Precision in Damages and a New Lens on Merchant Cash Advances: Bridge Funding Cap LLC v. SimonExpress Pizza, LLC (AD4th 2025)

Introduction

In Bridge Funding Cap LLC v. SimonExpress Pizza, LLC (2025 NY Slip Op 04306), the Appellate Division, Fourth Department, revisited the legal status of merchant cash advance (MCA) agreements and clarified summary judgment standards in contract enforcement suits arising from such agreements. The plaintiff, Bridge Funding Cap LLC, advanced funds to a group of related business entities operating a Hungry Howie’s franchise under a “revenue purchase agreement.” The contract featured a daily remittance as a “good faith estimate” of 25% of future receivables, two reconciliation mechanisms, no fixed term, and explicit risk allocation to the funder if the merchant’s business slowed or failed. A personal guaranty by the principal, Fawzi R. Simon, accompanied the transaction.

The Supreme Court (Ontario County) granted summary judgment to the funder on breach of contract and guaranty claims. On appeal, the defendants argued that the agreement was a criminally usurious loan and void, or alternatively that plaintiff had not met its prima facie burden. The Fourth Department reversed, denying summary judgment. The majority reaffirmed the prevailing three-factor MCA framework to reject the usury defense, but held the plaintiff failed to establish damages as a matter of law. A concurrence by two Justices, however, urged abandonment of the traditional three-factor test in favor of a more searching, two-factor approach focused on the reasonableness of the revenue “estimate” and the real-world viability of reconciliation procedures.

Summary of the Judgment

  • The Fourth Department reversed the amended judgment and denied the plaintiff’s motion for summary judgment.
  • On the threshold question whether the MCA was in fact a loan susceptible to a criminal usury defense, the majority held it was not a loan. Applying the established tripartite test, the court found:
    • Two reconciliation provisions that adjusted remittances to actual revenue upon request;
    • No finite term or fixed repayment schedule;
    • No recourse to the funder if the merchant went bankrupt, out of business, or experienced a downturn.
    Collectively, these features rendered repayment contingent, not absolute; therefore, the arrangement was not a loan and could not be usurious.
  • Despite that, the plaintiff failed to make a prima facie showing on its breach claim: the funder’s own submissions contained conflicting damages figures—between the manager’s affidavit and a complaint verified by the same manager—with no explanation for the discrepancy. That conflict created a triable issue of fact on damages, defeating summary judgment. Because the guaranty claim depended on the contract claim, it fell with it.
  • A concurrence (Nowak and DelConte, JJ.) agreed that summary judgment should be denied, but faulted the traditional three-factor MCA test and proposed a new two-factor framework focused on:
    • Whether the daily “estimate” of receivables was reasonably grounded in the merchant’s prior or anticipated earnings; and
    • Whether reconciliation is truly available in practice (not illusory), enabling adjustment of remittances to actual revenue.
    Applying those factors, the concurrence highlighted stark discrepancies between the agreement’s implied revenue and the merchant’s actual revenue, and practical questions about reconciliation, as reasons the plaintiff was not entitled to judgment as a matter of law.

