Sued by Roc Funding? 7 Steps to Take in the First 20 Days

If you have been sued by Roc Funding, do not panic. There are steps you can take to avoid the worst outcomes. Merchant cash advance lawsuits move extremely quickly. If you choose to not defend yourself against the lawsuit, you risk the chance of having a default judgement entered against your company. Once a default judgement is entered you risk having cash or other assets seized from your business. Speaking with an attorney may help clarify your options.

1. Find your real deadline

Your contract will often say it must be filed in New York. If so, if the summons was handed to you personally within the state, you must appear within twenty days. For any other kind of service - like it was left with someone, or nailed to the door and mailed - you must appear within thirty days.

You might be served both a complaint and a summons, or you might just get a summons. The written answer is generally due twenty days after the complaint is served. If you received only a summons without a complaint, you can demand the complaint in writing within the time you must appear, then you get twenty days after it is served.

2. Don’t let it go to default

If you fail to appear or answer the complaint, the funder can seek a default judgment from the court. If the claim is for a specific amount, the clerk can simply enter the judgment. A default judgement gives the funder all the tools that would be available after a trial: bank restraints, levy (cash seizure), liens, etc. It is much harder to reverse a judgement than it is to defend against the original claim. Once a default has entered, you may be prevented from telling your side of the story.

If you are already late, a court may be willing to extend the time or accept a late answer if you show a reasonable excuse. A motion to vacate a default for “excusable default” must be made within a year of when you were served with the judgment and notice of entry.

3. Hire an MCA defense lawyer now

In New York a corporation is not allowed to represent itself in court outside small claims or commercial claims court, so it needs an attorney. With so little time to respond, you want the attorney to be able to dive in immediately. Make sure you get a lawyer who deals with these kinds of cases. Not every business lawyer is equipped to handle MCA defense. Make sure that you understand your attorney’s fee structure, whether hourly or a flat rate, before signing any agreement to have them represent you.

4. Gather and preserve everything

You will want to collect: contracts, amendments, ACH authorizations, mail, and bank statements from the last 90 days. If you’ve been contacted by MCA collections, keep copies of all phone messages, faxes, and emails, and document other communications. Make sure you don’t delete emails, even if they’re just in a spam filter. It is better to give your lawyer too much information rather than not enough. If you are sent anything related to the case, it should be given to your attorney promptly.

5. Read the contract’s fine print

Check for a confession of judgement clause and a mandatory arbitration clause. The contract may authorize a confession of judgement allowing the funder to get a judgement against you with no trial or notice. If a merchant cash advance lender prevails at arbitration, it can request a court to confirm the arbitration award as a judgment. Make sure you understand the contract and ask your lawyer how the different provisions change your strategy and options.

Check what the law says about confession of judgements. New York updated its law in 2019 to bar filing them against businesses that are not residents there. Texas recently made such clauses in covered commercial sales-based financing invalid.

6. Don’t make it worse

Make sure you do not take the following actions on your own: don’t unilaterally withhold payment, switch your bank, close bank accounts, or change payment processors. That could be treated as a breach that allows the funder to demand early repayment. If a personal guaranty was signed, that could be triggered as well. Do not tell your bank that an authorized debit was unauthorized. Don’t transfer money or assets that could be subject to a restraint or lien without your lawyer’s advice. Don’t sign any new advances or settlements without counsel.

7. Look at your real defenses

The key question in New York is whether the transaction is a true sale of future receivables or if it is actually a loan in disguise. How the case will play out depends on how the contract is written. New York courts generally weigh three factors: whether there is a reconciliation provision if the contract gets out of balance; whether the contract has a finite term; and whether the contract allows the funder recourse if the business goes bankrupt. Defense of merchant cash advance litigation is determined on a case by case basis and courts do not necessarily approach them all the same.

If the advance is actually a loan, New York’s usury law may apply, though a corporation can only raise criminal usury. Criminal usury kicks in at an annual interest rate of more than 25%. Usury can be raised as a defense but not as a counterclaim.

Beyond these defenses, many disputes end in negotiated workouts: reduced payoffs, restructured terms, lien releases. Bankruptcy usually triggers an automatic stay on most collection, but a business filing doesn’t automatically resolve the owner’s personal guaranty.

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.