Legal Briefs
Another NY Supreme Court Judge Casts Doubt On The MFS – Volunteer Pharmacy Case
June 10, 2017Just as an Orange County, NY judge found in Merchant Funding Services, LLC v. Micromanos Corporation d/b/a Micromanos and Astsumassa Tochisako that a uniquely structured merchant cash advance was not a criminally usurious loan, so too did the Honorable Maria S. Vazquez-Doles on June 8th, court records reveal. Vazquez-Doles, who also presides in Orange County, concurred that the attorney representing defendants in Yellowstone Capital LLC v M N B Waterford LLC d/b/a MAC N’ Brewz! Mac N.Cheez! LLC d/b/a Mac N’Cheez! Somerset and Gary E Sussman, misquoted the contract’s language in their motion papers to suit their argument that the agreement was in fact a loan. In her decision, she referred to defendants’ attempt to twist the words as “incomplete and palpably misleading.”
“The Agreement is not on its face and as a matter of law a criminally usurious loan,” she held.
This is the second judge to opine that the decision in Merchant Funding Services, LLC v. Volunteer Pharmacy Inc. was premised on the opposition palpably misquoting an addendum to the contract in their motion papers. The first was the Honorable Catherine M. Bartlett last month.
The weight of the Volunteer Pharmacy case to a cottage industry of attorneys hoping to argue that merchant cash advances are disguised loans, is rapidly declining. The actual language of the these particular contracts has now twice exonerated the merchant cash advance companies.
The Yellowstone case decided on June 8th is filed under Index Number: EF001264-2017.
District Court Offers Guidance on Merchant Cash Advances in Precedent-Setting Decision
June 6, 2017On May 9, in Colonial Funding Network, Inc. v. Epazz, Inc., the U.S. District Court for the Southern District of New York dismissed counterclaims alleging the overcharging of interest and the affirmative of usury. The decision is the first federal case to recognize that a contractual relationship establishing a bona fide merchant cash advance (MCA) does not create a loan. Beyond that, the decision offers helpful guidance on how to structure a legally enforceable MCA agreement.
In Colonial Funding, the parties’ MCA agreement required the subject cash advance to be repaid in daily payments equal to 15 percent of defendant Epazz’s daily collected receivables. To this end, the agreement authorized plaintiff TVT Capital to make daily withdrawals in agreed-upon, set amounts from a designated bank account into which Epazz was required to deposit sums it collected. In addition, TVT was required to reconcile its withdrawals on a monthly basis against the bank statement for the designated deposit account. If TVT’s withdrawal on a given day was higher or lower than 15 percent of the receivables Epazz had collected on that day, TVT was required to debit or credit the deposit account for the difference. If, however, Epazz failed to provide TVT with the bank statement needed to make reconciliations, “TVT [was] not required to reconcile future payments.” The parties’ dispute arose when Epazz stopped making deposits into the account. Colonial, as servicing provider for TVT, responded by filing a lawsuit in New York Supreme Court, which was removed to federal court.
Epazz counterclaimed, alleging that the parties’ MCA agreement actually created a usurious loan. In considering this argument, the district court noted that, under New York law, “there can be no usury unless the principal sum advanced is repayable absolutely.”
Applying this standard to the MCA agreement in question, one could argue that the nature of the parties’ relationship would convert to a loan if Epazz ceased delivering bank statements to TVT; i.e., from that point forward, TVT would be entitled to collect daily payments in specified uniform amounts, with no obligation to reconcile, until the advance was repaid in full. In the district court’s view, however, if this contingency were to occur, Epazz’s obligation to repay would remain tethered to 15 percent of its daily collected receivables, and, in the absence of reconciliation, TVT’s daily withdrawals would be presumed to have been made in appropriate amounts. In this regard, the district court’s opinion stressed that “Epazz, rather than [Colonial] controls whether daily payments will be reconciled.” Moreover, “[n]o allegation is made that TVT ever denied Epazz’s request to reconcile the daily payments.”
After reviewing the structure of the parties’ MCA relationship, the district court noted that Epazz’s argument that the relationship constituted a loan rested on three specific cases. With respect to the first of those cases, Merchant Cash & Capital LLC v. Edgewood Group, LLC, 2015 U.S. Dist. LEXIS 94018, 2015 WL 4451057 (S.D.N.Y. July 20, 2015), the district court stated that “[w]hether the arrangement was a loan was not briefed and was not determinative to the outcome [of the case.]” The Colonial Funding court then noted that the judge in Merchant Cash reviewed a supplemental filing made by the plaintiff MCA provider and concluded that the parties’ relationship “appear[ed] to be structured not as a loan but as the sale of accounts receivable” because the MCA agreement required weekly reconciliations of payments made against collected receivables.
