With a name like Law 4 Small Business, it probably comes as no surprise that we do a lot of work for small businesses, and that some of the matters we help with are, well, small. Small claims usually come with one big problem: it can cost more to solve a problem in small claims court than the problem is worth. In this post we look at how small claims are handled in New Mexico and some steps you can take to be in a better position to enforce your rights in smaller disputes.
New Mexico Small Claims Court
In New Mexico, the state courts can hear claims of any size. However, the legislature has also created a second set of courts specifically to handle claims of $10,000 or less. These courts offer streamlined procedures intended to allow disputes to be resolved faster and cheaper than the district courts. They are called the “magistrate” courts or New Mexico Small Claims Court. In Albuquerque they are know as the “metropolitan” court. To keep this post simple, I will limit my discussion to metro court; however most of this applies to magistrate courts as well.
The metro court hears a variety of cases, including misdemeanor criminal cases, landlord tenant cases, and cases about city or town ordinances. There are also certain cases the metro court cannot hear, such as cases regarding real property, domestic relations, malicious prosecution, libel, or slander. But for our purposes, know that metro court (and the magistrate courts) can hear civil cases in which the amount claimed does not exceed $10,000, not including interest or costs.
Metro court offers certain advantages over district court for small cases. The fees are lower and the process is (generally speaking) much faster. The court is familiar with and friendly towards parties who represent themselves. They even have a “self help” office that can offer assistance (but cannot, of course, provide legal advice). Even corporations can appear without counsel in many cases. The court also offers a free mediation program.
On the other hand, Metro court also has certain disadvantages. Discovery can be more limited. Compared to the district courts, the rules are less clear and the case law is almost non-existent. Appeal from the metro court is typically to the district courts, where a new trial is held.
The Problem: Attorney Fees
Setting aside the pros and cons of metro court, there is a bigger problem that frequently dictates how a party handles a small claims case: it usually doesn’t make sense to spend thousands of dollars in attorney fees for the chance to recover less than $10,000. This problem is exacerbated when one of the parties is pro se. Pro se means that it costs them nothing to keep the lawsuit going. Remember that the longer a case goes, the more attorney fees it generates for the other side. The high costs of attorney fees relative to the value of a small claim means that it frequently makes more sense financially to settle a winning claim than to pursue a meritorious case or defense.
The Solution: Prepare Now To Save Money Later
Small claims are yet another an area where a little law now can save a lot later. One of the most frequent problems we see in small claims are small transactions where there is no contract, or where the contract does not allow for attorney fees. It may not be worth pursuing that $2,000 unpaid invoice if it will cost $5,000 in attorney fees. But with a properly drafted contract you can get both.
A little law now can save a lot later, even in relatively small matters. Contracts, operating agreements, leases, and other documents should be drafted to allow prevailing parties to obtain attorney fees. When appropriate, they should require mediation or arbitration prior to litigation, with the parties splitting the fees. A well-drafted legal document can prevent (or at least discourage) a party from racking up thousands in legal bills over a small claim. Depending on the circumstances, there are many ways a good business attorney can structure your deal to minimize the risks or costs of future litigation. If you need a lawyer to help you draft, review or negotiate terms to protect you–even for relatively small deals– we are more than happy to help you.