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Surviving Small Claims Court

Want your fair share? A quick guide to getting your day in court ... and emerging a winner.
October 1, 2002
URL: http://www.entrepreneur.com/article/55854

So you have deadbeat customers or clients who owe you money. You've made repeated demands for payment, threatened to charge interest on the overdue debt and personally appealed to your debtors' sense of honor and fair play. Nothing has worked. They haven't paid a cent. Like they say on television, it's time to . . . take them to court!

In most cases, it isn't worthwhile to bring a lawsuit in state or federal court to collect a small amount of money (considered less than $5,000 in many states). Your lawyer alone will charge an upfront retainer of $5,000 to $10,000 to take on a new case (so-called contingency fees, based on a percentage of the judgment you win, are usually not charged in commercial or breach-of-contract cases). And then there are the court costs and the time you lose attending depositions, hearings and so forth. However, every state has a system of small claims courts you can use to collect judgments for small amounts of money ... if you have the nerve.

Make no mistake--when you bring a suit in small claims court, you do most of the work yourself, and pleading your own case before a real-life judge can be one of the scariest events of your life, even if you know you are 100 percent in the right. Yet sooner or later, if you run your own business, you'll get into a situation where you have to bring an action in small claims court to collect an overdue debt (or, God forbid, defend yourself against someone who thinks you owe them money).

Here, then, is a quick guide to surviving a small claims court proceeding.

What if your delinquent debtor is located in another state? Let's say your business is in New York and your debtor is in California. You bring an action in small claims court in New York, and deliver a summons and complaint to the California debtor. The court date comes around, and (surprise!) the debtor fails to show, so you get a judgment in your favor (you won't get this far in many states, where the small claims court will throw your case out because it "lacks jurisdiction" over the defendant). Sad to say, the small claims courts of most states are not legally bound to honor judgments entered by small claims courts in other states, especially if they are "default judgments," judgments rendered in favor of one party simply because the other party failed to show up in court. So, in the above example, you'd have to bring an action in the small claims courts of California, and hope the judge out there feels so sorry for you that you're awarded your travel, lodging and other out-of-pocket expenses on top of whatever the California debtor owes you. If the amount involved is very small, it probably is better to write off the debt and chalk one up to experience.

Everything I Needed to Know . I Learned from Judge Judy

And how do these judges behave? In a nutshell, here's what happens: The judge listens patiently to the arguments for both sides, asks a couple of questions if he or she doesn't understand something, then poses some fundamental questions: Who's in the right here? Who's telling the truth, and who's playing games? In most cases, the answer will be patently obvious after only a few minutes; don't be surprised if your debtor brings a check to court and pays you off in the courtroom lobby because they don't want the embarrassment of having to justify their position before a judge. The judge rules in favor of the person who is in the right (or telling the truth), and explains why they ruled the way they did.

So what does that tell you? It means if you bring an action in small claims court against someone, you had better make darn sure there aren't any serious holes in your case that would lead the judge to think, even for a moment, that you're the "wise guy" in the proceeding.

When you appear in court, be sure to bring copies of all relevant correspondence (contracts, invoices, purchase orders, warranty forms) that back up your case. If your case is less than airtight, ask yourself where the weaknesses are, and be prepared to explain why those weaknesses occurred. Being organized, and having ready answers to the judge's questions, sends a strong signal to the judge that you really care about the outcome of the case, and you're the one who deserves to win.

Presenting Your Case

"When you get a judgment in small claims court, always ask to execute against the other party's wages," says Neal Moskow, an attorney in Westport, Connecticut, who specializes in commercial cases. "It's really embarrassing for the other side, who then has to explain to his boss or spouse what's been going on."


Cliff Ennico, best known as the host of the PBS television series MoneyHunt, is the author of the nationally syndicated newspaper column "Succeeding in Your Business," the legal correspondent for the Small Business Television Network at www.sbtv.com and a columnist for Entrepreneur.com. You can find out more about him at www.protectingyourbusiness.com.