NJ Judge Orders $15 Million to 600 Pennsylvania lessees

By BRIAN SCHROCK

Daily American Staff Writer

www.dailyamerican.com

A Somerset County judge has ordered a $15 million judgment against a New Jersey company accused of defrauding more than 600 Pennsylvania consumers, including small businesses, churches, charities, schools and the local chamber of commerce.

Sources said it is unlikely that any of the organizations will see a dime.

The company, NorVergence of Newark, N.J., sold telecommunication packages in Pennsylvania from April 2003 through June 2004 with the promise of big savings, flat rates and unlimited broadband, land line and cell phone service, according to the Pennsylvania Attorney General's office.

The service, the company said, was made possible by installing a "black box," typically called the Matrix or Matrix 850, at the customer's place of business.

Court documents show that the company rented the boxes to consumers for between $250 and $5,700 per month - for as long as 60 months - even though the box was nothing more than a standard telephone router. The company purchased the device from a Huntsville, Ala., company, for less than $1,500.

Authorities said NorVergence sold the rental agreements to finance companies in return for lump sums of cash.

"The commonwealth ... believes that the finance companies paid NorVergence in excess of $100 million in upfront payments for the purchase or assignment of the rental agreements," Senior Deputy Attorney General Barry Creany wrote in the lawsuit, which was filed in December 2004.

Authorities said the rental agreements were complex, highly technical documents with a "sea of fine print."

The agreements reportedly included provisions that required customers to pay even if NorVergence failed to provide services. The agreements also allowed finance companies to seek collections in any forum they chose, making it difficult for customers to dispute the monthly rental fees, according to the Federal Trade Commission, which filed its own complaint against the company Nov. 4 in U.S. District Court in New Jersey.

NorVergence, which in 2003 boasted annual revenues of $143 million, was forced by creditors into Chapter 11 bankruptcy in June 2004. Not long thereafter, the Pennsylvania Attorney General's office was flooded with complaints from consumers who had their telephone and Internet service disconnected.

Creany said the company sold telecommunication packages to 645 Pennsylvania consumers, including nine in Somerset County. Those included the Somerset County Chamber of Commerce, which signed two rental agreements in May 2004.

Hank Parke, the chamber's former executive director, remembers being attracted to the idea of receiving unlimited phone, broadband, cell phone and toll-free service for a flat monthly fee. As a nonprofit organization with a limited budget, the chamber was always looking for ways to save money, Parke said.

"Every business is trying to cut overhead. And when you can cut overhead and get a decent service for a flat fee, it's a wise move," he said. "You just hope the service is actually offered or, in this case, delivered."

Parke said the chamber was contacted by a leasing company, but has not, to the best of his knowledge, paid any bills for a service that was never provided.

"I just hope this thing gets cleared up and the businesses that are out of money or have an outstanding lease are let off the hook because generally they didn't deliver," he said.

Chamber Executive Director Ron Aldom could not immediately be reached for comment Tuesday afternoon.

In June, Parke testified on the commonwealth's behalf. The hearing was held, in part, to determine how much money the company would be held responsible for.

Court documents indicate that NorVergence assigned 540 of the 645 rental agreements to finance or leasing companies. As of July, the approximate average balance due on those agreements was $26,500.

Authorities multiplied the two figures to arrive at the figure cited in Judge Eugene Fike's order- $14,310,000. Fike also assessed the company a $645,000 civil penalty for "willful violations of the Consumer Protection Law."

Sources said it is unlikely that Pennsylvania consumers will see any of that money.

Michael Holt, the New Jersey-based attorney for bankruptcy trustee Charles M. Forman, said former employees of the company and taxing authorities will be among the first to be paid - if there is, in fact, any money available for that purpose. The two groups have filed claims in excess of $13 million.

The Federal Trade Commission has sought a $180 million judgment against the company, which ceased operating in July 2004. Forman, a government appointee, is responsible for liquidating the company's assets and using the money to pay creditors.

"In this case, it appears highly unlikely that there will be any money to pay out to unsecured creditors," Holt said.

Creany agreed.

"I think it's an administrative insolvency," he said "It doesn't look like there will be funds to distribute to creditors, let alone unsecured creditors like these."

About 35 leasing or finance companies were involved with rental agreements in Pennsylvania, Creany said.

A handful of those have agreed to forego collections or collect only a percentage of the amount due as part of settlements with the state attorney general's office. Others may go to court to try to collect the money, though Creany noted that a consumer's bargaining position has been enhanced by the allegations swirling around NorVergence.

"There's good cause to rule that the NorVergence sales program was nothing more than an elaborate type of scheme," Creany said at the court hearing in June.

NorVergence officials could not be reached for comment Tuesday.

Michael Sirota, an attorney for company President Peter J. Salzano, did not immediately return a telephone call for comment. Telephone numbers to the company's office in New Jersey were either disconnected or were no longer in service.

"For all intents and purposes, there really is no NorVergence anymore," Holt said.

The judge's order prohibits NorVergence from selling or assigning previously unassigned rental agreements. It also says that the contracts between the company and Pennsylvania consumers are "rescinded and unenforceable" by the company. The order makes no mention of the finance companies.

The judge's order does not prohibit the company from conducting business in Pennsylvania, though Creany said it may be a moot point.

"If the bankruptcy proceedings don't put an end to NorVergence, we would have the ability to reopen this issue," he said.

The judge also issued an order Monday accepting a settlement agreement between Salzano and the attorney general's office. The settlement limits the business practices Salzano can engage in, and requires him to notify officials in writing of any business plans in Pennsylvania.

The consent petition carries the threat of a $250,000 civil penalty for violations of the order. Salzano filed for Chapter 11 bankruptcy in January 2005, according to court documents.

(Brian Schrock may be contacted at brians@dailyamerican.com .)