In regard to the second case cited by Epazz (Clever Ideas, Inc. v. Rest. Corp., 2007 N.Y. Misc. LEXIS 9248 (N.Y. Sup. Ct. Oct. 12, 2007)), the district court noted that the contract at issue had “included neither a reconciliation provision, nor payment contingent on the amount of receipts generated.” Hence, the court opined that “the clear facts [of Clever Ideas] differ from those in this case.”
The district court next determined that Platinum Rapid Funding Group Ltd. v. VIP Limousine Services, Inc., 2016 N.Y. Misc. LEXIS 4131 (N.Y. Sup. Ct. Oct. 27 2016), the third case cited by Epazz, presented facts that more closely resembled the dispute at hand. In Platinum, the New York Supreme Court held that the respective repayment obligations of the merchant and its co-defendant principal owner were not unconditional and the “deposited receipts from future transactions” constituted the sole source of repayment of the subject MCA. In this regard, the court concluded that the personal guaranty of the merchant’s principal owner did not give rise to a loan because the “personal guaranty [was] no broader than the [merchant’s] obligations under the Agreement, and the requirement of payment by the Guarantor [was] no greater than that of the Merchant.”
Finally, in addition to the above cases, the Colonial Funding court considered the parties’ dispute in light of Merchant Cash & Capital, LLC v. Transfer International Inc., 2016 N.Y. Misc. LEXIS 4515 (N.Y. Sup. Ct. Nov. 2, 2016). In that case, the amount of the merchant’s daily payment “could be adjusted downward in the event that the average daily receipts were less than anticipated, and adjusted upward in the event that the average daily receipts were greater than anticipated.” According to the defendant, these adjustments made the subject MCA arrangement a usurious loan. The New York Supreme Court disagreed on the basis that the “plaintiff assumed the risk that, if the receipts were less than anticipated, the period of repayment would be correspondingly longer, and the investment would yield a correspondingly lower annual return.”
Based on its review of the parties’ relationship in Colonial Funding, the district court concluded that Epazz’s obligation to repay was not absolute and did not constitute a loan under applicable law. Rather, the court found that “[p]ayment depends upon a crucial contingency; the continued collection of receipts by Epazz from its customers.” That condition, the court noted, was stated explicitly in the parties’ agreement: “Payments made to FUNDER in respect to the full amount of the Receipts shall be conditioned upon Merchant’s sale of products and services and the payment therefore by Merchant’s customers in the manner provided in Section 1.1.”
Furthermore, Epazz’s contention that the agreement amounted to a loan because it required specified daily payments was “contradicted by the reconciliation provisions which provide that if daily payments are greater than 15% of Epazz’s daily receipts, TVT must credit the difference to Epazz, thus limiting Epazz’s obligation to 15% of daily receipts.” Accordingly, the court dismissed Epazz’s counterclaim for the overcharge of interest and affirmative defense of usury.
Takeaways
- Colonial Funding reinforces that, in order to avoid an MCA being deemed a usurious loan, (i) the provider’s acquired interest in the merchant’s accounts receivable must constitute the sole source of repayment and (ii) the contract must include a mechanism for reconciling required contract payments against the financial performance of the purchased receivables.
- Colonial Funding also illustrates that the line between an MCA and a loan may be a fine one. Without effective contract drafting, a court could consider a default provision requiring fixed payments with no reconciliation requirement as giving rise to a loan. In Colonial Funding, the court noted that the right to require reconciliations rested solely with the defendant merchant, and, if the merchant chose to forgo that right by failing to provide a bank statement to the MCA provider, the provider could presume that its daily withdrawals corresponded to 15 percent of the merchant’s daily collected receivables.
- Requiring the merchant’s principal owner(s) to give a personal guaranty will not render an otherwise bona fide MCA a usurious loan so long as the terms of the guaranty mirror the obligations of the merchant. For example, in Colonial Funding, the guarantor was obligated, along with the merchant, to deposit each day’s collected receivables into a designated account. The guarantor was not, however, obligated to make up any deficiencies in the amounts deposited out of his pocket, which would have constituted a loan.
