LLC v. LLC CHAKA ROBERT POWELL (2026)

INTRODUCTION

This action arises from a commercial arrangement in which a funding company makes an upfront payment of cash to a merchant in exchange for the right to collect periodic payments from the merchant's future receivables until the amount collected equals an agreed-upon sum, typically well in excess of the upfront cash payment. This arrangement, known as a merchant cash advance (MCA) transaction, is memorialized in a contract between the funding company and the merchant along with a guaranty signed by the merchant's owner.

Litigation involving MCA transactions has proliferated in the past decade, with the largest number of the reported state court decisions emanating from New York.¹ The key dispositive issue typically raised in these lawsuits is whether the MCA transaction is a loan subject to state usury laws or a sale of future receivables to which usury laws do not apply. Where a court finds that the transaction is a loan, then invariably the court also finds that the loan violates criminal usury laws and must be declared null, void, and unenforceable.² In contrast, where a court finds that the transaction is merely a sale of future receivables, the court enforces the terms of the contract and the guaranty, granting judgment in favor of the funding company for the amounts due and owing from the merchant and owner under the MCA contract and guaranty, respectively.³

The Second Department has had an outsized role in developing the law governing MCA transactions, both because of its landmark decision in LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 AD3d 664 (2d Dep't 2020), which is widely followed by New York appellate and trial courts in the absence of precedent from the New York Court of Appeals,⁴ and because roughly half of all New York cases involving MCA transactions are venued in counties within the Second Department.⁵ As discussed in more detail below, LG Funding adopts a three-factor test that is essentially the Second Department's application of the "duck test" to MCA transactions,⁶ invoking the legal principle of substance over form to provide that where an arrangement functions, looks, and acts like a loan, the court will treat it as a loan—regardless of how cleverly the documents memorializing the transaction are disguised to make it appear as something else.

BACKGROUND

Plaintiff Ilend Advance LLC (Ilend) alleges that under the parties' MCA contract (Agreement), Ilend agreed to make an upfront payment to defendant A&D Fitness LLC (A&D) of $30,000, less certain costs and fees, in exchange for the right to collect from A&D's future receivables periodic payments totaling $44,100. NYSCEF No. 20 at ¶¶ 9-10. The payments are initially specified as debits of $490 each business day, for a total of 90 payments. Id. at pdf pg. 15. Ilend also alleges that the parties' transaction included execution of a security agreement and guaranty by defendant Chaka Robert Powell, A&D's owner (Guaranty), making him personally liable for any amount due under the Agreement in the event of default. Id. at ¶¶ 16-17, pdf pgs. 20-21. Ilend further alleges that after making some of the periodic payments from A&D's receivables, A&D has refused to permit further debits, leaving an unpaid balance of $41,640. Id. at ¶¶ 19, 21, 25. After including costs and a "Default Fee" of $10,000, Ilend alleges A&D owes the sum of $59,340. Id. at ¶¶ 26-28. In their answer, defendants assert 13 affirmative defenses, including defenses based on New York's civil and criminal usury laws. NYSCEF No. 22.

Two days after the Court issued a preliminary conference order setting forth a discovery schedule, Ilend moved under CPLR 3211(b) to dismiss all of the defendants' affirmative defenses, arguing the defenses are insufficiently pled, conclusively refuted by documentary evidence, and/or without factual or legal merit, NYSCEF No. 17. For the reasons set forth below, Ilend's motion is granted in part and denied in part: the Court dismisses defendants' third, fourth, fifth, tenth, and twelfth affirmative defenses and that portion of defendants' eleventh affirmation defense based on statute of limitations, and otherwise finds that the remaining affirmative defenses are sufficiently pled and cannot be dismissed as a matter of law.⁷

DISCUSSION

"A party may move for judgment dismissing one or more defenses, on the ground that a defense is not stated or has no merit." CPLR 3211(b). "When moving to dismiss, the plaintiff bears the burden of demonstrating that the affirmative defenses 'are without merit as a matter of law because they either do not apply under the factual circumstances of [the] case, or fail to state a defense.' " Shah v. Mitra, 171 AD3d 971, 974 (2d Dep't 2019) (quoting Bank of Am., N.A. v. 414 Midland Ave. Assoc., LLC, 78 AD3d 746, 748 (2d Dep't 2010)). In deciding a motion pursuant to CPLR 3211(b), the court should apply the same standard it applies to a motion to dismiss pursuant to CPLR 3211(a)(7), accepting the factual assertions of the defense as true, and resolving "any doubt as to the availability" of the defense in favor of the defendant. Diversified Bldg. Co., LLC v. Nader Enters., LLC, 243 AD3d 542, 543 (2d Dep't 2025).

The Court addresses below the defendants' affirmative defenses under this standard, starting with the usury defenses.

