We Defend You Against

Strategic Funding Source, Inc.

a/k/a Kapitus Servicing, Inc.

Strategic Funding Source, Inc., now operating as Kapitus Servicing, Inc., has established itself as a prominent entity in the realm of small business financing since its establishment in 2006. The company's rebranding was intended to carve out a unique position in a competitive market and better showcase its growth and expanded range of services. Strategic Funding Source/Kapitus offers an array of financial products, including operational capital loans, machinery financing options, and credit lines, with a focus on swift approval procedures and adaptable terms tailored for small enterprises.

While Strategic Funding Source, Inc. is registered as a domestic corporation in New York, Kapitus Servicing Inc. is registered as a foreign corporation formed in Virginia. However, the company maintains additional offices in strategic locations. For instance, their New York City presence at 120 West 45th Street, New York, NY 10036 serves as another crucial center for their business activities.

The Langel Firm provides legal defense against collection actions initiated by Strategic Funding Source, Inc. (Kapitus Servicing, Inc.). If you require assistance, you can submit your information through this intake form. Below are relevant cases. The Langel Firm has not litigated these particular cases, which are summarized for educational purposes.

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Court Affirms Order Compelling Discovery to Strategic Funding Source, Inc.

In a case involving alleged breach of merchant cash advance contracts, the appellate court affirmed a lower court's order compelling defendants to comply with discovery requests and submit to depositions. The plaintiffs claimed the defendants breached agreements where money was advanced in exchange for a portion of credit card receivables from the defendants' restaurants.

Key Legal Principles:

1. Information that is "material and necessary" to claims is discoverable under CPLR 3101(a), even if it pre- or post-dates the contract period at issue.
2. Financial information outside the contract period can be relevant when plaintiffs allege misrepresentation of financial condition or failure to meet financial obligations.
3. Post-contract events may be relevant to claims and potential damages, especially when there are questions about business continuity or asset transfers.

Conclusion: The main takeaway is that courts may allow broad discovery in merchant cash advance disputes, including financial information from before and after the contract period, if it's potentially relevant to the claims or damages. This decision emphasizes the expansive interpretation of "material and necessary" in New York discovery law.

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

Why Broad Discovery May Be Allowable in Disputes over Merchant Cash Agreements

In a Merchant Cash Advance (MCA) dispute, the court may allow broader discovery for several specific reasons related to the nature of MCA agreements and the plaintiffs' allegations:

1. Financial Warranties: The plaintiff may allege that the defendants warranted their financial condition when entering into the contracts. This claim justifies examining financial information from before the contract period to verify the accuracy of those warranties.
2. Potential Misrepresentation: The plaintiff may suggest that the defendants may have misrepresented their financial condition. This allegation opens the door to investigating pre-contract financial information to detect any discrepancies or misrepresentations.
3. Ongoing Financial Obligations: MCAs typically involve ongoing payments based on future receivables. The plaintiffs may claim that defendants fail to meet their financial obligations under the contracts. This justifies examining financial information during and after the contract period to assess compliance.
4. Business Continuity and Asset Transfers: There may be conflicting evidence about whether the defendant business remained operational or had transferred assets to a successor entity. Given that the contracts bound successors and assigns, this justified examining post-contract information to trace any potential asset transfers or business restructuring.
5. Damages Assessment: Post-contract events may be deemed relevant to assessing potential damages, which is particularly important in MCA cases where the amount owed can fluctuate based on business performance.

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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]).

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]).

Court Vacates Default Judgment, Recognizing Potential Standing Defense in Cash Advance Agreement Dispute Involving Strategic Funding Source, Inc.'s Subsidiary

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 the plaintiff'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 a trade name of New State Funding LLC. The plaintiff, a subsidiary of Strategic Funding Source, Inc., was not mentioned in this agreement.
2. The plaintiff sued the defendant for defaulting on the agreement, despite not being a party to it. The plaintiff, 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 the plaintiff's standing, stating there was no privity of contract and that he had never borrowed money from the plaintiff.
4. A default judgment was entered against the defendant after his attorney failed to appear at two consecutive status conferences. The defendant 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 the plaintiff's questionable standing. The court noted that the plaintiff 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 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).

We did not litigate the above cases. Jesse Langel reports on important, litigated cases involving common adversaries.

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