Starting the Lawsuit
In North Carolina, all civil lawsuits start with the filing of a complaint with the Clerk of Superior Court. A complaint is a statement that someone, the defendant, has wronged the filer, the plaintiff; that the filer has a right to legal relief as a result; and that the court should give the filer the relief that he is requesting. In a debt collection suit, the creditor (or debt buyer), through his attorney, alleges that (1) there was a contract between the creditor and the debtor, (2) that the creditor gave something of value to the debtor as part of the contract agreement, (3) that the debtor has an obligation to pay the creditor as part of this agreement, (4) that the debtor defaulted and broke the agreement, (5) that the debt has been accelerated under the terms of the agreement and now the entire amount owed is due and (6) that the court should grant the creditor a judgment for the full amount owed, plus costs and interest. If a debt buyer or collection agency is bringing the suit, then they must also allege that the original creditor somehow granted them the right to bring the suit. The plaintiff bears the burden of proof and must prove each allegation by a preponderance of the evidence, that is, that it is more likely than not.
Under the Fair Debt Collection Practices Act and North Carolina law, if the lawsuit involves consumer debt and the debtor is a North Carolina resident, the lawsuit must be filed in the county where the debtor lives. For out of state debtors, the suit may be brought in the county where the contract which gives rise to the action was executed.
Notifying the Defendant/Debtor: Service of the Summons
After the lawsuit is filed, the defendant must be notified of it. This notice takes place in the form of a civil summons. The summons notifies the defendant that he has been sued. A copy of the complaint is given to the defendant along with the summons.
The notification process is called “service”. In North Carolina, there are generally two ways in which defendant is served with the summons and complaint: Personal service and service by registered mail. Unlike other states and unlike in federal court, for a lawsuit brought in North Carolina state courts only one organization can serve a defendant: the county sheriff. The sheriff attempts to find the defendant and house and gives him a copy of the summons and complaint. The other method of service is by registered mail. A plaintiff may send a copy of the summons and complaint by registered mail. The plaintiff’s receipt from the registered mail signed by the defendant (or someone authorized to sign for him) is proof that the defendant has been properly served. Many plaintiffs prefer to use personal service because defendants usually don’t ignore a sheriff’s deputy when he knocks at their door.
North Carolina Courts
North Carolina has three different courts where a debt lawsuit may be brought: Small Claims Court, District Court, and Superior Court.
Small Claims Court
Small Claims Court is “The People’s Court”. Small Claims Court is for lawsuits with an amount in controversy less than $5,000. A plaintiff can bring a claim for more than $5,000 in Small Claims Court, but they will only be able to recover a maximum of $5,000. Small Claims Court may also hear Summary Ejectment (eviction) cases. Creditors may choose to bring a suit in Small Claims Court because it is quick and convenient. Trial is set no later than thirty (30) days after the start of the lawsuit. Additionally, Small Claims Court is designed for people to be able to use it without hiring an attorney. In Small Claims Court, an incorporated business may appear without being represented by counsel, while the business must hire an attorney to file in District Court or Superior Court. A small business with a small amount owed may choose to bring their suit in Small Claims Court as a result.
Small Claims cases are heard by a magistrate without a jury. Each side can present evidence and then the magistrate usually will give his or her decision, although he or she can wait up to ten (10) days to give it. After the decision is given, the losing party may appeal to the District Court. The losing party may also demand a jury trial. Appeals are not free, and a losing party must pay an $80.00 appeal fee to appeal a small claims court decision within twenty (20) days of the decision or the appeal will be dismissed.
Legal Aid of North Carolina has put together an excellent guide to North Carolina Small Claims Court.
Most collections lawsuits are brought in District Court. District Court is for cases under $10,000. In some cases, the parties have a right to a jury trial, if it is properly and timely requested.
For lawsuits brought in District Court, after the defendant receives the summons and complaint, he may answer the complaint, denying some or all of the plaintiff’s allegations. For example, he could deny that he entered into a contract with the plaintiff. He may also raise defenses to the plaintiff’s suit in the answer. For example, if the statute of limitations has expired, he can raise that as a defense to the plaintiff’s sure. He may also bring counter-claims. A counter-claim is a suit by the defendant against the plaintiff. For example, the creditor plaintiff brings a suit against a debtor defendant for money owed. However, his collection practices violated the FDCPA. The debtor defendant could bring a counter-claim against the creditor plaintiff for the FDCPA violation.
Answers and counter-claims ARE court documents and must comply with North Carolina Rule of Civil Procedure 11(b). Rule 11(b) basically states that you can’t just make stuff up in your court pleadings (either facts or law) or file them for any other improper purpose. If someone breaks this rule, the court may make you pay the other side’s legal fees for wasting their time or may impose other sanctions. This rule applies to both attorneys and unrepresented parties.
Unlike Small Claims Court, where a hearing date is set upon filing of the suit, in District Court, the defendant must answer the complaint. If the defendant fails to answer within 30 days, then the plaintiff wins without having to even show up to court!
To cover the entire trial process is beyond the scope of this blog. After the answer is filed (and any replies to the counter-claims), the parties have discovery. Discovery is where the two sides essentially investigate each other’s cases under the supervision of the court. Interrogatories, depositions, and requests for production of documents are all part of the discovery process. If the case is not resolved during discovery, then it will go to trial. District Court is more formal than Small Claims Court, but the principles are the same. Each side has the opportunity to present evidence, the fact-finder (the jury in a jury trial, the judge in a bench trial) decides who and what to believe, then the judge makes a decision based on the facts.
The proper place to bring cases above $10,000 is Superior Court. However, many creditors bring large cases in District Court anyway—the docket is shorter, the costs are lower, and District Court judges are often more familiar with collections cases. In many counties, District Court can hear any a collections lawsuit for any amount. Because Superior Court is still the proper place to hear these cases, the defendant can have the case heard in Superior Court if he or she wants—but he must ask the court to do this. The process in Superior Court is similar to District Court.
Creditors bring a collection lawsuit because they want the court to give them a judgment. There are several ways that creditor plaintiffs can get a judgment besides winning at trial.
The final statement in civil summons states “if you fail to answer this complaint, the plaintiff will apply to the Court for the relief demanded in the complaint.” In plain English, this means that if you ignore the summons and don’t do anything, the plaintiff wins. This is called a default judgment. Think of a default judgment as a forfeit: The plaintiff wins because the defendant didn’t show up.
Confessions of Judgment
Confession of Judgment is where the defendant agrees to allow the plaintiff to have a judgment against him without bringing a lawsuit.
Now, you may be wondering why in the world would a defendant ever agree to that? In debt collection cases, these frequently happen when a debtor who is not represented by an attorney enters into a payment plan with a creditor. The creditor makes the debtor sign the Confession of Judgment before they will give them the payment plan. The debtor signs because they feel like they have no other choice. However, the Confession of Judgment allows the creditor to get a judgment if the debtor defaults without filing a lawsuit. A debtor may be signing away important rights when he signs a Confession of Judgment.
In some case, a party can get a contested case decided without going to trial through Summary Judgment. Summary Judgment is appropriate when there is no genuine issue of material fact and the party is entitled to judgment as a matter of law. In other words, the party moving for summary judgment is telling the court, “Even if you believe his version of the facts, the law says that I still win.” Frequently, creditors attorneys will try get defendants to admit the creditor’s entire case during discovery, then move for summary judgment, or they may move for summary judgment following a poorly drafted answer by an unrepresented party.
All of these different types of judgments are just as effective as if the plaintiff went to trial and won. Of course, creditors don’t want just a judgment, they want money. The next post will cover how creditors try to turn judgments into money.