6 Mistakes Business Owners Make When The Avanza Group LLC Sues

When The Avanza Group LLC files a lawsuit against your business, the mistakes that cost owners the most are almost always the same ones: missing the deadline to respond, trying to answer for the company without a lawyer, assuming the LLC protects their personal assets, and letting a judgment, a bank freeze or a confession of judgment go unchallenged, along with one more: never asking whether the deal was really a loan.

1. Missing the deadline

Don’t panic and don’t do nothing. The papers contain dates and deadlines that are the difference between what may seem like a nuisance lawsuit and a final judgment. You have a few weeks to prepare and file a response, and the process is called “answering” the lawsuit. It has to be delivered and filed in the proper place, on time, or the Plaintiff can win a judgment by default. Under New York law, a judge will allow a default judgment if you do not answer within twenty or thirty days, depending on how you are served with the summons and complaint. You must answer within twenty days of service, if you are handed the summons in person, for example. There is a thirty-day window to appear only when service is completed in a specific, shorter list of ways, like service through the Secretary of State or leaving papers with someone else. If the suit is in a Texas district or county court instead, then the Answer must be filed by 10:00 a.m. on the Monday after twenty days have passed since the complaint was served.

2. Answering without a lawyer

Small Business owners believe they can save money by answering for themselves. Only a lawyer can represent your business. A corporation, which is a different legal “person” from the owner(s), can only appear in court through a lawyer.

3. Trusting the LLC shield

Business owners take pride in the way their LLC protects their personal assets. That’s not always enough. There is a risk of personal liability in the form of a personal guarantee. You promise to pay a debt if the company does not. If you guarantee a debt, you can’t just stop the collection by seeking the protection of the LLC shield. Your nonexempt personal assets answer for the debt. A personal guarantee is an entirely separate obligation from the deal itself. If the company goes bankrupt and gets a discharge, the guarantor’s personal obligation is not ended. Many guaranties also waive defenses the guarantor would otherwise have. Read the guaranty first. In Texas, a guaranty is only enforceable when it is signed by the guarantor in writing. If you deny signing, you have to say so in a pleading verified by affidavit or the guaranty will be treated as proved.

4. Ignoring the confession of judgment

Confessions of judgment can seem routine, until one is filed. New York lets a creditor file a confession of judgment in court only in a county where the defendant lived when signing or still lives (a business lives where it has a place of business). A filing deadline also applies: It must be filed within three years after the defendant signed. An August 2019 law bars a MCA creditor from filing them in New York against any out-of-state borrower. Check whether yours fits.

5. Letting a judgment sit

A freeze on a business bank account hurts. The creditor can use a restraining notice, served on a bank, to freeze up to twice the amount due. Once served, the bank usually holds the money up to one year unless the judgment is paid or vacated or a court orders it. There are ways to fight back, such as a motion to vacate a default judgment if you miss the filing deadline (generally within a year of being served with the judgment and notice of entry).

6. Never asking whether it was a loan

Some lawsuits are really about whether the MCA is a loan at all. The appellate court held in LG Funding v. United Senior Properties (2020) that an agreement was not a loan unless the advance was “repayable absolutely.” New York courts usually weigh three factors. Those are the reconciliation provision; the finite term; and the recourse left to the funder if a merchant files for bankruptcy.

It matters because the state’s highest court, in Adar Bays v. GeneSYS ID (2021), held that a corporate borrower can raise criminal usury (interest above 25% a year) as a defense in a civil case. A loan proven criminally usurious is void, and neither principal nor interest are collectible.

Before you contact a lawyer, gather the documents at issue. They are usually the first things reviewed. Get the signed guaranty and the contract it supports, plus demand and default letters.

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.