Silverline Filed Suit: 7 Questions to Answer Before You Respond

Just because you are up against an MCA lender like Silverline doesn’t mean you can’t fight back. If you ignore the summons to appear in court, the plaintiff may seek a default judgment against you. A default judgment is, essentially, a win for the plaintiff for the reason that the defendant did not show up to court. Once the debt goes to court and you’ve confirmed the amount and been sure the lawsuit is real, you should answer the case on time. The court process gives you the chance to contest unfair balance claims and to understand the terms of any judgment against you. If you have been served with an MCA lawsuit, contact an experienced business lawyer right away.

1. Is it really a lawsuit?

If you have received something in the mail, that does not automatically mean that you are being sued. For example, if your company has received a letter in the mail informing you that the recipient needs to contact their lawyer or that if the recipient does not contact their lawyer, then further legal actions will be taken, then the company is not being sued. However, if an MCA company has filed a summons against your company, then that is a lawsuit.

If so, you should save any and all documentation that relates to the situation. This includes the MCA agreement or contract, all the correspondence you have had with the lender (whether it was through an email, a phone call, or anything else), bank statements, wire transfers, and the like. Save the envelope too! It will have a postmark, which may help to establish the date that you received the documents.

2. When is your answer due?

After receiving a summons or being served, read through the documents, and see when you must file your answer to the complaint. Not every state is the same.

In New York, for a state lawsuit, if a summons is handed to you within the state, you have 20 days to appear (meaning filing an answer, a notice of appearance, or a motion). If served in any other way, such as when someone accepts service for you and the papers are mailed to you, you have 30 days after the service is completed. It is only completed after 10 days after proof of the service was filed with the court clerk. For federal cases, there are 21 days from the service to file your answer.

3. Who exactly is being sued?

More than one person can be sued together in a lawsuit. Even with an LLC, the owner can be held personally liable if they have personally guaranteed the loan or the debt.

In one case, Silverline sued the merchant and the owner in the Kings County Supreme Court. Among the claims they filed for were the breach of the MCA agreement, breach of the owner’s personal guaranty, and unjust enrichment. You will need to locate the guaranty in order to start preparing for your defense. Whether the owner is liable will be looked at separately from whether the business is liable.

4. Can Silverline prove the balance?

If you show up, Silverline will need to prove its case against your business. It will need to show the judge that the business has breached the contract. This can be more complicated than one might think. The MCA contract will determine how the payments should be calculated and Silverline must prove that it has the right to collect and that the amount it is asking for is the correct amount.

In March 2024, Silverline’s unopposed summary judgment motion was denied by the court of Kings County for three reasons. Firstly, the attorney’s affirmation lacked personal knowledge. Secondly, there was no documentary evidence to support the amount funded. Finally, balance statements lacked a foundation as business records.

5. Was it really an advance?

The agreement may not call the transaction a loan and may have a number of terms which try to highlight that it is not a loan. However, the court does not have to take it at face value. It will most likely look at the terms in order to figure out whether the transaction is a purchase and sale of future receivables or a loan.

In 2020, the Appellate Division Second Department said an MCA is not a loan unless the principal is repayable absolutely. Three factors need to be considered: whether there is a reconciliation clause, if there is a fixed term, and if the funder can recover if the merchant goes bankrupt.

If it is a loan, usury comes in, though New York generally bars corporations from raising this defense against the lender, unless it is criminal usury. Criminal usury prohibits knowingly charging over 25% a year on a loan. With those factors in mind, look over the contract and ask yourself if something changed. Did revenue decrease? Were you unable to make payments? Did you ever ask the funder for an adjustment? How did the funder respond?

6. Is there already a judgment?

Are you at the point where you have received a notice of entry of judgment? If the court already entered a judgment, this is where the person who sued can start taking action to collect on the judgment.

If the business defaults on a sum certain, the funder can apply to the clerk for a judgment within a year, and the clerk will enter judgment plus costs and interest, but only if the required proof is filed. If the business can show excusable default, they can move to vacate within a year of being served with the judgment and notice of entry.

If you signed a confession of judgment, the funder might claim that it is enforceable everywhere it is legal. Don’t assume this is true. In New York, the time limit is three years after you signed the affidavit; it can only be filed in the county where you lived or where your business was located.

7. Should you settle, and how?

You might be thinking that it is better to settle, and there are situations where a settlement is preferred. However, this needs to be a strategic choice. Know what amount of money you have, if you have any liquidity, and if you can afford a structured payment plan.

Should you settle, you should take care to ensure that all the information is correct, even the business’ contact details, and that the settlement agreement mentions how the judgment will be satisfied. A settlement agreement needs to include the total amount, the payment dates, and what will be included in the agreement. This means any businesses, any owners, any contracts, and if the funder agrees to release any personal guarantees. It must also mention what happens after missing a payment.

When you are facing multiple MCAs, you can’t simply settle with one and think that all is well. A settlement will not work to resolve every MCA dispute, so keep a different set of records for every contract and case.

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.