The Prepaid Press - LEGAL LINE

06/18/2013

LEGAL LINE

Edition: September 13th, 2004 Edition

Ed Maldonado, Esq.

Dear Legal Line,

Here is my soap opera: my wife owns a small accounting firm (not
related to at all to prepaid or telecom) that has a big problem
with a telecom reseller out of Newark, New Jersey called NorVergence.
In November of 2003, she was solicited by phone by a Sales Rep from
NorVergence who said that they had a plan that would consolidate
her firm’s long distance, cell, and Internet services over
a five-year period for a flat fee rate no matter what the actual
consumption was monthly. She liked the idea and had an information
package sent by Fed-Ex to her with all the details. Myself being
the “telecom guy” of the family, she asked me to review
it and tell her what I thought. It looked like a good deal at the
time. The business would lease some equipment from NorVergence and
its selected leasing company, all existing services would be transferred
through those facilities, and a set monthly fee was paid to NorVergence
to pay for both the lease and the services during that period through
a box called “the Matrix”. I investigated NorVergence
a little bit and found them all over the Internet in sales offers
and statements on how they were growing like wildfire. So I told
my wife to “go for it’. In December of 2003 she signed
with NorVergence and with a leasing company out of Missouri that
covered the equipment. She began paying regularly beginning January
1st 2004 through an ACH authorization through her bank. No big deal.

Our first problem began by the end of January, there was no “Matrix”
delivered. Not a single piece of equipment had been delivered since
the signing. We called NorVergence numerous times and received numerous
excuses for the delay. Finally in late February the equipment arrived
to be installed. Meantime, her office was getting notices from her
long distance provider and wireless provider as to past due amount.
When she called NorVergence, the customer service rep told her to
disregard the notices, as NorVergence would handle them. So she
ignored them. Our second problem was that the “Matrix”
was never installed. Again calls to customer service ended up with
more excuses. Now she was panicking because the past due notices
were getting more threatening about disconnection. Since she is
an accountant and likes to be “up-to-date in payments”
and since I am the “telecom guy” that told her to “go
for it”, I got dragged back in this mess. So I raised some
hell with NorVergence about the contract and the payments and everything
else and by the end of May her equipment was installed by one of
their contractors. The Notices stopped in early May and I thought
all was back on track. I was wrong.

In beginning of June, she got a chapter 11-bankruptcy notice from
them. It listed their bankruptcy attorneys but said NOT to contact
them. Within a few days, it was all over the Internet about the
11 being changed to involuntary bankruptcy because they had not
paid the long distance carriers and the wireless providers at all.
About early June the past due Notices came back, but the ACH withdrawal
was occurring regularly. So she cancelled it. Then she got a notice
from the leasing company to work out an alternative payment. She
refused because she never really got any services due to the installation
date of NorVergence’s “Matrix” which was late
May. Now the leasing company’s attorney is sending demand
letters stating that the NorVergence service is separate from her
lease. To top it off, she signed as a guarantor for the firm. Now,
being the “telecom guy” of the house, she is blaming
me for this whole mess. I see a lot of information about class action
lawsuits on Internet sites like Ripoff.com and etc, but am very
leery of what to do next. What is the real story here? Do you think
that this will be resolved in a class action suit? What is your
opinion about this?

-- In The Doghouse

Dear ITD,

As to the “Doghouse” problem between you and your wife,
you may eventually need to consult a “non-telecom” attorney,
but I most sincerely hope not. It is said that to love is to forgive.
I hope this is the end result for the “telecom guy”
of the family.

As to what has transpired with NorVergence over the past several
months, it is really shaping up to be something in the order of
another Enron case. Current estimates are that NorVergence has left
as many as 11,000 small businesses, like your wife’s accounting
firm, owing approximately $220 million to banks and finance companies
for their “Matrix” boxes and service contracts. The
claim by most of these small-businesses is that the box and equipment
is virtually worthless and that they had primarily contracted it
for telecom services, not the equipment.

