On July 26, 2024, the Fourth Department issued a decision in Oakshire Props., LLC v. Argus Capital Funding, LLC, 2024 NY Slip Op. 03943, holding that a plaintiff has adequately alleged that a merchant cash advance agreement was in fact an usurious loan, explaining:
Contrary to defendants’ contention, the allegations in plaintiffs’ causes of action for fraudulent inducement and fraud that defendants misrepresented the underlying transaction as a sale of future receivables, and not a usurious loan, sufficiently pleaded the elements of fraud and supplied sufficient detail to satisfy the specific pleading requirements of CPLR 3016 (b). Additionally, contrary to defendants’ contention with respect to all of the causes of action that were not dismissed by the motion court, we conclude that the allegations in the amended complaint that the underlying transaction is a usurious loan are sufficient to survive a motion to dismiss. When determining whether a transaction is a loan, substance—not form—controls, and the transaction 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. The primary question is whether the purported lender is absolutely entitled to repayment under all circumstances because, unless a principal sum advanced is repayable absolutely, the transaction is not a loan. There are generally three factors that must be weighed to determine whether a repayment is absolute: (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 or go out of business.
Accepting the allegations in the amended complaint here as true and according plaintiffs the benefit of every possible favorable inference, we conclude that each of the factors weighs in favor of determining that repayment was absolute. First, although there is a reconciliation provision in the agreement, the provision 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. Second, it appears that there was an implied finite term in the agreement inasmuch as plaintiffs allege that the daily payment amount was set to ensure that Argus’s targeted return would be met in a predetermined period of time as opposed to having been set based on the specified percentage of Oakshire’s sales. Third, it 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 against Oakshire’s affiliated entities and personal guarantor. We therefore conclude that the amended complaint sufficiently alleges that the transaction is a loan subject to usury laws.
(Internal quotations and citations omitted).