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What We Learned Researching Motions to Vacate in MCA Cases

A comprehensive research guide on vacating default judgments in MCA cases, covering CPLR 5015, CPLR 317, emergency TROs, and meritorious defenses like usury.

Tommy EberleTommy Eberle

MCA defense attorneys we talk to keep bringing up motions to vacate. As of writing this article, DocketDrafter generates answers and discovery demands for MCA defense attorneys in minutes. We want to do the same with these motions. I decided to research how these work in detail. This process looked like:

  • Find as many real motions to vacate default judgment in MCA cases as possible in NYSCEF
  • Get a list of all the most commonly cited statutes, rules and cases that attorneys actually use
  • Download all commonly cited statutes, rules and cases
  • Use an AI agent (in this case, Claude code) to read through all the primary sources and synthesize its findings

This article is the end product of this research. I made sure to include clickable links to all the citations so you can verify them yourself. I'm not an attorney and this is NOT legal advice, but I think MCA defense attorneys will find this helpful. Send an email to tommy@docketdrafter.com with any comments. If you file a lot of motions to vacate default judgments in MCA cases I'd love to hear your thoughts.

How Default Judgments Are Entered

Under CPLR 3215, when a defendant fails to appear, plead, or proceed to trial, the plaintiff may seek a default judgment. For claims involving a sum certain, the clerk can enter judgment without judicial review of the merits. The plaintiff need only file proof of service and proof of the facts constituting the claim.

This creates a one-sided proceeding. When an out-of-state merchant first learns of an MCA lawsuit through a frozen bank account or wage garnishment, a default judgment may already be in place.

CPLR 5015: Relief from Judgment

The primary vehicle for vacating a default judgment is CPLR 5015, which provides that a court "may relieve a party from [a judgment] upon such terms as may be just" on several grounds.

Excusable Default Under 5015(a)(1)

CPLR 5015(a)(1) permits relief for "excusable default" if the motion is made within one year of service of the judgment with notice of entry. A defendant must demonstrate both a reasonable excuse for the default and a meritorious defense to the action.

The Court of Appeals addressed this standard in Eugene Di Lorenzo, Inc. v. A.C. Dutton Lumber Co. (1986). There, a corporation failed to receive the summons because it had not updated its address with the Secretary of State. The Court held that "a court should consider, among other factors, the length of time for which the address had not been kept current" when evaluating whether a default was excusable.

Fraud or Misconduct Under 5015(a)(3)

CPLR 5015(a)(3) permits vacatur on grounds of "fraud, misrepresentation, or other misconduct of an adverse party." Unlike 5015(a)(1), there is no time limit for this motion.

In CDR Créances S.A.S. v. Cohen (2014), the Court of Appeals held that fraud on the court must be established by "clear and convincing evidence" showing that the party "acted knowingly in an attempt to hinder the fact finder's fair adjudication of the case." The conduct must concern "issues that are central to the truth-finding process."

Examples in MCA cases might include concealment of payments received, failure to disclose the operative contract, or misrepresentation of amounts owed.

CPLR 317: Defense by Person Not Personally Served

CPLR 317 provides an alternative to CPLR 5015(a)(1). It states:

"A person served with a summons other than by personal delivery to him ... who does not appear may be allowed to defend the action within one year after he obtains knowledge of entry of the judgment ... upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense."

The critical distinction: CPLR 317 does not require showing an "excusable" default. The defendant need only show (1) lack of personal receipt of the summons in time to defend, and (2) a meritorious defense.

As the Court of Appeals explained in Eugene Di Lorenzo:

"There is no necessity for a defendant moving pursuant to CPLR 317 to show a 'reasonable excuse' for its delay.... It is also well established that service on a corporation through delivery of process to the Secretary of State is not 'personal delivery.'"

This makes CPLR 317 particularly valuable for out-of-state defendants served through substitute service methods.

The Court also held that courts have discretion to consider CPLR 317 even when a defendant cites only CPLR 5015(a) in its motion papers.

The Meritorious Defense Requirement

Both CPLR 5015(a)(1) and CPLR 317 require a showing of "meritorious defense." The standard is not onerous: the defense need not be certain to prevail, only that it is not patently frivolous.

As the Appellate Division noted in Harris v. City of New York (AD2d 2006), "public policy favors the resolution of cases on their merits, and courts have broad discretion to grant relief from pleading defaults where the defaulting party has a meritorious claim or defense, the default was not willful, and the opposing party is not prejudiced."

MCA-Specific Meritorious Defenses

Several defenses have emerged in MCA litigation that may satisfy the meritorious defense requirement.

The Loan-vs.-Receivables-Purchase Defense

MCA agreements are typically structured as purchases of future receivables. If the transaction is recharacterized as a loan, usury laws may apply.

