With the recent uptick in the economy, individuals have more disposable income, which has attributed to an increase in small claims lawsuits getting filed against associations.

Small claims lawsuits fall into one of three primary categories: 1) an alleged failure to follow or enforce the governing documents; 2) an alleged failure to properly and uniformly impose fines or assessments; or 3) lawsuits by association contractors based on breach of contract.

Small claims actions are appealing to individuals and small businesses because the rules of evidence are relaxed and typically small claims actions do not involve attorneys, which make them less expensive than typical litigation matters.

There are specific requirements that all small claims actions must meet. First, the amount in dispute must not exceed $7,500. Second, the summons and complaint must be filed by the plaintiff with the small claims clerk who will then immediately set the trial date. The summons and complaint must be served at least 15 days prior to the trial date. Unlike actions brought in county and district courts, small claims actions may be served by certified mail if sent by the clerk of the court.  Finally, small claims lawsuits must be filed in the counties where the defendant associations are located.

Attorneys are not permitted to appear in small claims cases except in limited circumstances. The most common exception to this rule is a defendant in a small claims action has a right to be represented by an attorney. If a defendant chooses to be represented, that defendant’s attorney must file a notice of representation with the court no later than seven days before trial. If a defendant chooses to be represented in a small claims action, the plaintiff may also retain an attorney. Therefore, associations that are being sued in small claims courts may be represented by legal counsel.

When an association is sued in small claims court, the association should consider several factors. First, the association must decide whether a claim will be submitted to its insurance carrier. It is often the case that an association’s deductible is higher than the $7,500 limit in small claims court, which results in many associations deciding not to turn over small claims lawsuits as claims.

Prior to deciding whether to turn a small claims lawsuit into insurance, an association should take into consideration the possibility that a small claims action may blow up into a big action involving counterclaims, modified complaints, and additional parties being added to the action.  Should this occur, the defending association will be forced to retain legal counsel and incur legal fees for its defense.  If an insurance claim was not filed at the onset of such litigation, the carrier may deny coverage based on a failure to timely submit the claim.

Because small claims actions are still legal proceedings, it is generally recommended that associations be represented by counsel. In many small claims actions, associations may recover their attorney fees and costs from the plaintiff if they prevail at trial.  However, because attorney fee recovery is dependent on several factors, associations should consult with legal counsel to determine if attorney fees are recoverable in each particular case.

Finally, a trial in small claims court is very informal. The magistrate does not follow formal legal or evidentiary procedures. Just because the plaintiff’s complaint alleges one thing, it does not mean the magistrate will not allow plaintiff to add additional allegations during the trial. This means associations must come to a small claims trial prepared to respond not only to what is in the complaint, but also other issues that may be raised.

For more information about the small claims process and whether or not your association should retain counsel, please contact a Altitude Community Law attorney at 303.432.9999.