Federal Court Agrees, Merchant Cash Advances Not Loans or Usurious
May 13, 2017
By now, numerous judges in the New York Supreme Court have concurred that purchases of future receivables are not loans nor usurious, yet challenges to these contracts continue. In the latest landmark ruling, defendants/counterclaim plaintiffs Epazz, Inc., Cynergy Corporation, and Shaun Passley a/k/a Shaun A. Passley, moved to have the original action involving their merchant cash advance dispute transferred from state court to federal court, perhaps hoping for a different opinion on whether such agreements are usurious.
The law was not on their side. In the Southern District of New York, a federal court, the Honorable Louis L. Stanton echoed on May 9th, 2017, what state judges have been saying all along, that a purchase is not a loan because the purchased receipts are not payable absolutely.
In this case, the “receipts purchased amounts” are not payable absolutely. Payment depends upon a crucial contingency: the continued collection of receipts by Epazz from its customers. TVT [TVT Capital] is only entitled to recover 15% of Epazz’s daily receipts, and if Epazz’s sales decline or cease the receipts purchased amounts might never be paid in full. See counterclaims, Exhs. A-C at 1. The agreements specifically provide that “Payments made to FUNDER in respect to the full amount of the Receipts shall be conditioned upon Merchant’s sale of products and services and the payment therefore by Merchant’s customers in the manner provided in Section 1.1.” Id. at 3 § 1.9.
Defendants’ argument that the actual daily payments ensure that TVT will be paid the full receipts purchased amounts within approximately 61 to 180 business days, id. ¶¶ 33-47, is contradicted by the reconciliation provisions which provide if the daily payments are greater than 15% of Epazz’s daily receipts, TVT must credit the difference to Epazz, thus limiting Epazz’s obligation to 15% of daily receipts. No allegation is made that TVT ever denied Epazz’s request to reconcile the daily payments. TVT’s right to collect the receipts purchased amounts from Epazz is in fact contingent on Epazz’s continued collection of receipts. See Kardovich v. Pfizer, Inc., 97 F. Supp. 3d 131, 140 (E.D.N.Y. 2015), quoting Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 147 (2d Cir. 2011) (“Where a conclusory allegation in the complaint is contradicted by a document attached to the complaint, the document controls and the allegation is not accepted as true”).
None of the defendants’ arguments, Counterclaims ¶¶ 51-109, change the fact that whether the receipts purchased amounts will be paid in full, or when they will be paid, cannot be known because payment is contingent on Epazz generating sufficient receipts from its customers; and Epazz, rather than TVT, controls whether daily payments will be reconciled.
The decision relies heavily on the reconciliation clause common to merchant cash advance agreements, whereby merchants can adjust their daily ACH amounts to correlate with their actual sales activity. This concept is explained at length in the Merchant Cash Advance Basics training course.
Furthermore, the court was incredulous over the defendants’ claim that they actually wanted loans but were instead fraudulently induced into purchase agreements.
Defendants do not claim that they were misled with regard to the amount of their payment obligation, only that they were misled into believing that their repayment obligation would be absolute when it actually is contingent. Their injury from that is unclear.
In short, the judge suggests that entering into a loan would’ve been worse because it was absolutely repayable, whereas the purchase agreement was not. So how could they have been damaged?
The entire decision surrounding all the claims can be downloaded here.
The case is Colonial Funding Network, Inc. as servicing provider for TVT Capital, LLC v. Epazz, Inc. Cynergy Corporation, and Shaun Passley a/k/a Shaun A. Passley in the United States District Court’s Southern District of New York. Case: 1:16-cv-05948-LLS.
Defendants Shaun Passley and Epazz also lost challenges in another merchant cash advance case in the New York Supreme Court.
‘Debt Collection Terrorist’ Sues Protection Legal Group and Corporate Bailout
May 13, 2017
A new crop of supposed debt relief companies are beginning to take fire from all sides. In this latest case, Mark D. Giubaldi & Associates, LLC DBA Protection Legal Group and Corporate Bailout LLC, have once again found themselves on the receiving end of a complaint. On Wednesday, May 10th, Craig Cunningham, a once self-proclaimed debt collection terrorist and famous TCPA litigant, filed a lawsuit in the Northern District of Texas to seek out more than $1 million in damages for alleged unsolicited robocalls to his cell phone.
Cunningham, who goes by the screen name Codename47 on the fatwallet.com forum, previously authored a post titled, “TCPA enforcement for fun and for profit up to 3k per call” and is well known in the TCPA plaintiff community. In the complaint against Protection Legal Group and Corporate Bailout, he claims that they called him more than 50 times to ask about supposed “merchant cash advance loans” he had outstanding. The deeply troubling problem with that, according to the complaint, is that Cunningham doesn’t have any such thing.
