Background
Blade Funding entered into three merchant agreements with North Carolina-based Build Retail and its principal, James Wesley Cashwell. Blade advanced money in exchange for specified portions of Build Retail’s future receivables at discounted purchase prices. After the merchant defendants stopped performing, the parties resolved Blade’s contract claims through a written settlement. The settlement established a payment schedule and authorized entry of judgment for the remaining balance, without another application to the court, if the defendants missed their payments.
The defendants made none of the required settlement payments. A clerk’s judgment was then entered for $2,419,778.17. They moved to vacate both the settlement and judgment, arguing in part that the judgment used the name “Blade Funding LLC” instead of Blade Funding Corp., that New York lacked jurisdiction over the out-of-state parties, that the settlement resulted from fraud, and that the underlying transactions were criminally usurious loans rather than true receivables purchases. Supreme Court rejected those arguments, and the defendants appealed.
The Court’s Holding
The Second Department affirmed. The caption error did not affect a substantial right and caused no demonstrated prejudice, so CPLR 2001 and 5019(a) permitted the court to disregard it. New York also had jurisdiction under General Obligations Law § 5-1402 because the agreements selected New York law, submitted the parties to New York courts, and covered transactions exceeding $1 million. That statute allows qualifying disputes involving foreign corporations or nonresidents to proceed here even when the parties and much of the transaction are elsewhere.
The court also refused to undo the settlement. New York strongly favors negotiated settlements, and the defendants—who had counsel during the negotiations—did not establish fraud, duress, overreaching, or unconscionability. On usury, the panel applied the controlling question: whether the funder was absolutely entitled to repayment in all circumstances. The agreements contained reconciliation provisions that adjusted weekly payments to actual receipts, had no finite term, and did not make bankruptcy an event of default. Build Retail would not remain liable for an outstanding balance if bankruptcy occurred. Taken together, those features made repayment contingent and characterized the transactions as purchases of future receivables, not loans subject to criminal-usury limits.
Key Takeaways
- A receivables agreement is not a loan when repayment genuinely varies with receipts and the funder bears the risk that receivables may never materialize.
- Reconciliation rights, an indefinite term, and the absence of bankruptcy recourse remain the three central indicators in New York’s merchant-cash-advance analysis.
- New York forum and choice-of-law provisions are enforceable in qualifying transactions above $1 million under General Obligations Law § 5-1402.
Why It Matters
The decision gives funders, merchants, restructuring professionals, and commercial litigators a practical checklist for testing whether a merchant-cash-advance structure will be treated as a sale or a disguised loan. Contract language alone is not enough; the provisions must leave the funder exposed to the merchant’s actual receivables performance. Reconciliation cannot be illusory, the term cannot operate as an absolute maturity date, and bankruptcy cannot automatically trigger full recourse.
The settlement ruling is equally important. A represented business that resolves a dispute and authorizes judgment after default faces a steep burden when it later seeks to escape the bargain. Parties negotiating these agreements should document the operation of reconciliation, avoid fixed repayment mechanics inconsistent with a purchase, and scrutinize confession or settlement remedies before signing. A technical caption mistake will not ordinarily displace an otherwise valid multimillion-dollar judgment without real prejudice.
The jurisdiction holding also reinforces New York’s role as a chosen forum for large commercial transactions. Out-of-state counterparties should not assume that a lack of local operations defeats suit when their agreements satisfy the statutory dollar threshold and contain New York law and forum clauses. Transaction counsel should confirm that related agreements are counted in the aggregate, use consistent entity names, and ensure that settlement papers preserve the chosen forum and accurately describe the purchased receivables.
Before enforcement, counsel should test the transaction against how it actually operated: whether reconciliation requests were honored, whether debits tracked receipts, and whether default provisions converted contingent payment into an absolute obligation. Merchants should preserve bank statements and reconciliation communications; funders should preserve underwriting and servicing records. Those facts can matter more than the agreement’s labels. Settlement counsel should also calculate the full default judgment, confirm authority to settle, and explain the consequences of missed payments in writing before executing a stipulated remedy.