Sure Thing Funding Litigation: 5 Reasons Default Judgment Is the Real Risk

If Sure Thing Funding has sued your business, the lawsuit itself is not the real danger. Default judgment is what you should really fear. You usually have only 20 to 30 days to respond to the lawsuit after it is served, so time is of the essence. If you do not respond by the deadline, you lose the lawsuit by default. Once a cash advance company obtains a default judgment against you, it may move to freeze your bank account or seize other assets of your business. That can ruin your business. So if you have been sued by Sure Thing Funding or any other merchant cash advance company, there are five reasons not to ignore the lawsuit.

1. The clock is already running

Don’t be fooled by the way a summons and complaint are served on you. A summons and complaint are often served on you in New York by a professional process server. But sometimes the summons is served by mailing papers to you through the U.S. Postal Service, or by leaving papers with someone else at your home or business. New York requires that when you are served personally in New York, you have 20 days to answer. There are other methods of serving, but when it’s complete, you have 30 days to respond after service is complete. It could take you a while to assemble all the documentation you will need to respond to the complaint. But once you’re served, the clock is running, so you have to assemble the information as quickly as possible.

2. You lose without a fight

With a default judgment, the plaintiff wins the lawsuit without proving any of its case. No matter how strong your defenses are, you lose all of them with a default judgment. It can be difficult to undo a default judgment, and some defenses may be waived if you do not list them in the first answer that you file.

Your strongest defense in an MCA case is that the payments cannot go up or down with the amount of your daily sales. If it’s not a true MCA and it’s simply a loan with a regular payment that doesn’t vary with your daily sales, the judge may call it a loan. The loan rates in New York are capped at 25% per year under New York’s usury law. MCA rates are often in triple digits, so the judge may consider the funding agreement a loan that is usurious. This defense is lost with a default.

Another provision you may lose by defaulting is the reconciliation clause promising a lower payment when your revenue drops. Many funders refuse to reconcile. Getting a written refusal from the funder is powerful evidence.

3. A judgment unlocks collection powers

Once a lender gets a judgment, it has new powers to collect. It can put a restraining notice on your bank account to stop you from taking money out. A restraining notice can freeze up to twice the judgment amount - for one year. A judgment also adds interest charges. New York State judgments accrue interest at a rate of 9% a year.

Also, your creditor may take these actions: enforce a lien on your equipment, inventory, or receivables under the Uniform Commercial Code, pursue you personally on a guarantee you made, contact your customers, and the public judgment against you can block you from getting financing.

4. Undoing a judgment is hard

It’s harder to defend yourself from a judgment than it is to defend against the original lawsuit. There are specific reasons why you can file a motion to vacate the judgment. For example, you can file a motion to vacate the judgment on the grounds that you were not properly served with the lawsuit. Undoing a judgment requires specific proof, and excusable default requires an explanation of why you failed to answer the lawsuit in time. To get an excusable default, you must act within one year of the date you received notice that judgment was entered. If you weren’t personally served, and didn’t learn of the judgment within time, you may defend it if you act within one year of learning of the judgment and can show a meritorious defense, provided it is no more than five years after the entry of the judgment.

Nor can you simply wait out a judgment: the presumption that a judgment is paid after 20 years only applies if there is no written acknowledgment of the debt or no partial payment on the debt within the 20-year period.

5. A confession of judgment shortcuts everything

A provision in the funding agreement called a “confession of judgment” lets the creditor get a judgment against you without telling you or giving you a hearing. A confession of judgment short-circuits the entire process and lets the lender obtain a judgment against you at lightning speed. The New York state legislature changed the law in 2019 so that the confession of judgment is restricted against out-of-state businesses. But older contracts and contracts with in-state businesses can still contain confession of judgment provisions, and may provide the basis for a motion to vacate.

Move Fast to Respond to the Lawsuit

Don’t waste any more time. Move fast to respond to the lawsuit, or the consequences can be disastrous for your business. You will need copies of the funding agreement, your bank statements, emails, and you should never try to hide money or move it. The first thing you should do is contact an attorney.

Fighting a merchant cash advance lawsuit and negotiating with the plaintiff are not either-or propositions. The best way to get the plaintiff to talk about a settlement is often to file a strong answer and prepare to defend the case. And never sign a settlement agreement under pressure of a lawsuit threat, without understanding the terms, without legal review, and without time to think. Don’t let a cash advance company file a judgment against your business without a fight.

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.