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HANDLING SMALL CLAIMS ACTIONS

by | Oct 28, 2022 | Broker Practice, Copyright, Ethics, Financing and Appraisals, Foreclosures and Short Sales, Uncategorized

BROKER RISK MANAGEMENT

RISK MANAGEMENT TIP

We have seen a rise in the filing of small claims actions between buyers and sellers, as well as against real estate agents and brokerages.  A number of clients have requested that we counsel them regarding procedures involving small claims actions.  The following is a discussion of what to expect in a small claims case involving a real estate transaction.

  1. FILING THE CLAIM: Parties may file small claims actions against other parties, including people and corporations.  The limit against a person is $10,000 and the limit against a corporation or other entity is currently $5,000.  Attorneys are prohibited from representing clients in small claims court.  Therefore, parties are required to represent themselves.  However, a corporation, including a real estate brokerage, may have a representative appear for it.  The broker does not necessarily have to appear, unless personally named.

Before filing a small claims action, a plaintiff must send a demand to the defendants.  Thereafter, the plaintiff may file a complaint and the court sets a hearing.  The claimant must be personally served on the defendants.  The plaintiff is required to file a proof of service with the court.

If you as an agent would like to file a claim based on a transaction or client related to your brokerage, a salesperson cannot be the plaintiff.  In those matters, the plaintiff must be the broker, and most brokerages prohibit agents from filing such claims.  If the brokerage is named in the suit, with or without you as an agent being named, your manager or broker must be there representing the brokerage as the party to the suit.

PRE-HEARING PRACTICE TIPS:

  1. If you are sued in small claims court, please contact us at Broker Risk Management and we will schedule a call to counsel you further and make recommendations regarding arguments specific to your matter.
  2. When a small claims suit is received by you as an agent, please consult with your manager or broker, or with counsel, to outline appropriate handling and whether to tender the matter to your insurance company.
  3. Evaluate whether you have any interest in resolving the matter at mediation.  If so, before the court hearing and mediation consider how much you are willing to pay.
  1. PRE-HEARING MEDIATION: Before the hearing takes place, most small claims courts require that the parties mediate the matter.  The courts will likely have attorneys or trained mediators present to facilitate the mediation.  If the case resolves, the mediators generally have a memorandum of agreement ready.  Do not sign this agreement.  It is recommended that if a case settles at mediation, you contact our office, and we will prepare an appropriate settlement agreement containing an appropriate release.  (We have found the releases provided by the courts or mediators are inadequate.)
  2. THE HEARING: If the matter does not resolve at the mediation, the matter will proceed to a hearing before the judge.  You may be asked to agree to have the hearing heard by a judge pro tem (generally, an attorney with a temporary appointment to the court for the limited purpose of hearing small claims matters).  It is recommended that you decline to agree and request that a judge hear your matter.  While this may result in a postponement, the “judging” will be better quality if the matter is heard by a judge versus a judge pro tem.

When your matter is called by the court, the plaintiff/complainant will have an opportunity to present their case.  The defendants/respondents will have an opportunity to respond.  It is important that you be well prepared in advance of the hearing.  Outline your arguments and keep them objective and succinct.  It is best to try to keep your arguments responsive to the plaintiff’s arguments and under five minutes.  Preferably, your response will be approximately two minutes.  If you have documents you would like to present to the court, make sure that you have copies for the judge, clerk, and the plaintiff.  If there are excerpts you would like the judge to review, have them highlighted.

After presentation of both sides, the court will take the matter under submission.  It is rare that a judge makes a decision in court.  You will receive a written decision in approximately one week.

  1. AFTER THE HEARING: If the plaintiff wins, the defendants have a right to appeal that decision to superior court and request a trial before a superior court judge.  You may have an attorney represent you at that hearing.  Please keep in mind that the amount at issue needs to justify the expense of an attorney.  For example, an attorney will likely charge $5,000 or more to handle these trials.  If the judgment is only $2,500, paying an attorney to appeal the matter probably does not make economic sense.  If a plaintiff loses, the plaintiff does not have a right to appeal.

HEARING AND POST-HEARING PRACTICE TIPS

  1. If you settle the matter at mediation before the court hearing, contact us so an appropriate settlement agreement can be prepared.  The settlement agreements provided by the mediators and the court are not sufficient nor do they properly cover all of the claims.
  2. In advance of the hearing, please prepare your arguments keeping in mind that they should be very succinct and remain under five minutes.  Please prepare your documents in advance with at least four to five copies of each document ready for the court and the plaintiff.  If you are citing to any section or wording in any document, it should be highlighted and tabbed for the court.
  3. If the court makes a decision adverse to you, please consult with counsel as to whether you intend to appeal that decision and whether you will represent yourself or retain counsel.

NOTE: The CAR Residential Purchase Agreement paragraph 31B excludes those matters within the jurisdiction of the Small Claims Court from the obligation of the sellers and buyers to mediate or arbitrate.  So, sellers and buyers can proceed directly to Small Claims Court for those claims.  The SFAR and PRDS purchase agreement forms have similar provisions.

ADDITIONAL INFORMATION AND RESOURCES:

https://www.car.org/legal/recasesandresources/SmallClaimsCourt

This Weekly Practice Tip is attorney-client privileged and for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.