Merchant Cash Advance Agreements
Among the many merchant cash advance agreements sent to Florida businesses to sign are those with New York laws. The typical transaction is that the funder purchases a portion of the merchant’s receivables at a discount and the funds are collected via automatic withdrawals from the merchant’s business checking account. The owners often sign a personal guaranty. For a Florida merchant there are 3 questions that usually determine everything – the law that “protects” them, the jurisdiction of the dispute, and the lawyer who protects them, do they need a Florida bar card, a New York bar card, or both.
Florida Commercial Financing Disclosure Law
Is there a commercial financing disclosure law in Florida? Yes. The Florida Commercial Financing Disclosure Law was signed on June 26, 2023 via House Bill 1353. The Florida Commercial Financing Disclosure Law is Part XIII of Chapter 559 of the Florida Statutes, beginning with section 559.961. The Florida Commercial Financing Disclosure Law applies to any commercial financing agreement for $500,000 or less that is entered into on or after January 1, 2024. The Florida Commercial Financing Disclosure Law applies to accounts receivable purchase agreements, and merchant cash advances are classified as accounts receivable purchase agreements. The Florida Commercial Financing Disclosure Law requires a written disclosure provided prior to or at the time an agreement is signed.
The Florida Commercial Financing Disclosure Law requires disclosure of the amount financed, amount actually received, amount to be repaid, total dollar cost of financing, payment schedule and any prepayment amount. The Florida Commercial Financing Disclosure Law does not have an APR requirement, but instead requires only a disclosure of the total dollar cost of financing. The Florida Commercial Financing Disclosure Law does not apply if the provider enters into five or fewer agreements in the state of Florida in any 12-month period.
The Florida disclosure law, section 559.9615, can only be enforced by the Florida Attorney General. It does not give a private right of action to a merchant. The penalty is $500 per violation up to $20,000. $1,000 per violation after a written notice from the Attorney General about a prior violation, up to $50,000. A violation does not void financing and make it unenforceable, and there is no maximum cost allowed under the statute. A lack of disclosure or a defective disclosure can be the basis of a complaint to the Attorney General and a bargaining chip to get a settlement. It is not, in and of itself, a defense to a collection lawsuit.
Florida Usury
Usury laws in Florida are specifically set out in Florida’s statutes. Sections 687.02 and 687.03 limit interest on loans to the equivalent of 18% simple interest per year. For loans over $500,000, the limit is 25%. Section 687.071 criminalizes knowingly charging over 25% as a second degree misdemeanor and over 45% a third degree felony. It prohibits Florida courts from enforcing credit extended in violation of that section. Section 687.04 provides an additional penalty of a civil action in which a willful violator of the provision forfeits all interest and if usurious interest was collected, the lender is liable to the borrower for twice the amount collected.
The leading Florida appellate court case on usury is against the merchants. In Craton Entertainment, LLC v. Merchant Capital Group, LLC decided by the Third District Court of Appeal in January 2021, the funder successfully sued in the Miami-Dade circuit court after a default. The merchant said the agreement was a disguised loan because it had a credit check, security interest, and a personal guaranty and no “obligation release” clause. The appeals court affirmed the funder’s success in a one page order. It said the obligation to pay was not “absolute” because the repayment was based on revenue and a reconciliation clause allowed payments to track sales. To successfully argue Florida usury the merchant would have had to show that it was required to pay no matter what its sales were.
Power of Attorney to Confess Judgment
A confession of judgment is less important for a Florida merchant than for other states. Florida section 55.05 voids any power of attorney to confess judgment signed before a lawsuit was filed, regardless of whether it was signed in or out of Florida. New York limited this on August 30, 2019. With the new CPLR 3218, a confession could only be filed in the New York county in which the defendant was residing when signing, and a business is only residing where it is carrying on a business. A Florida company with no business in New York would therefore not be able to have the confession filed against it in New York.
Forum Selection Clause
A more immediate threat to a Florida merchant may be a forum selection clause. In Manrique v. Fabbri (1986) the Florida Supreme Court ruled that these clauses are enforceable unless it would be “unreasonable or unjust.” Florida’s 2014 forum selection clause statute purports to codify this ruling. Florida courts divide forum selection clauses into mandatory and permissive clauses: a mandatory forum selection clause is one requiring a plaintiff to file a suit in a certain forum, and a permissive forum selection clause is one that the plaintiff accepts to subject himself or herself to a certain forum. A mandatory forum selection clause is enforced unless it is found to be unreasonable, and inconvenience or cost does not render it unreasonable. A Florida merchant suing in its home state in contravention of an exclusive forum selection clause providing for New York could have the suit dismissed.
A Florida merchant’s case will probably be in a New York state court, because the funder files where the contract’s clause specifies. Some funders sue instead in Florida circuit court, like the funder in Craton did in Miami-Dade County. Federal court is the third option. Florida’s federal courts split the state into the Northern, Middle, and Southern Districts. A final federal judgment from New York can be filed in a Florida district under 28 U.S.C. § 1963. That provision does not apply to judgments from New York state courts.
Florida Enforcement of Foreign Judgments Act
A New York state-court judgment can’t be used against a Florida merchant’s bank accounts until it is domesticated. The funder has to record it with a Florida circuit court clerk under the Florida Enforcement of Foreign Judgments Act, sections 55.501 through 55.509, including an affidavit of the merchant’s last known address. The clerk then mails notice by registered mail. Under section 55.505, no execution or other process to enforce the judgment can issue until 30 days after that mailing. Under section 55.509, enforcement and the judgment lien are stayed if the merchant within 30 days of recording the judgment files an action challenging the New York court’s jurisdiction or the judgment’s validity, and records a lis pendens.
Homestead of a Natural Person
Under Florida law, the amount the funder can collect from an owner who has signed a personal guaranty is limited. The homestead of a natural person is exempt from forced sale and from judgment liens with no dollar limitation under Article X, Section 4 of the Florida Constitution. This exemption is applicable to one-half acre of land within the limits of a municipality or 160 contiguous acres outside the limits of a municipality and the property must be the residence of the owner or owner’s family. The only exceptions to this exemption are payment of taxes and assessments, debts contracted for the purchase, improvement or repair of the property, or labor done thereon. Since the exemption is available only to a natural person, the company’s bank accounts and receivables would not be entitled to the benefit of the homestead exemption.
Needs a Florida Lawyer
Just because a Florida business owner is being sued does not mean that he or she needs a Florida lawyer. In fact, he or she might need a New York lawyer more. If a funder has sued a company in New York, then the person who will be answering the complaint (or trying to vacate a default) needs to be able to practice in New York. That lawyer cannot be assisted by being licensed in Florida. 4 Cases In Which a Florida Lawyer is Needed
1. When a judgment is filed in a Florida clerk’s office. The owner then has 30 days to contest it. 2. When a funder has filed a case in Florida, either in a Florida circuit court or a federal court. 3. When a guarantor is seeking exemption planning. 4. If the business is looking to file bankruptcy in one of the Florida federal districts.
But litigation counsel is not always the right first call. For a merchant who is behind on payments but not yet sued, a settlement negotiator may settle the account balance faster and cheaper. For a violation of Florida’s disclosure law, or a reconciliation request that the funder refused, a lawyer still has something concrete to demand. Where multiple advances are draining the account simultaneously, bankruptcy counsel might be the right first call. Under 11 U.S.C. § 362(a), the moment a petition is filed there is an automatic stay of any judgments, collection activities, foreclosures and repossessions of debts incurred prior to the petition’s filing.
