Picsum ID: 263
When Collection Tactics Cross the Line Into Illegal Interference
As a commercial litigation attorney who has successfully sued multiple MCA funders for tortious interference, I want you to understand something critical: when an MCA funder contacts your customers, suppliers, or business partners to demand payment, they may be committing a tort that gives you a powerful counterclaim—and potential damages.
Tortious interference with business relationships is one of the most underutilized defenses in MCA litigation, yet it’s remarkably common. Here’s how to recognize it, document it, and use it to your advantage.
What Is Tortious Interference With Business Relations?
Tortious interference occurs when a third party intentionally disrupts your existing or prospective business relationships, causing you economic harm.
Elements of Tortious Interference (State-Specific Variations Apply):
- Existence of a valid business relationship or expectancy: You have contracts with customers, suppliers, or ongoing business relationships
- Knowledge of that relationship: The funder knows (or should know) about the relationship
- Intentional interference: The funder deliberately takes actions to disrupt the relationship
- Improper means or purpose: The interference goes beyond legitimate collection activity
- Causation: The funder’s actions directly caused harm
- Damages: You suffered quantifiable economic losses
The key distinction: Legitimate collection activity (calling you, sending demand letters to you) is protected. But contacting third parties with whom you do business—especially when done to intimidate or coerce—crosses into tortious interference.
Common MCA Tactics That Constitute Tortious Interference
1. Contacting Your Customers to Demand Payment
This is the most common form of tortious interference in MCA cases:
- Calling customers and claiming your business “owes money” or is “in default”
- Suggesting customers should “hold payment” or “redirect funds”
- Threatening to place liens on customer accounts
- Falsely claiming they have a legal right to customer payments
Real case example: A client’s MCA funder called their three largest customers (who represented 60% of revenue) and claimed the business was “bankrupt” and “unable to fulfill contracts.” Two customers immediately canceled orders worth $240,000. We sued for tortious interference and won $385,000 in damages plus attorneys’ fees.
2. Contacting Business Partners or Vendors
Funders may also contact:
- Suppliers: Demanding they cease shipments or extend credit
- Landlords: Claiming you can’t pay rent and should be evicted
- Equipment lessors: Suggesting they repossess equipment
- Bank partners: Demanding account freezes or transfers
Each of these actions can constitute tortious interference if done improperly.
3. Defamatory Statements to Third Parties
Funders often make false or misleading statements:
- “They’re going out of business”
- “They’re engaged in fraud”
- “They’re stealing from us”
- “They’ve been sued by multiple lenders”
These statements, when made to business partners, can support both tortious interference and defamation claims.
4. Threatening Criminal Action to Third Parties
Some funders tell customers or vendors:
- “We’re filing criminal charges”
- “They committed bank fraud”
- “The FBI is investigating them”
These statements are almost always false and constitute improper interference.
5. Using Third-Party Contacts to Extort Payment
When funders contact your customers solely to embarrass you or pressure payment (rather than for legitimate collection purposes), this is considered “improper means” under tort law.
Why Tortious Interference Claims Are So Powerful
Strategic Advantages:
- Counterclaim leverage: Transforms you from defendant to plaintiff
- Offset potential: Damages can offset or exceed the MCA debt
- Discovery rights: Forces the funder to produce records of all third-party contacts
- Punitive damages: Available in many states when conduct is particularly egregious
- Attorneys’ fees: Many states allow fee-shifting in tort cases
- Settlement pressure: Funders fear jury trials on interference claims
Damages You Can Recover:
- Lost profits: Revenues from canceled contracts or lost customers
- Lost business relationships: Value of destroyed ongoing relationships
- Harm to reputation: Costs to repair business reputation
- Consequential damages: Ripple effects from the interference
- Punitive damages: To punish and deter egregious conduct
How to Document Tortious Interference
Immediate Actions When a Funder Contacts Third Parties:
- Obtain detailed statements from witnesses:
- Who was contacted (name, title, company)
- When (exact date and time)
- What was said (verbatim quotes if possible)
- How they responded
- What impact it had on your relationship
- Request written confirmation: Ask customers/vendors to email or write a summary of the contact
- Preserve voicemails or recordings: If calls were recorded or voicemails left, preserve them immediately
- Document economic impact:
- Contracts canceled
- Orders placed on hold
- Credit lines reduced
- Relationships severed
- Send a cease-and-desist letter: Immediately notify the funder that third-party contacts are prohibited and constitute tortious interference
Case Study: $620,000 Recovery for Customer Interference
A logistics company client borrowed $175,000 from an MCA funder. When they fell behind on payments, the funder:
- Called the client’s top 5 customers
- Claimed the business was “bankrupt and unable to fulfill contracts”
- Suggested customers should “find another vendor”
- Threatened to “seize trucks” that were being used for customer deliveries
Within 48 hours:
- Three customers canceled contracts worth $485,000 annually
- Two additional customers placed the relationship “under review”
- The client’s revenue dropped 45% within 30 days
We filed a counterclaim for tortious interference, supported by:
- Sworn declarations from five customers
- Voicemail recordings of the funder’s calls
- Financial records showing revenue decline
- Expert testimony on lost business value
Result: The case settled for $620,000 (less a $50,000 offset for the remaining MCA balance), plus $140,000 in attorneys’ fees.
