The opinion of the court was delivered by: Katherine B. Forrest, District Judge
In their Second Amended Complaint ("SAC") (i.e., the third complaint plaintiffs have filed in this action), plaintiffs purport to bring a nationwide class action against defendants Lease Finance Group, LLC ("LFG"), Northern Leasing Systems, Inc. ("NLS"), Jay Cohen Leonard Mezei, Sara Krieger (collectively, the "LFG Defendants"), Global Leasing Company, Inc. ("GLC"), Payment Systems Inc. ("Payment Systems" and collectively with GLC, the "GLC Defendants"),*fn1 and Northern American Bancard Systems, LLC ("NAB").*fn2 The SAC alleges that defendants perpetrated a wide-reaching scheme to defraud small business owners by selling services and leasing equipment in connection with processing electronic payments (i.e., credit and debit card payment). Specifically, and as discussed more fully below, plaintiffs allege that defendants promise low fees for the services and equipment, provide one-page of a four-page contract to small business owners for signature, and then charge exorbitant fees which defendants and/or their agents allegedly never disclosed.
Plaintiffs bring claims for consumer fraud under 46 state consumer fraud statutes, most relevantly New York's, Arizona's, and Connecticut's (Count One), common law fraud (Count Two), Unjust Enrichment (Count Three), "Deceit, Fraud and/or Misrepresentation" (Count Four), Negligent Misrepresentation (Count Five), Conversion (Count Six), and Breach of Contract (Count Seven).
The LFG Defendants and the GLC Defendants separately moved to dismiss the SAC in its entirety. For the reasons discussed below, their respective motions are GRANTED IN PART and DENIED IN PART.
For purposes of deciding the instant motions, the Court accepts as true all well-pleaded allegations in the SAC and draws all reasonable inferences in plaintiffs' favor. See Levy v. Southbrook Int'l Invs., Ltd., 263 F.3d 10, 14 (2d Cir. 2001). On a motion to dismiss, a court may consider documents referenced in the complaint and/or incorporated by reference therein.
ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007); Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000). Here, both sets of moving defendants submitted copies of the purported contracts at issue in support of their respective motions. (See Decl. of Sara Kreiger (Dkt. No. 63-3) Exs. A & B; Decl. of Michal A. Thurman in Support of Mot. to Dismiss Second Am. Class Action Compl. (Dkt. No. 58) Exs. B & D.) Without submitting any affidavit or other sworn statement in opposing the validity of the leases, plaintiffs argue that the Court should not consider those contracts here because their authenticity is in dispute. (Pls.' Br. in Opp'n to Defs.' Mots. To Dismiss ("Pls. Opp'n") (Dkt. No. 71) at 14-15.) Given that the gravamen of the SAC is that the contracts are fraudulent and/or were entered into under false pretenses, the Court declines to consider those contracts on this motion to dismiss. See Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006) ("[B]efore materials outside the record may become the basis for dismissal, several conditions must be met. For example, even if a document is 'integral' to the complaint, it must be clear on the record that no dispute exists regarding the authenticity or accuracy of the document."); Barberan v. Nationpoint, 706 F. Supp. 2d 408, 415-416 (S.D.N.Y. 2010) (citing Faulkner and collecting cases).
Plaintiffs Sharon and Rodney Simington, reside in Kingman,
Arizona, and "own [and operative] a small business known as Paintball Uphoria" there. (SAC (Dkt. No. 45.) ¶ 5.) The Simingtons bring their claims against the LFG Defendants and NAB only. (Id.) Plaintiff Akhtar Zamir, a New York resident, "owns a small business known as Norwalk Smoke Shop," which he operates in Norwalk, Connecticut. (SAC ¶ 6.) Zamir (and collectively with the Simingtons, "plaintiffs") brings his claims against all defendants. (Id.) Plaintiffs bring this action as a class action, on behalf of "All persons . . . who, from August 11, 2004 to the present, applied or contracted for merchant card services and/or related equipment leasing with any of the Defendants." (Id. ¶¶ 5-6, 82.)
LFG, a Delaware corporate headquartered in New York, and NLS, a New York corporation headquartered in the same, are engaged "in the equipment lease financing business." (Id. ¶¶ 7, 8.) Plaintiffs allege that NLS is LFG's "affiliate [and] alter ego," as well as the "umbrella organization" over LFG and "many other shell entities" engaged in the same leasing business. (Id. ¶ 8.) GLC is a corporation with its principal place of business in Los Angeles, CA. (Id. ¶ 9.) Plaintiffs do not allege the type of business in which GLC is involved, but allege generally that the LFG Defendants along with GLC "supply financing for the leasing of electronic point-of-sale ['POS'] equipment, such as ATM machines, cash registers, and credit card processing equipment." (Id. ¶ 20.)
