Sued by Fundfi: 7 Things That Happen Next

Following a default, you may have a lawsuit served on you by Fundfi’s debt collection lawyers, a process which is a bit nerve-wracking. The day Fundfi served your business marks the beginning of the clock - you have about 20 days to respond or Fundfi will go into court without you and seek a default judgment. Just because they say it, doesn’t mean it’s true. Your next actions will determine how difficult of a time they will have winning. If the Fundfi collections lawsuit says your company and you personally owe an amount you just can’t pay, there’s still room to negotiate it. You shouldn’t panic - Fundfi doesn’t quite have you, but you are on the clock!

1. The clock starts

Once the process server hand-delivers the summons/complaint documents to you (or serves it on someone who works at your business), the clock starts ticking. You now have generally 20 days to submit an answer in court. Be careful though: this 20 day period can extend under some circumstances. For your business to appear in court, it must hire a lawyer. Some contracts may have a specific clause which says Fundfi can sue you in a Connecticut or New York court under New York law.

2. Silence means default

If you ignore the lawsuit, Fundfi has little legal obstacle to getting a default judgment in court. Trying to contact Fundfi’s attorneys to see what they’re asking for so you can start negotiations is not responsive in court. In one Kings County case, Fundfi’s attorney initiated a suit, where they served both the business and the people who signed for it by email, under an addendum to the agreement. The clerk entered a default judgment about a month after filing. In that case, the default was vacated by agreement. If a mistake happens and there’s a default, sometimes these cases can be undone if you move quickly. A motion for excusable default has a time limit of one year from written notice of entry; improper service follows other rules.

3. Fundfi must prove it

Even with all their power, Fundfi must still prove its claims against your business in court. Taking these things to court at least allows your business the chance to fight for itself. When Fundfi takes your business to court, they generally have to prove four things: a valid contract, that they paid you what they promised under it, that your business broke the contract, and finally their money damage. One Fundfi lawsuit in Kings County in 2024 didn’t come out quite how it was expected. The court denied their motion for summary judgment on breach, guaranty and attorney fee claims. Fundfi didn’t make its prima facie showing of breach.

4. Was it really a breach?

In some cases, what Fundfi contends was a breach of contract by your business may be something else. Usually, the complaint will list out a few things they claim went wrong. Common complaints are stopping direct payments, changing bank accounts or switching card processors, or selling the business to someone else. Another common one is the company lied to Fundfi. Your next step is to track down all the paperwork you can about the agreement so you can check exactly what they said versus what the agreement says.

Some contracts say that if a payment is returned by your bank, you are in default. Not all do. Many contracts set Fundfi’s daily debits to come out each day in a set amount. That’s basically a rough estimate of a share in your daily sales. Some deals have a reconciliation clause to adjust for any over or under collections. If your sales aren’t as good this month, it doesn’t automatically excuse making late payments. Courts look to see if any reconciliation was actually done. And many agreements are pretty clear that normal changes in business don’t cause a breach. It’s really important that you keep copies of all reconciliation requests you make in case you need them later.

5. Your defenses

In these lawsuits, the business has to raise and prove defenses that explain why it’s not responsible. One good defense is that the whole deal is just a loan, disguised as a sale of your accounts. When a court weighs these arguments, they may look at a bunch of things: do the papers have a reconciliation clause in them to balance the daily payments; was there a set end date or did the payments have to keep going on forever; and what happens if your business goes bankrupt. These arguments have a lot of bases in legal thinking, but you should know they don’t win for everyone.

If the law says your deal is a loan, then a really high rate can turn out to be the deal breaker. A rate that goes over New York’s 25% criminal usury limit can void the entire agreement. Usury laws don’t apply to everyone, so a high price alone can’t make something unenforceable; that takes more work to prove.

You may have more than one defense, so consider other possibilities. Important to check where you are being sued. If service was improper, sometimes you can fight that the court doesn’t even have power over your company. In one Fundfi case the owners lost a motion to dismiss for lack of jurisdiction. But the judge made it plain they could renew the argument after they got some discovery.

You can fight a claim for damages. Check the proposed math against your bank statements to look for any payments which weren’t credited. Another thing they may add on is a default fee or legal costs. These aren’t automatically fair - sometimes they can work as a penalty.

6. You, personally

Fundfi commonly adds a personal guaranty by a major owner or owners to their collection suits. Read yours closely. Some just promise Fundfi that they won’t take actions that affect the account, like move the account, or sell the company. Others take it further and guarantee to pay. If yours is the narrow kind and sales simply slowed, that may be a defense. If the entire deal is a void loan in disguise, a personal guarantee can go out the window too.

7. Judgment or a deal

In the worst case, Fundfi gets a judgment against your company and the guarantors. After the judgment comes in, if they send your bank a restraining notice, your bank will put a freeze on that account for up to a year. Once the bank has put aside twice the amount of money that is owed, the rest of your funds are free. All the while, the original amount is getting 9% yearly interest. A judgment is presumed paid only after 20 years. You can restart the clock by giving them a written statement, or you pay them some money and they’ll have another twenty years.

Settlement can be a good option, depending on your unique business and legal situations. Fundfi may settle with your business for less than they asked for. The IRS generally taxes the forgiven portion of a commercial debt settled for less as income, unless you meet special rules, like bankruptcy or insolvency. If your business can’t handle it, bankruptcy stops the whole case in its tracks with the automatic stay.

Getting sued is stressful, but with the right defenses and documentation, sometimes you can make it so Fundfi has a rougher time with the suit.

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.