Simington et al v. Lease Finance Group, LLC et al

Filing 80

OPINION & ORDER re: 61 MOTION to Dismiss Second Amended Complaint. filed by Lease Finance Group, LLC, Leonard Mezei, Northern Leasing Systems, Inc., Jay Cohen, Sara Krieger, 57 MOTION to Dismiss Second Amended Class Action Complaint . filed by Global Leasing Company Inc., Payment Systems Inc. Plaintiffs request for leave to amend the SAC is DENIED as futile. The parties are to appear for an initial pretrial conference in this matter on March 15, 2012 at 10:00 a.m. The parties s hould comply with Judge Forrests Individual Practices for Civil Cases relating to initial pretrial conferences. The Court is inclined to coordinate discovery in this action with discovery in the related action of Teague v. Lease Finance Group, et al ., 11 Civ. 8125. The initial pretrial conference in that action is set for the same date and time. The parties should all be prepared to discuss possible coordinated discovery as between these two actions, and should submit a joint proposed Scheduling Order. The Clerk of Court is directed to terminatedefendants' respective motions (Dkt. Nos 57 & 61). (Signed by Judge Katherine B. Forrest on 2/28/2012) (djc) Modified on 2/28/2012 (djc).

USDCSDNV
DOCllMENT
ELECTRONICALLV FILED

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

DOC # : - -.......""'""'.---::---::----11

DATE FILED:

-----x
RODNEY SIMINGTON and SHARON

SIMINGTON, d/b/a PAINTBALL UPHORIA,

and AKHTAR ZAMIR, d/b/a NORWALK SMOKE:
SHOP, on behalf of themselves and all:

others similarly situated,

10 Civ. 6052 (KBF)

OPINION & ORDER

Plaintiffs,
-v-

LEASE FINANCE GROUP, LLC, et al.,
Defendants.

------

----------------- ------

---x

KATHERINE B. FORREST, District Judge:
In their Second Amended Complaint ("SACII)
complaint plaintif

(i.e., the third

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 II

) ,

Jay Cohen, Leonard Mezei, Sara Krieger (collectively,

the "LFG Defendants

ll

payment Systems Inc.

)

f

Global Leasing Company, Inc.

("GLC") ,

("Payment Systems ll and collectively with

GLC, the "GLC Defendants"),1 and Northern American Bancard

Plaintiffs include GLC in what they define as the "Lease Finance Defendants"
(i.e., the LFG Defendants as defined by the Court plus GLC). However, GLC
and Payment Systems have filed a joint motion to dismiss and the LFG
Defendants (i.e., the Lease Finance defendants minus GLC) have filed their
own joint motion to dismiss. Accordingly, the Court has defined defendants
as above.
1

1

Systems, LLC (“NAB”). 2

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.
FACTUAL BACKGROUND
2

NAB answered the SAC on November 18, 2011, asserting a counterclaim for
contractual indemnity against plaintiffs. (Dkt. No. 64.) Accordingly, the
Court’s decision on the two motions to dismiss before the Court do not
involve NAB.

2

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.

3

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).
I.

THE PARTIES
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.”
8.)

(Id. ¶¶ 7,

Plaintiffs allege that NLS is LFG’s “affiliate [and] alter

ego,” as well as the “umbrella organization” over LFG and “many

4

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.”
II.

(Id. ¶¶ 14, 15.)

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

5

“exorbitant inflated and unconscionable” leases.
20, 23.)

(SAC ¶¶ 16,

Specifically, it is alleged that under the leases at

issue, “Defendants” 3 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,

3

The Court uses the term “Defendants” in quotation marks throughout the fact
section because that is how they are referred to in the SAC, based upon
plaintiffs’ inability to obtain facts at this juncture sufficient to detail
the acts and representations of each defendant, as discussed in Part III of
the Discussion section infra.

6

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.)

7

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

8

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.
V.

(Id. ¶ 47.)

PLAINTIFFS’ ALLEGED TRANSACTIONS
A.

The Simingtons

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.

9

(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.
¶¶ 58, 60.)

(Id.

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.
¶ 60.)

(Id.

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.

10

(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.
¶ 62.)

(Id.

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.
63.)

(Id. ¶

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.
¶ 64.)

(Id.

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

11

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.
B.

(Id. ¶ 67.)

Plaintiff Zamir

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.) 4

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 entity with whom he had no contract, no prior

4

Plaintiffs allege that the provider Zamir was using at the time he was
approached by Payment Systems’ agent did not charge anything for the
processing equipment. (SAC ¶ 68.)

