Small Claims Court for Business

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Legal disputes are often quite expensive. However, they don’t always have to be, particularly in cases where the dispute amount is relatively low.

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The court that handles cases with low dispute amounts is small claims court. In California, a “natural person” can sue for up to $10,000 in damages. This includes a sole proprietor. LLCs, partnerships, and corporations are limited to the amounts of $5,000 for each case.

There are certain scenarios in which a business can sue for more than $5,000. If your dispute was with a licensed contractor, you can sue the Registrar of Contractors up to $10,000, as the board acts as a guarantor for its licensees. In other situations, if a debt was guaranteed by third party, you can sue for up to $6,500.

Our firm occasionally receives inquiries about new business dispute cases whose disputes fall within these small claims limits. Because small claims was designed to function without lawyers, we rarely end up being retained by these individuals. While lawyers are not allowed to represent a business or individual at small claims, you can still retain a lawyer for legal counsel to help you navigate a small claims case.

Here are a number of potential cases that might be eligible to be heard in small claims for business:

-Failure of a client or customer to pay a bill.

-Failure of a supplier to deliver or perform on a contract.

-Failure of a vendor to deliver the goods or services they contracted for.

-Failure to repay a loan.

-Commercial lease disputes, such as security deposit and unpaid rent issues.

-Small libel and slander claims.

Remember, in order to be eligible, the above-referenced claim amount limits must not be exceeded.

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In some cases, employment disputes might actually be heard. This is true with discrimination, negligent hiring and retention, worker’s comp violations, and dangerous conditions. Typically, these cases usually demand claim amounts far exceeding the cut-offs.

The key to remember is that the laws are enforced in the same manner, whether your case is heard in small claims or a normal civil trial. The process is intended to be faster and less complicated in small claims.

Before initiating a small claims case, or before letting a situation get so bad that you are sued for such a dispute, try to remember that good business practices and voluntary settlements will typically end matters before they escalate to a legal proceeding.

The vast majority of business lawsuits are settled out of court. Why? Most business lawsuits that end up going through the full justice process from demand letter to judgment will end up costing anywhere from $70,000 to $100,000, according to industry figures. That’s just a typical case. Larger, longer and more complicated cases can easily start out at $125,000 for a full trial. Because of the potential cost involved, the pressure to settle and resolve a case early is absolutely tremendous.

Attorney “fee shifting” clauses are a double edged sword. In some scenarios, when one party is forced to pay for the legal costs of the other side, popular opinion might hold that justice was done. These scenarios can also ward away frivolous litigation. Other times, completely legitimate cases or damages may go undefended, due to the concern of paying the other side’s costs.

Businesses using various forms of legal insurance is nothing new. Insurance coverage can help business move forward confidently without worrying that a routine industry-related hazard (like unlicensed creative lawsuits for marketing firms) or hazards that all businesses face (such as Worker’s Compensation Insurance) will cripple them.

Contract litigation insurance is a recently embraced concept, offered by only a handful of insurance companies in the United States and Europe. Contract litigation insurance is a policy that will pay for the other side’s attorney costs, if granted by a judge. This could allow a plaintiff to bring a case that has merit, without worrying about being financially decimated if they lose. Additionally, one does not need to buy the insurance before a case is filed. Rather, after the filing, the insurance companies will use that information to assess how the policy might shape up. Typically, the policy is earned after paying a one-time premium, contains zero deductibles, and is valid for the life of the lawsuit. From our assessment, the fee tends to be approximately 10% of the estimated attorneys cost of a full trial.

The downside to this type could be that a large percentage of an even larger number can still be quite significant to an individual or small/medium sized business that does not have the funds. It is obviously better than paying the full amount, but one should consult with a lawyer, risk analyst and a business financial advisor when considering such coverage.

As always, be sure to consult with an experienced business law attorney before taking any action on matters like these. This blog is for reference/information purposes only and is not legal advice.

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