Business Article

Ready for a Legal Smackdown? by Dennis Falletti

When to sue or not to sue for your money? That is a good question. There are many ways to determine the best course of action.  

The advantage is shifting to the debtor. Often debtors invite and use litigation as a means to an end.  

The economy has taken its toll on courtrooms all across America . And the odds are stacking up against corporations when it comes to collecting past-due accounts. Jim Cramer, host of CNBC’s Mad Money, often states that the cost of civil litigation in the U.S. is 2% of the annual Gross National Product. But justifying court expenditures is becoming increasingly questionable.  

Look no further than California to see why that’s the case. In the last round of the state’s budget cuts in 2011, the state’s legislature reduced a large portion of the court’s operating budget. The city of San Francisco is predicting it will take close to five years to get a civil case to trial. Other California jurisdictions are not so “crunched,” but due to the backlog, courts are requiring mediation and settlement conferences before trial dates can be set.  

When the trial ends successfully, the plaintiff must have a copy of the certified judgment to begin collection efforts. In many venues, that can take anywhere from three to five months. In New York and New Jersey , it can take six months to one year.   

As a result, the advantage is shifting to the debtor. Often debtors invite and use litigation as a means to an end. They know, through their attorney, that if litigation is pursued, there are options and tactics they can use to their advantage.

What follows is a partial listing of debtor tactics intended to test your litigation policy and allow for you to make errors that can be used to their advantage.  

Time – Debtor attorneys sometimes employ disputes requiring validation or continuances as a stalling tactic. They also demand witnesses at all proceedings and understand that a “no show” at trial results in a default judgment. It will take additional expenses to pursue and recover the debt.  

Money –Debtors know that companies set a suit threshold before they will consider filing suit. The objective is to make it too expensive to file suit and pursue a judgment.  

Poor Credit Rating – If they have other unsatisfied judgments, what makes you think they will pay yours? Debtors know from experience, and advice, that most companies will not pursue the judgment based on a history of poor return or no return on investment.  

Counter Suits – This tactic is very effective simply because it elevates the plaintiff’s costs and time. It also reduces the will to pursue the amount.  

Witnesses and Depositions – This is a very effective method to get the case pulled at the plaintiff’s request due to the cost involved and time constraints on under-staffed departments.  

Judgments – When litigation is successful, the defendant can often get a court-ordered payment plan that’s better than what was offered during the collection phase.  

Default Judgments – Debtor’s know that a default judgment is nothing more than a legal document stating they owe the money. That requires enforcement, and attorneys often tell us that their clients will not make the expenditure.  

Settlement on the Courthouse StepsMany times the litigation process advances, costing the plaintiff substantial time and money, only to result in a settlement at the last minute prior to starting trial.  

Today, more than ever, a change in the collection process, litigation policy and procedure is needed. Before approaching suit, make sure your collection agency or attorney completes a thorough asset investigation and provides you with a complete history of the debtor’s payment trend and nature.  

The report should include the following:  

·         state and federal tax lien information

·         pending litigation

·         bankruptcy information

·         unsatisfied judgments already in place

·         other collection actions being taken

·         secured creditor information

·         payment trends for the last six quarters

·         who they are paying and not paying

 

Additionally, review the collection notes on the case, checking for dispute information not addressed.  

Be sure to check the court costs in the jurisdiction where the suit will be filed. Is the court backlogged? Does it require a company witness “in person” and for which proceedings? What are the costs to file suit, pursue judgment and finally enforce a judgment? Is a counter suit possible? Are all contractual details and documents available? Is the company really in business?  

Having this information will increase your odds for successful and profitable litigation. Return on investment is the focus point. Losing money on litigation is not an option.  

Dennis Falletti is a Senior Vice President of Business Development at the credit and collections firm Brown and Joseph, Ltd. He can be reached at (847) 758-3000 ext. 206 or dfalletti@brownandjoseph.com.

 

 

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