1. Violation of Civil and Criminal Usury Laws

Defendants assert as their twelfth and thirteenth affirmative defenses that the Agreement between Ilend and A&D violates New York's civil and criminal usury laws, respectively. NYSCEF No. 22 at ¶¶ 12-17 (twelfth affirmative defense), ¶¶ 18-23 (thirteenth affirmative defense).

Defendants admit in their answer that A&D is a limited liability company. Id. at ¶ 3 (admitting paragraph 3 of the complaint, which alleges that A&D is a Michigan limited liability company). This is fatal to defendants' twelfth affirmative defense asserting a violation of civil usury law. Under New York law, civil usury is not a defense "available to corporations." Adar Bays, LLC v. GeneSYS ID, Inc., 37 NY3d 320, 326 (2021); see also Alleon Capital Partners, LLC v. Choudhry, 225 AD3d 578, 580 (2d Dep't 2024) (citing Adar Bays). It is similarly not a defense available to defendant Powell as a guarantor of A&D's obligations. See Simoni v. Time-Line, Ltd., 272 AD2d 537, 538 (2d Dep't 2000) (holding the defense of civil usury "is not available to an individual guarantor of the corporate obligation"). Accordingly, that branch of Ilend's motion seeking to dismiss defendants' twelfth affirmative defense alleging violation of New York's civil usury law is granted.

But a different analysis applies to defendants' thirteenth affirmative defense of criminal usury (i.e., interest over 25%), which remains available to corporate borrowers in civil actions. See Adar Bays, 37 NY3d at 326. That is, of course, if defendants can establish that the Agreement is a loan subject to New York's criminal usury law rather than merely a sale of future receivables. Principis Capital, LLC v. I Do, Inc., 201 AD3d 752, 754 (2d Dep't 2022) ("If, however, the [MCA] agreement was found to be a loan, criminal usury would be a defense to its enforcement, rendering it void."). That is because "[t]he rudimentary element of usury is the existence of a loan or forbearance of money, and where there is no loan, there can be no usury, however unconscionable the contract may be." LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 AD3d 664, 665 (2d Dep't 2020) (emphasis added); see also Spin Capital, LLC v. Bridgelink Engr., LLC, 248 AD3d 1074, 1075 (2d Dep't 2026).

"When determining whether a transaction constitutes a usurious loan it 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." Spin Capital, 248 AD3d at 1075; see also Adar Bays, 37 NY3d at 334 ("[S]ubstance—not form—controls."). Courts focus this inquiry on whether the lender is "absolutely entitled to repayment under all circumstances." LG Funding, 181 AD3d at 665—66; see also True Bus. Funding, LLC v. Guerrero A Constr. Corp., 239 AD3d 787, 788 (2d Dep't 2025); K9 Bytes, Inc. v. Arch Capital Funding, LLC, 56 Misc 3d 807, 816 (Sup. Ct., Westchester Cnty. 2017); Rubenstein v. Small, 273 A.D. 102, 104 (1st Dep't 1947) ("For a true loan it is essential to provide for repayment absolutely and at all events or that the principal in some way be secured as distinguished from being put in hazard.").

In its landmark ruling in LG Funding, the Second Department identified three factors to be weighed in "determining whether repayment is absolute or contingent: (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." LG Funding, 181 AD3d at 665—66. The LG Funding factors focus on whether the MCA lender "assume[s] the risk that [the merchant] would have less-than-expected or no revenues." Id. at 666. The Court addresses each of the LG Funding factors in turn below.

a) Reconciliation

To better understand the reconciliation provision, some background on the key terms of an MCA agreement is helpful. In a typical MCA transaction, a funding company purchases a certain dollar amount of a merchant's future receivables. The purchased receivables are then paid by the merchant to the funding company over time through debits of a specified amount drawn from the merchant's operating account on a periodic basis—usually daily or weekly—until the funding company has received the full amount of the purchased receivables. In addition to specifying the amount of the purchased receivables, the debit amount, and the debit frequency, another critical term of the agreement is the "specified percentage" denoted in the contract—here labeled the "Purchased Percentage," NYSCEF No. 21 at pdf pg. 1—that is intended to be the ratio of the debit amount to the merchant's historic receivables. Typically, the funding company represents that the debit amount is a "good faith estimate" of this specified percentage multiplied by the average historic receivables during some period prior to the effective date of the transaction. Id. As described below, this specified percentage is a key factor in determining whether the merchant is entitled to obtain reconciliation.

