How MCA Disputes Get Resolved
Most MCA contracts contain either an arbitration clause or a litigation clause designating New York courts. Understanding which applies determines your strategy.
Arbitration
Advantages: Faster, private, no public record, cannot use COJ. Disadvantages: Substantial fees, limited discovery, very limited appeal rights, arbitrator may be less receptive to recharacterization arguments.
Litigation
Advantages: Full discovery rights, growing body of favorable case law, full appeal rights, can raise counterclaims. Disadvantages: Slower, more expensive, public record, COJ risk, New York venue challenges for out-of-state borrowers.
Challenging These Clauses
Arbitration clauses can be challenged as unconscionable if costs are prohibitive. Forum selection clauses can be challenged if litigating in New York would be practically impossible for a small out-of-state business.
Strategic Considerations
If you have strong recharacterization arguments, litigation is generally preferable. If the funder has a COJ, arbitration may be strategically advantageous since COJs cannot be used in arbitration. Your attorney should evaluate the best path.