It is alleged that defendants Cohen, NLS's President and CEO, Mezei, NLS's Chairman of the Board, and Krieger, NLS's Vice President of Operations, "direct and control" NLS, LFG and their associated shell entities such that they "worked in concert" to cause the corporate entities to engage in the alleged fraudulent scheme. (Id. ¶¶ 10-13.)
NAB, a New York corporation with its principal place of business in Farmingdale, New York, and Payment Systems, a corporation operating out of California, are both "independent service organizations" ("ISOs"), which provide "merchant card services." (Id. ¶¶ 14, 15.)
II. THE ALLEGED SCHEME TO DEFRAUD
Plaintiffs allege that the companies that provide lease financing for the POS equipment "conspire" with the ISOs (who process the payments) "to defraud merchants who have need of such services" by offering them "lease equipment" through "exorbitant inflated and unconscionable" leases. (SAC ¶¶ 16, 20, 23.) Specifically, it is alleged that under the leases at issue, "Defendants"*fn3 provide "lease equipment with a fair market value between $200 and $400  if purchased outright for lease payments between $100 and $200  per month over a period of 48 months," which totals approximately $4,800 and $9,600 in lease payments for the equipment. (Id. ¶ 23 (emphasis in original).) However, the financing entities and the processing entities purportedly work together--i.e., "conspire"--such that the "sales agents" who offer the electronic payment services from the ISOs simultaneously "offers the merchants a lease" for the equipment. (Id. ¶ 22; see also id. ¶¶ 31-36 (regarding defendants' alleged conspiracy).) According to plaintiffs, the ISOs' sales agents present the leasing of the equipment as a prerequisite for using the processing services--and are able to convince merchants to agree to the lease rates by "promis[ing] huge savings on the month cost of the ISO's processing services." (Id. ¶¶ 22, 24.)
III. THE ALLEGED FRAUDULENT LEASES
Merchants purportedly are presented with a one-page document, which "appears to be a complete document," but, according to the SAC, is only the first page of a four-page lease. (SAC ¶ 37.) The first page of the lease requires the merchants to assent to the fact that they have "read and agree to all terms and conditions contained" therein. (Id.) In addition, the page requires the merchant's "personal guaranty" as well as line for "signature of acceptance by Defendants." (Id. ¶ 38.) Plaintiffs allege (and concede) that the one page with which they are presented contains the inscription "page 1 of 4" in microprint on the bottom left of the page. (Id. ¶ 39.) According to plaintiffs, upon a dispute arising between "Defendants" and the merchants regarding payment for the services--i.e., over the "fine print" allegedly never disclosed on the additional three pages--"Defendants" point to the "1 of 4" inscription to indicate that the merchants should have "conducted an in-depth investigation on their own." (Id.)
In addition, plaintiffs allege that the sales agents (i.e., agents of "Defendants") fail to provide at the time of the signing either the signed one-page document or the four-page document that is the purported true and full lease. (Id. ¶ 40.) According to the SAC, defendants' agents inform the lessees that they will receive a copy by mail. (Id.) Upon receipt of the lease via mail (if at all, according to plaintiffs), the lease has "become irrevocable and non-cancelable for the entire term, usually 48 months." (Id.)
The purportedly "undisclosed" terms on the three pages of the lease that the merchants do not see until receipt via mail (if ever), include, inter alia, "onerous and unconscionable" terms, such as:
"Defendants" may charge "significantly" more than those contained on the page the merchants signed;
The merchants' bank accounts may be subject to "automatic electronic deductions";
If the merchant does not give a specific advance notice of cancellation, "with buyout balloon payment," the lease continues "indefinitely";
The merchants have a "absolute and non-cancelable" "obligation to pay Defendants";
Levy late charges of 15%; and
Require that litigation of disputes occur in New York or any other place where Defendants "maintain [their] principal office for administrating" the lease.
(SAC ¶¶ 43(a)-(c), (f), (i), (k).)
IV. THE ALLEGED FRAUDULENT LEASING CONDUCT
It is alleged that after execution of the leases,
"Defendants" charge a $4.95 monthly "loss and damage waiver" ("LDW") for each piece of equipment leased for any lessee who does not provide proof of insurance. (SAC ¶ 49.) Plaintiffs allege, however, that the lessees never have a chance to provide such proof because "Defendants" never request it. (Id. ¶ 50.) "Defendants" allegedly charge additional unconscionable fees associated with the LDW "program," as well as for "property taxes" and for the filing of the property tax payments. (Id. ¶¶ 51-54.)
