This case concerns a "Merchant Cash Advance," also known as an MCA, an alternative and arguably extreme form of financing for small businesses with very few financing options at their disposal. At bar is a Motion for Summary Judgment brought by Plaintiff, a financial services company, against defendant, a small building supply company in southernmost Texas near the Mexico border. The allegation is breach of contract. Underlying the case is an agreement whereby the plaintiff purchased defendant's future receivables approximating $98,000 for $70,000. Defendant agreed to make payments of 20% of weekly receipts (according to plaintiff's Notice To Admit paragraph 7, NYSCEF #7) or 20% of daily receipts (according to defendant's response to plaintiff's Notice To Admit, paragraph #7, NYSCEF #23) until $98,000 was paid off. The agreement provided for a personal guarantee, and in the event of seller's breach, attorney fees of 30% of the outstanding balance. Defendants stopped paying plaintiff after defendants had paid almost $13,000, leaving an arrears of approximately $85,000, along now with attorney fees in excess of $25,000.

Plaintiff now sues for that $85,000, along with attorney fees approximating $25,000, for a total balance of $110,000, plus pre-judgment and post-judgment interest.

Plaintiff further moves for Summary Judgment for breach of contract, contending there is no question of fact. Defendant opposes the motion, contending that the transaction was really a loan, thus it was usurious because the calculated interest rate (40%) was in excess of the statutory cap.

At the outset, it must be noted that although there is no nexus to Erie County, the MCA at issue—a boilerplate form drafted by plaintiff— stipulates that jurisdiction for any lawsuit shall be in any New York State Supreme Court in New York State. Thus, plaintiff filed the matter at bar in Erie County. There has been no objection.

Both plaintiff and defendant agree that it is well settled in New York that in order to obtain summary judgment, the moving party must make a prima facie showing of entitlement to judgment as a matter of law (Zuckerman v. New York, 49 NY2d 557 [1980]). Furthermore, where there is no issue of triable fact, summary judgment is granted as a matter of law. For plaintiff to establish a prima facie showing of entitlement in a breach of contract, a plaintiff must show that the defendant breached a binding agreement between the parties which damaged the plaintiff (Stonehill Capital Management LLC v. Bank of the W, 28 NY3d 439 [2016]).

Furthermore, according to Zuckerman (supra), once a moving party has made prima facie a showing of entitlement to summary judgment as a matter of law, the non-moving party must "demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action."

At bar, there is no showing of any relevant question of fact requiring a trial. Defendants do not dispute that they entered into the agreement. The ten-page agreement is submitted by plaintiff as exhibit A. The defendants do not dispute that plaintiff performed its obligations. The defendants also do not dispute that they ceased making remittances to plaintiff pursuant to the agreement, until they stopped.

Accordingly, plaintiff has met the burden of proof. Plaintiff has established the existence of a binding agreement and established performance under the agreement, until defendant's non-performance. Both parties acknowledge that the payments stopped before the balance was paid off. Defendant has provided no allegations raising an issue of fact necessitating a trial.

Next, the ten-page agreement explicitly emphasizes in several sections that the transaction is not a "loan" which would bring with it the applicability of usury laws, amongst other things. Defendant makes the allegation that the transaction was indeed a loan, and therefore because the calculated annual interest rate exceeds the usury cap (see PL 190.40; see also Adar Bays LLC v. Genesys Id, Inc., 37 NY3d 320 [2021]), it is illegal. Defendants provide is no calculation as to what the calculated interest rate is that they allege, but that is inconsequential as to the determination as to whether the transaction is a loan or not.

Whether a financial agreement is a loan or a financial transaction with a security interest is determined in New York by a 3-factor test: (1) whether there is a reconciliation (I.e. adjustment) provision; (2) whether the agreement has an indefinite term; and (3) whether the plaintiff has any recourse should the merchant declare bankruptcy (Principis Capital, LLC V. I Do, Inc. at al., 201 AD3d 752 [2d Dept. 2022]; LG Funding, LLC V United Senior Properties of Olathe, LLC at al., 181 AD3d 664 [2d Dept. 2020]; K9 BYTES, Inc. et al. v. Arch Capital Funding, LLC et al., 6 Misc 3d 807 [2017]).

Applying this law to the facts at bar, it is evident that all 3 prongs are satisfied. First, the agreement does not contain any fixed term. It is set in a way to continue until such time as the merchant defendant has generated enough receivables to remit the entirety of the purchased amount to the plaintiff, however long that may take, and as such was not subject to any finite term period. As plaintiff rightly notes, if there is no revenue, no payment is due.

Second, plaintiff had no recourse under the agreement in the case of a bankruptcy (see section 11 [g]). In other words, the aforementioned cases have illustrated that the risk in a loan is typically shouldered by the borrower, in contradistinction to an MCA, where the risk is typically shouldered by the lender. Here, in the event of a bankruptcy, plaintiff lender has no recourse.

Finally, the third issue at bar is whether there is a reconciliation provision. If there is not, then the transaction is finite and considered a loan, thus subject to usury laws amongst other restrictions.A review of the agreement reveals a reconciliation provision at section 4 on page 2 and continuing onto half of page 3. The procedure is laid out in six paragraphs, and plainly is very one-sided in its restrictions, permitting only a 3-day process, thus tilting in favor of the seller. However, the caselaw cited above requires merely a reconciliation provision, not that it be equitable or even fair. In fact, MCAs are known for their predatory character precisely because so much downside risk is born by the lender. At bar, the reconciliation provision appears extreme and restrictive —even arguably illusory, but in order to escape characterization as a loan, its very existence is legally sufficient to escape such characterization.

Next, it must be noted that the merchant at bar never requested a reconciliation or adjustment to the remittances. He simply stopped making the payments after $13,000 had been paid, leaving a significant balance. In sum, the arrangement at bar did not qualify as a loan, thus it could not by definition be usurious.

Defendants insinuate they did not breach the contract, but rather, because they had a reduced income stream, they could simply not make payments under the agreement, thus they did not breach the agreement. While this might seem an arguable defense, defendants have provided no evidence or support to back up the claim. Under the established rules concerning summary judgment recited supra, the burden shifted to defendants to reveal any issue of fact. Defendants have tendered no evidence whatsoever to establish an issue of fact, i.e. that they did not breach the agreement by not having a sufficient income stream. At bar there are no bank statements, profit and loss statements, balance sheets, cash flow reports, or any other financial documentation to substantiate a claim that the payments were not tendered because of reduced revenue, in contrast to payments not being tendered for any other reason, which would constitute a breach of the agreement. Accordingly, defendants arguable claim is unavailing.

In conclusion, there are no questions of fact to justify a denial of plaintiff's motion for summary judgment. The financial arrangement may have been extreme or even arguably predatory, however pursuant to law, plaintiff has shown defendant to have breached a legally binding contract.

Plaintiff's motion for summary judgment is therefore granted.

Plaintiff is directed to submit the proposed Order, on Notice to defendants, to the Court within 30 days.