How to Dismiss an MCA Lawsuit in New York

Legally reviewed by: [ATTORNEY REVIEWER NAME], Esq.  |  Updated: May 2026

If you are reading this, a Merchant Cash Advance (MCA) funder has likely sued your business in a New York court. You may have received a Summons and Complaint, watched daily ACH withdrawals continue to drain your operating account, or learned that your bank account has already been restrained. Time is the most important variable in your case right now.

New York courts move quickly on commercial collection matters, and MCA funders use that speed strategically. A default judgment can be entered in as little as 30 to 40 days after service, and once a judgment is entered, the funder can begin levies, restraining notices, and information subpoenas almost immediately. The good news: an MCA lawsuit in New York can often be dismissed, narrowed, or leveraged into a substantially reduced settlement when the right defenses are raised before the answer deadline expires.

This guide explains the procedural and substantive grounds New York courts have used to dismiss MCA actions, the deadlines that govern your response, and how a New York MCA defense attorney approaches a motion to dismiss under CPLR 3211. It is written for business owners who need decisions, not jargon.

What It Means to “Dismiss” an MCA Lawsuit

Dismissal is a court order that ends a lawsuit before trial. In New York commercial litigation, a defendant typically pursues dismissal through a pre-answer motion under CPLR 3211, which allows the court to throw out a case on procedural or substantive grounds. The two categories matter:

• Procedural dismissal attacks how the lawsuit was brought — improper service, lack of personal jurisdiction, statute of limitations, or failure to plead a cause of action with sufficient particularity.
• Substantive dismissal attacks the underlying merits — for example, that the MCA agreement is a disguised criminally usurious loan, that the contract is unenforceable as written, or that documentary evidence flatly contradicts the funder’s claims.

MCA cases are unusually vulnerable to dismissal because the underlying contracts often blur the line between a true purchase of receivables and a disguised loan. New York appellate courts — particularly the First and Second Departments — have repeatedly scrutinized these agreements under the LG Funding factors, and several have been recharacterized as loans, exposing them to New York’s usury statutes. When recharacterization is plausible, the entire complaint can collapse.

A motion to dismiss is filed before answering the complaint, which preserves defenses and pauses the litigation timeline. If you have already filed an answer, certain defenses (improper venue, failure to state a cause of action) can still be raised, but the strategic advantage of a pre-answer motion is significantly diminished. See our overview of merchant cash advance lawsuits in New York for the full procedural map.

Fast Action Warning: New York Response Deadlines

New York’s response windows under CPLR 320 are short, and the consequences of missing them are severe.

• Personal service: 20 days to appear and answer.
• Service by mail, substituted service, or service on the Secretary of State: 30 days to appear and answer.
• Out-of-state defendants: 30 days, with limited extensions for proper challenges.

If your business does not appear within these windows, the funder can move for a default judgment in New York under CPLR 3215. Once entered, the judgment unlocks the entire enforcement toolkit: bank account restraining notices, marshal’s and sheriff’s levies, judgment liens, and information subpoenas served on every payment processor and bank in your name. A default can still be challenged after the fact through a motion to vacate default judgment, but the burden shifts to you, and you will need both a reasonable excuse and a meritorious defense.

The single most important step in the next 48 to 72 hours is to confirm exactly when and how you were served. Service date controls everything else.

Top Legal Grounds to Dismiss an MCA Lawsuit in New York

Below are the defenses New York courts have actually used to dismiss MCA actions, in the order they typically appear in a CPLR 3211 motion.

1. Lack of Personal Jurisdiction (CPLR 3211(a)(8))

MCA funders routinely sue out-of-state businesses in New York courts under broad forum-selection clauses buried in their agreements. New York has long-arm jurisdiction under CPLR 302, but it is not unlimited. If your business has no offices, employees, real property, or substantial transactions in New York, and the agreement’s connection to New York is purely contractual boilerplate, jurisdiction can be challenged. See our deeper analysis of MCA jurisdiction defenses in New York.

Even where a forum-selection clause exists, courts will refuse to enforce one obtained by fraud, overreach, or in violation of strong public policy — grounds that often surface in MCA litigation.