The purpose of a reconciliation provision in an MCA agreement is to "allow the merchant to seek an adjustment of the amounts being taken out of its account based on its cash flow (or lack thereof)," which permits the periodic debits from the merchant's account to be decreased when the "merchant is doing poorly." K9 Bytes, 56 Misc 3d at 817; see also People of the State of New York v. Yellowstone Capital LLC, 2026 NY Slip Op. 30767(U), *12, 2026 WL 660678, at *6 (Sup. Ct., NY Cnty. March 4, 2026) ("The reconciliation process is a mechanism allowing a merchant the means to renegotiate and receive a refund of some portion of its daily payments if the merchant suffers a loss in revenue."). In other words, the provision permits the merchant to reconcile the amount of the periodic debit with its actual sales receipts, requiring the funding company to recalculate and adjust the debit amount to account for a change in business activity from what was expected when the parties entered into the transaction. See Surfside Capital v. Rodgers, 87 Misc 3d 1258(A), 3 (Sup. Ct., Kings Cnty. 2025) ("[A] reconciliation provision delineates a process whereby the amount of revenue remitted to the merchant cash advance company is recalculated."). "[A] proper reconciliation process allows a merchant to adjust its daily payments to better represent that percentage if it suffers a loss of revenue." Yellowstone Capital, 2026 WL 660678, at *6.

Typically, as here, the merchant must first request reconciliation; it is not automatic. See, e.g., NYSCEF No. 21 at ¶ 1.4. When requested, the funding company has no obligation to grant reconciliation unless the total amount debited under the agreement as of the date of the reconciliation request exceeds the specified percentage of actual revenue collected by the merchant since the agreement went into effect. See Yellowstone Capital, 2026 WL 660678, at *7; NYSCEF No. 21 at ¶ 1.4 (providing reconciliation is triggered "if the amount received by [Ilend] was more than the Purchased Percentage of all revenue of [A&D] since the date of" the Agreement).

Under this first LG Funding factor, courts assess whether the terms of the reconciliation provision "specifically provide[ ] for adjustments to the [periodic debits] based on changes" in the merchant's sales, Principis Capital, 201 AD3d at 754, or whether the right to obtain reconciliation is illusory because the funding company is "under no obligation" to adjust the debit amount based on a change in the merchant's business activity. Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC, 220 AD3d 745, 747 (2d Dep't 2023).

Courts have typically analyzed the text of the parties' reconciliation provision to determine if the provision is real or illusory. In Apollo Funding Co. v. Dave Reilly Constr., LLC, 241 AD3d 1508 (2d Dep't 2025), the court held that the agreement's "terms" specifically provided for "adjustments to the daily payment based on changes to [the merchant's] daily receipts." Id. at 1509. The court went on to hold that "because [the merchant] did not engage in the agreement's reconciliation procedure," the court was precluded from reviewing whether the process to be followed under the text of the provision "was illusory." Id. Similarly, focusing on the text of the reconciliation provision, the court in Bridge Funding Cap LLC v. SimonExpress Pizza, LLC, 240 AD3d 1186 (4th Dep't 2025), noted that the reconciliation provision was not illusory because it lacked language indicating the funding company had sole discretion to adjust the amount of the periodic debits. Id. at 1189.

The Second Department reached the opposite conclusion based on the text of the reconciliation provision in Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC, holding the MCA agreement was a criminally usurious loan because, among other reasons, under the terms of the reconciliation provision the funding company was "under no obligation" to reconcile the debit amounts to the merchant's sales. 220 AD3d at 747; see also Kapitus Servicing, Inc. v. Suburban Waste Services, Inc., 246 AD3d 661, 662 (1st Dep't 2026) (holding that the MCA agreement "does not make clear on its face whether it conferred" a right to reconciliation because it was unclear whether the right was "mandatory or exercisable at [the funding company's] discretion under the terms of the agreements.").

Here, the complaint does not contain any allegation that A&D failed to "engage the agreement's reconciliation procedure," Apollo, 241 AD3d at 1509, and the parties' briefs suggest this issue is in dispute, or at the very least needs to be explored in discovery.⁸ Compare NYSCEF No. 29 at ¶ 56 ("Defendants did in fact try to reconcile [A&D's] payment based upon its current receivables .... Rather than honoring the reconciliation provisions, [Ilend] refused to adjust payments and instead commenced this action seeking the full balance plus interest and fees.") with NYSCEF No. 30 at pdf pg. 5 (asserting that there is "no evidence that [A&D] ever requested any reconciliation or adjustment"). At the pleading stage in advance of any discovery, the Court is unable to make a finding on this record about whether A&D sought to engage the reconciliation procedure. That issue must await further factual development through discovery. See CPLR 3211(d) (where "facts essential to justify opposition may exist but cannot then be stated, the court may deny the motion").