When the calls connected to an agent, the Plaintiff was told that he was called by the defendants and told that according to UCC filings, they had noticed the Plaintiff had several merchant cash advance loans out. In reality, there are no UCC filings, and the Plaintiff has no merchant cash advance loans outstanding. In every call, the Plaintiff noticed a delay between answering the phone and the call connecting with a live person, which is characteristic of an automated telephone dialing system.
These are just some of many harassing calls the Plaintiff has received and as Defendants are just content to knowingly call what could be wrong numbers, or uninterested individuals and are blanketing the nation with these unsolicited calls.
[…]
Additionally, in the above referenced telephone calls, Defendants and their agents falsely claimed to have information regarding alleged UCC filings of Plaintiff, which don’t exist and were never made.
These calls were knowingly and willfully placed and the Defendants had or should have ascertained they were calling the wrong person.
Additional lawsuits currently pending against Protection Legal Group allege that the company is practicing law without a license in New York and interfering with merchant cash advance contracts.
Craig Cunningham v. Mark D. Guidubaldi & Associates LLC DBA Protection Legal Group, and Corporate Bailout LLC was filed in the United States District Court for the Northern District of Texas under case # 3:17-cv-01238-L.
Exercise of Ordinary Intelligence Would’ve Revealed Merchant Cash Advance Contract Was Not a Loan, Court Says
May 9, 2017
In the New York Supreme Court, the Honorable Linda S. Jamieson was tasked with ruling on twelve causes of action in a merchant cash advance contract case. While the 18-page decision covers a lot of ground, one notable section was the plaintiffs’ request for rescission based on “misrepresentations or unilateral mistake” and “damages for fraudulent inducement.” According to the order, the plaintiffs, K9 Bytes, Inc., Epazz, Inc., Strantin, Inc., MS Health Inc., and Shaun Passley, “claim that the defendants misled them by representing that they were entering into “loans governed by usury laws,” but instead caused them “to enter into ‘merchant agreements.'” Exhibits on the docket attached by the plaintiffs purport to demonstrate the word loan being used in communications, though the judge noted that the plaintiffs failed to identify how the individuals in those communications specifically attributed to the defendants. Nevertheless, the judge was unmoved by plaintiffs given the overt language spelled out in the contract itself.
[The plaintiffs] state that they would not have knowingly entered into merchant agreements, because what they really wanted were loans. Indeed, plaintiffs allege that “the word ‘purchase’ or ‘sale’ would have caused Passley to decline a transaction with [defendants] because a loan – the product Passley wanted to obtain – is not a purchase or sale.”
A review of the contracts in this action shows that not only do they all clearly state that they involve purchases or sales, but they all expressly state they are not loans. Even if someone were confused by the contracts, or did not understand the obligation or the process, by reading the documents, one would grasp immediately that they certainly were not straightforward loans. The very first heading on the page was “Merchant Agreement,” and the second heading says “Purchase and Sale of Future Receivables.”
[…] For plaintiffs to state that they would not have entered into a purchase or sale if they had known that that is what they were doing is utterly undermined by the documents themselves. As the Second Department has held, in Karsanow v. Kuehlewein, 232 A.D.2d 458, 459, 648 NY.S.2d 465, 466 (2d Dept. 1996), “the subject provision was clearly set out in the … agreements, and where a party has the means available to him of knowing by the exercise of ordinary intelligence the truth or real quality of the subject of the representation, he must make use of those means or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.” So too here, plaintiffs had the means to understand that the agreements set forth that they were not loans. As it has long been settled that a party is bound by that which it signs, the Court finds that the ninth cause of action, for recission based on misrepresentation or mistake, and the tenth cause of action, for fraudulent inducement based on misrepresentation, must be dismissed as a matter of law. Pimpinello v. Swift & Co., 253 N.Y. 159, 162-63 (1930) (“the signer of a deed or other instrument, expressive of a jural act, is conclusively bound thereby. That his mind never gave asset to the terms expressed is not material. If the signer could read the instrument, not to have read it was gross negligence; if he could not have read it, not to procure it to be read was equally negligent; in either case the writing binds him.”).
The plaintiffs are likely to be disappointed with the rest of the ruling as well. The decision can be found in the New York Supreme Court in the County of Westchester under Index Number 54755/2016 or can be downloaded in full here.
