Lawyers Weigh in on Champion Auto Sales, LLC v. Pearl Beta Funding, LLC
In light of the recent Champion Auto Sales, LLC et al. v Pearl Beta Funding, LLC decision, which decided that the particular MCA contract at issue “was not a usurious transaction,” deBanked spoke to a handful of lawyers, including the plaintiff’s lawyer, Amos Weinberg, to get their thoughts on the decision.
“The contract at issue in Champion Auto v. Pearl Beta Funding was really no different than the contracts reviewed over a hundred years ago by the United States Supreme Court, in Home Bond Co. v. McChesney, 239 U.S. 568 [1916], where our nation’s highest court agreed that “the transactions were really loans, with the accounts receivable transferred as collateral security,” and “[i]n so far as the contracts in question here use words fit for a contract of purchase they are mere shams and devices to cover loans of money at usurious rates of interest.” Like most patrons of funding providers, Champion Auto was a one-person company that needed immediate, overnight cash. Presiding Justice Rolando T. Acosta of the Appellate Division remarked, at the argument, that Champion was a “sophisticated” party that “knew what they were getting into.” It is therefore painfully obvious that even though the NYS Legislature criminalized and voided loans to corporations exceeding 25% interest, and even though all victims of loan sharking knew what they were getting into, the courts are loathe to be used as escape hatches for companies trying to get out of paying back loans.”
Giuliano, McDonnell & Perrone, LLP
“It’s an appellate ruling a lot of people have been waiting for. It handles the usury issue in passing, almost as if it goes without saying.”
Hudson Cook, LLP
“The court confirmed that under New York law, a properly structured MCA transaction is not a loan. But I want folks to focus on the ‘properly structured’ piece of that…The court’s decision did not indicate much. But it did say that based on the documentary evidence, which is the contract, that the transaction was not a loan. So it’s important for folks to understand that for [an MCA contract] not to be a loan, it needs to be properly described…this case really shows us how important the contract is.
This case does not mean that all MCA companies are all in the clear. What it means is that MCA companies with properly drafted contracts, and good practices and procedures, are not making loans.”
Harris Beach, PLLC
“First of all, it was a unanimous decision by the three justices in the first department. That doesn’t always happen, so that’s a good thing. I personally would have liked to have seen more discussion out of the appellate department, but the language that’s there happens to be great for the industry. The one thing that I would caution, though, is not to interpret that all merchant cash advances are outside of transactions that would be subject to usury because it really is dependent on the language of the agreement.
[The decision] is a great tool in the arsenal, but I don’t see it as the tool that is going to prevent challenges.”
Hudson Cook, LLP
“This is a very important decision because New York State has a high volume of merchant cash advance companies…so having favorable case law in New York is great for the industry.”
Mavrides, Moyal, Packman, Sadkin
“I am very pleased with the outcome. There are more cases [to be decided], but this is very beneficial. It’s a win for the industry and I hope to see other decisions go in the favor of the advance industry.”
Platzer, Swergold, Levine, Goldberg, Katz & Jaslow, LLP
“The impact of the Champion decision was direct. We represent several MCA clients and we have a number of cases where Amos Weinberg is representing the merchant. And in one of our cases where a motion to open up a default judgment is at issue, the judge’s law clerk directly emailed us and wants to conference the case based on the Champion Auto Sales decision.”
[Lafont also pointed out that even though it was a short decision, one of its two citations was to Feld v Apple Bank for Sav., which deals with overdraft protection and has interesting parallels to MCA.]
Platzer, Swergold, Levine, Goldberg, Katz & Jaslow, LLP
“Based on the email we just received from the court clerk today, this decision could expedite [future] litigation, and it could decrease certain attorney’s fees for a lot of MCA companies involved in this litigation.”
Last modified: April 20, 2019
Todd Stone was a reporter for deBanked.