Your wife’s case is pretty typical of what has happened with
most of these businesses. Consumers were promised an aggregated
cellular/long distance/Internet service and equipment deal to consolidate
those costs over a five year period. The problem is that NorVergence
never paid its venders, carriers, or leases, and left consumers
holding the bag. Needless to say small-businesses were not the only
causalities, major carriers such as Qwest and Sprint are allegedly
out as much as $30 million.

Even NorVergence’s own employees did not come out of this
unscathed. The New Jersey Department of Labor is currently investigating
an entire month’s worth of bounced employee paychecks, and
the U.S. Department of Labor is investigating whether NorVergence
failed to pay the amount deducted from employee paychecks for healthcare
to the company managing NorVergence’s health plan. Now the
Federal Trade Commission appears to have launched its own investigation
into NorVergence. This is reportedly through inquiries to a legal
cooperative of affected former NorVergence business customers that
has retained a number of law firms, including Weir & Partners
from Philadelphia, to assist in determining the enforceability of
the NorVergence rental agreements and fight the leasing companies
and to the attorney appointed by the federal bankruptcy receiver.

It has also been reported that the New Jersey law firm of Kantrowitz
& Graifman filed a class-action lawsuit in the Superior Court
in Monmouth County, New Jersey that seeks to release former NorVergence
customers from their lease contracts. The lawsuit names at least
14 leasing companies that purchased leases from NorVergence and
alleges a laundry list of claims as to why the contracts should
be held unenforceable. It appears from this Complaint that the manner
in which NorVergence’s contracts were written, and specifically
the verbiage forum clause used, leaves small-business customers
fighting in out-of-state courts in the event of default of payment.
Since this is a recently filed case, there is not much expositive
information available. NorVergence meanwhile remains in the thralls
of federal bankruptcy and is not going to formally disappear quite
yet.

As to my experience with the case, my first contact with NorVergence’s
problems came from former employees who were recently let go, and
were left with huge out-of-pocket expenses. These were not small
ticket items in any way. They were for leases of business offices,
fixtures and corporate apartments related to the company. Over the
past few months, however, I have heard of numerous former NorVergence
business customers with stories just like your wife’s. The
majority of these clients have been receiving ongoing calls from
collectors for the leasing companies threatening lawsuits. However,
none of my clients have been sued to date.

While some attorneys are more concerned with the class action aspect
of the case, I have focused on the basics of challenging the individual
contracts and the issues of fraud in the inducement and defenses
to the enforceability of the contract on the individual consumer.
This is simply a strategy choice and not telling of what may be
the eventual outcome. However, pay attention to some of the current
cases out there against NorVergence. Should the Monmouth County
class action prevail, the situation will be ripe for taking judicial
notice of those results, and provide more defenses for small business
fighting the NorVergence leases. Likewise there is the FTC investigation,
which may or may not yield results before the leasing company tries
to sue your wife’s company. Much like the Monmouth County
class action suit, if the FTC investigation finds certain contracts
unenforceable, there may be more expansive defenses for your wife’s
company.

My overall recommendation is to re-read your wife’s NorVergence
contract and lease agreements and see what jurisdiction and venue
applies. Thereafter, she should talk to an attorney from that particular
jurisdiction, just in case she’s sued. It is also advisable
to seek the consultation of a local attorney to see his or her thoughts
as to the contract and the installation issues. The reason why is
that their “contractor” may have been and agent or employee.
If so, there may be other contacts to your jurisdiction for purposes
of a lawsuit. Finally, patience is definitely called for in this
matter. The legal claims in the wake of the NorVergence bankruptcy
are still coming to the surface. There may be a number of twists
and turns before the whole story behind NorVergence surfaces completely.
The important thing to do is to keep informed and seek advice from
attorneys familiar with the case.

It’s not over yet!

Good Luck & Success in the Industry!

•• Ed Maldonado is a Partner of Maldonado &
Glenn. He can be reached at emaldonado@4counsel.net.