Collecting Your Overdue Bills "From A Distance"
By Cliff Ennico
www.creators.com
"Your recent columns on collecting from deadbeat clients were truly inspiring. I am an electrical contractor who is owed $3,000 from a customer located way on the other side of the state. His business is selling a product, made by others, and installed by electrical contractors such as myself. He has no business assets, works from home, and has no job site work (he may be on a site for 1-2 hours). He is, however, incorporated. I won a small claims court judgment against his corporation, but the courts will not enforce the judgment because of the great distance, and I have spent approximately $2,300 for my attorney to get the judgment. Collection agencies will not help either. I am at wit's end. Are there any options I may have overlooked?"
First of all, here are a couple of tips about suing in small claims court. Generally, courts are required to enforce judgments rendered by other courts elsewhere in your state - this principle (known as "comity") is enshrined in your state constitution.
But there's a catch. A court is obligated to enforce another court's judgment only if the case was fully litigated - the other side showed up on the court date, both of you argued your case before the judge, and the judge rendered a decision based on all the facts presented to him. If (as I suspect) what you got was a "default judgment" - the other side simply didn't show up in court because of the great distance involved - his local court may refuse to enforce your judgment on the grounds that a local citizen didn't have his "day in court".
Whenever you sue someone in small claims court, and that person lives remotely from you, you always, always, always bring the action in the court where he is located or has his place of business - not the place where you are located. Yes, it's inconvenient for you, but at least you will know that if you win the other court will always enforce its own judgment against the deadbeat (even a "default" judgment). Also, if your case is a really strong one, you may (no guarantee here) be able to persuade the court to reimburse you for travel, lodging and other out of pocket expenses you incurred in getting the judgment.
Secondly, I always advise against hiring an attorney to represent you in small claims court. Some judges don't like to deal with attorneys, and it takes just as much time for an attorney to prepare for a small case as it does a much bigger one. This is one situation where you are better off representing yourself, as it doesn't make sense to spend $2,300 and countless hours and days of your life to collect a $3,000 judgment.
Lastly, you are assuming that your customer was the one-person corporation and not the individual himself. People are allowed to form corporations and limited liability companies (LLCs) for the sole purpose of avoiding personal liability to creditors. But if you can prove that you dealt with the individual directly, and not his corporation, you may be able to enforce your judgment against the individual's personal assets, such as his house, automobiles, and his salary from his day job.
Look at the invoices you sent him - were they addressed to the individual, or to his corporation? If you treated his corporation as your customer, then there's little you can do to reach his personal assets. You will have to prove in court that he treated his corporation as a "personal piggy bank" and otherwise treated his corporation with so little respect that it should be disregarded (this is called "piercing the corporate veil"). This will be very difficult for you to do. If, however, your bills were addressed to him individually and he wrote checks to you from his personal bank account, you may have a case for pursuing him individually, which is much more likely to get you paid.
Going forward, you should have your attorney prepare a short (one to two pages maximum) retainer agreement which your customers will sign before you begin working for them. Make sure the agreement contains the following clause: "My agreement is to perform services for the person or persons signing this agreement in their individual capacities, and I will look to them personally for the payment of my fees and expenses. While I may accept payment from a corporation, limited liability company, or other legal or business entity that is related to you, I will not be obligated to rely on such entity for the payment of my fees and expenses unless I expressly agree in writing to do so." That language could have saved you a ton of time and frustration here.
Cliff Ennico (
cennico@legalcareer.com
) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at
www.creators.com
. COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.
