Small business owner guide to small claims court: How to limit potential claims against you, resolve them before going to court & best research tools at your disposal.
As a business owner, the legal side of your business is as important as operations and management. Consider adopting policies that reduce your exposure to lawsuits for breach of contract and personal injuries. Despite this, it is common for a disgruntled customer or employee to file a small claims case against you or the business. Depending on the civil case law in your state, the claimable amount varies from a few thousand dollars to several thousands of dollars.
Despite the limit on the claimable amount, having to shell out thousands of dollars every few months may quickly drive you to insolvency and ultimately bankruptcy. Furthermore, the legal fee and publicity that come with a small claim lawsuit are unpalatable. Thus, you must be prepared to handle small claims cases and resolve them to minimize your exposure to the side effects. Since you may have already adopted business policies, this article focuses on handling potential small claims.
What is a small claim?
A small claim is a civil lawsuit an individual files against another individual to recover or get monetary compensation for an injury, damage, loss, or recover debts. Small claims courts in the United States handle these cases. These courts go by various names, depending on the state laws. They may stand alone with limited jurisdiction or as a division of another court – usually the district, circuit, or municipal court.
Small claims courts are the people’s court because the court procedure is accessible to the average Joe/Jane without professional legal training. As a general rule, these courts typically discourage legal representation. Plaintiffs need only present a valid claim and provide substantial evidence to support the claim. Likewise, the defendant – in this case, you or your business – need only disprove the claim with correspondingly substantial evidence. The judge examines the arguments and evidence and makes a final ruling.
How a small claim lawsuit affects your business
Perhaps the most unsavory part of a small claims case is the bad publicity. The details of a small claims case and the documents relevant to the proceeding are public records. By getting court records online, any person can access the entire proceedings, even if all they know is your phone number. The viewer can then make an informed opinion of the case. As someone trying to grow a profitable business and maintain market share, getting embroiled in several small claims is not a good impression.
Worse still, if you lose the case, not only do you pay the claim amount, but also you incur the plaintiff’s legal expenses. A small consolation is that the legal and professional expenses incurred are tax-deductible. However, the judgment is not tax-deductible and your business loses thousands of dollars better invested in assets. If you intend to expand your business, being the center of several claims can hamper your access to potential investors and creditors.
How to resolve a small claim without going to court
A plaintiff who serves you with a notification of claim or summons must attach the documents explaining and substantiating the claim. While it may be provoking, examine these documents with an open mind. Find and prepare your evidence too. These include receipts, photos, videos, and other documents relevant to the incident. Then, compare the claim against your evidence regarding the event.
Do you think the plaintiff has a valid claim? If yes, then reach out to the plaintiff to make an out-of-court settlement. The advantage here is that the plaintiff may withdraw the claim; you avoid the legal expenses and publicity associated with the suit. Furthermore, you may petition the court to seal the settlement agreement from public access.
If you think the plaintiff does not have a valid claim, respond to the summons, and the court will set a hearing date to resolve the claim. In the meantime, prepare your evidence and work on your arguments. The eloquence of a lawyer is unnecessary, but presenting a logical argument makes a good defense.
Conversely, if you believe the petitioner has also wronged you, you may file a counterclaim in your response to the claim. The judge shall examine both claims on the hearing date and issue a final ruling. A rule of thumb is to file a counterclaim if the plaintiff also caused damage or loss during the incident. The burden of proof is on the plaintiff, but you must also do your due diligence to defend your position. The best defenses in a small claims court are documentary evidence, a logical argument, and witness testimonies.
Prepare for a small claims court using the self-help resources on the state judiciary website or non-profit legal aid websites. You may also consult a reputable civil case lawyer to examine your case and get legal advice. Most law firms do not charge for the first consultancy but confirm their policy on consultancy charges before scheduling a session.
What else to know as a small business owner
As a small business owner, it is your responsibility to protect your business, assets, and reputation. In a perfect world, everyone gets along, and disputes are resolvable without a legal battle. If you face a small claim, attempt an out-of-court settlement. Courts have a mediation program for this purpose. If all attempts fail, then prepare to defend your business in court. If you win, the plaintiff must reimburse all your legal expenses and vice versa.