2. Improper Service of Process (CPLR 3211(a)(8))

“Sewer service” — the practice of filing a fraudulent affidavit of service while never actually serving the defendant — has been a recurring problem in New York commercial collections. If your first notice of the lawsuit was a frozen bank account or a marshal’s notice, that timing alone is a red flag. Defects in service can include:

• Service on a person not authorized to accept it.
• Failure to comply with CPLR 308 “nail and mail” requirements.
• Service on a Secretary of State address that is no longer current, without follow-up mailing.
• Substituted service that fails the “due diligence” standard.

Improper service can produce outright dismissal of the action and is one of the strongest grounds for vacating a default judgment that has already been entered.

3. Usury — Illegal Interest Rates

New York’s civil usury cap is 16% annual interest, and its criminal usury threshold is 25% annual interest under General Obligations Law § 5-501 and Penal Law § 190.40. Most MCA agreements, when reduced to an effective annualized rate, exceed both caps — sometimes dramatically. The catch is that usury laws apply only to loans, not to true purchases of future receivables. That is why recharacterization is the gateway defense.

If a court finds the MCA is in substance a loan, criminal usury makes the contract void and unenforceable in its entirety. For a full breakdown, see MCA usury defenses in New York and New York usury laws applied to merchant cash advances.

4. The MCA Is a Disguised Loan

New York courts apply a multi-factor test — most prominently from LG Funding, LLC v. United Electrical Contractors and its progeny — to decide whether an MCA is a true purchase or a disguised loan. The factors that push a contract toward “loan” include:

• Absolute repayment obligation regardless of business performance.
• A finite, calculable repayment term rather than open-ended performance-based delivery.
• Reconciliation provisions that are illusory or never honored in practice.
• Personal guarantees that convert business performance risk into personal liability.
• Daily fixed debits that bear no relationship to actual receivables.

If the agreement looks like a loan, walks like a loan, and is collected like a loan, it can be treated as one. Read more on the disguised loan defense in New York.

5. Confession of Judgment Abuse

For years, MCA funders relied on Confessions of Judgment (COJs) filed under CPLR 3218 to obtain instant judgments without notice. New York amended CPLR 3218 in 2019 to bar the filing of out-of-state COJs in New York courts, and the federal Small Business Lending Fairness Act has further constrained the practice. Many older COJs are now subject to challenge for procedural defects, fraud in the inducement, or violation of the amended statute.

If a judgment was already entered against your business by COJ, that does not end the inquiry. See our guide to challenging confession of judgment cases in New York and the steps to vacate.

6. Contract Defects and Unconscionability

Even where jurisdiction and service are clean, the agreement itself may not survive scrutiny. New York courts have dismissed or limited MCA claims on grounds including:

• Procedural unconscionability — buried terms, take-it-or-leave-it presentation, and lack of meaningful choice.
• Substantive unconscionability — grossly one-sided remedies, stacked default fees, and uncapped attorney’s fees.
• Material breach by the funder, including failure to honor reconciliation requests.
• Documentary evidence (CPLR 3211(a)(1)) that flatly contradicts the funder’s allegations — for example, payment histories showing the receivables purchase price has already been satisfied.

Our overview of MCA contract defenses in New York walks through how each of these is pleaded in a 3211 motion.

The Motion to Dismiss Process in New York

A pre-answer motion to dismiss under CPLR 3211 follows a defined sequence. The high-level steps:

1. Review the Summons and Complaint. Identify the index number, the filing court (Supreme Court, county, and whether the case is in the Commercial Division), and the exact causes of action pleaded.
2. Audit service. Pull the affidavit of service from NYSCEF and confirm whether service complied with CPLR 308, 311, or 311-a depending on entity type.
3. Identify each viable ground. Map facts to CPLR 3211(a) subsections — documentary evidence (a)(1), lack of capacity (a)(3), pending action (a)(4), statute of limitations (a)(5), failure to state a cause of action (a)(7), lack of jurisdiction (a)(8) — and decide which to pursue.
4. Draft the motion. A typical 3211 motion includes a Notice of Motion, an Attorney Affirmation, a Memorandum of Law, and supporting exhibits. Affidavits from the business owner are sometimes appended where factual disputes are necessary to the motion.
5. File before the answer deadline. Filing a 3211 motion automatically extends the time to answer until 10 days after the court decides the motion (CPLR 3211(f)).
6. Oral argument and decision. The Commercial Division typically schedules oral argument. Outcomes include full dismissal, partial dismissal (some causes of action survive), or denial.

