6 Mistakes Business Owners Make When White Road Capital LLC Sues

If you’ve been sued by White Road Capital LLC for non-payment on a merchant cash advance you received, you may want to know that this is a real lawsuit you should take seriously and you should take action soon. You can’t afford to ignore the lawsuit. The six mistakes that do the most damage are the owner acting late, answering the court summons without legal advice, agreeing with the funder about the balance, assuming there’s no case to defend, panicking when they noticed the bank accounts frozen, and settling the lawsuit blind. The solution often is to start collecting all documents and get with a lawyer before answering anything.

1. Missing the deadline

Don’t miss the deadline to answer the summons and complaint in the litigation. In New York, the funder starts a case and expects an answer in 20 days if you were handed the papers in person. But too many times the debtors don’t take the legal papers seriously and they don’t answer on time. Then they find that a judgment is entered in their case. Treat that deadline on the court summons as if missing it means it’s over and the judge will decide against you.

When the summons is delivered to someone else or through a state official, you get 30 days to show up in court, which 30 days begins running once service is complete. If you screwed up and are past the deadline, you may be able to reopen the case for excusable default, but you have a year to ask, beginning when you get served with a copy of the judgment and the notice that the judgment was entered in the court record.

2. Answering without a lawyer

Don’t answer a summons without a lawyer being involved and approving. Answering the lawsuit may seem simple but it is a complex process that turns on legal pleadings and court rules. In New York, one who is sued for a cash advance may choose to represent himself or herself if they are not a corporation. The corporation must appear by a licensed lawyer. In small claims court and commercial claims part of lower courts, the company may use an authorized person other than an attorney. You should tell your lawyer whether you gave a personal guaranty on the funding contract. The reason is that if you did give one, White Road Capital LLC may go after your personal assets as part of the case.

3. Accepting their number

Don’t accept the dollar figure the funder says is owed them. The funder will say what it is owed but that is subject to the documents and law. Whether you should pay that balance comes down to an accounting that matches the paperwork with the numbers in their complaint. The funder may have changed the amount owed by failing to apply payments or adding costs, to arrive at a higher figure than what the contract specifies. It’s also good to compare the funder’s claimed balance with your own review of what they first advanced you, what charges they took in fees, what debits cleared to them, and what kind of back-and-forth you had about reconciling balances. Note that any “default” claims can be wrong. That’s because a failed withdrawal can happen for a bunch of reasons. Bank error is one, an excessive debit request is another. If you were seeking a reconciliation when the payments stopped, that too can have been an intervening reason before the funder fired off a notice of default.

4. Assuming there is no defense

It’s wrong to decide that your side has no defense. Many factors may go into the defense of a merchant cash advance lawsuit. An MCA funding contract is usually written as a purchase of receivables, rather than a loan. But a court may not accept the difference if the repayment was unconditional. New York courts ask certain questions in deciding whether the deal is really a loan. Is there really a practical reconciliation provision? Is there a fixed time the repayment term can’t go past? Will the deal be enforceable if the merchant files bankruptcy?

If the fund deal was truly a loan, then New York law can apply a usury rate cap to some deals. Corporate borrowers can not raise a usury cap defense but they can argue that the deal violated criminal usury rules. To make a criminal usury claim, a deal must seek interest above 25% a year. But that’s only if the lender acted knowingly. A strong price alone is not enough to make a contract a criminal usury deal. Also look at where the case was filed. If your contract had a confession of judgment feature, then one filed in New York on or after August 30, 2019 can generally only be filed in the county where the business had a place of business when signing or filing.

5. Panicking over bank accounts

Don’t panic when your bank or merchant accounts are frozen by court orders. Don’t blindly react to the order without help and without planning out your next steps. You may think of blocking ACH payments, transferring balances, or switching to a new bank account. But stopping the debit order doesn’t wipe away the MCA deal. Stopping withdrawals may trigger a default. Beware that in typical funding contracts, a change of the bank account where receivables are sent may itself be an act of default. Keep every bank statement, and don’t change accounts before you get advice on how.

6. Settling blind

Don’t agree to a settlement on blind trust of a payoff amount, or without regard to the tax impact, and without a business plan on how to fund the settlement. Negotiating a settlement may work out well or not. Your contract will be a major factor. Also key are the current balance, your business finances, any legal claims you have against the funder, and whether the funder agrees to settle.

When debt is settled for less, any amount forgiven is generally taxable income. The taxing generally doesn’t apply to forgiven amounts received in bankruptcy or if a debt owner is insolvent when their debt is cancelled. A bankruptcy filing stops lawsuits and pauses enforcement of earlier judgments. Don’t count on outside relief either: the January 2025 NYS Attorney General settlement with Yellowstone Capital canceled about $534 million for certain borrowers, but White Road Capital was not on the list of those covered.

Whichever way you go, collect every document in the case. That includes the funding agreement, offer documents, your bank statements, a payment ledger, reconciliation requests, public records (including every Uniform Commercial Code filing) and every message with the funding company. A commercial lawyer who is licensed in your state can go through the whole record with you before you make any move that triggers a default or waives a valid claim.

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.