People v Northern Leasing Sys., Inc.

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People v Northern Leasing Sys., Inc. 2023 NY Slip Op 33313(U) September 22, 2023 Supreme Court, New York County Docket Number: Index No. 450460/2016 Judge: Lucy Billings Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. INDEX NO. 450460/2016 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM NYSCEF DOC. NO. 1062 RECEIVED NYSCEF: 09/25/2023 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 41 --------------------------------------x PEOPLE OF THE STATE OF NEW YORK, by LETITIA JAMES, Attorney General of the State of New York, and GEORGE J. SILVER, Deputy Chief Administrative Judge for New York City Courts, Index No. 450460/2016 Petitioners DECISION AND ORDER - against NORTHERN LEASING SYSTEMS, INC., LEASE FINANCE GROUP LLC, MBF LEASING LLC, LEASE SOURCE-LSI, LLC a/k/a LEASE SOURCE, INC., GOLDEN EAGLE LEASING LLC, PUSHPIN HOLDINGS LLC, JAY COHEN a/k/a ARI JAY COHEN, individually, as a principal of NORTHERN LEASING SYSTEMS, INC., as a member of LEASE FINANCE GROUP LLC, and as an officer of PUSHPIN HOLDINGS LLC, NEIL HERTZMAN, individually and as an officer of NORTHERN LEASING SYSTEMS, INC., JOSEPH I. SUSSMAN, P.C., JOSEPH I. SUSSMAN, individually and as a principal of JOSEPH I. SUSSMAN, P.C., and ELIYAHU R. BABAD, individually and as a principal or associate of JOSEPH I. SUSSMAN, P.C., Respondents -------------------.------------------x APPEARANCES: For Petitioners Mary Alestra Esq., Special Counsel Mark Laday Esq., Assistant Attorney General Office of Attorney General Letitia James 28 Liberty Street, New York, NY 10005 For Respondents Joseph I. Sussman, P.C., Sussman, ·and Babad Robert A. Freilich Esq. Rottenberg Lipman Rich, P.C. nleasing923 [* 1] 1 2 of 9 INDEX NO. 450460/2016 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM NYSCEF DOC. NO. 1062 RECEIVED NYSCEF: 09/25/2023 230 Park Avenue, New York, NY 10169 For All Other Respondents Robert S. Smith Esq. Katten Muchin Rosenman LLP 50 Rockefeller Plaza, New York, NY 10020 LUCY BILLINGS, J.S.C.: The accounting that respondents have provided to petitioners through disclosure enables the court to calculati and award to petitioners a judgment without an evidentiary hearing. C.P.L.R. § 411. I. THE JUDGMENT AGAINST THE NORTHERN LEASING RESPONDENTS The Northern Leasing respondents, respondents other than Joseph I. Sussman, P.C., Sussman, and Babad, have provided the names and addresses of all lessees and guarantors from which the Northern Leasing respondents collected payments under these respondents' equipment finance leases and the amounts collected since April 11, 2013. In proposing the amount of the judgment, petitioners subtracted the average value that the Northern Leasing respondents provided of the equipment that lessors may have retained and subtracted any taxes on the lease payments that these respondents collected. This calculation thus assumes that the Northern Leasing respondents repossessed none of the equipment. The court has rescinded all the leases that the identified lessors entered and the identified guarantors guaranteed, vacated all the judgments again.st the lessors and guarantors, and ordered nleasing923 [* 2] 2 3 of 9 INDEX NO. 450460/2016 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM NYSCEF DOC. NO. 1062 restitution. RECEIVED NYSCEF: 09/25/2023 Now, armed with the undisputed evidence outlined above, the court may effect restitution by returning the amounts collected to the identified lessees and guarantors from whom the See People v. General Elec. Co., 302 amounts were collected. A.D.2d 314, 316-17 (1st Dep't 2003). In sum, these lessors and guarantors are to be restored to the positions they were in before they entered the leases and guar~nties. Respondents emphasize that many of their collection actions failed to obtain any recovery. If respondents' accounting shows respondents collected nothing from lessees or guarantors, they will receive no restitution. Respondents further protest that restitution allows the lessors to have used the leased equipment for free. First, the Northern Leasing respondents are receiving a setoff for the value of