The following numbered papers (NYSCEF Document Nos.) were used on this motion:

Upon the foregoing papers, the Court having elected to determine the within motion on submission pursuant to 22 NYCRR 202.8-f and IAS Part 2 Rules, Part II (Motions & Special Proceedings), Subpart C (Appearances & Post-Order Matters), Section 6 (Personal Appearances) ("All motions presumptively are to be argued in person unless the Court informs the parties at least two days in advance that it has made a sua sponte determination that a motion will be determined on submission."), and due deliberation having been had thereon, the within motion is determined as hereinafter set forth.

Plaintiff Surfside Capital claims to have purchased $204,000.00 of Defendants' future receivables for an upfront payment of $150,000.00, and commenced this action alleging breach of contract by Defendants — that Defendants discontinued remitting future receivables to Plaintiff — after remitting a certain amount. Plaintiff claims damages in the amount of $148,899.00. (See NY St Cts Elec Filing [NYSCEF] Doc No. 231, complaint at PDF 44-45.)

On August 8, 2025, the Court determined a motion (Mot. Seq. 11) by Defendants seeking summary judgment dismissing the complaint upon the asserted affirmative defense that the agreement under which the future receivables were sold to Plaintiff was in reality a usurious loan. The Court determined the motion after a review of the papers filed and oral argument. The Court's order granted Defendants' motion and "dismiss[ed] the complaint on the grounds that the agreement was a usurious loan," based on a provision in the contract regarding reconciliation which the Court held to be illusory (NYSCEF Doc No. 230, order; see NYSCEF Doc No. 229, transcript).

Plaintiff now moves to reargue and renew its opposition to Defendants' said motion.

That branch of Plaintiff's motion seeking reargument is DENIED inasmuch as the Court discerns no error in its determination on August 8, 2025, based upon the papers submitted at the time by the parties (see CPLR 2221 [d]; People v Illis, 184 AD3d 859, 862-863 [2d Dept 2020] [reargument not available for reconsideration of determination premised on new case law]).

Inasmuch as Plaintiff now submits the recent decision of the Appellate Division, Second Department, in Apollo Funding Co. v Dave Reilly Constr., LLC (241 AD3d 1508 [2d Dept]), dated September 24, 2025, subsequent to the Court's August 8, 2025 order, the Court GRANTS that branch of Plaintiff's motion seeking renewal (see Sharan v Christiana Trust, 219 AD3d 1549 [2d Dept 2023]; Dinallo v DAL Elec., 60 AD3d 620 [2d Dept 2009] [motion for leave to renew is appropriate vehicle for seeking relief from prior order based on change in law]).

The pertinent provision in the subject revenue purchase agreement, also known as a merchant cash advance contract, states as follows:

4.1 Notwithstanding and in addition to Merchant's right to make a Reconciliation Request pursuant to Section 3.1, Merchant may request, and Purchaser in its sole discretion may adjust, the Specified Percentage, the Specific Daily Amount, any Fee or any other payment due under this Agreement to a percentage or an amount Purchaser deems appropriate in its sole discretion (NYSCEF Doc No. 231, contract at PDF 53 [emphasis added]).

Merchant cash advance contracts — agreements ostensibly providing for the purchase by a merchant cash advance company of a merchant's future receivables at a discounted price — are controversial, as evidenced by the findings of the Supreme Court, New York County, in People v Richmond Capital Group LLC (80 Misc 3d 1213[A], 2023 NY Slip Op 50975[U], *2-5 [Sup Ct, NY County]), selected portions of which are as follows:

As discussed more specifically below, on the record before the Court, the NY AG has demonstrated that the Predatory Lenders are loan sharks who perpetrated a massive fraud on desperate merchants (the Borrowers) who were unable to obtain traditional financing for their businesses.

. . .

The Predatory Lenders either admit that mandatory reconciliation never occurred. . . .

. . .

There are no issues of fact that these Loans were usurious. Indeed, in one case interest of over 3000% was charged [citation omitted]. There is no evidence in the record that any of the massive fees charged were legitimate, such that these fees must be characterized as interest (which fees and other upfront costs the Predatory Lenders had falsely advertised did not exist). But even if the fees and upfront costs were not recharacterized as interest (as they should be), these Loans were criminally usurious by charging interest at a rate far above the legal limit.

