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Anatomy of an MCA Lawsuit

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Anatomy of an MCA Lawsuit


If you have defaulted on your payments for a merchant cash advance or you are dangerously close to defaulting on your payments, you may be worried about what legal action your lender may take against you.

In this article we will look at what leads up to an MCA lawsuit being filed, how the suit is filed and the notice is served, and how an attorney may respond in your defense.

Before the Lawsuit is Filed

When a borrower defaults on daily or weekly payments for their merchant cash advance loan, the lender and its collection agents will work very hard over the next two or three weeks after the date of default to get the borrower back into some new payment program, possibly with a reduced payment but still with dangerous weekly or daily payments.

If after a week or two, on average, the merchant cash advance company is unable to recover the borrower as a client and get them paying again, the MCA lender will then turn the file over to either their in house legal department or an outside law firm to pursue a lawsuit for breach of contract.

The MCA Company Files Suit and The Suit is Served

When that breach of contract lawsuit is filed, it will most likely be filed within a jurisdiction inside the State of New York. That lawsuit will likely be in the courts of the State of New York because the law is favorable to the MCA lenders in New York.

Once the MCA lender files that breach of contract action, they will then send a summons which is a notice of the lawsuit to the borrower. They should properly deliver the summons by using a process server or local sheriff to hand deliver a copy of the breach of contract lawsuit complaint to the borrower at their home or at their place of business.

This is called personal service. Most service is proper if it is personal service.

What often takes place with the New York law firms representing the MCA companies is that they will prepare a summons that says that they have served you by mail or by electronic mail.

What this summons essentially says is that on this certain date of 2020, as an example, a copy of the summons and the complaint was placed in a US postal mailbox at address to this particular borrower, at this particular business address, and service of the summons has taken place on the date that we dropped that letter into that blue post office mailbox.

So, with service by mail they could either argue that they sent the borrower an email on a certain date and therefore, service was effective on the date that they sent the email or the date that they actually dropped the physical envelope in the mailbox.

If you are a borrower that is out of state, meaning, outside of the State of New York, you then have 30 days to file a response to that lawsuit from the date it was dropped in the mail. Without going into too much detail here, there is a possibility to contest or fight the service by mail as being improper or illegal.

Personal service that’s hand delivered is almost always proper. Service by mail being lawful and proper may very well depend on what the subject MCA contract says that the borrower signed with the MCA Company.

Responding to the MCA Breach of Contract Lawsuit

Let’s assume that a response needs to be filed within 30 days after the borrower received a copy of the lawsuit. That means that within 30 days of that date, the borrower/defendant must file a formal legal pleading in defense of the breach of contract lawsuit with the court in the state of New York.

If there is no response filed within that 30 days or some other time frame that is appropriate, depending on the circumstances, then right after the 30 days expires the law firm representing the MCA Company is going to file a motion with the court for a default, and after that a motion for a default judgment.

This means that if you don’t file a legal pleading in defense of the lawsuit within that 30 days after proper service, then you’re going to end up with a default judgment against you. You will no longer have an opportunity to defend that lawsuit.

If there is a default judgment against the borrower/defendant, the plaintiff law firm representing the MCA Company is going to immediately try to garnish wages, attack bank accounts, lien and levy assets, etc.

It is critically important that an MCA borrower who gets notice of a lawsuit contacts an attorney immediately because time is running out from the moment they received a notice of that lawsuit.

Contacting an Attorney and Filing a Motion to Dismiss

Our law firm often will file a motion to dismiss when our clients receive a copy of the complaint or our clients are properly served with a copy of the complaint.

A motion to dismiss basically says that we believe that our client, the defendant/borrower, has been sued in the wrong jurisdiction and should have been sued in their home state and not sued in New York because they don’t have any business activity in New York.

If we file a motion to dismiss for lack of personal service of process, as discussed earlier in this article, or on the basis of a lack of a personal jurisdiction, basically we’re arguing to the court and asking the judge to rule that our clients should not have been sued in this particular court or our clients should be re-noticed and properly served with the action so our client has an opportunity to defend themself.

If it’s a motion to dismiss for lack of personal jurisdiction, that means that our client does no business in New York, does not own any real estate in New York, did not travel to New York to sign the MCA contract, and our client has no substantial “minimum contacts” in New York. Therefore, our clients should be sued in their home state where they operate their business.

Very often these motions to dismiss can be successful. We would always ask our MCA debt clients specific questions regarding any contacts they may have had with New York. Because if there’s merit for a motion to dismiss, that is an excellent way to start the defense of any lawsuit filed by an MCA company against a borrower.

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