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Business Litigation Overview

A Few Things You Should Know About Lawsuits

If you are thinking about filing a lawsuit, have been sued or have been threatened with a lawsuit, you may need an attorney. Here are a few considerations that might be of assistance to you in understanding the ABC’s of litigation.

The ABC’s of litigation:

CLAIM: Most Civil (as distinguished from Criminal) claims fall into one of two categories: Tort claims (such as negligence, slander, assault, fraud, etc. - in general, negligent or intentional injury against a person or property) or contract claims. Contract claims are based on breach of an oral or written contract (agreement). Various other claims exist that are important to consumers and persons engaged in business such as claims under Massachusetts G.L. c. 93A dealing with unfair and deceptive trade practices. These claims provide for the recovery of treble damages and attorneys fees in certain circumstances. Attorney fees may be recovered if there is an agreement that allows for the recovery of attorneys fees or where a statute provides for recovery of attorneys fees.

COMPLAINT: A lawsuit is started by a plaintiff filing a COMPLAINT against one or more defendants. The defendant files an Answer and possibly a COUNTERCLAIM. The plaintiff “serves” (in Massachusetts, usually service is by a sheriff) the complaint with a summons directing the defendant to file an ANSWER within 20 days.

COURT - FEDERAL vs. STATE COURT
There are various differences between State Court and Federal Court. One difference being the types of cases (they can decide. This is called JURISDICTION. State Court has general/broad jurisdiction, and Federal Court has limited/specific jurisdiction. Under Federal Court jurisdiction, the two main types of cases are Federal Question Cases (28 U.S.C. § 1331) and Diversity Cases (28 U.S.C. § 1332).

Federal Question Cases: where the issue involves violation of Federal Law.

Diversity Cases: where the Plaintiff and Defendant are citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs.

DEBTOR'S RIGHTS: Debtors have many rights that both creditors and debtors need to be acutely aware of. For example, if a debtor signs a Retail Installment Sales Contract (such as the agreement that finances the purchase of a car) and the holder of the note files suit based on an alleged default, the creditor must sue in the state where the debtor lived when he signed the note or in the state where he currently resides. The Fair Debt Collection Act provides debtors with a myriad of protections including the right to receive certain warnings and information. The list of rights and protections is too lengthy to set forth in detail here but creditors, lenders, and landlords must be aware that in the event of a dispute, their conduct may be closely scrutinized.

DEFAULT: If the defendant fails to answer, the plaintiff can request the clerk enter default. After default is entered the plaintiff can then request DEFAULT JUDGMENT which can either be entered by the Clerk (if the amount due is a “sum certain”) or by a Judge after a hearing (if the amount claimed is not a sum certain or if the plaintiff seeks an award of attorneys fees).

DISCOVERY: The process by which each side gathers information required to prepare a case for trial. Discovery can include interrogatories (questions answered in writing and under oath), document requests and depositions at which the deponent (who could be a party or a third person who is not a party to the lawsuit) answers questions under oath before a stenographer. The DISCOVERY PERIOD is the time frame allowed by the court for both plaintiff and defendant to discover facts, research the law, and gather evidence to be presented at trial.

INJUNCTION: A court order preventing one or more named parties from taking some action. A preliminary injunction might be issued to allow fact-finding - so a judge can determine whether a permanent injunction is justified.

JURISDICTION: The legal authority of a court to hear and decide a certain type of case.

POST-JUDGMENT PROCEDURES: Once a party had obtained final judgment (after the appeal period has passed or an appeal has been otherwise resolved) the next task is how to collect on the judgment. This can be a relatively simple matter where, for example, there is insurance for the claim, or a bond (such as in a public construction project), or where the claim is secured by a lien (such as a pre judgment attachment, a mortgage or a mechanics lien). On the other hand, obtaining judgment may be relatively easy compared to the difficulty in locating assets from which the creditor can satisfy the judgment. A judgment creditor can require the debtor to disclose financial information regarding assets, bank accounts, real estate holdings, etc. There are more esoteric methods of collecting judgments such as “Reach and Apply” claims where the creditor locates a third party who owes money to the judgment debtor and obtains an order requiring the amount owed be paid, not to the debtor, but directly to the judgment creditor.

PRE-JUDGMENT REMEDIES: There are a variety of steps a creditor can take after filing suit which are designed to protect a creditor and facilitate collection once the creditor has obtained judgment. These include obtaining a pre judgment attachment - a lien on real estate. The creditor must show that the creditor has a reasonable likelihood of success and that there is no insurance available to satisfy the claim. Similarly, a creditor might seek to “trustee process” a bank account which in effect freezes the account while a lawsuit is pending. After the creditor obtains judgment, the creditor can attempt to collect the judgment by pursuing the attached property.

REACH and APPLY: Reach and apply is a prejudgment security device which is equitable in nature and which is available to restrain a third party's disposition of a defendant's property, and then to reach and apply that property to satisfy the plaintiff's claim. In general, reach and apply is available to reach a defendant’s property that is not subject to attachment or execution.

STATUTE OF LIMITATIONS: The time within which a lawsuit must be filed. The deadline can vary, depending on the type of civil case.

SUMMARY JUDGMENT: This is a tool used in litigation where one party requests that the Court grant judgment without going through the expense of a trial. Summary Judgment can be an important tool in litigation and is granted where the court determines that there are no material issues of fact in dispute and that the moving party is entitled to judgment as a matter of law. Summary Judgment may be available as to some aspects of the case (such as the issue of liability) and not other aspects (such as the amount of damages); therefore, even when summary judgment will not dispose of the entire case, it can be helpful in narrowing the issues thereby saving time and expense.

VENUE: The geographic area in which a court has jurisdiction. A change of venue is a change or transfer of a case from one judicial district to another.

Bankruptcy Basics for Creditors

Bankruptcy: A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of Title 11 of the United States Code (the Bankruptcy Code).

Chapter 7 Bankruptcy: The chapter of the Bankruptcy Code providing for "liquidation," that is, the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors. In order to be eligible for Chapter 7, the debtor must satisfy a "means test." The court will evaluate the debtor's income and expenses to determine if the debtor may proceed under Chapter 7.

Chapter 11 Bankruptcy: A reorganization bankruptcy, usually involving a corporation or partnership. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. Individuals or people in business can also seek relief in Chapter 11.

Chapter 13 Bankruptcy: The chapter of the Bankruptcy Code providing for the adjustment of debts of an individual with regular income, often referred to as a "wage-earner" plan. Chapter 13 allows a debtor to keep property and use his or her disposable income to pay debts over time, usually three to five years.

Non-Dischargeable Debt: A debt that cannot be eliminated in bankruptcy. Examples include a debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared non-dischargeable only if a creditor timely files and prevails in a non-dischargeability action.
Priority claim: An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these claims are paid.

Secured creditor: A secured creditor is an individual or business that holds a claim against the debtor that is secured by a lien on property of the estate. The property subject to the lien is the secured creditor's collateral.

Secured debt: Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

Unsecured claim: A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.