East Shore Filed Suit Against Your Business: What to Do Before You Respond

The Deadline to Respond

You have exactly as long as the deadline gives you to figure out a response. In New York, that’s usually 20 days if a process server handed the suit papers to you in person, or 30 days if the documents came by a different method. A company has to be represented by a lawyer, so your first job is to find one. Then decide whether to answer, negotiate a settlement, or fight the case in court. Missing the deadline for an answer means a default judgment against your business. Being broke does not get you out of it, either.

When East Shore’s legal papers arrive, the first thing to do is figure out the who, what and when. The top of the papers will say which court you’re in. The case will be against the business, and possibly the business owner too. If it’s a demand letter or collection email, there’s no lawsuit on file with the court, not yet. Real papers come with a case number in the header, along with the names of the court, the plaintiff, and the defendants - one of which is usually your business. The process server needs to be 18 or older and can’t be named in the lawsuit. Write down the date, and how it came to your business, as well as who signed for it. Save the original copies, envelopes, or emails.

You have 20 days to respond to a complaint if it gets handed to you in person inside New York. If that doesn’t happen, the time frame grows to 30 days after service is complete. The first step is to count the days correctly after leaving papers at the door and mailing a second set, or serving someone other than the defendant. Service is not complete until 10 days after the proof of service, sworn by the process server, hits the county clerk’s office. If your company is incorporated, count from the moment papers get handed to your agent or the Secretary of State’s office, as required by state law. Watch your agent’s mail, since the clock still runs even if you don’t see the papers.

When the summons doesn’t come with a complaint, you’re supposed to serve the plaintiff with a written request for it. The plaintiff then has to serve you with a copy of the complaint inside 20 days after getting your request. Companies getting sued on a note promising payment, rather than a lawsuit for a specific unpaid invoice, typically face something different in the beginning. The lender can seek summary judgment against the business, requiring a court appearance at the appointed time for the hearing. Nothing happens until the hearing date, unlike the 20 days to answer or face default that’s normal with a complaint. The defendant in this situation needs to show up, with evidence in hand.

Do not wait too long to act, no matter where the suit landed. If the case is in federal court instead of state court, the rule calls for an answer inside 21 days of service of the summons and complaint. Making a phone call to the plaintiff or trying to negotiate a settlement with the other side doesn’t stop the clock on the deadline to respond. If you miss it, the court may still accept your paperwork but you would need a very good reason why your company missed the deadline.

A judge can even grant the plaintiff’s demand for the full amount of damages asked in the complaint. You don’t get to tell your side of it at this point. If the company can be served through the Secretary of State, the plaintiff gets to hit it with a default judgment if it misses the answer deadline. Before that can happen, the plaintiff has to mail another summons copy to the company’s last known address, at least 20 days before a judge can hand down a default judgment.

There is a limit on the time you have to file a motion based on excusable default. The law spells out an automatic “one year after service of a copy of the judgment and written notice of its entry.” If the issue is the court’s lack of jurisdiction over the business, or fraud or misconduct, you are not out of luck, since the law gives no time limit on undoing those default judgments. Being served through a different person is a second way to dodge a default judgment. New York also forgives companies that really did not get notice in time to answer. If the lawsuit actually falls in this category, the court may let you defend your company. You need to show a defense with merit, though. The deadline for using that route is one year from when you learned about the judgment. It’s never more than five years after the judge entered it. Courts set defaults aside only for a compelling reason, not as a favor, so don’t skip that deadline in a lawsuit. A company that already has a judgment against it should start by getting its hands on a copy of the court record. You have to have grounds to undo the judgment, not just point out that your company missed the answer deadline. How the relief plays out is very fact-specific and depends on the court.

Defense Counsel

Someone with a law degree has to file your paperwork, if the business is incorporated, in New York state court. Settling with the plaintiff through a broker or a settlement company doesn’t qualify as an appearance by a defendant. If a lawyer says they’re taking over the case for your company, make sure they really have. Otherwise your business could still face a default judgment. Confirm that the lawyer hired as defense counsel has agreed to appear for each one named in the suit.