Analysis

Precedents Cited and Their Influence

  • Seidel v 18 E. 17 St. Owners, 79 NY2d 735, 744 (1992): A foundational principle—if a transaction is not a loan, there can be no usury. The Fourth Department starts here: the usury defense lives or dies on whether repayment is absolute.
  • LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664 (2d Dept 2020) and Principis Capital, LLC v I Do, Inc., 201 AD3d 752 (2d Dept 2022): These cases adopt and apply the K9 Bytes tripartite test for MCAs (reconciliation; lack of finite term; no bankruptcy recourse) to distinguish contingent receivables purchases from loans. The Fourth Department relies on these as persuasive authority.
  • Samson MCA LLC v Joseph A. Russo M.D. P.C./IV Therapeutics PLLC (appeal No. 2), 219 AD3d 1126 (4th Dept 2023): The Fourth Department’s own adoption of the three-factor MCA framework. The majority follows Samson to hold this agreement is not a loan.
  • Oakshire Props., LLC v Argus Capital Funding, LLC, 229 AD3d 1199 (4th Dept 2024): Clarifies when reconciliation is illusory, e.g., where the funder retains sole discretion to adjust payments or faces no consequences for noncompliance. The majority uses Oakshire to distinguish this case—here the reconciliation terms lacked such red flags.
  • Niagara Foods, Inc. v Ferguson Elec. Serv. Co., Inc., 111 AD3d 1374 (4th Dept 2013); Pearl St. Parking Assoc. LLC v County of Erie, 207 AD3d 1029 (4th Dept 2022): State the elements of breach of contract—contract, performance, breach, and damages.
  • Wm. Schutt & Assoc. Eng’g & Land Surveying P.C. v St. Bonaventure Univ., 151 AD3d 1634 (4th Dept 2017) and Resetarits Constr. Corp. v Elizabeth Pierce Olmsted, M.D. Center for the Visually Impaired (appeal No. 2), 118 AD3d 1454 (4th Dept 2014): The movant must establish every element of its claim on summary judgment.
  • Sanchez v National R.R. Passenger Corp., 21 NY3d 890 (2013); Michael P. v Dombroski, 211 AD3d 1469 (4th Dept 2022): Inconsistencies within a movant’s own evidence can create triable issues of fact; contradictions among a party’s submissions require denial of summary judgment.
  • Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 (1985): If a movant fails to meet its prima facie burden, the motion must be denied regardless of the adequacy of the opponent’s papers—a critical procedural guardrail the court applies here.
  • Bonczar v American Multi-Cinema, Inc., 38 NY3d 1023 (2022): Confirms that an appeal from the amended judgment brings up for review the prior order granting summary judgment (CPLR 5501[a][1]).
  • Kinville v Jarvis Real Estate Holdings, LLC, 38 AD3d 1225 (4th Dept 2007): Cited by the concurrence to stress that a guaranty is separate and distinct from the underlying contract; the mere existence of a guaranty should not convert a receivables purchase into a usurious loan.
  • K9 Bytes, Inc. v Arch Capital Funding, LLC, 56 Misc 3d 807 (Sup Ct, Westchester County 2017): The trial-level decision whose analytical framework informed later appellate decisions. The concurrence challenges how this framework is being operationalized.

Legal Reasoning

The majority’s decision proceeds in two stages. First, it rejects the usury defense by determining the true character of the transaction. The court emphasizes settled law: what matters is not labels (“not a loan”), but whether the funder is “absolutely entitled to repayment under all circumstances.” If repayment is contingent on revenue, the advance is not a loan.

Applying the three-factor MCA test:

  • Reconciliation: The agreement included two reconciliation provisions, both retroactive and prospective, that adjusted the daily remittance to track 25% of actual receivables upon the merchant’s request and proof of revenue. The court emphasizes these provisions were not illusory, particularly in light of Oakshire’s warning signs. There was no “sole discretion” vested in the funder and no language insulating the funder from consequences for failing to reconcile.
  • Finite term: There was no defined term or fixed payment schedule; the ultimate duration depended on the ebb and flow of the merchant’s revenue and the operation of reconciliation. This indeterminacy supports the conclusion that repayment was not absolute.
  • Bankruptcy/recourse: The contract expressly placed the risk of business failure or slowdown on the funder, disclaiming recourse if the merchant went bankrupt or out of business. That express allocation of risk is characteristic of a receivables purchase, not a loan.

Having found the transaction non-loan, the majority then turns to the plaintiff’s summary judgment burden. To obtain judgment as a matter of law on breach of contract, a plaintiff must prove each element, including damages. Here, the plaintiff’s manager provided an affidavit stating a particular sum due, while the complaint—verified by that same manager—alleged a different amount. The lack of any explanation for this inconsistency was fatal. Under Sanchez and related authority, such internal contradictions create a triable issue of fact. Invoking Winegrad, the court reverses and denies the motion without needing to address the sufficiency of the defense papers, and the guaranty claim falls with the contract claim because it is derivative.

