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A lawsuit is generally the last option that should be chosen in trying to resolve a dispute. This question of whether to file the lawsuit enters the mind of many people who are upset with a bad product or service, or breach of an agreement. In order to answer this question and make a decision, one must consider the following factors:Calculation of expected recovery, if the lawsuit is won, is based on the best case and worst case scenarios. Expectations may not be realized. Not all damages may be recoverable. In case of breach of contract, the aggrieved party’s emotional distress is not compensated; loss of income, plus time spent, while involved with a claim or suit is not compensated; interest may or may not be recoverable. In most instances interest is only recoverable if provided for in a credit agreement or contract. Your attorney’s fees are probably not recoverable unless provided for in the credit application or contract. The amount of actual recovery in a lawsuit is unpredictable. Legal fees may be based on an hourly rate or contingency fee basis. An hourly rate depends on a lawyer’s experience, relationship with a client, desire to have repeat business, or volume of client’s business being given to that lawyer. Lawyers charge for each minute of their time spent on the case. Billable time can include, every telephone call to and from a client or any other party related to the client’s matter; meetings, legal research, writing of letters and briefs, time in court (which may be charged at a higher rate than for the office work), preparing legal documents, travel time or depositions (interrogations of parties and witnesses) are recorded and then billed to clients. Expenses connected with the case may reach such a level that further litigation may become counterproductive. Typical file expenses may include fees paid to the court for filing a suit; the sheriff for serving a party with a complaint and summons; a private process server or private investigator for finding a defendant or ascertaining a party’s criminal or financial background; interpreters for translation of documents or interpreting the testimony of a witness or a party speaking a foreign language; experts for giving professional opinions; copying of documents and photos, cameramen and photographers for videotaping and picture taking; court reporters for their attendance time and preparation of transcripts of the proceedings; and attorneys for transportation and lodging (for out of town meetings). On the other hand, a client does not incur such monthly charges if an attorney agrees to take the case on a contingency fee basis. Contingency fee means that an attorney is participating in the claim recovery, if any, on an agreed percentage. As a rule, such percentage fluctuates between 20% and 50% of the amount of recovery. An attorney may advance costs and expenses of litigation to be repaid upon settlement or adjudication or a claim. However, a client remains ultimately responsible for expenses under any of the above-discussed methods of payment. There are many organizations and individuals who are willing to serve as a mediator, counselor, or a judge in a private or out-of-court proceeding. Sometimes it is less costly and faster to resolve any dispute through such intermediaries than to litigate in courts. Mediation involves a semi-formal or informal process of introducing evidence by parties. Parties may bring witnesses or documents to support their views and may hire attorneys to represent their interests at the hearings. Arbitration may be accomplished through government or private organizations, such as American Arbitration Association (AAA), JAMS, Endispute, and many others. Former judges or experienced attorneys hear the evidence and make binding decisions. The rules of the AAA or other adjudicating bodies are different and less restrictive than the rules of evidence adhered to by the courts. [ Related: From the Desk of Attorney Don Leviton: Resolving A/R Disputes ] After a long and victorious litigation, a winning party secures a judgment from an adjudicating tribunal. This piece of paper may or may not materialize into actual funds being transferred to the winner. Collection on a judgment is a separate legal process. Sometimes one may never recover the award if a judgment-debtor declares bankruptcy which would isolate that party from claims of creditors, including the judgment-winner or judgment-creditor; a judgment debtor dissolves its corporation and, adding insult to injury, opens a new company under another name; all assets of a judgment-debtor are under other parties’ names (relatives, friends, corporations, or business associates) and, therefore, that party becomes judgment-proof. If a business takes the protection of a corporation, LLC, in some instances the individual owners may be ultimately liable for their corporate debts, if it can be proved that the corporation or LLC is just a shell for the individual owners.This can happen where the owner uses the same checking account for personal and corporate debts, or there is no adherence to corporate formality.Most states require that corporations, LLC etc, follow certain rules such as holding annual meetings, keeping corporate minutes, resolutions, etc.This process of piercing the corporate veil is possible, and must it must be done in the courts. It can be a time consuming and expensive process. Litigation is a slow moving process which may take months and, in most cases, years before reaching the trial stage. After filing a complaint there can be many delays caused by the judicial system and frustrating the parties. There are many reasons for delaying the proceedings, including an attorney that continually asks for continuance