If the plaintiff comes after personal assets, read the complaint to see if the defendant is the business owner and not just the company. Take a close look at the language of the guarantee, which is not as boilerplate as people expect. The question for courts is whether the alleged reason to trigger it really exists and what the language really means. An unconditional guarantee promises that the money will get paid, no ifs or buts. A guarantee of specified performance from a business owner is a very different animal. Since your business and you are two separate parties to the case, a lawyer who represents both of you has to weigh both sides. What’s good for the company might not benefit the owner.

An answer can include a general denial along with affirmative defenses. Dig out the agreement and compare it against the complaint’s details, including the amount the lender advanced, what got collected, credits issued and fees. The amount it demands in damages is not proof of anything.

Your records need to show if the revenue dropped and that the company sent in a request for adjustment. See how you documented the request, what records you sent with it, and what the lender came back with. That you called it an advance or a loan does not settle the matter. A fixed debit from the defendant’s bank account alone won’t solve the enforceability issue. The company’s business lawyer needs to look at the entire transaction to figure out what it means.

The Appellate Division ruled on an important case on this question in 2020. Courts usually look at three main factors to decide whether it’s a loan. There’s no one tell, but those factors include the reconciliation provision, a fixed end date, and what happens to the “lender” if the business files for bankruptcy. The anti-usury law carries some serious consequences. Knowingly charging in excess of 25 percent interest per year without legal authority is a class E felony in New York. The New Yorkattorney general won a $1.065 billion judgment against a different funding company in January 2025. The office alleged that its fixed daily debit withdrawals meant the transactions were not sales at all, but loans at rates as high as 820 percent.

Contracts include clauses on which law governs and where disputes go. This could mean arbitration. The defendant’s location alone is not a reason to dismiss, though a forum selection clause in your contract can spell out which state has jurisdiction to decide the fight.

Taking action involves decisions about how to respond, any counterclaims you might have, and steps like motions to dismiss. Answering a lawsuit doesn’t end the case, and your lawyer needs to keep up with follow-on developments. The parties may exchange written evidence requests. Court dates and response deadlines come next. You need to keep your lawyer in the loop about settlement payments, business changes, and any new notices from creditors or process servers.

If you signed a confession of judgment affidavit, it can be filed with the court within three years after you sign it. A confession of judgment filed after Aug. 30, 2019 is valid only if the debtor did business or lived in the county where the creditor filed it. What this means for funders is a New York confession no longer applies to out-of-state businesses.

Although your first notice of collection might come from your bank about a frozen account or directions to pay elsewhere, these are not the same thing as the actual court or government document demanding the money. The language varies, but get the actual document to read the notice carefully. The paper trail varies according to what’s happening, whether it’s a UCC filing, or an assignment of funds, or a court-ordered seizure. When the notice hits, your next step is to check what it says and where it came from. See whether the demand cites an agreement with the payor, and make sure you understand the reach of its terms. This does not necessarily rely on a judgment against you first. Not all demands carry the weight of a judgment or court order. Your lawyer’s letter does not automatically release the money. The advice is never to try to thwart the process, such as by changing bank accounts or redirecting income without consulting your attorney beforehand.

Settle for a Lower Amount

You can always settle for a lower amount, but settling is not always the best thing for your company. Consider your defenses, cash flow, and the accounts of other creditors in making the choice. The cost is not zero after all, since even a smaller payment still leaves money owed. Be sure the document contains the total settlement amount, how and when each installment gets paid, and an accounting for money already collected. It should also say which entities and guarantors get released, plus the mechanism for the plaintiff to discontinue the lawsuit. Double-check to make sure the agreement releases any bank restraints, UCC filings, and payment demands sent to customers. It should also say whether personal guarantees are released. The settlement should make it clear what happens if you miss a payment, including the notice period and any rights to cure the default before the agreement goes by the wayside. An agreement with one funder doesn’t cover your other debt with different companies, no matter how much each agreed to forgive.

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.