Small claims court is a legal court of law designed to resolve disputes involving relatively 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 not usually employed to plead such cases. Instead, plaintiffs and defendants appear before the court and present what evidence they have and their perspectives on the dispute. The court makes a judgment based on the evidence presented. Claims made in small claims court typically involve consumer purchases, landlord tenant relations, unpaid obligations and bills, and other types of property disputes. Small businesses occasionally go before small claims courts when the magnitude of the claim that they pursue fits the court's parameters. This form of litigation has the lowest costs. Unfortunately it is occasionally difficult also to enforce the court's rulings.
All 50 states and the District of Columbia have small claims courts or equivalents. In Delaware the function is performed by the Justice of The Peace, in Georgia by the Magistrate Court, and in Mississippi by the Justice Court. In all other jurisdictions a small claims court structure exists. As the name of this institution suggests, such courts limit the size of the claims that they will adjudicate. In 19 states, the maximum claim permitted to be brought is under $5,000; the highest is in New Jersey ($4,500) and the lowest in Kentucky and Tennessee ($1,500). In 17 states the claim is fixed at no more than $5,000. In 15 states the claim may be higher, averaging $8,500 in these states, the lowest being in Indiana and Oklahoma ($6,000) and the highest in Delaware and in Georgia ($15,000).
Halt, which describes itself as "an organization of Americans for legal reform," provides on its Web site small capsules on the characteristics of small claims courts in every state. Their descriptions are offered under a nine-rubric structure. The nine rubrics are: 1) the applicable statutes, 2) the dollar limits, 3) where to sue, 4) service (how notice of a proceeding is brought), 5) hearing date from time of filing, 6) attorneys (permitted to participate or not), 7) transfer (of the case to another court), 8) appeals available, and 9) special provisions—most importantly whether or not the court will assist the successful claimant in collected his or her judgment. The web site is identified in the references below.
Halt advocates reforms in small claims court operations across the board, aiming to raise the maximum level of claims that may be presented, improving access and user-friendliness, and ensuring that claimants are able actually to collect moneys owed to them after a favorable judgment with help from the court. In this effort Halt issues a report card to states. In its most recent report card, Halt gave no As, gave a B to California, Colorado, Georgia, New Mexico, and Utah—singling out Georgia as the best. Halt also gave failing grades to Delaware, Kentucky, Mississippi, and Missouri. The rest got Cs and Ds.
Appearing as a Plaintiff
Most small business owners who 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 state's court. If the size of the claim fits, the owner can 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. The document briefly delineates the reasons for the suit. Also known as a summons or complaint, the document 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. The filing should name the actual corporate entity rather than, for instance, some brand name or "doing business as" designation under which the defendant operates. When the complaint has been filed, the court clerk will inform the plaintiff when the case will be tried. A filing charge will typically have to be paid.
In the weeks leading up to the court date, the plaintiff needs to gather whatever evidence is available to bolster his or her claim, 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 by both certified and first-class mail), he or she should study the summary of the plaintiff's claims, the amount being sought, and begin preparing for the trial date (which is also included in the notification). If the copy of the claim sent by regular mail is not returned to the court as undeliverable within 21 days, it is assumed that the defendant has received the notice.
Once notified, the defendant can either settle the matter before the trial date or begin preparing for the case by gathering all favorable evidence available (itemized bills or invoices, written agreements, etc.). Untrue claims must be denied unequivocally. If the facts are true, the reasons for failing to pay must be argued with appropriate factual backing. The defendant may also make counter charges and files these in the process of answering the claim. The time frame for accomplishing all this is set by state law and will not be uniform across the nation.
Small claims court cases are resolved by trial, arbitration, settlement, or default judgment.
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 judgment 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 by way of arbitration. Arbitration is typically conducted immediately and is less formal than a trial, but no appeal from an arbitrated decision is available to either party.
Settlement. Plaintiffs and defendants also have the option of settling the case out of court prior to the trial. Out of court settlements, of course, are simply yet another commercial agreement, and if not formulated in a properly binding manner, enforceable in the courts, the settlement will be meaningless—unless, of course, it takes the form of a cash payment on the spot.
Default Judgment. A default judgment—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 judgment for the amount claimed is entered, or (in instances wherein the plaintiff does not show up) the case may be dismissed.
COLLECTING MONEY THAT IS OWED
Winning a case in small claims court 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. The problem of collections, as Halt points out, is that "In most states, small claims courts can only award money damages. Small claims courts cannot issue court orders that require someone to 'cease and desist' from actions that harm others. This limitation means that many small disputes between neighbors or over contract rights, cannot be dealt with in small claims court. The lack of the ability to issue court orders also means that small claims judges often cannot help people collect a judgment they have won. Fully empowering small claims judges to handle cases and problems that require a court order is the second major reform that would improve consumer service by the small claims system." Thus where money is at issue, the small business person should first carefully study the applicable state law and, if it is unfavorable to collections, pursue his or her claim in regular court.
Randolph, Mary. Every Dog's Legal Guide: A Must-Have Book for your Owner. Nolo, 2005.
"Small Claims." Halt. Available from http://www.halt.org/reform_projects/small_claims/. Retrieved on 31 May 2006.
Stewart, Marcia, Janet Portman, and Ralph E. Warner. Every Landlord's Legal Guide. Nolo, 2004.
Warner, Ralph E. Everybody's Guide to Small Claims Court. Nolo, 2004.
Hillstrom, Northern Lights
updated by Magee, ECDI