Lawsuits make everyone nervous, even when they are brought in small claims courts.  While associations tend to bring a matter in county court or district court, small claims actions are appealing to individuals and small businesses.  This is 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.

The jurisdictional limit to bring an action in this Court is $7500.00, which while not a high number is not insignificant either.  Therefore, just because a claim is in small claims court, that does not mean an association should try and handle the matter on its own for the sake of conserving cost.

Small claims trials are still litigation and failure to comply with the time frames outlined in the statute could preclude an association from preserving its rights and interests.

For example, when a small claims complaint is served on an association, there is a specific time frame in place and attorneys must enter their appearance at least seven days before the date set for the first scheduled trial date.  Failure to do so will mean the association cannot have attorney representation in the matter.

Additionally, an association must assert all counterclaims against the owner in its answer.  While counterclaims can be asserted on or before the trial date, an association will be barred from initiating future law suits against the owner if such suits are based on claims arising from the issue asserted in the complaint if such claims are not set forth in the answer.

Another option available to associations is the right to file counterclaims against owners for claims that do not arise out of the transaction or occurrence in the complaint.  For example, if an owner brings legal action against an association based on alleged damages caused by an association,  the association, in addition to asserting claims against the owner for issues outlined in the complaint, they may also assert counterclaims completely unrelated to the complaint allegations so long as the counterclaims concern the owner bringing suit.

If an association’s counterclaims against the owner exceed the $7500 jurisdictional limit for damages, the association can request the matter to be moved to county court (a higher and more formal court where legal representation becomes necessary).  Such request must be made no more than seven days before the first scheduled trial date.

While not specific to small claims, anytime a suit is filed against an association, the option to submit a claim to insurance for defense should be considered.  Prior to deciding whether to turn a small claims lawsuit into insurance, an association should take into consideration the possibility a small claims action blowing up into a big action involving counterclaims, modified complaints, and additional parties being added to the action.  Should this occur, the parties may have to move the case to county court and will be forced to retain legal counsel and incur legal fees in the matter.  If an insurance claim is not filed at the onset of litigation, the carrier may deny coverage based on a failure to timely submit the claim.

An important question that comes up is will an association be able to recover its attorney fees if it is successful in defending a lawsuit?  The answer depends on the facts of the case.  While associations may recover their attorney fees and costs from the plaintiff if they prevail at trial, in many cases, there may not be a clear prevailing party.  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.

If you have additional questions about the small claims court process, please contact an Altitude Community Law attorney at 303.432.9999.