The Fundworks Demand Letter or Lawsuit? How to Tell the Difference

Demand letters, collection emails and calls from the Fundworks collection department are not lawsuits. They have not filed a complaint with a court yet. A real lawsuit in state court or in federal court starts with a summons and complaint naming a court and naming the plaintiff, and sometimes the names of lawyers representing the plaintiff. These papers will also name defendants and will show an index or case number assigned by the court. Similarly, arbitration starts with a Demand naming the American Arbitration Association (the “AAA”) and naming the plaintiff and the defendant or respondent. As with a lawsuit in court, these papers start the clock on deadlines for response. When you get a court summons or an arbitration demand, the race is on, and you need an MCA lawyer fast.

A demand letter from any company - bank, credit card issuer, collection agency - is a demand for payment and a warning that the company may sue if it doesn’t receive the full amount demanded. The letter says what you owe, but that doesn’t prove it is the correct amount. A demand is only the first move in a chess game, not checkmate.

The Fair Debt Collection Practices Act, also called the FDCPA, is a federal law which protects people from many of the tricks and lies of collection agencies. The law applies to personal and household debts but not to business or commercial debts. So when your business receives a collection demand from a bank, MCA company or other lender, that demand is not regulated by the FDCPA.

After a demand letter, a few more weeks of not hearing from the debt collector does not mean the company has gone away. In New York, a creditor has up to six years to file a lawsuit on a contract.

Deadline to Respond to a Summons

When papers arrive saying you are being sued, keep every page, even the blank ones, and the envelope. Note the names of the plaintiff(s) suing you, and the defendant or defendants named, which may include you. Note the name of the court. Take down notes on the date you got the papers and how you got them. The details are important to protect your rights.

If the lawsuit was filed in New York and the summons was handed to you in New York, then you must file an answer, a notice of appearance or a motion within 20 days. But get advice. Twenty days is nothing. The exact date is tricky. It depends on how you received the papers. If you got the papers from the sheriff, and the sheriff left a copy with another person and mailed a copy, or taped a copy to your door and mailed a copy, you have 30 days to respond. When served by the Secretary of State as agent, a corporation has 30 days after service is complete to answer or otherwise respond. If these papers were served outside the state, your time to answer is 30 days.

If you were served with a lawsuit out of state, the time to answer or respond may be shorter or longer than in New York. In federal court outside New York it may be 21 days. In Florida, 20 days. In Texas, 10 a.m. on the Monday after 20 days. All these details may be different, depending on the exact circumstances of service and location. Find out exactly what they are right away, and get legal advice.

| Court and how you were served | Days to respond | Clock starts | | New York state court, summons handed to you personally in New York | 20 days | When you are served | | New York state court, substituted service, Secretary of State, or service outside New York | 30 days | When service is complete | | Federal court, formally served | 21 days | When you are served |

Don’t guess or estimate the days by counting from the date the letter was mailed, or the day you opened the envelope. Finding out may require asking a lawyer. If you count the days wrong, it could cost you your case.

In arbitration, when the AAA gets the demand to arbitrate, they mail a notice to the respondent, who has 14 days from that notice to answer. If you don’t send in an answer, your silence will be taken to deny whatever the plaintiff said. Your answer is the start of a legal fight. If you don’t participate, the fight can go on anyway, but now you’re not even in the ring.

Even if you think there was something wrong in the way you were served, or even if you think the claim is wrong, act immediately. You may have a good defense to the lawsuit, but you need to raise it properly or it may be lost. Your business having its office and main operations outside the forum state does not give a right to have the case dismissed for lack of jurisdiction. The issue is not that simple.

Default Judgment

If you do not respond on time - by the deadline set by the court papers - the plaintiff can ask the court to find that you are in default. That can lead to a default judgment, which is a judgment which finds you have lost because of your failure to show up in court or defend the lawsuit. A default judgment is a green light for the funder to start many more collection steps.

In New York, the clerk enters judgment, for the full amount demanded plus costs and interest if the summons and complaint asked for a specific sum of money (a “sum certain”). For any other claim the plaintiff must ask the court to order entry of default judgment.

If the plaintiff does nothing for a year after you default, the court must dismiss it on request, but not if the plaintiff has a good explanation. You should not wait around for the year to pass, because it is very easy for the plaintiff to give a reason, or to take a step before the year is up. The best answer to a complaint is an actual answer.

After a New York judgment, the creditor’s lawyer can send your bank a restraining notice. The bank does this without asking the court or getting a court order, because the judgment allows it. The restraining notice is effective for a year. Outside New York, collection can look different: in one Texas case the appeals court approved a Fundworks receiver getting a 25% commission from the debtor.

With an MCA, the UCC filing, the notice to your customers and the subpoena to your bank are different papers, with different effects. Get your hands on the real document right away, before making changes. Don’t do anything before you know what it is.

Confession of judgment skips the summons and complaint and jumps straight to the judgment, but only if you signed something the lender asks the court to treat as a confession. For a New York confession, the papers must be filed in the county where the debtor lives or does business. They must also be filed within three years of when the confession was signed. Whether a confession of judgment is allowed depends on state law, not the terms of the confession. Don’t assume it is enforceable everywhere.

It can happen that a creditor sues and gets a judgment without you knowing. If you find a judgment entered against you, promptly get a copy of the court records. There can be mistakes. You can sometimes ask the court to undo a judgment, depending on the facts and details. Relief is not automatic. Get legal advice.

A Settlement Company Is Not a Substitute for a Lawyer

A settlement agent is not legally bound to go to court for you. When a settlement company says it will “negotiate,” it usually means it will discuss payment. A negotiation can go anywhere, or nowhere. A defense is a commitment to keep you out of default. If you hire a lawyer, confirm that the lawyer agreed to appear on behalf of every defendant.

Do the papers name the owner personally? There can be ways out for both the company and its owners, but this takes two very different analyses, not one. Some lawsuits are against the corporation only, and some are against the owner personally, and it is possible a personal guarantee or other contract makes the owner liable for business debts. When a lawyer reviews the documents, consider whether the lawyer looked at the details and risks for the owner individually.

A complaint is just a set of claims, not evidence. When your lawyer reviewed the complaint against you, did the lawyer compare the numbers alleged in the complaint with the original amount advanced, and the money collected, and the amount owed, and the amount paid out, and the credits, and the cause of any revenue fall-off you had? In some cases, it makes sense to request a reconciliation of advances and receipts. Your response is the start of an ongoing process with deadlines. There may be more discovery, more conferences, more motions, and even hearings. To stay on top of it all, your lawyer needs to know about payments, demand letters and other details.

Before a suit, or even after, the owner and funder may reach a deal, or the lawyer and lender may come to terms. But any negotiation, whether amicable or hostile, does not extend any deadlines set by the court. You can still negotiate, but you have to do the defense too.

The goal is the best deal possible, but a bad deal can be worse than no deal, and you must look past the bottom line. Look to see which legal entities and guarantees are covered. Look to see how the suit ends. Look to see what happens after a missed payment. Lower payments can still leave a big balance, and one funder’s deal does not settle your other loans. Keep separate records for each funder.

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.