Small Claims Limits Increased This Year

SMALL CLAIMS LIMITS INCREASED THIS YEAR

By Catherine Schlomann Robertson
Pahl & McCay
225 West Santa Clara Street
Suite 1500
San Jose, California 95113
408/286-5100 (phone); 408/286-5722 (fax)
crobertson@pahl-mccay.com

Please understand that the information discussed in this Article is general in nature and is not intended to be legal advice. It is intended to assist owners and managers in understanding this issue area, but it may not apply to the specific fact circumstances or business situations of all owners and managers. You may need to consult applicable state and local laws. For specific legal advice, consult your attorney.

California's Small Claims Court system was created to provide a cost-efficient means for resolving smaller disputes.

On January 1, 2006, the jurisdiction of the Small Claims Court will be increased to allow claimants to recover judgments of up to $7,500 (The original claim limit, in 1921, was $50.) CCP §§116.220 and 116.221. This means that more cases can be tried in small claims court. Of course, this being California, nothing is as simple as it seems, and there are multiple rules governing how much you can sue for in small claims court:

An individual can sue for up to $7,500
A corporation or LLC can sue for up to $5,000.
If you sue more than two times in a calendar year, you are limited to $2,500 per suit.

Also be careful to avoid appearing “splitting a cause of action.” This rule means that an injured party must seek relief for a single claim in one lawsuit. If the defendant committed a single claim (for example, breach of contract or invoice for $10,000), the plaintiff must seek all damages for that claim in the same cause of action, and waive the remainder of the damages. Plaintiffs cannot recover a portion of their claim in one small claim action, and the balance of their claim in a second small claims action against the same defendant. If the court discovers you splitting a cause of action, it will rule against you and likely award cost costs to the defendant.

If your claim exceeds these jurisdictional limits, and you are a corporation or LLC, you must hire an attorney to represent you in a collection action. There are a few preemptive steps that all businesses should take to empower them to recover debts within the court system. Businesses should make sure that they have terms and conditions, including a attorneys' fees provisions in their form contracts/purchase orders and invoices that allow them the ability to recover the attorneys' fees that they incur, and insure that the contract/purchase order or invoice has been signed by the recipient in any transaction. While it may, at first blush, seem a burden on your business to assure the execution of these documents, the cost of litigation if you are forced to go to collection, or even are sued by the recipient, can easily exceed $20,000 for one transaction. Our advise is select a sale valuation over which all contracts/purchase orders or invoices must be executed, and establish a procedure for assuring compliance.

After receiving her a B.S. in Finance and her J.D. from the University of San Francisco in 1988, Catherine Robertson has provided collection, bankruptcy and pre-judgment remedy solutions for the clients of Pahl & McCay. She is a partner at Pahl & McCay, and has been rated A-V (highest professional and ethical rating) by Martindale-Hubbell. Should you require expertise or assistance in collecting an outstanding obligation, please consider Pahl & McCay.