Suing a Deadbeat Client
Businessmen still hanker for a forgotten time when a contract was sealed with a simple handshake. They opine about the good old days when a man’s word was his bond and, moreover, the most important thing he had. They cherish memories of multi-million dollar deals closing over breakfast between two honest negotiators rather than weeks of thankless bickering between teams of Ivy League lawyers.
Yes, times have certainly changed. Whether or not it’s for the better is a matter of opinion. Regardless, businessmen of today need to perform due diligence at every turn in order to ensure their interests are protected. First, they need to certify every contract in writing. While oral agreements are indeed legally binding in a court of law, they are much more difficult to prove. Businessmen should also research, interview and background check clients so they know the kind of people their dealing with beforehand. A perspective client with a shady history may not be worth the risk, irrespective of his perceived value.
However, sometimes, there is just no way to foresee or avoid dealing with deadbeat clients who refuse to pay their bills. Contracts may be in place, due diligence performed and services rendered to their satisfaction, but the invoices remain unanswered month after month. In this case, when all else has failed, litigation is definitely a worthwhile option to consider.
Assess the Costs
Risk and reward must be compared before deciding to move ahead with a case. All too often, the costs of pursuing the client outweigh any possible gain, even in a best case scenario. Court costs, lawyer fees, travel expenses, collection costs and time lost from more productive endeavors must all be considered. Only when the chances of a profitable outcome are favorable should litigation be pursued. Pyrrhic victories, on the other hand, serve little purpose and simply clog up the system.
Build Your Case
Review your contract thoroughly. Highlight areas within the contract that you believe were violated. In the case of a deadbeat client, the compensation clause is most likely to articulate the payment amounts and schedule that was agreed upon. Assemble any and all supporting materials in addition to the contract, including invoices, demand letters and proof that your services were rendered correctly. If you’ve kept organized records and have the facts on your side, you’re ahead of the curve. However, make sure your contract does not have an arbitration clause. If it does, you may need to arbitrate the matter before the AAA, NAA or other reputable body instead of going to court. If the clause calls for binding arbitration, the arbitrator’s verdict will hold up in a court of law.
Filing with the Court
The contract’s “governing law” clause should articulate which state’s court system will adjudicate disputes between the parties. However, if no jurisdiction is referenced, then the state where the business was transacted takes precedence. In cases where business was transacted across state lines, the plaintiff will have to sue the client in the client’s home state. This may prove cost-prohibitive, particularly if it’s a small claims suit. Once the jurisdiction has been established, the plaintiff can choose whether to acquire, complete and file the proper documents in order to begin the legal process.
Serve the Client
The client must be served notice that you are taking him to court. He can be served at his residence, workplace, local gym – just about anywhere. Typically, a plaintiff will hire the sheriff’s department or a professional process server to do this, although most states allow anyone not directly involved in the case to attempt service (even a friend or family member of the plaintiff). If the client cannot be located, then they cannot be served and taken to court. However, many states allow for substitute service, where a competent adult over the age of 17 can accept service on the client’s behalf.
Attaining a Judgment
Once the client has been properly served, the court will set a trial date. This is where your preparation, planning and case-building will come into play. Either you or your attorneys will have to argue the case before the judge or magistrate, although in small claims court, it is important to note that attorneys are generally not allowed to participate. Civil matters such as this are always decided based on the preponderance of evidence, which essentially means whoever presents the strongest case, even by a hair, will emerge victorious. But it is up to you, the plaintiff, to prove your case in order to secure the judgment. If you fail to do so, the defendant may win without having to say a word. On the other hand, if the defendant fails to show up and the judge believes your case has validity, she may issue you a default judgment, which you can immediately set about trying to enforce.
Enforcing the Judgment
Once you secure a judgment, the most challenging part begins: collecting. Most states give the plaintiff at least seven to ten years to collect the judgment and may have subsequent renewal periods that extend the timeframe even longer. If the defendant is a company as opposed to an individual, the first step should be to send a demand letter. More often than not, the company will simply pay the judgment. Otherwise, you need to acquire a writ of execution from the court ordering the sheriff to seize the defendant’s assets. Methods include garnishing wages, levying vehicles and bank accounts, seizing furniture and computers, forcing home sales and till tapping (which is where the sheriff literally removes all money from the defendant’s cash register). In order to properly assess the defendant’s assets, you may require the defendant to attend a judgment debtor’s exam, where they are required by law to divulge any information to you that pertains to their current financial position. If they lie or refuse to answer, they can be placed in contempt of court and jailed. If they fail to show for the exam, a warrant will be issued for their arrest and they will be jailed. Properly utilizing all of these tools that are at your disposal is crucial to ensuring the judgment gets satisfied.