If the motion is denied, the case proceeds to answer and discovery, but the record built during the 3211 motion often becomes the foundation for a later summary judgment motion under CPLR 3212.

What Happens If You Don’t Act

Ignoring an MCA lawsuit in New York is the most expensive option available. The progression is predictable:

• Day 20–30: Default. The funder files an affidavit and seeks judgment under CPLR 3215.
• Day 30–60: Default judgment entered, often for the full claimed balance plus interest, attorney’s fees, and costs.
• Day 60–90: Restraining notices served on every bank known to hold accounts in your business name and on you personally if you signed a guarantee.
• Day 90+: Marshal or sheriff levies, information subpoenas to processors, judgment liens, and — in the case of personal guarantors — income executions.

If a restraining notice has already hit, see how to stop an MCA bank levy in New York and what to do when an MCA froze my bank account. If a UCC lien has been filed against your business assets, that adds a separate layer of cleanup that should be coordinated with the litigation strategy.

Can You Dismiss an MCA Lawsuit After a Default Has Been Entered?

Yes, in many cases. A default judgment is not the end of the road, but the procedural posture changes. Instead of a CPLR 3211 motion to dismiss, the path is a motion to vacate under CPLR 5015(a) or, where service was defective, CPLR 317.

To vacate under CPLR 5015(a)(1), the moving party must demonstrate both:

• A reasonable excuse for the default (illness, defective service, mishandled mail, law office failure in some circumstances), and
• A meritorious defense — essentially the same defenses you would have raised in a 3211 motion, supported by an affidavit.

Vacatur under CPLR 317 is broader where service was made by means other than personal delivery and the defendant did not actually receive notice of the action in time to defend. Our complete walkthrough is at how to vacate an MCA default judgment in New York.

Settlement vs. Dismissal: Which Strategy Makes Sense

Dismissal is the goal when the funder’s case is procedurally or substantively weak. But dismissal is not always the best business outcome. A well-structured motion to dismiss, even one that is ultimately denied, can shift settlement leverage dramatically. Funders who realize they may face a usury or recharacterization ruling often accept significant principal reductions to avoid an adverse decision that would affect their entire portfolio.

The decision tree typically looks like this:

• Pursue dismissal when service is defective, jurisdiction is missing, the contract clearly fails the LG Funding factors, or documentary evidence contradicts the complaint.
• Pursue settlement when the contract is closer to a true receivables purchase, reconciliation has been honored, and the business needs to preserve cash flow over a long fight.
• Pursue a hybrid track — file the 3211 motion, then negotiate from a position of leverage while it is pending. This is the most common path in active New York MCA litigation.

Read more on MCA settlement options in New York and the settlement strategy framework we use to evaluate which path fits a given case.

Where MCA Lawsuits Are Filed in New York

Most MCA lawsuits are filed in the New York State Supreme Court and assigned to the Commercial Division when they meet the monetary threshold. Filings cluster in a handful of counties:

• New York County (Manhattan): the most common venue for MCA lawsuits, especially those filed by funders headquartered in the city. New York County MCA litigation overview.
• Kings County (Brooklyn): a heavy filer location due to the concentration of MCA funders based in Brooklyn. Kings County MCA litigation overview.
• Queens County: frequent venue when funders or guarantors reside in Queens.
• Nassau and Suffolk Counties: Long Island filings, often involving smaller funders.

Each county has its own e-filing protocols through NYSCEF, individual judge rules, and Commercial Division Rule sets that affect motion practice and discovery scheduling.

Real-World Scenario: How a New York MCA Dismissal Plays Out

Consider a hypothetical Long Island contractor that took $150,000 from an MCA funder in early 2025 with a $217,500 “purchased amount” and a daily debit of $1,650. Revenue dropped sharply mid-year. The contractor requested reconciliation; the funder ignored two written requests, then declared default and filed suit in Kings County Supreme Court for the full unpaid balance plus 24% default interest, attorney’s fees, and costs.

The contractor was served by delivery to a person at the registered address who no longer worked at the business. He learned of the lawsuit nine days later when his payroll account was restrained for $190,000.

