On September 20, 2022, the U.S. District Court for the Southern District of New York dismissed affirmative claims based on allegations of usury. In May 2021, the plaintiffs and the defendant entered into a funding agreement pursuant to which the defendant purchased approximately $200,000 of plaintiff’s future receipts for $150,000. The funding agreement was structured so that the corporate plaintiff would sell 15% of its future receipts, which would be automatically withdrawn from plaintiff’s bank account on a daily basis. So that the parties would not have to calculate the precise dollar amount on a daily basis, the funding agreement provided that plaintiff would make a payment of a fixed dollar amount on a daily basis, with a right to reconcile after each month. Within six weeks of entering into the funding agreement, the plaintiffs filed a lawsuit in state court against defendant seeking to invalidate the funding agreement.

The plaintiffs asserted claims for rescission of the funding agreement as unconscionable due to usury and for a declaration that the funding agreement was usurious and, accordingly, unenforceable. After the lawsuit was removed to federal court, the defendant filed a motion to dismiss, arguing that New York law prohibited the plaintiffs from asserting affirmative claims against the defendant on the basis of usury. The district court agreed. While a corporation may assert usury as an affirmative defense to invalidate a debt instrument, the district court found that New York courts uniformly have held that the usury statute does not permit affirmative claims or counterclaims. The plaintiffs were thus barred from bringing their usury-based claims. Separately, the court also concluded that, even if the plaintiffs could have brought affirmative usury claims, the claims failed as a matter of law because the funding agreement was not a loan, and usury can only be asserted in connection with a loan.

The case is Streamlined Consultants, Inc. v. EBF Holdings LLC, No. 21-cv-9528 (S.D.N.Y. Sept. 20, 2022). The plaintiffs are represented by Levenson Law Group. The defendant is represented by Proskauer Rose LLP. The order is available here.