merchant cash loan

The court found that: (i) the MCA agreement at issue was a merchant cash loan, (ii) the MCA company was a RICO enterprise engaged in collecting upon an unlawful debt that charged more than twice the interest rate permitted by state law and (iii) the owner of the MCA company was liable to the merchant under RICO. The case is under appeal by the MCA, but it is a significant case as, it not only found the MCA contract to be a usurious loan but, it is the first case to find an MCA liable under RICO.

Fleetwood Servs., LLC v. Ram Capital Funding, LLC, et al., 20-cv-5120 (LJL), U.S. District Court for the Southern District of New York

  The court denied the MCA’s motion to dismiss, finding preliminarily for purposes of keeping the merchant’s action alive sufficient facts pled establishing that: (i) the MCA agreement was a loan, (ii) the MCA company was a RICO enterprise engaged in wire fraud and collection of an unlawful debt and (iii) its owner was potentially liable to the merchant as a RICO person. 

Haymount Urgent Care PC v. GoFund Advance, LLC, 20-cv-1245 (JSR), U.S. District Court for the Southern District of New York

Prior to retention of new counsel, a default judgment was entered against the merchant for its failure to timely respond to the complaint. Upon new counsel’s application to vacate the judgment, the court initially found that the MCA agreement was a receivable purchase agreement and therefore a usury defense was inapplicable because the contract was not a loan. On further review of the Fleetwood, Haymount, and Queen decisions, the court granted counsel’s request for reconsideration and found that the district court’s analysis in the other cases was compelling, and vacated the default judgment to permit a usury defense.

Hi Bar Capital LLC v. Parkway Dental Servs., LLC, Index No. 533245/2021, Supreme Court of New York, Kings County

  Relying upon Fleetwood, Haymount, and Queen, the court denied the MCA’s motion to dismiss and found that sufficient facts had been pled preliminarily establishing that: (i) the MCA agreement was a loan, (ii) the MCA company was a RICO enterprise engaged in wire fraud and collection of an unlawful debt and (iii) its owner was potentially liable to the merchant as a RICO person. This decision is important because the Judge had previously dismissed a similar action brought against an MCA company in Womack v. Capital Stack LLC, 1:18-cv-04192 (ALC), U.S. District Court for the Southern District of New York.

The New Y-Capp, Inc., et al. v. Arch Capital Funding, LLC, 1:18-cv-03223 (ALC), U.S. District Court for the Southern District of New York