Flexibility Capital INC Lawsuit: 6 Defenses Worth Raising in Your Answer

If you are sued by Flexibility Capital, you are not out of options. You have one crucial opportunity: answering the complaint, and in your answer you should raise every argument you can. The strongest tend to be a defective service, criminal usury (if the interest rate was more than 25%), a phony reconciliation, filing in the wrong state, and failure to prove you defaulted, plus any debits taken after the suit.

1. Answer on time, and contest service

The most important thing to do is to answer on time: if you are handed the summons in person, you get 20 days to answer; if the papers were left with someone else, you get 30 days. As soon as the complaint is served, the clock starts. If you are late, you may not be allowed to answer or contest service. It is crucial you do not ignore a lawsuit because failure to respond to the complaint results in a default.

Some companies claim they properly served you when they haven’t. You must challenge service in the initial court papers. If you do not, you waive that defense forever. The best way to bring this up is to state in the answer that you believe you were not properly served. After that, the motion to dismiss for lack of personal jurisdiction must be filed within 60 days of serving your answer or it is lost.

2. Plead criminal usury

The interest rate of the underlying loan matters: if the interest rate is over 25% a year, then the loan is criminally usurious. Normally, corporate borrowers cannot claim usury in New York, but New York specifically excepts criminal usury from that rule. Criminal usury is an affirmative defense and can be pleaded that way, or the affirmative defense “illegality of contract”.

3. Show the reconciliation is fake

Usury only works if the advance is really a loan. To evaluate whether the advance is a loan, courts look at three things: does the agreement provide for a reconciliation, is there a fixed end date (or at least a finite number of payments), and, if the merchant went bankrupt, does the funder still have recourse?

One court noted the merchant agreement says the reconciliation is only a “courtesy”, which means the funder has no obligation to do it. Some contracts include bankruptcy as a default, and courts have counted that against the funder. Because the funder could demand the debits keep going after the reconciliation, one court saw a disguised loan. If the reconciliation was faked, and/or the funder was not truly “in harm’s way”, then it may be a disguised loan.

4. Challenge the New York court

If both the funder is not incorporated in New York, and your business is not in New York, then the court may lack subject matter jurisdiction. If there is no jurisdiction, the case must be dismissed, and the funder is forced to sue in your home state.

But, even if the funder is not from New York, the court may have subject matter jurisdiction if the claim arose in New York. Some courts have held that if the advance was wired from a New York bank, that the act happened in New York. You can check by looking at your bank statements to see where the wire came from. The routing number can tell you where the bank is located. Also look at the wire confirmation. If the funding was wired from New York, then you can’t get out of subject matter jurisdiction that way.

5. Make them prove breach

You always have the right to make the other side prove their case. It is easy for funders to allege they are owed money, but they must prove you did not honor the agreement.

One recent Flexibility Capital case from Kings County is Flexibility Capital, Inc. v. Highway Surfers LLC, from 2024. Flexibility said it bought $14,700 of receivables, and that the owner signed a personal guaranty. It attached a ledger from a different company, Flexibility Funding, Inc. No one at Flexibility Funding swore the ledger was correct. The court ruled that the ledger did not prove Flexibility was owed anything. Flexibility Capital sought summary judgment for $7,956, and no one showed up to oppose the motion. Despite that, the Court still denied the judgment on the grounds that not even the basic case was shown.

6. Track debits after the lawsuit

Some funders keep debiting the bank accounts even after suing. Courts have dismissed suits against a funder who keeps taking money after starting a lawsuit, or denied summary judgment because of that.

If the funder does get a judgment, even if the judgment is from New York, if the money was in an account in another state, New York cannot freeze or garnish those assets even if the same bank has a New York branch. A New York restraining notice only lasts one year. Fight any turnover proceeding, because if the Court rules against you, you won’t be able to keep the money. After the year is up, the bank must release the funds, unless there was a levy.

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.