Guest Editorial by Edward J. “Ned” McNaughton, Attorney at Law, McNaughton & Associates, PLLC, Charlotte
While not directly aimed at the construction industry, one recent change to North Carolina law is destined to have a big impact. On June 19, 2013, Gov. Pat McCrory signed Senate Bill 452 into law, increasing the amounts allowed to be heard in small claims court from $5,000 to $10,000, effective August 1, 2013. This change opens the courtroom doors to subcontractor and supplier claims between $5,001 and $10,000 that had previously been too expensive to pursue.
Each county in North Carolina has a small claims court, sometimes called magistrate’s court. Small claims are limited to certain types of actions, such as summary ejectment (landlords) or recovery or personal property (repossessions), but the ones that will affect the construction industry the most are claims for money due. The most common claim is for non-payment for work performed. Since the limit has been increased to $10,000, however, this could include non-payment of retainage on a $100,000+ contract. A small claims lawsuit can also include the enforcement of a properly perfected lien, if the lien claim is “an ancillary remedy of claim and delivery…,” i.e. – secondary to the claim for money due.
Three primary advantages for contractors and suppliers in small claims court are: it is faster, attorneys are optional, and there is less paperwork.
- The statutes require trials to be scheduled for “not later than 30 days after the action is commenced.” While extensions may be granted “for good cause shown,” this is significantly faster than the 8 to 12 month superior court trial dates.
- North Carolina law prohibits a corporation or LLC from representing itself in superior or district court.  A little over 10 years ago, however, the NC Court of Appeals created an exception to the rule for small claims court. Thus, while a corporation or LLC can still chose to hire an attorney represent it in small claims court if it wants, it can also represent itself through a company owner or officer.
- The only required pleading in small claims court is the Complaint, which is a fill in the blank form. A defendant may file an Answer or Counterclaim if they want. (Although, paper remains king in presenting evidence and proving a case.)
There are downsides to small claims court, the primary one being the absence of discovery. Discovery normally includes written interrogatories, requests for the other side to produce their documents, and depositions of key witnesses. If a claimant kept good records – including e-mails and text messages – this may not be a problem. If a claimant is relying on the other side’s records, however, then the lack of discovery can be fatal. Another downside is when the other side lawyers up. A company’s owner or officer may be very good at presenting its case, but the other side’s lawyers make their living presenting evidence and arguing lawsuits.
The increase in the claim amount allowed in small claims court to $10,000 will be good for some and bad for others. One thing it is likely to do, however, is increase the number of construction related lawsuits. If you have a claim under $10,000, consult a lawyer to see if small claims court makes sense for you. Some lawyers will even coach you through the process for a reduced fee. If you are a general contractor or upper-tier subcontractor, make sure you identify and fast track your response to small claims lawsuits filed against you. Either way, you need to know that the rules have changed.