Reconsidering small claims

Stuart M. Collis
Collis & Griffor PC

Historically, the purposes of small claims court were to reduce the cost of litigation, obtain justice for the common man without the technicalities and needless complication of civil procedure, and to reach a conclusion without needless delays. At first glance, the system might seem to achieve these goals. However, upon closer inspection, the small claims court achieves none of the goals it was meant to achieve.

Each district court in Michigan has a statutorily created small claims division of the district court. In courts with one judge, making the district court judge the judge of the small claims division, as well. Every three years beginning on Sept. 1, 2012, the small claims court jurisdiction increases by $500 from $5,000 until a maximum jurisdictional level of $7,000 on Jan. 1, 2024.

The court must provide an instruction sheet with an affidavit of a small claims complaint to a plaintiff utilizing the small claims court, who must provide the full and correct legal name of the plaintiff.  The individual completing the complaint form also must have direct and personal knowledge of the facts. Insurance company employees cannot file subrogation claims in small claims court. However, a plaintiff is not required to list the proper legal name of the defendant, but merely needs to sue in any name a defendant “used in any advertisement, sign, invoice, sales slip, register tape, business card, contract, or other communication or document published, displayed or issued to the public in the course of its business.” 

While these procedures would seem to make litigation less complicated, nothing could be further from the truth. One can file a claim greater than the jurisdictional limit, although a party may not recover a judgment more than the maximum jurisdictional amount. Cases involving intentional torts or defamation may not be filed, the exception being cases involving violations of the Michigan Consumer Protection Act or bad checks, assuming the proper statutory form was used prior to filing of the small claims action. Governmental entities may not be defendants where the entities have immunity; it is unknown how a layperson would know whether a governmental entity would have immunity or not.

The instruction sheet also has glaring omissions. Plaintiffs are never informed that cases where the circuit court has exclusive jurisdiction, such as civil rights violations or injunctive relief, cannot be filed in small claims court. Also, the form fails to advise either party of the ability to ask the judge or magistrate to have a hearing scheduled to avoid a party being absent from employment, including having a hearing on evenings or weekends. Yet, the court clerk is statutorily required to inform parties such hours might be made available on written request.

Until last year, with the passage of the e-filing system fee, filing a case in the small claims court had no fee difference from filing it in the district court system. Now, if a case is filed as a small claims matter, the plaintiff saves $5. This small savings in initial case filing does not make the small claims court cheaper than the general civil docket; the case could take longer and be more arduous.

When a small claims case is filed, the court clerk is required to indicate on the complaint form when and where parties are to appear, to bring all witnesses necessary to establish a claim or defense, that failure to appear may result in a judgment against the defendant together with costs, that even if the parties settle that defendant may be charged with court costs, and that if the defendant does not have a legal defense, the defendant may request installment payments.

The appearance date for the parties to adjudicate their small claims suit is required to be between 15 and 45 days after the complaint is filed. If service is not achieved at least seven days prior to the court date, a plaintiff may ask for a new notice for another 15 to 30 days. If the defendant is served less than seven days prior to the hearing, the court cannot render a judgment unless the defendant appears and does not request an adjournment.

However, roadblocks exist. Most courts will not have the small claims hearing on the date the parties are scheduled to appear. Most courts require the parties to mediate prior to a hearing, and have a dispute resolution center at the courthouse on that date.
Other courts have had attorneys handle mediation as a condition of receiving criminal misdemeanor court appointments. For the cases this resolves amicably, this may take a burden off magistrates and judges. However, it does not meet the goals of expeditious resolution for parties unable or unwilling for an amicable resolution.

Savvy parties can abuse the small claims system to extend and complicate the litigation. Parties are notified in the small claims form they have an absolute right to remove the case from a magistrate to a judge and the right to remove the case from the small claims to the general civil docket. These rights must be repeated to the parties prior to the commencement of a trial. In other words, a litigant can bring a party to court, waste the other party’s time by removing the case from small claims the minute prior to trial, and elongate and complicate the litigation unnecessarily. A savvy party could potentially maneuver to have three court dates (mediation, magistrate removal at hearing to a judicial hearing and removal at judicial hearing to the general civil docket) without the case reaching any final decision. An equally savvy small claims plaintiff could have a case that otherwise could not be placed in a particular venue had the case been filed as a general civil case be in what would otherwise be an improper venue.

Except for suits against governmental entities, the venue is proper if the defendant is “established or resides or is employed.” For general civil cases, generally venue is proper in the city where “a defendant resides, has a place of business, or conducts business, or in which the registered office of a defendant corporation is located.” If either the plaintiff or defendant removes the case to the general docket, venue remains proper and the district court may not change the venue, if venue was proper at the time the small claims action was filed. Therefore, the unscrupulous plaintiff could file a case where a defendant is employed, which might be a distance from where the defendant resides and might be more convenient or sympathetic to the plaintiff. All the plaintiff would need to do is remove the case to the general docket from small claims to obtain a venue otherwise unavailable. Even the Court of Appeals noted that this was an odd result in Kerekes v Bowlds, 179 Mich App 805, 446 NW2d 357 (1989) because venue is meant to make the case more convenient and to minimize the costs of litigation.

Because small claims cases were intended to reduce cost, hearings are done informally and are not recorded. Attorneys are prohibited in the hearings and the rules of evidence do not apply. However, an attorney may submit a written request for removal from the small claims docket on behalf of the client prior to a trial. A party specifically waives the right to an appeal (other than from a magistrate hearing to a hearing by a judge), the right to counsel, the right to trial by jury, and the right to recover more than the small claims jurisdictional amount by participating in the small claims trial.

If a party wishes to avoid the waiver of any of these rights, the party must remove the case to the general civil docket prior to the trial commencing. However, without a record, how can anyone be certain that a party knowingly, voluntarily and understandingly relinquished their rights?

There are no appeals in small claims court, except from a magistrate hearing to a judicial hearing. Because there is no record created, if there is an appeal from the magistrate to the judge, there must be a trial de novo, meaning that parties and witnesses must come in a second time to re-litigate a matter should one party be unhappy with a magistrate’s decision, which is contrary to the purpose of making small claims litigation more efficient.

The small claims court attempts to achieve efficient resolution by directing defendants who fail to pay, within 30 days, a judgment entered against them to disclose to the court and plaintiff the defendants’ place of employment and location of bank accounts.
Most defendants are not likely to be forthcoming with such information.

Consequently, courts must provide to small claims judgment creditors information on how to collect on a judgment. Most forms of post-judgment collection actions are available, including: garnishment, execution, attachment, and judgment debtor examinations. Since small claims courts are not courts of record, a judgment lien cannot attach to real property of a judgment debtor.

Also, creditors lose hidden benefits afforded to judgment creditors on the general civil docket. Credit bureaus will not likely publish small claims judgments on a defendant’s credit report. Small claims judgments only are enforceable for six years whereas general civil judgments are enforceable for ten. Finally, and most importantly, creditors cannot enlist an attorney’s aid to collect on the judgment; a plaintiff will not be able to be compensated quickly, or at all, because an individual likely would not know how to find a judgment debtor’s social security number, employment, bank accounts, or other attachable assets.

Therefore, the courts, the legislature, and society need to take another look to determine whether the system creates more problems than it solves.

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Stuart M. Collis is the senior partner with Collis & Griffor P.C. in Ypsilanti.
 

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