MCA Company Wins Case After Judge Actually Reads the Contract
May 5, 2017
An explosive New York Supreme Court decision in December against a merchant cash advance company just lost some of its bite, thanks to a decision handed down by the Honorable Catherine M. Bartlett in Orange County.
By all accounts, plaintiff Merchant Funding Services, LLC (“MFS”) had reason to be worried when Long Island attorney Amos Weinberg appeared on behalf of defendants Micromanos Corporation and Atsumassa Tochisako. MFS and Weinberg squared off last year in an almost identical case when Weinberg represented a company named Volunteer Pharmacy, Inc. There, a Westchester County judge decided the agreement in question to be criminally usurious on its face, leaving no question of fact for a trier of fact to resolve. According to court records, Weinberg has been relying on that decision to bolster his legal arguments against other MCA agreements ever since.
But up in Orange County, less than an hour northwest of Westchester, the court there sided in favor of MFS on Thursday, even after being briefed on the Volunteer Pharmacy decision.
Defendants, citing Merchant Funding Services, LLC v. Volunteer Pharmacy Inc., 44 NYS3d 876 (Sup. Ct. Westchester. 2016), assert that a plenary action is not required in the circumstances of this case because the Secured Merchant Agreement is, on its face and as a matter of law, a criminally usurious loan. However, Defendants’ position is grounded on a dubious misreading of the Agreement.
Micromanos, like Volunteer Pharmacy, was seeking to vacate the confession of judgment entered against them by way of a motion rather than by filing an entirely new lawsuit.
Here, the judge not only rejected that the confession of judgment be vacated but she also admonished Micromanos for misleading the court over the actual wording of the contract in order to serve their argument.
The agreement on its face provided for MFS’s purchase of 15% of Micromanos’ future receipts until such time as the sum of $224,250 has been paid. Paragraph 1.8 of the Agreement recited the parties’ understanding – directly contrary to Defendants’ claims herein – that (1) MFS’ purchase price was being tendered in exchange for the specified amount of Micromanos’ future receipts, (2) that such purchase price “is not intended to be, nor shall it be construed as a loan from MFS to Merchant”, and (3) that payment by Micromanos to MFS “shall be conditioned upon Merchant’s sale of products and services and the payment therefore by Merchant’s customers…”
These provisions not withstanding, Defendants contend that the Addendum altered the essential nature of the Agreement by requiring a Daily Payment of $2,995.00 on pain of default, thereby eliminating any element of risk or contingency in the amount or timing of payment to MFS, and converting the Agreement into a criminally usurious loan bearing interest at the rate of 167% per annum. Not so. The Addendum expressly provided that the $2,995.00 Daily Payment was only “a good-faith approximation of the Specified Percentage” of 15% of Micromanos’ receipts, and that Micromanos was entitled to request a month-end reconciliation to ensure that the cumulative monthly payment did not exceed 15% of Micromanos’ receipts. Defendants’ contention that MFS was entitled under the Addendum to the $2,995.00 Daily Payment without being obliged to offer Micromanos a month-end reconciliation is founded on an incomplete and palpably misleading quotation of paragraph “d” of the Addendum.
According to Defendants, paragraph “d” states:
“The Merchant specifically acknowledges that ***the potential reconciliation*** [is] being provided to the Merchant as a courtesy, and MFS is under no obligation to provide same”.
As noted above, paragraph “d” actually states:
“The Merchant specifically acknowledges that: (I) the Daily Payment and the potential reconciliation discussed above are being provided to the Merchant as a courtesy, and that MFS is under no obligation to provide same, and (ii) if the Merchant fails to furnish the requested documentation within five (5) business days following the end of a calendar month, then MFS shall not effectuate the reconciliation discussed above.”
The Defendants’ omission fundamentally alters the meaning of paragraph “d”. Contrary to Defendants’ assertion, the gist of paragraph “d” is that the institution of the fixed Daily Payment plus month-end reconciliation mechanism as a substitute for Micromanos’ daily payment of 15% of its actual receipts was a non-obligatory courtesy. Paragraph “d” plainly does not enable MFS to require a $2,995.00 Daily Payment while concomitantly refusing Micromanos’ request for a reconciliation.
Defendants further contention that the Agreement as a matter of law eliminated all risk of hazard of nonpayment by placing Micromanos in default upon any material adverse change in its financial condition is not borne out by the language of the Agreement. Under Paragraphs 2.1 and 3.1 of the Agreement, Micromanos’ failure to report a material adverse change in its financial condition, not the adverse change itself, was defined as an event of default.
