Diamond Advances LLC Lawsuit: 6 Ways These Cases Usually End

If Diamond Advances LLC has sued your business, the case will usually end in one of six ways: a default judgment, a confession of judgment, summary judgment for the funder, a usury defense, an appeal, or a bankruptcy filing. Which one you get depends mostly on whether you take swift action. Lawsuits do not burn themselves out or go away on their own. It’s just not how the legal system works. If you have been served with a lawsuit you must deal with it.

1. The default judgment

A default judgment happens when a debtor fails to answer the lawsuit or comply with the court’s procedural rules. Say you don’t answer the lawsuit within a specified time period (20 or 30 days in New York, depending on the type of service used) or fail to appear at court. In such a case, Diamond can then ask the court to rule in their favor and render a default judgment. When a default judgment is taken, your company loses by failing to appear, and the lawsuit ends.

If a company is being sued, its owner cannot answer on the company’s behalf; the company has to answer through an attorney (outside a few lower courts). If the company misses the deadline to answer, it can ask the court to vacate (undo) a default judgment on the ground of excusable default. But such a motion must be made within one year after the company is served with the judgment and notice of its entry.

2. The confession of judgment

When your company signs a confession of judgment, Diamond can skip the lawsuit step altogether. In New York, a confession of judgment can only be filed in the county where the defendant lived when they signed it or when it is filed. It also must be filed within three years after the debtor signs it.

3. Summary judgment for the funder

When the evidence in favor of Diamond is overwhelming, the funder can ask the judge to enter judgment against your company without a trial. (This is different from the default judgment, in which the company loses for failing to answer the lawsuit.) In New York, the funder must establish its prima facie case. In response, your company must raise a triable issue of fact that requires a trial.

Consider the case of Spin Capital v. Bridgelink Engineering. Spin Capital paid $5,000,000 to Bridgelink in exchange for $7,500,000 worth of Bridgelink’s future receivables. The two owners of Bridgelink personally guaranteed the payments and Bridgelink made the first $210,000 in payments. But then, when the funder tried to pull the payments via ACH, the payments bounced. Spin sued Bridgelink for breach of contract and its owners for breaching their personal guarantees. The Court found that Spin had a prima facie case of breach and that Bridgelink had not raised any triable issue of fact. The Court awarded summary judgment for the funder, finding it entitled to a judgment of $8,234,160.50 against Bridgelink and its guarantors.

4. The usury defense

The usury defense asserts that the transaction was a loan (not an MCA) and that the transaction is subject to New York’s usury laws. In New York, a loan is criminally usurious if it charges more than 25 percent interest per year, a class E felony. If it is not a loan, there’s no usury. It doesn’t matter what the transaction is called; the court will consider what the contract is really about. The courts look to see if the funder gets repaid regardless of what happens to the business. But New York courts usually weigh three factors to decide: is there a reconciliation provision, a finite term, and recourse if the company goes bankrupt?

Bridgelink argued criminal usury. They failed. The reconciliation provision, as stated in the agreement, required adjustments based on Bridgelink’s actual receipts. The Court found this made the term of the agreement uncertain and indefinite. No clause made bankruptcy a default. Because the agreement was for a purchase of receivables and not a loan, the Court dismissed the counterclaims of usury.

5. The appeal

The losing side can appeal to a higher court, asking that it overturn the lower court’s decision. Bridgelink and its owners appealed. The Appellate court affirmed the summary judgment and $8.2 million judgment against them. Bridgelink’s arguments lacked merit, the Court ruled. It also awarded Spin costs for the appeal.

In New York, a judgment on a business debt earns interest at a rate of 9% per year. The debtor may argue that the judgment has been presumed paid, but it can only do so after 20 years. However, making a partial payment or signing an acknowledgment of the debt restarts the 20-year clock.

6. The bankruptcy filing

If a company files for bankruptcy, an automatic stay generally goes into effect. This forbids Diamond from attempting to collect the debt outside of the bankruptcy proceeding. The automatic stay generally covers claims that arose before the bankruptcy filing. But there are some important exceptions, such as criminal cases and government regulatory enforcement. And repeat filers may only get a limited stay or none at all.

Procrastination leads to poorer outcomes. You should discuss your company’s situation with an experienced attorney right away.

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.