the equipment. Second, the payments lessees and guarantors made to lease the equipment far exceed the value of the equipment had they purchased it new. Inc., 193 A.D.3d 67, 71 People v. Northern Leasing Sys., (1st Dep't 2021). Third, part of the fraudulent enterprise in which respondents engaged was that the leased equipment often was defective and unusable, and they refused to repair or replace it and prevented lessees from returning it. Id. at 71, 75. Consequently, the court awards a judgment in favor of petitioners and against the Northern Leasing respondents for nleasing923 [* 3] 3 4 of 9 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM ,. NYSCEF DOC. NO. 1062 INDEX NO. 450460/2016 RECEIVED NYSCEF: 09/25/2023 $680,990,038.00, the amount they collected, minus the amount they · paid to the attorney respondents, Joseph I. Sussman, P.C., Sussman, and Babad, for their services in seeking to obtain or defend judgments against equipment finance lessors and guarantors under the leases. This latter amount will be the attorney respondents' disgorgement. II. THE JUDGMENT AGAINST THE ATTORNEY RESPONDENTS Based on respondents' accounting, petitioners propose a ' judgment against the attorney respondents for $9,430,469.10. This amount comprises the Northern Leasing respondents payments r, to the attorney respondent~ for their services, minus exbenses that the attorney respondents claimed, even though they would not have incurred those expenses but for their enga~ement in the fraudulent collection activity. The attorney respondents insist that the Northern Leasing respondents' payments to the atto~neys covered services unrelated 1 to their collection activity in connection with the equipment finance leases. Therefore the court provided the attorney respondents an opportunity to demonstrate the amount of payments for such unrelated services and, if the attorney respondents made such a showing, an opportunity for an evidentiary hearing on the issu~s raised. The attorriey ~espohdents.attempt to carve out a deduction for defensive liiigation or defense of adverse claims. nleasing923 [* 4] 4 5 of 9 The ---""""========--------------,.---------,----------------1 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM INDEX NO. 450460/2016 I I RECEIVED NYSCEF: 09/25/2023 l J. NYSCEF DOC. NO. 1062 attorney respondents nonetheless fail to show it was anything other than defending against less_o.rs' or.guarantors' motions to vacate default judgments, counterclaims in collection actions, or other challenges to collection activity in connection with the equipment finance leases: litigation like ~his proceeding, but on an individual scale. Respondent Sussman in his affidavit seeks to carve out legal advice and consultation, legal research and memoranda, and services related to compliance with the law, without any further description or explanat~on. these services. Collection activities involve all The attorney respondents seek a deduction for services related to bankruptcies and unfunded equipment leases, but never explain why these services were unrelated to collection actions: where a defendant was in bankruptcy or an issue regarding the financing of an equipment lease arose, for example. Sussman refers to contractual disputes, but fails to show the contracts involved were other than equipment finance leases. He refers to transactions and disputes involving the independent sales organizations (ISOs) that the court found were essential components of the fraudulent equipment finance leasing scheme. Id. at 71, 75-76. He fails to show the transactions and disputes involving I.Sos were unrelated to the equipment finance lea.sing. Even if the attorney respondents assisted in the Northern Leasing respondents' corporate formation or structu~e, the attorney nleasing923 [* 5] 5 6 of 9 INDEX NO. 450460/2016 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM NYSCEF DOC. NO. 1062 RECEIVED NYSCEF: 09/25/2023 respondents fail to show these services were for any purpose other than enabling their clients to conduct their equipment finance leasing enterprise and commence collection actions. The attorney respondents refer to pre-litigation services, but fail