article by Tod Snodgrass
It is almost inevitable in business that, given enough time, someone will do something that hurts you or you may do something that ticks someone else off. When two parties get into a dispute it may take a judge to settle the matter via a lawsuit. FYI: I am NOT a lawyer. However, I have been CEO of several businesses over the years and have been involved in dozens of REI deals, thus my advice is more practical than legal.
If you have not had the “pleasure” of going to civil court to either sue or be sued, here is a primer on what to expect when that fateful day arrives. Things to be aware of include:
Statute of limitations: Depending on the jurisdiction, there may be a limit on how much time you have to sue; it can range from a few months with a mechanic’s lien, to one to seven years for regular lawsuits.
Burden of proof: If the dispute involves a “you said, they said” situation, you will need actual proof to back up your contention(s); examples include: receipts, contracts, letters, notes you made then, etc. Also, witnesses can be very helpful. Do you have anyone who actually saw what happened? Did you tell others about it at the time?
Initial Potential Expenses: Legal counsel—most lawyers charge hundreds of dollars per hour; many require a good-sized retainer (deposit) up front. Further, there are court filing fees, the cost to hire a process server to serve a subpoena on the other party, photocopying charges, etc. Then there are potential discovery costs: This is where each side deposes (takes testimony) from the other party, sometimes under oath. Total expenses can run into thousands of dollars depending on many different factors.
Time: You will probably have to wait many months or even years before you actually get to court and hopefully are awarded a winning judgment by the court.
Small Claims Court Alternative
Here you can sue, pretty quickly, for up to $10,000, without an attorney. NOTE: Time frames, upper lawsuit dollar limits and fees vary by state. In San Diego, CA filing fees run from $30-$75 depending on how much you are suing for, plus the cost of getting papers served on the other side. You will probably get a court date in weeks/months. Some Small Claims Courts offer free legal advice and Mediation Services.
Before you do any of the above, make sure you have all your information ducks lined up (receipts, records, letters, etc.). Also, be sure to send a formal demand letter to the other side, before pursuing litigation. Send it registered mail so you get a signature. NOTE: Be thinking about what the other party is liable to say and evidence they may present that counters what you are saying. Anticipate holes in your defense and prepare ahead of time to plug them.
Collecting on the Judgment
Even if you win the case, that does not mean an automatic payday. For example, the opposing party may skip town, declare bankruptcy, sell out to another business, etc.—if so, then all bets are off about successfully and quickly collecting on the judgment. And judgments are not forever; they have to be renewed every few years, which may involve more fees and eat up more of your time. Further, the other party can appeal the case, which means you have to do everything all over again, maybe more than once.
Or, suppose the other side simply refuses to pay the judgment. Then what? One remedy is to petition the court for what is known as a “debtor’s hearings”. This may require more time and costs, possibly borne by you, at least initially. A debtor’s hearings is kind of like taking another deposition, only this time you get to ask the other (losing) side what assets they have that you can attach: houses, cars, bank accounts, etc.
Alternatives to Lawsuits
Many realty contracts force you into binding arbitration or mediation. Or you may have to pursue what is known as “Liquidated Damages”. Look at the contract you signed to make sure of what you are dealing with before you pursue a lawsuit. It actually may not be allowed.
Be very cautious about suing other people. Don’t let ego or pride cloud your thinking. Lawsuits are at best a crap shoot, you might come up a winner or you might wind up with snake eyes. Worst case scenario: The other party counter-sues and wins. Result: You have to pay them. Or misquoting the famous line from the movie “Forrest Gump”…a lawsuit is kind of like a box of chocolates…you never know what you’re going to get.