On June 8, the New York Attorney General (OAG) announced a petition filed in the New York County Supreme Court, alleging that an online arbitration platform and its founders misrepresented the platform’s arbitration services as independent while coordinating with the merchant cash advance (MCA) industry to produce expedited awards against small businesses, including merchants outside of the state. According to the petition, the platform was created with input from an MCA, which drafted and edited arbitration rules that shortened merchants’ response deadlines, limited discovery, favored MCA companies, and helped create a process that produced default awards on an expedited basis. The petition alleges that MCA companies used arbitration clauses in financing agreements to bring thousands of cases before the platform, then used awards from those proceedings to seek monetary judgments in New York courts.

The OAG asserted that more than 97 percent of the platform’s arbitrations during its first three years were uncontested, that the platform ruled for MCA companies in nearly all of those matters, and that only one merchant prevailed in a contested matter during that period because of a filing error. The petition further alleges that the platform gave arbitrators sample awards that favored MCA claimants and received hundreds of thousands of dollars in filing and arbitrator fees from MCA companies. The OAG brought claims under New York Executive Law § 63(12) and General Business Law § 349, alleging repeated fraud, deceptive acts and practices, and abusive business practices. The petition seeks an order barring the respondents from operating the alleged arbitration scheme; dismissing pending arbitrations concerning alleged defaults or breaches of MCA transactions; preventing the respondents from providing arbitration services to MCA companies; and requiring restitution, damages, disgorgement, civil penalties, and an accounting of fees received from arbitrations filed by MCA companies.