Your Avanza Capital Agreement: The Terms That Matter Once Suit Is Filed

If Avanza Capital is suing your business, the contract you signed to receive an advance of funds sets out the key points of the fight. New York law applies. The contract adds fees, liquidated damages, and interest on top of the balance. Your personal guaranty allows them to come after you directly. You waived your right to jury trial and counterclaims. But all of those terms are moot unless you make the deadline to respond.

Miss the Deadline to Answer the Summons and Complaint

The basic rule in New York state court is that you must respond to the Complaint within 20 days. But the rules are different if the lawsuit was served out of state. A longer time applies. The longer window is 30 days if served on the Secretary of State of New York; 30 days if served by substituted service. In some states the time to answer starts with your actual receipt of the papers. In New York the deadline starts the day the process server hands you the summons and complaint, even if you are reading it for the first time. Avanza Capital lets itself do service of process by first-class or priority mail. Service is complete once mailed, unless the law requires otherwise.

If you miss the deadline to answer the summons and complaint in the lawsuit by Avanza Capital, the creditor will seek a default judgment against you for the full amount it claims is owed, plus interest, costs and attorney fees. The court clerk is allowed to sign the judgment for Avanza Capital when the claim is for a sum certain, with no hearing. If Avanza wants to seek a default judgment in its lawsuit, it has to ask for it within one year after your default. If it waits until after one year, the judge may dismiss the case as abandoned. The plaintiff must show mailing of an extra copy of the summons at least 20 days before judgment is entered. Your copy of the summons was mailed to you in a sealed envelope marked “PERSONAL and CONFIDENTIAL” at your residence.

Once Avanza Capital has a judgment against you, your main concern is how the judgment affects your bank account. Avanza Capital can get at your bank account by serving a restraining notice on your bank. The notice is a legal paper signed by Avanza’s attorney. The lender can freeze your bank account right after getting a judgment. The amount can be double what you owe. They can hold it for up to one year or until the judgment is paid or taken away. The money does not go to the creditor yet; it sits in your account and can’t be moved. You may find out about a freezing order when your bank denies a withdrawal request. If you have direct deposit of exempt payments in your bank account, for example, $2,500 of it is generally protected.

If you can show you missed the filing deadline because of a reasonable excuse, the judge may vacate the default, reopen the case, and let you file the answer. You have to make the motion within one year after receiving notice of entry of the judgment.

Breach of Contract

To establish a claim of breach of contract, a creditor has to show

• a) that the contract exists, was formed under the required formalities, and is enforceable;
• b) it performed all its own obligations under the contract;
• c) you did not perform your obligations under the contract; and
• d) its damages.

The judge may dismiss Avanza’s lawsuit if it can’t prove any of these points. Depending on the terms of the advance agreement, missing a payment alone may not create a default by you. Look through the contract to find what they can call a breach.

Once Avanza Capital declares a default, your business owes the full balance, interest, fees, and then another 25% of that balance. Avanza may recover its court costs, plus attorney fees of up to 40 percent of the outstanding amount. The contract also lets them impose interest, at 24% per year as prejudgment interest. Is the interest rate proper? Are attorney fees reasonable?

Look back over your statements from the day you received the advance, find your true balances, and confirm all the amounts they are asking for. The statement of account is supposed to list every transaction between the company and the plaintiff. Look for items you do not remember and unusual items. Was there a payment you made that they did not receive?

As the owner of a small business, when you signed the personal guaranty of the merchant cash advance, the business and each guarantor owe the full amount. They can skip your business and go right after your personal assets. Avanza may sue you at the same time they sue your business. Some personal guaranties only cover specific things in the contract. Read it to see what it covers. If the deal was usurious, then the guaranty might fall too.

Avanza Capital calls its agreements a sale of receivables. But calling the relationship anything other than a lender-borrower relationship could be a disguise. The law and rules of interpretation let the court look behind the forms of the arrangement. Courts have called it a loan when the documents said otherwise. The three main factors are the presence of a reconciliation provision, a finite term for the advance, and the recourse of the lender if the merchant goes bankrupt.

Avanza’s agreement has a reconciliation clause. First, you have to make a written request for the reconciliation. Avanza must complete it within two business days of your written request with your bank login and password and all statements since the agreement date. As soon as you give them that letter, keep the tracking number and write it down on a new copy of the letter.

In the state of New York, the criminal usury rate for a business loan is 25 percent. Raise usury when you respond to the lawsuit, as a defense. But you can’t add usury in as a counterclaim. A high rate alone is not enough to make the contract illegal under New York law. The factors in determining a business loan to be criminally usurious in New York are complicated. And the burden of proof is on you.

In the merchant cash advance contract, you waived your right to jury trial, which means the whole case will be decided by a judge. You have no right to bring a counterclaim against Avanza. Your claims against Avanza are lost unless you bring them within one year of their injury to you. However, one New York state appeals court decision said that a borrower could not waive the right to a jury trial of a fraudulent inducement claim against the lender. Your lawyer should read the fine print of the contract you signed to decide if your case falls within this exception.

The contract between the business and Avanza Capital set the venue. It says that New York courts govern the agreement and that’s where any lawsuit has to be filed (Kings, Monroe, Nassau, New York or Sullivan County).

The Cost of a Settlement

Settling is a business decision. You weigh the cost of fighting the lawsuit by Avanza Capital against the cost of a settlement. Trying to negotiate an extension on the due date or payment terms of the loan, or calling the creditor or its attorneys to talk about a settlement, does not stop the deadline. A decision to settle should happen once you know what the evidence shows and what the deal is on Avanza Capital’s part. Anyone who is going to negotiate a deal has to know whether a settlement will end it all. This depends on what they’re asking for in exchange for the release. Ask to see the release when you are speaking to Avanza Capital or its lawyers. Confirm that they were the parties to the settlement and that it covers you and your company.

Beware of new defaults. If you sign a new advance, that might amount to a default on the old one, putting Avanza in the right on its case against your business. In the original contract, changing the account receivables go into could be another default. So could transferring assets.

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.