to s}'low they were anything other than communications to I \ lessees or guarantors demanding their paymerits to avoid being sued and even collection of payments in response to such demands. Id. at 72, 78. If the attorney respondents had not engaged in the fraudulent equipment finance leasing enterprise, they never would have conduct~d any pre-litigation review of potential collection actions or performed any pre-litigation services. Again, the attorney respondents emphasize that many of.their collection actions resulted in urisatisfied judgments. This result does not indicate that the attorney respondents were not paid for their services in obtaining the j~dgments or in unsuccessfully attempting to collect the judgments. Disgorgement is measured not by the loss to the defendants in the collection actions, but by the gain to the attorney respondents from their fraudulent or other wrongful activity. N.Y.3d 490, People v. Greenberg, 27 497 (2016); People v. Applied Card Sys:, Inc., 11 N.Y.3d 105, 125 (2008); People v. Ernst & Young LLP, 114 A.D.3d 569, 569-70 · (1st Dep't 2014). The only category of services attenuated from the attorney respondents' collection activities is services related to nleasing923 [* 6] 6 7 of 9 INDEX NO. 450460/2016 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM NYSCEF DOC. NO. 1062 employment. RECEIVED NYSCEF: 09/25/2023 Although the attorney respondents provide no further description, it is difficult to conceive how this category relates to collection activities. that it does. Nor do petitioners suggest Therefore the court grants a deduction for this category. This deduction is distinct from the large deduction the attorney respondents seek for payroll expenses. The entire purpose of the disgorgement order is to recover the compensation the attorney respondents received for their services. To categorize this compensation as a payroll expense that is to be deducted would defeat this purpose. The total of all the deductions the attorneys respondents seek amounts to 45% of the $9,430,469.10 judgment petitioners seek against the attorney respondents, a deduction of $4,243,711.10. Sussman assesses his law firm's services related to employment as 3% of that .45%, a deduction of $127,311.33. Therefore the court deducts $127,311.33 from the. proposed $9,430,469.10. III. CONCLUSION In sum, the court awards a judgment in favor of petitioners and against respondents Northern Leasing Systems, Inc., Lease Finance Grotip LLC, MBF Leasing LLC, Lease Source-LSI, LLC, Gol~en Eagle Leasing LLC, Pushpin Holdigs LLC, Cohen, and Hertzman, jointly and individually, for $680,990,038.00. nleasing923 [* 7] 7 8 of 9 The court awards INDEX NO. 450460/2016 FILED: NEW YORK COUNTY CLERK 09/25/2023 11:50 AM NYSCEF DOC. NO. 1062 RECEIVED NYSCEF: 09/25/2023 a judgment in favor of petitioners and against respondents Joseph I. Sussman, P.C., Sussman, and Babad, for $9,303,157.77 jointly and individually, ($9,430,469.10 - $127,311.33). C.P.L.R. § 411. The court already determined that respondent Babad was jointly and individually liable for any judgment against the attorney respondents. If the attorney co-respondents seek to relieve him of liability, they may pay the judgment against them in full. The court awards costs of $2,000.00 against each respondent individually. C.P.L.R. § 8303(a) (6). The court stays enforcement of the judgment pending (1) . notice to the lessees and guarantors from whom respondents collected lease payments and judgments, informing the lessees and guarantors of their right to r~stitution, and (2) the establishment of a procedure for distributing the judgment to the entitled lessees and guarantors. Respondents shall propose to petitioners the notic~ to be sent within 45 days after entry of this order and send this notice to the identified lessees and guarantors w~thi~ 90 days after entry of this order. If petitioners object to respondents' notice, they may raise their objections via a motion by an order to show cause before expiration of the 90 days. DATED: September 22, 2023 LUCY BILLINGS, J.S.C. nleasing923 8 J.;UCY 8iLLINGS J.$.C [* 8] 9 of 9

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