Answering a Simply Funding Complaint: 5 Things to Check First

Served with a Simply Funding complaint? It’s probably not in your best interests to do nothing. But that does not mean that you need to panic and pay what they demand. Before you call anyone or sign anything, check five things: the deadline to respond, who is named, the amount claimed, whether the deal is really a loan, and whether a judgment is already in play. None of these are terribly difficult to do. But they do require a bit of time, some effort, and attention to detail.

1. Check the response deadline

Checking the response deadline should be step one. It is important because it gives you a schedule you need to work to. It is a game changer if you have weeks to respond vs. just days. You have much more time to assess your options, take actions you need to take, and consult with a lawyer to see if one is needed.

Find on the summons the name of the court, the case number, the list of all the defendants, how the papers were served, and the deadline for responding. In New York state court, if you were handed the summons personally, generally you have twenty days to either appear or answer. If you were served in some other way (like the Secretary of State, or by substitute service), you have thirty days from when service is complete. And, any talks you may have had with the funders don’t extend that deadline.

2. Check who is named

Cases against business owners over commercial debt may seek to enforce the debt on both the business entity and on the guarantor owner. So the defendant owner could have two entirely separate claims against them, under two different theories. If the funder’s Complaint is verified, that means the Defendant generally needs to have a verified answer. A verified answer is an answer that is sworn under oath.

Make sure to ask whether a lawyer would represent the business entity, the business owner who guaranteed the debt, or both. If you settle, the settlement itself should spell out exactly how it resolves the lawsuit, the guarantees, judgments and liens.

3. Check the amount claimed

Get a copy of the MCA agreement, so you can see what it requires. Check it to see if it has a reconciliation and adjustment procedure. See if there are any reconciliation letters or emails; if there are, compare what is written to the Debit History Report. Review your agreement and the funder’s records to see what the company was required to actually collect and transfer from your merchant account. See whether there are any discrepancies. Remember, it is your job to check the arithmetic. But the funders don’t necessarily try to make that easy.

If you had several MCAs, look at them together, not one at a time. So instead of just totaling them up, list each funder, then the amount you received up front, the claimed balance, and how frequently the amount the funder is collecting is withdrawn (daily or weekly). That way you can see the exact picture at a glance. Also remember that the factor rate is not an APR - it is a multiplier for a payment figure.

4. Check whether it is really a loan

Labeling something a “purchase of receivables” does not make it one. In LG Funding, the Appellate Division Second Department, in 2020, said courts usually weigh whether there is a reconciliation clause, a finite term, and recourse if the merchant goes bankrupt. Courts look at both what the funders promise to do, and what actually happened in practice.

In New York, the usury defense doesn’t apply to corporations. Generally, the only defense is criminal usury: knowingly charging over 25% a year, which is a class E felony. In People v. Richmond Capital Group, the Appellate Division upheld findings that the company’s MCAs were usurious loans. That case was sent back for a new determination of the amount of the judgment. If you suspect a violation, that does not cancel the balance. And it does not pause your deadline to respond.

5. Check for a judgment

Just because a Confession of Judgment is in the paperwork, does not automatically mean that it can be used lawfully. New York law requires that it be filed only with the clerk of the county where the Defendant lived when signing or lives when filed. A business is deemed to reside in any county where it has a place of business. The affidavit must be filed within three years of signing the instrument.

Confession of judgment rules are not uniform everywhere. In Virginia, MCAs that are subject to Virginia’s sales-based financing law are not allowed to use confessions of judgment. If you suspect the funder is relying on a Confession of Judgment, ask for copies of the signed paperwork. You should see if you have any possible challenges, and when the deadline is to respond or raise them.

In New York, you can move to vacate a default judgment within one year after service of judgment and written notice of entry of judgment, but only for excusable default. A good place to start is gathering up all the signed papers, the court judgment, the docket, collection notices, and bank restraint notices.

Whatever you find, stopping payments can have consequences. Taking another advance is not the same as negotiating or responding to the suit. Asking for a review does not pause collections or restrained funds.

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.