GreenFund Lawsuit: 6 Defenses Worth Raising in Your Answer

If GreenFund or another funding company is suing your business in New York for payment on a Merchant Cash Advance, you typically have twenty days to respond if you were personally served, thirty if you were served by certain other methods, such as the nail-and-mail method, and a lawyer should write your answer. Key defenses like fraud, payment, or illegality must be in the answer or you will likely lose them, and there are six worth raising.

1. Object to service and jurisdiction

Make sure you know how, if at all, they could have served you or your business in New York and object if there are problems, for the court will usually find jurisdiction if you do not object. If you want to move for judgment because of improper service after serving an answer, you have to act within 60 days or you’ll lose the objection. Fortunately, the court may extend the time limit for you to move for judgment by reason of improper service where you can show undue hardship.

2. Argue it is really a loan

Yes, they label the document a cash advance, but the written agreement can look like a loan agreement and not like a cash advance because you must make payments under the written agreement or face charges, penalties and a judgement. Was it really a purchase and sale of future revenue, or a loan of cash, guaranteed by what you earn? Courts may weigh three factors to determine whether a MCA is a loan or not: whether there is a workable reconciliation provision, whether there is a finite term, and whether the MCA provider has recourse if the merchant goes bankrupt, and courts will also look at the actual conduct, not just the title given the MCA. When repayment is absolute, reconciliation may exist only on paper. What if full payments never change and a full amount must be paid by a set date, no matter what your business does or what it sells? Does it really look like a purchase, or does it look like a loan?

3. Raise criminal usury

If you are a corporation, you cannot use a usury defense, except if it is a case of criminal usury, which involves knowingly charging over 25% a year, which is a felony and voids the whole loan from the start. That means the lender can collect neither interest nor principal. None of this matters unless a court first treats the MCA as a loan. In one case, a court let the merchant proceed with its defense of criminal usury because of issues of fact, but dismissed a counterclaim of usury. The factor rate is not an APR. If you get $100,000 and owe $140,000, how much you pay per year depends on how quickly that $140,000 is repaid.

4. Show they broke the reconciliation promise

A reconciliation provision means that you can adjust payments down if your revenue takes a dip, which can be essential when your business goes through a bad time or needs to downsize. They talk about a reconciliation clause, but does it really exist in practice, if they reject every request? What if the debits stayed fixed while revenue dropped by half? Lenders may reject the request for reconciliation out of hand, but you may be able to show that they breached first and that you have records and proof of their rejection of reconciliation requests.

5. Plead payment and test the balance

Plead payment in your answer, and the creditor may have to show proof of the remaining balance. The important thing is to go over their ledger with care and count the debits against what was promised or allowed under the agreement. Make sure they didn’t take more than they were allowed and that what they did take is reflected in the ledger, and check for bogus fees. Also, check the actual debits and look for withdrawals exceeding the ACH limit, or after the account had no more balance.

6. Plead fraud and read the guarantee

You can raise fraud when a salesperson promises one thing and the written agreement has another. Do you know what type of claims the personal guarantee actually covers? A guarantee, or personal guarantee, may be written to cover the merchant’s performance promises, which are promises to do something, not the payment promises, which are to pay a debt, so check the language to see whether the guarantor is liable on the debt. Also, a loss of business due to lower sales is not necessarily the same thing as diversion of receivables. A guarantee clause can shift the focus to an individual, and move a dispute over the business to that person’s personal assets.

Vacate the Judgment

If you missed the deadline to answer and a judgment was entered against you, it’s not the end: you can usually ask the court to vacate the judgment based on excusable default, as long as you act within 1 year after service of judgment with notice of entry. Gather your agreements, bank statements, payment ledger, and your reconciliation requests and go to court as soon as possible.

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.