Williams Land Clearing, Grading, and Timber Logger v. Apex Funding Source, LLC
23-00024
Bankr. E.D.N.C.May 16, 2025Background
- Williams Land Clearing, Grading, and Timber Logger, LLC (Williams Land) entered Chapter 11 and initiated an adversary proceeding related to funds advanced through a Merchant Cash Advance (MCA) Agreement with Apex Funding Source LLC (Apex); CFI, a secured creditor, intervened.
- Williams Land previously assigned a security interest in all its assets, including receivables, to CFI, and later entered into the MCA Agreement with Apex, which also claimed a lien without checking for prior liens.
- Apex received payments from Williams Land and directly from its customer, Domtar, pursuant to an MCA Agreement and subsequent Stipulation of Settlement; some payments occurred within the 90-day bankruptcy preference period.
- The legal dispute centers on whether the MCA Agreement was a true sale or a disguised, usurious loan under New York law and whether payments made under that agreement are avoidable in bankruptcy as preferences or fraudulent transfers.
- CFI also claimed conversion and tortious interference regarding payments to Apex, asserting its senior security interest over Apex’s claims.
- The Bankruptcy Court considered cross-motions for summary judgment, addressing the nature of the MCA Agreement, applicability of usury/voidance, and ownership and priority of liens in the context of both bankruptcy and New York law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the MCA Agreement a loan or sale? | MCA is a loan, not a sale, thus subject to usury laws | MCA is a true sale, so usury laws inapplicable | Agreement is a loan, not a sale, as a matter of law |
| Is the loan void as criminally usurious under NY law? | Effective rate exceeds 25%; agreement is void ab initio | Usury defense unavailable to corporations; agreement valid | Agreement is void as criminally usurious under NY law |
| Were payments avoidable fraudulent transfers? | Payments should be avoided because no value was given under void MCA | No debtor interest transferred since MCA was a sale | Payments not avoidable; Williams Land received value |
| Was the Domtar payment an avoidable preference? | $30,159.42 paid within 90 days is an avoidable preference | Payment was in ordinary course or not debtor’s property | Payment is an avoidable preference under § 547 |
| Are unfair/deceptive trade practice claims barred? | Apex’s practices were unfair/deceptive regardless of settlement | Stipulation of Settlement released all such claims | Claim partially survives; some allegations proceed to trial |
| Does CFI have claim for conversion or declaratory judgment? | Apex converted CFI’s collateral by accepting funds from Domtar | No present possessory right or demand by CFI; no conversion | CFI’s claims for conversion and declaratory relief denied |
| Personal liability of Mr. Klein | Asserted claims for liability as Apex’s attorney/representative | No evidentiary support for claims | All claims against Mr. Klein dismissed |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standards)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment, standard for genuine disputes)
- Adar Bays, LLC v. GeneSYS ID, Inc., 179 N.E.3d 612 (consequences of criminal usury under NY law)
- Fleetwood Servs., LLC v. Richmond Cap. Grp. LLC, 620 F. Supp. 3d 524 (substance over form in true sale vs. loan analysis under NY law)
- LG Funding, LLC v. United Senior Props. of Olathe, LLC, 122 N.Y.S.3d 309 (three-factor test for MCA characterization under NY law)
- Hardy v. Toler, 288 N.C. 303 (fact/law roles in jury trials under NC UDTPA)