Daka Capital Group Lawsuit: 6 Ways These Cases Usually End

Daka Capital Group sues for amounts owed on a “merchant cash advance”. The advance was worth less than half a million, not secured by anything. Some such cases end with a default judgment. Some go to the bankruptcy court. Some let you open up the default judgment and keep fighting. Some trigger a “battle on the papers” as the borrower puts forward facts that cash advances like Daka’s are loans in disguise. Some end with a negotiated settlement. How you answer the suit in the first weeks decides which of those will happen to you.

1. Missing the deadline

Daka starts with a proper complaint, then doesn’t hear anything back from you. Papers were handed to you, so you had twenty days to respond in New York; or served some other way, so you had 30. The docket is clear, but it doesn’t mention a response from you by the deadline. Before you know it, a default judgment is issued. A New York judgment gets 9% from you for every year you fail to pay it. At some point, there are steps to take and arguments to make if you want to make the judgment go away, but for now there is just a debt that grows with every month it sits on the books.

A phone call or text or some settlement back-and-forth doesn’t make you safe. The other side may give you a week or a month to call, but the court is running on its own timetable. Also, the lender may get both the business and the owner to sign the paperwork.

2. Reopening the default

The deadline passed. There is a default judgment. What you really need now is to at least undo that default, go back to zero, and give yourself more options. A motion to vacate a default judgment can do that for you. In New York, before a year has passed since you got the judgment and notice of entry, you find an excuse for your failure to respond to the suit. The result is not guaranteed. What you ask the court is permission to reopen the case and show what you should have showed the first time. If it is a confession of judgment on a New York contract, double check where you lived or had a business at the time of signing and count how long ago you signed it; the limit is three years. Nobody should just assume that the lender must have done everything by the book and so the case is impossible to defend.

3. Fighting on the paperwork

You can answer on time, then file what is called a motion to dismiss and argue about how the court should see the case. A motion is a paper that you submit, asking the judge to throw the suit out. Maybe they didn’t serve you properly; maybe they picked the wrong court; maybe their math is wrong. If the court agrees, the case ends. If not, there is more fighting left to do. In the short term, defending the suit forces you to develop the details of what happened, starting with getting proof of service and how the account was handled.

If you are sued personally on a guarantee or some other promise to pay a business debt, there are steps to take. You look for the guarantee, and for the clauses that supposedly govern where and how disputes are settled. Being sued in another state can mean extra costs and complications, but being a non-resident does not by itself get your case dismissed.

4. Arguing it is a loan

It is possible to challenge the loan on legal grounds. In a case called LG Funding v. United Senior Properties, a New York court looked to three things: whether the contract had a right to a reconciliation, whether it set a finite period at the beginning, and whether the contract gave the “lender” recourse if the borrower declared bankruptcy. Ask the court to look at what the parties did in practice, not just the terms in the text of the contract.

It will be a long road, but if the papers look and feel like they lend money at more than 25% a year, you may be able to declare that usurious and illegitimate. LG Funding said a corporation (as opposed to a human being) can raise criminal usury in New York as a defense to a suit, but not as a counterclaim.

5. Settling the case

In exchange for dismissing their suit, you could pay something or ask for a break on the balance that they claim. If the result is a new deal on paper, be sure you know what the piece of paper covers, and what it doesn’t; settling one of many debts owed to a lender can still leave others owed. Check the math: the total, the payments, and the part that tells you who is out and who is in for every debt you are covering. If there is a default judgment, make sure the court action is closed and the judgment is marked satisfied on the dockets. And make sure you know what happens if you miss a payment.

Make sure you know all your other debts, what you owe, and what would happen if the new deal goes bad. A lower monthly payment is good only if you know you can make all the rest of the payments.

If a settlement forgives part of the debt, that can mean tax for you, because the IRS generally treats forgiven debts as income. There is a form called 982 that deals with those exclusions. An exclusion is an amount of forgiven debt that doesn’t get taxed, and one common reason is if the borrower was insolvent at the time.

6. Filing for bankruptcy

Bankruptcy pauses collection efforts in many ways. The moratorium on collection lawsuits works on cases in progress, as well as giving you time to figure out a new payment. There are a few exceptions, however. If the debts go on after the date of filing, bankruptcy may not solve that. Subchapter V is an option for small businesses, if the total debt is no more than $3,424,000.

There is no standard ending to a business debt fight; they vary as much as the situations and the people involved. Watch for paper in the mail; know when the next deadline is; and look over the payment receipts and records with a professional.

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.