MCA Confession of Judgment Defense

The confession of judgment was the preferred instrument of the merchant cash advance industry for a reason that had nothing to do with law and everything to do with velocity. A business owner signed a document at origination. That document authorized a court clerk to enter a judgment against the signer without notice, without hearing, without the ordinary procedural apparatus of contested litigation. The funder filed the confession in a New York county of its choosing. The clerk stamped it. The judgment existed. Bank accounts froze. Assets became encumbered. The merchant learned of the proceeding only after it had concluded.

That sequence no longer operates without constraint. But the confession of judgment has not been abolished. It has been restricted, contested, and in certain configurations voided. The distinction between those outcomes determines whether a business owner carries an enforceable obligation or holds a defense that extinguishes it.

The Statutory Prohibition and Its Perimeter

On August 30, 2019, Governor Cuomo signed Senate Bill S6395 into law, amending CPLR Section 3218. The amendment prohibits the filing of a confession of judgment in New York against any defendant who does not reside in the state. The legislation responded to a specific factual record. Between 2014 and 2018, MCA funders filed more than 25,000 confessions of judgment in New York courts, totaling an estimated $1.5 billion in obligations imposed on business owners in Texas, Florida, California, and dozens of other states where the merchant had no connection to New York whatsoever. Bloomberg Businessweek documented the practice in its 2018 series, which won the Taylor Family Award for Fairness in Journalism. The legislative response arrived within a year.

The prohibition is jurisdictional. It voids confessions filed against out-of-state defendants. It does not reach New York-domiciled merchants. A business operating from Brooklyn or the Bronx or Buffalo remains subject to the full mechanism. The funder includes the confession in the origination documents. The merchant signs it, often without independent counsel, often without understanding that the document eliminates the right to contest the obligation before any court. When default occurs, the filing proceeds as it did before the amendment. The clerk accepts it. The judgment enters.

Senate Bill S2305, introduced in the 2025 legislative session, proposes to extend protection to individuals and to transactions below certain thresholds. The bill has not passed. For New York merchants in the present term, the confession remains a live instrument in the funder’s collection apparatus.

Vacatur and the Procedural Requirements of Section 3218

The statute imposes formal requirements that funders routinely fail to satisfy. CPLR Section 3218 requires that the confession be executed by the defendant with a notarized “wet ink” signature. The affidavit must identify the county where the defendant resided at the time of execution or at the time of filing. The confession must be filed within three years of its execution. Any deviation from these requirements renders the filing defective.

In Porges v. Kleinman, decided January 16, 2024, Justice Ruchelsman of the Kings County Commercial Division held a confession of judgment unenforceable because the affidavit failed to identify the signor’s residence as the statute requires. The defect was formal. The consequence was total. In Capitalize Group LLC v. Empire Core Group LLC, decided September 9, 2025, Justice Jamieson of the Westchester County Commercial Division established that vacatur of a confession requires a plenary action rather than a motion. That procedural holding matters. It means the merchant must commence a separate proceeding to challenge the confession, a requirement that imposes cost but also confers the full evidentiary machinery of litigation.

These are not theoretical defenses. MCA agreements are produced in volume. The origination process is fast. Documents are generated from templates. Errors in the confession, in the notarization, in the county designation, in the timing of the filing occur with regularity. Each error constitutes a ground for vacatur.

Domestication Across State Lines

A New York judgment, including one obtained by confession, can be filed in other states under the Uniform Enforcement of Foreign Judgments Act. The funder obtains the confession in New York, then domesticates it in the state where the merchant operates. Once domesticated, the judgment functions as though a local court had entered it. Bank levies and asset liens follow.

The domestication process is not automatic. It requires filing in the receiving state, and the merchant retains the right to challenge the foreign judgment on several grounds. Lack of personal jurisdiction over the defendant in the originating court is the primary objection. Where the 2019 amendment to CPLR 3218 prohibited the filing against a non-resident, a judgment obtained in violation of that prohibition lacks jurisdictional foundation. The receiving state has no obligation to enforce it. Florida courts have recognized challenges to domesticated judgments on grounds of fraud, unconscionability, and violation of public policy. California, which has not adopted the Uniform Act, imposes its own independent requirements for recognition of sister-state judgments.

The temporal dimension deserves attention. Confessions filed before August 30, 2019, against out-of-state defendants were not prohibited at the time of filing. Their domestication in other states may proceed on the theory that the judgment was valid when entered. Confessions filed after that date against non-residents are void ab initio. The domestication of a void judgment transfers nothing.

