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This article is taken from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction attorney, who serves clients in the state of Florida. In this article we discuss how to take someone to court yourself if you are owed $8,000 or less.
The best way to solve a problem is to avoid it completely.
Steps to Try Before You Hire a Lawyer
So if you can avoid having to even consider hiring a lawyer, that is the best way to not have to take anyone to court yourself or hire a lawyer. What are some of the things you can do to solve that problem?
a. Have a written construction contract that addresses payment and nonpayment
Ideally, you have a contract in writing, and it has terms and conditions that cover the most important issues that you deal with in your business. This includes that you should have an agreement that is your form of agreement. It should address payment terms, when you are going to get paid, how you are going to get paid, and what happens if you do not get paid.
So do you have the right to stop work? Some people assume automatically that you have the right to stop work. More likely than not, if you sign someone else’s contract. It probably precludes you from having the right to stop work if you are not getting paid.
You want to make sure to add that to your contract or the contract that someone may give you. Then, what we suggest is talk to people in your business or consider the problems, disputes or confrontations you have had in the past. Make a list of exceptions. That list should be in your terms and conditions.
Maybe you are a fire sprinkler contractor and you do not paint the pipe when you install it. So put that in as an exclusion and this quote excludes all painting of pipes and fixtures. Whatever it may be, you should put that list together and it should be an evolving list over time.
For example, there is a subcontractor who has been in business for almost 50 years and when he hires his attorney, and it is rather disjointed, but it has lots of terms and conditions and he said that every one of those exclusions he has a story about. There was someone that screwed him out of a couple hundred or couple thousand dollars. So when that happened, he added a provision to his contract to make sure it would not happen again.
That is the kind of thing you should be doing.
b. Timely send a Notice to Owner
You can use SunRay Construction Solutions to send your Notices to Owner. The people that get paid the fastest and the most of their claim are the ones that timely protect their lien and bond rights. In Florida, the first step in that process is serving a Notice to Owner. At SunRay, we will help you do that very easily.
Pro-Tip: Send an NTO Even If You Do Not Need To
This here is a pro-tip – send a Notice to Owner even if you do not need to. For example, you may be a small residential construction contractor. You have a contract almost exclusively every time with an owner. You do not need to send a Notice to Owner in that situation.
But if you do send it, you will see an increase in your collections because the homeowner gets this document in the mail, that looks very official. They get it via certified mail, and they will take you a little more seriously.
It is advised that in your office you should set up a process that any job over a certain amount of money whether it is $500, $1,000, or $2,500. Whatever you determine you should notice every one of those jobs, no questions asked.
c. Cut off further credit on this and other projects (if contractually allowed to)
Next, this sounds much easier in principle than it is in practice but stop doing work for someone who owes you money. There are people who go to attorneys and say they are owed $25,000, $50,000, or $100,000. At some point they were only owed $5,000 or $10,000 but they let that credit keep going.
So keep an eye on how much money is being accumulated in the form of credit by the people that you are doing work for, and to the extent your contract permits you to stop work so that that debt does not increase until you get a better sense that you are going to get paid.
d. Timely record your lien or send a bond claim
As mentioned above, those who have construction lien and bond rights are typically the first to get paid and they get paid the fastest. So you need to make sure that you use SunRay and record your lien and bond claims to get paid.
e. Call, email, and visit the debtor often
The squeaky wheel gets the grease so call, email, and visit the debtor often to try to get paid. Do everything you can do to get paid before you have to file a lawsuit. The most successful individuals at collections are the ones that have the most robust and aggressive in-house collection processes. So that is who you want to be.
What Can a Lawyer Do that I Cannot?
So why do you even need to hire a lawyer?
a. Advice on the merits of your case and the likelihood of success
The first reason is just like you need to go see a doctor, lawyers are professionals, they have a lot of experience in the law, and if they are construction lawyers, they have a lot of experience in construction issues.
They can give you good legal advice on the merits of your case and the likelihood of success. You may think you have been wronged, but when you talk to a lawyer, they may point out certain situations, facts, or circumstances in your case that are problems for you.
An example of this is someone saying they are owed $18,000, they did all the work, and the owner does not want to pay them. They worked without a license, delivered materials, installed it, and the owner does not want to pay them.
Unfortunately, they were told that the scope of work done requires a state license and they did not have a license. There is a statute that says if you need a license and do not have a license, then you are not entitled to be paid. So the above example is an extreme example of a situation in which getting advice from a lawyer can avoid spending time and money on a case that may not be worth anything.
b. Demand letter on the lawyer’s letterhead
What else does a lawyer do? They send letters on their letterhead, so one of the steps of collections is to let the other side know that you may sue them. One of the ways you indicate that you may sue them is they get a letter from a lawyer. That is the first indication that you have decided to pursue this matter further.
