No, Corporations Can’t Sue For Usury in New York, Appellate Division Rules

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lawsuit over moneyBusinesses hoping to use the New York State court system to invalidate an MCA or financing agreement, suffered a major defeat on Wednesday. The Appellate Division, Second Judicial Department, ruled that corporations cannot assert usury as a cause of action, even if the allegations meet the criminal usury basis. In deciding this, the Appellate Court was simply affirming what New York’s statute on the matter plainly says.

This has not stopped plaintiffs from asserting criminal usury as a cause of action in New York, however, but now such attempts will probably be fruitless.

In May 2016, Global Merchant Cash, Inc. (GMC) entered into a merchant agreement to buy the future receivables of Paycation Travel, Inc. Paycation breached the contract and GMC ultimately filed a confession of judgment. Paycation then tried to vacate the judgment by suing GMC on several grounds including its theory that the judgment was void and unenforceable because the underlying agreement was for a criminally usurious rate of interest.

GMC moved for summary judgment to dismiss the complaint and its motion was denied. GMC appealed the decision insofar as it believed Paycation could not assert criminal usury as a basis for a cause of action.

On March 24, 2021, the Court rendered its decision on the narrow debate in GMC’s favor.

“A transaction . . . is usurious under criminal law when it imposes an annual interest rate exceeding 25%” (Abir v Malky, Inc., 59 AD3d 646, 649; see Penal Law § 190.40). General Obligations Law § 5-521 bars a corporation such as the plaintiff from asserting usury in any action, except in the case of criminal usury as defined in Penal Law § 190.40, and then only as a defense to an action to recover repayment of a loan, and not as the basis for a cause of action asserted by the corporation for affirmative relief (see LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 666; Intima Eighteen, Inc. v Schreiber Co., 172 AD2d 456, 457). Accordingly, the Supreme Court should have granted that branch of the defendant’s motion which was for summary judgment dismissing so much of the first cause of action as alleged criminal usury in violation of Penal Law § 190.40.

This decision did not decide the entirety of the case and litigation between the parties is still pending. It does, however, bring conclusive clarity to whether or not corporations can assert usury as a cause of action, even if it’s alleged to be criminal.

The case number is 52579/2017 in Westchester County in New York Supreme Court. The Appellate decision can be viewed here.

Last modified: March 25, 2021
Sean Murray



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