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Friday, March 09, 2012

Small (and Medium-Sized) Claims in Property

Marc Spaccarelli won a few hundred dollars from AT&T in small claims court for throttling his data plan.  He then put up a web page with instructions on how to follow his example.  After his win, there was a brief spurt of reporting focusing on efforts by consumers to use small claims court to get around the expense of civil litigation.  This story by the AP is pretty typical in its optimism about the possibilities of the small-claims forum.  It says:

If you feel cheated by a big company and complaining gets you nowhere, what can you do? A handful of recent cases suggest that consumers can, if they're motivated enough, win against big companies in small claims courts.  These "David versus Goliath" battles were won against the likes of AT&T, Honda and others, without resorting to lawyers. The plaintiffs paid minor filing fees, gathered their own research and presented arguments in quick hearings that resemble the average "Judge Judy" episode.

I've been thinking about small claims, becuase in the property context they are pervasive and pose a real challenge but for some reason don't get much attention.  

First off, let me explain why I think small (and even medium-sized) claims pose a particular problem in the property context.  (I'm not making a strong claim, here, and I don't think much hangs on the idea that this is a problem unique to property.  So please forgive me if you think I'm way off base on this.)  

The biggest reason is that the class action mechanism is usually not available for property disputes.  Small and medium-sized property disputes, especially land conflicts, tend to be relatively small-n affairs, and the facts of each case are usually sufficiently distinct that even litgiation against a repeat player (e.g., a large landlord) may not justify class treatment.  Second, small property disputes often pit competing possessory claims against one another.  As a result, there is rarely a contingent fee option available, even for claims of pretty significant size.  (One exception is with eminent domain litigation, where a contingent fee bar has emerged, but this may be the exception that proves the rule, since the sole issue in eminent domain cases is usually the amount of compensation, not the right to possess the property.)  Finally, supracompensatory damages are usually not available in property disputes, although punitive damages are (very) occasionally awarded against extremely bad-faith actors.

So to get a property dispute resolved in court, you are usually going to have to pay out of pocket for your legal fees, and many of the procedural and remedial mechanisms of claim aggregation are not likely to be available to you.  Given the high costs of adjudication, this means that for most small and even medium sized property disputes, it is just not going to be cost-effective to litigate your claim to judgment.  The result is a lot of informal dispute resolution, some positive (norms of neighborliness, live-and-let-live), some not so positive (neighbor feuds).  It also means that, as Bob Ellickson famously observed in Shasta County, property norms will often matter a lot more than the law on the books, but that will be true more generally than he claimed.  Because the costs of litigating to judgment will deter adjudication even in the absence of tightly knit (or even just somewhat tightly knit) communities, people won't sue even if they're not particularly worried about gossiping neighbors.  It also suggests (as others have observed) that the cases that do get litigated are going to represent a very atypical group.  Either they'll involve unusually valuable property (think of the predominance of waterfront cases in the easement context or of art cases in the adverse possession of chattels context) or unusually strange litigants who are willing to fork out tens of thousands of dollars to fight over property rights worth much less (at least in market terms).

Where there is an asymmetry in the size of the litigants, the cost-ineffectiveness of most property litigation can make for (in my opinion) real abuse.  For a couple of years, I represented some homeowners in a lawsuit against Norfolk Southern Railroad.  For several decades they had enjoyed the use of two railroad crossings that connected their neighborhood to the main highway, which lay on the opposite side of the tracks from their homes (which were on a peninsula jutting out into Cayuga Lake).  A few years ago, the Railroad suddenly decided to close the crossing as part of a company policy to close as many at-grade crossings as possible.  Informal negotiations with the Railroad proved fruitless.  My assistant happened to live in the neighborhood, and so I took an interest in the case and eventually decided to represent some of the residents pro bono in a lawsuit against the Railroad for a prescriptive easement.  Only after two years of litigation and hundreds of hours of legal work did the Railroad finally agree to recognize my client's property rights in the crossing.  Had I been billing my time, the claimants would have spent close to $100,000 to vindicate their rights.  Faced with that expense, I think it's doubtful they would have pursued their claim.  

What's interesting to me about the case are two things:  (1) the Railroad's intransigence and (2) its apparent lack of regard for the property rights it might be violating when it chose to close the crossing.  My sense is that both of these things are the result of the relatively small size of the claim likely to result from the Railroad's closure of a private crossing.  The Railroad knows that even if property owners adversely affected by its crossing closures have legitimate claims, most will not sue to vindicate their rights if (as with my clients) they retain another path over the tracks, even an inferior one.  And if only a fraction of those wronged sue, it is worth it for the Railroad to fight hard to make clear to other potential claimants that it will be costly to take them on.  As a repeat player in this kind of conflict, it also enjoys economies of scale in litigation that the homeowners cannot replicate.  So the Railroad's strategy becomes one of violating property rights first, and asking questions later.  I know this is a common story in other domains as well, but I think the factors I mentioned above make it particularly significant in the property context.

