Union Funding Lawsuit: 6 Defenses Worth Raising in Your Answer

Union Funding Source is a merchant cash advance company. If you’ve been sued by it in New York, you have an answer deadline. If you were personally served, the answer is due in 20 days. If the service was another way, it’s 30 days. Think through six categories of defense: whether you were properly served, whether this was really a loan, whether it was criminal usury, whether you signed a confession of judgment, whether the default allegations are correct, and the affirmative defenses you have. Anything you don’t put in the answer could be lost, and if you don’t answer at all, you could get a default judgment.

Merchant cash advance contracts typically have a forum-selection clause that says if there is a dispute, the lawsuit must be in New York and under New York law, and so the funders bring these suits in New York Supreme Court. Named defendants are the corporation and you or any other owner who guaranteed it.

1. Challenge jurisdiction and service

Personal jurisdiction (jurisdiction over a person) and objections to the way you were served are two separate issues that can get mixed up because they often end up being argued together. They are not the same, and have different rules that tell when each can be lost. Objections to the jurisdiction of the court, or to improper service, must be in the answer, or the court may hold they are waived. For a service objection, the rules give you 60 days after serving your answer to move for judgment, but also allow an extension for “undue hardship.”

2. Ask whether it is really a loan

A merchant cash advance transaction can be a loan. One case to read is a 2020 decision by New York’s 2d Dept Appeals court, LG Funding, LLC v. United Senior Properties. In that case the court looked at whether the contract was really a purchase of future receivables or a loan. Courts look at whether there was a reconciliation provision; whether there was a finite term; and whether the funder had recourse if the merchant went bankrupt. Usury limits can apply to loans, even if the creditor says they are cash advances.

3. Raise criminal usury

Normally, corporations in New York are not allowed to use usury defenses. But that does not apply when a loan is “criminal usury,” when the rate is knowingly more than 25 percent a year. See NY Penal Law § 190.40. Courts have said that if a loan was criminally usurious, it is completely void; neither principal nor interest can be collected. But, importantly, the loan has to be criminally usurious: the creditor must have known the interest rate was above 25 percent.

In LG Funding the appellate court allowed the criminal usury defense to go forward. In February 2026, a New York state appeals court (People v. Richmond Capital Group) held the MCA agreements were really loans subject to usury limits.

4. Attack the confession of judgment

Some merchant cash advances include a confession of judgment. A confession of judgment is the debtor’s agreement that the court can enter judgment without a trial. The rules in New York say a confession of judgment can only be filed in the county where the debtor (1) lived when signing it; (2) lived when it was filed; or (3) has a place of business in this state. If the business has no NY place of business, the plaintiff generally can’t get a NY confession of judgment. A confession of judgment can be filed only within 3 years after it was signed. If it is older, it may be too late. If you see a confession of judgment, you should see if it is valid, and raise an objection if it isn’t.

5. Dispute the default and the numbers

If the funder says you defaulted on payments, it’s important to see whether this is actually true under the terms of your agreement. For example, maybe there were reconciliation provisions, but the funder didn’t honor your reconciliation request. Or it could be that the funder is double counting fees and charges. This is often one of the most important parts of a case.

One recurring problem is that merchant cash advance funders often send notices to customers and/or payment processors demanding that payments be sent to the funder. Those notices can be challenged, but timing matters.

6. Plead your affirmative defenses

One of the worst errors in a New York lawsuit is not to plead a good defense in the answer. Under CPLR 3018(b), the rules say that defenses including illegality, fraud, payment, release and statute of limitations must be pleaded. They also say that these are examples, and the list is not exclusive. For contract actions, the statute of limitations is generally six years. If you don’t raise these in the answer, the court may hold they are waived.

Negotiated Resolutions

Cases often end in negotiated resolutions. It’s extremely important to know that the terms of the settlement depend on the strength of the defenses. A business that answers on time and has its defenses on record, starts from a different place in negotiations than one that does not do that. If there is a default judgment, your negotiating position is much weaker.

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.