Sofia Grey LLC Filed Suit Against Your Business: What to Do Before You Respond

A complaint by a merchant cash advance funder like Sofia Grey LLC is a serious problem that can quickly result in a default judgment, frozen bank accounts, and cash seized from your business. Know the court and rules that determine the deadline to answer, and find a lawyer to defend your business. It may be possible to fight the confession of judgment, get more time to answer, settle, or file bankruptcy to regain control over your finances.

In New York, you have 20 days from the date you were personally handed the summons in the state, or 30 days from service by other means including substituted service or through the Secretary of State. Ohio Common Pleas courts give defendants 28 days to answer. Not answering is a big risk because the plaintiff could get a default judgment and start taking things from your business. Different courts’ rules for answering a lawsuit may not give you 30 days from opening the envelope. It may be more or fewer days. A phone call or negotiation letter do not extend the time to answer the complaint. Even if you believe service was defective or the claim wrong, get it reviewed fast, because some objections are lost if not raised properly.

A lawyer can check the summons, court service record, judge orders, or agreed extensions for the deadline to respond in a lawsuit.

An LLC or corporation, except sole proprietor, must appear through a lawyer, except for some small claims or lower courts in New York. If you’ve been served as both the business and as an individual or guarantor, you may be tempted to answer on behalf of the company. That’s a mistake.

Confirm that your settlement negotiator is going to have a lawyer represent your company and the other defendants. Negotiating and defending are different jobs. Without a lawyer defending, you might miss the deadline to defend the lawsuit.

Your deadline to answer can run from the date the summons and complaint were handed to you, mailed, or left at your office, so hold onto everything you’re served: the summons, complaint, exhibits, every envelope, and even a note about the date the papers arrived and how. Write down each defendant named and the plaintiff’s name, so you can look up the court and index number later.

If you’re named in the lawsuit both personally and as the business owner, two separate responses may be needed: your business entity, and you as the guarantor, because the claims against you as an owner in business and a guarantor may be different. And you need to read the guaranty carefully.

Out-of-state business can be sued in New York. Provisions of a contract may also govern where a dispute will be heard, but an out-of-state business sued in New York may need to defend itself anyway.

If the plaintiff’s claim was for a specific amount, and the deadline to answer has passed, the plaintiff can still ask the clerk to enter judgment. This is called a clerk’s default judgment on a sum certain.

In New York, you may be able to fight a default judgment for a year from when it was served on you with notice of entry. If you get a restraining notice, the bank can hold twice the amount of the judgment. If it has held your money, other property is no longer restrained.

If you already have a default judgment, get a copy of the court’s record and a lawyer’s prompt review. Talk to a lawyer about the chances and cost of overturning the judgment. The grounds are mainly technical, like defects in how the court papers were served or some reason you missed the deadline, or the merits, like a strong defense, but it’s not a given that you’ll get relief. Challenging the judgment does not guarantee the court will vacate the judgment or that collection will stop.

Confession of Judgment

A confession of judgment is a signed paper you or your company gave a merchant cash advance funder. The language says the funder can get a court judgment against you without a lawsuit if you default on the advance. A law in New York prohibits entering such papers in court against non-New York businesses without ties to New York. The law is effective immediately for papers filed after August 30, 2019. This does not prevent them from filing a lawsuit instead of a confession of judgment.

Since it’s signed in advance, some people think it puts them in a losing spot, or forecloses a chance to defend the case if they’re sued. That may be a wrong assumption. Whether a confession of judgment you signed is enforceable may depend on which state you’re in.

The funder’s affidavit of confession can only be filed with the clerk in the county where the business (or individual) resided when signing the paper, or lives at the time of filing. A business lives where it has a place of business.

The funder may not file an affidavit of confession more than three years after the date the confession was signed. They can file it any time during those three years, so may not have told you about it yet.

The New York courts in the Fourth Department will not allow an MCA defendant to move to vacate a confessed judgment. The Fourth Department requires the defendant to open a separate lawsuit to challenge an MCA judgment. Your independent lawsuit will, at a minimum, need to allege fraud, false affidavit, or misconduct.

If you’re from out of state but your LLC has property in Florida, and someone records a judgment against you or your business in Florida, you can fight the judgment. A defendant should file an action within 30 days challenging jurisdiction or validity of the judgment, and record a lis pendens. The court must stay enforcement. There is also an alternative that lets you stay enforcement by showing a ground that would stay a Florida judgment and posting the security Florida requires.

The Advance Was Really a Loan

The complaint will seek a balance of what you borrowed, what was taken back so far, and any fees you agreed to. Before answering, try to confirm: how much you received in advances (or loaned), how much was taken from you, whether there were credit given, and whether your revenue dropped off. The amount you owe could be different from what the complaint says.

If a company other than your original lender is suing you, your lawyer can review the complaint and the original agreement to evaluate the plaintiff’s right to bring the case.

A court can rule that the advance was really a loan. It will look at the reconciliation clause and your fixed payment term, and whether the advance company would lose out if you went bankrupt. You’ll want to compare the agreement with what happened: did you sustain the loss in revenue, did you request an adjustment, what records you sent, and how the funder responded? Their obligation to adjust will depend on the terms of your agreement, and is not a given. A fixed payment schedule alone does not determine whether a company has to make any adjustments.

New York criminal usury is knowingly charging or taking more than 25% a year. The highest New York state court said in 2021 a corporation sued on a loan can raise criminal usury as a defense. Criminal usury doesn’t just void the interest. A criminally usurious loan, principal and all, is void.

You can start defending by answering, asserting defenses and asking for documents. Filing a motion to dismiss isn’t necessary first. There may be other deadlines later.

Settlement Agreement

Money in your bank account could be frozen, seized, or redirected, after your business is sued, or after someone gets a judgment against your business. There are ways to stop this, or reduce the damage, but don’t put your head in the sand or move money around without advice from an attorney. A notice to your customers may be a UCC-1 financing statement, a notice of assignment, a subpoena, or a court order, each one different from the others. The kind of notice you get can make a difference to your business.

Saying you’ve hired a lawyer or have a dispute doesn’t automatically get your money unfrozen, or stop enforcement. Get and read the actual order behind the freeze.

If you settle, the release and amount should be specific, and account for all money the collector has already taken. A good settlement agreement will say which names are releasing which debts, when payments are due, the total you are paying.

If your agreement doesn’t give details about closing out the case, the lien, or the judgment, the agreement could leave loose ends like freezing your bank account, liens against your business property, and judgments entered in other states. Depending on the agreement, settling with one funder might not stop another funder from filing suit.

Defaulting on a payment plan might come with collateral consequences you don’t expect. It may put you in default on the debt again, or give the other party the right to sue or record a judgment. A settlement agreement should say what happens after a missed payment.

Bankruptcy is a nuclear option, but filing the petition triggers an automatic stay. The stay stops collections, withdrawals from your accounts, and a pending lawsuit.

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.