The Real Estate Investor and General Contractor
in Small Claims Court
in Small Claims Court
Question:
In this Legal Update, we address the issue of handling small claims matters as they relate to real estate investors and general contractors. Our question will illustrate both sides of a typical dispute:
A real estate investor hired a general contractor to make needed repairs on a single family residence that the investor had just purchased at a foreclosure sale. After the agreed-upon repairs had been completed, it was discovered that some additional repair work was needed. The general contractor offered to perform the additional work — for an additional fee. The investor, believing that the additional work was needed solely as a result of the contractor’s negligence in performing the initial repairs, contends that the contractor should perform the additional work at no charge.
Answer:
Small claims matters in Texas are handled in the state Justice Courts. A “claim” in Justice Court may be for “no more than $10,000, excluding statutory interest and court costs but including attorney fees, if any. . . .” Texas Rule of Civil Procedure (TxRCP) 500.3(a).
Thus, assuming that an award of attorney fees is an available remedy in our hypothetical case, we see that a plaintiff’s decision to retain counsel may affect the Justice Court’s jurisdiction to decide the case.
As surprising as it is, we have actually seen suggestions by other attorneys that small claims litigants simply “take their chances” in small claims court by representing themselves and, if they lose, to then retain counsel and file an appeal in order to obtain a trial de novo in a County Court.
An “appeal” may be taken from a judgment issued by a Justice Court. TxRCP 506.1(a). In the context of our hypothetical case, a trial “de novo” means: “a new trial in which the entire case is presented as if there had been no previous trial.” TxRCP 506.3.
Before we address the merits of the “take your chances” legal strategy, let us try to bring some precision to some imprecise word usage. The term “appeal” is generally understood to be a review by a higher court of a lower decision. However, appellate review is almost always limited to the issue of whether the lower court (e.g., the trial court) committed reversible error. Examples of reversible error include erroneous decisions to admit or exclude evidence, whether sufficient admissible evidence was admitted at trial to support the verdict, whether the trial court applied the correct law, whether the trial court applied the correct law correctly, and so on. Furthermore, not all error is considered “reversible.” An appellate court will not reverse the decision of a lower court unless any actual error that was committed by the trial court materially affected the outcome of the case.
Thus we see that a trial de novo of a small claims case is not an “appeal” in the true sense of the word. A trial de novo is merely a re-litigation of the case, that is, a “do-over.”
But what’s wrong with a “do-over?” We “took our chances” and lost; now we get a second “bite at the apple.”
To answer this question, let us look at what the proceedings in Justice Court might have looked like.
1. The Plaintiff filed and served a Petition.
2. The Defendant filed an Answer, and perhaps (probably) filed a Counterclaim against the Plaintiff.
3. In our hypothetical case, perhaps our “primary” Defendant contends that the only reason he is liable to the Plaintiff is because of the conduct of some third party, for example, a subcontractor. Our Defendant might then bring the third party into the case by filing and serving a Third Party Claim against this person or entity. TxRCP 502.6(c). If the Plaintiff had already named this other person or entity as a party defendant, our “primary” Defendant would simply file a Cross-Claim. TxTCP 502.6(b).
4. All parties have the right to conduct pre-trial discovery; however, discovery requests must be pre-approved by the Court. TxRCP 500.9.
5. After discovery has been completed, one or more of our hypothetical Parties might move for summary judgment, that is, “[a] party may file a sworn motion for summary disposition of all or part of a claim or defense without a trial. . . .” TxRCP 503.2.
6. If a motion for summary judgment — or cross motions for summary judgment — do not completely resolve the case, the case can be set for trial. TxRCP 503.3.
7. Following the trial setting, the Court might then order a pretrial conference, in order to attempt a settlement. TxRCP 503.4.
8. If the pretrial conference does not bring about settlement, the Court “may order any case to mediation or another appropriate and generally accepted alternative dispute resolution process.” TxRCP 503.5.
9. If mediation fails, the parties then proceed to trial.
10. If one or more of the parties had properly and timely requested a jury trial, then we begin the process of selecting a jury, that is, questioning potential jurors, challenging potential jurors, etc. TxRCP 504.1; 504.2.
11. Once a jury is empaneled, we try our case: call and examine our witnesses, introduce documentary and other physical evidence, cross-examine the other parties’ witnesses and challenge their physical evidence, etc.
12. After the jury returns a verdict, an unhappy party may file a motion for a new trial. TxRCP 505.3(c).
13. After the motion for a new trial is denied, the unhappy party can now “perfect” an “appeal,” which means, in the case of a plaintiff, posting cash or bond in the amount of $500 and, in the case of a defendant, posting cash or a bond in an amount equal to twice the amount of the judgment. TxRCP 506.1 (b); 506.1(c).
Now, our hypothetical real estate investor and general contractor litigants can take advantage of the trial de novo — the do-over — that was the focus of their “take your chances” litigation strategy.
The “take your chances” litigation strategy is, it seems to us, a very poor strategy; it is a litigation strategy we would not recommend.
There are many things an attorney can do to assist a client in resolving a small claims case while simultaneously not “breaking the bank.” One tactic we have employed in small claims cases is to work “behind the scenes” with our client, advising the client on the merits and demerits of the case, drafting court documents for the client to file with the court, and educating the client on how to best present the case in court.
One very valuable tool that is available to our clients is the Lawyer Available Whenever (LAW) Plan. Subscribers to the LAW Plan enjoy priority access to a Texas attorney who will consult with them, review their documents, and provide timely, insightful, and practical legal advice. If the matter needs more than a short telephone consultation or document review, LAW Plan subscribers receive a 10% discount on all additional legal work that we perform for them.
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LAW Plan subscriptions are available for both individuals and small businesses. For more information — and to subscribe — please visit: http://www.lapinlawtx.com/law-plan.html
Lapin Law Offices assists clients with asset protection, business law, family law, real estate law, trust and estate law, and other legal matters.