If it's available (and for claims of ownership of real property the answer is probably no), does small claims court help?  A bit.  It does seem to provide a shorter path to final judgment, and the simplified procedures make it easier for claimants to represent themselves.  But knowledgeable repeat players can do a lot of mischief with the relaxed procedural rules as well.   A friend of mine recently spent months (and several trips to small claims court) to recover a security deposit his landlord had refused to return without explanation.  He had a slam dunk case and all of his documentation in order on day 1.  But the landlord didn't show up for the first two hearings.  And then, after the court issued a default judgment, he showed up with a lawyer seeking to get the case re-opened.  Inexplicably, the court granted the request and set a trial date, a decision that was no doubt faciliated by the procedural looseness that prevails in small claims court.  In the end, after about five or six trips to court (each one of which required my friend to take a half-day off from work), the landlord showed up on the trial date and agreed to pay the deposit back within a week.  He then proceeded to ignore the agreement for another few months before finally coughing up the money.  If the deposit had been slightly smaller, and if I had not been egging him on about how we couldn't let this scum-bag steal his money, I doubt my friend would have seen this through to the end.    For some kinds of disputes (e.g., security deposits), small-claims court is the only real procedural option, but it's no substitute for a big class-action.  My guess is that the sorts of big players mentioned in the AP story do not really fear an onslought of small claims court litigation.  

I don't have a proposal to tout, so this post is just going to kind of fizzle out, I suppose.  (It's already way longer and more rambling than I meant it to be, so maybe that's a good thing.)  Still, I think the problem of small claims is an interesting puzzle in property.  I suppose these observations constitute a (qualified and tenative) argument in favor of a more liberal resort to supracompensatory damages in property disputes, particularly where one side in the dispute is likely to be a repeat litigator.  It is not uncommon (though hardly universal) to award tenants treble damages when landlords refuse to return deposits in a timely manner.  This strikes me as very sensible in light of the dynamics I've been describing.  And I think it should be almost routine where the landlord does not offer evidence of damage to the premises or failure to pay rent.  After watching my friend go through his saga in small-claims court, I can't understand why New York hasn't adopted such a rule.


Posted by Eduardo Penalver on March 9, 2012 at 01:53 AM | Permalink


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Having been a small claims court arbitrator since the late 80s, there are a few additional things to consider. First, small claims can only award damages as there is no equittable jurisdiction. Property cases often seek injunctive relief of some sort, and small claims can't provide.

Second, your observation about reopening defaults has been a long time problem, debated internally for years. The prevailing school of thought is that people are so busy/stupid that they can't be expected to show up as commanded. Better to make the claimant suffer by forcing him to reappear a dozen times then prevent a defendant from having a day in court. This is not my view, by the way.

Third, collecting on small claims judgments isn't the court's problem. After almost every inquest, the claimant asks the same question: "So how do I get my money?" It's painful to reveal the inadequacy of the remedy, as people think the court somehow makes money appear, and are dumbfounded when the find out that the real problem isn't getting a judgment, but getting paid.

Posted by: shg | Mar 9, 2012 9:39:37 AM

Thanks for this comment. It's great to hear about the perspective from the other side of the bench. And you're absolutely right about the collection problem. If we were serious about providing a user-friendly forum, we ought to give claimants at least some assistance once they actually win a judgment.

Posted by: Eduardo Penalver | Mar 9, 2012 11:10:05 AM

"Still, I think the problem of small claims is an interesting puzzle in property."
From my central European point of view, the solution to the basic problem is simple: "loser pays". Shift the reasonable* costs of litigation, including lawyers fees, to the party who is in the wrong.
(Oh, and and add the costs of enforcement to the bill if the debtor doesn't pay within a certain timeframe after the judgement.)

*it helps if lawyers are required to accept small cases and if there is a government mandated pay schedule, with the possibility for the parties (client and lawyer) to deviate from it. If you want to pay your lawyer more to give him more incentive to win, fine, but don't expect the other party to foot the bill ... it also helps, if the procedure is structured in a way that keeps costs down. For details, cf. the debate between Langbein (52 U. CHI. L. REV. 823; 82 NWULR 763) and Allen et al. (82 Nw. U. L. Rev. 705, 82 Nw. U. L. Rev. 785), with a "neutral" point of view presented by Reitz (75 Iowa L. Rev. 987). See also Gross (85 Mich. L. Rev. 734) with respect to criminal procedure.

Posted by: Positroll | Mar 13, 2012 9:50:24 AM

In Georgia there is an interesting property interplay between the Superior Courts and the Magistrate Courts. (Superior Courts = highest trial courts in the land; they can hear anything — Magistrate Courts = small claims.)

Magistrate Courts cannot hear real property cases. However, they can hear dispossessory cases. This creates interesting issues when there are attempts to resolve a property case using a dispossessory proceeding rather than a proceeding on the title.

I will say that as someone who ran title searches and prepared title reports in a previous lawyer job, I much prefer non-small claims courts handling title issues rather than Magistrate Courts. It goes back to your comment on your friend having his default re-opened. Based on the limited facts you gave, something like that should not have happened in a Georgia court. Nevertheless, I see things like that happen all the time.

Magistrate Courts in Georgia, and I believe many small claims courts, do not even require judges to be attorneys. They often do not know the rules of evidence. They often do not know the black letter law of what makes a prima facie case. They are cowboy courts; they are circuses.

This is not to say all small claims judges or courts (or even court systems) are bad or mis-informed on the law. I have been in front of some very good ones. However, it is a roll of the dice as to whether you'll end up in a good one or one that will ignore the law and create absurd results.

Which leads to the other reason property claims, at least in regards to real property, should not be handled in small claims settings. Most small claims courts have a mechanism for de novo appeal of a case to a higher court. When it comes to title issues — whether it be ownership of land, easements, or boundary disputes — it serves the property records better to have the judgment more final.

Posted by: John W. Nelson | Mar 13, 2012 11:02:29 PM

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