Apollo Funding Co. v Dave Reilly Construction, LLC, et al.
Attorneys and Parties
Brief Summary
Whether a merchant cash advance (MCA)/receivables purchase agreement is a usurious loan subject to the criminal usury defense, or a true sale of receivables not governed by usury laws.
Denied the plaintiff’s motion for summary judgment on the complaint.
The denial of summary judgment; the Appellate Division granted summary judgment to the plaintiff with costs.
The agreement’s features showed repayment was contingent, not absolute: reconciliation tied to actual receipts, no finite term, and no bankruptcy-as-default provision. Defendants did not utilize the reconciliation process and could not claim it was illusory. Therefore, the transaction was not a loan and the criminal usury defense failed; plaintiff established a prima facie breach and defendants raised no triable issues.
Background
Apollo Funding Co. and Dave Reilly Construction, LLC (DRC) entered a written receivables purchase agreement around August 2, 2023. Apollo paid a $25,000 purchase price (less $2,550 in agreed fees) in exchange for a percentage of DRC’s future receivables until Apollo collected $37,750. The agreement allowed daily debits based on a percentage of DRC’s sales and included a reconciliation mechanism to adjust payments to actual receipts. It also provided that upon DRC’s default the uncollected purchased amount would become due. David A. Reilly executed a personal guaranty. DRC paid $14,240, then stopped. Apollo sued for breach of contract and on the guaranty; defendants asserted, among other defenses, that the agreement was an unlawful usurious loan.
Lower Court Decision
The Supreme Court, Rockland County (April 22, 2024), denied Apollo’s motion for summary judgment on the complaint.
Appellate Division Reversal
Reversed, on the law, with costs. The Appellate Division held the agreement was not a loan because repayment was not absolute: it had a reconciliation provision adjusting payments to actual receipts, lacked a finite term due to variable payments, and did not treat bankruptcy as an event of default. As defendants did not pursue reconciliation, the court would not entertain the claim that the process was illusory. Apollo proved the executed agreement, its own performance, defendants’ breach, and resulting damages; defendants failed to raise triable issues. Accordingly, summary judgment for Apollo on the complaint was granted.
Legal Significance
Affirms the Second Department’s approach that properly structured merchant cash advance (MCA) receivable purchases are not loans and thus are not subject to criminal usury defenses, where features such as reconciliation tied to receipts, the absence of a finite term, and no bankruptcy-as-default provision exist. Aligns with cases such as LG Funding, LLC v United Senior Props. of Olathe, LLC; Principis Capital, LLC v I Do, Inc.; and distinguishes agreements lacking these protections (e.g., Crystal Springs Capital, Inc. v Big Thicket Coin, LLC).
In New York, an MCA with genuine reconciliation, no fixed term, and no bankruptcy default is a receivables purchase—not a loan—defeating usury defenses and supporting summary judgment for the purchaser when breach is shown and no triable fact issues exist.