Therefore, the Secured Merchant Agreement is not on its face and as a matter of law a criminally usurious loan. Consequently, Defendants have failed to establish an exception to the general requirement that relief from a judgment entered against them upon the filing of an affidavit of confession of judgment must be sought by way of a separate plenary action.
It is therefore ORDERED, that Defendants’ motion is denied.
Alarmingly, court documents show that Micromanos attorney Amos Weinberg is relying on the same “incomplete and palpably misleading quotation” in other cases involving other merchant cash advance contracts to serve his arguments. Fortunately, in this case, the Honorable Catherine M. Bartlett compared his quotation of the contract to the actual language of the contract and saw they didn’t match up. While a decision from the Supreme Court in Orange County doesn’t mean that the matter is settled for good in New York State, it does potentially put the decision that arose from Volunteer Pharmacy on very shaky ground.
Merchant Funding Services, LLC v. Micromanos Corporation d/b/a Micromanos and Astsumassa Tochisako can be found in the New York Supreme Court under index number: EF000598-2017
Nulook Capital Bankruptcy Envelops PSC
April 27, 2017Nulook Capital was not the only casualty of its April 4th Chapter 11 bankruptcy filing. On Wednesday, April 26th, a federal judge in a separate action issued an order aimed at one of Nulook’s alleged creditors, PSC. PSC is also a Long Island-based company engaged in the merchant cash advance business.
In the order, the Honorable Arthur D. Spatt appointed a receiver for International Professional Services Inc. dba PSC and PSC Financial, granting him exclusive dominion and control over all of their assets, books, records and business affairs.
PSC was originally listed as a creditor in the Nulook bankruptcy with $400,000 owed. Another creditor however, GWG MCA Capital, Inc., argued that PSC had interfered with its first position lien and taken possession of its collateral. Alas, in the suit that GWG brought, the court found the full extent of their arguments compelling enough to appoint a receiver over PSC.
A Tale of “Debt Restructuring”?
April 19, 2017
Here’s a doozy for you: A merchant signed an agreement with a purported law firm on September 29, 2016 for assistance with restructuring their debts. As part of that agreement, the law firm, which goes by the name Protection Legal Group, LLC, also offers “Litigation Defense Services” in case the merchant gets sued for non-payment of debts. The basic “non-legal” services alone, however, required that this merchant pay approximately $100,000 to Protection Legal Group, according to court filings. That’s a pretty hefty service fee for a business that was only claiming $400,000 in debts, most of which it improperly classified as debt since they were actually sales of future receivables.
The very next day, a merchant cash advance (MCA) company sued the merchant in New York for breach of contract, claiming that they were owed more than $300,000. And three months later, the merchant, represented by an attorney named Amos Weinberg, sued the first law firm that they hired. According to that complaint, filed on January 6, 2017, Protection Legal Group never even contacted the MCA company even though they were hired to negotiate with them specifically. Stranger yet, the merchant alleges that Protection Legal Group could not even have defended them in litigation because the MCA agreement’s jurisdiction was New York and Protection Legal Group has no lawyers that are licensed in that state. Naturally, the complaint further alleges that Protection Legal Group accepted payments anyway and has refused to return it.
The merchant’s new attorney, Amos Weinberg, is no friend to MCA companies, according to New York court records. Nevertheless, he offers harsh words for these new purported debt restructuring companies on his blog. “A growing industry that preys on people all over the country who are sued in New York is the debt resolution industry,” he wrote. “These companies promise to settle lawsuits for a portion of the sum sued by inducing the client to stop paying the creditor and instead pay sizeable weekly sums into an escrow account.” He then goes on to call out Protection Legal Group by name.
To summarize, a merchant hired a lawyer for an exorbitant fee to restructure their debts that weren’t debts, got sued and then had to hire a lawyer to sue their lawyer.
Protection Legal Group is also being sued by Forward Financing, an MCA company, for interfering with its contracts. That story has made the news in legal circles.
Court documents show that Protection Legal Group is fighting on another front as well since less than three weeks ago, a class action lawsuit (Case: 1:17-cv-02445) was filed against them for violating the TCPA. According to the complaint, they are allegedly marketing their services via pre-recorded voice messages to cell phones.
As an aside, most MCA contracts already permit merchants to have their payments lowered in the event that their revenues drop. Typically, they just need to send in their recent banking activity to demonstrate the drop and the MCA company will reimburse the merchant for anything collected above the specified percentage of sales. As this is a fundamental part of the agreement, the merchant shouldn’t require a debt negotiator or an expensive attorney to aid them with this.