of a deposition or trial because of the attorney’s family emergencies or conflict of schedule; a party which has to be deposed or answer interrogatories is out of town; an expert witness is unavailable on the scheduled deposition or trial date; the file was recently transferred to another attorney who had no chance to prepare for trial; the suit was filed in a wrong venue and, must be transferred to another court; service on the defendant was improper and, thus, must be properly repeated again; a judge assigned to handle the case has left for vacation, or is sick, or temporarily transferred to another court, or is still busy with the preceding trials; a new defendant has been added and, consequently, time is needed to conduct written and oral discovery associated with that defendant. An opposing party’s financial, intellectual and legal wherewithal may affect a decision to initiate litigation. The opposing party’s ability to sustain a prolonged judicial process, the quality of their attorneys, and legal defenses may either encourage or stop the filing of suit. Often people desire to punish an opposing party or change the law and, therefore, want no recovery. There are political, moral or social causes which prompt such a decision. Litigation is time consuming for the participants. A party must appear at depositions and at a trial. The trial may continue for at least a few days or even weeks. Preparation for a deposition and the deposition itself can take one or more business days. Mandatory arbitration, which in some states is part of a court-based judicial system, also will take about a day. Consultations and meetings with attorneys, as well as answering interrogatories (opposing party’s questions) and requests for production of documents, take many hours of business time. Loss of business time is translated into a loss of income. Besides court appearances and testifying under oath at depositions, arbitration and trial, each participant is thinking and worrying about the case outcome at all times. Such incessant consumption of energy and emotional involvement may increase the daily stress of a person. Such psychological and mental drain takes a toll over the course of time. Trust in the attorney’s abilities and rapport with that attorney are essential for cooperation, decision making and communication efforts. Experience in litigation of the matters at issue is important. One may present his own case in any court but the judges usually resent this “pro se” representation because “pro se” litigants are not familiar with the court and evidence admission rules. In small claims courts where the amount of recovery does not exceed a statutory limit set up by the legislature, for example $2,500 or $5,000, a plaintiff may not need an attorney. A complaint filed in court may trigger a counterclaim by a defendant against the plaintiff for another act related to the complaint. For example: a complaint by a company for payment for goods sold and delivered may trigger a client’s counterclaim or defense of warranty or defective goods. That is why a review of one’s own vulnerable points and background is needed in order to ascertain the level of risk in that regard. Any past wrongdoing may come to light in the court proceedings. In case a lawsuit is lost, the losing party will still have to pay legal fees to his own legal counsel, unless there was a contingency fee agreement, plus file expenses, and the court costs of the opposing party. If a contract provides for payment of attorney’s fees of the prevailing party, then these fees also must be paid by the losing party. Name, reputation and prestige may also be affected by that legal loss. Disclosure of trade secrets may be forced upon a party by the court. Besides the court system, there are many other tribunals which may help an aggrieved party. In general, any problem may be addressed to the governmental agency responsible for or regulating that area of conflict. For example: the State’s Office of the Attorney General may help victims of violent crimes, antitrust violations, consumer fraud by businesses and individuals, etc.; a state’s Department of Insurance may be asked to secure payment from insurance companies vexatiously and frivolously delaying payment; and the Department of Labor may impose sanctions on employers in their disputes with employees. A party may appeal the trial court’s judgment to a Court of Appeals which may affirm, or remand the case back to the trial court for further proceedings, or to reverse a judgment. An appeal process may take a years. In case of reversal with remand, a trial can repeated. Costs will be increased proportionally. In case the trial court decision or judgment is affirmed, a losing party may try to appeal to the State or the U.S. Supreme Court but the chances of a commercial case being heard by the Supreme Court are very low. A prevailing party is accumulating interest on the trial court award. That interest is set by a state statute. In Illinois, for example, judgments earn annual interest at nine percent. Knowing all the deficiencies and advantages of the judicial system and practical aspects of the litigation process should help any person or legal entity to make a decision to settle, arbitrate, or adjudicate any claim. Sometimes a letter from an attorney or third party mediator may bring the parties to an amicable resolution of a dispute. It is not justice, but the fair and economic compromise of the parties’ positions that is the goal of such resolution. Information in this article is provided as a matter of information and education only. It is not intended to provide legal advice or counsel. Do not take action in specific cases without full knowledge of the facts, and competent legal advice from your attorney.
