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Simington v. Lease Finance Group

December 14, 2012


The opinion of the court was delivered by: Katherine B. Forrest, District Judge


In two separate (but related) putative class actions commenced on September 15, 2010, and November 10, 2011, respectively, several small business owners seek redress from various defendants involved in providing merchant credit card services and leasing of credit card swiping equipment.*fn1 In the first-filed action, plaintiffs Rodney and Sharon Simington, and Akhtar Zamir allege that Lease Finance Group, LLC ("LFG"), Northern Leasing Systems, Inc. ("NLS"), Global Leasing Company, Inc. ("GLC"), Jay Cohen, Leonard Mezei, Sara Krieger, North American Bancard Systems, LLC ("NAB"), and Payment Systems, Inc. ("PSI"), were involved in a fraudulent scheme involving merchant card services and associated equipment leasing (the "Simington Action"). In the second, related action, plaintiffs Robert Avila and Machelle Schomaker (the "Avila plaintiffs" or "plaintiffs") sued LFG, NLS, and Cohen, Mezei, and Krieger as well as Lease Source-LSL, LLC, Lease Source, Inc., MBF Leasing LLC, Encore Payment Systems, LLC, Merchant Services, Inc., Universal Merchant Services LLC, and Trans Tech Merchant Group,*fn2 for a similar fraudulent scheme involving merchant card services and leasing of credit card "swiping" machines (the "Avila Action").*fn3

Now before this Court is an omnibus motion by the Avila plaintiffs only*fn4 for class certification, for appointment as class counsel, and to amend the operative Avila complaint. (See Pls.' Mem. Law Supp. Mot. Class Cert. ("Pls. Mem.") at 2, ECF No. 81).

The Avila plaintiffs move for "certification of their claims for breach of contract and conversion" only as to both the Leasing and Merchant Defendants. (Pls. Mem. at 1.) In that regard they are seeking certification of the following class:

All persons (including natural persons, corporations, partnerships, or other legal entities), who, from January 1, 2006 to the present, contracted for merchant card services and/or equipment leasing with any of the Defendants.

There are a number of issues with certifying the proposed class.

First, the Court is unable to certify a class as to claims not pled in the operative complaint. That implicates the current motion in two ways. As an initial matter, neither of the Avila plaintiffs has a breach of contract claim as to Merchant Services, Inc. and Universal Merchant Services LLC (the "Merchant Defendants"). Although plaintiffs' omnibus motion seeks to amend the current Avila complaint a second time to add such a claim, plaintiffs fail to meet their burden to be able to do so.

In addition, although plaintiffs seek certification of a class as to their breach of contract claim (as well as their conversion claim, discussed below) against MBF Leasing ("MBF"), LFG, NLS, Lease Source-LSI, LLC, Cohen, Mezei, and Krieger (collectively, the "Leasing Defendants" and with the Merchant Defendants, "defendants"), it is clear from plaintiffs' submissions (as well as statements made at oral argument) that plaintiffs are seeking certification on a new theory--the leases' unconscionability--not on their breach of contract claim as pled. Even though the operative Avila complaint refers to the provisions that plaintiffs now assert undergird an unconscionability claim, the complaint does not in fact plead such a claim--nor have plaintiffs ever asserted prior to this motion (on any of the motions the Court has resolved in the Avila or Simington Actions) that it does. It is worth noting that plaintiffs' instant motion to amend does not seek to add an unconscionability claim--only one for breach of contract as to the Merchant Defendants.*fn5 As to the contract claim against the Leasing Defendants, plaintiffs' class certification motion is defective before it leaves the starting gate.

Second, even if this Court were to allow an amendment to add such a theory, or (as plaintiffs' counsel suggested at oral argument) to read the current breach of contract claim broadly as a generalized claim "sound[ing] in contract," an unconscionability claim on the record before the Court is not amenable to class treatment.

The Court is then left with the conversion claim, pled only as to the Leasing Defendants. As to that claim, liability is necessarily based on individualized facts: were unauthorized amounts taken from a plaintiffs' bank account? Or, did duly authorized contractual agreements allow for any amounts withdrawn? As set forth below, putative class members executed numerous varying leases, all providing for different withdrawal authorizations.