The concurrence agrees with the outcome but challenges the analytical tool for distinguishing MCAs from loans. It contends that the first two factors (reconciliation and finite term) are two sides of the same coin—only a genuine reconciliation can prevent the agreement from functioning as a de facto fixed-term loan. The third factor (recourse/guaranty), the concurrence argues, risks false negatives: New York treats guaranties as separate contracts, and their existence should not, standing alone, reclassify an otherwise legitimate receivables purchase as a loan.

The concurrence proposes a new two-factor inquiry for MCAs with fixed daily “estimates”:

  • Reasonableness of the estimate: Was the daily remittance percentage grounded in the merchant’s historical or reasonably anticipated receivables? If the “estimate” bears no resemblance to actual revenue (e.g., inflated round numbers), the deal looks like a loan masquerading as an MCA.
  • Practical, non-illusory reconciliation: Beyond facial terms, do the reconciliation procedures work in practice? If the funder can indefinitely demand documentation while continuing to debit a fixed amount, or if reconciliation is procedurally inaccessible, then the provision is effectively illusory and the arrangement functions like a fixed-payment loan.

Applying that lens to the record, the concurrence spotlights stark discrepancies: a $3,500 daily payment labeled as 25% of receivables implies $14,000 in daily revenue (about $5.11 million/year), yet the parties stipulated to approximately $1.44 million total revenue over more than three years (about $1,232/day). The agreement also contemplated 103 daily installments starting January 15, 2020, which suggests a finite payback by late April 2020, while the plaintiff alleged payments continued through June 30, 2020. These facts, in the concurrence’s view, underscore why summary judgment is inappropriate and why a refined test is needed to weed out de facto loans.

Impact and Practical Implications

1) For MCA litigation and drafting

  • Reaffirmation of the three-factor test: In the Fourth Department, the majority keeps the door open for properly structured MCAs to avoid usury defenses, provided there are genuine reconciliation rights, no fixed term, and risk allocation to the funder upon the merchant’s failure, slowdown, or bankruptcy.
  • Reconciliation drafting guidance: Oakshire’s gloss—endorsed here—warns drafters away from “sole discretion” language or clauses that insulate funders from consequences for noncompliance. Agreements should clearly obligate timely reconciliation upon merchant request and proof.
  • Evidentiary rigor on damages: Plaintiffs must present a consistent, well-supported damages calculation. Internal contradictions between a verified complaint and a supporting affidavit will defeat summary judgment. Affiants must reconcile changes in figures (with schedules, transactional histories, and bank records) or risk denial.
  • Guaranties remain viable: The concurrence usefully reminds that guaranties are separate contracts. While not binding, its reasoning may embolden funders to maintain guaranties without fear of automatic reclassification of MCAs as loans—though courts may scrutinize whether guaranties, taken together with other terms, create a realistic pathway to absolute repayment.

2) A possible doctrinal shift: the concurrence’s two-factor approach

  • Heightened focus on the “estimate”: If other panels adopt the concurrence’s view, litigants should expect discovery and expert analysis on whether the daily remittance percentage was grounded in historical receivables or credible projections. Inflated estimates could become a red flag that the deal is a disguised loan.
  • From facial validity to practical functionality: Courts may increasingly look past formal reconciliation clauses to how reconciliation actually works—timelines, documentation burdens, responsiveness, and the funder’s behavior during reconciliation requests. A facially valid clause can be illusory in practice.
  • More fact-intensive rulings: The concurrence’s framework likely reduces the frequency of summary dispositions on usury challenges. Expect more denials of summary judgment where revenue estimates, payment histories, and reconciliation practices raise factual questions.