Debt collection can be a taboo subject. There’s a lot of misinformation about debt collection floating around the internet, so we’re here to set the record straight. Here are the 8 biggest myths about debt collection busted:Other companies hire debt collection agencies to collect for them, called third party agencies. Or, they sell their debt to a collection agency, meaning the original creditor no longer owns the debt. Either way, the collection agency is contacting you for a reason and you cannot bypass them. The good news is, however, that most collection agencies make it as easy as possible to pay back a debt. Most offer several payment options, like an online payment portal or a payment plan. When a debt goes into collections, it has most likely already negatively impacted your credit score. When you refuse to work with a collector, it can cause further damage. It’s best to pay your bills on time and avoid collections altogether, but if you are contacted by a collector, just cooperate and pay or explain your situation. It’s a collector’s job to resolve debt, so they are most likely willing to work with you and figure out some options for how you can pay the debt. Avoiding collection calls will only make the situation worse and damage your credit score. Plus, collectors can help by giving you options to repay your debt. It’s best to cooperate with collectors and try to explain your situation. According to Investopedia, the Fair Debt Collection Practices Act (FDCPA) is “a federal law that limits the behavior and actions of third-party debt collectors who are attempting to collect debts on behalf of another person or entity.” In short, the FPCPA protects debtors from abusive, unfair or deceptive debt collectors. However, the FDCPA only protects consumer debtors, not commercial debtors. Although there are currently no federal laws controlling commercial debt collection, most states have statutes which govern commercial debt collection. While some agencies don’t bother with smaller amounts, others specialize in collecting smaller amounts of debt because it can add up over time to create good revenue. There’s no way to tell if a debt will go into collections or not. Basically, anything can go into collections and harm your credit score. It’s best to just pay what you owe. Debt collectors’ jobs are to resolve debt, not just collect it. They will work with you on payment plans, recommend programs to get out of debt. So, if you’re contacted by a debt collector, see what your options are and what they can do to help. Most collection agencies operate on a contingency-fee basis, meaning if they don’t collect, you don’t pay. Others will charge a flat fee. When you hire a collection agency you are hiring experts who can increase their sales by collecting more money for their customers. If you choose a good collection agency, you won’t lose customers. This would only be the case if the agency uses illegal tactics to collect debt, like threats or harassment.
To determine the value of receivables written off to bad debt, you must first evaluate your current litigation policy. More specifically, the receivables that do not meet your litigation threshold. It is these accounts that have basically received a “free pass” from additional collection steps when the collection agency fails to recover. Since they were too small to sue, it is reasonable to say they have never heard from an attorney, nor felt the impending consequences or pressure to pay. Businesses are challenged daily to prioritize their cash flow and make tough decisions, like when do I sue to recover revenue and what balance size is it worth suing? [ Related:When Is Litigation the Answer? ] This “on the job training” prepares them for the collection calls they receive. Most know that if they hold out long enough, and the balance size is marginal most likely the collection agency will go away. They are educated enough to know that due to the balance size, they will never hear from an attorney. A typical balance threshold for suit is $15,000+ based on client surveys. However, due to the rising costs in litigation, bankruptcies, and unsatisfied judgments, many companies are increasing the threshold to even greater than $25,000. This policy creates a “sweet spot.” The “sweet spot” is balances that range from $1,000 to $14,999.99 representing accounts written off as too small to sue.The answer is this: Cases that have fallen into the “sweet spot” may have value. The value is determined by credit scoring and asset scrubbing, then placed with our law office contingency collection program. As written earlier, these debtors have never heard from an attorney, so placing them with our law office for collection calls will recover revenue thought lost. The method we use to maximize your return on investment in time and to ensure the revenue return is to score the written off cases. Scoring will enable you to determine those that have money to pay and are still in business. After all, since they are still in business after a year or so, it is obvious they could pay but have decided not to. For years, I have been recommending this action to clients and all have profited by this policy. Statistics show that “sweet spot” recoveries range from 14% to 24% depending on the nature of your portfolio. Every company could benefit from increasing their cash flow. This is a great way to start!
