Sued by Elevation Capital: 7 Things That Happen Next

If you are being sued, know that you are not alone. The court case can run with or without your response. The earlier you start on it, the better you can control the outcome. Here are seven things that happen when Elevation Capital sues you and your small business.

1. The papers arrive

You receive a complaint and a summons or citation. Read and understand these papers right away. They tell you who is suing you, and what will happen if you do not show up. Make a folder of all court-related papers.

If your name and the name of your business is on the papers, it may become more complicated. Know where the case is.

2. A deadline starts running

You are required to file an answer in court within a certain number of days. The time frame is determined by how you were served and state law. You must respond by the deadline even if you are trying to settle the case out of court. Write the date on a calendar, with a reminder seven days beforehand.

In most cases you have 20 days to respond if the summons is delivered in-person in New York, or 30 days after service is complete if the papers are delivered another way, such as being left with a relative and mailed to you, or being delivered through the New York State Secretary of State. Calling the finance company doesn’t change your deadline to respond.

3. Silence invites a default

If you don’t show up by filing an answer, you may be served with a final judgment against you for the entire balance, and post-judgment collection efforts may start.

In a New York debt lawsuit for a fixed sum of money, the court clerk will enter a default judgment for the amount claimed, plus court costs and interest, once a plaintiff applies with proof. Interest on a business judgment in New York is 9% per year. Defaults make matters worse than they need to be.

4. Your lawyer tests the claim

A business collections case begins with a complaint listing the plaintiff’s version of events. Your business lawyer will check the other side’s position to see if it is clear and solid. Fighting a judgment for more money than you owe is an important reason to deal with it now.

Consider what is being claimed and check whether it is right. Small errors or miscalculations happen, and they affect the strength of the case. Gather the materials and records that are necessary to show that there are mistakes. Did you make a payment that was missing from statements? Does the other side have the right to sue you?

If the debt is a merchant advance, whether it is treated as a loan or purchase of income will depend on the whole transaction, not its label. In New York a corporation generally cannot assert usury as a defense except for criminal usury (over 25% a year).

It can also pay to look at what’s behind the demand. For example, in 2023, a New York appeals court in Crystal Springs Capital v. Big Thicket Coin set aside a default judgment against a merchant. The court saw the advance as a criminally usurious loan. Its reasons included the fixed $4,000 daily debits, no reconciliation to sales, and full repayment obligation even in bankruptcy. This decision is a reminder that none of these points are automatic defenses, and that they won’t apply to every financing agreement.

5. Your bank and customers feel it

An unexpected letter to your customers telling them to pay the factor instead can be upsetting. Get the document itself so you can find out what’s happening. Just because you’ve had a notice of this type doesn’t necessarily mean there is any court ruling allowing it. A UCC filing, a notice of assignment, a demand to the bank to withhold funds, and a notice sent to customers are different things. Don’t take things at face value without reading them through.

After a New York judgment, a restraining notice served on your bank can be a wrench in the works for up to a year if it doesn’t get paid or get overturned before the deadline. New York restraining notices to banks can block sums equal to twice the judgment amount. Any deposits made after the notice is served can be held. Best practice before you act is to get advice before altering your account arrangements, your payment methods, or the whereabouts of assets.

6. If a judgment already exists

Look at the paperwork and results first. Phone the court clerk’s office, or review the on-line docket. If there is a problem with the case, consider whether you can have the judgment set aside. Please know that the deadline for this may be close.

In New York, a move to overturn a default judgment for excusable default needs to be made within one year of being served with a copy of the judgment and written notice of its entry. A confessed judgment in New York can be filed within three years after the affidavit is signed, and only in the county where the business had or has a place of business. A promise to enter a judgment may not be accepted on the same terms in every state.

7. Settlement runs alongside

Whatever way the case may be resolved - out of court or through legal proceedings in front of a judge - a lawsuit doesn’t prevent you from attempting to arrange a work-out with the person bringing the lawsuit.

When you are weighing a settlement offer, think about it in connection with your response, and your priorities for cash flow and other creditors. You will need to make a payment that you are able to handle. Even a reduced payment can leave a high balance at the end of the arrangement. Check any settlement carefully to see that it covers what will be paid in total and when, which debts or judgments are covered, who and what are included as obligors and creditors, a release of any personal guarantee of the debt, exactly how the lawsuit ends and any judgment is resolved, and whether it ends any UCC filing, bank restraining notice, or demands sent to your customers. What are the consequences if you pay late?

No two lawsuits are identical, and the rules and court deadlines in each case vary. Don’t sit on these papers. Acting early on, before there’s a default or judgment against you, makes the most of your options.

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.