Coconut Funding Filed Suit: 7 Questions to Answer Before You Respond

Coconut Funding is counting on you to panic and make a hasty decision. What you should do instead is ask the following seven questions and get the answers. Lawsuits happen, but don’t sign a bunch of documents or give them any money until you’ve talked to a lawyer.

1. Is it really a lawsuit?

If someone is saying they will sue you if you don’t settle, you are probably not facing a lawsuit. This is called a demand letter or demand notice. If you’re not entirely certain that this is actually a lawsuit, bring everything that you received to a lawyer.

Whatever the papers turn out to be, be meticulous with this stuff. Save everything from this point forward, including the summons and complaint, any exhibits, all the envelopes, and any emails you’ve gotten. Note down for yourself how the lawsuit papers were delivered and when: a process server handed it to you? Who, when, where? Save all email and bank or processor notices too.

2. Who was sued, and where?

Was the lawsuit filed against you personally? Was it filed against your business? If so, under what name? A suit against the company is not the same as a suit against the individuals working there. Look for your name in the caption. The caption is the information that appears at the top of a complaint. Make sure that the caption lists the right court. These lawsuits might be in federal court or state court.

If your business is not located in New York, you might still be sued in New York. If you have a contract, it may say where you’re supposed to fight, which law applies, and if arbitration is required. Lawsuits brought outside of the proper court may be dismissed, but there’s no guarantee that that will happen. Get your lawyer to look at that right away.

3. When is your deadline?

Your deadline is a critical piece of information. Exactly how much time you have depends on which law applies, which court has the case and how the lawsuit was delivered to you.

In New York, if you were handed lawsuit papers, you need to send a response within 20 days of the day you were served. That response can be an answer, a notice of appearance, or a motion. If the process server handed you lawsuit papers at your business, but you weren’t there to accept them, then it could be that you have 30 days from the end of the process of service (which is usually mailing a copy of the papers to you afterward). If you’re served out of state, you have 30 days after service was complete. Don’t assume that it’s always 30 days, because it’s not. Don’t assume that deadline stops because you are working something out.

4. Does their number add up?

The amount that the lawsuit demands from you is only that: a demand. Don’t assume that they got the details right. Figure out how much you owe, and check their math. Pull your bank statements to verify the transaction details and the amount they deposited.

Examine the agreement closely, and check for amendments or other changes. Make a list of the debits that were collected, debits that were reversed or returned, any credits or adjustments, and every single fee that appears. Merchants on Coconut Funding’s BBB page have complained about a $950 fee on offers that fell through.

Merely calling something an advance or a fee or a loan doesn’t decide what it actually is. A New York court in 2020 weighed whether such a deal was a loan. They looked at three parts: (1) was there a reconciliation provision? (2) was the term for a finite amount of time? (3) could the lenders collect back the money if the business filed for bankruptcy? Did you ask the funder for reconciliation? Did they refuse? Be careful with the reconciliation step, which is something that your lawyer can explain in more detail.

5. Are you personally on the hook?

Did you sign any guarantees or personal promises to pay? Are you a target in the suit? Then you need to find the guarantee for that. Then, look at what they say you did to trigger the personal guarantee. It may be that the guarantee was a promise of performance, and not an unconditional guarantee of payment. There’s also a question of conflict of interest between the business and the owner who’s also targeted.

6. Is there already a judgment?

If a notice of entry of judgment arrived, this is a new, serious stage in the process. If a judgment was filed against you, there are different time limits that apply. Bring the entire file with you, and bring all of the envelopes and packaging from when it was sent.

Once the defendant misses the deadline to respond, if the plaintiff continues with the case, the court can then enter a default judgment against the defendant. In New York, to undo it, the defendant can make a motion within a year after the defendant was served with the judgment and notice of its entry. The defendant would have to show some excuse for not appearing. But just showing you had an excuse is not necessarily enough to undo the judgment.

A confession of judgment is a way that lets someone enter a judgment against you without filing the usual lawsuit. They’re not all allowed in every state, and if the funder wants to enforce it in New York, the rule is this: First, they should have filed the confession within 3 years of the date it was signed. Second, they have to have filed it in the county where the signer claimed to be living or now lives (and a business resides wherever it has an established place of business). There are some other wrinkles and issues with confessions.

7. What would a settlement actually cover?

Get all the details of the terms worked out in writing, and signed. For example: Do they have to drop the lawsuit? Find out which cases will be released by settling this one case. Be specific about which agreements you want out of; ask what accounts are being settled; and, include any other business accounts. Don’t expect anything they say to be true if it’s not written into the actual settlement.

What happens if you miss a payment? Can they reopen the lawsuit? That’s not always spelled out in the deal. It needs to say that all bank restraints and UCC filings will be released. Check whether the deal will also release any individual guarantees or personal liability as well. Also, check whether a lower periodic payment will actually lower your balance.

A company that negotiates your settlement is not the same as a lawyer who defends lawsuits. If a group or law firm is arranging the deal with the funder, you need to ask who will be the lawyer standing in court. The job of a settlement company or broker is to renegotiate the deal. A lawyer who defends claims knows how to look over their lawsuit and fight it. Ask the law firm whether other options, such as bankruptcy might suit your circumstances.

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.