SDNY Denies Discovery Stay in Premium Merchant Funding Arbitration Bid
SDNY denied Premium Merchant Funding's discovery stay bid after it sued before seeking arbitration, a key forum lesson for MCA refinance and origination teams.
News · · 3 min read
Three September 2024 contracts styled as merchant cash advances—signed September 9, September 18, and September 24, 2024 in rapid succession rather than through a single mca refinance—will remain in federal discovery after the U.S. District Court for the Southern District of New York denied Premium Merchant Funding 26, LLC’s motion for a stay on October 29, 2026. According to the Justia-hosted copy of the October 29, 2026 opinion in Premium Merchant Funding 26, LLC v. Sonata Construction LLC et al. (S.D.N.Y. No. 7:25-cv-01086, ECF 80; specific page citations not yet available in the source index), the court found the funder’s pending motion to compel arbitration too weak to justify halting discovery.
By the Numbers
- 3: Agreements styled as merchant cash advances, dated September 9, September 18, and September 24, 2024 (Justia-hosted copy of ECF 80, October 29, 2026).
- March 30, 2026: Date of the prior order dismissing several counterclaims while allowing RICO allegations and certain tortious-interference and conversion claims to proceed (Justia-hosted copy of ECF 80, October 29, 2026).
- October 20, 2026: Date the funder moved to compel arbitration (Justia-hosted copy of ECF 80, October 29, 2026).
- October 29, 2026: Date SDNY denied the motion to stay discovery (Justia-hosted copy of ECF 80, October 29, 2026).
- December 4, 2026: Scheduled conclusion of briefing on the motion to compel arbitration (Justia-hosted copy of ECF 80, October 29, 2026).
Why Suing First Undercut the Discovery Stay
In the October 29, 2026 opinion hosted by Justia, the court concluded that the weakness of the funder’s motion to compel arbitration outweighed the other criteria evaluated for a discovery stay. Crucially, the court pointed to the procedural sequence: Premium Merchant Funding initiated the lawsuit in federal court, moved to dismiss the merchant’s counterclaims, and received adverse rulings before moving to compel arbitration. The court stated that those circumstances weighed strongly against pausing discovery.
Earlier in the litigation, on March 30, 2026, the court issued an order that dismissed several counterclaims but permitted RICO claims as well as certain tortious-interference and conversion claims to proceed as allegations (Justia-hosted copy of ECF 80, October 29, 2026). Only later, on October 20, 2026, did the funder file its motion to compel arbitration.
Forum Choice and MCA Refinance Enforcement Strategy
The underlying dispute involves three agreements between Premium Merchant Funding and Sonata Construction dated September 9, September 18, and September 24, 2024, each styled as a merchant cash advance structured as a purchase of future receivables (Justia-hosted copy of ECF 80, October 29, 2026). Whether originators are structuring initial advances, an mca refinance, or a merchant cash advance consolidation across construction or trucking merchant cash advance portfolios, forum selection at the outset of enforcement carries direct procedural consequences.
For legal and compliance officers tracking merchant cash advance industry news—from retail cash advance rates and underwriting scrutiny to the broader policy outlook for the merchant cash advance business and commercial financing disclosure legislation in New Jersey—the October 29, 2026 ruling highlights the risk of testing counterclaims in court before invoking an arbitration clause. Seeking arbitration after suing, moving to dismiss counterclaims, and receiving unfavorable rulings weighed strongly against a discovery stay.
What the October 29 Order Leaves Open
The October 29, 2026 order is strictly procedural and applies only to the discovery stay request in this case. It does not resolve the merits of the October 20, 2026 motion to compel arbitration, on which briefing is scheduled to conclude on December 4, 2026 (Justia-hosted copy of ECF 80, October 29, 2026). Nor does the opinion decide whether the three September 2024 agreements styled as merchant cash advances are legally loans.
Sources
Frequently asked questions
What did SDNY decide on October 29, 2026 in Premium Merchant Funding v. Sonata Construction?
On October 29, 2026, the U.S. District Court for the Southern District of New York denied Premium Merchant Funding 26, LLC's motion to stay discovery while its motion to compel arbitration against Sonata Construction LLC remains pending.
Why did the court refuse to stay discovery pending the motion to compel arbitration?
According to the Justia-hosted copy of the October 29, 2026 opinion, the court determined that the weakness of the funder's motion to compel arbitration outweighed the other factors evaluated for a discovery stay.
How did suing first and seeking arbitration later affect the stay request?
The court noted that Premium Merchant Funding filed the lawsuit, moved to dismiss counterclaims, and received adverse rulings before moving to compel arbitration on October 20, 2026, a sequence that weighed strongly against pausing discovery.
Which counterclaims survived the March 30, 2026 order?
The March 30, 2026 order dismissed several counterclaims but allowed civil RICO allegations, conversion claims, and certain tortious-interference claims to proceed as allegations.
Did the court decide whether the three agreements styled as merchant cash advances are loans?
No. The October 29, 2026 order neither resolves the merits of the motion to compel arbitration—on which briefing concludes December 4, 2026—nor decides whether the three agreements dated September 9, September 18, and September 24, 2024 are loans.
About the author
The Fund Scope Editorial Team reports and analyzes news, deals and regulation across small-business funding, sourced and checked under our editorial policy, for funders, lenders and brokers.
