When to Sue in Small Claims

Eric GreenspanPractice DevelopmentLeave a Comment

I’ve been following an interesting conversation in schoolofbookkeeping.com’s Accountants, Bookkeepers and Business Owners Facebook Group affectionally known as ABBO. The topic was raised by a member relating to unpaid invoices for services rendered amounting to $2,000. The member, who shall remain anonymous as the group is private, was concerned about how to handle the matter. The client was about to receive a significant tax refund and promised to pay the invoice upon receipt. It didn’t happen.

Over the years, I’ve used the small claims court system several times. I’ve always won. I’ve always been paid also. I’ve (my company) also been sued in small claims, and lost. When that happened, I knew I had no defense and merely showed up to acknowledge the debt.

First, I’m not an attorney nor is this legal advice. It’s just one business owner sharing his story for others to read and hopefully learn.

In 2012, I had an agreement to work with a firm to help build out an idea. The fee was $12,500 per month and was agreed to be paid for a period of three months, at which time we would evaluate and discuss future work. The agreement was simply an email. I sent an email to the CEO stating the terms; he replied “let’s do it.” There was never a formal contract nor other documentation. 

After month two, the principle past away. I was told by another member of the firm that the contract would end immediately. I asked for my final payment. I was told I would not be getting it. So I let the family grieve and a few months later, filed my small claims action. The amount was $12,500, the balance of my final month.

First, California law allows one to sue an individual for up to $5,000, but you can sue for $10,000 if the defendant is a company. Knowing I could not use small claims to sue for the $12,500, I sued for less than $10k, providing a discount to the company as a good faith gesture and to avoid the costs of standard litigation.

When I arrived in court that day, a representative of their company arrived with a big stack of papers. I had one. The judge asked me to state my case. I merely offered the printout of the email agreement and explained my discount. Then the defendant began her story. It was long and arduous and mostly about how I didn’t do the work I promised and she showed evidence of that by showing what I had in fact created. It was some of my best work, so I just let her hang herself. The judge reviewed the work and said, “You agreed to pay Mr. Greenspan the amount correct?” The defendant replied, “Yes, but the CEO of our company died so we should not have to pay.” The judge replied, “You realize that has no bearing on the situation right?” The defendant tried to make an argument but she was already defeated. The defendant then tried to argue that there was no formal agreement in place to which the judge replied, “You have read this email correct? You appear to be cc’d on it as well.” The judge went on to explain that this is in fact an agreement and the fact that I was paid according to this agreement for the first two months furthers its viability. JUDGEMENT: PLAINTIFF. I won. In about 30 days, after some serious chasing, I got paid.

While my heart went out to this family when the CEO died, my heart also went out to mine. I had agreed to do this job in lieu of others and it was my only source of income at the time. Without that final payment, I would be in a difficult situation. Regardless, an agreement is an agreement and as long as the company was still operating (the defendant’s representative and others were all still on payroll), they needed to pay me. So I did what was right and what I had to do.

Small Claims Court is supposed to be simple. The evidence should be clear and obvious. You are not representative by counsel and it follows a very open format. You simply state your case as I did above and show the facts. The entire case I outlined above was done in less than 20 minutes.

Another important aspect of small claims is the judge is usually not a judge in fact. They are generally a Judge Pro Tem, which means they are a trust legal advisor and attorney in your local community. Usually, you may request that your case be heard by an actual judge. I have never exercised this right and my results have always been solid.

So, should you sue? That’s up to you. If someone owes you money and you are deserving of it and you can prove they owe you in 20 minutes, why not…

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