A restaurant owner puts a $400 deposit on a computer and is promised delivery in 10 days. After waiting two months for the equipment, he cancels the order and asks for a return of his deposit. All he gets are excuses.
A delivery truck knocks down a lighting tower in a printing company's parking lot. Insurance covers $700 of the $1,200 replacement cost. The printing company wants the driver or his employer to pay the $500 difference -- the portion excluded by the insurance policy's deductible clause. All requests for payment go unheeded.
A tenant moves out of an office building, leaving $1,000 in rent unpaid. The tenant doesn't respond to letters and phone calls from the building's owner.
Each of these cases is a potential candidate for the small claims court -- a resource that is frequently overlooked by the small business owner.
What is a small claims court? Every state has a court to handle small claims. lt can be called the municipal court, conciliation court, magistrate's court, or some other name, but whatever the name, the purpose is to provide a quick, inexpensive way to settle disputes that involve relatively small amounts of money.
The amount for which you can sue in small claims court varies from state to state. At the low end of the scale is a $300 limit in Arkansas. At the high end are limits of $5,000 in Tennessee and $7,000 in Virginia. In most states, jurisdictional limits range from $500 to $1,000.
Generally, going to small claims court permits you to save money by handling the case yourself instead of hiring a lawyer. In some states lawyers are actually prohibited from practicing in small claims court. Before you decide to be your own lawyer, however, ask yourself if it is worth your time. If your workload is heavy you may be better off hiring a lawyer even if that necessitates going to regular court. Or, as a compromise, you might consider a brief consultation with your attorney to decide on strategy and to get help with the court papers.
However, legal advice usually is unnecessary. The court clerk will probably have a booklet or information sheet that explains the procedures. Small claims courts are designed for people with no legal education.
How small claims court works. Start your case by filling out a form, known as a complaint or statement of claim. You will give a brief statement (perhaps one or two sentences) describing the nature of your claim and why the defendant is liable to you. If you are suing on a contract, you may be asked to attach a photocopy of the contract to the court papers. The clerk issues a summons, which informs the defendant that a suit has been initiated and tells the defendant where to appear for the hearing. You will have to pay a $5 or $10 filing fee. Often the clerk's office will take care of serving the papers on the defendant by registered or certified mail.
In small claims court, the rules of evidence are relaxed, and procedures are informal. If no lawyer is involved, the usual question-and-answer format won't be followed. Each side simply tells its story and presents its witnesses. If you are going to ask a witness to testify on your behalf, spend a few minutes in advance reviewing his or her testimony.
Because the rules of evidence are less strict than in regular court, you may be able to present an expert opinion (such as an appraisal of damaged property) through an affidavit. Technically this type of written evidence is hearsay, but it may be allowed in small claims court Check in advance with the clerk or judge.
Bring along all records and correspondence relating to the transaction that led to the lawsuit. The most common mistake made by small claims litigants is to bring insufficient documentation to court, according to Judge Emanuel A. Rissman, chairman of the American Bar Association's small claims court committee. Photographs and drawings also can be useful. Most courtrooms have chalkboards or sketch pads you can use if you need to improvise during the hearing.
Address your testimony to the court -- not to the other side. Tell what happened. Avoid arguing with the defendant. You should, however, point out the inconsistencies or fallacies in your opponent's testimony.
If you win, you are entitled to have the other side pay your filing fee, any fees for service of paper, and any fees that you paid to witnesses whom you had to subpoena. The judge may decide the case at the end of the hearing or may send you a written decision a few days later.
Some defendants fail to show up at the trial, figuring that the judge will simply set a new date way off in the future. Their strategy is to wear you down through repeated delays, hoping that you will lose your enthusiasm and drop the proceeding. lf the defendant in your case doesn't come to court, ask for a default judgment, which automatically grants the relief you want. To have the case reopened, and a new hearing date set, the defendant would then have to convince the judge that there was a good reason why he or she didn't show up for the original date.
If your company is the plaintiff and you win your case, you still have to collect your judgment. Fortunately, most people pay voluntarily after a judge renders a decision. Don't sign anything releasing the defendant from liability unless you are paid with cash, a certified check, or a cashier's check.
What can you do if the defendant doesn't pay you? If you know where the person works or has a bank account, you can start garnishment proceedings. The court will order the defendant's employer to pay the defendant's wages directly to you to satisfy the judgment, or it will order the defendant's bank to dip into his or her bank account for this purpose. In most states, you can also require the defendant to come back into court and disclose where he or she works or has assets. However, if you have to force the debtor to disclose assets, you will probably wind up wasting valuable time with little likelihood of ever getting full payment.
Some disadvantages. If your claim is within the jurisdictional limit, you usually have a choice of using the small claims court or the regular, more formal court. Using the small claims court is speedy and convenient, but there may be some disadvantages. In many states you don't have a right to appeal a decision of the small claims court. In addition, small claims courts usually lack authority to grant anything except a judgment for money. For example, the court can't enjoin the defendant from transferring property or order the defendant to deliver goods described in a contract.
Also, if you are doing business as a corporation and wish to proceed without a lawyer, there is a catch you should be aware of. Generally, as a nonlawyer, you can represent only yourself in court. A corporation is a legal entity separate from its owners, officers, and employees. Some states take the position that a nonlawyer who represents a corporation in court -- even his or her own corporation -- is practicing law without a license. The reasoning is that if you can't represent a client, you can't represent the corporation, either. However, some states that usually prohibit a nonlawyer from representing a corporation make an exception for small claims court. ln Michigan, for example, a corporation can be represented by a fulltime salaried employee who knows the facts of the case.
In New York, a corporation is not permitted to start a case in small claims court. But if a corporation is sued there, a nonlawyer who owns one-third or more of the corporate stock can represent the company in court, as can a corporate officer if there are 10 or fewer shareholders. Check out your state's particular laws regarding a corporation's standing in small claims court. The court clerk can help you, or you can make a quick telephone call to your lawyer.
Suing strategy. To increase the chances of getting a collectible judgment, it is a good idea to sue all the parties involved. If a husband and wife purchased merchandise for their house and owe you money, sue both of them. If an employee of a typewriter repair company has damaged your equipment while repairing it, sue both employee and company.
A case that involves more money than the amount set in the jurisdictional limits must be started in a higher court -- one that usually has more formal procedures. If your case is only slightly over the line, you can waive the amount that is over the limit and sue for the maximum amount allowed. in the long run it may be less expensive to forget the extra money.
Keep in mind that if your company is sued in small claims court you may be able to file a counterclaim. Suppose Acme Rug Cleaning Co. sues you for $300 for failing to pay it for cleaning the carpets in your office. In your opinion, Acme did a terrible job and is not entitled to any payment. Besides, the cleaners destroyed an antique chair valued at $800. In addition to denying liability for the $300 cleaning bill, you may want to file a counterclaim for $800 for the ruined chair. In some cases, you may want to transfer the case to the regular court to gain a trial by jury, the right to appeal and other procedural protection.