For the above reasons and those discussed more fully below, this Court finds that it would be inappropriate to certify a class on the conversion or breach of contract claims in the Avila Action.

Plaintiffs' motion for class certification is denied; plaintiffs' motion for appointment of class counsel is denied as moot; and plaintiffs' motion to amend is denied. In addition, defendants' motion to strike is denied as moot.


A. Procedural History

A brief review of the procedural history of this case is necessary to understand plaintiff's motion for class certification--and the claims for which plaintiffs seek certification.

Defendants in Simington made two separate motions to dismiss, which the Simington plaintiffs opposed. The Court resolved the motion on February 28, 2012, after which the only claims that remained were those for common law fraud, breach of contract, and consumer fraud under the Connecticut Unfair Trade Practices Act ("CUTPA"). Simington v. Lease Fin. Grp., LLC, 10 Civ. 6052, 2012 WL 651130, at *12-13 (S.D.N.Y. Feb. 28, 2012). The Court dismissed the claims for conversion, unjust enrichment, "deceit, fraud and/or misrepresentation," negligent misrepresentation, and consumer fraud under forty-five other state consumer fraud statutes. Id.

By stipulation, the parties to both the Simington and Avila Actions agreed that the Court's rulings in Simington on defendants' respective motions to dismiss would apply to the Avila Action. (Avila v. Lease Fin. Grp., 11 Civ. 8125, ECF No. 55 ¶ 1 (Apr. 11, 2012) (the "April 11 Stipulation").)

On April 13, 2012, the Court granted defendant Trans Tech Merchant Group's ("TMG") motion to compel arbitration in the Avila Action, and stayed the action as to that TMG. (Teague v. Lease Fin. Grp., 11 Civ. 8125, Order, ECF No. 57.)

On May 30, 2012, the Court dismissed all claims in Avila against the Merchant Defendants for lack of personal jurisdiction. See Avila v. Lease Fin. Grp., LLC, 11 Civ. 8125, 2012 WL 1948777 (May 30, 2012) ("Avila I").

In June 2012, plaintiff Avila (the only plaintiff in the Avila Action who had any alleged dealings with the Merchant Defendants) subsequently sought leave to amend the complaint in the Avila Action to add allegations sufficient for this Court to exercise jurisdiction over the Merchant Defendants. The Court granted the motion, concluding that the proposed amended complaint contained sufficient jurisdictional allegations. See Avila et al. v. Lease Fin. Grp., et al., 11 Civ. 8125, 2012 WL 3165408, at *2-5 (July 31, 2012) ("Avila II"). In considering the question of the futility of amending the complaint, the Court determined that the proposed amended complaint stated plausible claims for common law fraud and negligent misrepresentation only. Id. at *5-9. The Court did not allow plaintiffs' claims for consumer fraud, false advertising, unjust enrichment, misrepresentation, conversion, or breach of contract to proceed. Id. at *5-9. The Court accepted the proposed amended complaint (now the "Avila Amended Complaint") for filing, subject to the Court's findings on what claims could stand.

Thus, based upon the April 11 Stipulation*fn6 and the Court's decision in Avila II, the Avila Action is proceeding as to claims against all defendants for consumer fraud pursuant to California's and Oklahoma's state statutes (corresponding to the home states of Avila and Schomaker), and common law fraud, as well as for negligent misrepresentation against the Merchant Defendants, and breach of contract against the Leasing Defendants.

B. Factual Background*fn7

Plaintiffs Avila and Schomaker both own and run small businesses. They assert that defendants are engaged in a nationwide scheme to defraud small business owners in connection with the provision of electronic payment processing services and the leasing of "swiping" machines. (Avila Am. Compl. ¶ 23, 11 Civ. 8125, ECF No. 105.) They assert that they and thousands of others signed standard form leases that contain unconscionable provisions. (Id.; see also Decl. of Mitchell M. Breit ("Breit Decl.") Exs. 5, 6, 16, 10 Civ. 6052, ECF No. 80.)