12

relationship, and about which he knew nothing,” confirming that
they “provided lease financing for certain equipment,” and
notifying him of the LDW fee.

(Id. ¶ 72.)

Upon receipt of his first bank statement after entering
into the agreements, Zamir saw charges from Payment Systems that
exceeded those from his previous provider by $200.

(Id. ¶ 73.)

It is alleged that Zamir made calls to Payment Systems over a
three month period to complain about the overcharges--all of
which were for naught.

Accordingly, Zamir closed the bank

account from which amounts were being deducted by Payment
Systems.

(Id. ¶¶ 74-75.)

According to the SAC, on or about February 4, 2010, Zamir
received an invoice from LFG for various current and past
payments due in an amount of $431.04.

(Id. ¶ 76.)

Thereafter,

he allegedly received a July 30, 2010 “Demand for Payment” from
LFG, which claimed an “outstanding balance of $10,540.25,” along
with a letter from LFG’s alleged attorney stating that the
remaining lease payments were being accelerated such that
Norwalk Smoke Shop owed $7,267.”

(Id. ¶ 77.)

Ten days later,

on August 10, Zamir allegedly received a “Final Notice” from LFG
for the $10,540.

(Id.)

On December 3, 2010, LFG commenced an action against Zamir
in Civil Court of the City of New York.

13

(Id. ¶ 78.)

Plaintiffs allege that the allegedly fraudulent lease
transactions of which they complain are just two of countless
nationwide.

(See id. ¶¶ 80-81.)
PROCEDURAL HISTORY

Plaintiffs commenced this action on August 12, 2010.
Dkt. No. 1 (complaint filed).)

(See

After various extensions by

stipulation of defendants’ time to respond to the initial
complaint, on November 15, 2010, defendants informed the Court
that they had given notice to plaintiffs of their intention to
file a motion to dismiss per the individual practices of Judge
Marrero (who was presiding over the case at that time), 5 and that
plaintiffs intended to file an amended complaint.

(Dkt. No. 9

at 1; see also Decl. of Mitchell M. Breit in Support of Pls.’
Appl. for Leave to Amend (“Breit Decl.”)(Dkt. No. 70) ¶ 5.)
Plaintiffs did so on May 11, 2011.

(Dkt. No. 11.)

Again after various stipulated extensions of time,
defendants filed motions to dismiss the amended complaint on
August 1, 2011.

(See Dkt. Nos. 21, 24, 29.)

At an August 9,

2011 “telephonic motion conference” with Judge Marrero regarding
those motions, Judge Marrero “indicated that the thought
Plaintiffs’ RICO claim was insufficient.”

5

(Breit Decl. ¶ 6; see

This action was transferred to Judge Forrest on November 14, 2011.
No. 55.)

14

(Dkt.

also Dkt. btw. Nos. 38 & 39.)

He did not make indications about

the other claims in the amended complaint.

(Id.)

On September 15, 2011, plaintiffs filed the SAC, dropping
their RICO claim.

(Dkt. No. 45; Breit Decl. ¶ 6.) 6

Again by

stipulation, motions to dismiss the SAC were filed by the LFG
Defendants and by the GLC Defendants on November 14, 2011.
(Dkt. Nos. 57 & 61.)

The motions were fully submitted as of

January 16, 2012.
DISCUSSION
I.

LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss, “the

plaintiff must provide the grounds upon which [its] claim rests
through factual allegations sufficient ‘to raise a right to
relief above the speculative level.’”

ATSI Commc’ns, Inc., 493

F.3d at 98 (quoting Bell Alt. Corp. v. Twombly, 550 U.S. 544,
555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

In other words,

the complaint must allege “enough facts to state a claim to
relief that is plausible on its face.”

Starr v. Sony BMG Music

Entm’t, 592 F.3d 314, 321 (quoting Twombly, 550 U.S. at 570).
See also Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949
6

At an October 17, 2011, telephonic motion conference with Judge Marrero (for
which there is no transcript), plaintiffs’ counsel avers that Judge Marrero
“indicated that he thought the claims were sufficiently well-pleaded.”
(Breit Decl. ¶ 6; see also Dkt. btw. Nos. 51 & 52.) Defendants do not
dispute that. However, the Court does not consider Judge Marrero’s
“indication” a binding ruling, and thus, upon review of the SAC and the
applicable caselaw, the Court finds that some claims in the SAC survive the
instant motions to dismiss while others do not.

