Brownstone Funding Lawsuit: 6 Ways These Cases Usually End

If Brownstone Funding has sued your business, here is the short answer. Most business debt cases over merchant cash advance contracts end in one of six ways: a default judgment, a confession of judgment, a contested defense, a default judgment vacated, a negotiated settlement, or a bankruptcy. Which one you land in depends mostly on the court, the applicable state laws, whether a response deadline is near or a judgment already exists.

1. A default judgment

If your business does not respond, the court can enter a default judgment. Make sure you know exactly what the deadlines are for responding. They depend on the court, the papers, and how they were served on you, so do not assume the deadline is 30 days from when you opened the envelope. In New York, for example, if someone served the suit papers on your business by substituted service, you get 30 days after service is complete to appear. Settlement talks and phone calls to the funder will not extend the time. A typical New York money judgment carries 9% interest a year.

Be careful, however, because creditors have different remedies. Ask for copies of any document that the funder (or its collector) is relying on. Know the difference between a UCC financing statement, a notice of assignment, a subpoena or a bank restraint. They are all different and have different consequences. Consult a lawyer before moving things around, which could actually create new legal problems.

2. A confession of judgment

A confession of judgment is written papers you sign allowing a judgment without a contested lawsuit. Whether they are enforceable depends on the laws of each jurisdiction. In New York, as of August 30, 2019, they may only be filed in the county where you lived at the time you signed them or the county where you live at the time of filing. A business lives wherever it keeps a place of business. New York law requires a lender to file a New York confession of judgment within three years from when you signed the affidavit. It’s a good idea to have the signed agreement and court filing record reviewed.

3. A contested defense

Getting help from an attorney can mean much more than simply delaying a judgment. If you have a basis to fight a case, a lawyer can file an answer on your behalf, with supported defenses. A lawyer can also make a motion to dismiss the lawsuit, demand records from the lender, or oppose a request for judgment. A motion to dismiss is one tool, but no defense applies automatically. A lawyer will examine how the case was served, whether the court has authority over the defendant and whether governing-law or arbitration clauses apply. A defendant’s being outside the state where the case was filed does not by itself require dismissal.

Track the claimed balance and payments. Does the balance match the documents, contracts, amounts collected, and reconciliation requests? New York does have usury limits. However, they generally do not apply to a corporate borrower. There is an exception for criminal usury, meaning interest above 25% a year.

If there is a named defendant owner, review what personal guarantee was supposedly signed and how it was triggered. Note, a business and personal guarantor may have different positions and defenses in the same case. Appearing and answering does not automatically end the case; a business can still get questions from the funder and have to go through discovery and make or oppose motions.

4. A default judgment vacated

If you have discovered a default judgment after the fact, you may be able to reopen the case in court. A New York court can vacate a default judgment for excusable default if the motion is made within one year after the judgment is served with notice of entry. Vacating the judgment may be possible, but it is not guaranteed. Whether you think you have a defense or not, collect the court record quickly so a lawyer can examine it. Look for service defects, the reason the response was missed, and possible defenses. In particular, for a confessed judgment, check the signed papers and filing. If there is a judgment against you, ask about a request to pause enforcement. Challenging the judgment does not by itself stop a lender’s collection efforts.

5. A negotiated settlement

Settlement discussions may be possible. Whether settlement is a good idea depends on what defenses and leverage you have, your cash flow, and your other creditors. A lower payment can still leave you with a large balance to pay. If someone is negotiating for you, ask them directly if an attorney is involved, and if so, whether the lawyer has agreed to defend the lawsuit. Negotiating payments and defending a lawsuit are two separate jobs.

When you negotiate a settlement, make sure you have the right deal in writing before you sign. The terms should be clear on the total amount, payment dates and amounts, which businesses, owners, and guarantors are released from liability, how the lawsuit is dismissed and judgment satisfied, any release of any Uniform Commercial Code filings or bank restraints, and what happens after a missed payment. If you negotiate a lower payment, watch out for the IRS. If your case settles for less than the full balance, the IRS generally treats the canceled part as taxable income, unless an exclusion applies, such as bankruptcy or insolvency.

6. A bankruptcy filing

If your business is overwhelmed with debts, a bankruptcy filing is one option. The filing of a bankruptcy petition automatically stops the start or continuation of most court cases against the debtor over claims that arose before filing. Bankruptcy is a serious step. A decision to file should be made carefully with the advice of a bankruptcy lawyer.

Whichever of these six outcomes you end up in, start by saving every paper: Summons, complaint, envelopes, bank notices, repayment agreements, payment history. If you have multiple cash advances, you have multiple papers. A deal with one funder does not resolve every other advance. Make sure you keep separate records for each.

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.