. . .

It was also false that there would be a daily sweep of the pledged accounts based on an estimated percentage of collected receivables — the so-called "Specified Percentage." The MCAs required the Borrowers to deliver bank statements by the eighteenth of every month, and the merchants were required to perform a reconciliation of the amounts collected based on an estimated percentage of accounts receivable and the amounts of accounts receivable actually received [citation omitted]. Monthly reconciliation never occurred.

A transaction is usurious under criminal law when it imposes an annual interest rate exceeding 25% (see Penal Law § 190.40; Abir v Malky, Inc., 59 AD3d 646 [2d Dept 2009]).

In a decision quite often cited in merchant cash advance cases, the Court in LG Funding, LLC v United Senior Props. of Olathe, LLC (181 AD3d 664, 665-666 [2d Dept 2020])^[FN1] prescribed the factors by which merchant cash advance contracts are to be assessed as to whether they are actually usurious loans:

The rudimentary element of usury is the existence of a loan or forbearance of money, and where there is no loan, there can be no usury, however unconscionable the contract may be (see Seidel v 18 E. 17th St. Owners, 79 NY2d 735 [1992]; Abir v Malky, Inc., 59 AD3d 646, 649 [2009]). To determine whether a transaction constitutes a usurious loan, it "must be 'considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it' " (Abir v Malky, Inc., 59 AD3d at 649, quoting Ujueta v Euro-Quest Corp., 29 AD3d 895, 895 [2006] [internal quotation marks omitted]). The court must examine whether the plaintiff "is absolutely entitled to repayment under all circumstances" (K9 Bytes, Inc. v Arch Capital Funding, LLC, 56 Misc 3d 807, 816 [Sup Ct, Westchester County 2017]). Unless a principal sum advanced is repayable absolutely, the transaction is not a loan (see Rubenstein v Small, 273 App Div 102 [1947]). Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy (see K9 Bytes, Inc. v Arch Capital Funding, LLC, 56 Misc 3d at 816-819; see also Funding Metrics, LLC v D & V Hospitality, Inc., 62 Misc 3d 966, 970 [Sup Ct, Westchester County 2019]).

In LG Funding, LLC, the Appellate Division held that the plaintiff merchant cash advance company failed to demonstrate the absence of triable issues of fact as to whether the transaction constituted a criminally usurious loan. Key to this determination was the following:

Here, with respect to a reconciliation provision, the agreement provides that the plaintiff "may, upon [United's] request, adjust the amount of any payment due under this Agreement at [its] sole discretion and as it deems appropriate" (emphasis added). The agreement also contains provisions suggesting that United's obligation to repay was absolute and not contingent on its actual accounts receivable. In this regard, the agreement provides that United's written admission of its inability to pay its debt or its bankruptcy constitute events of default under the agreement, which entitle the plaintiff to the immediate full repayment of any of the unpaid purchased amount (cf. Champion Auto Sales, LLC v Pearl Beta Funding, LLC, 159 AD3d 507 [2018]). The agreement provides that in the event United files for bankruptcy or is placed under an involuntary filing, the plaintiff would be entitled to enforce the provisions of the personal guaranty executed by Julian and Thoma, United would be required to deliver to the plaintiff a confession of judgment in the amount of the purchased amount, and the plaintiff would be allowed to enter the confession of judgment as a judgment. These provisions suggest that the plaintiff did not assume the risk that United would have less-than-expected or no revenues. (181 AD3d at 666.)

Because merchant cash advance contracts are drafted with a provision that the merchant must remit to the merchant cash advance company a percentage of estimated revenue on an ongoing basis (usually daily or weekly), and since obviously the merchant may lag in receiving revenue, a reconciliation provision delineates a process whereby the amount of revenue remitted to the merchant cash advance company is recalculated. Merchants who are subject to breach of contract lawsuits from merchant cash advance companies often maintain that they were unsuccessful in persuading the merchant cash advance company to adjust the remittances due. They have argued that the reconciliation provisions are illusory, either in practice or explicitly.^[FN2] In the wake of LG Funding, LLC, some trial courts focused on the factor of the reconciliation provision in merchant cash advance contracts. For example, in Advance Servs. Group v Acadian Props. Austin LLC (70 Misc 3d 1225[A], 2021 NY Slip Op 50221[U] [Sup Ct, Kings County 2021]), the Court noted that the subject contract provided for reconciliation at the merchant cash advance company's "sole discretion." "[T]his suggests that Advance's entitlement to repayment was absolute, rather than contingent, and therefore is indicative of a loan, as a matter of law" (id. at *6). Combined with bankruptcy constituting a default in the contract, the Court held that the transaction was a usurious loan, not a purchase of future receivables.

Illusory reconciliation provisions were cited in determinations in other decisions holding that merchant cash advance contracts were indicative of usurious loan agreements (see Lateral Recovery LLC v Funderz.net, LLC, 2024 WL 4350369 [SD NY 2024]; AKF, Inc. v Western Foot & Ankle Ctr., 632 F Supp 66 [ED NY 2022]; Fleetwood Servs., LLC v Ram Capital Funding, LLC, 2022 WL 1997207 [SD NY 2022]; Rowan Advance Group LLC v DraftPros, LLC, 87 Misc 3d 1215[A], 2025 NY Slip Op 51581[U] [Sup Ct, Washington County 2025]; MCA Servicing Co. v Nic's Painting, LLC, 82 Misc 3d 1252[A], 2024 NY Slip Op 50598[U] [Sup Ct, Rockland County 2024]; McNider Marine, LLC v Yellowstone Capital, LLC, 2019 NY Slip Op 33418[U] [Sup Ct, Erie County 2019]). The U.S. Court of Appeals for the Second Circuit wrote in Fleetwood Servs., LLC v Richmond Capital Group LLC (2023 WL 3882697, *2 [2d Cir 2023]):

Having considered the first and third factors, we conclude that the substance of the [*2]Agreement belies the formal language on which Defendants rely. Specifically, the Agreement's nominal reconciliation provision does not, in fact, relieve Fleetwood of its obligation to pay Richmond the daily amount due under the Agreement, nor does it qualify Richmond's rights to declare the full amount immediately due and payable and to collect against Fleetwood. Indeed, any adjustment to the daily amount was subject to Richmond's "sole discretion." App'x at 24. Similarly, the Agreement provided recourse in the event Fleetwood declared bankruptcy, authorizing Richmond to, among other things, collect on personal guaranties. See Davis v. Richmond Cap. Grp., LLC, 150 N.Y.S.3d 2, 4 (1st Dep't 2021) (citing such provisions as evidence that agreements were loans). The substance of the Agreement thus reveals that Richmond was "absolutely entitled to repayment under all circumstances." LG Funding, 122 N.Y.S.3d at 312 (internal quotation marks omitted). In other words, the transaction was a loan, and Fleetwood was entitled to summary judgment on its civil RICO claim against Defendants.

Appellate Division decisions do consider reconciliation provisions affording the merchant cash advance company sole discretion to adjust the amount of the merchant's remittances to be illusory and, ergo, it is found that the contract actually provided for a usurious loan (see Bridge Funding Cap LLC v SimonExpress Pizza, LLC (240 AD3d 1186, 1189 [4th Dept 2025]; Oakshire Props., LLC v Argus Capital Funding, LLC, 229 AD3d 1199 [4th Dept 2024]). The discretionary nature of reconciliation provisions points toward a loan, rather than a purchase of future receivables (see Davis v Richmond Capital Group, LLC, 194 AD3d 516 [1st Dept 2021]). However, legitimate reconciliation provisions pose no bar to recovery by a merchant cash advance company for breach of contract (see True Business Funding, LLC v Guerrero A Constr. Corp., 239 AD3d 787 [2d Dept 2025]; Samson MCA LLC v Joseph A. Russo M.D., P.C., 219 AD3d 1126 [4th Dept 2023]; Principis Capital, LLC v I Do, Inc., 201 AD3d 752 [2d Dept 2022]). Sometimes a reconciliation provision can be ambiguous (see Kapitus Servicing, Inc. v Ragtime Gourmet Corp./Joe-Le Holding Corp., 242 AD3d 638 [1st Dept 2025]; Kapitus Servicing, Inc. v Point Blank Constr., Inc., 221 AD3d 532 [1st Dept 2023]).

Ultimately, however, this Court is required to apply decisional law of the Appellate Divion of the department in which this Court sits, i.e., the Second Department, in the absence of direct precedent from our state's Court of Appeals (see Mountain View Coach Lines, Inc. v Storms, 102 AD2d 663 [2d Dept 1984]). Moreover, where federal appellate and trial level court decisions are in conflict with state court appellate case law, the latter should be followed (see Nemeth v K-Tooling, 205 AD3d 1093 [3d Dept 2022]).

Two years ago, the Appellate Division, Second Department, issued its decision in Crystal Springs Capital, Inc. v Big Thicket Coin, LLC (220 AD3d 745 [2d Dept 2023]). It was the first time that said Court held outright — as opposed to finding the existence of a material issue of fact — that a merchant cash advance contract reflected a usurious loan. The outcome of the decision of the Second Department in LG Funding, LLC, discussed above, was that summary judgment to the plaintiff merchant cash advance company was denied. In Crystal Springs Capital, Inc., the outcome was that the plaintiff merchant cash advance company's complaint was dismissed pursuant to CPLR 3211 (a) based on documentary evidence. In reaching this result, the Court noted that "[T]he plaintiff was 'under no obligation' to reconcile the payments to a percentage amount of the Big Thicket defendants' sales rather than the fixed daily amount, and the plaintiff was entitled to collect the full uncollected purchase amount plus all fees due under the agreement in the event of the Big Thicket defendants' default by changing their payment processing arrangements or declaring bankruptcy" (220 AD3d at 747 [emphasis added]).

That was where things stood in the Second Department when Defendants herein moved for [*3]summary judgment dismissing the complaint upon the asserted affirmative defense that the transaction covered by the subject merchant cash advance contract was in reality a usurious loan (Mot. Seq. 11). This Court looked at the reconciliation provision, saw that it was illusory because reconciliation was at the sole discretion of Plaintiff merchant cash advance company, and held that the agreement reflected a usurious loan, taking into account the effective interest rate. The order granted summary judgment to Defendants dismissing the complaint (see NYSCEF Doc No. 230, order).

Apollo Funding Co. v Dave Reilly Constr., LLC (241 AD3d 1508) now adds a different perspective to the issue of whether a reconciliation provision is illusory. Noting that "our review of the claim that the process was illusory is precluded" "because [the merchant] did not engage in the agreement's reconciliation procedure" (id. at 1509), and, taking into account that the agreement at issue did not provide that a declaration of bankruptcy would constitute an event of default, the Appellate Division granted the plaintiff merchant cash company summary judgment on the complaint. The defendants failed to raise a triable issue of fact as to there being a usurious loan.

Applying Apollo Funding Co. to the dispute before this Court, as it must, it is now held that that the Defendants did not establish as a matter of law that the subject merchant cash advance contract entered into between Plaintiff and Defendants was a usurious loan. There is nothing in the record to show that Defendants attempted reconciliation with Plaintiff over the periodic payments of future receivables remitted to Plaintiff. Further, there is no argument by Defendants concerning a default despite bankruptcy. The result is that Defendants' summary judgment motion to dismiss the complaint must be denied.

Procedurally, the status of this action is that it remains unresolved. Eventually there must be a trial. While Plaintiff also seeks here to dismiss Defendants' affirmative defense of usury, that relief cannot be accorded to Plaintiff. It may be that there are factual issues which might militate in favor of Defendants on the issue of usury which could be proved at trial; it is just that Defendants, on their motion for summary judgment, did not establish usury as a matter of law.

Accordingly, it is hereby ORDERED as follows with respect to Plaintiff's motion herein (Mot. Seq. 12): That branch of Plaintiff's motion seeking leave to reargue its opposition to Defendants' motion for summary judgment, which was Motion Sequence 11, is denied. That branch of Plaintiff's motion seeking leave to renew its opposition to Defendants' motion for summary judgment, which was Motion Sequence 11, is granted to the extent that upon renewal, Defendants' motion for summary judgment is denied. Insofar as Plaintiff's motion seeks to dismiss Defendants' affirmative defense of usury, it is denied. In other words, Plaintiff's motion is GRANTED ONLY TO THE EXTENT INDICATED HEREIN.

The foregoing constitutes the decision and order of this Court.