Global Merchant Cash Litigation: 5 Reasons Default Judgment Is the Real Risk

If Global Merchant Cash has sued your business, the biggest danger is ignoring the lawsuit. Ignoring it does not make it go away. This can result in a judgment being issued, or even a freeze on your business’s bank accounts. The real risk is not losing the argument in court, it is a default judgment entered because no one answered.

1. The clock is short

Global Merchant Cash will probably sue your business in New York, because the MCA contract includes a clause saying that any lawsuits are to be filed in New York. So, even if your business is in Texas or Florida, the lawsuit could be filed in New York. Typically, the MCA provider will name the business as a defendant and every owner of the business who signed a personal guarantee. You can lose very quickly in a lawsuit. If you are handed a summons in New York, you normally have 20 days to file a response. If you are served in any other way, you normally have 30 days to file a response.

2. No judge required

If the plaintiff claims a fixed amount of money in the lawsuit, and the business never files an answer, the plaintiff can ask the court to issue a default judgment up to a year after the default. The procedure for getting the judgment is simple, because the plaintiff only needs to ask the court clerk (without needing a judge’s permission) for the default judgment. If you are served via the Secretary of State, the plaintiff must also mail a summons to the last known address. They need to do this at least 20 days before a default judgment is entered. The judgment will be issued against both the business and the guarantors. That means the guarantor may have to pay a judgment out of personal money. How much you personally owe could be affected by the terms of the guarantee. A defense for the business may be a defense for the guarantor as well.

3. Your bank account freezes

When a creditor receives a judgment, the creditor’s attorney can send your bank a restraining notice. This freezes everything up to twice the amount due. The freeze stays in place for a year unless the judgment is paid or vacated. New York judgments carry interest at 9% a year until they are paid. There is a lower 2% rate for consumer debts. But that 2% rate is only for debts of individuals, not business debts.

4. Defenses need an answer

In Kings County in July 2024, a judge turned down an effort by Global Merchant Cash to get a summary judgment on a lawsuit the business had contested. Its attorney’s affirmation lacked personal knowledge, and GMC’s lawyers couldn’t present any evidence of any payments to the merchant, so the judge didn’t enter the summary judgment.

Answering also lets you raise other defenses. Although merchant cash advances are supposed to be a purchase of future receivables, and not loans, some agreements are really loans that don’t look like loans. Courts look for terms like a reconciliation provision, a finite term, or what happens if the merchant goes bankrupt. If the deal is really just a loan, then the rules for usury could apply. In New York, a criminal law bars charging more than 25% a year on a loan. A corporation may raise criminal usury as a defense to a collection case, and a loan at a criminal usury rate is void.

Timing and place matter too: a confession of judgment can be filed only in a county in New York where the business resided or had a place of business, within three years of signing it. An out-of-state business is usually safe from a confession of judgment if it doesn’t have a location there. Funders often send notices to your customers or your payment processor telling them to pay the funder and not you. Those notices can be challenged, and timing matters.

In a contested case, both sides need to lay out the numbers. Whether a default occurred, whether requests for reconciliation were honored, whether fees counted twice. The business that doesn’t show up never gets to raise its side.

5. Undoing it is hard

Undoing a default is uphill. Courts let you answer late only if you have a reasonable excuse. When you are caught in a default, you need to move quickly. Courts normally give you up to a year after you have been served with a judgment and a notice of entry of judgment to file your motion to vacate for excusable default. But, another route is available. If there was fraud, or if the court didn’t have the power to decide the case in the first place, there’s no fixed deadline. Also, if you were never personally served with a summons, you didn’t get notice in time, and you have a real defense, you may be allowed to defend yourself within a year of finding out about the judgment, and up to five years after the judgment was entered.

In many cases, a lawsuit between an MCA firm and a business ends in a negotiated settlement of what’s owed. The difference between the payment and the original debt may be a reflection of defenses. If you have answered in time, and have real defenses on the record, you bargain from a far stronger spot than if you were facing a default.

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.