Recharacterization and the Destruction of the Underlying Obligation

A confession of judgment derives its authority from the obligation it purports to enforce. Where the obligation itself is void, the confession falls with it. This is where the recharacterization doctrine intersects the confession of judgment defense and produces the most consequential results.

New York courts apply a three-factor test to determine whether an MCA agreement constitutes a loan subject to usury statutes rather than a purchase of future receivables. The factors are the presence of a reconciliation provision, the existence of a finite repayment term, and recourse upon the merchant’s insolvency. In Oakshire Properties, LLC v. Argus Capital Funding, LLC, decided July 26, 2024, the Fourth Department of the Appellate Division held that daily payment amounts set to ensure the funder’s targeted return within a predetermined period, rather than calculated from actual sales percentages, established an implied finite term. The agreement granted the funder discretion to continue withdrawals even when the daily amount exceeded the merchant’s sales, creating a mechanism to manufacture default and accelerate the entire balance. The court sustained the merchant’s claims for fraudulent inducement and usury.

In Funding Metrics, LLC v. D&V Hospitality, Inc., the Westchester County Supreme Court vacated a confession of judgment and voided the MCA agreement as criminally usurious. The funder had failed to adjust daily withdrawals when the merchant’s revenue collapsed during Hurricane Matthew. The reconciliation provision existed in the contract text. It had never been honored in practice. Justice Borrok, in the related People v. Richmond Capital Group proceedings, observed that MCA funders invoking reconciliation clauses “either admit that mandatory reconciliation never occurred or invoke the Fifth Amendment privilege against self-incrimination.” The word that recurs across these decisions is “illusory.” The provision appears. The mechanism does not function.

When an MCA agreement is recharacterized as a loan and the effective annual rate exceeds 25%, the transaction violates New York’s criminal usury statute. The agreement is void. Not voidable. Void. A confession of judgment entered on a void obligation possesses no legal force. The vacatur that follows is not discretionary.

The Yellowstone Precedent and Its Collateral Effects

On January 22, 2025, Attorney General Letitia James announced a $1.065 billion settlement against Yellowstone Capital and 25 affiliated entities. The settlement cancelled over $534 million in outstanding merchant obligations. More than 1,100 judgments against New York businesses were vacated. Over 18,000 merchants received debt discharge. The principals were banned from the industry.

The Yellowstone settlement produced effects beyond the parties. Where a funder’s practices have been adjudicated as predatory in a state enforcement action, the evidentiary record becomes available to other defendants. Merchants carrying confessions of judgment from Yellowstone affiliates now hold a $1 billion administrative finding confirming the nature of those agreements. That confirmation converts what would have been contested litigation into a far simpler vacatur proceeding. The confession rested on an agreement that the state has declared void. The confession follows.

Before Yellowstone, the Attorney General secured a $77 million judgment against Richmond Capital Group, Ram Capital Funding, and Viceroy Capital Funding in February 2024. The pattern of enforcement is accelerating. Each action generates precedent and evidentiary material that merchants in private disputes can invoke.

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The Architecture of a Defense

A merchant who discovers a confession of judgment has been filed against the business faces a sequence of decisions that must proceed in a specific order. The first determination is jurisdictional. If the merchant is not a New York resident and the confession was filed after August 30, 2019, the filing violates CPLR 3218 and is voidable on that ground alone. The second determination is procedural. The confession must satisfy the formal requirements of the statute. Defects in execution, notarization, residency identification, or timing each constitute independent grounds for vacatur.

The third and most consequential determination is substantive. The agreement underlying the confession must be examined for recharacterization. Fixed daily withdrawals, absence of functional reconciliation, full personal recourse upon insolvency, and effective annual rates exceeding the criminal usury threshold transform the MCA from a protected receivables purchase into a void loan. The confession entered on a void agreement is itself void.

Where the confession has been domesticated in another state, the defense extends to that jurisdiction. A motion to vacate the domesticated judgment on jurisdictional or public policy grounds halts enforcement in the state where the merchant operates.

Each of these defenses requires affirmative assertion. Confessions of judgment are not self-correcting. A void confession remains on the record until a court vacates it. The bank account remains frozen until an order releases it. The defense exists. It demands execution.

Spodek Law Group represents business owners in confession of judgment vacatur proceedings, MCA recharacterization litigation, and domesticated judgment challenges in state and federal courts. The firm handles these matters across New York and in jurisdictions nationwide where funders have attempted to enforce confessions obtained in violation of statutory prohibitions. A consultation establishes the specific terms of the agreement, the procedural history of the confession, and the available grounds for relief.

Contact the firm at (888) 535-3686 or at info@spodeklawgroup.com.