Although not yet addressed by the Second Department, some courts analyzing the reconciliation provision have also examined whether the "specified percentage" that is the key metric for triggering reconciliation is a "good faith approximation" of the percentage that the periodic debit amount bears to the merchant's historic cash receipts—as typically required under the terms of the agreement—or instead is an "inflated rate[ ] to ensure [the] merchant[ ] would be unable to adjust [its] payments through the reconciliation process." Yellowstone Capital, 2026 WL 660678, at *7; see also People v. Richmond Capital Group LLC, 246 AD3d 585, 586 (1st Dep't 2026) (holding MCA agreements were "properly characterized as loans subject to restrictions on usury" because, among other things, the "daily payments were fixed and did not represent a good faith estimate of receivables"); Davis v. Richmond Capital Group, LLC, 194 AD3d 516, 517 (1st Dep't 2021) (finding merchant sufficiently alleged that the MCA agreements "were loans subject to usury laws" based on, among other things, an allegation that "the selection of daily payment rates [ ] did not appear to represent a good faith estimate of receivables").⁹

In Yellowstone Capital, the New York Attorney General (NYAG) commenced a special proceeding against a number of funding companies and their owners under Executive Law § 63(12), alleging, among other things, that the respondents' MCA agreements were loans that constituted repeated illegal acts in violation of New York's usury laws.¹⁰ Yellowstone Capital, 2026 WL 660678, at *2. Respondents moved to dismiss the petition, arguing that the NYAG failed to state a claim because the agreements were not illegal usurious loans. Id. at *5. Analyzing the MCA agreements under the three LG Funding factors, the court focused on the NYAG's allegations that the reconciliation provisions were illusory because the respondent funding companies had manipulated the "specified percentages" so that they did not reflect "good faith estimates" of the ratio of debit amounts to past receivables, as the agreements required, but rather were inflated percentages intended to ensure "the prerequisites" to obtaining reconciliation "were nearly impossible to meet."¹¹ Id. at *7.

As is typically the case in MCA agreements—and is the case here—reconciliation is triggered only where the total amount debited under the agreement as of the date of the reconciliation request exceeds the specified percentage of actual revenue collected by the merchant since the agreement went into effect. See id.; NYSCEF No. 21 at ¶ 1.4 (providing reconciliation is triggered "if the amount received by [Ilend] was more than the Purchased Percentage of all revenue of [A&D] since the date of" the Agreement). Multiplying the specified percentage by the actual revenue collected since the agreement went into effect sets the dollar amount, or "bar," which the debited amounts must exceed in order to trigger reconciliation. Inflating the specified percentage raises that "bar," and grossly inflating the specified percentage as the funding companies in Yellowstone Capital were alleged to have done raises the bar so high that it becomes "virtually impossible for [the merchant] to engage in the reconciliation process absent a complete collapse in revenue." Yellowstone Capital, 2026 WL 660678, at *7.

As an example, the court in Yellowstone Capital cited the NYAG's allegation that one funding company entered into an MCA agreement that had a daily debit amount of $208 and a "Specified Percentage" of 49%, with the daily debit amount defined to be a "good faith approximation" of the "Specified Percentage" of the merchant's daily receipts, implying daily receipts of approximately $424 (49% of $424 = $208). Id. The NYAG alleged that, in reality, the daily debit amount of $208 "was roughly between 13% and 18% of [the merchant's] average daily revenue," not 49%. Id. Based on the math, the merchant's daily receipts were actually between $1,156 to $1,600, meaning the "Specified Percentage" was inflated by a factor of more than 2.5 times. In other words, the funding company fraudulently raised the "bar" to trigger reconciliation over 2.5 times higher than it should have been had the "Specified Percentage" reflected a "good faith estimate" of the ratio of debit amounts to actual revenue collected.¹² Id. Accordingly, the court held that the NYAG's allegations "sufficiently alleged that the reconciliation process is purely illusory." Id.

Here, the reconciliation provision in the parties' Agreement operates in precisely the same manner as the MCA agreements targeted by the NYAG in Yellowstone Capital. The daily debit amount, or "Remittance," is represented to be "a good faith estimate" of the "Purchased Percentage" of A&D's daily average revenue during the calendar month prior to the effective date of the Agreement. NYSCEF No. 21 at pdf pg. 1. Under the reconciliation provision, upon A&D's request, the Remittance "shall be decreased if the amount received by [Ilend] was more than the Purchased Percentage of all revenue of" A&D since the effective date of the Agreement. Id. at ¶ 1.4. As in Yellowstone Capital, if the Purchased Percentage is an inflated value rather than a "good faith estimate" of the percentage that the Remittance bears to A&D's historic daily average revenue, then the bar for triggering reconciliation is raised rendering "the reconciliation process purely illusory." Yellowstone Capital, 2026 WL 660678, at *7.

Ilend alleges in its complaint that the Remittance is a "good faith approximation of the [Purchased] Percentage," which defendants deny. See NYSCEF Nos. 20 at ¶ 14; 22 at ¶ 1. Because Ilend must establish as an essential element of its breach of contract claim that it has performed its obligations under the Agreement, including compliance with this "good faith estimate" representation, see U.S. Bank N. A. v. Reddy, 220 AD3d 967, 972 (2d Dep't 2023), defendants' denial is sufficient to place at issue whether the Purchased Percentage is inflated, and therefore whether the reconciliation provision is illusory, see U.S. Bank N.A. v. Nelson, 169 AD3d 110, 113 (2d Dep't 2019) ("[The] mere denial of one or more elements of the cause of action will suffice to place them in issue."). If the record developed through discovery can support a finding that the Purchased Percentage is inflated, then this factor would weigh in favor of finding the parties' MCA transaction to be a loan subject to criminal usury laws.

b) Finite Term

Whether an MCA agreement has a finite term or not is "quintessential" to its "contingent nature." K9 Bytes, 56 Misc 3d at 817. As applied by courts, this second factor has effectively merged with the analysis of the reconciliation provision under the first factor.

