I’ve been seeing a rash of judgments taken by default against small businesses. This means that a lawsuit was filed, no response or defense was made and a judgment was taken without a fight. Then, months — and even years — later, clients need to fix these problems.
The reasons range from a failure to open mail to a neighbor signing for a hearing notice and not delivering it, and even service to an incorrect address.
Fortunately, I’ve been relatively successful in helping my clients. But it’s always a very shaky proposition to obtain a second chance in defending a lawsuit or even filing a late appeal. In fact, it’s a pretty high legal burden to meet.
Granted, there are very limited occasions when a default makes sense (e.g., at a magistrate hearing when you know an appeal will be taken or against a company with zero assets). Otherwise, they are usually avoidable, troublesome, expensive to fix and can be completely irreversible.
How Default Judgments Are Taken
A default occurs in different ways depending on the court. At the Pennsylvania district justice or magistrate level, a default occurs by not showing up at a hearing or by failing to tell the court that you will be defending a claim. So, a plaintiff who files a complaint, obtains a hearing, and is the only party who shows up will win by default. A plaintiff who doesn’t show up for the magistrate hearing will be subject to a dismissal of their case, which means no appeal can be had.
A defendant can file an appeal from the default judgment within 30 days to the Court of Common Pleas, Arbitration Division. If a case is appealed within this period (it must be, otherwise the judgment may be permanent), then the process starts over — but with a few new rules. The filing of an appeal from a district justice suit also results in the issuance of a “rule to file a complaint” on the Plaintiff. This means the Plaintiff needs to file a new complaint within 20 days of the appeal. The Defendant then needs to file an answer (or objections) within 20 days from the date of service of the Complaint. If the Defendant does not respond in time, the Plaintiff must give what is known as a “10-day notice,” which informs the Defendant that if no response is filed within ten days, then a default may be entered. If, after 10 days following the notice the Defendant fails to file and serve a response, then the Plaintiff can enter a default judgment.
But wait! There’s more… The Defendant, within 10 days from the entry of default, can petition the court to open the judgment and allow a reasonable period to file a response. The Court must do so if the Petition is filed within 10 days of notice of the default judgment. After that 10 day period, the Court may deny the request or issue a rule to show cause to demand proof why a judgment should not be entered. This puts the burden on the defendant to explain why the default occurred, demonstrate a meritorious defense and establish that the late filing is reasonable. Also, a default can be taken if a party fails to show up for a scheduled arbitration (from which there is no appeal except in extraordinary circumstances).
Confused? Don’t feel bad.
Avoid the Hassle and Expense of a Default Judgment
I know the details on how to appeal, open judgments, and take defaults through years of practice and an understanding of the rules. If you are a small business owner and are attempting to collect a small debt or defend against a customer who has an unresolved issue, attempting to navigate these waters can be dangerous and result in a waste of time and money. Court personnel will be happy to help you understand what needs to be done to file and bring a claim, but they only can do so much. Some offices are more cooperative than others, and no court personnel can give “legal advice.” The problem occurs when a small claim becomes a complete nightmare due to administrative errors or neglect. Then attorney fees are compounded because a lawyer needs to fix the default, open a judgment and still has to mount a defense. Here are the main causes for default judgment and how you should fix them
1. Open your mail! Seriously. Open your mail. I’m always surprised how many business owners let mail accumulate or ignore critical letters. All business owners have at least one period where market conditions, customers and other issues create stressful times where the only thing that comes in the mail is bad news. No one is immune from this. However, no good ever comes from failing to open your correspondence. Some people also think that if they don’t open hearing notices then no one can say they were received. That is incorrect.
2. Use one good business address.
Don’t use your home and a business address, or a business address and a P.O. box. Or some other combination. Use one address. If you move, ensure your mail is forwarded. I have seen lawsuits valued at significant amounts of money that ended in a default judgment because mail was sent to an improper address (another topic for another day).
3. Mail that is not returned to sender is assumed to be delivered and read.
The courts assume infallibility of the postal service. If you receive a letter from a court, it is assumed to be read — whether you do or not.
4. Do not allow anyone to sign for your mail.
If you share space with another business or have a neighbor who always is home and sometimes collects your mail, please tell them to never, ever sign for certified mail on your behalf. In fact, put it in writing and email it to them. A well-intended neighbor can forget to give you important court documents and the next thing you know, you have to pay an attorney to undo a mess of which you may not even be aware. Even if you have to “undo” a mess because mail was not handed over to you, at least the argument can be made that any failure on your part was due to interference by an outside agency who was specifically instructed to not sign for your mail.
5. Deal with problems head on.
In a lawsuit, a tree that falls in the woods with no one around always makes a sound. There are no excuses for ignoring trouble spots or tough arguments. All litigants need to understand that they are not perfect, they never will be perfect and it is OK to accept mistakes made on your own behalf. Ignored problems never go away. Never.
Timely, decisive responses are your best option — always.