[PRIMO CASH]

I've seen many contracts from many funders and I've never seen that type of phrasing.

That is loosely my point. This industry is so "new" in historical terms (at least compared to traditional banking), that any law suits that occur now are setting the precedent for future case law in this industry. And unless there is Federal regulation that specifically outlines what is legal and what is not, stacking will continue to be an issue. I personally welcome some regulation. But as they say, be careful what you wish for.

[Chambo]

I've seen legal letters...and I've seen lawsuit filings.

Sean can confirm too, that just because it isn't broadly advertised, several firms (ISO's) have had to open up their checkbooks to some of the big boys

[mcaguru]

[CreditGuy]

credit guy are you in the mca industry . i don't know how you fund with anyone in our industry including first position lenders

Yes. I don't fund "with" anyone. I underwrite it, it funds. I don't need anyone else's approval to fund a deal. One would say I'm a consummate...daily funder.

[FUNd]

Yes. I don't fund "with" anyone. I underwrite it, it funds. I don't need anyone else's approval to fund a deal. One would say I'm a consummate...daily funder.

Boom, roasted.

[CreditGuy]

I can add a clause that says if you sleep passed 11am after I give you my money you are in default. They breach the contract right? But it would not hold up anywhere. Just saying there's a very grey area in this industry.

In my contracts, the language grants us a security interest in the "collateral". (Perfecting that interest is another topic) That is, all business assets: accounts, receivables, etc., as defined by UCC Article 9. The contract further goes on to state that if said collateral is pledged/mortgaged/conveyed/encumbered, other than in the normal course of business, or if any collateral is sold at a discount (e.g. sale of future receivables, like an MCA), those proceeds must be remitted to the lender otherwise the loan is in default. It is generally referred to as a "due on sale or encumbrance" clause and it is in every contract for extension of credit that I've seen or issued, even bank debts. Lenders use this clause because they are UW the borrower at point X, based on cash flow and other credit data available at the time, including knowledge of all outstanding debts up to X time. After X, if a borrower takes additional debt the lender that UW the deal at time X can't be as confident that the borrower still has the capacity to repay given all the variables and unknowns, like amount, term, rate, etc. of the new debt or the financial condition of the borrower at the time it was taken. This can be interpreted as a "material adverse change", and is also a common act of default in credit contracts.

There is a massive amount of case law around both the "due on sale or encumbrance" and "material adverse change" clauses and lender's right and remedies when invoking them to make demand for payment given how prevalent they are in loan contracts. There is nothing at all vague about it, except to people with no understanding of contract law and legal precedent in this area. Then there is the aforementioned tortious interference. Also, fraudulent constructive conveyance/transfer should the transaction lead to insolvency of the debtor. You do NOT want to be party to a charge of fraudulent constructive conveyance, more so if the charge is being levied by a trustee in a BK proceeding. That's when receivership and injunctions happen. Fun times.

Everyone here trying to play cute with stacking by sticking their fingers in their ears, or heads in the sand, is going to have a bad time when the big boys all say enough is enough and start really cracking skulls in court.

[J.Celifarco]

Everyone here trying to play cute with stacking by sticking their fingers in their ears, or heads in the sand, is going to have a bad time when the big boys all say enough is enough and start really cracking skulls in court.

Which will eventually happen.. it is not a matter of if it is a matter of when

[Funder Mark]

So when are public lawsuits against the stackers going to arrive?

[Chambo]

So when are public lawsuits against the stackers going to arrive?

They are already going on, they just aren't being advertised. Sean can confirm that several stacking firms have had to whip out their checkbooks already.

I guess they just feel it is the cost of doing business, or they just decide to NOT stack that particular company.

[jbrown]

Rapid currently has 3 open lawsuits for tortious interference against different companies that have stacked on us and caused a loss. I can't speak for other companies and what they have done. CreditGuy has a good analysis of some of the issues and contractual rights.

These cases are all fact specific and are working their way through the courts. In our first case, against one of the companies that specifically advertises that they do 2nds, 3rds etc., the defendant filed a motion to dismiss and we recently had a ruling in our favor allowing the case to proceed. Which means we get to do discovery, take depositions, etc.

There is also significant regulatory awareness of the stacking issue in particular. Some of you know that SBFA is now active on Capitol Hill and has hired an Executive Director who comes from a leadership role on the House Committee on Small Business. Our legal department is also active on the Hill and has testified at the Federal Reserve on issues related to our industry.