Where courts find that the reconciliation provision is not illusory, they invariably hold that the term of the agreement is not finite because the potential adjustment of the periodic debit amount through the reconciliation process necessarily changes the period of time required for the merchant to pay the purchased receivables to the funding company. See True Bus. Funding, 239 AD3d at 788 ("The [funding company] further established, prima facie, that this [reconciliation] clause rendered the term of the agreement indefinite."); Principis Capital, 201 AD3d at 754 ("Concomitantly, as the amount of the monthly payments could change [based on reconciliation], the term of the agreement was not finite."); Spin Capital, 248 AD3d at 1076 ("This [reconciliation] clause rendered the term of the agreement indefinite."). Conversely, where courts find that the reconciliation provision is illusory, they invariably hold that there is "an implied finite term in the agreement" because the periodic debit amount is set to "ensure that [the funding company's] targeted return would be met in a predetermined period of time." Oakshire Properties, LLC v. Argus Capital Funding, LLC, 229 AD3d 1199, 1201 (4th Dep't 2024).

Here, the parties' Agreement specifies that the "Purchased Amount" to be debited from A&D's account is $44,100, and the daily "Remittance" is $490. NYSCEF No. 21 at pdf pg. 1. Dividing the Purchased Amount by the daily Remittance equals exactly 90 payments ($44,100/90 days = $490/day). If the reconciliation provision proves to be illusory, then the Remittance is not subject to adjustment and the Agreement is for a finite term of 90 days, weighing in favor of finding the transaction to be a loan. See Oakshire Properties, 229 AD3d at 1201.

c) Recourse

The third factor under LG Funding is "whether there is any recourse should the merchant declare bankruptcy." LG Funding, 181 AD3d at 666. Recent decisions by the Second Department have addressed this factor by asking whether there is a provision in the MCA agreement "establishing that a declaration of bankruptcy would constitute an event of default." Spin Capital, 248 AD3d at 1076; see also Apollo Funding, 241 AD3d at 1509 (same); Principis Capital, 201 AD3d at 754 (same).

Based on the language of LG Funding, other courts have more broadly examined "whether there is any recourse should the merchant declare bankruptcy," LG Funding, 181 AD3d at 666, even where bankruptcy is not an express event of default, assessing whether the funding company still has recourse to recover where there is repeated nonpayment or some other event of default that might be a consequence of filing for bankruptcy. See Richmond Capital, 246 AD3d at 586. The issue, as formulated by the court in LG Funding, is "whether the [funding company] 'is absolutely entitled to repayment under all circumstances' " because "[u]nless a principal sum advanced is repayable absolutely, the transaction is not a loan." LG Funding, 181 AD3d at 664 (quoting K9 Bytes, 56 Misc 3d at 816).

As the court in Richmond Capital explained, even where bankruptcy is not an express event of default, the merchant's "repeated nonpayment" or "breach of the MCAs" through interruption, suspension, dissolution, or termination of the merchant's business incident to filing for bankruptcy may still provide the funding company the ability "to enforce the personal guarantees they required the merchants to provide" to recover "the full uncollected amount" due under the MCA agreement. Richmond Capital, 246 AD3d at 586; see also Kapitus Servicing, Inc. v. Ragtime Gourmet Corp./Joe-Le Holding Corp., 242 AD3d 638, 638—39 (1st Dep't 2025) (holding the funding company had recourse "as is traditionally the case with a loan" because "payment was guaranteed" by "[t]he personal guaranty executed by" the merchant's owner); Fleetwood Services, LLC v. Richmond Capital Group LLC, No. 22-1885-CV, 2023 WL 3882697, at *2 (2d Cir. June 8, 2023) (summary order) (applying New York law and affirming the district court's ruling that the parties' MCA transaction was a loan because the agreement "provided recourse in the event [the merchant] declared bankruptcy" based on the funding company's ability "to, among other things, collect on personal guaranties").

