Served by West Coast Capital: 8 Documents to Pull Before You Respond

If West Coast Capital or any other merchant cash advance company has sued you, do not ignore the papers. You need to respond in order to assert your defenses. Before you decide if you can file your own paperwork, or must hire a lawyer, or want to hire a lawyer, you should probably pull the following 8 documents.

1. The summons and complaint

This is the first set of paperwork that is served on you, telling you that a lawsuit was filed, and what relief the plaintiff is seeking. Make sure to mark on the summons the deadline for responding and put that deadline in your calendar and on a new to-do list you will create just to manage this merchant cash advance lawsuit. You and your corporation could be independently responsible for providing a response to the court, and the creditor could be able to obtain judgments against you both.

In New York you have 20 days to reply if you are served personally in the state of New York, or 30 days if you are served by some other method; in California debt collection suits, you have 30 days from the day you are served to file a response to the complaint. If you don’t file a response by the deadline, you may lose the case because you’ll automatically be in default.

2. The merchant cash advance agreement

You should pull your copy of the merchant cash advance agreement you signed. You will probably be referred to it in the summons and complaint, and can use it to help you form your legal and factual defenses. Courts often look behind the “sale of receivables” label to the actual terms of the contract. Look for a clear reconciliation clause, a fixed term, and see if the funder can collect in full if the business fails. If the deal is structured as a repayment of a fixed amount regardless of what happens to the business, or collection and payment to the funder as if the repayment were guaranteed, it may be treated like a loan subject to usury limits. You also need to pull your email or text files containing the offer you received because California law requires the disclosure of an Estimated Annual Percentage Rate (APR) that should be on an offer summary table.

3. Your personal guarantee

The lawsuit may include claims that you are personally liable for the advance because you signed a personal guarantee. You will need to dig out that guarantee to see exactly what it says, so you can mount a defense if necessary. The personal guarantee may be in the body of the MCA agreement itself, or attached to it.

A well drafted personal guarantee often will expose not only your bank account to execution, but also other assets. It depends, however, on the wording of the agreement, and also, on what state law applies. Ask a lawyer.

4. Any confession of judgment

Another document to look for is a confession of judgment. This means you agree in advance to the judgment against you - before there is even a court case.

In New York, new state law has (since August 2019) reduced abuse of out-of-state confession of judgments by restricting private creditors to filing only in the county where the debtor lived or had a place of business. But it has not stopped their use against New York businesses, or their use by other states. If the clause is included in your MCA contract, it makes it particularly important to hire a lawyer to respond to any lawsuit.

5. Bank statements and ACH history

Another document you will want to see is your bank statements and automated clearinghouse history going back over the entire life of the account. You may need the account information to prove that deductions from your business bank account did not exactly match up to the terms of the merchant cash advance agreement. These papers will help you determine exactly what was taken from you. You will also compare the debits with the lawsuit amount claimed. Were you credited for every payment? In California, arguing that you cannot repay the advance is not good enough.

6. Reconciliation requests and messages

Another set of documents are the communications you sent asking for reconciliation. If you have requested lower amounts, but the funder ignored you, that can matter later. Keep the emails or text messages with the funder and the broker from the beginning, to prove you made requests for lower payments.

7. UCC lien filings and notices

Next, look for anything in your file about a UCC lien filed against you or your business. A funder often sends notices about its UCC lien on your future payments to your clients. Keep a copy of all the collection and lien notices you receive from the creditor. Search the NY Department of State UCC database for liens against your business in New York.

8. A list of every MCA

Finally, you should make a list of every MCA debt. Is it just one advance, or were there advances from multiple lenders? You need a detailed account of every creditor and every debt before you can strategize.

Reach Out to a Business Debt Attorney

Once you pull these eight documents, reach out to a business debt attorney before the deadline on the summons. If you have a corporation sued in New York, only a lawyer can respond to the lawsuit for you. Don’t move any money around in ways that could be construed as hiding assets before the lawyer tells you how to respond to the suit.

In many MCA cases, the company comes to the table to negotiate a reduced lump sum or longer payment plan. If that happens to you, get all the terms in writing. Make sure you get the words “case dismissed,” “personal guarantee released,” “UCC lien terminated,” or “judgment vacated or satisfied,” in writing. Have a lawyer for your side look over any agreement before you sign it.

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.