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New York Career Guidance Services, Inc. v. Wells Fargo Financial Leasing, Inc.

2005 WL 1252315 (N.J. Super. Law Div. 2005) (Unpublished)

EQUIPMENT LEASING; LATE FEES; CONSUMER FRAUD — Although an equipment lease with a high late fee is not automatically violative of the New Jersey Consumer Fraud Act, the fee may be deemed unreasonable under New Jersey common law principles.

A non-profit entity leased a computer. The lease called for payments of approximately fifty-three dollars a month. It also gave the lessor the option to impose a late fee in the amount of the greater of fifty-dollars or ten percent of the monthly payment. The non-profit entity was consistently late in making its monthly installments, and the equipment lessor imposed a fifty dollar late fee for each late payment. The non-profit company then stopped making its payments despite an outstanding balance. It objected to the high amount of the late fees and commenced an action against the lessor for, among other things, violation of the New Jersey Consumer Fraud Act, breach of contract, and unjust enrichment. It also sought a declaration to maintain the case as a class action. Shortly after the action was filed, the lessor assigned the lease to a bank’s leasing subsidiary. The bank and its subsidiary moved for summary judgment. In support of its motion, the bank asserted that it had absolutely no business dealings with the non-profit entity and should not be held liable for its leasing subsidiary’s contract with the non-profit entity. The Court agreed and dismissed the action against the bank.

The bank’s leasing subsidiary argued that it was entitled to summary judgment because the imposition of the fifty dollar late fee was authorized under the lease, and the late fee did not violate the Consumer Fraud Act and was not unlawful under New Jersey common law principles.

The Court dismissed the non-profit entity’s claims under the Consumer Fraud Act, but upheld its common law claims. In reaching its decision, it held that in order to succeed on a claim under the Act, the lessee was required to show that the conduct of the leasing subsidiary had the capacity to mislead the average consumer. In applying this test, the Court evaluated the late fee provision under the lease. It held that the provision was clear and void of any ambiguity or deception. The lease gave the lessor the option to impose the fifty dollar late fee; therefore the subsidiary’s act in imposing the fee was not intended to mislead pursuant to the Act. As a result, the Court concluded that the lessee failed to establish an action under the Consumer Fraud Act and dismissed all of its actions based on the Act. It then analyzed the lessee’s causes of action under New Jersey common law. The lessee asserted that imposition of a fifty dollar late fee on a monthly payment of fifty-three dollars was an unlawful penalty. In New Jersey, liquidated damages, such as late fees must be reasonable. The Court held that the amount of the late fee under the lease raised a question of reasonableness. It therefore refrained from dismissing the non-profit entity’s actions based on New Jersey common law. It further declared that the case could proceed as a class action.

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