This is the circumstance under the Agreement here. While bankruptcy is not an express event of default, the Agreement provides that a violation of, or default under, "any term or covenant" of the Agreement is an event of default, as is any "transfer or sale of all or substantially all" of A&D's assets—see NYSCEF No. 21 at ¶ 3.1 (a), (f), (m)—some of which would be likely to occur within the context of a bankruptcy proceeding. If there is an "Event of Default," Ilend may "enforce its rights" under the guaranty, pursuant to which defendant Powell is personally "liable for all amounts owed to [Ilend]." Id. at pdf pg. 6. Notably, while the Agreement provides that A&D "going bankrupt or going out of business, or experiencing a slowdown in business, or a delay in collecting its receivables, in and of itself, does not constitute a breach" of the Agreement, id. at pdf pg. 1 (emphasis added), nowhere does the Agreement state that A&D's conduct otherwise constituting an "Event of Default," such as transferring all or substantially all of its assets or defaulting under any term of the Agreement through non-payment or other conduct, would not constitute a breach or be excused, even if it occurs while A&D goes through the bankruptcy process. Indeed, the phrase "in and of itself" in the above-quoted provision confirms conduct incident to a bankruptcy proceeding that violates the terms of the Agreement would constitute a breach triggering Powell's liability under the Guaranty even though the act of filing for bankruptcy itself would not.

Under the Agreement, the third factor weighs in favor of finding the parties' transaction to be a loan because Ilend has "recourse should [A&D] declare bankruptcy," LG Funding, 181 AD3d at 666, by enforcing the Guaranty executed by Powell to recover "the full uncollected amount" due under the Agreement.¹³ Richmond Capital, 246 AD3d at 586.

***

Based on the three LG Funding factors, A&D's thirteenth affirmative defense asserting a violation of New York's criminal usury law sufficiently pleads a viable defense to Ilend's complaint.

2. Failure to State a Cause of Action

With respect to the defendants' first and eighth affirmative defenses, alleging failure to state a cause of action, "no motion lies under CPLR 3211(b) to strike th[ese] affirmative defense[s] as this amounts to an endeavor by the plaintiff to test the sufficiency of [its] own claim." Lewis v. U.S. Bank N.A., 186 AD3d 694, 697 (2d Dep't 2020); see also Jacob Marion, LLC v. Jones, 168 AD3d 1043, 1044 (2d Dep't 2019) (same). Accordingly, that branch of Ilend's motion seeking dismissal of defendants' first and eighth affirmative defenses is denied. Diversified Bldg. Co., LLC v. Nader Enters., LLC, 243 AD3d 542, 544 (2d Dep't 2025).

3. Failure to Accurately Account for Payments and Amounts in Dispute

Defendants' second and sixth affirmative defenses for failure to accurately account for payments and for dispute over amount survive. Defendants' answer denied the complaint's allegations regarding the amounts due. Compare NYSCEF No. 20 at ¶¶ 25-28, with NYSCEF No. 22 at ¶ 1. Defendants may at this stage challenge the accuracy of the calculation. Diversified Bldg. Co.,, 243 AD3d at543 ("if there is any doubt as to the availability of a defense, it should not be dismissed"). Accordingly, that branch of Ilend's motion seeking to dismiss defendants' second and sixth affirmative defenses is denied.

4. Improper Service

Pursuant to CPLR 3211(e), a defendant pleading improper service must move to dismiss on that basis within 60 days after serving their answer except where extended by the Court due to undue hardship. Failure to move can result in dismissal of the affirmative defense. See Bennardo v. Del Monte Caterers, Inc., 274 AD2d 489, 490 (2d Dep't 2000) ("the Supreme Court should have granted that branch of their motion which was to dismiss the affirmative defense of improper service of process . . . as [defendant] failed to move to dismiss . . . within the time required by CPLR 3211(e)").

Here, defendants filed their answer on April 9, 2026, NYSCEF No. 5, and therefore were required to move to dismiss based on improper service by June 8, 2026. They failed to do so. NYSCEF No. 17. That branch of plaintiff's motion seeking to dismiss defendants' third affirmative defense of improper service is therefore granted.

5. Unclean Hands

That branch of plaintiff's motion seeking dismissal of defendants' fourth affirmative defense of unclean hands is granted because unclean hands "is an equitable defense that is unavailable where, as here, the action is exclusively for damages." Greco v. Christoffersen, 70 AD3d 769, 771 (2d Dep't 2010).

6. Statute of Limitations

That branch of Ilend's motion seeking dismissal of defendants' fifth affirmative defense for untimeliness under the statute of limitations is granted. This action was commenced on March 30, 2026, based on an alleged breach of contract occurring March 27, 2026, under a contract dated March 16, 2026. NYSCEF No. 1 at pdf page 14. There is no plausible basis on which defendants can establish a violation of the six-year statute of limitations under CPLR 213(2). See Ramirez v. Issa, 245 AD3d 848, 850 (2d Dep't 2026) (statute of limitations defense dismissed as "not applicable to the factual circumstances").

