Barnard & Fifth Demand Letter or Lawsuit? 6 Differences That Matter

A demand letter might be scary to read - but it’s basically just a letter that requests money payment from your company and implies further action may be taken in the form of a lawsuit. It’s not a lawsuit (yet). Many businesses react to demand letters from Barnard & Fifth like the proverbial deer in headlights. That’s unfortunate because they don’t realize there are meaningful differences between a lawsuit and the notice letters they’ve been receiving.

Gaining an understanding of what makes these two different can help minimize the amount of money you end up owing to companies like Barnard & Fifth.

So, here are 6 key differences between a Barnard & Fifth demand letter and a lawsuit.

1. You are not in court yet

a demand letter isn’t a lawsuit, and typically, it comes before one. To a company and their counsel, it signals a chance to work towards the solution instead of waging an expensive lawsuit. There has not been a judge or jury making a determination as to whether you should pay on the amount owed, and no judgment has been issued as a result of a legal process.

2. The clock starts with service

The stage you’re at when you get the demand letter doesn’t have the “official” timeline of a lawsuit, where the clock starts ticking when someone files their complaint and you are officially served with the summons and complaint. That delivery date “starts the clock” on your company’s deadlines to take action.

New York lawsuits start when someone goes to court and has you served with a summons - either by hand, or by substituted service. When you receive a summons by hand you generally have 20 days to appear and answer. If you are served by “substituted service”, which does not require handing the lawsuit directly to you, after that “service” is complete, you usually have 30 days to appear or answer the suit.

3. Fewer protections than you think

Federal protections against unfair collection practices apply only to collections for consumer debts - not business debts. The Fair Debt Collection Practices Act protects consumers in their personal, family, or household debts. So, receiving a demand letter for business debts may look a little different than those associated with personal debts.

And a lawsuit isn’t required for your funder to take over your client debts. When you’ve sold your receivables to a funder, the funder is now entitled to your customer’s payments. That means they can send a valid notice of assignment. Once the customer gets the notice, they are supposed to take that money and give it to the funder.

4. More chances to resolve

When you get a demand letter, that’s a strong indication you may be able to resolve the matter with an agreement before a lawsuit is ever filed. You’re operating outside the judicial system, and that means you haven’t gone through the expense and potential stress of an official lawsuit.

Consider that litigation often lasts years - because once it starts, both sides dig into their corners, making settling much more difficult. With a demand letter, you haven’t run up any significant legal expenses on your side - and maybe the creditor hasn’t either. That letter may be your cheapest way to pay. The “place” to resolve it may also be an out of state jurisdiction which adds complexity and expense.

The contract may also allow the winner of a dispute to recover attorneys’ fees from the loser. This “fees” part is a double-edged sword. Be careful - you will want to understand whether the creditor has the right to pursue attorneys fees in the agreement. It’s important to understand what your potential exposure is early on in the process.

When you get a demand letter, check your company’s insurance policies. You might have insurance policies that cover the costs of dispute. Some require your carrier to be notified when that letter arrives.

5. What a judgment unlocks

Once the creditor has a judgment, however, the rules of the game change, as do the opportunities to take action. In New York judgments against a business generate a whopping 9% interest rate. That judgment can be active against you and your company for 20 years.

Right after the Court enters the judgment for your creditor, a lawyer can send your bank a “restraining notice.” That keeps your bank’s hands tied - and can happen without court involvement. Once that notice hits your bank, the money stays held for up to a year. And if the judgment holder only gets a partial payment, that “freshens up” the 20 year period.

Any agreement to confess judgment in New York can only be filed in a county where your business has a physical place of business. For example, if you don’t have a New York location, then the confession of judgment cannot be filed there. There are deadlines to take action. If your creditor takes your judgment to California, you get 30 days to try to get it thrown out after they give you notice that they’ve registered the judgment there. In contrast, for New York default judgments you can ask to set aside the default any time within one year after you get a copy of the judgment order.

6. What you say now counts

As long as you’re before a lawsuit, any correspondence from your company has strategic implications. Because the statement you write in the letter might be exactly the statement a judge reads at trial, everything should be considered, with the input of an attorney, before sending a reply. You might think that it’s not important because it’s not a lawsuit - but it’s still important to at least discuss the matter with your attorney, understand your defenses, and decide whether you want to respond.

Some comments an employee puts in writing may be discoverable in a lawsuit. An attorney’s notes, however, are different. If you let an attorney interview those same employees, the record of that interview should be privileged. An attorney can help spot possible counterclaims, which can be useful as leverage in a potential settlement.

Once you have notice of a possible suit, you likely have to preserve evidence. That includes your computers, your phones, email, the cloud, and paper files. Deleting it can bring an adverse ruling.

These differences aren’t a complete list, but they’re the most important from your perspective as a business owner. Getting good legal advice now may help you avoid extra steps later.

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.