1st Merchant Funding Lawsuit: 6 Defenses Worth Raising in Your Answer

A lawsuit from 1st Merchant Funding, a Miami merchant cash advance company that may or may not be in business anymore, is something to address quickly and head-on. The answer is where you keep your defenses, and you have 20 days from personal service in New York or 30 days if served another way. Your defenses are service and jurisdiction, that the case is in the wrong county, illusory reconciliation, a fixed term with bankruptcy recourse, criminal usury and the personal guarantee.

1. Challenge service and jurisdiction

You need to include improper service or personal jurisdiction as one of your objections in your answer. Bad service is waived unless you say so (this could be handled by a pre-answer motion to dismiss). After raising improper service in the answer you must move for judgment on it within 60 days.

2. Question the courthouse

Did you agree to this court? You may have signed something stating that the contract will be litigated in New York. Look for this. Even so, if you live in another county (or the business does) and have no other connection to the county where you are being sued, ask a lawyer whether a change of venue is appropriate. You should include a request for a change of venue if applicable, along with the other defenses in your answer.

This matters because these New York court cases over merchant cash advance agreements, many brought against businesses with no connection to New York, are proliferating and a lot of the businesses sued are simply not answering at all and giving up without a fight.

3. Test the reconciliation clause

Did the contract treat your payments as purchase of future receivables? A loan has to be repaid the same way regardless of your income, but a sale of receivables should adjust the payments when income goes down. The key test is whether you had a real way to lower your daily debits if sales dropped. If you asked, it can help your case if the request was ignored or denied. One relevant fact is whether your daily withdrawals stayed the same when revenue fell.

State that the reconciliation clause is illusory (unreal), as a separate defense in the answer. You should also state if you asked for reconciliation and were denied. The idea is to show you were not really selling receivables but were instead taking out a loan. Gather evidence that your payments weren’t adjusted to match your income. Emails to customer service are useful. So are bank statements, showing that they kept withdrawing the same amount regardless of your income.

The bankruptcy court in Manhattan in July 2026 treated 19 merchant cash advances as loans, citing the lack of a reasonable way to modify payments to reflect declining revenue. Still, the result may differ in your situation.

4. Look at the term and bankruptcy clauses

The label is not what counts but the actual deal. The question is whether the financier took a risk. The financier’s risk would be that the income streams fail and she is not repaid. Two things to look for are: Did the contract force you to continue making payments for a fixed term, and could the funder keep pursuing you even if your business shuts or files for bankruptcy? State your position on these in your answer.

5. Raise criminal usury

Criminal usury is an annual interest rate of more than 25%, counted in a specific way. A corporation may only assert criminal usury as a defense. How to calculate the effective annual rate is very specific, and an attorney will need to do this. When you arrive at a figure over 25%, include criminal usury in your answer.

In New York, criminal usury voids the contract and removes liability for the principal and interest. The criminal usury argument has been accepted by the Second Circuit Court of Appeals in a 2023 case.

6. Contest the personal guarantee

Almost every merchant cash advance agreement involves a personal guarantee. This generally requires the individual(s) involved in the business to repay the money. Whether the guarantee can be enforced, and whether the individual is allowed to contest the transaction like the business can, depends on the wording of the contract, the facts, and the specific defenses raised. Contesting the guarantee is your right and should be stated in your answer.

Motion to Vacate

If a judgment was entered against you because you missed a deadline, talk to a lawyer immediately. A “motion to vacate” due to excusable default has to be filed within one year of when you were served with the notice of entry of judgment. It must explain why you missed the deadline, and why you have a valid defense.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.