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FORWARD FINANCING LLC

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Plaintiff,
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CIVIL ACTION NO 16-3332-D
Consolidated with 16-2522, 16-2523
- _. NRO BOSTON, LLC
7) 5S dlb/a North River Outfitter
{:-~and ALICE INDELICATO
It) gS Defendants.

eJj) FORWARD FINANCING'S MOTION FOR SUMMARY JUDGI\IIENT

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~ NOW comes Plaintiff/Counter-Defendant Forward Financing, LLC ("Forward

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Financirig"). pursuant to Mass. R. Civ. P. 56, and respectfully requests that this Court enter

td- summary judgment in its favor on the grounds that (1) the Future Receipts Sale Agreements do

( ~ not constitute loans as a matter of law and therefore are not subject to the Massachusetts usury
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...,..--: statute (Mass. G.L. c. 271 § 49(a)); and (2) the terms of the Future Receipts Saie Agreements are
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f_f.-. not unconscionable as a matter of law and therefore do not constitute a violation of Chapter 93A
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T~ In further support of this Motion, Forward Financing submits the enclosed Memorandum

5'::.Vf' of Law, Declaration of Justin Bakes, and Statement of Undisputed Material Facts.

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Plaintiff,
mra v.
Ch:JL-'<-.. CIVIL ACTION NO 16-3332-D
NRO BOSTON, LLC d/b/a NORTH RIVER Consolidated with 16-2522, 16-2523
},J.s OUTFITTERS and ALICE INDELICATO,

Fmrfel'-7' Defendants.
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I& ltJ NRO BOSTON, LLC D/B/A NORTH RIVER OUTFITTERS AND ALICE
INDELICATO'S
Bf# CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT

.NRO Bostcm, LLC d/b/a i'forth River Outfitter~ and Alice. Indelicato ("NRCf'), hereby-

move for partial summary judgment in connection with various agreements entered into with

Forward Financing, as such agreements are loans as a matter oflaw, (and are thus each void and

c.. (., unenforceable), are unconscionable and usurious as a matter oflaw, and are a per se violation of
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vvrOf Mass. G. L. ch. 93A.
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As grounds for this Motion, NRO respectfully refers to, and incorporates the arguments
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set forth in, its Memorandum of Law in Opposition to the Motion for Sanctions by Forward

£'fl.I-/- Financing and Cross Motion for Summary Judgment, with attachments thereto, the Affidavit of
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~ Shane R. Heskin in Support of the Memorandum of Law in Opposition to the Motion for

WW~ Sanctions by Forward Fibancing and Cross Motion for Summary Judgment, with exhibits

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attached thereto, and the Affidavit of Jason Indelicato in Support of the Memorandwn of Law in

Opposition to the Motion for Sanctions by Forward Financing and Cross Motion for Summary

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MEMORANDUM OF DECISION AND ORDER ON FORWARD
FINANCING'S MOTION FOR SUMMARY JUDGMENT AND
DEFENDANTS' CROSS-MOTION FOR SUMMARY JUDGMENT

The plaintiff:: Forward Financing, LLC ("Forward Financing") brought this case alleging
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- non-payment under two Future Receipts Sale Agreements by defendants NRO Boston, LLC
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t_ [_ . DIB/N North River Outfitters ("NRO") and Alice Indelicato ("Defendants"). The Plaintiff has

!;t:._F_f1led "Forward Financing's Motion for Summary Judgment" ("Motion").

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S RH opposed the Motion and have filed "NRO Boston, LLC D/B/A/
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The defendants have

North River Outfitters and Alice

_ 'Indelicato's Cross Motion for Partial Summary Judgment" ("Cross-Motion"). After hearing, the
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Motion and Cross-Motion are both DENIED.
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Ru£ BACKGROUND
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__v The summary judgment record establishes the following undisputed facts . drawing all
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inferences in favor of Defendants, as the opposing parties.
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<;;f:ftJ~ Forward Financing, LLC ("Forward Financing") is a Boston, Massachusetts- based

fY1 {c. company that provides liquidity to small businesses. It characterizes its typical transaction as
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~ follows: It purchases a set dollar amount of future accounts receivable from a small business at a

f©lE rnJ [E • WlEffi)

lJl1 MAY 3 'O 2018 ~
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 discount, in exchange for a one-time, lump-sum payment. The parties dispute whether these

transactions, as employed in this case, in fact should be characterized as a loan.

