plaintiff Federal Trade Commission will move this Court to enter a default judgment and order for permanent injunction, rescission and monetary relief...” as brought by FTC senior attorney Randy Brook. His most notably recent win was against Leasecomm. Under the terms of the settlement with the Federal Trade Commission, Leasecomm agreed to stop collection efforts on all outstanding judgments, totaling $24 million, involving the financing of the software and equipment for processing credit-card transactions. The company also agreed to stop financing those kinds of business opportunities in the future. Leasecomm also paid pay a $1 million fine to be split by the states of Massachusetts, Florida, Illinois, Kansas, North Carolina, North Dakota and Texas, plus other fines to the State of California.
In his latest move, Brook appears to be going for the whole enchilada: 46 leasing companies and $181 million.
Seattle Based Leasing Dragon Killer Randy Brook
A hearing is to be held on July 18,2005, at 10:00 a.m., before Judge Dickinson R. Debevoise, where the FTC is asking for forgiveness of $181,721,914 as the liquidated damages of NorVergence leasing contracts.
“As calculated by the FTC after subtracting from the total consumer
injury the cancellation of indebtedness for rental agreements that will be cancelled by this case, the judgment among is $181,721,914. “
Here is a copy of the FTC 11 page filing:
The FTC also notes settlements with “various state attorneys general”
where there were from 80% to 90% “In exchange, consumers must give up any claims and defenses they may have against the finance companies...
“At this time there is no way to predict how much of the total consumer injury caused by NorVergence may be shifted to the finance companies through these settlements. For this reason, the FTC will adjust its claim to account for any further mitigation based on finance company settlements with NorVergence consumers.”
FTC senior attorney Randy Brook would not make a comment on the subject, but did make a remark about a statement attorney Paul Bent made in Leasing News regarding the U.S. District judgments in Illinois, Massachusetts and Texas
Here is an except of Paul's first comment:
“U.S. District Court for any particular federal judicial district does
Randy Brooks explained, “ “It is just a general statement of how federal courts may work. Out of context, however, it is meaningless. For example, a decision by a federal court against a national company could bind that company in its operations everywhere, not just in the federal district where the court is located.”
We asked attorney Paul Bent for a response, as a ruling could be serious to the leasing industry, and the hearing on July 18 th could be significant:
“As usual with the law, both statements are actually correct. While it's true that a ruling in any given U.S. District Court states the law only in that District, it's also true that a ruling affecting a particular party in one District binds that party throughout the country (i.e.¸ if you lose a case against the I.R.S. in California you can't go to Texas or Nevada and behave as though that case never existed). In other words, the principal of law (the legal precedent) stated in District court affects only other parties in that District; but a ruling concerning a particular party affects that party throughout the federal system.
“Having said that, as I remember your original statement it was that default judgments against NorVergence had been rendered in Illinois, Texas and Massachusetts for “not showing up” and that the contracts were therefore fraudulent, and that, if such a ruling were made in a U.S. District Court, all the NorVergence contracts throughout the U.S. would be deemed null and void. I still don't think that's quite accurate. A default judgment simply means that the other side wins by default because the party didn't show up; the court typically doesn't make any ruling on the merits of the case. This would be true whether in federal or state court; the default judgment would be rendered only in that case and only in that court. If the party did show up in another case in another federal courts, there could still be a trial on the merits of the case in those courts.”
“On the other hand, if one of the NorVergence cases does go to trial in federal court (i.e., if they don't default) and there is a ruling that the NorVergence contract with a particular customer is void, for whatever reason, that ruling could indeed be cited in other cases in other federal courts (if it's exactly the same contract) as the basis for finding the contract void there, too.”
NorVergence lessee defense attorney in Florida, Ronald P. Gossett,
told Leasing News last week, “ All of these default judgments are meaningless when it comes to Enforceability… The leasing companies are not party to the suits which have resulted in these default judgments; thus, the leasing companies are not bound by the decisions regardless of which court or which state in which they are rendered. The judgments only mean that NorVergence can not enforce them.”
In the meantime, what has happened to the two principals, the Salzano; Alex Wolf, Bob Fine, Jim Smith, to name just a few?
The Pennsylvania AG has filed against the president of NorVergence.
Neither the FBI nor the US Postal Authorities have taken any legal action against the individuals. They perhaps may be waiting to learn more what the bankruptcy receiver hearings learn in evaluating the claims.
The president of NorVergence filed for bankruptcy protection.
The Salzano Brothers are reportedly back in business selling telephone systems and program for long distance. This may be their fourth company, definitely the third.
The others mentioned, whereabouts, are unknown at this time.
Who is Randy Brook? Here is an exclusive interview with the Leasing Dragon Killer: