What 7 NY Appellate Decisions Tell Us About MCA Usury Defense in 2024-2025

Disclaimer: My name is Tommy Eberle. I'm the CEO and one of the founders of DocketDrafter. I'm not a lawyer and have never been to law school. The following article is NOT legal advice.

I found 7 NY Appellate MCA decisions in CourtListener from the past two years. I downloaded them to my laptop using a bit of python code and the CourtListener API. Then, I had Claude Code analyze the opinions and create the following analysis. I made sure that all the case citations and quotes are accurate. Every cited case is clickable. You can verify them directly on CourtListener.

I did this analysis to help MCA defense attorneys that might not have had time to review the recent appellate decisions in detail. I invite any MCA attorney to critique this analysis.

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The Three-Factor Test: How Courts Apply It

The dominant framework for distinguishing loans from legitimate receivables purchases comes from LG Funding, LLC v. United Senior Props. of Olathe, LLC, which adopted the test articulated in K9 Bytes, Inc. v. Arch Capital Funding, LLC. Nearly every appellate decision in our dataset applies this framework.

As the Fourth Department explained in Bridge Funding Cap LLC v. SimonExpress Pizza, LLC:

"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."

The underlying principle is straightforward: "Unless a principal sum advanced is repayable absolutely, the transaction is not a loan." If the funder bears genuine risk that it might not be repaid—because the merchant's business could fail—the transaction looks more like a purchase of future receivables than a loan.

When Funders Win on the Test

In Bridge Funding, the court found the agreement passed all three factors. The agreement contained two reconciliation provisions, had no finite term or payment schedule, and explicitly stated the funder was "entering this agreement knowing the risks that [the entity defendants'] business may slow down or fail, and assumes these risks." The court concluded the plaintiff "established as a matter of law that the agreement was a revenue purchase agreement rather than a loan."

Similarly, the First Department in Kapitus Servicing, Inc. v. Ragtime Gourmet Corp. acknowledged that "the agreement can be characterized as indefinite, and therefore a sale and purchase of receivables, insofar as it requires [the merchant] to make payments... 'until such time as [the funder] receives payment in full.'"

When Defendants Win on the Test

The picture changes dramatically when agreement terms undercut the risk-sharing premise. In Oakshire Props., LLC v. Argus Capital Funding, LLC, the Fourth Department found all three factors weighed toward concluding repayment was absolute—meaning the transaction was a loan subject to usury laws.

In Kapitus v. Ragtime, the First Department identified key factors pointing toward a loan: "The agreement provides recourse for Kapitus in the event Ragtime files for bankruptcy," and "[t]he personal guaranty executed by Gurino granting Core/Kapitus a security interest in all of Ragtime's personal property in the event of Ragtime's default is a further indicator that, as is traditionally the case with a loan, repayment was guaranteed."

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The Illusory Reconciliation Doctrine

The most powerful defense argument in this dataset centers on illusory reconciliation provisions. A reconciliation clause that exists on paper but provides no practical protection transforms what looks like a receivables purchase into a disguised loan.

Oakshire is the key case. The agreement contained a reconciliation provision, but the court found it "appears illusory inasmuch as Argus may not be subject to any consequences for failing to comply with its terms and, further, Argus has sole discretion to adjust the amount of the daily payments."

The court also identified how funders can engineer a "default" to circumvent any risk:

"[I]t appears that Argus had a means of recourse in the event Oakshire went out of business inasmuch as the agreement allowed Argus, in its sole discretion, to continue making daily payment withdrawals even if the daily payment amount exceeded Oakshire's sales, thereby providing Argus with a means to compel an event of 'default' upon which it could then immediately accelerate the entire debt and file a confession of judgment."

The Bridge Funding majority confirmed that reconciliation provisions "were not illusory because, inter alia, they did not contain any language indicating that plaintiff would 'not be subject to any consequences for failing to comply with its terms' or that plaintiff 'ha[d] sole discretion to adjust the amount of the daily payments.'" This language—drawn directly from Oakshire—now functions as a checklist for evaluating reconciliation clauses.

Pattern from these cases: Courts finding reconciliation provisions illusory focused on: (1) "sole discretion" language giving the funder unilateral control over adjustments, (2) absence of consequences for funder non-compliance with reconciliation requests, and (3) mechanisms that allow the funder to trigger default by continuing withdrawals that exceed actual revenue.

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An Emerging Critique: The Bridge Funding Concurrence

Perhaps the most significant development in these seven cases is the concurring opinion in Bridge Funding by Judges Nowak and DelConte. While agreeing with the outcome, they argued the existing three-factor test is "insufficient" and proposed an alternative framework.

