6 Mistakes Business Owners Make When Greenwich Management Sues

If you’re a business owner that has gotten a lawsuit from Greenwich Management, do not ignore it. Contact an experienced commercial collections defense attorney as soon as possible. What many defendants don’t realize is their position doesn’t improve by ignoring the lawsuit. Here are the six most common mistakes business owners and their advisors make when sued for a merchant cash advance repayment. In order: not knowing your procedural rights, failing to look at your personal guarantee carefully, not reading the contract, signing a stipulated judgment, settling too early, and treating a judgment as final.

1. Ignoring the summons

Your failure to respond will have consequences. The law requires the defendant to respond within the stated time frame. If you’re served with a merchant cash advance (MCA) lawsuit in New York, you typically get 20 days to respond if someone handed the summons to you personally in the state, or 30 days if it’s served any other way, counting from the day service is complete. Your response can come in the form of an answer, notice of appearance, or a motion. Furthermore, many companies do not realize there has been a lawsuit filed because the court documents went to an old address. The plaintiff will use this common mistake to obtain a default judgment against the defendant. This judgement gives the plaintiff many ways to collect the debt including bank levies, wage garnishments, property liens, and seizure of assets.

2. Assuming the personal guarantee holds

Often, a defendant sees the mention of a personal guarantee and automatically believes that they will be held liable. In some situations, the business owner who signed a personal guarantee is able to show the guarantee is not enforceable and the plaintiff’s cause of action fails.

Many guarantors don’t realize that their obligation to repay isn’t automatic, even though that’s how the plaintiff phrases it. In fact, most merchant advance guarantees are conditional. They may only kick in if the business files for bankruptcy or if the business owner diverts the receipts or closes the business for the purpose of avoiding repayment. Mere inability to pay may not be enough to activate an MCA personal guarantee.

3. Never reading the contract

When served with a lawsuit, it is important to read your contract and really understand its terms. To argue the lawsuit properly, you need to know what you signed. Before you go to court or try to work with a lawyer on the problem, gather the paperwork. For this kind of case, that includes the original agreement you signed, any addenda or amendments, any funding statements, the personal guarantee, any broker emails or texts, and your bank records showing every ACH withdrawal. To figure out if your guaranty is enforceable, you have to look at the underlying MCA agreement. If it is really a loan with an effective interest rate above 25%, it’s usurious and void under New York law. And if the MCA agreement is void, the guarantee based on it is unenforceable. The New York courts look at three aspects of an MCA to determine if it’s really a loan. Is there a real reconciliation clause? Does the contract have a fixed end date? Can the funder still collect if the business files for bankruptcy? If your answers indicate that your contract should be treated as a loan, then it’s subject to usury. The annual interest rate may not be a straightforward number. Once you know that rate, you can see if the contract is usurious. A corporation cannot use the usury defense if the effective interest rate is under 25%.

4. Signing a stipulated judgment

The plaintiff may offer the defendant the option to sign a stipulation and try to make the stipulation sound favorable for the defendant. When a merchant funder tries to frighten a defendant into settling by serving the LLC and the owner simultaneously, that’s a form of intimidation. The funder may seize on your panic to get you to sign a personal judgment for the full purchased amount. If you agree to a stipulated judgment or consent judgment, you are giving up your opportunity to defend yourself against any breach of contract claims in a New York court. Better to fight the suit against the LLC and the guarantee together than accept the judgment personally.

5. Settling too early

Many business owners agree to settle the merchant cash advance lawsuit before considering the possibilities that may arise during the litigation process. You can’t know what you don’t know, and just because the merchant advance company threatens you with massive liability, you can’t know whether they have a valid basis for doing so. Settlement is often cheaper than litigation, but only after the funder sees there’s a real defense; it’s a question of strategy. MCA funders typically want 80 to 100 cents on the dollar before they see a defense; after a credible usury defense, the case could get a settlement of 30 to 50 cents, and sometimes less.

6. Treating a judgment as final

Business owners who have been served with a default judgment often mistakenly believe that there’s nothing they can do and that their business assets will be taken away from them. In New York, a default judgment is not necessarily the end of the case. Depending on the circumstances, the defendant may have an opportunity to vacate the default judgment. A default judgment can be opened in New York if you show a valid excuse for the default and a potentially meritorious defense.

Many small business owners don’t know about the judgment until a bank turns down their personal debit card. A bank restraining notice can freeze an account for up to one year or until the judgment is paid or vacated. An excusable default motion must be filed within one year after service of the judgment and written notice of its entry.

You have to move before the process passes you by. You have some advantages if you move quickly. But after a while, those defenses become less workable. If you don’t exercise them in time, you may lose them. If you suspect that there may be a serious problem with your case, get qualified counsel to review it right away. Make sure that counsel is familiar with usury law in addition to collections.

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.