We Defend You Against

Kapitus Servicing, Inc.

a/k/a Strategic Funding Source, Inc.

Kapitus Servicing, Inc., also known as Strategic Funding Source, Inc., has become a significant player in the small business lending industry since its inception in 2006. The transition aimed to create a distinct identity in a crowded marketplace and better reflect the company's evolution and expanded service offerings. Kapitus provides various financing solutions, including working capital loans, equipment financing, and lines of credit, emphasizing a quick approval process and flexible terms for small businesses.

Kapitus Servicing Inc. is registered as a foreign corporation formed in Virginia, while Strategic Funding Source, Inc. is registered as a domestic New York corporation.

Kapitus's main headquarters is located in Arlington, Virginia. However, Kapitus also has offices in other key locations. For example, in New York City, Kapitus has an office at 120 West 45th Street, which serves as another important hub for its operations

The Langel Firm defends against collection lawsuits brought by Kapitus Servicing, Inc. If you need help, complete this intake form. Our firm did not litigate the below cases. We report major collection cases throughout New York.

Kapitus's Motion for Default Judgment Denied Due to Invalid Out-of-State Service in Merchant Cash

A Virginia corporation operating in New York sued a Rhode Island resident to collect on a merchant cash advance agreement. The defendant did not appear, and the plaintiff moved for default judgment. The court denied the motion because the plaintiff failed to establish valid service on the out-of-state defendant under New York's long-arm statute.

Key Legal Principles:

1. To obtain a default judgment, the movant must establish valid service, the nonmoving party's default, and facts constituting the claim.
2. For out-of-state service to be valid under CPLR 313, the defendant must be subject to personal jurisdiction under CPLR 301 or 302.
3. A contractual submission to jurisdiction does not automatically satisfy the requirements for valid service under CPLR 313.

Conclusion: The main takeaway is that proper service is crucial for obtaining a default judgment, especially when dealing with out-of-state defendants. Contractual forum selection clauses alone are insufficient to establish valid service under New York's long-arm statute. Plaintiffs must demonstrate that defendants are subject to personal jurisdiction under specific statutory provisions.

Citation: Kapitus Servicing, Inc. v Dilone (75 Misc 3d 1233[A], 171 NYS3d 893 [Sup Ct, NY County 2022]).

Court Vacates Default Judgment, Recognizing Potential Standing Defense in Cash Advance Agreement Dispute Involving Colonial Funding Network, Inc. d/b/a Bankcard Funding (Now Known as Kapitus)

A New York court vacated a default judgment against a Texas merchant in a case involving a cash advance agreement. The court found that the merchant had both a reasonable excuse for the default and a potentially meritorious defense based on Colonial Funding's questionable standing to sue. The case highlights issues of standing and agency in contract disputes, particularly when the plaintiff is not a direct party to the agreement in question.

Five Relevant Facts:

1. The defendant entered into a cash advance agreement with Bankcard Funding, which was a trade name of New State Funding LLC. Colonial Funding Network, Inc., d/b/a Bankcard Funding, was not mentioned in this agreement.
2. Colonial Funding sued the defendant for defaulting on the agreement, despite not being a party to it. Colonial Funding, a subsidiary of Strategic Funding Source, Inc. (which owns New State Funding LLC), claimed it had standing as New State's agent and servicer.
3. Defendant's original answer included affirmative defenses challenging Colonial Funding's standing, stating there was no privity of contract and that he had never borrowed money from Colonial Funding.
4. A default judgment was entered against the defendant after his attorney failed to appear at two consecutive status conferences. Manziel moved to vacate this judgment under CPLR 5015(a)(1).
5. The court found that the defendant had a reasonable excuse for the default (law office failure) and a potentially meritorious defense based on Colonial Funding's questionable standing. The court noted that Colonial Funding had not sufficiently established an agency relationship allowing it to sue on New State's behalf, and that merely acting as a servicer or sending default notices did not automatically confer standing to sue.

Key Legal Principles:

1. To vacate a default judgment under CPLR 5015(a)(1), a defendant must establish both a reasonable excuse for the default and a potentially meritorious defense.
2. Standing to sue on a contract generally requires being a party to the agreement, an assignee, or an intended third-party beneficiary.
3. An agency relationship allowing a party to sue on behalf of a principal must be clearly established, typically through explicit acknowledgment by the defendant or clear contractual provisions.

Conclusion: This case underscores the importance of properly establishing standing in contract disputes, especially when dealing with complex corporate structures and alleged agency relationships. It also demonstrates that courts may be willing to closely examine standing issues even in the context of motions to vacate default judgments, potentially providing defendants with a strong basis for challenging suits brought by parties not directly named in the original agreements.