15

(2009) (same).

“A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.”

Iqbal, 129 S.Ct. at 1949.

In applying

that standard, the court accepts as true all well-plead factual
allegations, but does not credit “mere conclusory statements” or
“threadbare recitals of the elements of a cause of action.”

Id.

If the court can infer no more than “the mere possibility of
misconduct” from the factual averments, dismissal is
appropriate.

Starr, 592 F.3d at 321 (quoting Iqbal, 129 S.Ct.

at 1950).
II.

CONSUMER FRAUD (COUNT ONE)
Plaintiffs’ first cause of action purports to levy a claim

for violations of 46 consumer fraud statutes.

(SAC ¶¶ 89-98.)

Plaintiffs themselves, however, only plead connections to New
York, Arizona and Connecticut.

(See id. ¶¶ 5-6.)

As both sets

of moving defendants argue, plaintiffs could only possibly have
standing to bring consumer fraud claims under the consumer fraud
statutes of those three states.
Standing is “the threshold question in every federal case.”
Id. at 498.

Article III of the Constitution limits the

jurisdiction of federal courts to the resolution of actual
“cases” and “controversies,” U.S. CONST. art. III, § 2--i.e., a
justiciable action in which the plaintiff has standing, Warth,

16

422 U.S. at 498.

The law of Article III standing is clear:

a

plaintiff must assert an injury traceable to the conduct of
which the plaintiff complains.

Allen v. Wright, 468 U.S. 737,

750, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984).

Accordingly,

the Court need only consider whether plaintiffs adequately
pleaded consumer fraud under New York’s, Arizona’s and
Connecticut’s statutes because defendants’ alleged purported
fraudulent scheme can only be traceable to the states in which
plaintiffs have connections via residence or business.

(See SAC

¶¶ 5, 6, 90-91.)
Both sets of moving defendants argue that the New York
General Business Law § 349 and Arizona Consumer Fraud Act, Ariz.
Rev. Stat. § 44-1522, claims fail because plaintiffs are not
“consumers” nor do they allege “consumer-oriented” conduct.
(Mem. of Law of LFG Defendants In Support of Their Mot. to
Dismiss the SAC (“LFG Defs. Mem.”) (Dkt. No. 62) at 11-12; Defs.
Payment Sys.’ & Global Leasing’s Mem. of Law in Support of Their
Mot. to Dismiss Pls.’ Second Am. Compl. (“GLC Defs. Mem.”) (Dkt.
No. 59) at 11.)

The Court agrees.

Judge Gleeson’s recent decision in Sprit Locker, Inc. v.
EVO Direct, LLC, 696 F. Supp. 2d 296 (E.D.N.Y. 2010), is
directly on point.

In Spirit Locker, the plaintiff--a liquor

store--entered into an agreement with the defendant to process
credit and debit card payments in exchange for a monthly fee.

17

Id. at 297-98.

Plaintiffs terminated the agreement early in the

relationship due to “shoddy service and improper charges.”
at 298 (quotation marks omitted).

Id.

In turn, the defendant

imposed an early termination fee (“ETF”) provided for in the
contract between the parties.

Id.

Plaintiff then brought an

action alleging that the ETF was an unlawful penalty, and
asserting claims for “deceptive practices” under N.Y.G.B.L.
§ 349 and unjust enrichment.

Id. at 297.

The Court found that

plaintiff could not make out a prima facie case under § 349
because plaintiff “fail[ed] to allege consumer-oriented
conduct.”

Id. at 300.

The same is true here.

The Court finds

Judge Gleeson’s decision well-reasoned and persuasive--and
adopts the portion of it relating to N.Y.G.B.L. § 349 in full
herein.

See id. at 300-04.

Accordingly, the N.Y.G.B.L § 349 is

dismissed.
Arizona’s Consumer Fraud statute, Ariz. Rev. Stat.
§ 44-1522 requires the same “consumer-oriented” conduct.

See

Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 344 (Ct.
App. Of Ariz. 1983) (“The legislative intent behind the Consumer
Fraud Act is to provide consumers with a claim for relief that
is easier to establish than common law fraud.” (emphasis

18

added)).

As discussed, no such conduct is alleged in the SAC. 7

Thus, the Arizona consumer fraud claim fails as well.
The LFG Defendants argue that plaintiffs cannot sustain a
claim under the Connecticut Unfair Trade Practices Act, Conn.
Gen. Stat. § 42-110b (“CUTPA”) because the SAC does not
sufficiently plead the elements of a CUTPA violation.

