Chapter 17

Selecting the Court

In This Chapter

Understanding the different types of courts

Suing in small claims court

Knowing your options after trial

You’ve decided to file suit against your recalcitrant debtor, and (having read Chapter 15) you’ve formed your strategy as to exactly whom to sue and what legal theories to use in support of your case. Now you must choose the court in which to file your lawsuit.

What follows is a discussion on courts: big ones, little ones, and appellate ones (“Appeals court,” you say? “None of them appeal to me . . .”) available to you when you need to sue your debtor, either by yourself or with an attorney.

Choosing Which Trial Court to Use

In some ways, state and federal court systems are very similar. They’re organized into hierarchies, and the lowest courts are usually trial courts, while the highest court for most cases is an appellate court.

Although the judicial system includes many different courts, you need only consider a few courts when choosing where to file your lawsuit against a debtor. Most states have courts that hear cases based on the size (dollar value) of the case. For most collection cases, the amount of your claim dictates where you file.

No matter what court you’re in, good, solid preparation is the key to victory. Prepare your claim as if you’re in the big leagues. We describe case preparation in Chapter 15.

Lawyer lingo: words and concepts you’ll encounter in court

Although the terms we introduce in this section may seem like legal jargon, they’re important concepts in litigation.

Two basic concepts help you choose the court where your case is heard, and in many cases make that choice for you — jurisdiction and venue.

Jurisdiction: The legal authority of a court to hear (make decisions in) a particular case.

• Subject matter jurisdiction: Certain specialized legal matters must be heard in particular courts. For example, bankruptcy courts were created to hear only bankruptcy cases, and traffic courts were designed to hear only traffic cases. Different types of trial courts have the authority to hear different types of cases. A small claims court hears claims up to, in most states, a few thousand dollars. Another type of trial court may hear less significant cases, such as criminal misdemeanors and civil lawsuits under $25,000. Another type may hear felony criminal cases, foreclosure litigation, and civil lawsuits in excess of $25,000.

• Personal jurisdiction: In order for you to sue a defendant in a particular court, that court must also have personal jurisdiction over your defendant. For example, your defendant may reside within the court’s jurisdictional boundaries, conduct business or have business offices within the boundaries, or have property within the boundaries of the court (in rem jurisdiction). State law defines the boundaries of state courts, and the area may consist of a few cities or townships, a whole county or region, or even the entire state. Your state’s supreme court, and most likely its court of claims (a special court for certain claims made against the government), has statewide jurisdiction.

• Concurrent jurisdiction: Often, more than one court has jurisdiction over your case. For example, with a suit involving a very small dollar amount, you normally have the choice of using small claims court or a regular trial court with jurisdiction over claims of that size. The small claims court is often a division of the regular trial court that has jurisdiction over claims of that size, such that both courts are in the same building and both types of cases may even heard by the same judges. In larger cases, you may have the choice of suing in state court or federal court.

We provide information on how to determine which court has jurisdiction later in the chapter, along with a discussion of the state court system.

Venue: The location where you file your case. You may have proper venue to sue the debtor in a court located near you, or you may have to go to a court located near the debtor.

We’re not quite done. A couple more words you should know relate to who can file a lawsuit (and when):

Ripeness: Ever bite into a pear before it’s ripe? If you have, odds are you made sure that it was good and ripe the next time around. The concept is the same: Your case is ripe when the legal issues are at a point that a court can resolve them. File a case before it’s ripe and the court will spit it out. For example, if your customer has 90 days to pay your bill and you sue after 60 days, it’s too early to file a lawsuit because your customer’s not yet delinquent.

Standing: Do you have a stake in the claim that entitles you to file the lawsuit? In a collections case, if you sell goods to your customer and aren’t paid, you’re a party to a contract and have standing to file a lawsuit to collect the money owed. If the court finds that you have no interest or stake in the outcome of the case, the court will find that you don’t have standing and dismiss your lawsuit.

Your company may have standing even if it didn’t contract directly with the debtor. For example, you can take an assignment of a breach of contract claim or purchase the claim from the original creditor, and thereby gain standing to file a lawsuit.

If you acquire somebody else’s claim, whether through assignment or by purchasing it, be sure to explain that in the complaint for your lawsuit. Sample language for explaining that is contained in Form 16-28, on the CD.

