Sued by Mr Advance? 7 Steps to Take in the First 20 Days

If Mr Advance has sued your business, do not ignore the papers. In a New York state court case you usually have 20 days to respond to the court papers. In a New York federal court case, you usually have 21 days to respond to the court papers. If you miss the deadline, your business is in jeopardy of a default judgment entered against your business. The following are the 7 steps to take if you have been sued by Mr Advance or any other Merchant Cash Advance Company.

1. Find your real deadline

Remember, the deadline is a real deadline. Find out when your business was served with the papers. You may have only 20 days to respond if the summons was personally served on your business. If the papers were served another way, e.g. on the Secretary of State, you have 30 days from when service was complete. Don’t get caught out: be aware of the difference. Your response can be in the form of an answer, a notice of appearance, or a motion. If service seems irregular, improper service may be a defense, but only if you raise it properly. If you ignore service, you may lose the chance to have that argument heard.

2. Don’t count on geography

Just because your business is not in New York does not mean that you can ignore a summons from Mr Advance. These Merchant Cash Advance agreements often have forum selection clause, and choice-of-law clause that point to New York. If you do not show up, and the claim was a fixed sum, a New York clerk can enter a default judgment for the demanded amount plus costs and interest. If that happens, the next step can be enforcing the judgment outside of New York: freezing your accounts or receivables.

3. Gather your documents

Within 24 hours of getting served, start putting together your documents. You will need the original MCA agreement, any amendments to the agreement, any ACH authorizations, the bank statements and any correspondence with the funder or their lawyers. Create an organized file with these documents and be ready to go through them with your attorney.

4. Mark the key clauses

Each Merchant Cash Advance agreement is different. Take some time to find and mark key clauses: forum selection, choice of law, confession of judgment, arbitration, reconciliation, and personal guarantee. Each of these clauses can change the path and defenses of your case.

A confession of judgment clause can let a funder get a judgment against you, without a lawsuit. The first sign may be a hit against your bank account. If you are outside New York, New York law gives you some protections - but be sure to understand them. If a judgment has already been entered, speed is essential.

5. Watch your bank account

Specifically watch for unusual, unexplained ACH debits, or repeated debits, and investigate immediately if your accounts get held. Save your bank statements, any screenshots, letters, and anything else with timestamps. Go through each of your bank withdrawals and compare the total amount to what the contract allows. If the funder is withdrawing more than they should, they may be double-debiting.

6. Don’t sign anything new

A funder may offer relief, a lower daily payment, or a longer schedule. That sounds good. But read carefully: the proposed restructuring may not be as good as it seems. The restructuring may include a release, waiver, or other terms drafted by the funder’s lawyer. Do not sign without reviewing it first.

7. Hire a New York lawyer now

Hiring a lawyer costs money, and you may not have time to spare. But hiring a New York lawyer is a must, for several reasons. First, in New York State, a corporation must appear through an attorney, apart from limited small-claims exceptions. As the owner, you can’t file an answer for the company. Second, a lawyer needs time to make a good defense. The lawyer needs to review the agreement, make sure there was good service, read the court file, and find defenses if there are any.

A major possible defense is that this MCA is really a loan. New York courts usually weigh three factors. First, does the agreement have a reconciliation provision? Second, does the agreement have a finite term, or is there an open term? And third, does the agreement provide for recovery if the merchant goes bankrupt? If a Merchant Cash Advance is a loan, over 25 percent a year is criminal usury.

If you already missed the deadline, do not wait to talk with a lawyer about this. A motion to vacate for excusable default must be made within one year after being served with judgment and notice of entry. But waiting will always make it harder. Either way, the stronger your defenses, the better your leverage to negotiate a settlement.

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.