7. Failure to Mitigate

Defendants' seventh affirmative defense for failure to mitigate damages survives because Ilend has not met its burden to show the affirmative defense is inapplicable as a matter of law. See Ramirez, 245 AD3d at 849-50. Plaintiff's only support for dismissing this defense is a 2010 decision from New York County which ruled on summary judgment that "failure to mitigate damages ... has no place in an action for breach of contract." Deutsch v. Tober Logistics, Inc., No. 113789/08, 2010 WL 2469976 (Sup. Ct., NY Cnty. Jun. 4, 2010). The Court declines to follow Deutsch to the extent it stands for the proposition that a defendant may not assert failure to mitigate as a defense in a contract action as such a rule is contrary to binding precedent from the Court of Appeals. See, e.g., Holy Properties Ltd., L.P. v. Kenneth Cole Productions, Inc., 87 NY2d 130, 133 (1995) ("The law imposes upon a party subjected to injury from breach of contract, the duty of making reasonable exertions to minimize the injury."). Accordingly, that branch of Ilend's motion seeking to dismiss defendants' mitigation defense is denied.

8. Full Performance

Defendants' ninth affirmative defense of full performance survives. Defendants' answer denied Ilend's allegations in the complaint that defendants defaulted under the contract. Compare NYSCEF No. 20 at ¶ 23, with NYSCEF No. 22 at ¶ 1. This is sufficient to put at issue A&D's full performance. Nelson, 169 AD3d at 113 ("[The] mere denial of one or more elements of the cause of action will suffice to place them in issue."). That branch of plaintiff's motion seeking to dismiss defendants' ninth affirmative defense is denied.

9. Failure to Name a Necessary Party

Defendants' tenth affirmative defense for failure to name a necessary party is dismissed as inapplicable. Ramirez, 245 AD3d at 850. The documents submitted by plaintiff show that all parties to the relevant contracts have been named in this action, and defendants do not point to any missing party.

10. Waiver, Ratification, Res Judicata, Collateral Estoppel, Statute of Limitations, and/or Laches

Finally, defendants' eleventh affirmative defense survives except to the extent it asserts a defense based on the applicable statute of limitations for the reasons already stated above relating to that branch of plaintiff's motion seeking to dismiss defendants' fifth affirmative defense. The viability of defenses based on waiver, ratification, res judicata, collateral estoppel, and laches require further factual development through discovery. Accordingly, that branch of plaintiff's motion seeking to dismiss defendants' eleventh affirmative defense is denied except that portion of the defense based on statute of limitations, which is stricken.

CONCLUSION

It is hereby

ORDERED that the branch of plaintiff Ilend Advance LLC's motion seeking dismissal of defendants A&D Fitness LLC and Chaka Robert Powell's third, fourth, fifth, tenth, and twelfth affirmative defenses and that portion of defendants' eleventh affirmative defense based on statute of limitations is granted; and it is further

ORDERED that the branch of plaintiff Ilend Advance LLC's motion seeking dismissal of defendants A&D Fitness LLC and Chaka Robert Powell's first, second, sixth, seventh, eighth, ninth, and thirteenth affirmative defenses and that portion of defendants A&D Fitness LLC and Chaka Robert Powell's eleventh affirmative defense based on grounds other than statute of limitations is denied; and it is further

ORDERED that defendants A&D Fitness LLC and Chaka Robert Powell's third, fourth, fifth, tenth, and twelfth affirmative defenses and that portion of defendants A&D Fitness LLC and Chaka Robert Powell's eleventh affirmative defense based on statute of limitations are dismissed; and it is further

ORDERED that plaintiff Ilend Advance LLC shall serve a copy of this decision and order with notice of entry on defendants within ten (10) days of the date hereof.

E N T E R:

Dated: October 30, 2026

Brooklyn, New York

Hon. Andrew S. Amer, A.J.S.C.

FOOTNOTES

1.   Searching the phrase "merchant cash advance transaction" in the nationwide state Westlaw database yields 199 decisions of which 54, or 27%, are in New York.

2.    See, e.g., Kapitus Servicing, Inc. v. Suburban Waste Services, Inc., 246 AD3d 661, 662 (1st Dep't 2026); Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC, 220 AD3d 745, 747 (2d Dep't 2023).

3.    See, e.g., Apollo Funding Co. v. Dave Reilly Constr., LLC, 241 AD3d 1508 (2d Dep't); Bridge Funding Cap LLC v. SimonExpress Pizza LLC, 240 AD3d 1186 (4th Dep't 2025).

4.    See, e.g., Kapitus Servicing, Inc., 246 AD3d at 661; Bridge Funding Cap LLC v. SimonExpress Pizza LLC, 240 AD3d 1186, 1188 (4th Dep't 2025), leave to appeal denied, 243 AD3d 1379 (4th Dep't 2025). LG Funding has also been followed by federal courts and state courts outside New York. See, e.g., Fleetwood Services, LLC v. Richmond Capital Group LLC, No. 22-1885-CV, 2023 WL 3882697, at *2 (2d Cir. June 8, 2023) (summary order); Mazzoni Ctr. v. LCF Group, Inc., No. CV 24-5921-KSM, 2024 WL 4821475, at *7 (E.D. Pa. Nov. 18, 2024); Lendr.Online, LLC v. Copeland, 378 Ga. App. 372, 375 (Ga. App. 2026).