To sue, or not to sue? That is the question. The odds are stacking up against corporate America when it comes to collecting past due accounts.Jim Cramer, CNBC host of Mad Money, often states that the cost of civil litigation in the U.S. is 2% of the annual Gross National Product. Many states have reduced a large portion of their courts’ operating budgets. Cities like San Francisco are predicting it could take up 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. According to Joseph Hampton, shareholder lawyer in the office of Betts, Patterson & Mines, P.S., “Courts want insureds to win coverage disputes. Courts around the country apply the rule of ‘contra proferentem,’ interpreting any ambiguity in a contract against the person drafting it. Because insurance companies prepare policies, this rule applies.” 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. [ Related: 10 Tactics and Advantages Debtors Have When You File Suit for Debt Recovery ] 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: ●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 have them check the court costs in the jurisdiction where suit will be filed. Is the court backlogged? Do they require a company witness in person and for which proceedings? What are the costs associated to file suit, too pursue judgment and the costs too purse enforcement? Is a counter suit possible? Are all contractual details and documents available? Is the company really in business? Having this this information will enable a fact based decision increasing your odds for successful and profitable litigation. Return on investment is the focus point. Losing money on litigation is not an option. [ Related: From the Desk of Don Leviton: Proven Strategies for Improving Collection Rates ]
|Manuel H. Newburger
In a decision that cries out for legislative action the United States Court of Appeals for the Seventh Circuit has ruled that attorneys who collect consumer debts in the Seventh Circuit may not rely upon decisions of the Seventh Circuit in determining how they should comply with the FDCPA. The troubling en banc decision reversed a panel decision in favor of the defendant law firm. In Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC, Oliva sued BHLM for violating the venue provision of the FDCPA, 15 U.S.C. § 1692i. At the time BHLM sued Oliva in state court, the venue that it chose had been expressly approved by the Seventh Circuit Court of Appeals in Newsom v. Friedman, a 1996 case which held that the FDCPA’s venue restrictions required a Cook County resident to be sued in the county, but not necessarily within the municipal department district of the county in which the consumer resided. The suit against Oliva complied with the FDCPA as the Newsom decision had interpreted it. Eighteen years after Newsom, the Seventh Circuit revisited the issue, and in Suesz v. Med-1 Solutions, LLC, the entire Court of Appeals, sitting en banc, concluded that its earlier decision in Newsom was incorrect. BHLM immediately changed its suit-filing practices to conform to the Suesz decision; however, the suit against Oliva had already been filed. Oliva sued the law firm in federal court, alleging that it had sued him in an improper venue. The district court granted summary judgment in favor of the law firm based on the FDCPA’s bona fide error defense, rejecting the argument that Suesz left the law firm liable under the FDCPA for suing in the wrong venue. On appeal, a panel of the Seventh Circuit affirmed. However, rehearing the matter en banc, the larger court reversed, concluding that: (1) Suesz was controlling; (2) its effect was retroactive; and (3) the law firm could not avail itself of the bona fide error defense because the Supreme Court’s decision in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A., precluded application of the FDCPA’s bona fide error defense to mistakes of law in interpreting the FDCPA. It is difficult to argue with the Court’s conclusion that Suesz had retroactive effect, as the en banc Court specifically addressed that issue in Suesz. It is also clear that the Supreme Court held in Jerman that the bona fide error defense does not apply to mistaken interpretations of the FDCPA. However, at the time BHLM sued Oliva its interpretation of the FDCPA’s venue provision was not a “mistake of law;” rather, it was the law until Suesz was decided. However, the majority’s opinion in Oliva rejects that notion, concluding that its decision in Newsom was not “the law.” In reaching such a conclusion, the majority ignored a different part of the Jerman decision. The Supreme Court was clear in its warning to lower courts: “As in Heintz, we need not authoritatively interpret the Act’s conduct-regulating provisions to observe that those provisions should not be assumed to compel absurd results when applied to debt collecting attorneys.” Lawyers are ethically obligated to represent their clients competently and diligently. At the time Olivo was sued, diligence and competence called for following the Newsom decision. The majority decision in Oliva punishes attorneys for carrying out their ethical duties to their clients. That is not merely our opinion. It is the opinion of the four dissenting judges of the Circuit, who wrote: I’m not sure why the court is bent on punishing debt collectors for following the law. Is the intention to put debt collectors out of business? To allow debtors to refuse to pay their debts with impunity? I can’t think of a rule better suited to those ends than the rule the court announces today. Today’s decision also gravely undermines the rule of law by discouraging debt collectors from following this court’s controlling precedent. Indeed, the court leaves open the possibility that debt collectors may even be subject to liability for engaging in conduct that controlling precedent not only permits, but mandates. The court notes that Newsom allowed, but did not require, Blatt to file suit where it did. Yet nowhere does the court reassure us that Blatt would not be liable if Newsom had ruled the other way round. Intentional or not, here’s the message today’s ruling sends to debt collectors: Think twice before following the controlling law of this circuit. For tomorrow we may change our mind. And you may wish you hadn’t. Today, in an almost surreal inversion of law and logic, the court punishes Blatt for doing exactly what the controlling law explicitly authorized Blatt to do at the time it did it. It does so through a fantastical expansion of the (previously) confined judicial doctrine of retroactivity, and in spite of a statutorily mandated bona fide error defense. The court tries to soften the blow by mildly suggesting that Blatt’s punishment may be mitigated because it acted in good faith. Small comfort to Blatt. Blatt is being punished for dutifully adhering to controlling law notwithstanding its legal entitlement to a statutory defense. A mere reduction in punishment does nothing to right that wrong. The Oliva decision shows the clear need either for the Supreme Court to narrow its limitations on use of the bona fide error defense or for Congress to do so. A rule of law that imposes strict liability upon lawyers for conduct that was legally permitted at the time it occurred is a rule that impairs the role of lawyers as advocates. It is the “absurd result” against which the Supreme Court has warned, and it is time for that court, or Congress, to recognize that its warning has been ignored.
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