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A Florida court is the first to find against the state in actions by two dozen state attorneys general seeking to keep financing companies from collecting on small-business equipment leases that they bought from a now-defunct telecommunications start-up. Leon County Circuit Judge Russell A. Cole Jr. dismissed the Florida attorney general’s action accusing a dozen national finance companies of violating Florida’s Deceptive and Unfair Trade Practices Act by demanding that the small businesses honor the commercial leases they had signed. Florida v. Commerce Commercial Leasing, No. 2004 CA 2515. The ruling is significant because it upholds the key elements of commercial leases upon which the secondary-leasing market relies, industry representatives say. The secondary-leasing market involves financial institutions that buy commercial leases from lessors at a discount and collect the full value from the lessees. Joseph G. Bonanno, general counsel of the Louisville, Ky.-based National Association of Equipment Leasing Brokers, said Cole’s decision essentially affirms “the standard language in any lease contract. “The war isn’t over, but it’s a battle victory, and I’m pleased,” Bonanno said. JoAnn Carrin, a spokeswoman for Florida Attorney General Charles J. Crist Jr., said that the AG has appealed the case, which she said was dismissed on a procedural issue. “We’re not giving up on it by any stretch,” Carrin said, declining further comment. No cause of action Cole’s ruling is the first to address attempts by attorneys general to use state consumer protection laws to shield small businesses from liability for long-term leases originally contracted with NorVergence Inc., a Newark, N.J., company that has since gone bankrupt. The court decided that Florida had no cause of action against the financing companies under its deceptive and unfair trade practices act because the law does not apply to acts or practices permitted by federal or state law, nor to federally regulated institutions. The court also rejected the state’s position that the small businesses were “consumers” entitled to the law’s protection. The businesses that executed the leases were consumers, the court ruled, but the leases were not “consumer leases” under the statute “because the items leased were not to be used for personal, family or household purposes.” Cole affirmed the industry’s so-called “hell or high water” clause, an unconditional obligation to pay that is standard in commercial leases, which the small businesses had signed. He also upheld the enforceability of the waiver of defenses and warranties clause and the forum-selection clause, which are also common to commercial leases. “These are all good things for the equipment-leasing industry, but we don’t know what an appellate court may do when they get down to the nuts and bolts of the case,” Bonanno said. Albert F. Tellechea of Orlando, Fla.’s Akerman Senterfitt, a lead lawyer for defendant Popular Leasing USA Inc., a subsidiary of Banco Popular N.A. of Orlando, Fla., said that the “holder in due course” issue implicit in the court’s opinion is as important as its affirming the contract clauses. “By upholding the clauses and allowing the leasing companies to benefit from them, Judge Cole is conceding they are holders in due course,” Tellechea said, adding that they acquired the leases in good faith and did “not have to look behind the four corners of the lease agreement.” Popular Leasing seeks to enforce contracts valued at around $3 million in Florida and $30 million nationally. The other nine defendants have roughly $250 million in equipment-lease payments at risk nationally, according to Tellechea. Cole’s decision came about a week after Massachusetts’ Attorney General Thomas F. Reilly and more than 20 others announced settlements of similar actions threatened against three companies. Those financing companies are: CIT Group/Equipment Financing Inc. of Livingston, N.J.; Lyon Financial Services, a/k/a U.S. Bancorp Business Equipment Finance Group of Marshall, Minn.; and Wells Fargo Financial Leasing Inc. of Des Moines, Iowa. Other actions are still pending.

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