[Chambo]

and....KA-BOOM

[J.Celifarco]

Rapid currently has 3 open lawsuits for tortious interference against different companies that have stacked on us and caused a loss. I can't speak for other companies and what they have done. CreditGuy has a good analysis of some of the issues and contractual rights.

These cases are all fact specific and are working their way through the courts. In our first case, against one of the companies that specifically advertises that they do 2nds, 3rds etc., the defendant filed a motion to dismiss and we recently had a ruling in our favor allowing the case to proceed. Which means we get to do discovery, take depositions, etc.

There is also significant regulatory awareness of the stacking issue in particular. Some of you know that SBFA is now active on Capitol Hill and has hired an Executive Director who comes from a leadership role on the House Committee on Small Business. Our legal department is also active on the Hill and has testified at the Federal Reserve on issues related to our industry.

well that pretty much sums it up for anyone who thinks the bigger companies in the industry are sitting back doing nothing. I doubt these are the only cases I am sure some of the other bigger banks have files suits as well

[Funder Mark]

But until more companies are filing suite, and publicly, I doubt things will change. Lets say a company does a 2nd position, and after that the business closes. Is that considered tortious interference? Or if something unexpected comes up, would the courts consider that a mitigating factor? To me, it feels like any stacking lawsuit will have to be handled on an individual basis, with the numbers gone over for each one on their own merits.

[J.Celifarco]

But until more companies are filing suite, and publicly, I doubt things will change. Lets say a company does a 2nd position, and after that the business closes. Is that considered tortious interference? Or if something unexpected comes up, would the courts consider that a mitigating factor? To me, it feels like any stacking lawsuit will have to be handled on an individual basis, with the numbers gone over for each one on their own merits.

enough companies lose and get hit with financial penalties they might not be willing to take the risk anymore

[Funder Mark]

enough companies lose and get hit with financial penalties they might not be willing to take the risk anymore

Exactly my point. 'Enough' and 'Might' will not stop anyone. It would have to be public, from companies that openly sue, and then people will be scared off. It would have to be really obvious to really stop the stacking.

[Michael I]

so it sounds like all these lawsuits are only if the deal defaults .is that correct ?

[Sean Cash]

so it sounds like all these lawsuits are only if the deal defaults .is that correct ?

damages are essential to a lawsuit.

[CreditGuy]

Lets say a company does a 2nd position, and after that the business closes. Is that considered tortious interference?

Yes and no. Placing the second is tortious interference regardless of the performance of the borrower after the fact. If the business becomes insolvent it could also then be considered fraudulent constructive conveyance.

[Funder Mark]

so it sounds like all these lawsuits are only if the deal defaults .is that correct ?

What about id as a result of additional advances, the original funder is forced to lower the payments? Would that be considered tortious interference?

[J.Celifarco]

What about id as a result of additional advances, the original funder is forced to lower the payments? Would that be considered tortious interference?

I think this would also fall under it as well

Exactly my point. 'Enough' and 'Might' will not stop anyone. It would have to be public, from companies that openly sue, and then people will be scared off. It would have to be really obvious to really stop the stacking.

definitely wont happen over night but I think these first cases and their outcomes will decide what happens moving forward.. If they get thrown out then the wild west shall continue. If there are damages depending on how severe will determine how other banks react.. Time will tell and until then we wait and see

[AndyYSCISOdept]

damages are essential to a lawsuit.

Well said.

[Michael I]

damages are essential to a lawsuit.

is the damages when they lose the principal or even just the interest ?

[CreditGuy]

is the damages when they lose the principal or even just the interest ?

Anything less than full compliance with the terms of the contract would be considered "damage".

[Michael I]

Anything less than full compliance with the terms of the contract would be considered "damage".

credit , i am asking on all the current lawsuits that are out there now . i just jaywalked today in front of a cop he did not give me a ticket even though its illegal

[CreditGuy]

credit , i am asking on all the current lawsuits that are out there now . i just jaywalked today in front of a cop he did not give me a ticket even though its illegal

I don't have to be privy to the details of the various suits to understand the law. We've already established pretty early on in this thread that you are a ethically devoid dullard. Let's not add pedant to your list of adjectives.