Forward Financing entered into three documents entitled "Future Receipts Sale

Agreement" with NRO Boston, LLC ("NOR"), dated October 22, 2015, April 26, 2016 and May

18, 2016. The October 22, 2015 Agreement was satisfied in April of 2016. For the sake of

simplicity, this Memorandum refers to the paragraph numbers of the October 22, 2015 and April

26, 2016 Agreements. 1

Pursuant to the terms of each Future Receipts Sale Agreement, in exchange for an

immediate monetary advance, NRO was obligated to pay Forward Financing a Daily Amount

1r::J the agreed upon repayment amounts were met. While the payments were initially

calculated to reflect a monthly percentage (15.0 % or 10.0%) ofNRO's anticipated future

receipts, the Agreements required NRO to continue to front the Daily Amount even if actual

future receipts fell short; in the case of over-payment of the monthly percentage of actual

receipts, the Agreements provided an after-the-fact reconciliation process, described below.

Under the Agreements, the monthly payment was to be collected from an account where NRO

agreed to deposit its business receipts. In paragraph 17 of the Agreements, NRO grants Forward

Financing "an irrevocable power of attorney, which power of attorney shall be coupled with an

interest, and hereby appoints [Forward Financing] ... as [NRO]'s attorney in fact, with full

authority to take any and all action or execute any instrument or document necessary to collect

all Future Receipts purchased by Purchaser." Under paragraph 17, Forward Financing has the

1
To determine the corresponding number references for the May 18, 2016 Agreement, deduct 1.
That Agreement omits paragraph 3, as it appears in the other agreements.

2
power to "instruct Merchant's [credit card] processor to forward to Purchaser all or any portion

of the Uncollected Amount Sold if Merchant breaches this Agreement."

All three Future Receipts Sale Agreements state, among other things: "Purchaser is

purchasing the Future Receipts at a discount" and that "the transaction evidenced by this

Agreement is not a loan." The first section of "Terms and Conditions" states that the parties

agree that the "Purchase Price" is "the price paid to purchase Merchant's Future Receipts; that

the transaction contemplated by this Agreement is a purchase and sale of the Future Receipts";

and that "the transaction contemplated by this Agreement is not a loan, forbearance of money

lent or any similar credit transaction." They provide that Forward Financing would collect the

"Daily Amount of F1-1ture Receipts each business day until (i) Purchaser collects ·,he entire

Amount Sold or (ii) three years have elapsed since the date of this Agreement, whichever occurs

first." In paragraph 9, the agreements provide a "reconciliation" mechanism which states:

It is Merchant's responsibility to notify Purchaser if the total Daily Amounts collected by

purchaser for any given calendar month exceeds the Monthly Percentage of Future
Receipts generated for that calendar month by sending the complete bank statement for
the Approved Account for that calendar month to Purchaser's designated email address ..
. by the 15 th day of the following month ("Reconciliation Notice). If Merchant provides a
timely Reconciliation Notice to Purchaser at the Designated Email, Purchaser will
reconcile merchant's Approved Account by initiating an ACH credit to the Approved
Account in an amount equal to (i) the Monthly Percentage of Future Receipts generated
for that calendar month less (ii) the Monthly Percentage of Future Receipts generated for
that calendar month ("Monthly Reconciliation").

Paragraph 17 of each Agreement provides, in part:

Purchaser is purchasing the Future Receipts at a discount. Because the transaction

evidenced by this Agreement is not a loan, if Merchant's business slows down and
Merchant's Future Receipts decrease or if Merchant closes its business or ceases to
process payment devices and Merchant has not violated any of the representations,
warranties and covenants provided in paragraph 8 above, there shall be no default or
breach of this Agreement. Purchaser is purchasing the Future Receipts and Purchaser
assumes the risk that merchant's business may fail or be adversely affected by conditions
outside the control of Merchant provided that Merchant has not breached a
representation, warranty or covenant set forth in paragraph 8 above.

