People v. Richmond Capital

 Recognizing the pernicious nature of merchant cash advances, the Attorney General of New York brought a special proceeding against a group of MCA lenders, on the ground that the agreements were "fraudulent, usurious loans-in-disguise", and obtained a judgment for over $77,000,000 in the lower court.

 

The respondents appealed.

 

The Appellate Division, First Department, agreed with the lower court and with the AG on the substance of the case, but determined that the monetary award needed to be adjusted downwards in several respects, in  People v. Richmond Capital Group LLC, 246 A.D.3d 585 (1st Dep't February 19, 2026).

 

The Court held:

 The subject agreements, although styled as MCAs, are
properly characterized as loans subject to restrictions on
usury.... Although the MCAs
have mandatory reconciliation provisions, no reconciliation
was performed in practice, even though it was supposed
to be performed on a monthly basis, and daily payments
were fixed and did not represent a good faith estimate of
receivables; there is no persuasive evidence of any ad hoc
incidents of reconciliation (upon a merchants’ request), which
were subject to respondents’ “sole discretion,” and there is
evidence that such requests were denied; bankruptcy was an
express event of default in some of the MCAs, but even where
it was not, repeated nonpayment was, as was breach of the
MCAs, which was the case where a merchant “interrupt[ed],
suspend[ed], dissolve[d] or terminate[d]” its business; and in
the event of any of these circumstances, the full uncollected
amount became due and respondents were empowered to
enforce the personal guarantees they required the merchants
to provide.

 

246 A.D.3d at 586.

 

 

 

 

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