How to Defend Against Merchant Cash Advance Lawsuits

Facing a lawsuit from a merchant cash advance provider can be daunting. But successful legal defenses exist. Understanding your options is critical to protect your business interests.

This guide examines merchant cash advance litigation strategies. We’ll review potential claims against your business, key defenses, and how to respond to achieve the optimal outcome.

Merchant Cash Advance Basics

With a merchant cash advance (MCA), a provider gives you a lump sum in exchange for a percentage of future credit card sales. It functions similarly to a loan but avoids regulations because:

• No fixed repayment dates or terms
• Daily remittance rather than monthly payments
• Not technically considered “interest”

Whensales underperform, providers often sue claiming breach of contract. Mounting vigorous legal defenses is key.

Common MCA Provider Claims in Lawsuits

Providers typically allege some combination of the following in MCA litigation:

• Breach of contract – Failure to remit the agreed upon percentage of receipts
• Unjust enrichment – Benefitting from funds without paying back as warranted
• Fraud – Deceiving the provider when obtaining the MCA
• Breach of good faith – Violating implicit standards of fair dealing

Their goal is recovering the remaining balance plus steep penalties and legal fees.

Damages Sought

Providers typically seek:

• The full outstanding advance amount
• Punitive damages of 2-3 times the balance
• Double digit interest accruing since default
• Attorney fees of up to one-third the judgment

Combined, judgments can total 4-5 times the original advance.

4 Strong Defenses Against MCA Lawsuits

Success requires going beyond simplistic denials and targeting technical weaknesses. Possible defenses include:

Unconscionability

Seeking to invalidate one-sided terms so favorable to the provider that they deprive you of meaningful choice in the contract. Elements may include:

• Deceptive or high-pressure sales tactics
• Buried terms favorable to the provider
• Grossly imbalanced obligations and rights

Proving substantial overreach and unfairness can render the agreement void.

Breach by Provider First

Argue the provider materially failed to fulfill its own obligations first, excusing further performance. For example:

• Not delivering the full lump-sum amount
• Charging improper fees
• Withholding or misappropriating remittances

Showing major breaches by the provider weakens their case.

Failure to Mitigate Damages

The plaintiff has a duty to reasonably mitigate losses from any alleged breach. Failing to mitigate reduces recoverable damages. Arguments may include:

• Immediately suing rather than seeking compromise
• Refusing good faith overtures to catch up
• Assessing excessive fees

Lack of Consideration

Contesting whether any enforceable contract exists due to absence of meaningful consideration from the provider. For example:

• Not receiving the full amount promised
• Repayment totaling significantly more than amounts advanced

Without proper consideration, no valid claim for breach exists.

Move to Dismiss Defective Claims

Many provider lawsuits exhibit glaring pleading deficiencies. We aggressively exploit technical and factual weaknesses through motions to dismiss. Grounds may include:

• Failure to state a claim
• Expired statute of limitations
• Arbitration clauses
• Incorrect parties named
• Missing element of a cause of action

Early dismissal motions take advantage before excessive legal expenses accrue.

Negotiating Favorable Settlements

Alternatively, a settlement preserving your business assets may be preferable to protracted litigation. Options to propose include:

• Lump-sum discounts to close debts
• Payment plans on compromised amounts
• Return of certain rights in exchange for payments
• Dismissal of lawsuits and severing relationships

Avoiding confessions of judgement that empower automatic collections. The goal is a clean break, not lingering vulnerability.

Key Takeaways

Defending MCA lawsuits requires exploiting legal and technical vulnerabilities, including:

• Attacking one-sided or deceptive contract provisions
• Highlighting plaintiff’s own contractual breaches first
• Contesting failure to mitigate claimed damages
• Disproving meaningful consideration existed
• Seeking dismissal based on pleading errors and deficiencies
• Proposing favorable settlements to contain risks

With seasoned legal counsel, entrepreneurs can avoid the full sting of MCA lawsuits and protect business interests. Don’t go it alone against experienced funding companies. Contact knowledgeable legal help today.