Served by Cap Merchant: 8 Documents to Pull Before You Respond

If a merchant cash advance lender has sued you, your first step is gathering documents. Pull the court papers, the affidavit of service, the agreement between you and the lender, any personal guarantee, the payment history, records of reconciliation requests, bank notices, and any judgments against you. The lender’s attorneys may contact you for settlement discussions. You will likely have a short deadline to respond, and telephone or settlement talks don’t postpone that date.

1. The complete court papers

Save the summons, the complaint and any exhibits, the envelope it came in, any emails, and any court or bank notices. Make copies of everything you were served with, especially the summons and complaint. You’ll need that to know your case number or index number, as well as the names of the parties and court they come from. The plaintiff can name several different entities as the defendant: your business name, you or other owners, or combinations. Keep track of all of them. These key facts are not always all on the first page, so you may need to hunt through all the papers. Be patient.

2. A record of how you were served

You have a deadline, and it starts running after the papers are served on you. Write down each time you received something. Detail how you received notice: whether a person handed you papers, you found them on your door, in your mailbox, etc. Whoever served you will tell the court when and how they did that, so you should keep a record and compare it to the process server’s. In a New York state court, if the papers were personally handed to you in New York, you have 20 days to respond after service. If they were left at your home with another adult, or posted and mailed, it’s 30 days after service is complete. In federal court, it’s 21 days to answer. You don’t have 30 days no matter what. Even if you have a clear reason to object to service, that may not fix anything if you wait too long to tell the court.

3. The signed agreement and amendments

You and your business may have signed more than one. You’ll need the contract, and any amendments or modifications. Compare all of these to the complaint. The judge won’t just look at whether a contract calls itself an agreement, a loan, or a merchant cash advance. New York courts have looked at several factors. Look for reconciliation provisions, a finite term and recourse if the business goes bankrupt. Mark the clauses that contain governing law and jurisdiction choices. Look for provisions forcing arbitration.

4. Any personal guarantee

Did you or your co-owner guarantee the performance of the contract, or did you promise to pay any money that the business didn’t pay? You should find the agreement for this and compare it to the complaint, the court papers, and the dates. There is a technical legal difference between a guarantee of performance and an unconditional payment guarantee. You, rather than the business itself, may face collection from a lender through a guarantee.

5. Payment history and bank statements

Keep the bank statements for the checking account that the merchant cash advance company drew from, or that you made payments from. Keep your own records of debits and credits to the account or loan. Analyze the payment history, and see whether the lender recorded every payment you made. If they didn’t, find a record of what you paid. An MCA lender will ordinarily print the total it says you owe in big print. That’s not proof, though.

6. Reconciliation requests and replies

Find copies of all reconciliation requests and replies. In some of these agreements, the total number and amount of payments depends on the company’s sales volume each day or each month. Did that drop? Did the business ask for a reconciliation from your merchant cash advance lender? What did you send the MCA lender? What, if anything, did they say about it? Your recon requests and the lender’s responses may help show whether it really acted like a loan. That matters because knowingly lending money in New York while charging over 25% a year in interest is criminal usury, a felony. Corporations often can’t claim usury, but they can raise criminal usury as a defense.

7. Bank, UCC and customer notices

Get the actual notice or letter. Did your bank, merchant services, or customers get a UCC filing, a demand, a notice of restraint, or assignment? If you ask your bank or business partners about what the lender told them, they may give you a vague “it’s in the contract” response. You won’t get far with that. You need the original document they got from the lender. Any documents you get on these points don’t prove that the lender has grounds to collect money from you. Get legal advice before moving accounts or business assets out of the business.

8. Any judgment or confession of judgment

If the lender has a default judgment, or you agreed to one by confession, pulling the court record is still worth doing. Get it reviewed quickly. In New York state court, a movant has one year after being served with the judgment and notice of its entry to make a motion to set aside a default judgment for excusable default. A New York confession of judgment may only be entered within three years of the date of its signing. A confession of judgment may not be valid everywhere. It also bears pointing out that forcing a confession of judgment into the agreement doesn’t guarantee the lender will be able to use it.

Settlement or Payment Plan

Whatever agreements you and the lender reach, including a settlement or payment plan, put them in writing. First, write down how much you will pay, when, and how many payments. Which owners and businesses does it cover, and does it release personal guarantees? What happens to the lawsuit? Does the court dismiss it? What happens after a missed payment? You also want to make sure any settlement company you use has actually hired a lawyer who will actively defend the case. The people negotiating the settlement may not be the same people defending the lawsuit. Gather the documents, and speak with a lawyer as soon as you can.

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.