(LFG

Defs. Mem. at 12.) 8
To state such a claim, “a plaintiff must establish both
that the defendant has engaged in a prohibited act and that, ‘as
a result’ of this act, the plaintiff suffered an injury.”
Abrahams v. Young Rubicam, Inc., 240 Conn. 300, 692 A.2d 709
(1990).

A “prohibited act” is a deceptive practice that (i)

offends public policy; (ii) is immoral, unethical, oppressive,
or unscrupulous; and (iii) causes substantial injury to
consumers or other businesses.

Willow Springs Condominium

Ass’n, Inc. v. Seventh BRT Devel. Corp., 245 Conn. 1, 45 (1998).
However, a plaintiff need not plead all three elements.

A court

may find a CUTPA claim adequately pleaded based upon the degree
of one of the factors.

Cf. id.

The LFG Defendants disingenuously argue that the SAC
(a) does not plead facts that they “violated public policy” and
7
Tellingly, although not dispositive, plaintiffs refer to themselves and the
purported class members as “merchants” throughout the SAC. (See, e.g., SAC
¶¶ 24, 26, 28, 37.)
8
The GLC Defendants’ argument that the consumer fraud statutes apply to
consumers only (GLC Defs. Mem. at 11) fails upon CUTPA’s application to other
businesses, as discussed in the text.

19

(b) only conclusorily pleads that they acted “immorally,
unethically, oppressively or unscrupulously.”
at 12-13.)

(LFG Defs. Mem.

The heart of the SAC is that defendants engaged in a

widespread scheme to defraud business owners by purportedly
misrepresenting the fees associated with lease financing and
credit/debit card processing equipment and by providing them
with one page of a purported four-page lease.

To state the

facts underlying the CUTPA claim proves the point--i.e.,
plaintiffs sufficiently allege facts which, taken as true on
this motion, plead immoral, unethical or unscrupulous behavior
that violate the widely understood public policy of good faith
and fair dealing in business transactions.

See Willow Springs

Condominium Ass’n, Inc., 245 Conn. at 45.
This case is not like Flemming v. Goodwill Mortgage
Services, LLC, 648 F. Supp. 2d 292 (D. Conn. 2009) (cited in LFG
Defs. Mem. at 13) in which the complaint contained a single
conclusory statement regarding the defendant’s behavior (i.e., a
recitation of the second element of the CUTPA claim).
297.

Id. at

Nor is this case like those cited by the LFG Defendants

where the defendant “simply tried to walk away from a contract”
or acted negligently.

(See LFG Defs. Mem. at 13 (citing Int’l

Brands USA, Inc. v. Old St. Andrews Ltd., 349 F. Supp. 2d 256,
263-64 (D. Conn. 2004); A-G Foods, Inc. v. Pepperidge Farm,
Inc., 216 Conn. 200, 213-17 (Conn. 1990)).)

20

Taking the SAC’s

allegations as true, defendants’ alleged fraudulent practices
fall within CUTPA’s purview. 9
Where plaintiffs themselves do not state a claim under
their respective state’s consumer statutes, however, they do not
have standing to bring claims under other state statutes--even
where they are named plaintiffs in a purported class action.
See Lewis v. Casey, 518 U.S. 343, 357, 116 S.Ct. 2174, 135
L.Ed.2d 606 (1996) (“That a suit may be a class action . . .
adds nothing to the question of standing . . .”).

Plaintiffs do

not have an injury traceable to conduct that occurred in any
other state than those in which they conduct business and thus,
they cannot assert a claim under those states’ consumer fraud
statutes.

See In re Direxion ETF Trust, No. 09 Civ. 8011, 2012

WL 259384, at *6-7 (S.D.N.Y. Jan. 27, 2012) (Forrest, J.)
(dismissing claims for which named plaintiffs did not have an
injury traceable to defendants’ conduct); Parks v. Dick’s
Sporting Goods, Inc., No. 05 Civ. 6590, 2006 WL 1704477, at *2
(W.D.N.Y. June 15, 2006) (plaintiff lacked standing “to assert
9

The LFG Defendants’ arguments in the alternative as to whether the CUPTA
claim is based upon the alleged fraud or the alleged breach of contract
likewise fail. They argue that they did not “have a duty to disclose” and
thus, the alleged failure to disclose cannot form the basis for the CUTPA
claim. (LFG Defs. Mem. at 13.) Taking the allegations as true, even if the
LFG or GLC Defendants did not specifically make disclosures to plaintiffs, it
is alleged that their agents did which, as discussed in connection with the
Court’s discussion of the fraud claim in Part III infra, is sufficient at
this time. In the alternative, the LFG Defendants argue that “a mere breach
of contract does not establish a violation of CUTPA.” (Id. (quotation marks
and citation omitted).) But plaintiffs’ consumer fraud violations are not
duplicative of their breach of contract claim; they mirror a claim of fraud,
which may lie independently with a consumer fraud claim.

