California Businesses Sued on a Merchant Cash Advance in New York
A California company sued on a merchant cash advance is usually sued in New York because the agreement contains two clauses, not one: a choice of New York law and a submission to New York courts. They do different jobs, they have different requirements, and only one of them decides where you defend.
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There are two clauses at the back of the agreement, and they are not the same clause
Almost every merchant cash advance agreement a California business signs ends with a paragraph about New York. Read closely, it is usually doing two separate things in one breath:
- This agreement is governed by New York law. That is a choice of law. It tells whichever court hears the case which body of rules to apply.
- The parties submit to the jurisdiction of the courts of New York. That is a choice of forum. It is the part that tries to decide where.
Defendants routinely read these as one sentence meaning "New York", and that reading gives away the more contestable of the two without an argument. They have different legal footings and they can come apart.
What each one rests on
GOL § 5-1401 is the choice-of-law section. Parties may choose New York law for a transaction covering at least $250,000, and the choice works whether or not the deal bears any other relation to the state.
GOL § 5-1402 is the forum section, and it asks for more: a choice of New York law, a transaction covering at least $1,000,000, and a contractual submission to the jurisdiction of New York courts.
The arithmetic matters. An advance of two hundred thousand dollars satisfies neither. An advance of four hundred thousand satisfies the first and not the second. That is a real and useful asymmetry: it is possible to be arguing about New York law in a court that is not in New York.
The route that does not depend on the clause at all
A clause is not the only way a California business ends up before a New York judge. CPLR § 302 is New York's long-arm statute, and subdivision (a)(1) reaches a non-domiciliary who, in person or through an agent, transacts any business within the state or contracts anywhere to supply goods or services in the state, as to a cause of action arising from that act.
Which means the first question to ask of a complaint is not "is the clause enforceable" but "what is the plaintiff actually relying on". If the answer is the clause alone, the thresholds are in play. If the complaint also pleads transacting business in New York, that is a different argument with different facts.
None of which extends the deadline
CPLR § 320 sets the appearance window: twenty days after service of the summons, by serving an answer, by serving a notice of appearance, or by making a motion that extends the time to answer, with longer periods in defined circumstances including particular methods of service.
Jurisdiction and forum are raised by appearing and objecting, in the manner the rules require. They are not raised by ignoring the papers, and a defendant who ignores them on the theory that the court has no power over it has generally created a judgment to argue about instead of a clause.
What California law does and does not do here
This page is about New York, and deliberately so. The firm is admitted in New York, which is where these cases are brought, and a page that worked through California statutes would be describing law its author cannot practise.
That is not a claim that California law is irrelevant to a California business. It is a statement about which questions this page is in a position to answer, and the honest answer to "does California law reach my advance" is that it is contested, and that it is a question for someone admitted there alongside the New York defense.
What to do first, from California
- Read the last page, twice. Separate the law sentence from the forum sentence. Note whether there is an express submission to jurisdiction.
- Write down the purchased amount and the purchase price. Both thresholds turn on the size of the transaction.
- Read the complaint for what it pleads about New York. Clause only, or clause plus conduct.
- Diary the deadline from the service date. Everything above is argued from inside the case.
How an MCA lawsuit is defended describes the course of one of these matters. If enforcement has already started, a restrained account and a confession of judgment are the two mechanisms behind most of it.
Sources
- N.Y. General Obligations Law § 5-1401, Choice of law (New York State Senate)
- N.Y. General Obligations Law § 5-1402, Choice of forum (New York State Senate)
- N.Y. CPLR § 302, Personal jurisdiction by acts of non-domiciliaries (New York State Senate)
- N.Y. CPLR § 320, Defendant's appearance (New York State Senate)
Every case turns on its own agreement, facts and procedural posture. Nothing on this site is legal advice or a prediction of any outcome.
How it works
How your case moves
This is the shape of a defended merchant cash advance lawsuit. A judgment already entered, or an account already frozen, runs on its own track alongside it.
Every case turns on its own agreement, facts and procedural posture. Nothing on this site is legal advice or a prediction of any outcome.
Our firm
Who handles the case
Migir Ilganayev, Esq. founded Ilganayev Law Firm, PLLC in 2017, the same year he was admitted in New York. He is also admitted in New Jersey and Florida.
- Practising since
- 2017
- Admitted in
- New York, New Jersey and Florida
- Law school
- New York Law School
- Appears in
- State and federal courts
- B.A., Political Science and Philosophy of Law, Brooklyn College, City University of New York, 2012
- J.D., New York Law School, 2015
- Judicial intern to the Hon. Martin M. Solomon, Kings County Supreme Court
- Public Service Certificate for pro bono service
FAQ
Questions people ask at this stage
What is the difference between choice of law and choice of forum?
One picks the rules, the other picks the courthouse. A clause saying New York law governs tells a court which law to apply wherever the case sits. A clause submitting to New York courts is what tries to fix the location. Agreements usually contain both.
They are backed by different New York statutes with different requirements, so it is possible for one to be supported and the other not. Reading them as a single sentence about New York is how defendants concede the location without arguing it.
Do those clauses always work?
Not automatically. The New York statutes that underwrite them carry dollar thresholds, of $250,000 for the choice of law and $1,000,000 plus a jurisdictional submission for the forum provision. Below those figures the clauses are tested on ordinary principles rather than by statute.
Could a New York court have jurisdiction anyway?
Possibly, and this is the part the clause analysis can miss. New York has a long-arm statute reaching a non-domiciliary who transacts any business within the state or contracts anywhere to supply goods or services in it. That is a separate route to the same courthouse.
Does California law apply to any of it?
That is exactly the fight, and it is not one this page settles. Where the case is heard and which law governs it are both contested questions in these matters. A California business should expect both to be argued rather than assumed either way.
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Pick a time that suits you, then a few short questions about what arrived and when. It takes about two minutes, and the consultation is free.
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- He asks what arrived and when.
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Book a consultationWhy is a California business in a New York court?
Because of a clause, and clauses can be argued about. Bring the agreement and the papers you were served with so the first question gets answered properly.
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