Federal court system

The federal court system includes three levels of courts:

The United States District Court: The general trial court of the federal court system, which also includes specialized courts such as the tax court, court of federal claims, and court of international trade. But the term general doesn’t mean what you expect. The federal court system has very specific requirements. Most of the time, to litigate in federal court you must have a case that involves either:

• A federal question: Federal questions are issues that involve the application of federal law or interpretation of the U.S. Constitution.

• Diversity of citizenship: A claim that involves citizens of different states, or one in which a foreign country is a party. For diversity jurisdiction, the amount at stake in the case must exceed $75,000 before the case may be brought into the U.S. District Court. Absent a federal question, claims below the $75,000 threshold must be litigated in state court.

The United States Court of Appeals: Federal trial courts are organized into 12 regional circuits, each of which has a U.S. Court of Appeals. These courts hear appeals from the decisions of federal district courts and federal administrative agencies located within their circuits. The court of appeals for the federal circuit also has national jurisdiction over certain specialized cases, such as appeals involving patents.

The United States Supreme Court: The highest court in the country, and the final authority on the interpretation of the U.S. Constitution.

Though you don’t need to memorize the organization of the federal court system, keep in mind that the system includes a number of specialized courts that hear specific types of cases. Federal courts are the big leagues of litigation. Don’t be misled by Anna Nicole Smith’s surprising win in the Supreme Court: It’s really tough to represent yourself in federal court. As a rule of thumb, any claim worthy of filing in the U.S. District Court is worthy of your hiring an attorney.

State court system

If you’re a typical creditor, the state court system is of much greater interest than the federal courts. Most collections litigation occurs in state court, and generally speaking, it’s where you want to be if you’re representing yourself or your own company.

The basic organization of state courts is very similar to the federal system. State court systems generally have:

Lower level trial courts: Courts that decide cases up to perhaps $10,000 to $25,000. These courts may vary in name even within a state; they typically go under such names as district courts, magistrate’s courts, or civil courts. The small claims court is normally a division of a lower level trial court.

Higher level trial courts: Often called circuit court, these courts decide cases involving amounts that exceed the $10,000 to $25,000 limits of lower level trial courts. The exact amount is defined by statute. These courts often include specialized divisions to hear such matters as divorce cases and probate matters. Some states require cases involving certain types of legal action — such as foreclosure or equitable relief (actions requesting that a party be ordered to perform or refrain from performing a particular act) — to be heard in a higher level trial court, no matter how much money is involved.

Appellate courts: Like the federal system, states usually have an intermediate court of appeals and a supreme court that has the final say on interpretation of state laws and the state’s own constitution.

In most states, the highest court is called a supreme court, and an intermediate appellate court is called a court of appeals, but some states dare to be different. In New York, for example, the general trial courts are called supreme courts and the state’s highest court is the court of appeals.

Your task before you file a lawsuit is to determine the names of the courts within your state’s court system and to find out what jurisdiction those courts have. Almost every state has a Web site that helps you understand your state’s court system. An excellent place to start your search is the official Web site of the National Center for State Courts (www.ncsconline.org). Click “Court Web Sites” for a comprehensive list of state court links.

If your Web site research doesn’t answer your questions, the civil clerks in the trial courts are usually helpful enough to direct you to the appropriate court. Your inquiry may be something like: “Where would I file a collection case involving $2,000 if my debtor resides in [street address, city, and state]?” Court clerks can generally answer this type of question, but they can’t provide you with legal advice.

The boundaries of courts are very, very specific and may not correspond with city boundaries. For example, North Main Street addresses in your town may be heard by one court, while South Main Street addresses may be heard by a different court. For the best result, give the civil clerk specific information about the relevant locations — usually your or the debtor’s place of business or the address of an individual debtor’s residence. If you make a mistake and file your case in the wrong court, you may be able to have the case transferred to the correct court, or you may dismiss your case in the wrong court and refile it in the correct court.

Before you choose the court where you intend to file your lawsuit, read over your contracts with the debtor. Business contracts often include choice of law clauses, permitting you to sue in a court convenient to your location, even if the debtor objects. Choice of venue clauses in consumer contracts are typically preempted by the Fair Debt Collection Practices Act (FDCPA) as well as state consumer laws, because it’s an undue burden on a consumer to have to sue in a different state, or even a city within a state other than where he lives. Your contract may include an arbitration clause allowing (or perhaps even requiring) you to file an arbitration case instead of a lawsuit. We describe the pros and cons of arbitration in Chapter 15.

