When an MCA Forum Clause Is Not Backed by Statute
Most merchant cash advances are too small for the New York statutes that make a forum clause reliable. That does not make the clause in a New Hampshire business agreement void, and it does not make it conclusive either. It makes it something argued rather than assumed.
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One point, and it is a correction
A good deal of writing about merchant cash advance defense — including other pages on this site — notes that New York's choice-of-law and choice-of-forum statutes carry dollar thresholds, and that most advances fall below them.
That is accurate. It is also easy to read as something it does not say.
What the thresholds are
GOL § 5-1401 supports a choice of New York law for a transaction covering at least $250,000, whether or not the transaction bears a reasonable relation to the state.
GOL § 5-1402 permits an action against a non-resident where the parties chose New York law, the transaction covers at least $1,000,000, and the agreement contains a submission to the jurisdiction of New York courts.
A great many advances are smaller than the first figure and the overwhelming majority are smaller than the second.
What that does not mean
It does not mean the clause is void. It does not mean a New Hampshire business cannot be sued in New York. It does not mean the case will be moved.
These statutes are enabling provisions. They give a certain kind of clause a guaranteed effect in defined circumstances. Not qualifying for a guarantee is a different thing from being prohibited, and conflating the two is how defendants talk themselves into ignoring a summons.
What it does mean
The clause loses its statutory underwriting and is assessed the ordinary way — which is to say, as a contract term.
That shifts the questions from arithmetic to the document:
- What does the clause actually say? Mandatory submission, or permissive consent to jurisdiction. Those are not the same.
- What is its scope? Does it cover the claim actually brought, including claims against a guarantor as distinct from the company.
- How was it presented? The circumstances in which an agreement was entered are capable of mattering.
- Who is bound by it? A guarantor who signed a separate page may or may not have agreed to the same terms as the merchant.
This page is not going to tell you how a New York court weighs those, because that is case law this draft has not read. What it can tell you is that these are the questions, that they are about your paperwork, and that the answers exist in documents you already have.
And one door stays open
CPLR Rule 327 permits a court to stay or dismiss an action where it finds that in the interest of substantial justice it should be heard in another forum. Subdivision (b) removes that discretion for cases to which § 5-1402 applies.
So the same arithmetic has a second consequence. Below the threshold, § 5-1402 does not apply, and the court's discretion under Rule 327 is not switched off. Above it, both the clause is underwritten and the inconvenient-forum route is closed.
That is the whole point of this page: the figure in your agreement determines which legal landscape you are in, and neither landscape is hopeless or automatic.
What to do first, from New Hampshire
- Find the transaction value and compare it against both thresholds.
- Read the clause as a sentence, and note whether it is mandatory.
- Check whether the guaranty incorporates it or stands separately.
- Appear within the deadline and have the question assessed properly.
How an MCA lawsuit is defended covers the rest of the case.
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 Rule 327, Inconvenient forum (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.
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
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.
FAQ
Questions people ask at this stage
What are the statutory thresholds?
Two figures. A choice of New York law is supported for a transaction covering at least $250,000, and the forum provision requires a transaction covering at least $1,000,000 together with a choice of New York law and an express submission to New York jurisdiction.
Those are conditions on the statutes, not on the contract. A smaller transaction still has whatever clause the parties wrote; it simply does not get the statutory support.
So is a smaller advance clause unenforceable?
No, and that is the common misreading. Falling outside a supporting statute is not the same as being prohibited. The clause is then assessed the ordinary way, which means on the terms of the document and the circumstances in which it was agreed.
What does being argued the ordinary way involve?
Questions about the document rather than about geography. What the clause actually says, whether it is mandatory or merely permissive, how it was presented when signed, and whether the claim actually brought falls within its scope are the kinds of things that get examined.
Is it worth raising at all?
It is worth knowing the answer early, because it is the one question whose outcome changes where everything else happens. Whether to press it is a judgment made on the document, and it is made by someone admitted in the court hearing the case.
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Book a consultation
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.
- The call is with Migir Ilganayev directly, not an intake desk.
- He asks what arrived and when.
- He reads the agreement and the payment history against each other.
- He tells you where you stand and what the options are.
- The consultation is free. Fees for representation are discussed on the call and depend on the matter.
- No obligation. Sending it does not create an attorney-client relationship.
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