Small claims court is a legal court of law designed to resolve disputes involving small amounts of money in an expeditious manner. Unlike other legal courts, small claims court does not operate by formal rules of evidence, and attorneys are (generally) not utilized. Instead, plaintiffs and defendants simply go before the court and present their respective perspectives on the dispute, and the court makes a judgement based on the evidence presented. Claims made in small claims court, noted writer Sandra R. Bell, typically "involve purchases made by consumers, disputes over shared property, failure to honor contracts or invoices involving small business, investments that have gone under, and expenses that employees accrued from employers." Given the parameters of small claims court, then, it is little wonder that many small business owners sooner or later find themselves involved in a proceeding there, either as a defendant or plaintiff.
APPEARING AS A PLAINTIFF Most small business owners that appear in small claims court as plaintiffs do so because they are having difficulty securing payment for some product or service that they have provided to the defendant. To file a small claims action, the owner needs to first find out if he or she has a case that can even be heard in the court. State limits vary considerably in this regard; some place a ceiling of several hundred dollars, while others will hear claims for as much as $5,000.
If the plaintiff has a complaint that can be legitimately heard in small claims court, he or she should then check with the local county clerk's office for information on procedures for bringing suit. Again, guidelines vary from state to state, although the basic set-up is consistent. The plaintiff also needs to file the claim in the jurisdiction where the defendant resides.
Once the business owner has familiarized him or herself with the basic procedures, he/she should proceed with the filing. This is a fairly basic document, usually only one page in length, that briefly delineates the main reasons for the suit. The document, known as a summons or complaint, should describe the dispute; the time, date, and location that it took place; names of witnesses (if any); and desired compensation. The plaintiff should also try to name the defendant as accurately as possible when filing. "It's very important to have the exact legal listing for a business (named as a defendant)," said one county clerk in an interview with Business First of Buffalo contributor Jane Schmitt. "If it's a DBA (doing business as), you want to list them as a DBA if its is responsible for the loss you have incurred. If it's a corporation, make sure you have the exact corporate name. Because while it is not going to make a difference to us, it is going to make a difference to the claimant. …If they are successful and want to collect their money, they could hit a snag if they have sued them under an improper legal listing." When the complaint has been filed, the court clerk will inform the plaintiff when the case will be tried. The cost of filing a complaint ranges from about $5 to $25.
In the weeks leading up to the court date, the plaintiff should gather whatever evidence is available to bolster his or her claims, including photographs, written agreements, itemized bills and invoices, written cost estimates for service or repairs, receipts, canceled checks, and other correspondence.
APPEARING AS A DEFENDANT When a small business owner receives notice of claim (this is usually sent via both certified mail and first-class mail), he or she should study the summary of the plaintiff's claims, the amount that is being sought, and begin preparing for the trial date (which is also included in the notification). If the copy of the claim that is sent via regular mail is not returned to the court as undeliverable within 21 days, then it is assumed that the defendant has received notice of the claim.
Once the defendant receives notice of the claim, he or she can either try to reach a mutually satisfactory agreement with the plaintiff prior to the trial date or begin preparing for the case by gathering all favorable evidence available (itemized bills or invoices, written agreements, etc.). "If the claim is not true, you must deny it in no uncertain terms," wrote Bell. "If the basic facts are true, explain why you haven't made restitution. If you are counter-claiming for damages, this must generally be done when you answer the suit. Do not ignore a complaint, and be sure to file your response or counterclaim within the allowable time frame." This time frame, it should be noted, varies from state to state.
Small claims court cases are resolved in one of four ways: trial, arbitration, settlement, or default judgement.
Trial. This is the method that is most familiar to most Americans. Under this arrangement, the plaintiff makes his case, the defendant offers a rebuttal, and the presiding judge makes a judgement based on the evidence presented by both sides. If either the plaintiff or the defendant is unhappy with the judge's verdict, he or she can file an appeal. This step is rarely taken, however, because of the added expense involved (filing an appeal is more expensive than filing an initial claim, and it sometimes requires soliciting the services of an attorney).
Arbitration . If both sides agree, the dispute can be resolved via arbitration rather than by going to trial. "The advantage of arbitration is that it occurs the same night and is less formal than a trial," said Carol J. Steinberg in Back Stage. "The disadvantage is that you cannot appeal the arbitrator's decision so that if you are unhappy with the result, you have no recourse."
Settlement . Plaintiffs and defendants also have the option of settling the case out of court prior to the trial. But as Steinberg indicated, small business owners who consent to a settlement need to be very careful about the various provisions of the agreement, especially if you are owed money: "Your opponent may agree to pay you $150 a month for a year, but if the payments are not made, you have no recourse. If you want to settle the case, make sure that the settlement amount is paid in one lump sum on a certain date. Ask the court to adjourn your case for some time after that. If at that point you have not been paid, you will go forward either with a trial or with arbitration. Be sure that your settlement agreement is in writing and is signed off by a judge."
Default Judgement . A default judgement—also sometimes referred to as a liquidated complaint—can be handed down in the event that one of the sides involved in the dispute does not appear at the scheduled trial time. In such instances, the judge is presented with the evidence provided by whichever side is present. If the person adequately proves his or her case, a default judgement for the amount claimed is entered, or (in instances wherein the plaintiff does not show up) the case may be dismissed.
Consultants to small business enterprises warn that winning a small claims case does not necessarily mean that the dispute has been wholly settled. Certainly, if the small business owner mounts a successful defense of a claim, then he or she can return to his business secure in the knowledge that the affair is over. But if the small business owner was a successful plaintiff, he or she still needs to make sure that the amount owed is turned over.
There are a variety of enforcement techniques available to successful plaintiffs, but most people owed money can follow basic steps that are generally effective. "The first thing that you do after you win is send a demand letter to your opponent, advising that you will begin judgment enforcement techniques immediately if the full amount of the judgment is not sent to you within 20 days of the date of the letter," wrote Steinberg. "You will have an easier time collecting if while you were in court you asked the judge to order the defendant to disclose the assets that would cover the judgment and not to dispose of them until the judgment is paid. The most effective enforcement technique, guaranteed to get the defendant's attention, is to restrain his or her bank account." Plaintiffs can do this, stated Steinberg, by locating the defendant's bank and account number on a canceled check (if available). The court then can then impose a restraining order upon the bank, which serves to freeze the account in the amount of the judgement. "If you do not know where the assets are," added Steinberg, "the court can help you serve information subpoenas upon banks and any institutions or persons who may have knowledge of your opponent's assets."
Bell, Sandra R. "Represent Yourself: Here's How You Can Stay One Step Ahead in Small Claims Court." Black Enterprise. October 1997.
Schmitt, Jane. "Small Claims Need Not be Big Headache." Business First of Buffalo. January 17, 1994.
Steinberg, Carol J. "The Performing Artist's Guide to Small Claims Court." April 28, 1995.
Zervos, Michelle. "Collecting Your Small Claims Court Judgement." Business Credit. September 1997.