Defenses Funders Raise (and How to Defeat Them)
Defense #1: “We Have a Right to Collect”
Rebuttal: You have a right to collect from the debtor, not from third parties who aren’t liable for the debt. Contacting customers serves no legitimate collection purpose when the debt isn’t theirs.
Defense #2: “We’re Just Notifying Them of Our UCC Lien”
Rebuttal: A UCC lien gives you a security interest in collateral, not the right to interfere with customer relationships. Telling customers to withhold payment exceeds lien rights.
Defense #3: “The Statements Were True”
Rebuttal: Even truthful statements can constitute tortious interference if made with improper purpose or means. Telling customers accurate information about a debt for the purpose of destroying business relationships is still actionable.
Defense #4: “They Signed Away These Rights”
Rebuttal: You cannot contract away tort protections. MCA agreements often contain clauses authorizing the funder to contact third parties, but these clauses don’t shield tortious conduct.
Multi-State Considerations
Tortious interference law varies by state:
New York:
- Requires “wrongful means” (threats, fraud, illegal conduct) or “wrongful purpose” (malice, spite)
- Economic competition alone is insufficient
- Strong protection for legitimate business interests
California:
- Broader tort protection
- “Independently wrongful” conduct not always required
- Punitive damages more readily available
Texas:
- Requires “willful and intentional” interference
- Business relationships don’t need to be contractual
- Prospective relationships protected
Combining Tortious Interference With Other Claims
Tortious interference works powerfully alongside:
- Defamation: False statements to third parties
- FDCPA violations: If funder is a “debt collector” under federal law
- State consumer protection violations: Unfair or deceptive practices
- Breach of implied covenant of good faith: Exercising contractual rights in bad faith
Stacking claims multiplies your leverage and potential recovery.
How to Prevent Future Interference
If you’re still in business with an MCA funder:
- Send a formal notice: Notify the funder that any contact with customers, vendors, or business partners is prohibited and will be treated as tortious interference
- Notify your business partners: Warn key customers and vendors that a funder may attempt to contact them and that they should refer all inquiries to your attorney
- Document everything: Keep detailed logs of all funder communications
- Consult with counsel early: Before the funder contacts third parties, establish a response plan
Your Next Steps
If an MCA funder has contacted your customers, suppliers, or business partners:
- Document immediately: Get written statements from everyone who was contacted
- Calculate damages: Quantify lost revenue, canceled contracts, and relationship harm
- Send a cease-and-desist: Put the funder on notice that further contacts are prohibited
- Consult with a litigation attorney: Evaluate whether you have a viable counterclaim
FREE RESOURCE: Download our comprehensive guide “MCA Default Protection: Legal Strategies to Stop UCC Liens” which includes a full chapter on tortious interference claims and sample demand letters. Get your free copy here.
Final Thoughts
MCA funders rely on intimidation and fear. When they cross the line by contacting your customers and business partners, they create powerful legal claims that can offset or exceed your debt entirely.
Don’t let illegal collection tactics destroy your business. Tortious interference claims provide a meaningful path to protect your relationships, recover damages, and level the playing field against aggressive funders.
The key is acting quickly, documenting thoroughly, and understanding your rights under state tort law.
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