State Court Dismisses Florida Attorney General's Unfair Trade Practices Suit Against Equipment Finance Companies

TALLAHASSEE, Fla., -- In a case with national ramifications, the Honorable Russell A. Cole Jr., a State of Florida Circuit Judge in Tallahassee, Florida, rejected a lawsuit filed by the State that had accused twelve national finance companies of violating the Florida Deceptive and Unfair Trade Practices Act.

Albert F. Tellechea, the Akerman Senterfitt shareholder in charge of the case for Popular Leasing U.S.A., Inc., a subsidiary of Banco Popular North America, explained that Judge Cole's ruling upholds three of the four pillars relied on by the commercial equipment leasing sector: the unconditional obligation to pay or "hell or high water" clause, the waiver of defenses and warranties clause, and the law and forum selection clause. "An adverse ruling would have had a chilling effect on the secondary financing market and increased the amount businesses would pay for new leases in Florida," Tellechea explained. "This is the first definitive ruling in the country involving the leasing companies as defendants that deals squarely with the equipment leases sold to third parties." Tellechea also stated that Judge Cole's ruling was significant because the Attorney Generals in other states had been monitoring the outcome of this case.

The case arose out of the sale of discounted phone services to businesses throughout the United States by NorVergence. NorVergence leased telephone equipment to these businesses. After the equipment leases were signed, NorVergence sold and assigned only the payment stream but none of its obligations and warranties (these remained with NorVergence) to Commerce Commercial Leasing, LLC, Court Square Leasing Corp., Dolphin Capital Corp., IFC Credit Corp., National City Commercial Capital Corp., Irwin Business Finance, Patriot Leasing Co., Inc., Liberty Bank Leasing, Popular Leasing U.S.A., Inc., Preferred Capital LLC, Sterling National Bank, most of which are subsidiaries of large national banks. Different from the other defendants, Wells Fargo Financial Leasing, Inc. contracted directly with the Florida businesses. Patriot Leasing Co., Inc. and Wells Fargo settled with Florida and were not covered by Judge Cole's dismissal.

In June 2004, NorVergence filed bankruptcy in New Jersey and ceased phone service. The leased telephone equipment remained with its customers. After the bankruptcy filing, the State of Florida filed the now dismissed law suit seeking to invalidate the leases purchased by the ten remaining defendants, have them disgorge all the payments received, and impose treble damages and penalties and attorneys' fees and costs. The complaint asked the Court to rule that three major clauses in the lease agreements (the unconditional obligation to pay known as the "hell or high water" clause, the waiver of defenses and warranties clause, and the law and forum selection clause) signed by NorVergence's customers made these leases unconscionable and contrary to public policy.

In dismissing the case with prejudice, Judge Cole ruled that the three clauses attacked by the State were specifically authorized by the laws of the State of Florida and therefore not unconscionable or contrary to public policy. The Court also ruled that because the defendants are regulated by federal and state agencies, Florida's unfair trade practices law does not apply to them. The Court found the equipment leases in question were not consumer leases.

"NorVergence's clients voluntarily signed contracts that clearly spelled out these terms and their obligations," said Tellechea. "The defendant equipment finance companies that purchased these contracts from NorVergence are entitled to rely on the written word and representations contained in the contracts. Without those protections, the secondary equipment financing market would dry up or interest rates would soar to compensate for the higher risk."

According to Tellechea, the value of the contracts Popular Leasing is seeking to enforce amounts to approximately $3 million in Florida and $30 million nationally. The other defendants covered by Judge Cole's ruling have an estimated $250 million in equipment lease payments at risk nationally. At the time of its bankruptcy, NorVergence still had in its possession a portfolio of equipment leases amounting to $50 million not sold to third parties.

The Akerman Senterfitt team of shareholders representing all the defendant finance companies was composed of Bruce Culpepper in Tallahassee and Albert F. Tellechea and William C. Turner in Orlando.

Judge Cole's dismissal with prejudice means that the State cannot file another amended complaint.

With more than 400 attorneys, Akerman Senterfitt has offices in Orlando, Miami, Fort Lauderdale, Tampa, Jacksonville, West Palm Beach, Tallahassee and Washington, D.C. The firm represents private and public companies, governmental entities, educational establishments and high net-worth individuals in a wide range of practice areas. Please visit our website at http://www.akerman.com .

Source: Akerman Senterfitt