Big Interest in Small Claims

by Fred Steingold

With lawyers charging $250 to $400 an hour in many cities, going to court can be a big pain in the pocketbook. If you own a small or mid-sized business, there is a way to avoid this cost. Represent yourself in small claims court.

Naturally, you wouldn’t want to be your own lawyer in defending a $100,000 contract case or a $1 million personal injury suit, but how about suing a customer for an unpaid bill, or a supplier for a $5,000 breach of contract? What about a truck driver who knocked down a $2,000 sign in your parking lot?

In cases like these, the small claims court – specifically designed for non-lawyers – may be just the ticket. This user-friendly court provides a speedy, inexpensive resolution of disputes that involve relatively small amounts of money.

According to Nolo, the publisher of Everybody’s Guide to Small Claims Court, you can sue for up to $6,000 in Maine, $4,000 in Kansas, and $7,500 in Minnesota. These are typical amounts, but there’s considerable variation from state to state. Tennessee, for example has a $25,000 limit, while Kentucky limits cases to no more than $1,500.

If you’re doing business as a corporation or limited liability company (LLC), check the law in your state. In a few states, even if you’re the sole owner of your corporation or LLC, you’re not allowed to represent the business in court. The reasoning is that the corporation or LLC is a separate legal entity. Appearing in court for the business would amount to practicing law without a law license. Most states, however, let you designate someone – a corporate officer or employee, for example – to appear for the company in small claims court. Even better, in some states you can send your bookkeeper to testify in a case involving unpaid debts.

To understand how you can use the small claims court to your advantage, consider the strategy of a real estate appraiser whom I’ll call George. Occasionally, George has clients who ignore his bills. It drives him up the wall to think that people are ripping him off by not paying what they owe. Several years ago, he decided to pursue every nonpaying client if the amount involved was significant, and there was a reasonable chance of collection.

Initially, George spent some time with his lawyer to become familiar with court procedures and to discuss pre-court strategies such as sending the scofflaws an effective collection letter. Over the years, George has done very well in collecting unpaid accounts. Occasionally, if matters get complicated, he calls or visits his lawyer. Phone calls rarely last longer than 15 minutes and visits rarely last longer than a half-hour.

Wisely, George groups together several problems so he can discuss them at the same time. Occasionally, George has his lawyer draft a legal pleading, a notice or a letter. Over the years, he’s collected most of what’s owed to him, at a minimal cost.

You can do the same. Small claims procedures are easy to master. Basically, you pay a small fee, file your lawsuit with the court clerk, see to it that the papers are served on your opponent, show up on the appointed day and tell your story. Check with the court clerk for the specifics.

You can sometimes use small claims court even if your case is for slightly more than the court’s limit. The secret is to ask for just the jurisdictional limit and forget about the rest. Say you’re in the office furniture business, for example, and someone owes you $3,200 for some desks. If the jurisdictional limit in your state’s small claims court is $3,000, in the long run it may be less expensive for you to forget about the $200 excess. Hiring a lawyer and going to regular court would be even more expensive. Just sue for $3,000.

Using small claims court effectively

Before you file your lawsuit, be reasonably sure of your legal position. Do you have a decent chance of proving in court that the defendant refused to pay a fair bill, or broke a contract, or negligently damaged your property? If not, any talk about going to small claims court is just an idle threat that will hurt your credibility.

Also, make sure you’ve done your best to get paid outside of court. Let the other side know that you’re preparing to sue. Call first and then follow up with a letter. If you do wind up in court, the letter will help the judge see that you made every reasonable effort to get paid before filing suit.

Before you file your case, think about whether you’ll be able to collect on a judgment if the defendant doesn’t pay. It helps if the defendant has a job, a bank account or owns property on which you can place a lien. If not, no matter how well you do in court, collecting the money will be a real hassle.

After you’ve filed your case, start getting your evidence together. Round up any relevant contracts, invoices, photographs, charts – in short, anything that will help prove your case. Make sure any employees or other witnesses you need to testify are available on the hearing date set by the court.

In small claims court, the rules of evidence and procedure are informal. Usually, each side simply tells the judge their side of the story and presents their witnesses and other evidence. Give a brief summary of your case and then lay out the important facts in chronological order. Address your testimony to the judge, not to the other side. Avoid arguing with the other side.

The judge may interrupt with questions. Always respond directly to the point the judge is inquiring about, then go back to making your points.

At the end of the case, ask the judge to award you costs as well the amount the defendant already owes you. If you win, you’re normally entitled to have the other side pay your filing fee, any fees for service of papers, and any fees you paid to witnesses you had to subpoena.

Fred S. Steingold practices law in Ann Arbor, Michigan. He is the author of Legal Guide for Starting and Running a Small Business and The Employer’s Legal Handbook, published by Nolo. Legal strategies may vary depending on the state in which you live and the specifics of your situation. See your lawyer for legal advice.