Although it’s less convenient to you, you usually benefit from suing the debtor where the debtor is located. For a business debtor, that usually means the location of the business’s offices or operations. For an individual, that usually means the debtor’s place of residence. In general, suing in the debtor’s location is a good strategy for several reasons:

Compliance with the Fair Debt Collection Practices Act (FDCPA): You may be legally required to sue in the debtor’s location, particularly if the debtor is a consumer. We provide more details about the FDCPA in Chapter 6.

Enforcement of judgments: If you get a judgment against a debtor, you can use the court that issued the judgment to help you collect the debt. (Chapter 19 includes an explanation of judgment collection tools and techniques.) If your judgment is from another jurisdiction, you may have to register it for enforcement in the debtor’s location, and the debtor may challenge your right to register the judgment, resulting in additional delay and expense.

Avoiding motions to change venue: If you don’t sue where the debtor is located, you risk the debtor filing a motion to change the litigation venue to a court in a location preferred by the debtor (even if the debtor has no valid grounds to do so). Sometimes, even when under the law he has no chance of success, a debtor may try to change venue because he doesn’t know better, or he’s hoping for a judge who will bend the law to get rid of a case, or he just wants to drive up costs. When two or more venues can be deemed proper, such as when the plaintiff and defendant are in different states, the debtor may dispute proper venue in the plaintiff’s state under a doctrine such as forum non conveniens, a claim that it’s more convenient for the case to be heard in the other state. Most often, the claim is that most of the witnesses are in the other state and would have to travel at significant expense to appear and testify at the trial.

If the motion is granted, what follows is the rather painstaking process of transferring the entire case to another court, where you may have to pay yet another filing fee. Choice of forum clauses in business contracts usually defeat a change of venue motion.

Small claims court: Perfect for the do-it-yourselfer

Filing a collection case in a small claims court is the ideal place to get your feet wet and to learn the litigation process. If you’ve previously gone to court as a witness, or if you’ve sat through a trial alongside a lawyer as the representative of your company, you may be pretty comfortable handling a small claims case. If not, you’ll benefit from reviewing the tips we provide in Chapter 18 for surviving trial as a witness. That chapter includes a ton of tips and tricks for court.

Before you file in small claims court, it’s important to know about the rules and policies for the court where you’re filing your case. Consider the following:

Maximum amounts you can claim. Find out if you can recover your entire claim (or most of it) in small claims court.

Whether you’re allowed to use a lawyer. Most small claims courts prohibit lawyers, but a few permit them. It may not seem important to you if you intend to represent yourself, but if the debtor hires a lawyer, you may choose instead to try your case in a regular trial court.

What if your claim is too big for small claims court? You can proceed in small claims court anyway. You just give up any claim in excess of the court’s jurisdictional limit. For example, Connecticut has a $5,000 small claims jurisdictional limit. You can sue over a $6,000 claim in that court, but you give up your right to recover more than $5,000 of what’s owed.

Why would you give up part of your claim? Here are some good reasons:

You avoid having to hire an attorney. Many states permit business owners to represent their companies in small claims court but require incorporated businesses to hire a lawyer for regular trial courts.

Small claims litigation can be fast. You may prefer a court that’s quick and one in which you can avoid lawyers, legal jargon, and all the gobbledygook of depositions, interrogatories, pretrial motions, and other factors that drag out trial court litigation and increase its cost.

What about getting around the small claims limit by splitting your case and filing two lawsuits? If the limit is $5,000, can you divide your $6,000 claim into one lawsuit for $5,000 and a second for $1,000? No, you absolutely can’t. You only get to file one case per cause of action. If you do split your lawsuit, you can expect the judge to dismiss all but one of your cases. If your debtor is clever, he’ll arrange to have that $1,000 claim heard first, and then ask the court to dismiss the $5,000 claim — and the court will do it!

You can get information on how to file a collections case in small claims court directly from the court, or often from the court’s Web site. For links to small claims court information around the country, go to the National Center for State Courts Web site (www.ncsconline.org), click “CourTopics,” then “Civil Litigation,” and then “Small Claims Courts.” Under the heading “State Links,” choose “Small Claims Resources” for links to small claims courts and brochures from around the country.

We include an example of a small claims court pamphlet as Form 17-1 on the CD accompanying this book (but you should still get a current small claims pamphlet from the court where you intend to file your case).