Plaintiffs focus on the unconscionability of the leases at issue in their motion for class certification. They assert that the leases are substantively unconscionable--i.e., the "content of the contract" is grossly unfair to plaintiffs, Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115, 122 (2d Cir. 2010)--and that the process by which the putative class members entered into their respective leases was "procedurally unconscionable"--i.e., plaintiffs entered into the contract without "meaningful choice," id. at 121-22. Both sides have submitted evidence that create a factual record as to each of plaintiffs' assertions regarding unconscionability. The Court will review those assertions--and the facts relevant to each--seriatim.

The relevant facts on plaintiffs' claim for conversion--i.e., that defendants charged putative class members' higher than the agreed-upon fees and thus, improperly converted class members' property to their own--are intertwined with the claims regarding substantive unconscionability. Thus, the Court addresses those facts in its discussion of unconscionability.

1. Substantive Unconscionability

Prior to reviewing plaintiffs' contentions regarding the leases' substantive unconscionability, the Court finds it important to note that Exhibit 7 to the Breit Declaration ("Breit Exhibit 7"), prepared and submitted by plaintiffs in support of the instant motion, is a spreadsheet detailing the various putative class members and the features of their respective leases.*fn8 (See Breit Decl. Ex. 7.) Breit Exhibit 7 comprises over seven three-inch binders, contains 338,514 rows of information, and numerous columns evidencing myriad variations of the features of each of putative class member's lease. (See generally id.) As the Court noted at oral argument on this motion, Breit Exhibit 7 is a "very difficult document for [plaintiffs] to live with . . . in terms of the Wal-Mart v. Dukes case because it's got every difference known to mankind . . . ." (Oral Arg. Tr. ("Tr.") 5:11-13, Nov. 29, 2012, 10 Civ. 6052, ECF No. 130.) In other words, Breit Exhibit 7 "highlight[s] all the[ ] differences" among the putative class members (Tr. 5:15-16): it does not support plaintiffs' arguments in support of Rule 23 certification (certainly not in respect of commonality, typicality, or predominance). Given the size and complexity of Breit Exhibit 7, the Court focuses upon the named plaintiff's leases in reviewing plaintiffs' assertions regarding unconscionability.

In addressing plaintiffs' unconscionability arguments, the Court also reviews evidence submitted by defendants in opposition to plaintiffs' motion.*fn9 That evidence confirms that which the Avila and Schomaker leases reviewed below (as well as Breit Exhibit 7) show: there are, in fact, numerous different lease forms. (Compare Breit Decl. Ex. 1 with Breit Decl. Ex. 2; see also Aff. of Lina Kravic in Opp'n to Pls.' Mot. for Class Cert. ("Kravic Aff.") ¶ 19, 10 Civ. 6052, ECF No. 114.) Defendants have used a variety of different lease forms since 2006. (Kravic Aff. ¶ 19.) There are approximately 367 different lease forms executed by the 389,040 lessee-putative class members during the class period. (Id.) The leases vary from two to seven pages in length; some leases require the lessee to sign and initial the first page, and to initial each of the following pages as well. (Id. ¶ 20.) Not all leases contain the same provisions--and, even as to provisions which may have a similar purpose, there can be a wide variety of language used in the forms. (Kravic Aff. ¶ 22; compare Breit Decl. Ex. 1 with Breit Decl. Ex. 2.)

The Court now turns to each of the various assertions plaintiffs have made regarding the substantive unconscionability of the leases--and the facts relating to each assertion.

First, plaintiffs assert that all class members have signed equipment leases that charge unconscionably high fees in relation to equipment value. (See Pls. Mem. at 5.) According to plaintiffs, the fair market value of Avila's equipment was $1,716 but his total lease payments over four years amounted to $9,119.52. (Breit Decl. Exs. 1, 7.) Schomaker's equipment had a fair market value of $350, but over time her lease payments amounted to $2,400. (Breit Decl. Exs. 2, 7.) In addition, Avila's ...

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