So now they need to be more careful because if they want to go forward with not paying you, you will have sent a letter from your lawyer
c. Lawsuit in court
Then, the reason you need a lawyer is because as a business, you are required to be represented by legal counsel.
i. Individuals can represent themselves in court
If you are an individual, you do not need a lawyer. You can represent yourself in court. For example, if you are Joe the painter, you do not have a company, you just go around and paint people’s houses. If you are owed $50,000 you can sue someone because you individually, as Joe the painter, are owed the money.
ii. Businesses must be represented by a lawyer for cases outside of small claims (greater than $8,000)
But if you have a business corporation, an LLC, and a partnership, these businesses require that they be represented by lawyers with one exception. So that will be spoken about below.
That exception is if you have a claim for a principal value of less than $8,000, then you can sue someone on your own in small claims court.
How Do I Recover My Legal Fees?
Before we discuss the process of suing someone in small claims court, we will talk about how to recover your legal fees because you may decide that you do not want to spend the time and effort to do this if you can recover your legal fees well.
a. Statute that says prevailing party is entitled to recover legal fees
In the state of Florida, there are only two ways to recover your legal fees. Number one is, you have a law that you are suing the other side for violating and that construction law says the winner gets their legal fees.
b. Lien statute Chapter 713, and Bond statute Chapter 627
So the two most common lien laws that are used are the Lien Statute, which is Chapter 713 and the Bond Statute Chapter 627.
Both of these statutes say that the prevailing party in a lawsuit to foreclose on a lien in Chapter 713, or to sue on a payment bond in Chapter 627, is entitled to recover their legal fees. Now that means you have to go all the way to the end of the case.
The judge has to rule that you are the prevailing party. That is when you get your fees so you may spend money in the meantime, but if you prevail, you may get the other side to pay your legal fees.
c. Written contract that says prevailing party is entitled to recover his/her legal fees
The other way in the state of Florida that you can recover your legal fees is if you have a written contract and that construction contract is signed by the parties. It should say that the prevailing party is entitled to recover his or her legal fees.
So those are the two ways – you have a statute that says the winner gets their fees or you have a written contract that says the winner gets their legal fees.
d. Most cases settle
All that being said, most cases settle. At any given time in an attorney’s office, they can have about 500 active cases. The vast majority of those cases settle. Approximately 98% settle within the first six months. So you never get to the point where the judge has to make a ruling on who the prevailing party is. But sometimes attorneys can settle the case and have the other side pay some or all legal fees.
e. Change your perspective on the legal process
One thing to remember is you should change your perspective on why you need to spend money on legal fees and what the legal process is about. For example, let us say you are owed $50,000 and the other side refuses to pay you. Would you accept $40,000 instead of $50,000? Most people would say that if they cannot get the $50,000, they would rather take the $40,000 than nothing.
So the way to look at hiring a lawyer sometimes is when you go to them, that you do not have the right and you do not have the ability to get paid. You may have to spend money to get paid. So are you willing to spend $10,000 in legal fees that you may never get back to recover the $50,000, so you net the $40,000. Most people say yes.
The wrong way to look at the legal system and lawyers is to say that if you spend a dollar with a lawyer, you want to make positively sure that you get that dollar. That is very challenging to do in the legal system that is currently there, because most cases settle.
How Do I File a Small Claims Case Myself?
What is the process to file a claim in small claims court?
a. Must claim less than $8,000 even if owed more than $8,000
The first thing you must do is, you have to have a claim that is in principle, excluding interest, less than $8,000. Now you may be owed $15,000 and you can sue someone in small claims court on your own, but the court can never award you more than $8,000.
So if you are owed $15,000 and you sue me in small claims court and you win, the court is going to award you $8,000 and the rest of that amount of money is going to go away. You are never going to be able to recover it again because it would have been resolved in this court case where you got $8,000.
Now maybe you could argue, for example, that you have two invoices. Each of them was $7,500. So maybe you file two cases – a case on invoice one and a case on invoice two. That is possible. Just keep in mind that this is the jurisdictional limit. There is some discussion that that limit may increase as much as $15,000 in 2023. So how do you file the case?
b. File Statement of Claim and pay the filing fee
There is a form, and all you have to do is fill the form out. It is very simple; it is like filling out any other form that you have ever done. You are going to fill out your name, the other side’s name, your position, why you are owed what you are owed, you will list how much you are owed, and then you are going to pay the filing fee. The filing fee is usually about $350 give or take to start the case.
c. Serve the defendant
Now that you have the Statement of Claim, and you have paid your filing fee to the court, you need to serve the defendant. To serve the defendant, you have to get what is called a ‘summons.’ The court clerk is the person that is managing the intake of these cases and is going to give you this summons. So once you file the court case and pay the fee, within several days depending on the court system and which county you are in, it could take anywhere from one to ten days.
