Massachusetts court dismisses all NorVergence Leases

by Christopher Menkin

Last week Massachusetts Attorney General Tom Reilly also received a default judgment along with the states of Illinois and Texas to void all NorVergence leases in their respective states, primarily because the NorVergence bankruptcy referee was a no show. (A copy of the judgment is at the end of this article)

Massachusetts Attorney General Tom Reilly

It appears the Federal Trade Commission is getting the same reaction in their refilling, as reported by Randy Brooks, as on May 3 rd he asked for a default judgment, which would affect all states, and so far there has been no response from the Bankruptcy court on a response. Most likely the reaction will follow the three states of Illinois, Massachusetts and Texas; there will be a “no show,” so an automatic judgment will stay.

Generally a court gives the defendant 30 days to appeal for the reason of sudden illness, car accident or another legitimate reason. In this situation, New Jersey Chief Judge Rosemary Gambardella most likely does not see the costs in her budget, nor does she have the manpower, plus most likely has her hands full juggling all the claims and attorneys in this “fish bowl” case. And it isn't a “community aquarium.”

As a judge, she also may believe the matters should be before her jurisdiction and not in Illinois, Massachusetts, or Texas.

The actions seem to complicate matters as the receiver for the NorVergence bankruptcy is the one who finds assets and then divides them among creditors.  There also is the issue of the various telephone companies involved in the bankruptcy and their relationship with the leases. Reportedly there are several legal preparations underway, some involving claims by those involved in the bankruptcy proceedings in New Jersey.

Leasing News is not aware of any appeal on the rulings or what the various leasing companies are doing in response, especially those who have not made a settlement with the attorney general.

The ruling is definitely beneficial to NorVergence lessees as it may put cases into limbo, or extension of time, and most importantly, puts pressure on the leasing companies who have not settled with the 22 attorney generals to think about the costs now involved with all the various jurisdictions, courts, attorneys, and this is getting more expensive for them as a plaintiff.

GE Capital, then CIT and USbancorp got out of this early, seeing the hand writing on the wall. The smaller players at first said they settled because they had the money.

The real reason: they had the smarts to see what was going to happen if they choose another road.

To those leasing companies who have not settled, the AGs have the subpoena power to go into the leasing companies in their states and start hunting for documents, records, interviewing employees, and really putting pressure on. When they do that, they will be asking for penalties and expenses to go to this trouble, in addition to settlements. This is not going away, gentlemen and ladies.

In putting together the “model” regarding the probable litigation costs for NorVergence lessees last week,

none of the major (large) law firms wanted to participate.

One of the requirements may have been not being involved in any of the cases, but that point was never reached as they obviously very adversarial about the attorneys general settlements--- which they viewed as “political” and not “legal” precedent setting judgments.

The attorneys who did not want to participate in discussing the costs of litigation versus the AG's settlements also seemed to follow the Equipment Leasing Association (ELA) stand on the matter: “hell and high water contract.”

One senior attorney, who said his firm was not representing any leasing company on the matter, seem to say the ELA “white paper” was weak. While that may have not been the actual word he used, as he was speaking in legalese, meaning it was not as criticism, but he was not happy with it and I got the impression the subject was brought up at the recent ELA legal committee meeting.

He didn't want to say much about it. His concern was it goes back to the basic intention: the leasing companies do not choose equipment, its fitness or warranty, and the leasing contract relies on the lessee making the payments to choose the equipment, its fitness, and to enforce any warranties, which is the crux and purpose of the contract. He believed the fundamental reason for the contract was becoming more a “political” issue rather than a “legal” issue.

With all the entities involved, the many sides to this controversy, it certainly appears that there will be appeals with various jurisdictions across the United States for those who have not either offer a settlement to their lessee and to those lessees who do not want to accept the settlements. This is another example of how the internet with its “blogs” and e-mail communication is changing business as we know it.

One thing for sure, the situation is getting both more complicated, and more expensive to litigate the position on these contracts. Often courts award neither side the other's legal expenses or court costs.

The NorVergence “equipment rental contracts” are having a profound influence on the leasing industry legal community. Something not said earlier, if these lessees had had a leasing broker represent them, number one many of the things not included in the contract would have been discovered much earlier, and two, the leasing companies look much more closely on broker submissions than how they get business anywhere else.

There also appear to be a lowering of dollar amounts for “site inspection with pictures.” The general cost for such service is generally around $125 and was more commonly used on transactions over $100,000. It is now at the $50,000 mark, and many are considering it for smaller dollar amounts, as the fee is passed on to the lessee.

It should also be noted the Equipment Leasing Association, the leader in the industry, has announced "ELA Launches Legal ListServe" for its members:

“On May 15, 2005--the first day of the 2005 ELA Legal Forum in Miami Beach--the association launched its first-ever legal discussion group, ELALegalTalk.

“ELALegalTalk is an e-mail discussion group for the exchange of views and comments on legal subjects. Although it was created for use by attorneys, this new electronic discussion group may be read by and may include questions or comments posted by business executives, officials responsible for administering their companies' legal compliance programs and others.

“Participation in this listserve is subject to the Participation Rules for all ELA e-mail listserve discussion groups. Participation in ELALegalTalk is also subject to the express understanding that the Discussion Group is for informational purposes only and does not constitute the rendering of legal, financial, or other professional advice or opinions by ELA or by the participants in this Discussion Group.”

Copy of Massachusett's Court judgment:


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