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Studebaker-Worthington Leasing Corp. v. New Concepts Realty

June 29, 2009

STUDEBAKER-WORTHINGTON LEASING CORP., RESPONDENT,
v.
NEW CONCEPTS REALTY, INC., ET AL., APPELLANTS.



Accepted for Miscellaneous Reports Publication

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

As corrected through Wednesday, October 14, 2009

Studebaker-Worthington Leasing Corp. v. New Concepts Realty, Inc., 14 Misc 3d 1233(A), 2007 NY Slip Op 50289(U), reversed.

{**25 Misc 3d at 2}

OPINION OF THE COURT

Memorandum

Order entered February 22, 2007, insofar as appealed from, reversed without costs and the branch of defendants' motion seeking to dismiss the complaint granted.{**25 Misc 3d at 3}

Appeal from the above-stated portions of the order entered July 27, 2007 dismissed as academic.

Plaintiff is a Delaware corporation with an office in Jericho, New York, and is the assignee of the rights (but not the obligations) of NorVergence, Inc. under a 60-month equipment rental agreement (ERA) between NorVergence, a New Jersey corporation (which has since become bankrupt), as lessor (also referred to herein as rentor), and defendant New Concepts Realty, Inc. (NCR), a Colorado corporation, as lessee. Defendant Charles Blood, the president of NCR and a Colorado resident, individually guaranteed the ERA. Plaintiff brought this action in Supreme Court, Nassau County, to recover $13,687.48, the principal sum allegedly due under the ERA. Jurisdiction and venue were premised solely on a clause of the ERA, printed in six-point bold type, which provides: "APPLICABLE LAW . . . This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which Rentor's principal offices are located or, if this Lease is assigned by Rentor, the State in which the assignee's principal offices are located, without regard to such State's choice of law considerations and all legal actions relating to this Lease shall be venued exclusively in a state or federal court located within that State, such court to be chosen at Rentor or Rentor's assignee's sole option. You hereby waive right to a trial by jury in any lawsuit in any way relating to this rental."

Defendants moved for leave to interpose a late motion to dismiss and, upon the granting of leave, for dismissal of the complaint, alleging lack of personal jurisdiction and forum non conveniens. Defendants further contended that the forum selection clause of the ERA was invalid and unenforceable because it lacked specificity and had been obtained by fraud and overreaching. Additionally, defendants claimed that the same issues were being litigated in Colorado, in a class action for declaratory relief captioned New Horizons Elec., Inc. v IFC Credit Corp., in which the defendants in this litigation were among the plaintiffs, and the plaintiffs herein were among the defendants. (The Colorado litigation was subsequently dismissed, upon a finding by the Colorado Court of Appeals that the forum selection clause was valid under Colorado law [2008 WL 4597419, 2008 Colo App LEXIS 1855 (2008)].) They also argued that the ERA was unenforceable under various provisions of the Uniform{**25 Misc 3d at 4} Commercial Code, Executive Law § 63 (12), CPLR 4544 and 16 CFR 433.2.

Defendants' moving papers were supported, inter alia, by an attorney's affirmation and the affidavit of defendant Charles Blood, as well as documentation of findings of the Florida Attorney General and the New York Attorney General, and the trustee in bankruptcy in the NorVergence bankruptcy case (Matter of Charles M. Forman, Chapter 7 Trustee of the Estate of NorVergence, Inc. v Thomas N. Salzano, Case No. 04-32079 [RG] [Bankr Ct, D NJ 2004]), all pertaining to what they found to be NorVergence's unscrupulous and fraudulent tactics and the involvement of various assignees of NorVergence's leases in the NorVergence scheme. Defendants also annexed to their moving papers a copy of the NorVergence Screening Manager Training Manual, which described in meticulous detail how NorVergence sales agents were to ensnare customers into signing NorVergence equipment lease agreements and guarantees, a copy of the proposed default judgment and order for permanent injunctive relief in Federal Trade Commn. v NorVergence, Inc. (2005 WL 3754864, 2005 US Dist LEXIS 40699 [D NJ 2005]), excerpts from the January 4, 2006 deposition of Mark Sibilia, an employee of another of NorVergence's assignees taken in connection with a case brought in Texas under a different NorVergence lease, and copies of a number of decisions from other forums ruling against the enforceability of other NorVergence equipment leases. These documents, taken together, indicate that defendants NCR and Blood were among the numerous victims of a scheme whereunder NorVergence, targeting small businesses and not-for-profit corporations with high credit ratings and without in-house counsel or technology personnel, tricked those entities and their owners into signing equipment rental agreements and guarantees, which were presented to them for signature as part of NorVergence's ostensibly non-binding, no-risk "Cost Savings Proposal" for the installation of proprietary, technologically innovative telecommunications equipment and the provision of telecommunications services.

In their motion papers, defendants alleged that, in 2004, they were approached by a NorVergence salesman, who represented that NorVergence could save NCR up to 60% on its Internet, telephone and cellular telephone services by bundling those services into a single unlimited use package, including the leasing of unique telecommunications equipment, which was to be installed and serviced by NorVergence. On April 14, 2004 Blood,{**25 Misc 3d at 5} acting as president of NCR and individually as the guarantor of NCR's obligations, signed or initialed various documents including the subject ERA. Defendants were told that the documents were intended solely to reserve circuitry and hardware while defendants' qualifications were being investigated. Defendants further alleged that they received oral assurances that the papers they were signing constituted only a non-binding application and did not create any contractual obligations, when, in fact, taken together, they constituted a noncancelable agreement. Indeed, some of the documents were labeled "non-binding." The ostensibly unique equipment NorVergence agreed to provide--a "Matrix card"--was actually available for sale at a retail price of $395, whereas under the ERA defendants were obligated in the sum of $241 a month, plus tax, for 60 months--a price differential defendants argued was so unconscionable as to render the ERA unenforceable.

On May 7, 2004 Blood signed a one-page "Delivery and Acceptance Certificate," acknowledging NCR's receipt and acceptance of the equipment described in the ERA. This certificate contained the statement: "I have reviewed and I understand all of the terms and conditions of the Equipment Rental Agreement." Although the equipment was delivered, it was never installed, and no services were ever provided. On May 10, 2004 NorVergence executed the ERA and, unbeknownst to defendants, assigned all of its rights, but none of its obligations, under the ERA to plaintiff--a privilege specifically accorded to the rentor, but not the lessee, under the ERA.

After defendants filed their motion to dismiss, the action was transferred to District Court, Nassau County, pursuant to CPLR 325 (d). In its decision, entered February 22, 2007, the District Court stated that, but for the forum selection clause of the ERA, it was undisputed that there would be no basis for the exercise of long-arm jurisdiction under CPLR 302, and jurisdiction would, moreover, be barred under principles of forum non conveniens, codified in CPLR 327. Thus, the District Court concluded that its jurisdiction depended on the enforceability of the forum selection clause. As to defendants' arguments regarding the lack of specificity of the forum selection clause, the District Court found that it was governed by the decision in Sterling Natl. Bank v Eastern Shipping Worldwide, Inc. (35 AD3d 222 [2006]), in which the Appellate Division, First Department, upheld the enforceability of a similar contractual forum selection provision in another assigned NorVergence rental{**25 Misc 3d at 6} agreement. The District Court rejected defendants' argument that the clause nevertheless should not be enforced and denied ...


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