21

state-law claims arising under the laws of states other than New
York, since he was never employed by defendant anywhere other
than New York”).

Plaintiff Zamir, who owns a business in

Connecticut, may represent the interests only of purported class
members who are business owners or residents of Connecticut.
See In re Direxion ETF Trust, 2012 WL 259384, at *7.
Both the N.Y.G.B.L. § 349 and Ariz. Rev. Stat. § 44-1522
claims are dismissed with prejudice.
Count One survives as to CUTPA only, and is dismissed to
the extent plaintiffs seek to bring claims under the consumer
fraud statutes of any other state.
III. COMMON LAW FRAUD (COUNT TWO) AND BREACH OF CONTRACT (COUNT
SEVEN)
Claims for breach of contract and fraud arising out the
same facts typically cannot be sustained in the same action.
See Krantz v. Chateau Stores of Canada, 256 a.d.2D 186, 187 (1st
Dep’t 1998).

That is not an inflexible rule, however.

Where,

as here, the bases for--or “essence” of--the two claims are
substantially different they may be maintained, even though they
arise out of the same set of facts.
First, the essence of the fraud claim is “fraud in the
inducement.”

Plaintiffs allege, inter alia, that defendants

made “misrepresentations and omissions of fact” that were
material to plaintiffs’ “decisions to apply for and lease credit

22

card processing equipment,” and that at the time that they made
those misrepresentations, “Defendants” and/or their agents knew
that they were false.

(SAC ¶¶ 100, 101.)

Those allegations, on

the SAC’s factual background, are sufficient to state a claim
for fraud in the inducement.

See Johnson v. Nextel Commc’ns,

Inc., 660 F.3d 131, 143 (2d Cir. 2011) (“To state a claim for
fraud in the inducement [under New York law], the party must
allege: (i) a material misrepresentation of a presently existing
or past fact; (ii) an intent to deceive; (iii) reasonably
reliance on the misrepresentation . . .; and (iv) resulting
damages.”).
Both the LFG and GLC Defendants contend that the fraud
claim fails because plaintiffs fail to plead various elements of
fraud--and the “group pleading” in the SAC fails to meet the
heightened standards set forth under Fed. R. Civ. P. 9(b).
Without going into lengthy detail as to each ground by each set
of defendants, suffice it to say that the allegations adequately
support a fraud claim.

The fact that plaintiffs have been

unable to identify specific acts and representations by each
specific defendant is of no moment.

“The very nature of the

scheme, as alleged, gives rise to the reasonable inference” that
all defendants (including defendant officers who held “key
positions”) “were involved in the fraud.”

Pludeman v. N.

Leasing Sys., Inc., 10 N.Y.3d 486, 493, 860 N.Y.S.2d 422, 890

23

N.E.2d 184 (N.Y. 2008). 10

To strictly construe Rule 9(b)’s

pleading requirements especially where, as here, “concrete facts
are peculiarly within the knowledge of the party charged with
the fraud,” would “work a potentially unnecessary injustice.”
Id. at 491-92 (quotation marks and citations omitted).
Second, the essence of the breach of contract claim is a
breach of the implied covenant of good faith and fair dealing
inherent in every contract.

(SAC ¶ 131.)

See Nat’l Mkt. Share,

Inc. v. Sterling Nat’l Bank, 392 F.3d 520, 525 (2d Cir.2004)
(“In New York, breach of the implied duty of good faith and fair
dealing is merely a breach of the underlying contract.”
(quotation marks and citations omitted)).

The alleged

“wilfull[] and systematic[] conceal[ment]” of the terms of the
contracts from the lessees (SAC ¶ 130) certainly flouts the
“pledge” by contracting parties that neither of them “shall do
anything which will have the effect of destroying or injuring
the right of the other party to receive the fruits of the
contract.”

