McKenzie Capital Lawsuit: 6 Defenses Worth Raising in Your Answer

Six defenses that you may be able to raise: Whether the Summons and Complaint were properly served; whether the funder can prove that you really defaulted; whether any reconciliation clause in the agreement was honored; whether the cash advance was usurious; whether the agreement contains inflated fees; and whether the funder misused a confession of judgment.

Strict Deadlines for Responding

A good answer needs good defenses, but as a business defendant you also face strict deadlines for responding. In New York, the court will generally permit you to answer within 20 days, if you were personally handed the summons in New York State, or within 30 days, if you were served outside of New York State or by another method. You can respond either by filing a Notice of Appearance or an Answer. If you miss your deadline to respond you can be out of luck. The court can rule against you for not responding without your having a chance to present your defenses.

If your business is an LLC or corporation, it can’t answer by itself. It’ll need an attorney to represent it, with narrow exceptions. If no authorized attorney shows up, no appearance will be entered. The court may enter a default judgment for the full amount claimed plus interest and costs of suit. So if you plan to hire a lawyer or try to settle the case, you’ll need to move fast.

1. Challenge improper service

Perhaps you believe that you were never served properly. If the summons and complaint were not served on you the right way, this may be a valid defense. There could be a problem with jurisdiction, or getting you in the right court. Some defenses, called “affirmative defenses”, must be included in your answer to the complaint, such as illegality, fraud, payment, release, arbitration, and statute of limitations. Consider discussing your defenses with a lawyer to see which ones you can use.

2. Deny that a default occurred

It’s the plaintiff’s burden to prove the elements of its case. Sometimes a plaintiff says that you breached the agreement but it turns out, after checking carefully, that they are wrong. To find out what constitutes a default you have to read the agreement’s exact wording. Returned payments don’t always count. And a drop in sales sometimes will not allow acceleration of a contract.

Some common defaults are blocking ACH debits, changing bank account, switching processors, and selling the business. But a slowdown in business doesn’t necessarily trigger a default, especially if the contract specifically excluded it as grounds.

3. Show reconciliation was ignored

If a reconciliation provision in a contract was disregarded, perhaps because you requested reconciliation but the funder refused, or the funder should have reconciled but didn’t, this could be a valid defense. Courts look at the custom and practice of the parties to interpret contracts. In People v. Richmond Capital Group (1st Dep’t 2026), the agreements contained reconciliation provisions, but in practice they were ignored by the funders. Send and keep every reconciliation request to your funder to keep your options open.

4. Argue it is a usurious loan

If a merchant cash advance was usurious and illegal, that can be a defense. To make this argument, first you need to show that the agreement is actually a loan. That can be tricky, but it can be done. The funder will generally argue that the agreement is not a loan, or that if it is a loan, the interest rate doesn’t exceed 25%. Both of these are matters that the court has to find.

To establish that a cash advance was a loan, courts look to see if the agreement contains reconciliation, is for a finite term, and gives recourse to the funder if the merchant files bankruptcy. Under the usury laws of New York, a criminally usurious loan is void. Corporations may raise usury as a defense.

But a high rate of interest alone is not necessarily enough to establish that a cash advance was a loan. In a 2025 True Business Funding case, the appeals court said that the contract was not a loan, because it had reconciliation but lacked a fixed term, and recourse in case of bankruptcy. Also, if a loan exceeds $2.5 million it is exempt from criminal usury.

5. Dispute the damages and fees

A funder has to prove its damages, and cannot make any claim that it’s unable to substantiate. Default fees may be unenforceable, if a court finds they are penalties. And funder’s legal fees may also be questionable. Be careful to check the funder’s payment history against your bank statements, and also look for uncredited debits.

6. Attack the confession of judgment

You can challenge the confession of judgment (COJ), which is required to be filed in the county where the debtor resides. Since 2019, COJs have been barred in New York for out-of-state merchants with no place of business here. But funders don’t have to have a COJ to sue you.

Gather Your Records

These are not all the defenses available to you. For example, if the agreement is void for usury, that may void an owner’s guaranty as well. Every case is unique, but there’s a chance your case can be settled if both sides are willing. Once you have decided how you want to move ahead, you’ll need to gather your records. Gather the agreement, guaranty, bank statements, any reconciliation requests, and all emails with the funder. A good defense attorney should review all this. And don’t rush to move your bank accounts before discussing the matter with an attorney.

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.