NorVergence: ELA Representatives meet with NY

Attorney General's staff

   ELTnews 

On Wednesday afternoon, October 14, Equipment Leasing Association representatives met with five officials of the NY Attorney General for nearly three hours to discuss small ticket leasing practices in general in connection with the investigation of the NorVergence matter. ELA was represented by General Counsel Ed Groobert, President Michael Fleming and Paul Gamez, an executive with Great America Leasing. The meeting was held to review and reinforce certain legal principles fundamental to small ticket leasing and to discuss how small ticket leasing is conducted.

The meeting's discussion focused on typical documentation that includes assignability of the lease, the waiver of defense clause and "hell or high water" language. Such provisions are not only standard but play a significant role in making leasing more readily available to small business. In describing small ticket leasing practice, the ELA representatives stressed the credit, rather than collateral, nature of the small ticket transaction. They also emphasize that the end user makes the business decision regarding contracting for a service and / or selecting equipment. "The lessor assumes that the lessee knows what it is doing," Fleming told the group.

Ed Groobert stressed that ELA is not in a position to know all of the facts of the NorVergence matter, but described how the leases of equipment in dispute were most likely subsequent and separate events from the lessee's contracting for a discounted long distance service. Lessors are not in the position to give representations or warranties.

The NYAG staff were well prepared and understood the basic legal principles. Their questioning focused primarily on what lessors know about the vendors with whom they do business and the equipment they lease. Paul Gamez did an excellent job of reviewing the typical approach of small ticket lessors in a vendor program. He described how leasing companies decide on certain vendor program relationships and how they manage the relationship. He indicated that in a "deal flow" business, it is not possible to become expert in every type of equipment or be personally familiar with every lessee it accepts on lease assignment. The NYAG staff continued a line of questioning more focused on company practices than on the fundamental legal principles. "Are complaints tracked? Are major variations in capital costs for the same equipment questioned? Would lessors make judgments about the viability of what a vendor is offering?" ELA representatives discussed these issues generally, but were reluctant to be too definitive because facts and practices can vary.

The ELA may meet further with the NYAG. Fleming indicated that ELA is approaching the matter on parallel tracks. "Defending the legal principles fundamental to the business is our top priority," said Fleming. "We are prepared to meet with other state AG offices as appropriate and will likely prepare a brief or white paper at the appropriate time. This matter will take time to play out."

A second track is to deal with the publicity that NorVergence has brought to leasing. "At the end of the day, the NorVergence matter is the story of a failed business model," according to Fleming. "

We have spent a great deal of time with writers in an attempt to put this entire matter in context. ELA is explaining the separate nature of the lease of equipment from a service for which lessees also contracted. Unfortunately, leases are implicated in ways everybody in the industry understands. Consequently, the publicity implicates leasing. The leasing issue requires explaining some very mundane legal points in the media - something the media is not able nor inclined to do as it is not much of a story. The small business done wrong versus ‘Hell or high water' is a tough public sell. ELA can only continue to make the business benefit points and stress the tens of thousands of successful leases that provide satisfactory solutions for business every day."

The NYAG meeting concluded with a defining question. One senior staff member asked how frequent this kind of thing (NorVergence matter) occurs. Ed Groobert who has been counsel to ELA for 35 years and Michael Fleming who has been president for 25 years agreed that they had never seen anything like it. NorVergence is unique,  it is a dramatic exception to the rule.