MCA Lawsuit Defense

Day one

Fix the deadline before you do anything else

Under CPLR 320(a) you have 20 days to appear if the summons was personally delivered to you inside New York, and 30 days if service was made any other way: substituted service under CPLR 308(2), conspicuous (nail-and-mail) service under 308(4), service on an entity through the Secretary of State, or service outside the state. Which one applies is a factual question about how the process server actually reached you, and it is the first thing we establish.

Default is not a neutral outcome. It is the funder's preferred outcome, because a default judgment converts into a restraining notice on your operating account without further argument.

Every county in New York, and both sides of the caption

Funders do not file only in Brooklyn. Their forum clauses name whatever county is convenient for their collection lawyers, which is how a bakery in Queens ends up defending a case in Ontario County, or a trucking company from Georgia finds a judgment against it in Erie, Monroe, Orange, Rockland or Nassau. New York has 62 counties and one bar. We appear in the Supreme Court of any of them, through NYSCEF where the county has it and in person where the argument calls for it, and in the federal courts for the Eastern and Southern Districts.

We also sue. Defense is half of this practice. When the facts support it we start the case ourselves, in the county or the federal court that suits the merchant rather than the funder:

• an action for a declaratory judgment that the agreement is a criminally usurious loan and void, under Penal Law § 190.40 and Adar Bays;
• a separate lawsuit (a plenary action) to set aside a judgment by confession and seek the return of what was taken under it, with restitution under CPLR 5015(d);
• damages for a financing statement the funder refused to terminate, under UCC 9-625;
• breach of the reconciliation covenant, where the funder kept debiting a fixed amount while receipts fell;
• in federal court, claims under the civil RICO statute for collection of an unlawful debt, 18 U.S.C. 1962, a theory that has survived motions to dismiss in the Southern District of New York in cases brought by other firms, such as Haymount Urgent Care PC v. GoFund Advance, LLC (S.D.N.Y. 2022) and Fleetwood Services, LLC v. Ram Capital Funding, LLC (S.D.N.Y. 2022).

Suing first can change the conversation. The funder has to answer your complaint, in the forum you chose, and its lawyer is explaining its underwriting file instead of your bank statements. It is not right for every merchant, and we will tell you if it is not right for you. A claim that survives a motion to dismiss has not been won, and what happened in another case does not predict what will happen in yours. Sued or planning to sue in Florida? See Florida MCA lawsuits.

Answer, or move to dismiss first?

Both are real options and the choice is strategic, not automatic.

A pre-answer motion under CPLR 3211 must be made before the responsive pleading is due, and serving the motion extends your time to answer under CPLR 3211(f), until 10 days after service of notice of entry of the order deciding it. That is meaningful breathing room where the complaint has a real defect: no documentary basis for the sum claimed, a defective assignment, an entity that lacks capacity to sue, or a claim barred on its face.

Where the defect is substantive rather than pleading-level (the agreement is really a loan, the reconciliation covenant was breached, the fees are unconscionable), an answer with affirmative defenses and counterclaims is usually the better vehicle, because it opens discovery into the funder's own records.

Reclassification: where these cases are usually decided

MCA agreements are drafted as purchases of future receivables specifically to sit outside usury law. New York courts look at substance. The framework most often applied comes from LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep't 2020), which weighs whether:

1. there is a reconciliation provision that genuinely adjusts the remittance when receipts fall;
2. the agreement has a finite term; and
3. the merchant's bankruptcy is an event of default.

A reconciliation clause that exists on paper but is conditioned into uselessness (discretionary, hedged with notice requirements no merchant could satisfy, or simply never honored in practice) is the pressure point. The First Department addressed illusory reconciliation in Davis v. Richmond Capital Group LLC, 194 A.D.3d 516 (1st Dep't 2021), and the Second Department revisited the factors in Principis Capital, LLC v. I Do, Inc., 201 A.D.3d 752 (2d Dep't 2022).

Why it matters: if the transaction is properly characterized as a loan, the rate becomes relevant. Penal Law § 190.40 makes a loan at an annual rate exceeding 25% criminal usury. A corporate borrower generally cannot assert civil usury as a defense under General Obligations Law § 5-521, but criminal usury remains available, and the Court of Appeals confirmed in Adar Bays, LLC v. GeneSys ID, Inc., 37 N.Y.3d 320 (2021), that a criminally usurious loan is void.

Defenses and counterclaims we plead

• Reclassification and criminal usury on the framework above.
• Breach of the reconciliation covenant and of the implied covenant of good faith and fair dealing, where reconciliation was requested and refused or ignored.
• Unconscionability, procedural and substantive: a take-it-or-leave-it contract, no opportunity to negotiate, stacked fees, remedies grossly disproportionate to any breach.
• Fraudulent inducement where the broker's representations about cost, term or reconciliation diverge from the document.
• Unauthorized UCC filings under UCC § 9-509 and § 9-625, which also carry statutory damages.
• Failure to state a claim and lack of standing where the plaintiff is a servicer, a broker, or an assignee that cannot document the chain.
• Disclosure violations where applicable. New York's Commercial Finance Disclosure Law (Financial Services Law art. 8) requires specified disclosures, including an annual percentage rate, for covered commercial financing transactions, with implementing regulations from the Department of Financial Services. Whether a particular transaction is covered, and what follows from a violation, depend on the transaction's date, size and structure.

Plead it or lose it. Affirmative defenses and counterclaims omitted from the answer are generally waived. This is the concrete cost of letting a form answer go in, or of answering on your own (pro se) to stop the clock and planning to fix it later.

Stacked advances: one strategy, not five engagements

Merchants rarely have one advance. They have four or five, taken over a few months, often brokered by the same intermediaries and papered by the same drafting counsel. That is a defensive asset, not just a bigger problem:

• The agreements share language, so the reconciliation argument that works against one funder generally works against the others.
• Overlapping and duplicative UCC filings across funders create their own claims.
• Competing restraints and priority disputes are more coherently addressed together.
• Global resolution is possible when one lawyer holds all the files and can trade across them. It is not possible when five lawyers are each optimizing one case.

Forum, jurisdiction and removal

Most MCA agreements contain New York choice-of-law and forum-selection clauses, which is how out-of-state merchants end up defending in Kings or Queens County. General Obligations Law §§ 5-1401 and 5-1402 give those clauses real force in New York. That cuts both ways: a New York forum also means New York law on confessions of judgment, New York UCC provisions, and the Appellate Division authority above.

Where diversity exists and the amount in controversy is met, removal under 28 U.S.C. §§ 1441 and 1446 must be evaluated within 30 days of service, a short window that closes quietly. We appear in the Southern and Eastern Districts of New York, and we assess removal at intake rather than after the deadline.

The dates that govern

General information, not advice on your case. Deadlines turn on how and when you were served, what the court's part rules require, and the procedural posture. Do not compute your own answer date from this table. Send us the summons and the affidavit of service.

What to send us

1. The summons and complaint, and the envelope or affidavit of service if you have it.
2. Every funding agreement with this plaintiff and with every other funder.
3. Bank statements covering the funding period and the remittance history.
4. Any written reconciliation request you made, and the response. Email counts, and it matters a lot.
5. Broker communications, term sheets, and anything you were told about cost or term before signing.