Miami-Dade County runs about seven days now for example. You are going to take that summons and you have two ways to serve the defendant. You can hire an independent process server. If you just Google ‘process server’ and the county that you are in, you will find process servers. The average going rate for a process server is $150.
You could also pay the sheriff to serve your papers. The sheriff in most counties serves process and you pay them as well. So the summons and the pre-trial statement are going to get handed to the process sever and they are going to get served on the defendant. Service on the defendant is very important. The legal system in place requires notice.
The way you prove that the other side was notified is either by the sheriff or the process server filing what is called a Return of Service in the court docket. So once you pay the process server, they get the paperwork, serve it on the defendant, and the process server is going to fill out an affidavit.
And say you picked up the papers at this time, you went to an address, you served the defendant, and he is a white male approximately 40 with brown hair, and you serve him with process. They will take that affidavit and they will file it with the court. Then that is proof that you have given notice to the other side. So that service or process is very important.
d. Attend the pre-trial and conduct mediation
Once you do that, you are going to get a pre-trial date. Now this is called a pre-trial because it is not actually the trial. The pre-trial is the point in the case when you and the other side will show up. You will go up in front of the judge; the judge will then send you to mediation and in that process, the judge is going try to get you and the other side to settle to avoid the case altogether.
Most of these are still being held via Zoom depending on the county. Some are in person, and some are in Zoom. So you show up or it is via Zoom. The judge is going to confirm that both parties are there.
If both parties are there (you and the other side), you are going to be sent to have a mediation typically right then and there. A mediator is a neutral third party that tries to get you and the other side to settle the case.
So if you can settle the case, maybe they owe you 8,000, they have agreed to pay you $6,000 and you have agreed to accept it. Maybe they owe you $7,000 and they agree to pay you $1,000 a month. Whatever it is, you are going to write up that agreement right on the spot. The parties are going to sign it and now you have a settlement. If everyone lives up to the settlement, the case gets dismissed.
If not, then you go back in front of the judge and get a judgement against them immediately for any amount that they did not pay. If you go to mediation and you do not settle, you are going to go back in front of the judge and the judge is going to ask you.
e. Get a trial date and prepare your documents and effectively
How much time do you need for this trial? How many witnesses do you have? Typically, it is at least one. Maybe it is you and somebody else from your office and then they will set a trial date. So this is the date where you actually show up and present your witnesses and documents effectively.
f. Attend and argue your case at trial
This is where you tell your story, and you argue your case so that you win. Now if you show up to this pre-trial and you did get good service meaning that the process server came back and said yes you did serve them, and the other side does not show up, you get what is called a ‘default.’
This means you automatically win, and the other side automatically loses. The judge is going to give you a judgement. Typically, you will submit it afterwards, it is not done right on the spot. But this judgement is going to be the piece of paper that says you win, they lose, and they have to pay you money now.
If they do not show up and you did have good service on them, then you effectively won. Now you garnish their bank accounts, you can show up with the sheriff and clear out their warehouse. There are lots of things you can do to try to get paid.
g. How to file a small claims case yourself
So how do you get the finer details of this overview? It is actually quite easy. What you want to do is you want to go to Google, and you are going to type in how to file a small claims case in and you want to type the county where you are going to bring this case. So if you are based in Miami-Dade County, the defendant is in Miami-Dade County, the construction project is in Miami-Dade County, you are going to type “how to file a small claims case in Miami-Dade County.”
Typically, the first and/or second result is going to be a web page on the clerk’s website dedicated exclusively to small claims cases. It is going to have the same information mentioned above, but it is also going to have all of the forms, the phone number for the clerk, and the phone number for the sheriff so that you can serve process.
It goes into much greater detail into how to file the case with all of the paperwork that you need. The hardest one to file is the first one, but after that, it is pretty easy – it is just mostly paperwork. The vast majority of the cases that you decide to bring will likely settle before you even get to the pre-trial or if they do not settle then, they will likely settle at mediation.
Very few of the cases that you bring will likely ever go to trial. So you are encouraged to go through this process yourself rather than sending a case to your attorney for $8,000 or less. It is a great way to save some money. It is not that complicated; it is a little intimidating but once you get past the initial shock of doing it the first time, it is pretty straightforward.