According to the SAC, upon default by the merchant-lessee, "Defendants" proceed against the merchants' respective guarantors "personally" and damage the guarantor's "personal credit" and "consumer credit" scores. (Id. ¶ 44.) In addition, "Defendants" proceed against the merchant-lessees by inundating them with "collection letters" and harassing phone calls in which they threaten to "disparage their personal credit reports" and "obtain default judgments" against them. (Id. ¶¶ 45-46.)
If the lessees do not comply with the lease terms, "Defendants" commence collection suits in New York, regardless of the merchant's residence or place of business. (Id. ¶ 47.)
V. PLAINTIFFS' ALLEGED TRANSACTIONS
In or about 2008, Mr. Simington allegedly "won" an NAB cash register on eBay, and subsequently was contacted by "Chris," an alleged NAB representative. (SAC ¶ 55.) According to plaintiffs, Chris informed Simington that a "free trial of a debit/credit card machine" accompanied the cash register, but that Simington could not have the cash register without accepting the free trial. (Id.) Chris purportedly enticed Simington to agree to the free trial by saying that NAB would provide a $750 "cash incentive" to the first 100 applicants.
(Id.) It is alleged that Chris represented that Simington would incur a "per-transaction fee" for each credit/debit card payment of the greater of $0.75 or a 1.5 percent fee on the total value of each sale. (Id. ¶ 57.) Simington filled out the application and faxed it back to Chris, along with (as requested) a voided copy of a check "so that NAB would know where payments for debit and credit charges could be deposited." (Id.) Those representations, as set forth in the SAC, proved to be false. (Id. ¶¶ 55-57.)
Simington received the machine and began accepting debit/credit card payments at Paintball Uphoria, but came to realize that he had not received deposits for any of those payments in his account--or the $750 incentive payment. (Id. ¶¶ 58, 60.) On that realization, Simington attempted to contact Chris, but instead reached an employee named Natalie who told Simington that Chris "was never employed there." (Id.) She also informed Simington that he was ineligible to receive the $750 incentive because of the time-frame of his lease. (Id. ¶ 60.) Eventually, Simington spoke to an employee named Joshua about his missing payments who assured Simington that "he would take care of the matter." (Id. ¶ 59.)
Thereafter, some--but not all--of the transactions appeared in Simington's account, but Simington saw that "Defendants" were charging him a per-transaction fee at a rate of over 20 percent. (Id. ¶ 61.) It is alleged that he also noticed that "Defendants" began withdrawing money from his account in "amounts ranging from $107.00 to over $200.00" as "Global Pay" fees, in addition to the $35 monthly lease payments. (Id. ¶ 62.) Upon that realization, Simington tried to contact both Nathalie and Joshua. As to the former, it is alleged that her number was out of service and as to the latter, Simington allegedly was told that no Joshua worked at NAB. (Id.) Simington finally reached an NAB employee who he informed that he would be returning the debit/credit card machine. (Id. ¶ 63.) The NAB representative allegedly responded that if Simington cancelled the agreement for the debit/credit card processing services, he would face a $750.00 cancellation charge. (Id.)
Plaintiffs allege that despite Simington's calls, NAB continued making withdrawals from Simington's account. (Id. ¶ 64.) Accordingly, Simington implemented a stop-payment at his bank, and the bank commenced an investigation. (Id.) It is alleged that thereafter, Simington and members of his family (including his children) received harassing phone calls, on one of which Simington requested a copy of the lease. (Id.) Simington then received a copy of a lease between himself and LFG, which he alleges contained a signature of his that "appears to have been 'cut and pasted' from his original application directly" to that contract. (Id. ¶ 65.) Eventually, it is alleged that NAB began making unauthorized withdrawals for the alleged amounts owed from Mrs. Simington's bank account. (Id. ¶ 66.)
Finally, on or about October 17, 2009, Mr. Simington allegedly received a dunning letter requesting $5,443.50 in payments owed. (Id. ¶ 67.)
It is alleged that on or about June 2009, an alleged Payment Systems' sales agent (i.e., Samantha Malm) approached plaintiff Zamir at his place of business, Norwalk Smoke Shop, and offered him the ability to reduce his costs for credit card processing if he switched to an agreement with Payment Systems, along with an accompanying lease for the processing equipment. (SAC ¶ 68.)*fn4 According to the SAC, Malm provided Zamir with a worksheet estimating his savings upon the switch at approximately $189 per month. (Id. ¶ 69.) Zamir executed an agreement with Payment Systems approximately six months later (August 6, 2009), along with a Non-Cancellable Lease with GLC a few days later (August 20, 2009). (Id. ¶¶ 70-71.) Five days after executing the GLC lease, Zamir allegedly received a letter from LFG--"an ...