When the Trial Goes Wrong: Filing an Appeal

Have you ever seen somebody on TV storming out of a courthouse after losing a trial? It seems like he always says, “We’re going to appeal all the way to the Supreme Court!” You hear that so often that you may even start to believe it. But you shouldn’t. Very few cases ever make it to the Supreme Court — either the top appellate court of your state or, in the federal system, to the U.S. Supreme Court.

One of your first thoughts when you consider an appeal is likely to be, “Uh-oh, this is going to cost me . . . more court costs and attorney fees . . . other expenses . . . .” If not, it should be. At times, an appeal can be as costly as a trial, and because of the slow progress of cases in most appellate courts, getting a decision on your appeal can take a very long time. Statistically speaking, appellate courts usually uphold the trial court (meaning the person bringing the appeal usually loses).

Deciding whether to appeal involves considerations very similar to those you used when deciding to file the original lawsuit (we summarize those considerations in Chapter 15). You must consider the costs involved, the time and effort required, and attorney fees.

Before you file an appeal, consider asking the trial court to rehear your case or reconsider its decision. Even if you’re hiring a lawyer to handle your appeal, this may be a good first step for your lawyer — to help raise newly discovered evidence or to try to convince the court that its decision was made in error. Although most of the time the court will respond to your motion by saying (in more formal language), “Nope, I was right the first time,” getting a court to change its mind before an appeal is much faster and much less costly than going through the appeals process.

Standards for filing an appeal

Although your state’s court rules may provide that you have the right to file an appeal if you lose a case, filing an appeal isn’t as easy as it may sound. The first time you see an appeals brief you’re likely to have two thoughts: “This is not brief,” and, “I had no idea this much jargon and technical language could fit into one document.” As with trial litigation, things tend to be easiest at the small claims level and get a lot more complicated the second you find yourself in a higher court. Outside of small claims court, an appeal is normally decided on the basis of the court’s record — the documents filed with the court, exhibits used at trial, and the transcripts taken of court proceedings. The cost of transcripts (paid by the party bringing the appeal) can be surprisingly high. Although supplemental proceedings are occasionally held to add something to the lower court record, for most appeals you have no opportunity to present new evidence after the trial court makes its verdict.

What you can appeal

In very basic terms, you can raise one of two general types of error on appeal:

Mistakes of fact: The judge or jury misinterpreted the facts of the case, resulting in a ruling against you. Appeals based on mistakes of fact are difficult to win. In most cases when you appeal, the appellate court interprets the evidence in the light most favorable to the other party. The appellate court also normally defers to a judge’s assessment of witness credibility. You may know that the defendant lied, but if the trial court believed him, odds are the appeals court will decline to revisit that issue.

Mistakes of law: The judge made a mistake applying the law to your case. During the progress of a case, the judge makes many decisions based on laws and court rules that can affect the case’s outcome. Your best shot on appeal comes when the trial court makes a mistake of law that affects the outcome.

An appellate court looks for serious problems or errors that occur during the trial. Think of a basketball game where the referee makes a bad call, costing the losing team two points. If the game is lost by one point, that mistake is a big deal. If the game is lost by 50 points, it’s irrelevant to the outcome. Appellate courts focus on errors that may change the outcome. Other errors are deemed to be harmless.

When you consider an appeal, you must try to think of every error that the trial court made and evaluate whether the appellate court will agree that the errors are really errors and also that those mistakes justify relief from the trial court’s judgment. Experienced appellate lawyers carefully select issues that they believe will win on appeal. Sometimes they also include issues that they don’t expect to win but that they believe will highlight to the court that the case’s outcome was unjust. Lawyers typically present arguments from strongest to weakest so that the court sees the best and most compelling reason to reverse right up front.

Standard of review

Another factor that can make or break an appeal is the standard of review that the appellate court applies — the amount of evidence the court requires before it will consider an error to be relevant to your case. The standard of review depends on the type of error you claim and the particular rules in your state. Common standards of review include:

De novo: The trial court decides the issue itself, without being bound by the lower court’s ruling. Errors of law are usually reviewed by the de novo standard. This is different from trial de novo. When an issue on appeal is reviewed, the court looks at the lower court record to make its decision, and you usually get no opportunity to introduce new evidence.

Abuse of discretion: The appellate court reviews the judge’s decision to assess whether the decision was so arbitrary and unreasonable that it deprived you of an important right or created an unjust result. This is a difficult standard to meet.