Defense counsel filed a CPLR 3211 motion within the 30-day window. The motion raised four grounds: (1) defective service under CPLR 311; (2) the agreement was a disguised loan under the LG Funding factors, given the absolute repayment obligation and the funder’s refusal to honor reconciliation; (3) the effective annualized rate exceeded New York’s 25% criminal usury cap, voiding the agreement; and (4) the complaint failed to plead facts sufficient to support the default interest rate or attorney’s fees.

Faced with the prospect of an adverse usury ruling that would affect every contract in its portfolio, the funder approached counsel before oral argument. The case settled for $52,000 — less than the principal advanced — with the bank restraint lifted, the COJ-style language struck from the funder’s template, and a mutual release. The lawsuit was discontinued with prejudice.

The numbers and facts here are illustrative, but the procedural shape mirrors how New York MCA cases routinely resolve when defenses are raised early and credibly.

Frequently Asked Questions

Can an MCA lawsuit really be dismissed in New York?

Yes. New York courts have dismissed MCA actions for defective service, lack of personal jurisdiction, criminal usury where the agreement is recharacterized as a loan, and failure to state a cause of action. Outcomes are highly fact-specific, but the procedural tools under CPLR 3211 are real and routinely used.

How long do I have to respond to an MCA lawsuit in New York?

Typically 20 days from personal service or 30 days from service by mail, substituted service, or service through the Secretary of State. Out-of-state defendants generally have 30 days. Filing a pre-answer motion to dismiss extends the deadline to answer until 10 days after the court decides the motion.

What is the strongest defense to an MCA lawsuit?

There is no single strongest defense — it depends on the contract and how it was performed. In practice, the most outcome-changing defense is usually that the MCA is a disguised loan that exceeds New York’s criminal usury cap, because a successful recharacterization voids the entire agreement. Procedural defenses (jurisdiction and service) are often the fastest path to dismissal.

Can the funder freeze my bank account during the lawsuit?

Pre-judgment, only by obtaining an order of attachment under CPLR 6201, which requires a showing that is hard to meet in most MCA disputes. After a judgment or a confession of judgment, the funder can serve restraining notices on banks under CPLR 5222 within hours of entry. This is why response deadlines matter so much.

Do MCA funders win most lawsuits?

Funders win most cases that go undefended — default judgments are easy to obtain when no one appears. Defended cases are a different picture. Where credible procedural and usury defenses are raised early, a substantial share of cases settle below principal or are dismissed outright.

What if I signed a personal guarantee?

A personal guarantee exposes your personal assets and income to enforcement after a judgment, but it does not change the underlying defenses. If the MCA agreement itself is unenforceable as a usurious loan, the guarantee of that agreement generally falls with it. Guarantee enforceability also has its own defenses — including fraud in the inducement, lack of consideration, and material modification of the underlying obligation without the guarantor’s consent.

Can I still fight the case if a default judgment was already entered?

Yes. A motion to vacate under CPLR 5015(a) or 317, supported by a reasonable excuse and a meritorious defense, can reopen the case. See our full guide to vacating an MCA default judgment in New York.

Conclusion: Move Quickly, Choose the Right Path

An MCA lawsuit in New York is a procedural sprint, not a marathon. The funder is counting on the response deadline expiring quietly so a default judgment can be entered and enforcement can begin. That outcome is preventable in almost every case where the business engages counsel before the answer date.

The framework is straightforward. Confirm the date and method of service. Identify the procedural defenses (jurisdiction, service, statute of limitations) and the substantive defenses (recharacterization, usury, unconscionability, documentary evidence). File a pre-answer motion under CPLR 3211 where the facts support it. Use the leverage of that motion to either obtain dismissal or negotiate a settlement that reflects what the case is actually worth — not what the funder claims it is.

If your business has been sued or is facing imminent enforcement, treat the next 72 hours as decisive. Speak with a New York MCA defense attorney before the answer deadline expires. Authoritative procedural references are available through the New York State Unified Court System, and consumer-side commercial finance guidance is published by the Federal Trade Commission and the Consumer Financial Protection Bureau.

Disclaimer: This article is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship with CredibleLaw or any contributing attorney. New York commercial litigation is fact-specific; consult a licensed New York attorney about your particular situation.