511 West 232nd Owners Corp. v. Jennifer Realty Co.,

10
Plaintiffs cite the New York Court of Appeals’ Pludeman decision, arguing
that there, the court “held that lessees like Plaintiffs had pleaded a fraud
claim with sufficient particularity where they alleged virtually the same
facts alleged in this case.” (Pls. Opp’n at 17.) The Court has spent
considerable time comparing the facts alleged here and in Pludeman. The
similarities are uncanny--i.e., there is nothing “virtual” in their
similarity. As discussed below, the actions are identical (including as to
most parties and claims) except for the presence of additional defendants
here. However, the Court does not decline to exercise its jurisdiction over
this action for the reasons discussed in note 11 infra. This Court will take
up whatever additional implications may arise from those overlapping
allegations and parties at the appropriate time.

24

98 N.Y.2d 144, 153, 746 N.Y.S.2d 131, 773 N.E.2d 496 (2002)
(quotation marks and citations omitted).

The “fruits” of the

contracts that were touted here was credit/debit card processing
and equipment for substantial savings.

The alleged “exorbitant

and unconscionable” undisclosed fees and costs “destroyed or
injured” plaintiffs-lessees’ rights to receive those fruits.
Thus, a breach of contract claim may lie. 11
On the facts alleged, plaintiffs have asserted a breach of
contract claim independent from the bases for their fraud claim.
See 37 Am. Jur. 2d Fraud and Deceit § 324 (2012) (“It is
elementary that where a contract or transaction was induced by
false representations, the representations and the contract are

11

As one of three grounds for dismissal, the LFG Defendants argue that the
breach of contract claim must be dismissed because there is a similar “prior
action pending” in New York Supreme Court, Pludeman v. Northern Leasing
Systems, Inc., Index No. 101059/2004 (N.Y. Sup. Ct.). (LFG Defs. Mem. at
19-20.) In other words, the LFG Defendants are asking this Court to abstain
from exercising its jurisdiction under Colorado River Water Conservation
Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.E.2d 483 (1976).
The Court has closely scrutinized this action and Pludeman and finds the
allegations nearly identical. Colorado River abstention may have been
appropriate here absent the presence of additional defendants LFG, GLC, NAB,
Payment Systems and Mezei in this action--and the factual questions as to
whether NLS, a defendant in Pludeman, is the “alter-ego” of LFG, NAB, and
others--i.e., the non-defendants in Pludeman. Abstention from jurisdiction
here would prevent plaintiff from adequately asserting and/or protecting
their rights against those additional parties. Given that reality and the
Court’s “virtually unflagging obligation” to exercise the jurisdiction given
to it, Colorado River, 424 U.S. at 817, abstention would not be appropriate.
In addition, plaintiffs concede that they are class members in Pludeman (but
note that there is a pending, but not fully-briefed motion for
decertification). (See Pls. Opp’n at 43-44.) To the extent that decisions
in Pludeman come to have preclusive effect over any of the claims asserted
here (not just the breach of contract claim because, based upon the Court’s
own research, it is clear that there also are claims for fraud and money had
and received and punitive damages pending in Pludeman), the parties are
directed to notify the Court and the Court will take appropriate action.

25

distinct and separable.”).

Accordingly, defendants’ motions to

dismiss those claims (Counts Two and Seven) are denied.
IV.

UNJUST ENRICHMENT (COUNT THREE)
To state a claim for unjust enrichment, a plaintiff must

plead that the defendant was enriched at the plaintiff’s expense
such that “equity and good conscience militate against permitted
defendant to retain what plaintiff is seeking to recover.”
Ashland Inc. v. Morgan Stanley & Co., Inc., 652 F.3d 333, 339
(2d Cir. 2011) (quotation marks omitted).

Unjust enrichment is

based upon a quasi-contract theory--i.e., it is an equitable
creation, designed to “prevent injustice, in the absence of an
actual agreement between the parties concerned.”

IDT Corp. v.

Morgan Stanley Dean Witter & Co., 907 N.E.2d 268, 274 (N.Y.
2009).

Sensibly, where there is “a valid and enforceable

written contract governing a particular subject matter,” a party
may not also seek redress under an unjust enrichment theory
based upon the same “events arising out of the same subject
matter.”

Clark-Fitzpatrick, Inc. v. Long Is. R. R. Co., 516

N.E.2d 190, 193 (N.Y. 1987).
Both sets of moving defendants seek to dismiss the unjust
enrichment claim precisely on that ground--i.e., that the
contracts at issue govern the subject matter of this action.
(LFG Defs. Mem. at 20-21; GLC Defs. Mem. at 13-14.)