In LG Funding, LLC v. United Senior Props. of Olathe, LLC (AD2d 2020), the Appellate Division identified three factors courts weigh in determining whether repayment is absolute (making the agreement a loan) or contingent (making it a true receivables purchase):

  1. Reconciliation provision: Does the agreement permit the merchant to request adjustment of daily payments based on actual revenue?
  2. Finite term: Does the agreement have a fixed repayment period?
  3. Bankruptcy recourse: Does the funder have recourse if the merchant files for bankruptcy?

The court in LG Funding noted that a reconciliation provision stating the funder "may, upon [the merchant's] request, adjust the amount of any payment due under this Agreement at [its] sole discretion" suggests the merchant's repayment obligation is absolute, not contingent. The court denied the funder's motion to dismiss the usury defense.

Criminal Usury

If an MCA is recharacterized as a loan, the criminal usury rate of 25% applies to corporate borrowers. In Adar Bays, LLC v. GeneSYS ID, Inc. (2021), the Court of Appeals held that a loan exceeding the criminal usury rate is "void ab initio"—that is, void from inception—making both principal and interest uncollectible.

The Court traced New York's usury laws back to 1717 and concluded:

"The text, history, and purpose of New York's usury laws demonstrate that, if the borrower establishes the defense of usury in a civil action, the usurious loan transaction is deemed void and unenforceable, resulting in the uncollectability of both principal and interest."

Waiver and Estoppel

Where a funder has accepted reduced or modified payments without objection, the merchant may raise waiver or estoppel as a defense. In Nassau Trust Co. v. Montrose Concrete Products Corp. (1982), the Court of Appeals reiterated the established rule:

"A mortgagor is bound by the terms of his contract as made and cannot be relieved from his default, if one exists, in the absence of waiver by the mortgagee, or estoppel, or bad faith, fraud, oppressive or unconscionable conduct on the latter's part." (Ferlazzo v. Riley, 278 N.Y. 289 [1938])

The Court distinguished between contract modification (which requires consideration) and waiver (which requires only "the voluntary and intentional abandonment of a known right").

Emergency Relief: TROs and Preliminary Injunctions

When a defendant has a frozen bank account or faces imminent enforcement, a motion to vacate alone may be insufficient. CPLR 6301 provides for preliminary injunctions and temporary restraining orders.

The Three-Prong Standard

To obtain a preliminary injunction, a party must demonstrate:

  1. Probability of success on the merits
  2. Danger of irreparable injury in the absence of an injunction
  3. Balance of equities in the movant's favor

As the Court of Appeals stated in Nobu Next Door, LLC v. Fine Arts Housing, Inc. (2005), the decision to grant or deny provisional relief is "ordinarily committed to the sound discretion of the lower courts" (see also Aetna Insurance v. Capasso [1990]).

Irreparable Harm

Frozen bank accounts, inability to meet payroll, and the destruction of an ongoing business may constitute irreparable harm. Money damages alone generally do not—but when a business cannot operate and faces closure, courts have found irreparable injury present.

TROs Without Notice

Under CPLR 6313, a TRO may be granted "without notice" if the plaintiff shows "that immediate and irreparable injury, loss or damages will result unless the defendant is restrained before a hearing can be had."

The Undertaking Requirement

CPLR 6312(b) requires the plaintiff to "give an undertaking in an amount to be fixed by the court" before a preliminary injunction is granted. The undertaking protects the defendant if the injunction is ultimately determined improper. For TROs, CPLR 6313(c) provides that the court "may, in its discretion" require an undertaking.

Motion vs. Order to Show Cause

A motion to vacate can be brought either by notice of motion or by order to show cause.

Notice of motion: Regular briefing schedule with a return date. Appropriate when there is no urgency.

Order to show cause: The court sets the schedule directly and may include interim relief. Critical when enforcement is imminent, because the OSC can include a stay of enforcement or restraint on bank accounts pending determination of the motion.

An OSC combined with a request for TRO represents the most aggressive procedural posture—seeking both vacatur of the judgment and immediate restraint on enforcement.

Practical Considerations

Act quickly. The one-year limits under CPLR 5015(a)(1) and CPLR 317 run from notice of judgment entry. More importantly, assets may be depleted or businesses destroyed while waiting.

Papers to prepare:

  • Proposed Order to Show Cause (with TRO language if seeking emergency relief)
  • Client affidavit establishing the factual basis for the defense
  • Attorney affirmation
  • Memorandum of law
  • Proposed answer to file nunc pro tunc

Strategic choices depend on the facts: the urgency of enforcement, the strength of "no notice" arguments versus "excusable default" arguments, evidence of funder misconduct, and the nature of available defenses.

Conclusion

Multiple procedural tools exist for challenging MCA default judgments. CPLR 317 and CPLR 5015 provide paths to vacatur, while CPLR Article 63 offers emergency relief. The appropriate tool depends on the circumstances.

Courts have consistently recognized that public policy favors resolution on the merits. As the Appellate Division observed in Harris: "public policy favors the resolution of cases on their merits."

This article provides general legal information and is not legal advice. Attorneys should conduct independent research and analysis for specific cases.