People v. Leasing Expenses Co.

199 A.D.3d 521

159 N.Y.S.3d 1

In the Matter of the PEOPLE of the State of New York, BY Letitia JAMES, Attorney General of the State of New York, Petitioner–Respondent,

v.LEASING EXPENSES COMPANY LLC et al., Respondents–Appellants,John Does 1–10, Respondents.

14642-14642A-14642B

Index No. 452357/20

Case No. 2021-01114

Supreme Court, Appellate Division, First Department, New York.

ENTERED November 18, 2021

Proskauer Rose LLP, New York (David A. Picon of counsel), for Leasing Expenses Company LLC and Ariel Schacter, appellants.

Cahill Gordon & Reindel LLP, New York (Thomas J. Kavaler of counsel), for NLS Equipment Finance LLC, Sara Krieger, Sara Yael Elias Cohen, Daniela Rachel Cohen, Miriam Abrams, Amy Friedman and Andrew Mezei, appellants.

Regosin, Edwards, Stone & Feder, New York (Saul E. Feder of counsel), for Leonard Mezei and Fieldston Capital LLC, appellants.

Dechert LLP, New York (Neil A. Steiner of counsel), for Ari Jay Cohen, appellant.

Parness Law Firm, PLLC, New York (Hillel I. Parness of counsel), for JS Ventures Holdings LLC, appellant.

Letitia James, Attorney General, New York (Blair J. Greenwald of counsel), for respondent.

Webber, J.P., Kern, Gonza´lez, Mendez, JJ.

Order and judgment (one paper), Supreme Court, New York County (Arthur F. Engoron, J.), entered March 16, 2021, which, following an order, same court and Justice, entered February 26, 2021, granting the petition seeking relief under Executive Law § 63(12), inter alia, permanently enjoined respondents from engaging in the business of equipment finance leases (EFLs), rescinded all EFLs acquired or serviced by respondents, to the extent not rescinded in a prior proceeding, and directed accountings, restitution, and disgorgement, unanimously affirmed, with costs. Appeals from order to show cause with temporary restraining order, same court and Justice, entered December 18, 2020, unanimously dismissed, without costs, as abandoned, moot, and subsumed in the appeal from the judgment.

The record supports Supreme Court's finding that respondents violated Executive Law § 63(12) by continuing the massive fraudulent scheme enjoined in the prior proceeding in People v. Northern Leasing Sys., Inc. (Northern Leasing ), 70 Misc.3d 256, 133 N.Y.S.3d 389 (Sup. Ct., N.Y. County 2020), affd 193 A.D.3d 67, 142 N.Y.S.3d 36 [1st Dept. 2021] ). The lease provisions employed by respondents are materially identical to the Northern Leasing leases, with no-cancellation, automatic renewal, and personal guaranty provisions, as well as forum selection clauses with waivers of personal service. The present lease scheme uses independent sale organizations (ISOs) to present leases to lessees.

Lessees have complained that the ISOs use the same fraudulent practices used by Northern Leasing, including false claims of savings, hiding the fact that the lease cannot be cancelled, and omitting pages of the lease agreement until after signature. Other lessees complained that their signatures were forged and that leased equipment did not work. Finally, like Northern Leasing, respondents herein refused to cancel leases and continued to demand payments, even in the face of complaints about fraud. Respondents also fraudulently and unlawfully enforced leases rescinded by the Northern Leasing order.

Respondents Schachter and Krieger were both Northern Leasing executives and were aware of the June 2020 Northern Leasing order. They resigned from Northern Leasing after June 2020, to run respondents Lease Expenses Company LLC (LEC) and NLS Equipment Finance, LLC (NLS–EF). They were both aware of the successor fraudulent scheme and acted to perpetuate it. Hence, they are properly held personally liable for the fraud (see Polonetsky v. Better Homes Depot, 97 N.Y.2d 46, 55, 735 N.Y.S.2d 479, 760 N.E.2d 1274 [2001] ; People v. Apple Health & Sports Clubs, 80 N.Y.2d 803, 807, 587 N.Y.S.2d 279, 599 N.E.2d 683 [1992] ).

Respondents Cohen and Mezei were the founders of Northern Leasing and set up NLS–EF and LEC through their family trusts during the pendency of the prior proceeding. The record also indicates that Cohen and Mezei used similar family trust mechanisms to hold their interests in Northern Leasing. Additionally, Cohen was a named respondent in Northern Leasing. Hence, Cohen and Mezei may be held liable for the NLS–EF and LEC fraudulent activities, as corporate founders with knowledge of the fraudulent scheme.

The record indicates that respondents Cohen and Mezei Trusts were established for the purpose of owning the Northern Leasing successor entities and effecting the continuing fraudulent scheme. It may likewise be inferred that the trustees had knowledge of the activities of the businesses they controlled through the trust mechanism. Hence, under Executive Law § 63(12), the family trusts and trustees may likewise be held liable for the...