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The legal Line
By Ed Maldonado, Esq. |
Dear Legal Line:
I’m a phone card distributor in New York City. I’ve
been a New Yorker all my life and am used to the crime here because
it never really touched me personally. Recently, my warehouse was
burglarized at night and at least $70,000.00 worth of cards were
stolen. One of the security guards in the complex discovered the
break-in and called the police. Nobody was caught. I did an immediate
inventory and gave the police all the information regarding the
cards and PINs on file. The police report has all of this information
along with all copies I had on file regarding the cards. I called
the phone card company that represented about 85% of the stolen
cards and told them to cancel all those PINs from their switch,
and they did before the cards were used. We were working on a first-use
basis it seemed like no big deal.
Now here’s my problem: the phone card company knows I have
theft insurance on the warehouse and now wants me to pay the face
value of the cards because they say they can’t re-issue those
PINs. That doesn’t make any sense because the cards were not
used. I believe that if I owe anything, it is the costs of the hard
card printing, shipping costs and maybe some administrative costs
for canceling the PINs. Can they really sue? What are your thoughts?
Stealing Me Blind.
Dear SMB:
“First Use” is a contractual term placed on phone cards
that serves as an agreed condition of billing and valuation between
phone card providers and distributors/retailers. Usually this kind
of agreed term would need to be in a written into a contract, an
invoice, or be an expressed agreement between the provider and the
distributor. Alternatively it could be by virtue of a trade practice
between the distributor and the provider over time - in other words,
a history of First Use billing with the provider. Be aware that
First Use is never an assumed or implied condition. Before you get
too far into this dilemma, confirm that you have some kind of documentation
that these particular cards were transacted on a First Use basis
with you.
Should you have documentation on First Use terms for the stolen
cards, it appears that your position of being liable only for costs,
not face value, is solid. Damages were mitigated by yourself upon
discovery of the crime. The police report is going to be important.
It will demonstrate that a documented crime was committed against
you and that, you did not simply make-up the story of a theft to
avoid liability for the cards. Should the police catch the thieves
you may possibly be able to claim some losses by virtue of restitution,
however this depends on the outcome and financial capacity of the
thieves. Generally, costs are the hard damages for un-used or un-activated
stolen or lost phone cards.
It does seem very odd that they are demanding a full refund of face
value. You may want to check the provider to make sure they are
a licensed IXC in New York and hold FCC 214 authority. If the phone
card provider is operating “under the radar” demand
for the full value would make more sense because there may have
been a total loss on their part depending upon how they structured
the provisioning of services on the cards. This, however, is not
your problem if you transacted with the provider on clear First
Use terms of distribution.
Should they continue to push for full face value, I think it wise
that you engage a local attorney at this juncture and make them
an offer for the value of the costs of the hard cards and cancellation
of service. If they do sue, your attorney will be in a good position
to defend based on a failure to mitigate losses, or frivoless lawsuit.
If they are operating “under the radar”, this issue
can also be raised in the valuation of the cards at the time of
the theft. If they were never in the position to legally provide
phone cards in New York, they will be hard pressed to prevail in
light of an “unclean hands” defense at trial. Advise
your attorney as much as possible about how First Use works in the
industry and that valuation of the face of the card occurs at the
time of consumer purchase and use. His or her understanding of First
Use will expedite any resolution of the case.
Dear Legal Line:
Remember me, its ITDH, I wrote you in last August detailing my wife’s
accounting firm and her problems with a New Jersey company called
NorVergence. It was your legal line in September ‘04. Thanks.
I thought I’d let you know that the leasing company did sue
her firm. We hired a local attorney and he filed a series of defenses
based on other cases in other states and your tips in legal line.
To our surprise we found out there were 70 other cases just like
ours when we went to court for a trial conference. We were then
given a very long trial continuance. It seems that there were prior
cases that were up for trials ahead of her case. Because it was
practically the same situation as her case, the judge thought it
would be better to wait and see what developed in those other cases.
We won’t be back to court till October ‘05. Has anybody
beaten these guys yet? Please let me know. Thanks again.
“Apparently Not” In-the-Dog-House
Dear ANIDH:
Yes and No. I have not heard of any class action or private cause
of action prevailing against NorVergence leasing companies, but
there have been plenty of settlements. Perhaps the most monumental
of these was on May 19th 2005 between GE Capital and the Attorneys
General from eight (8) states: Connecticut, Illinois, Maryland,
North Carolina, Pennsylvania, South Dakota, and Washington DC. In
the end, GE Capital agreed to write-off more than $2,891,699 million
in debt that was assigned to it by NorVergence for collection from
over 216 NorVergence small business customers.
The various attorney generals sued under violations of their respective
state Deceptive and Unfair Trade Practices laws against NorVergence
and its assigned leasing companies and collectors. GE Capital alleged
no wrong doing on its part in exchange for forgiving the debt and
giving credits to those who made payments toward the balances. While
this is a move strictly in the arena of settlement, I think it is
telling of how the courts will eventually dispose of these cases.
It may also push private attorneys defending ex-NorVergence customers
to have the courts take judicial notice of the Attorney General
state suits and push for trial on the same issues. Hopefully this
is the case for your wife.
In the meantime, there has been a definite impact to the industry.
A common complaint of VoIP residential and business telephony providers
has been the specter of NorVergence when selling their services
directly to those consumers. “How are you different from these
NorVergence guys” seems to be the general misapprehension
voiced by consumers. This is primarily because NorVergence previously
pitched them the idea of consolidating and prepaying for long distance
and wireless services by virtue of the “Matrix”. This
has required VoIP providers to bolster their marketing materials
and sales pitches to overcome any confusion when supplying IP phones,
or gateways, in combination with prepaid VoIP services. In the end,
this equates to increased costs for some of these providers. My
hope is that the NorVergence case reaches a public conclusion soon
to restore consumer confidence in other telecom services such as
residential and small business IP telephony.
Good Luck and Success in the Industry.
Do you have questions for Legal Line? Send them to legalline@prepaid-press.com.
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