On May 5, 2026, Justice Doyle of the Seventh Judicial District Commercial Division issued a decision in Samson MCA LLC v. DI Constr. LLC, 2026 NY Slip Op. 50732(U), refusing to enforce an attorneys’ fees provision of a stipulation of settlement, explaining:
Plaintiff seeks a default judgment pursuant to CPLR §3215(i). CPLR 3215(i) provides:
(i) Default judgment for failure to comply with stipulation of settlement. 1. Where, after commencement of an action, a stipulation of settlement is made, providing, in the event of failure to comply with the stipulation, for entry without further notice of a judgment in a specified amount with interest, if any, from a date certain, the clerk shall enter judgment on the stipulation and an affidavit as to the failure to comply with the terms thereof, together with a complaint or a concise statement of the facts on which the claim was based . . .
CPLR 3215(i) provides a procedure for a clerk to enter a judgment on the stipulation of settlement without notice to the other side. Again, the Court notes that Defendants take issue only with the percentage-based legal fees levied.
An unconscionable contract has been defined as one which ‘is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforcible according to its literal terms. The doctrine, which is rooted in equitable principles, is a flexible one and the concept of unconscionability is ‘intended to be sensitive to the realities and nuances of the bargaining process. At common law an unconscionable agreement was one that no promisor (absent delusion) would make on the one hand and no honest and fair promisee would accept on the other. Such contracts are usually voidable since a party to a contract has the power to validate or ratify the contract, as well as the power to avoid it.
A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made–i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. To support their claim of unconscionability, a party must make some showing of an absence of meaningful choice on their part, together with terms that are unreasonably favorable to the other party.
Procedural unconscionability requires the court to examine the formation of the contract for a lack of meaningful choice. The most important factor in determining procedural unconscionability is whether the client was fully informed upon entering the agreement. Examples of procedural unconscionability include inequality of bargaining power and an imbalance in the understanding and acumen of the parties.
Here, Defendants establish procedural unconscionability. Defendants submit the Affirmation of Defendant Brent E. Myers, who states that Defendants sought money to keep the Corporate Defendant operational. Myers states that it was made clear to us that if we wanted the money, we would have to sign the Agreement as it was presented to us without the ability to make any changed. It was basically sign ‘as is’ if you want the money. With the exception of Defendants’ demographic information and financial terms, the Agreement was pre-printed. After Defendants (all residents of Georgia) defaulted on the Agreement, they received notice of the lawsuit commenced against them in Rochester, New York. The Defendants acknowledge their default on the merchant cash advance agreement and sought to resolve the claims brought against them without hiring counsel to defend the New York action by entering into the Stipulation of Settlement with Plaintiff. Defendants admit that they did not read the Stipulation of Settlement and contend that the Stipulation was presented to them as if you want to settle sign this or a judgment will be entered against you. Defendants did not appreciate the second levy of percentage-based attorneys’ fees that came with the Stipulation of Settlement.
Defendants establish procedural unconscionability associated with the parties’ entry into the Stipulation of Settlement. The high pressure tactics of the merchant advance industry, coupled with being faced with a lawsuit brought against Defendants in a different jurisdiction and Defendants’ acknowledgement of the debt and desire to recognize their debt created an atmosphere inconsistent with the formation of a valid contract between parties enjoying equal bargaining power. Whereas Defendants are engaged in the construction industry and there is no indication or proof presented that they are sophisticated business people, the Plaintiff and Plaintiff’s counsel are “sophisticated businesspeople and all had prior experience with” merchant cash agreements. People v. Richmond Cap. Grp. LLC, 246 AD3d 585, 587 (1st Dept. 2026). The overreaching and unfair circumstances support a finding of procedural unconscionability in the Stipulation of Settlement that prevents the Court from granting a default judgment.
Substantive unconscionability has also been established. Substantively, courts consider whether one or more key terms are unreasonably favorable to one party. There is no general test for measuring the reasonableness of a transaction but we have recently provided this guidance: an unconscionable contract is one which is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms. Substantive unconscionability appears per se whether a contract provision is unconscionable as a matter of law is an issue for a court to determine. Upon a finding of unconscionability a court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause as to avoid an unconscionable result.
The terms of the agreements between these parties (at least insofar as it relates to attorneys’ fees) are grossly unreasonable and favorable to Plaintiff at the expense of Defendants. When Defendants (admittedly) defaulted on the initial Agreement, the balance due was $351,879.00. In seeking out a Stipulation of Settlement with Defendants, Plaintiff included in that balance $105,563.70 in attorneys’ fees. That brought the amount set forth in the Stipulation of Settlement to $457,442.70. Upon the default on the Stipulation of Settlement, Plaintiff came to this Court seeking a default judgment which would add in another 25% in attorneys’ fees on the balance due ($113,453.92). In all, Plaintiff throughout this transaction seeks to charge Defendants with $219,017.62 in attorneys’ fees on the original balance of $351,879.00. This is an agreement that no promisor (absent delusion) would make on the one hand and no honest and fair promisee would accept on the other.
In New York, an award of attorneys’ fees pursuant to such a contractual provision may only be enforced to the extent that the amount is reasonable and warranted for the services actually rendered. The fixed percentage fee, therefore, is viewed only as a maximum fee, limiting the amount of reasonable attorneys’ fees which the creditor may charge upon proving the extent of the necessary services actually rendered. The Fourth Department continued:
We note that it is not the intent of the law, nor of the petitioner in this proceeding, to deprive the creditor of full payment of its actual necessary legal expenses in collecting the defaulted debt, limited only by the reasonable value of such services and the percentage provision expressed in the contract. The aim is to prevent creditors and their attorneys from receiving more than such sums, which they may otherwise be able to accomplish because of the debtors’ defaults.
Both the Agreement and the Stipulation of Settlement run afoul of this law.
Accordingly, the Court refuses to enforce the Stipulation of Settlement, and the motion for a default judgment is DENIED.
(Internal quotations and citations omitted).