Citation: Colonial Funding Network, Inc. v Manziel, 67 Misc 3d 1213(A), 126 NYS3d 854 (Sup Ct, New York County 2020).

Kapitus's Standing as Real Party in Interest in Factoring Agreement Dispute

A buyer of future receivables under a factoring agreement sued the seller for breach of contract. The seller challenged the buyer's capacity to sue, arguing that the buyer was merely a servicing agent. The court affirmed the denial of the seller's motion for summary judgment, holding that the buyer had the right to maintain the action in its own name as a real party in interest.

Key Legal Principles:

1. A contracting party generally has the right to maintain an action in its own name under CPLR 1004.
2. A corporation with independent authority and a beneficial interest in an agreement can be considered a real party in interest, even if acting as a servicing agent.
3. A foreign limited liability company's failure to fully comply with filing requirements does not impair another party's right to maintain an action.

Conclusion: The main takeaway is that a servicing agent can be considered a real party in interest with the right to sue in its own name if it is a contracting party with independent authority and a beneficial interest in the agreement. This expands the understanding of who can bring suit in factoring agreement disputes.

Citation: Kapitus Servicing, Inc. v MS Health, Inc. (221 AD3d 504 [1st Dept 2023]).

Kapitus's Default Judgment Motion Denied in Merchant Cash Advance Dispute

A company sought default judgment against a guarantor for alleged breach of a merchant cash advance agreement. The court denied the motion, finding that while service and default were established, the plaintiff failed to sufficiently prove the facts constituting its claim and raised timeliness concerns.

Key Legal Principles:

1. A plaintiff seeking default judgment must establish proper service, defendant's default, and facts constituting the claim.
2. Evidence of insufficient funds for ACH debits alone does not prove a breach of agreement to deposit receivables or change of designated account.
3. The statute of limitations for contract claims in New York is six years, and the plaintiff must demonstrate the action was brought within this timeframe.

Conclusion: The main takeaway is that even in uncontested default judgment motions, plaintiffs must provide clear evidence supporting all elements of their claim and address potential statute of limitations issues. Courts will scrutinize the evidence presented and deny motions that fail to establish a prima facie case.

Citation: Kapitus Servicing, Inc. v Evenson, 78 Misc 3d 1224[A], 186 NYS3d 597 [Sup Ct, NY County 2023]).

Kapitus Servicing's Forum Selection Clause Binds Non-Signatories in Merchant Cash Advance Dispute

A merchant cash advance company sued multiple business entities and individuals for breach of contract and fraud-related claims. Two non-signatory defendants challenged personal jurisdiction based on a forum selection clause. The court held that the non-signatories were bound by the forum selection clause due to their close relationship with the signatory entities and potential alter ego status.

Key Legal Principles:

1. Non-signatories may be bound by forum selection clauses if they have a "close relationship" with a signatory or are alter egos of a signatory.
2. Forum selection clauses can encompass tort claims arising from the business relationship, not just contract claims.
3. Parties who agree to a forum selection clause waive objections to venue and forum non conveniens in the selected jurisdiction.

Conclusion: The main takeaway is that courts may enforce forum selection clauses against closely related non-signatories in commercial disputes, potentially expanding jurisdiction over parties not directly signing the agreement. This decision reinforces the strong policy favoring enforcement of forum selection clauses in New York.

Citation: Kapitus Servicing, Inc. v Zumma Mgt. Group, LLC, 81 Misc 3d 1222(A), 200 NYS3d 922 (Sup Ct, NY County 2023).

Appellate Court Upholds Broad Discovery Order in Merchant Cash Advance Litigation involving Strategic Funding Source, Inc.

The appellate division affirmed a trial court's decision to compel defendants to comply with extensive discovery requests and appear for depositions in a case alleging breach of merchant cash advance agreements. The plaintiff company claimed that defendants failed to fulfill contracts where funds were provided in exchange for future credit card receivables from the defendants' dining establishments.

Key Legal Principles:

1. Under CPLR 3101(a), information deemed "material and necessary" to claims is subject to discovery, regardless of whether it falls outside the timeframe of the contract in question.
2. When plaintiffs assert misrepresentation of financial status or failure to meet contractual financial obligations, financial records from periods before or after the contract may be considered relevant.
3. Events occurring after contract termination can be pertinent to claims and potential damages, particularly when questions arise about business continuity or the transfer of assets.

Conclusion: This ruling demonstrates that New York courts may permit wide-ranging discovery in merchant cash advance disputes, including financial data from before and after the contract period, provided it's potentially relevant to the claims or damages assessment. The decision underscores the broad interpretation of what constitutes "material and necessary" information under New York's discovery laws.

Citation: Strategic Funding Source, Inc. v Steenbok, Inc., 194 AD3d 530 (1st Dept 2021).