When a merchant cash advance company sues you in court and nobody from the business appears to defend, the court may issue a default judgment. In New York, the owners we talk to at Delancey Street usually want to know one thing: can it be undone? Sometimes, but it is very tricky and will likely require a lawyer to help out.
Part of the problem is how people react to being sued. Plenty of owners act like an ostrich and stick their head in the sand, or they just ignore it completely. Although this is understandable, doing this may end up costing your business dearly. For the vast majority of lawsuits, the problem does not simply go away. If you do receive a notice of a lawsuit from a funder, do not ignore the filing and hope it will go away. It’s hard to overstate how important it is to get help from an attorney as soon as you are served.
But for the owners who never knew about their lawsuit in the first place, they may have a chance to get a default judgment set aside. Maybe you did not learn that your business had been sued until a court granted the funder a default judgment. How does that happen? Maybe the wrong person or entity was served. Maybe the papers went to the wrong place, or were never served at all. Because of how you are served, you may not even be aware that a lawsuit was filed against you. But if you were not served and did not know about the lawsuit, a default judgment can still enter, because a judge may take the funder or process server at its word. The judge may not take time to personally research all the service issues with a particular instance of service of process.
A money judgment against your business is a serious matter. It will order a business to pay a specific amount, and that can be a significant sum. The funder can also place a lien on any real estate property that is owned. A default judgment can affect your bank account, too, and the funder may drain it to collect. This is why it is important to take action. Some owners try to avoid or ignore the problem, or stay mum. But they need to act. And that means confronting what has happened and getting legal help. If you were unaware of the suit, jump on it the moment you learn about it. The tool for this is a motion to vacate. The goal of this motion is to set aside the court order so that you can defend yourself.
Motion to Vacate
In New York, CPLR 5015(a)(1), the most commonly used basis for a motion to vacate, is usually brought by an Order to Show Cause. It lets a court relieve a party from a judgment for an excusable default, as long as the motion is made within one year after the party is served with a copy of the judgment or order with written notice of its entry. You need to act quickly to file the motion. The motion needs to demonstrate a reasonable excuse for not responding to the lawsuit, and you also have to prove that you have a meritorious defense or claim. On the excuse side, that could mean you didn’t even see the summons and complaint because it went to the wrong address. If you can establish that the original default was not truly your fault, and you have a good claim on the merits, you may be able to get the judgment vacated. A court will not typically relieve a business that has no real defense, and the reasoning is simple: it would not make sense for the court to vacate a default judgment if you are never going to put on a real defense. Vacating a default judgment is not a matter of right. Again, it’s a tough thing to do on your own, and you may very well need help from a lawyer.
After the First Year
What if more than a year has passed? The process of getting out of a default judgment may be possible but it can also be pretty difficult. Under CPLR 5015(a)(2) through (5), you would need to show newly discovered evidence that would have changed the outcome of the original case, and you could not have found this evidence in time to have a motion for a new trial made under CPLR 4404; fraud, misrepresentation or misconduct by the other side; lack of jurisdiction to render the judgment; or the reversal, modification or vacatur of an earlier judgment or order the default judgment was based on. These grounds last past the one-year mark, but they are much harder to prove and come up in fewer situations. So it can be done, but it will be difficult.
Timing still matters after the first year. The funder that won the judgment can argue that you are guilty of “laches.” In general it is a doctrine that prevents unreasonable delay to the prejudice of the adverse party. Laches is another way they say: “it’s too late.” In other words, were you sleeping at the wheel? Were you just waiting around and hoping that the litigation would go away? The longer you wait, the harder it is to vacate. Do not sit back and wait.
A Judgment Already Entered Against Your Business
If you are reading this with a judgment already entered against your business, here is our advice. Don’t do nothing. Sit up and pay attention. Take action. Study the judgment and the circumstances surrounding the lawsuit. Did you receive notice of the lawsuit or were you served with a summons? Why was the judgment entered? What is the amount of the judgment? Then check the calendar, because whether you are inside or outside that one-year window changes what is possible. Get some professional advice.
Where does Delancey Street fit into all of this? We are a business debt settlement company, not a law firm, so we do not file motions to vacate. You may need to hire a lawyer to help you fight the judgment. In some cases, settlement with the funder is the right call. In others, litigation may be preferable, and we’ll refer out to an attorney for that representation. That attorney is vetted and independent, and the attorney-client relationship is between you and them. When negotiation is the better path, we help businesses negotiate a deal with the funder for less than the full balance owed. When you learn about a judgment you were not aware of, or a default judgment entered against you, it’s important to respond as soon as possible. Whether this means hiring a lawyer to fight it, or engaging in a negotiation with the funder, it is important to not ignore the problem and do nothing. Our first consultation is free and confidential, and if a case cannot be won or a cheaper option exists, we say so on the first call. If you have questions about how to proceed after a funder has obtained a default judgment, please call us. It never hurts to talk it out with us.
