Sued by Mantis Funding LLC: 7 Things That Happen Next

A lawsuit filed against your business by Mantis Funding LLC has to be answered. The lawsuit typically offers 20 to 30 days to reply. After the time is up, you are in default, and the plaintiff may apply for a default judgment against you. Move quickly, and an attorney can help you reach a settlement or even fight the lawsuit.

1. Read the papers

No matter what, read the papers. Don’t glance over them or throw them out. Stop and read every single page from beginning to end. This lawsuit will not disappear on its own. Understanding the summons and complaint isn’t easy, but it does lay out the information you need. These include the court that issued the case, the case number, the date when the case was filed, what Mantis is suing you for, and the deadline you have to respond. If the suit were filed in New York and the papers were handed to you personally, you would have twenty days. If you were served any other way you would have thirty days. Check out who represents Mantis, too. One firm files Mantis suits in New York state courts, mostly in Kings County. Its records are typically signed by an attorney of Zachter PLLC. If the law firm is Zachter PLLC, there’s a high likelihood that Mantis Funding LLC is the creditor.

2. Lawsuit or confession of judgment

Confirm what the papers are before starting anything else. This will help determine what you should do next. A confession of judgment (COJ) allows Mantis to begin debt collection without going through a lawsuit first. A confession of judgment was most likely in the original contract. Under its terms, this document allows Mantis to begin collection procedures without notifying you, making it more difficult to defend yourself. Since August 2019, a judgment by confession in New York may only be entered in the county where you lived when you signed the confession, or where you live now. This essentially shuts out out-of-state businesses. But a filed confession can still freeze bank accounts in many states.

Other states have different rules. Pennsylvania and New Jersey are popular places to file COJs. Out-of-state lenders often domesticate the judgment from another jurisdiction through a sister state’s court system to continue pursuing debt collection. This is common in places like Texas, Georgia, and Florida. In California and Washington and a few others, confession of judgments are unenforceable or heavily restricted. Your contract may try to route around that protection. What decides whether a COJ is enforceable or dead is the court where it was filed, and where your business is located.

3. Hire the right lawyer

In New York, a corporation must generally be represented in any lawsuit by a lawyer, and may not defend itself through its owners or officers, except in certain cases. Make sure you hire a lawyer with experience in these suits. Not every commercial litigation attorney has handled merchant cash advance (MCA) cases. Attacking a COJ for lack of personal jurisdiction, improper venue, or defective service often requires making specific procedural motions. Not a generic answer.

4. Know your defenses

The first defense in merchant cash advance suits usually starts with defining whether the agreement is an outright loan or an agreement to buy receivables from a business. Under usury laws, the interest caps that apply to loans generally would not apply to a purchase of receivables. A 2020 appeals court decision in New York came up with three factors to decide this question: Is there a reconciliation provision? Does the contract have a finite term? Does Mantis have recourse if the business goes bankrupt? There is disagreement on this point, though - courts can decide differently. Learning how your contract was worded is essential to understanding how to defend yourself.

Another strong defense angle is a payment reconciliation clause in the MCA agreement, which is supposed to shrink payments when business revenue drops. In practice, lenders rarely honor this clause. If you can show this, it is a breach of contract defense. Mantis’s own evidence can also fall short: a 2022 Kings County court denied Mantis summary judgment against MCF Drywall because its risk-management director lacked firsthand knowledge of the records.

5. If you miss the deadline

As a defendant, failure to respond will result in you being found in default. Mantis can then request a default judgment for what it asks in the complaint. If that happens, the court will treat whatever Mantis puts in its papers as true. A default judgment is typically for the full contracted balance, with interest and fees added, as well as the attorneys costs for Mantis. It is not always final; a motion to vacate may be possible if the service of the suit was defective, you had excusable neglect, or if you have a meritorious defense. A motion to vacate for excusable default must be filed within one year after you were served with notice that the judgment was entered.

6. Collection begins

When the creditor gets a judgment from the court, it will start looking for ways to collect. This might be through a lien, or by garnishing a bank account through a levy, seizing property, or restraining money your customers owe you. A restraining notice in New York served on your bank account can freeze up to twice the judgment amount. It stays in place for as long as a year. On top of that, a judgment on a business debt grows at 9% a year. Subpoenas to payment processors are common. And a judgment in one state can follow you to another. A 2022 Tennessee appeals court affirmed enrolling Mantis’s New York confession of judgment against Buy Wholesale Inc.

7. Settlement is still possible

In most cases, the most cost-effective option is negotiation, which can come at many points throughout a lawsuit. Mantis is often willing to settle for a reduced amount, rather than face the cost and uncertainty of trial. Waiting to settle after a judgment was entered generally costs more, but it still is usually better than suffering years of account garnishments. There are often multiple MCA lenders piled up on top of one another, and you have to negotiate with all of them together, because side deals with Mantis alone can trigger default clauses in your contracts with the others. Finally, never close your bank account to try to stop withdrawals. It will be treated as breach under your contract.

When advances are stacked like this, the outcome is usually less damaging through coordinated settlements than by filing for bankruptcy. Doing nothing is not recommended.

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.