3
 For reasons addressed in the "Discussion" below, NRO contends that the economic

reality of these Agreements is that of a loan. In addition, correspondence and marketing

materials refer to the MCA as a "loan." For instance, an email from Forward Financing's agent

(or apparent agent), dated October 22, 2015 with the subject 'Fast Capital 360 Loan Approval &

Funding Contract" begins: "Hi ALICE: I have some exciting news for you. Your loan has been

approved and you[r] funds will be available for acceptance upon receipt of executed loan

docwnents and completion of the items listed below." (Emphasis added). On October 27, 2015,

NRO received an email from another Forward Financing agent (or apparent agent) asking for

information "[i]n order to expedite the loan decision process." On its Facebook page, Forward

Financing states: "[ w]e offer a variety of loan types including merchant cash advance ... " On

Google and Twitter it states that it provides "customized small business loans - tailored loans."

Pursuant to the April 26, 2016 Future Receipts Sale Agreement, Forward Financing

purchased $145,000 in future receipts from NRO for $100,000. For purposes of summary

judgment and to the extent the issue is one of fact, the court must characterize this in NRO's

favor, i.e. that the economic reality of the transaction is that of a loan of $100,000 requiring

repayment of principal and interest of$145,000- the amount of $45,000 being consideration for

the use of the $100,000. The $45,000 difference was payment for the use of money, which a

factfinder could find was interest, at least in economic terms.

Pursuant to the May 18, 2016 Future Receipts Sale Agreement, Forward Financing

purchased $140,000 in future receipts from NRO for $100,000. Again, if the question is one of

fact, the court must characterize this as a loan of $100,000 requiring repayment of principal and

interest of $149,000. Paragraph 9 of the May, 2016 Agreement contained the same authorization

as paragraph 8 of the April, 2016 Agreement.

4
 NRO made payments under the agreements through July 21, 2016, but has not made any

payments since that date. It has continued to collect receipts on its business, but is unable to pay

what it owes Forward Financing, The amount of unpaid obligations is contested, as NRO

contests the enforceability of the Agreements, treating them as loans. On August 6, 2016,

Forward Financing filed a UCC Financing Statement stating that "The sale of the future

receivables is intended by the parties thereto to be an outright sale of such future receivables and

not intended to be, nor it is to be construed as a financing or an assignment for securing the

obligations of the seller." It brought suit against NRO for breach of the April 26, 2016 and May

18, 2016 Future Receipts Sale Agreements on October 12, 2016. NRO's answer asserts, among

other things that the cash advances it received were in fact loans (not sales) charging an interest

rate that exceeded the lawful percentage of 20.0% per year.

If treated as loans, the two unpaid Future Receipts Sale Agreements charge interest well

in excess of 20% per year.

DISCUSSION

On summary judgment, the rrioving party has the burden to demonstrate that there is no

genuine issue as to any material fact and that it is entitled to a judgment as a matter of law.

Foley v. Boston Hous. Auth., 407 Mass. 640,643 (1990). The movant may meet this burden by

showing that the plaintiff has no reasonable expectation of producing evidence on a necessary

element of his case. Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716 (1991). Once

the moving party meets the burden, the opposing party must advance specific facts that establish

a genuine dispute of material fact. Id.

Forward Financing argues that the Agreements are a not loan as a matter of law,

regardless of economic reality. There is no question that the Agreements repeatedly assert that

5
 there is no loan - possibly to the point where they protest too much. While the subsidiary facts

appear uncontested, the court has an obligation to look deeper and to present disputed issues of

ultimate fact to the factfinder regarding whether the parties' transaction is in effect a loan.

