Los Angeles MCA Defense Lawyers
Introduction to Los Angeles MCA Defense Lawyers
Let’s talk about Los Angeles MCA (Merchant Cash Advance) Defense Lawyers. How do they win cases? Even a partial win matters, right? Here’s how the defense strategies work in extreme detail, broken down for everyone to understand.
MCAs vs. Loans: A Key Distinction
Merchant Cash Advances (MCA’s) are complicated. They aren’t like loans. MCAs are agreements where lenders get a percentage of future receivables. But, what happens if you can’t pay? That’s where Los Angeles MCA defense lawyers come in. First thing’s first: MCA’s vs. Loans. MCAs are NOT traditional loans. This difference matters because MCAs often try to bypass usury laws. Usury laws limit interest rates lenders can charge—but MCAs? They try to dodge that. MCA agreements are structured as “receivables purchases.” They say, “we’re not lending; we’re buying your future earnings.” This gets them around state lending laws, especially in California where usury is strictly regulated (California Constitution Article XV). Usury Law—California caps interest at 10% annually for personal loans. MCAs claim exemption because they’re buying assets (receivables). Los Angeles MCA Defense Lawyers often argue that these MCAs are loans in disguise.
If the court agrees that an MCA is actually a loan, then usury limits kick in, making the agreement illegal if the interest rate is excessive. This is one angle MCA defense lawyers in Los Angeles might use. How do they prove it’s a loan? They look at factors like: Is the repayment fixed? Is there a personal guarantee? Does repayment depend on performance? The more it looks like a loan, the more likely the court will treat it as one. In Creative Ventures, LLC v. Jim Ward & Assoc., the California court determined that just labeling a transaction as a “receivables purchase” doesn’t make it one. It looked at substance over form. This case is super important in MCA defense. Another big point: personal guarantees. MCA agreements often make business owners personally guarantee repayment. If it’s a receivables purchase, why a personal guarantee? Los Angeles MCA lawyers use this to argue it’s really a loan.
UCC Liens and Their Role
UCC (Uniform Commercial Code) Defense: MCA lenders often file UCC liens to secure future payments. These liens can cripple your business. MCA defense lawyers challenge the validity of these liens—sometimes they’re improperly filed or overly broad. Under UCC Article 9, liens must be specific and properly documented. An improperly filed UCC lien can be challenged and removed, freeing up assets for the business to operate.
Independent Consideration and Unconscionability
Key legal point: Independent Consideration—If the MCA contract doesn’t have “true independent consideration,” it’s vulnerable to attack. Meaning, if no real value exchange happened, then the entire MCA deal could collapse. MCA Defense Lawyers in Los Angeles sometimes argue unconscionability. California law (Cal. Civ. Code § 1670.5) allows courts to refuse to enforce contracts if terms are too unfair. High-interest MCAs can be unconscionable, especially if they prey on desperate businesses. Let’s look at procedural and substantive unconscionability. If an MCA lender uses tricky language or buries critical terms, that’s procedural. If terms are unfair—like insane fees—that’s substantive. Los Angeles MCA attorneys argue both.
Choice of Law Clauses and Their Impact
Choice of Law Clauses: Many MCA contracts specify a different state’s laws apply (often NY). But in California, courts may ignore this if it’s unfair. Cal. Civ. Code § 1646.5 helps MCA defense argue California law should apply instead, especially when business happened here. A classic example: If an MCA contract says New York law applies, but all actions happened in California, an LA lawyer might convince the court that California law should govern. California consumer protections are generally stronger. Precedent Alert: In Nedlloyd Lines B.V. v. Superior Court, California courts explained when they will ignore a choice of law clause. They look at if applying foreign law would violate California’s public policy. Critical for MCA defenses!
Breach of Fiduciary Duty and Fraudulent Inducement
Another weapon MCA defense lawyers use: Breach of Fiduciary Duty. Some MCA lenders provide financial advice, crossing the line into fiduciary duty. If they profit from poor advice, they could face claims for breach. And then there’s fraudulent inducement. Was the business misled about terms? MCA lenders sometimes promise “flexible” payments, but in reality, use fixed debits. Misrepresentation like that? Grounds for voiding the agreement. Real World Example: An LA restaurant owner signed an MCA after being promised payments based only on income fluctuations. The lender took daily debits regardless of income. The court found this misleading and sided with the owner.
Confession of Judgment Clauses and Fraudulent Transfer
MCA agreements often contain confession of judgment clauses (COJs). California banned COJs in consumer loans to prevent abuses (Cal. Civ. Proc. Code § 1132). Los Angeles MCA defense argues COJs in MCAs are also abusive—potentially illegal. Fraudulent Transfer: MCA lenders might argue that if you diverted funds, it was fraudulent. But defense lawyers will argue back if it was done for legit business reasons. They use California’s Uniform Fraudulent Transfer Act (CUFTA) to defend.
Good Faith and Fair Dealing
Good Faith and Fair Dealing—Every contract in California includes an implied covenant of good faith. If an MCA lender acts unreasonably, this covenant is violated. It’s a powerful argument MCA defense lawyers use to protect businesses. Courts want fairness, even in contracts. If MCA lenders act in bad faith, like debiting more than they should, Los Angeles MCA defense attorneys use this to get the contract voided or modified. The key is showing intentional unfairness.
Partial Wins in MCA Defense
Partial Wins Matter: Even if MCA defense lawyers don’t get the whole debt eliminated, reducing penalties, fees, or getting liens removed can keep a business afloat. It’s all about attacking every weak link in the MCA chain. Los Angeles MCA defense lawyers have tools to protect personal assets too. California has strong homestead exemptions (Cal. Code Civ. Proc. § 704.730) that protect equity in a primary residence from creditors. Essential for business owners at risk.
Priority, Financial Distress, and Bankruptcy
MCA lenders often argue they have priority over all other debts. But if the MCA lien was improperly filed, or the MCA is ruled a loan, this priority falls apart. Lawyers in Los Angeles dig into lien details to find these flaws. Financial Distress Defense: California courts sometimes allow defenses based on financial hardship, especially if a business was pressured into unfair terms. It’s a tough angle but one that Los Angeles MCA lawyers occasionally push. Real Precedent: In Perdue v. Crocker National Bank, the court held that a party in a significantly stronger position should not take advantage of a distressed party. This is used by LA lawyers to reduce MCA penalties in extreme cases. Bankruptcy—Chapter 11 is a game changer. Filing for Chapter 11 bankruptcy can stay all collection actions, including MCAs. It buys time and often leads to renegotiation. MCA lenders know this and often settle rather than risk prolonged litigation.
Conclusion
In short, Los Angeles MCA Defense Lawyers know the laws, precedents, and every single trick to challenge MCA agreements. They fight for full victories, but even a partial win—removing liens, cutting fees—can save a business. Remember, the battle isn’t just about eliminating the MCA debt. It’s about survival—keeping the business running. MCA defense is about finding the weak links, exploiting every legal angle, and pushing for the best possible outcome.