Their critique of the current test is pointed:

"Reliance on the first two factors could result in an inaccurate finding that the parties have made a legitimate revenue purchase agreement as opposed to entering into a usurious loan. The first factor requires the presence of a reconciliation provision, but not necessarily an analysis of its validity. The second factor asks whether the agreement is for a finite term. But these two factors are just different sides of the same coin."

They also questioned the third factor's logic, noting that under New York law, "a guarantee agreement is separate and distinct from the contract between lender and borrower," so the existence of a guaranty shouldn't automatically convert a legitimate agreement into a loan.

The Proposed Alternative Test

The concurrence proposes evaluating: (1) whether the "estimate" of the defendant's revenue is reasonably based upon prior receivables or anticipated future earnings, and (2) whether the reconciliation provision is illusory in practice—not just whether one exists.

The first factor matters because inflated revenue estimates reveal the transaction's true nature. In Bridge Funding itself:

"[T]he defendant merchants agreed to pay a total of $360,000 at a rate of $3,500 per day—which the parties claimed to be 25% of defendants' daily receivables. Thus, by the express terms of the agreement, defendants were purportedly earning $14,000 per day, or $5,110,000 per year. However, during the course of discovery, the parties stipulated that defendant merchants had $1,440,220 in revenue between January 30, 2020 and April 12, 2023, a period of over three years—earnings of $1,232.01 per day, less than 10% of the initial $14,000 'estimate.'"

The second factor acknowledges that reconciliation can be "illusory in practice" even when it "appear[s] valid on its face"—for example, where "the lender could repeatedly request a merchant to submit documentation to support a change in revenue while continuing to debit the designated account."

What this signals: While this is a concurrence without precedential force, it reflects judicial skepticism about the current framework. The concurrence suggests that factual records demonstrating (a) the gulf between estimated and actual revenues, and (b) the practical impossibility of exercising reconciliation rights may become increasingly relevant in future cases.

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Defeating Summary Judgment on Damages

Even when funders win on the loan-versus-sale question, summary judgment can still be defeated on damages issues. Two cases in our dataset—Bridge Funding and Tapp Partners, LLC v. Wall Sections Inc.—reversed summary judgment because of problems with the plaintiff's damages evidence.

In Bridge Funding, despite finding the agreement was a legitimate revenue purchase agreement, the court held:

"[P]laintiff's own submissions raise a triable issue of fact regarding the amount of any resulting damages inasmuch as the amount stated in the affidavit of plaintiff's manager conflicts with the amount stated in the complaint also verified by plaintiff's manager, and no explanation was proffered for that discrepancy."

Tapp Partners followed suit, citing Bridge Funding directly: "Defendants raised 'a triable issue of fact regarding the amount of any resulting damages' arising from the alleged breach of the agreement through the submission of Garrett's affidavit."

Pattern from these cases: In both Bridge Funding and Tapp Partners, defendants defeated summary judgment by identifying internal inconsistencies in the plaintiff's damages evidence—discrepancies between complaints, verified statements, manager affidavits, and account records. Notably, defendants did not need to establish the "correct" amount; the inconsistencies alone were sufficient.

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Procedural Notes

Two cases highlight procedural outcomes worth noting:

In Clearfund Solutions LLC v. Tomassetti, defendants moved to vacate a default judgment, arguing the agreement was criminally usurious. The Fourth Department rejected this: "Defendants' contention that the motion should have been granted and the default vacated 'for sufficient reason and in the interests of substantial justice' based on the defense of criminal usury" was unavailing. The court noted that "Defendants' remaining contentions are raised for the first time on appeal and are not properly before us."

This case illustrates the appellate courts' treatment of usury defenses raised for the first time on appeal—the Fourth Department declined to consider arguments not raised at the trial court level.

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Key Observations

1. The three-factor test dominates—but has limits. Courts consistently apply the LG Funding framework, though the Bridge Funding concurrence signals emerging judicial skepticism about its sufficiency.

2. Illusory reconciliation provisions were central in defense wins. In cases where defendants prevailed, courts focused on "sole discretion" language, lack of enforcement mechanisms, and practical barriers to exercising reconciliation rights. Oakshire provides the clearest articulation of this analysis.

3. The Bridge Funding concurrence may signal a shift. The proposed focus on reasonable revenue estimates and practical reconciliation—while not binding—reflects judicial interest in looking beyond agreement language to actual circumstances.

4. Damages evidence inconsistencies defeated summary judgment. In both Bridge Funding and Tapp Partners, internal inconsistencies in plaintiff's submissions created triable issues of fact—even where the usury defense did not succeed.

5. Preservation matters. In Clearfund, the Fourth Department declined to consider usury arguments raised for the first time on appeal.

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Table of Citations