New York Trial Court Rules MCA Funder’s Reconciliation Provision is Likely Illusory and Usurious

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New York Supreme CourtIt may all depend on the definition of may.

Another New York Supreme Court judge has expressed his dislike of the word “may” in a reconciliation provision of a merchant cash advance agreement, as in “buyer [of the receivables] may adjust the weekly amount on a going-forward basis to more closely reflect the Seller’s actual Future Receipts times the Specified Percentage.”

In American Resources Corporation et al v C6 Capital, LLC et al, Supreme Court Judge Leon Ruchelsman held that such a provision is illusory because the language reserved C6 the right to reject a reconciliation request.

Ruchelsman cited a similar decision involving a similarly named company that found that “whether [the funder] was willing to reconcile is not relevant, however; the language of the agreement is controlling, and the agreement does not require [the funder] to agree to reconcile.” (italics added for emphasis). That defendant is appealing the decision.

The difference matters, the judge says, so much so that this interpretation creates likelihood that the plaintiffs will succeed on the merits that the underlying MCA agreement may be void because it is usurious.

The contract is distinguishable from Champion Auto Sales v Pearl Beta Funding LLC, a landmark decision in the Appellate Division that created a strong legal footing for MCA funding in New York State. Notably, the judge said the Pearl contract in that case was worded better because it did not give Pearl discretion to decide whether or not to grant a reconciliation if the merchant met the specified conditions.

Here, in American Resources Corporation, the outcome is that the plaintiffs successfully secured a preliminary injunction restraining enforcement of the judgment entered against them. The defendants simultaneously lost on their motion to dismiss the complaint.

The case will now move to the discovery phase. The case # is 518051/2020 in the New York Supreme Court. The decision can be viewed here.

Last modified: December 17, 2020
Sean Murray


Category: Legal Briefs, merchant cash advance

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