Should You Sue?
Q: One of my vendors owes me about $5,000. I also think he defrauded me. Do you think it is worth it to hire a lawyer and sue or is small claims the way to go? — Ali
A: While I like to joke that I am a "recovering attorney," I still have plenty of respect for my old profession, warts and all. And when it comes to lawsuits, there are undoubtedly warts a plenty.
I understand and appreciate that there are all sorts of reasons to take a dispute to court:
- There is an emotional satisfaction that comes from not just taking it, from standing up for yourself and your business.
- There are the financial factors which are not insignificant. Few small businesses can afford to absorb a loss in the thousands of dollars and so the chance to get money you feel is rightly yours returned is a powerful aphrodisiac.
- Lawsuits can even serve as a warning to other businesses not to mess with you.
But we all know there are downsides to litigation:
- It's expensive. Even hiring an attorney on contingency will eventually cost you about 40% of your settlement, that is of course, if you ever get one. And those $300 an hour cases are killer.
- There are no guarantees of success. As I always told my clients – your odds of winning are 50-50, even with the facts and law on your side. You never know what a judge will do.
- Worst of all, lawsuits are a pretty poor way to settle disputes. Endless discovery, motions and counter-motions, bored jurors – it's a wonder anything ever gets resolved.
Especially because of the cost and uncertainty involved, if your case can be resolved in small claims court it is often the best way to go. But note: "Often" is not the same as always. If you have been defrauded for instance, you may want to hire a lawyer and go for it because the chance to recover a significantly greater amount of money is possible.
Large lawsuits are best when you have really been wronged, have the facts and law on your side, can prove your case, can afford it, and you have a defendant with pockets deep enough and who is culpable enough to sue. If all of those factors are present, then sue away. But if any are missing, think twice.
The other option is small claims court, which is a pretty great process for the small business person because it is an expedited way to get resolution without having to pay for a lawyer or wait a long time. Amounts that you can sue for vary by state, for example:
- Arizona: $2,500
- California: $7,500
- Delaware: $15,000
- Kentucky: $1,500
- Virginia: $5,000
If you are in Virginia for instance and someone owes you $7,000 it might just be worth it to sue for the $5,000 limit and call it a day. The time and expense it will take to recover that other $2,000 probably is not worth it.
Because you will be presenting your small claims case yourself, the key is to be organized and professional. In the best case scenario you will have documentary proof that the person in question owes you the amount you allege. You can only recover what you can prove, and if you have no proof you make the judge's job much more difficult. Be polite and smart. The whole thing is really not a lot unlike Judge Judy.
So I say, enter into protracted litigation only when it really will make a difference and in any other case, go for small claims if you can. In the end you will probably be happy you did.
Today's Tip: A book I like a lot that can help you out is Nolo's, Everybody's Guide to Small Claims Court by Ralph Warner.
© 2010 Steven D. Strauss, www.MrAllBiz.com