6 Mistakes Business Owners Make When S.O.S. Capital Sues

The losses from an SOS Capital lawsuit usually come from people’s own reactions to it. People assume their response deadline. They often think their talks or negotiator halt the case. They neglect to read who was sued. They treat a judgment as over. They assume “it was a loan” is the right defense. They sign a bad settlement. The best defense against SOS Capital starts with reading your lawsuit.

1. Guessing the deadline

You must do something by the court’s deadline. The deadline comes from a court order or court rule. And you need the actual deadline, not a general idea of deadlines.

In New York, the general deadline after the plaintiff serves you personally is 20 days to “appear” by filing a document. If the plaintiff does not serve you personally, there can be a deadline of up to 30 days after service is complete. This deadline has exceptions.

The rules of court, such as rules on service of process, can depend on the court you are in. They can even differ in the same state between federal and state courts. Parties outside New York may be subject to suits in New York in some cases. And it is wise to act on your objections promptly.

2. Trusting the talks

You cannot base your deadlines on what someone said. Deadlines do not come from calls, e-mails, faxes, letters or ongoing settlement talks. If the judge has not signed an order, you are still under the court’s process.

A debt settlement company or broker is different from a lawyer. But they may have no lawyer to make a court appearance for each defendant by a given deadline. Confirm there is an attorney of record for the case in court before the answer deadline.

3. Not reading the papers

You must know who sued and who got served with papers. Double-check the defendant’s name or names.

Check if the plaintiff attached a copy of the alleged guarantee or suretyship to the complaint papers. Check the complaint’s stated balance against the amount advanced, payments, returned debits, fees and amendments that may undercut what it says. Is the guarantee enforceable against you personally, and is it still enforceable? Is the claimed default on the underlying obligation correct?

4. Treating a judgment as final

A default judgment is not the final word. Do not ignore a judgment to pretend it does not exist. The plaintiff will treat it as valid and against you.

One opportunity is what New York calls a “motion to vacate” the default. The motion must happen within one year after the defendant is served with the judgment and notice of entry. This motion requires “excusable default”.

For a confession of judgment, New York changed its procedures in 2019. Now the clerks cannot accept a confession of judgment unless the defendant lived in a New York county at signing or filing. In a case SOS Capital brought in New York’s Erie County in 2018, the judge did not allow some defendants to overturn a confessed judgment by motion. They needed a separate plenary action - that is, a new case.

5. Betting on “it was a loan”

In that same SOS case, the judge found no merit in a defense that the merchant cash advance was a loan. Courts in New York usually weigh whether there is a reconciliation process, if there is a finite term, and if the transaction gives recourse to the MCA funder if the business goes bankrupt. The decisions on this are case-by-case.

In New York, a corporation generally cannot raise usury, except criminal usury. Criminal usury - over 25 percent a year - voids both the interest and principal. In Crystal Springs Capital v. Big Thicket Coin, the New York State Appellate Division (Second Department) vacated a default judgment because the agreement as signed was criminally usurious.

6. Moving money or signing fast

Haste can mean signing something that leaves you exposed. Do not move money or sign away your rights under pressure.

In the case of freezing of funds or notice that the company will tell people to pay the funder instead of you, you should get the actual document. UCC security interest notices and restraining orders differ. A notice is not proof that every demand on people owing you money is a valid demand.

Changing bank accounts or moving assets during a lawsuit can have legal effects. Get advice beforehand from a lawyer that knows debt defense and collections. And make sure that any settlement you sign releases all the guarantees in it, has the plaintiff drop the lawsuit, and says what happens if a payment comes in late. And if you sign documents outside court, confirm you can afford the payments.

When you settle, do not treat every merchant cash advance as if it were the same as another. Keep separate records for each deal and case. A payment plan with one funder can still leave you owing another merchant cash advance.

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.