"The form of the contract is not conclusive of the question and it is ma,nifest that no

device intended to cover up the real character of the transaction can ever avail to defeat the

[usury] statute." Hopkins v. Flower, 256 Mass. 367,372 (1926) (holding that the parties' intent

is not an element of usury). The usury statute provides:

Section 49. (a) Whoever in exchange for either a loan of money or other property
knowingly contracts for, charges, takes or receives, directly or indirectly, interest and
expenses the aggregate of which exceeds an amount greater than twenty per centum per
annum upon the sum loaned or the equivalent rate for a longer or shorter period, shall be
guilty of criminal.usury and shall be punished .. .. For the purposes of this section the .
amount to be paid upon any loan for interest or expenses shall include all sums paid or to
be paid by or on behalf of the borrower for interest, brokerage, recording fees,
commissions, services, extension of loan, forbearance to enforce payment, and all other
sums charged against or paid or to be paid by the borrower for making or securing
directly or indirectly the loan, and shall include all such sums when paid by or on behalf
of or charged against the borrower for or on account'of making or securing the loan,
directly or indirectly, to or by any person, other than the lender, if such payment or
charge was known to the lender at the time of making the loan, or might have been
ascertained by reasonable inquiry.

(c) Any loan at a rate of interest proscribed under the provisions of paragraph (a) may be
declared void by the supreme judicial or superior court in equity upon petition by the
person to whom the loan was made.

G.L. c. 271, § 49 (a), (c) (Emphasis added). 2 The statute turns upon the agreement's effect, not

just its words. "Whatever form or disguise the dealing of the parties may assume, it will be

2
The usury statute applies to an "exchange for either a loan of money or other property."
G.L. c. 271, § 49. Grammatically, this phrasing would apply the statute to an "exchange for ...
other property." If so, then it would ,apply to an exchange to rights to accounts receivable
without regard to any loan. Given the apparent intent and the history of the statute, however, the
court assumes that the usury statute applies an "exchange for ... a loan of [either] money or
other property." In that case, NPO must prove that the transaction involved a "loan."

6
 deemed usurious if in effect it is a loan of money at an unlawful rate of interest." ylvester v.

Swan, 87 Mass. (5 Allen) 134, 136 (1862). To some extent, then, the parole evidence rule

cannot avoid inquiry into economic reality.

There is no question that, if the Agreements are loans, they charge usurious interest. The

key question, therefore, is whether the two Future Receipts Sale Agreements are "in effect ... a

loan of money." Id. The "test for [a] loan is 'whether the creditor extended credit to the [d]ebtor

... and whether the [d]ebtor promised to repay the amount of credit advanced." CommonweaJth

v. Thompson, 56 Mass. App. Ct. 710, 711 (2002). "The advance and subsequent repayment of

money is the essence of a loan." In re tone Street Capital. LLC., 31 Mass.L.Rptr. 171, 2013

.Wt 3341052, 201.} l\fass_ SnpeL .LEXJS 45, *7 (Mass. Super. Ct. May 10, 2013 ) (assignm.~nt of

lottery proceeds).

Deciding whether the Future Receipts Sale Agreements meet this test is not simple:

As one court has noted, "[a]ccounts receivable financing is an uncertain area in the usury
law and no exact tests have been formulated." Baruch fnv. Co. v. Huntoon, 257
Cal.App.2d 485, 492, 65 Cal.Rptr. 131 (Cal.App.1968). However, case law does reflect a
common set of elements considered by courts in determining whether a particular
transaction constitutes a sale or a loan. Those factors include (1) whether the transaction
is non-recourse; (2) whether the seller's creditors are notified that payments are to be
made to the buyer of the accounts and/or whether the buyer takes responsibility for
account collection; and (4) [sic] the intent of the parties.

In re Burm, 554 B.R. 5, 17 (Ban.kt. D. Mass. 2016) [footnotes omitted].

Determining "whether the transaction is non-recourse" may sound straightforward, but it

is not. On the one hand, starting with the fifth sentence of paragraph 17 of the Agreement points

to an affirmative answer:

Because the transaction evidenced by this Agreement is not a loan, if Merchant's

business slows down and Merchant's Future Receipts decrease or if Merchant closes its
business or ceases to process payment devices and Merchant has not violated any of the
representations, warranties and covenants provided in paragraph 8 above, there shall be
no default or breach of this Agreement. Purchaser is purchasing the Future Receipts and

7
 Purchaser assumes the risk that merchant's business may fail or be adversely affected by
conditions outside the control of Merchant provided that Merchant has not breached a
representation, warranty or covenant set forth in paragraph 8 above.