Insufficient evidence: You contend that the evidence presented at trial couldn’t reasonably support the judge’s decision. The manner in which the court reviews your claim of error can affect, or even dictate, the outcome. Depending on the nature of the case and claim, review is usually done by one of the following standards:

• Preponderance of the evidence: As with a typical trial, the appellate court asks whether it’s more likely than not that the trial court’s decision was correct.

• Clear and convincing evidence: The appellate court must conclude that it’s substantially more likely than not that a particular fact is true.

Recall that the court interprets the facts in the light most favorable to the other side, so whatever the standard applied, it’s difficult to win an appeal based on the sufficiency of the evidence presented at trial.

Plain error: Sometimes a court’s errors are so manifest or profound that, even though you didn’t properly preserve the issue for appeal or properly raise it with the appellate court, the court nonetheless finds it to be grounds for relief from the trial court’s ruling. This is extremely rare, and will probably never happen in one of your cases.

For example, consider a case where you have a document you want to submit that you believe demonstrates the amount the debtor owes. But the document was prepared by a third party — somebody not associated with either you or the defendant. You argue that the document should be admitted into evidence, but the court rules that it’s inadmissible hearsay (an out-of-court statement offered to prove an issue in the case). Should you appeal?

If the judge had a good, legal basis for excluding that evidence, your odds of winning on that issue on appeal are minimal.

If the judge made a mistake, and the document should have come in under an exception to the hearsay rule, you must further consider whether the mistake changed the outcome of the case.

• If the answer is yes, consider an appeal.

• If the answer is no, the appeals court is almost certain to rule the error harmless and uphold the trial court’s decision.

Process for filing an appeal

The process of taking an appeal from a small claims verdict may simply involve completing a form at the clerk’s office requesting that the case actually be heard before the judge. This type of appeal involves a minimum of legal mumbo jumbo or requirements for complex legal briefs (detailed summaries of the facts, legal issues on appeal, standard of review for the appeals court, and your arguments about how the trial court erred), and odds are that you can handle this yourself. An appeal from small claims court sometimes results in a trial de novo in a regular trial court, meaning you have a whole new trial without any consideration of what evidence was submitted or what decisions were made in the original hearing.

The first appeal is generally an appeal of right, meaning that the appellate court must accept and hear your appeal. When that’s not the case, or if you lose your first appeal and want to appeal to a higher court, appeals are almost always by leave, meaning that you must ask the higher court for permission to appeal. The process of seeking leave to appeal is done through special petitions, and, quite honestly, the odds of those petitions being granted aren’t good. The process for filing an appeal in other courts is set forth in the state’s court rules and statutes. These include deadlines for filing (usually three to six weeks from the date of the final judgment), what you must put in your brief, how your brief is to be organized (right down to acceptable fonts, font sizes, and page margins), and . . . let’s face it, more rules than most people want to deal with. If you’re a brave soul, check them out. But if you’re like most people (including most lawyers), you’ll probably discover that there’s more to the appellate process than you have any desire to learn about in this lifetime.

It’s really easy to make small mistakes in an appeal that can cause the court to deem a claim waived. It’s also easy to overlook issues a court may see as grounds for reversal, and to be absolutely convinced of the merits of an issue that the appeals court dismisses as irrelevant. Handling an appeal past small claims court takes a great deal of time, effort, and attention to detail. If you have a case you don’t want to lose, or you’re not willing to walk away from a bad outcome, consider hiring a lawyer at the trial court level.

Selecting the correct court to file your appeal

When you appeal a court’s decision, the appellate court is typically the next court up the ladder. If you litigate in a small claims court (and your state permits appeals from small claims decisions), appeal is usually to the lowest regular trial court. If your state has district courts, your appeal from district court is likely to circuit court. From circuit court, appeals are typically to the intermediate court of appeals and, from there, to the supreme court. If you keep appealing your case, you literally work your way up the ladder.

Appealing a case from a trial court up to an appellate court can be daunting, and the process of briefing, filing, and arguing the appeal is at times extremely formal, highly technical, or both. Indeed, many attorneys who litigate cases in trial courts won’t consider taking appellate work — they always send their appeals to a specialist. In short, to have a realistic chance of winning your appeal, you may need to hire a lawyer who specializes in appellate work.

Appeals are also a context where small mistakes, such as the failure to properly raise an issue with the court or a misunderstanding of the burden of proof, can cause you to lose before your case is even heard. If you’re appealing your case a second time, or you’re appealing to your state’s intermediate appellate court as opposed to a higher trial court, you should consider hiring a lawyer.