How does Connecticut’s new law change prejudgment attachment waivers in merchant cash advance lawsuits?

One reason funders are so excited about working in Connecticut is the state’s ”prejudgment remedy” or “PJR,” which allows creditors to basically freeze a debtor’s bank accounts before they get a final judgment in court. Because the debtor can’t transfer assets to another account or to other people, it creates pressure on the debtor to come to the table and cut a deal early. This is old law, very settled, and a very effective tool.

There are two ways to get a PJR. One is the “regular” way, after a PJR application and court order, though it is possible to get an order ex parte. This happens when a creditor files a claim for a PJR and the court agrees, but the debtor does not get notice ahead of time, or a chance to argue why a PJR should not be granted. The second way is for a debtor to give up the right to notice and hearing, by signing a waiver of prejudgement rights in a commercial contract. No court order needed in that case.

Public Act 23-201

A new Connecticut statute, Public Act 23-201, has changed the way creditors can use a PJR to attach property in connection with merchant cash advance litigation, but only to the extent that they have induced the debtor to sign a waiver of prejudgment rights in a commercial transaction. The statute did not touch the right of a creditor to obtain a court-issued PJR order. It’s unclear how courts will interpret the act’s language, so what follows is only a current reading.

As long as an MCA contract was signed before July 1, 2024, a waiver can make it easier for creditors to attach the merchant’s accounts after a default using a PJR. Often the writ is served at the same time as the summons and complaint, but it can be done before judgment, too. A creditor that has the debtor sign a waiver of prejudgment rights as part of a contract can use a prejudgment remedy at any point before a judgment is issued. This is a big deal. If a merchant’s contract was signed before July 1, 2024, and includes a waiver of prejudgment rights, a creditor can grab the merchant’s bank accounts by PJR long after a default and years after a lawsuit starts.

For all MCA contracts signed on or after July 1, 2024, the CT Act changes the rules, but only sometimes. The funding amount in most cases is going to be what is called the purchase price; if it is more than $250,000, the waiver still works exactly as before.

Commencing an Action

For a contract of $250,000 or less, signed on or after July 1, 2024, the CT Act bars a creditor from enforcing a waiver ”upon commencing any litigation.” That is all it says. It doesn’t say that, after litigating for any period of time, the waiver can not be enforced. Commencing is complete service of the summons and complaint. See Broderick v. Jackman, 167 Conn. 96, 99 (1974). So if the waiver is written to allow it and complies with the Act, the attachment should work once summons and complaint is served.

Bottom line. The PJR remains a powerful tool for funders, especially on deals over $250,000, and unaffected at all by the CT Act. There are three things that a merchant should look at on a Connecticut contract: first, when it was signed; second, whether the purchase price was above or under $250,000; and third, the waiver language.