The first through third sentences of that same paragraph, however, contemplate at least some

degree of recourse against NRO and personally against its principal. Otherwise this lawsuit

would not exist; recourse against the assets ofNRO and Ms. Indelicato is exactly what Forward

Financing seeks to enforce here. The first three sentences of paragraph 17 provide:

Remedies. In the event Merchant breaches any of the provisions of this Agreement,
including but not limited to the representations, warranties and covenants made in
Section 8, Purchaser shall be entitled to all remedies available under law. In any action
for damages Purchaser shall be entitled to damages equal to the Amount Sold less the
amount of funds arising from Future Receivables received by Purchaser ....

Tb0ngh co.ntin[J,e.t1t., this proYision does allov,r for-recourse for viG!ation of any provision of the

Agreement. To be sure, the fifth sentence makes clear that impairment of the Merchant's Future

Receipts caused by a slow down in, or closure of, the business does not constitute itself a default

or breach of the Agreement. But that sentence is careful to reiterate the important proviso: "and

Merchant has not violated any of the representations, warranties and covenants provided in

paragraph 8 above."

As a practical matter, how likely is it that a merchant's business could slow down without

prompting any violation of paragraph 8? The answer may be in the Agreement's mechanism for

collection of Daily Amount Monthly Reconciliation (paragraph 9). As noted in the

"Background" above, NRO must continue to pay the Daily Amount even if its revenues decline

significantly. Only after the end of the month (plus time for reporting and processing) does

reconciliation occur. In the meantime, NRO, as merchant, encounters a cash flow problem

because it must pay Forward Financing more than it will ultimately owe that month - or so the

court must assume on summary judgment. A business encountering such a problem is going to

8
 Approved Account. But NRO has the responsibility to collect the receivables and deposit them

into that account. Forward Financing does not contest that fact. It does argue (Mem. at 14-16)

that the second factor is non-dispositive and that§ 15 of the Agreement gives it a power of

attorney authorizing it to take action to collect all Future Receipts. It may be that the second

factor is not as important as the recourse issue, but it favors NRO here, to the extent that it

applies.

The third Burm factor is the "intent of the parties." The Agreements refer to themselves

as a purchase, rather than a loan, but that is not dispositive under the Massachusetts usury cases

cited above, or under the law of contract. As noted in the Background, above, advertising and

.. negotiation evidence supports the conclusion that. the parties viewed the transaction as a loan ..

Because the actual operation of Forward Financing's complex Future Receipts Sale Agreements

and the resulting economic reality bear upon whether they are in effect a loan, the factfinder in

this case must go beyond the four corners of the instruments:

The principal question before the Court in the pending motion to dismiss is whether the
transaction at issue is a bona fide sale or in fact a disguised loan. See In re Burm, 554
B.R. 5, 16-19 (Bankr. D. Mass. 2016) (explaining that usury laws do not apply to sales
and explaining factors to consider in determining whether a transaction is a loan or a
sale). Plaintiff insists that the character of the transaction can be completely determined
from the plain language of the Agreement itself, and so there is no need to allow
additional facts of the kind proposed to be alleged by defendants. But the Agreement is
convoluted and difficult to understand, and seems to contain internal contradictions. The
Court is not prepared to find that there is no plausible basis to look to extrinsic evidence.
To the extent there is ambiguity of course, allegations about how the parties understood
or interpreted the Agreement would likely be relevant.

Forward Financing LLC v. Maxx Powersport LLC, Civ. Action No. 17-10764-FDS (D. Mass.

November 17, 2017) at 2. See also Burm, 554 B.R. at 17 ("[C]ommercial transactions are

complicated, and the determination of whether a transfer of interest in accounts receivable is

10
 have trouble complying with numerous provisions of paragraph 8, including warranting that,

"during the term of this Agreement: (i) the Future Receipts are not subject to any claims,

charges, liens restrictions, encumbrances or security interests of any nature whatsoever; ... [and]

(v) Merchant will not take any action to reduce or discourage the deposit of all payments

received from its customers into the Approved Account." Without assurances to vendors and

freeing of cash for operations - precisely what paragraph 8(i) and (v) prohibit, a business with

declining sales may be unable to survive. Sure, it could simply allow itself to go out of business,

in which case it may have the benefit of Paragraph 17, fifth sentence. But realistically, a

business owner is unlikely to give up so easily. Likely, the parties to the Future Receipts Sale

.. Agreements kne";v:..this. Moreover, Forward Financing likely lcne.w that its agre.ements are

attractive to businesses who are already having difficulty obtaining standard financing and

therefore are prone to facing exactly the kind of cash flow squeeze that would trigger the full

recourse provisions of Paragraph 17, sentences 1-3.