5.   Searching the phrase "merchant cash advance transaction" in the New York Westlaw database yields 51 decisions issued in the past decade, of which 24, or roughly half, are venued in the Second Department.

6.   "The Duck Test holds that if it walks like a duck, swims like a duck, and quacks like a duck, it's a duck." Lake v. Neal, 585 F.3d 1059, 1059 (7th Cir. 2009); see also Garland v. Cargill, 602 U.S. 406, 430 (2024) (Sotomayor, J., dissenting) ("When I see a bird that walks like a duck, swims like a duck, and quacks like a duck, I call that bird a duck."); Dole v. Williams Enterprises, Inc., 876 F.2d 186, 188 n.2 (D.C. Cir. 1989) (adopting the "now-infamous 'duck-test,' dressed up in appropriate judicial garb: 'WHEREAS it looks like a duck, and WHEREAS it walks like a duck, and WHEREAS it quacks like a duck, WE THEREFORE HOLD that it is a duck.' ").

7.   The Court has reviewed the following papers in connection with determining this application: NYSCEF Nos. 17-22, 26-30.

8.   In their opposition to the motion, defendants specifically argue "that they should be given the opportunity to conduct essential discovery relating to the issues raised" by Ilend's motion. NYSCEF No. 29 at ¶ 9.

9.   "Numerous courts have found that the repayment flexibility ostensibly built into an MCA's reconciliation provision is illusory, based on a finding that reconciliation was either wholly discretionary on the part of the funder, tied to other contractual provisions that make it unachievable, subject to unreasonable temporal limits, or otherwise compromised by the fine print." Kara Bruce, Desperation Finance: Merchant Cash Advances in Bankruptcy and Beyond, 42 Emory Bankr. Dev. J. 1, 28 (2026) (emphasis added) (footnotes omitted).

10.   On January 16, 2026, the court in Yellowstone Capital entered a Consent Order and Judgment resolving the claims in the petition against 25 of the respondent funding companies. See Yellowstone Capital, Index No. 450750/2024 at Docket No. 642 (Consent Order). Under the Consent Order, the court (i) entered judgment against the settling respondents for just over $1 billion, (ii) cancelled debts totaling approximately $535 million payable under the settling respondents' MCA agreements, (iii) ordered the settling respondents to cease all efforts to recover the cancelled debt, (iv) ordered the settling respondents to vacate all judgments obtained against merchants under their MCA agreements and discontinue with prejudice any pending court action to enforce their MCA agreements, and (v) barred the settling respondents from engaging in any MCA business. Consent Order at ¶¶ 5, 7-9, 11-13, 16.

11.   The NYAG's petition included as an exhibit a text message exchange between respondents stating "[i]f funders don['t] want [to issue refunds], they can [m]ake the specified [percentage] high." Yellowstone Capital, 2026 WL 660678, at *7 (quoting NYSCEF No. 371 on the Yellowstone Capital docket, Index No. 450750/2024).

12.   To better understand the impact that an inflated specified percentage has on a merchant's ability to obtain reconciliation, consider as an example if the Yellowstone Capital merchant had actual daily revenue of $1,500 in the months prior to the effective date of the agreement, with the same daily debit of $208 and Specified Percentage of 49%. After three months, the total amount debited from the merchant's account would be approximately $18,720 ($208/day x 90 days). Assume that the merchant's average daily revenue dropped by 25% to $1,125 during these same three months, for a total revenue during the three-month period of $101,250 ($1,125/day x 90 days), prompting the merchant to request reconciliation. Notwithstanding the significant decrease in revenue, the merchant would not meet the prerequisite for obtaining reconciliation because the total amount debited ($18,720) does not exceed 49% of $101,250, or $49,612.50. In fact, the total revenue for the three-month period would need to fall drastically—below $38,205—to trigger reconciliation based on the debited amount of $18,720. That would represent a decrease in cash flow of more than 70%, or "a complete collapse in revenue." Yellowstone Capital, 2026 WL 660678, at *7. This example illustrates how inflating the specified percentage by a factor of two or more raises the "bar" that the debit amount must exceed so high that triggering reconciliation becomes virtually impossible.

13.   "MCAs provide recourse beyond the actual receivables purchased through general recourse against the small business's owner-guarantor by virtue of the operation of the warranties made within the contract. A personal guaranty by the small business's owner is standard in MCA contracts. The pervasiveness of recourse beyond the actual receivables indicates that MCAs are loans, not true sales." Adam J. Levitin, Predatory Small-Business Lending: Market and Regulatory Failures, 42 Yale J. on Reg. 732, 765—66 (2025) (footnotes omitted).

Andrew S. Amer, J.