Plaintiffs

counter that they may sustain both causes of action, but “may

26

not be able to collect a judgment for both breach of contract
and quasi-contract.”

(Pls. Opp’n at 37.)

But in pleading their

unjust enrichment claim, plaintiffs specifically reference the
contracts at issue:

“In exchange for the payments they made for

the leases, and at the time [they] made these payments,
Plaintiffs and the Class expected that the equipment lease
contracts were disclosed in full, that they would pay reasonable
rates, and that Defendants had provided all of the necessary and
accurate information and disclosed all of the lease contract’s
terms.”

(SAC ¶ 107 (emphases added).)

Plaintiffs make similar

allegations in asserting their breach of contract claim (Count
VII)--i.e., that defendants “charg[ed] and collect[ed] sums in
excess of those specified in the equipment lease and
applications” and “impos[ed] different terms on the lease and
contract than those promised and revealed to Plaintiffs and
class members.”

(SAC ¶ 129.)

There is no need for two separate

claims, both seeking redress for the alleged “exorbitant and
unconscionable” amounts defendants allegedly charged plaintiffs
against the terms of the lease equipment contract initially
presented to plaintiffs. 12

The unjust enrichment claim is

dismissed with prejudice.

12

Plaintiffs’ reliance on Joseph Sternberg, Inc. v. Walber 36th St. Assocs.,
187 A.D.2d 225, 594 N.Y.2d 144 (1st Dep’t 1993) (cited in Pls. Opp’n at 37)
is inapposite. There, the First Department held that “where there is a bona
fide dispute as to the existence of a contract or where the contract does not
cover the dispute in issue, plaintiff may proceed upon a theory of quantum

27

V.

DECEIT, FRAUD AND/OR MISREPRESENTATION (COUNT FOUR)
The Court finds the deceit, fraud and/or misrepresentation

claim (Count Four) duplicative of plaintiffs’ common law fraud
claim (Count Two).

See Fink v. Time Warner Cable, --- F. Supp.

2d ---, 2011 WL 6747463, at *6 & n.1 (S.D.N.Y. Dec. 23, 2011)
(reciting the elements of common law fraud under New York law in
analyzing a claim for “deceit, fraud and/or misrepresentation”).
There is no need for it to lie as an independent cause of action
as it rises and falls on the same bases as the fraud claim.
Accordingly, Count Four is dismissed with prejudice.
VI.

NEGLIGENT MISREPRESENTATION (COUNT FIVE)
The sine qua non of a negligent misrepresentation claim is

that the defendant had a duty--as a result of a special or
privity-like relationship--to provide correct information to the
plaintiff.

See Naughright v. Weiss, --- F. Supp. 2d ---, 2011

WL 5835047, at *6 (S.D.N.Y. Nov. 18, 2011); Sykes v. RFD Third
Ave. 1 Assocs., LLC, 15 N.Y.3d 370, 372, 912 N.Y.S.2d 172, 938
N.E.2d 325 (N.Y. 2010) (“a plaintiff in an action for negligent
misrepresentation must show

either privity of contract between

the plaintiff and the defendant or a relationship so close as to
approach that of privity.” (quotation marks omitted)).

meruit and will not be required to elect his or her remedies.” Joseph
Sternberg, Inc., 187 A.D.2d at 228, 594 N.Y.2d at 146. Neither of those
exceptions applies here.

28

No such relationship is alleged here and the alleged
contracts do not provide the requisite “special relationship.”
Naughright, 2011 WL 5835047, at *6 (“To allege a special
relationship, [the plaintiff] must establish something beyond an
ordinary arm’s length transaction . . .”).

The obligation of

defendants and/or their agents to provide “correct” information
to plaintiffs-lessees arose out of the covenant of good faith
and fair dealing implicit in every contract, not out of some
sort of “special relationship.”

There is nothing approximating

“privity” as between the parties prior to the time of
contracting, nor could such privity be alleged on the arm’s
length transactions at the heart of plaintiffs’ claims.
Accordingly, the claim for negligent misrepresentation is
dismissed with prejudice.
VII. CONVERSION (COUNT SIX)
A claim for conversion is adequately pleaded where the
plaintiff alleges (a) “a possessory right or interest in the
property;” and (b) “defendant’s dominion over the property or
interference with it, in derogation of plaintiff’s rights.”
Colavito v. N.Y. Organ Donor Network, Inc., 860 N.E.2d 713, 717
(N.Y. 2006).

