Sued by Wide Merchant Group? 7 Steps to Take in the First 20 Days

Facing a lawsuit over a merchant cash advance from a funder like Wide Merchant Group is tough to stomach for anyone in the middle of it. First things first, do not ignore it. The initial deadline in New York may be as short as 20 days if you were handed the summons in person. So, save the papers, count the days, and get a lawyer looking at it right away. Your challenge is sorting out the numbers and seeing if you have some good defenses.

1. Confirm it is a lawsuit

A letter threatening action is not a lawsuit, and you should be aware of your rights. Should you receive legal documents (called a summons and complaint), you need to respond, or it may go into default. Save every paper sent to you, even the envelope with the date it got there. Note the name of every plaintiff, every defendant, what court it is in and the index number (looks like a case number). Record what the date was that it says you have to respond by and how it was sent to you (personally or mailed, for example). Keep notes of all emails or any messages. You never know what will be helpful in the long run.

2. Pin down your deadline

You will only have a limited amount of time to respond to the suit. Make sure you know exactly how many days you have to respond in court. Do not miss the deadline. You only get 20 days to appear or answer when the summons is handed to you personally in New York, but 30 days after service is complete by other methods such as leave and mail. State courts also follow a different set of rules than the federal courts, and that can matter a lot, depending on the particular facts of your case.

Talking to the funding company, applying for financing or talking about settling the case do not extend the court deadline. Do not get confused. If you miss the deadline, in New York the clerk can enter default judgment without a judge’s approval.

3. Get a lawyer who will appear

Some lawyers do not want to handle these cases, because they are known to be sticky. It may be easy to get a lawyer who will give you advice, but you need someone who will file a response. Negotiating a lower payment and actually defending against the suit are two separate jobs. So if a settlement company or broker is negotiating, confirm an attorney has agreed to appear to defend each defendant, the business and the owner. Too often, the defenses or counterclaims go by the wayside when nobody is thinking about the legal side of the case.

4. Check the numbers

See if the lawsuit papers have a copy of the original agreement. Look at how much was advanced, how much of it is claimed to be owed, and what the calculation is based on. Look through your agreement and any amendments. Collect all the relevant paperwork for the funding account, from guarantees to transaction histories, bank statements and every notice or letter you got. Add up the payments you made, refunds you got or debits that were returned, and see if it lines up with what they are trying to collect. A balance due they put in a letter or billing statement is not necessarily the true or correct amount owed, even if it seems obvious and clear.

5. Look for real defenses

Don’t assume you are stuck just because it is a contract you signed. Review the parties, the numbers, and the terms of the transaction. New York courts look at three things when deciding if it was really a loan: a fixed end date, a reconciliation clause, and if the merchant could still owe money if they go bankrupt.

What they call the deal does not decide what it is legally. What happened to the revenue and how did you handle it during that time? Did you ask for an adjustment or change in the deal? What records were sent to them? What answer did the funder give back? In general, no one defense works automatically, and often the other party has some arguments to throw up that may not be clear when you’re staring at it by yourself.

It might also help to see how each defendant was served, or whether there is a forum or arbitration clause in the contract. Was the owner named personally, or did the suit only go against the business? What did the personal guarantee say, if any? That the defendant is in another state is only part of the puzzle, and by itself does not typically mean the case is dismissed.

6. Deal with frozen money

If your bank account was frozen, what did it say on the papers? When a funder or another lender recorded its UCC lien on receivables, it may alert your customers or processors or have them freeze the receivables without warning. This may not mean that every debt claimed in the notice is actually due. When you get a notice like that, see who sent it, which contract they’re talking about, and figure out how they calculated the number.

In New York, once a judgment is entered, a restraining notice on the bank only has to freeze twice the amount owed, and the rest stays free. Get professional advice on your specific situation before closing or changing accounts or moving any funds. Also, if an attorney sends a letter about the freeze, that letter does not get the money automatically released.

7. Settle only in writing

If you decide to settle, confirm what they expect to get for how much and when. See if it makes sense based on your account balance and what defense you have. Make sure your new payment amount is something you can actually handle based on your revenue, or you may just dig yourself deeper. An agreement on any deal should be in writing, so each side knows exactly what they are agreeing to and who is signing.

Check that the written agreement has the final number, payment dates, and any money already taken or promised. Confirm which businesses and owners are listed and what each one promises to do. See if it includes the owner’s personal guarantee, if there was one. Will their UCC filings come off the business? What about any demands already sent to their customers? The agreement should include when and how the case will get dismissed, who gets released, and what happens if the payments are missed.

If the deadline already went by and a judgment has been entered, take action fast. In New York, you have one year after you were served with the judgment and notice of entry to file a motion to vacate the default for excusable reasons. Plus, any bankruptcy filing stops lawsuits in their tracks, no matter how the funding company signed you up.

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.