Massachusetts State Court Rejects Choice of Law Clause, Vacates Confessed Judgment

A business located in Massachusetts received financing from a small business funder. The parties’ agreement stated that in exchange for the financing provided, the funder would receive 15% of the business’ daily receipts which the funder would take by debiting $1,549 from the business’ bank account each business day. The business later defaulted on the agreement and the funder obtained a confessed judgment against it in New York.

The funder then domesticated the New York judgment in Massachusetts. A few days after the New York judgment was domesticated, the business filed a motion to vacate the judgment in Massachusetts. The business argued that the underlying judgment was void because it was obtained pursuant to a confessed judgment provision in a promissory note which is not permitted under Massachusetts law. The business alleged that the loan itself was void because it violated the criminal usury laws of New York and Massachusetts. The business also argued that because the loan charged a rate greater than both states’ criminal usury caps the transaction violated Massachusetts’ UDAP statute.

After reviewing the parties agreement, the court granted the business’ motion and vacated the Massachusetts judgment. In a somewhat disjointed discussion, the court appeared to disregard the agreement’s New York choice of law provision as it related to the enforceability of the confessed judgment provision. The court stated, “while Massachusetts is required to give full faith and credit to lawfully executed judgments from other states, these all appear to be Massachusetts agreements…Here, the agreements were executed in Massachusetts, by Massachusetts residents and Massachusetts businesses, through a Massachusetts notary.”

To support its rejection of the agreement’s New York choice of law, the court held that the funder had failed to offer any explanation as to how the agreement was not a “Massachusetts Agreement.” However, the court did note that the parties agreement specifically provided that the “Agreement [would] be governed by and construed in accordance with the laws of the state of New York, without regards to any applicable principals of conflicts of law [and that] [a]ny suit, action or proceeding arising hereunder, or the interpretation, performance or breach hereof, shall, if [the funder] so elects, be instituted in any court sitting in New York.” Yet despite its clear language, the court appeared to limit the scope of the agreement’s choice of law provision to only cover the venue in which the funder could bring a complaint, “[The funder] chose the venue in its Merchant Agreement and appropriately filed its Complaint in New York.” As a result, the court seemed inclined to believe the confessed judgment provision was void under Massachusetts law and, therefore, refused to recognize the New York judgment.

The court further held that even if a judgment by confession were permitted under Massachusetts law, the funder had failed to refute the business’ allegation that the agreement appeared to charge an interest rate that exceeded the criminal usury laws of Massachusetts and New York. The court stated that the funder had failed to show how the $1,549 daily payment, which the court interpreted as a “DAILY interest rate”, was not criminally usurious under New York and Massachusetts law. In so finding, the court appeared, without any analysis, to hold that the transaction was a loan and to reject the plain meaning of the agreement which stated that a confessed judgment would bear an interest rate of 16%.

As a result, the court vacated the Massachusetts judgment.

Saturn Funding, LLC v. NRO Boston, LLC, 2017 Mass. Super. LEXIS 3 (Mass. Super. Ct. Feb. 21, 2017)

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at
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