“Interference with a plaintiff’s right to

possession may be by a wrongful: (i) taking; (ii) detention; or
(iii) disposal.”

Amusement Industry, Inc. v. Midland Avenue

29

Assocs., LLC, --- F. Supp. 2d ---, 2011 WL 3463117, at *16
(S.D.N.Y. Sept. 27, 2011) (quotation marks omitted).
Such a claim is adequately alleged against the GLC
Defendants. 13

Plaintiffs allege that both Payment Systems and

GLC made repeated withdrawals from plaintiff Zamir’s personal
bank account for amounts which he purportedly did not authorize.
(SAC ¶¶ 73-75.)

If true, that certainly amounts to interference

with plaintiff Zamir’s rights to his monetary property by a
taking.
There are not similar allegations against the LFG
Defendants in the SAC.

To save the claim against those

defendants, plaintiffs argue that New York law allows for a
claim of aiding and abetting conversion, and the “conspiracy”
allegations impute NAB’s improper takings from both the
Simingtons’ personal bank accounts to the LFG Defendants.
Opp’n at 39.)

(Pls.

But plaintiffs do not assert an aiding and

abetting conversion claim in the SAC, and they cannot amend
their complaint now with statements in opposition to the motions
to dismiss.

See Granata v. Berson, No. 11 Civ. 689, 2011 WL

6034366, at *4 (S.D.N.Y. Dec. 5, 2011) (Forrest, J.).
Accordingly, the conversion claim is dismissed as against
the LFG Defendants at this time.

13

If in discovery adequate

The conversion claim likewise is adequately pleaded against NAB, who has
not moved to dismiss any claims against it. (See SAC ¶¶ 62, 64, 66.)

30

evidence reveals that any of the LGF Defendants engaged in the
allegedly unauthorized withdrawals from the lessee-merchants’
respective bank accounts, plaintiffs may seek leave of Court to
renew this claim against any of the LFG Defendants.
The LFG Defendants’ motion to dismiss the conversion claim
is granted; the GLC Defendants’ motion to dismiss the conversion
claim is denied.
VIII.

LEAVE TO AMEND

Plaintiffs have requested leave to amend any dismissed
claims.

As set forth above, the Court has dismissed claims for

which there are no allegations that would adequately set forth a
claim for relief--i.e., any amendment of the dismissed claims
would be futile.

Accordingly, plaintiffs’ request for leave to

amend is DENIED.
The SAC will remain the operative pleading in this action.
The parties will proceed with the guidance of this Opinion &
Order to inform them of what claims remain in this action.
CONCLUSION
For the aforementioned reasons, defendants’ motions are
GRANTED IN PART and DENIED IN PART.
Plaintiffs’ claims for unjust enrichment (Count III),
“deceit, fraud and/or misrepresentation” (Count IV), and
negligent misrepresentation (Count V) are dismissed with
prejudice.

31

In addition, plaintiffs’ consumer fraud claim is dismissed
with prejudice as to the consumer fraud statutes of any state
other than Connecticut (Counts I).

Plaintiff Zamir may proceed

with the CUTPA claim on behalf of purported class members with
standing for that claim.
Plaintiffs’ conversion claim against the LFG Defendants
(Count VI) is dismissed without prejudice.

Plaintiffs may seek

leave to reinstate the conversion claim against the LFG
Defendants, at the appropriate time, if discovery demonstrates
that those defendants have engaged in behavior sufficient to
sustain such a claim.
The surviving claims are consumer fraud under CUTPA (Count
I), common law fraud (Count II), conversion as to GLC and
Payment Systems (and NAB) (Count VI), and breach of contract
(Count VII).
Plaintiffs’ request for leave to amend the SAC is DENIED as
futile.
The parties are to appear for an initial pretrial
conference in this matter on M r c h 15, 2012 a t 10: 00 a . m.
a

The

parties should comply with Judge Forrest’s Individual Practices
for Civil Cases relating to initial pretrial conferences.
The Court is inclined to coordinate discovery in this
action with discovery in the related action of Teague v. Lease
Finance Group, et al., 11 Civ. 8125.

32

The initial pretrial

conference in that action is set for the same date and time.
The parties should all be prepared to discuss possible
coordinated discovery as between these two actions, and should
submit a joint proposed Scheduling Order.
The Clerk of Court is directed to terminate defendants'
respective motions (Dkt. Nos. 57 & 61) .

SO ORDERED:
Dated: New York, New York
February ~, 2012

Katherine B. Forrest

UNITED STATES DISTRICT JUDGE

33