Sued by Wellen Capital: 7 Things That Happen Next

If your business is facing legal action from the merchant cash advance firm Wellen Capital, once Gibraltar Capital Advance, you are facing a tight deadline to defend. They are coming for a judgment, and then for your bank account. You should take this seriously but you still have rights you can defend. Remember, though, that this is not a polite call from collections.

When a lawsuit arrives, a clock starts counting down to judgment. If you miss the deadline, they move to default, then to judgment, after which your accounts can be frozen. You should be aware of what happens when you get sued in order to make better decisions under stress.

1. Read the papers first

Is this a complaint and summons or just a letter from the other side’s lawyers? Letters aren’t as serious as actual court papers. In particular, you should look for a case number (often called the ‘index number’), the full name of the court it was filed with, and a list of who is listed as the plaintiff and the defendant. Keep every sheet, envelope, email. Write down the date the papers showed up and how you got them, because that can matter.

Wellen has sued merchants and their owners for breach of contract in New York Supreme Court. If someone says they can settle the lawsuit, make sure that a lawyer has actually agreed to defend the case for each defendant.

2. The answer clock starts

You have a deadline to answer, that starts with the day you get served. In New York, it is 20 or 30 days, depending on how and where you were served. For a business lawsuit, if you are served in person in the State, it is generally 20 days from the date of service. Other forms of service (substituted, nail-and-mail, or serving you outside of New York) give you an extra 10 days, or a total of 30 days after service is complete. Settlement talks and calls to the funder do not by themselves extend the deadline. If the plaintiff just served you a summons, you can force them to give you a copy of the complaint. Once you write and hand them a demand for the complaint, they have 20 days to get that document to you, or risk dismissal. If in doubt talk to a lawyer ASAP.

3. The claim gets tested

The complaint is what the plaintiff is asking for, and against who they claim that. It isn’t yet a judgement; but an allegation. So you should confirm with your own files how much they advanced, how much they claim you have repaid, and how much they still claim is due. Make sure that they have the right dates, amounts, and charges, and match up each number in the case with what the agreement says.

Look at the main terms, the paydown and how often, what notices you got, how the reconciliation worked, and how Wellen answered what you asked for. Write down what happened each time that you contacted Wellen, and what they said. Just calling it a ‘cash advance’ doesn’t decide the matter. Under New York law, in LG Funding vs. United Senior Properties, the court examines three factors, no matter what it is named: if it requires a reconciliation, if it gives the funder any right to collect what it is due even if the merchant goes bankrupt, and if the advance lasts for a definite period of time.

4. Where the case is heard

A New York court does not always get to deal with a dispute. A contract may require the case to be heard elsewhere, in another state’s court, or even before a private arbitrator. Look at the contract to see if you agreed that a different state’s law applies or that a dispute is to be arbitrated. And just being outside New York does not by itself mean a lawsuit in New York is wrongful. But be aware that since August 30, 2019, any confession of judgment against a non-New York business cannot be filed in New York.

5. The owner gets pulled in

As a business owner you may be on the hook through the personal guarantee clause in the contract. Look back to the contract and personal guarantee you signed for what language it uses that might make the owner liable. And, if so, both the business and the owner must each make a decision about defending, because the owner’s interests may differ from those of the business.

6. Silence leads to judgment

If you don’t answer the complaint by the deadline, the other side can get a default judgment, which can be disastrous for your business. Under New York law, in a commercial case a default judgment carries 9% simple yearly interest. Once Wellen gets the judgment, they can freeze your bank accounts with a restraining notice. They can freeze up to twice the judgment amount. The judgment shield in New York isn’t available to defend a business bank account; only to an individual account.

When you get a notice telling your customers or a merchant processor to pay Wellen, or a UCC financing statement, that is different from a court order. Ask what the filing is based on. Make sure you get advice before doing anything with a bank account or shifting assets around.

You should get and review the court records if your case has been given a default judgment. If you didn’t answer the complaint when you should have, you can file a motion to have the judgment vacated, based on excusable default, within one year of being served with the judgment papers and notice of entry. However, this can be a hard fight to win, so don’t rely on it. The best time to defend is before a judgment is entered against you.

7. A settlement may follow

Both sides may talk about making a settlement. This is not always a good move; but it may be the best choice you have. You need to weigh any offer against the strength of your defense, any other disputes you may be facing with your creditors, and the ability of your business to keep its commitments to pay. A reduced payment can still leave a big balance due, and new problems if the payments are missed. If you do settle, don’t rely on a promise over the phone - get it in writing, because an agreement is only as good as the paper it is printed on.

Before you agree to a settlement with your cash advance merchant funder, such as Wellen, check what you are paying and what you get: how much they say they are owed, what you have paid so far, which business and owner names are included in the settlement, if there is a personal guaranty in the deal does it also have a release with the settlement, how the lawsuit in court against you will be closed out, what happens if you miss a settlement payment and your deal falls apart, and confirmation that they will lift bank and UCC freezes. Paying on one case doesn’t settle every cash advance you owe. You need to keep an eye on every deal separately.

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.