Court Holds Percentage-Based Attorneys’ Fees Stacked Across Merchant Cash Advance Agreement And Settlement Stipulation Unconscionable

Posted: May 29, 2026 / Written by: Samuel L. Butt, Ian Weiss, Thomas A. Kissane, Channing J. Turner / Categories Breach of Contract, Contract Interpretation, Commercial

Court Holds Percentage-Based Attorneys’ Fees Stacked Across Merchant Cash Advance Agreement And Settlement Stipulation Unconscionable

On May 5, 2026, in Samson MCA LLC v. DI Construction. LLC, Index No. E2024019427, Justice Daniel J. Doyle denied plaintiff’s motion under CPLR 3215(i) for entry of a default judgment and refused to enforce the parties’ stipulation of settlement. Plaintiff, a merchant cash advance funder, had purchased defendants’ future receivables under an agreement providing for attorneys’ fees calculated at 30% of the unremitted purchased amount. After defendants allegedly defaulted, the parties entered into a stipulation of settlement that incorporated those fees into the settlement balance and separately provided for an additional 25% in attorneys’ fees on the unpaid indebtedness in the event of a further default. The Court held that the stacked percentage-based attorneys’ fees provisions in both the underlying agreement and the settlement stipulation were procedurally and substantively unconscionable, and refused to enforce them. In denying the motion, the Court explained:

The terms of the agreements between these parties (at least insofar as it relates to attorneys’ fees) are grossly unreasonable and favorable to Plaintiff at the expense of Defendants. When Defendants (admittedly) defaulted on the initial Agreement, the balance due was $351,879.00. In seeking out a Stipulation of Settlement with Defendants, Plaintiff included in that balance $105,563.70 in attorneys’ fees. That brought the amount set forth in the Stipulation of Settlement to $457,442.70. Upon the default on the Stipulation of Settlement, Plaintiff came to this Court seeking a default judgment which would add in another 25% in attorneys’ fees on the balance due ($113,453.92). In all, Plaintiff throughout this transaction seeks to charge Defendants with $219,017.62 in attorneys’ fees on the original balance of $351,879.00. This is an agreement that “no promisor (absent delusion) would make on the one hand and no honest and fair promisee would accept on the other.” King, 7 NY3d at 191. (Footnotes omitted).

The attorneys at Schlam Stone & Dolan LLP have extensive experience litigating complex commercial disputes, including matters concerning the enforceability of contractual provisions and the unconscionability defense. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.