The court cannot assume, on summary judgment, that the Agreements' contingent

recourse provisions are just nominal or rarely invoked. It must infer that, as a matter of

economic reality, those provisions operate to provide Forward Financing very substantial

recourse, artfully crafted to apply in exactly the situations where a lender would need recourse.

It follows the first Burm factor presents a genuine dispute of material fact regarding the degree to

which the transaction is actually non-recourse.

The second Burm factor asks "whether the seller's creditors are notified that payments are

to be made to the buyer of the accounts and/or whether the buyer takes responsibility for account

collection." Forward Financing took no responsibility for collection. Under Paragraph 9,

Forward Financing has the authority to collect the Daily Amount of Future Receipts from NRO's

9
 truly a "sale" or whether the payment of the "purchase price" is in reality a "loan," requires a

close look at the details of the transaction.").

At the hearing, Forward Financing stressed that it has assumed a number of risks, including

non-payment of the accounts receivable and business downturns. It contends that bearing these

risks shows the transaction was a purchase. While this evidence would be admissible, there is

nothing new about lenders taking on risk, including the risk that a revenue stream or asset value

will be insufficient to repay the loan. The concept is basic. For instance, the IRS website

explains in plain language the difference between loans that allow recourse against the borrower

personally and those that are entitled to repayment only from a particular asset or any source

other than the borrower's personal liability:

There are two types of debts : recourse and nonrecourse. A recourse debt holds the
borrower personally liable. All other debt is considered nonrecourse.

"Recourse vs. Nonrecourse Debt" in "LESSON: Cancellation of Debt- Basics," last viewed on

April 26, 2018 at https://app ·.irs.gov/app/vira/c.ontent/: 6/36 02 020 .isp. (emphasis added). The

IRS advice treats debt and loan synonymously for this purpose, as in its phrase "nonrecourse

debt (loan)" and makes clear that both types of arrangements are "loans. " 3 The level of risk that

3
The IRS advice continues:
In general, recourse debt (loans) allows lenders to collect what is owed for the debt
even after they've taken collateral (home, credit cards). Lenders have the right to garnish
wages or levy accounts in 9rder to collect what is owed.

A nonrecourse debt (loan) does not allow the lender to pursue anything other than the
collateral. For example, if a borrower defaults on a nonrecourse home loan, the bank can
only foreclose on the home. The bank generally cannot take further legal action to collect
the money owed on the debt. Whether a debt is recourse or nonrecourse may vary from
state to state, depending on state law.

If a lender cancels a debt and issues Form I 099-C, the lender will indicate on the form
if the borrower was personally liable (recourse) for repayment of the debt. The tax impact
depends on the type of debt - recourse or nonrecourse. [Emphasis added].

11
Forward Financing accepted in the Agreements may be relevant to the first Bun1; factor, but it is

not conclusive proof that the Agreements are not loans.

It follows that a fact-finder could conclude from the evidence that the Future Receipts

Sale Agreements are, in effect, loans, not purchases. Forward Financing has not met its burden

to show that it is entitled to judgment on the ground that the Merchant Cash Advance Agreement

is something other than a loan subject to the usury laws.

For essentially the same reasons, NRO and Indelicato have not shown entitlement to

summary judgment that the Agreements are loans as a matter of law. At a minimum, the

language disavowing the existence of a loan, coupled with the limitations upon recourse (which

may o.r may not he enough to make the loans non.-recourse) require.resolution by a fact finder.

CONCLUSION

For the above reasons:

1. Forward Financing's Motion for Summary Judgment (Docket# 10) is DENIED.

2. NRO Boston, LLC D/B/A/ North River Outfi ers and Alice Indelicato's Cross Motion for

Partial Summary Judgment (Docket# 11) · IED.

ouglas H. Wilkins
Justice of the Superior Court
Dated: May 23, 2018

12