File in Small Claims Court

April 13, 2006

	Visited: 136
	Not rated
	Rate:

The civil litigation system itself represents a significant risk factor and exposure to liability. Therefore, it is important that small business owners employ the various strategies that allow them to control the risk factors in litigation.

As discussed elsewhere, the lack of a loser pays system can work against a plaintiff, as well as a defendant. If a plaintiff has a relatively small claim, the cost of bringing the claim in court may exceed the recovery. Because attorney's fees and related costs generally will not be reimbursed, even when the plaintiff is successful, it may be more economical to forego the claim and simply write it off as a loss. Of course, this happens frequently in practice, especially among larger businesses.

However, the small business owner can significantly lower the cost of bringing a court action and, thus, make recovery of the claim more economical by filing in the small claims court.

Parties may proceed "pro se," or without an attorney, in a lawsuit. Doing so, however, usually puts a party at a significant disadvantage, because of the complexity of the trial system. Even attorneys who are personally involved in litigation usually hire legal counsel, especially when operating outside their area of expertise.

One exception may be a small claims proceeding. The rules that govern a small claims action are very relaxed. The pleadings are simplified. While, in many states, plaintiffs must know how to draft a formal civil complaint according to criteria specified in the state's practice book, in a small claims case the complaint form almost always is a pre-printed form obtained at the court house.

Similarly, while service of process (i.e., the delivery of the complaint and summons to the defendant) in a regular action requires hiring a sheriff, who hand-delivers the complaint and summons to the defendant, in a small claims action service usually is by way of a certified letter. This simplifies and lowers the cost of the service of process in a small claims action. In addition, the court entry fee usually is significantly lower in a small claims action.

Simplified procedures also govern the actual trial process. Rules of evidence are relaxed in the small claims case, which makes it much easier to proceed pro se. There is no jury in a small claims case, which eliminates a complex and time-consuming aspect of a regular action--choosing of the jury.

In short, the costs and complexity of bringing a small claims action are much reduced compared to regular litigation, thus allowing the plaintiff to proceed pro se, avoid attorney's fees altogether, and bring an action that otherwise would be too uneconomical to file on the regular court docket.

However, a small claims action only can be brought when the amount of the claim is "small." While the jurisdictional limit of small claims courts differs among the states, the limit is usually in the range of $2,000 to $5,000. So, obviously the small claims alternative will not be appropriate in all cases.

In addition, a small claims case is argued before a judge or attorney who is termed a "magistrate." When the small business owner believes he would benefit by an emotional appeal to the trier of fact, a court action on the regular docket with a jury may be in order. Moreover, usually a small claims decision is final, with few rights of appeal. Thus, the finality of a small claims action should be carefully weighed against the benefits of bringing the case to small claims court.

Finally, as is true with any case in general, the small business owner also must consider whether he will be able to collect the judgment if he wins. A judgment against a defendant with no resources will still be uneconomical, even if secured in a small claims action.