3) Strategy pointers

  • For funders:
    • Base daily remittance percentages on verifiable revenue data; memorialize the basis contemporaneously.
    • Make reconciliation timelines and evidentiary requirements reasonable and enforce them in good faith; keep auditable records of adjustments.
    • Avoid contract language granting unilateral discretion over reconciliation; specify consequences for noncompliance.
    • On summary judgment, submit a single, reconciled accounting, and explain any updated calculations relative to the pleadings.
  • For merchants:
    • Challenge inflated “estimates” with historical financials; seek discovery of the funder’s underwriting basis.
    • Document reconciliation requests, submissions, and funder responses; evidence that reconciliation was effectively unavailable can be dispositive.
    • Where guaranties exist, argue that, combined with other terms, the totality creates absolute repayment; but be prepared to address the concurrence’s point that guaranties are separate contracts.

Complex Concepts Simplified

  • Merchant Cash Advance (MCA)/Revenue Purchase Agreement: A funder advances cash in exchange for a percentage of a merchant’s future receivables. Repayment varies with revenue. If truly contingent, it is not a “loan” and cannot be usurious.
  • Criminal usury in New York: Generally refers to charging an annual interest rate exceeding 25%. Corporations cannot assert civil usury but may raise criminal usury in certain circumstances. However, usury applies only to “loans”; if the deal is not a loan, the defense fails.
  • Absolute vs. contingent repayment: A transaction is a loan if the principal is repayable absolutely, come what may. If repayment depends on future revenue (with genuine reconciliation and risk allocation), it is more likely a receivables purchase.
  • Reconciliation provision: A contractual mechanism allowing the merchant to adjust daily remittances to match the agreed percentage of actual revenue, both retroactively and prospectively. A reconciliation clause can be “illusory” if, for example, the funder has sole discretion to adjust or is insulated from any consequence for not honoring the clause.
  • Finite term: A fixed end date or fixed number of payments indicates a debt-like, absolute obligation. MCAs often lack a finite term because repayments float with revenue.
  • Recourse and bankruptcy: If the funder has recourse even when the merchant fails or goes bankrupt, repayment looks absolute. MCAs typically allocate failure risk to the funder and deny recourse in bankruptcy.
  • Personal guaranty: A separate contract by which a guarantor promises performance if the merchant defaults. The concurrence stresses a guaranty’s separateness; its existence alone should not reclassify a receivables purchase as a loan.
  • Summary judgment and prima facie burden: The movant must prove every element of the claim with competent, non-contradictory evidence. If it fails, the court must deny the motion without regard to the opponent’s papers.
  • Conflicting proofs and verified pleadings: A verified complaint is evidentiary. If a movant’s affidavit conflicts with a verified pleading (or other submission) on a material point like damages, the inconsistency creates a triable issue requiring denial of summary judgment unless explained.

Conclusion

Bridge Funding Cap v. SimonExpress Pizza delivers two important messages. First, the Fourth Department reaffirms that a properly structured MCA—with bona fide reconciliation, no finite term, and explicit allocation of failure risk to the funder—is not a loan and is therefore immune from usury challenges. Second, it underscores a basic but often decisive procedural rule: plaintiffs must present a coherent, consistent damages case on summary judgment. Internal contradictions spell defeat.

Perhaps most significantly for the future of MCA litigation, the concurrence proposes a refined two-factor test that zeroes in on the real economics of the deal—whether the revenue “estimate” reflects actual capacity and whether reconciliation really works in practice. That approach, while not binding in this decision, is likely to influence how lower courts evaluate MCAs that appear, functionally, like fixed-payment loans with inflated estimates. Funders and merchants alike should adjust their drafting and litigation strategies accordingly, anticipating closer scrutiny of underwriting assumptions and reconciliation practices. As the law continues to evolve, this case signals both continuity in doctrine and a potential pivot toward more fact-intensive assessments of MCA transactions.