by Jennifer L. Tis, Esq.

As a creditor’s rights attorney, I often receive Answers to our Complaints filed Pro Se by  Defendants. Sometimes these Answers are in the proper format and I assume that an attorney prepared the response but declined to enter his appearance. Sometimes, however, they simply consist of a paragraph denying liability for the debt or expressing an interest in entering into a payment plan. Whether or not they are in the proper format is irrelevant, however, if the Defendant is a corporation. Thanks to the Pennsylvania case of Walacavage v. Excell 2000, Inc., 331 Pa.Super. 137, 480 A.2d 281 (Pa.Super., 1984) a corporate entity may only appear in court through an attorney licensed to practice law in the Commonwealth of Pennsylvania. This means that if an individual who owns a corporation files a Pro Se response to a Complaint that names only the corporation as the defendant he is in violation of Pennsylvania law.

The Court in Walacavage also addressed the concern that the requirement of a corporate entity to hire counsel puts corporations at a disadvantage. The Court stated that such a requirement does not deny corporations due process or equal protection under the law. It seems that there are several rationales behind this requirement one of which is the fact that a corporation is technically fictitious so that even if the individual filing the Pro Se response is the President of the corporation, the corporation itself is a fabrication and, therefore, cannot represent itself. Another suggested rationale is that incorporating a business brings many benefits including protection from personal liability. By the same token, however, there are responsibilities that come with such protection including the responsibility to hire an attorney for representation. Finally, it is suggested that the legal issues before the court can become confused when an attorney is not representing a corporation, however, I don’t see how it can be any more confusing for the court than when an individual represents himself…it can be bewildering for everyone involved.  I, personally, believe that the rationale accounting for equal benefits and responsibilities makes the most sense. If an individual wants to remain shielded from personal liability he is going to have sacrifice some benefits that he would otherwise have if not incorporated such as the ability to represent himself in court. You can’t have your cake and represent it in court, too.

                It is always surprising to me how many individuals who have incorporated a business are unaware of the necessity of retaining counsel for a legal matter. In my opinion, the best way to go about dealing with a Pro Se response from a corporate defendant is to file Preliminary Objections to the response. Filing Preliminary Objections to a Pro Se response from a corporate Defendant can save a great deal of time for you and a great deal of money for your client. I find that it often leads to settlement or, better yet, has the effect of getting the response stricken followed by Judgment by Default. From both a financial and expeditious perspective either of these two scenarios is preferable to having to prepare for and attend arbitration or trial as well as requiring your client to send a witness to court.

by Shawn P. McClure

Once a claim goes legal, there are many factors that come into play and directly impact a creditor’s ability to get paid.  As a credit professional, you must be aware of these factors to determine their impact on settlement negotiations and how far you decide to push the debtor.  As a creditors’ rights attorney, we must be available to quickly identify how these factors impact litigation and provide our clients with intelligent insight as to how litigation is likely to play out in light of these factors.

The rules of evidence are such a factor.  All of a sudden the forwarded email from a cousin’s mother’s friend who used to work for the debtor may not make it to the trier-of-fact, let alone have the impact the creditor thought it would.   

In the typical creditor-debtor dispute, evidence usually translates to written documents (contracts, invoices, statements, correspondence etc.) setting forth the basis for the parties’ relationship.  As a result of being a simple man, I like to keep in mind three simple concepts when determining whether I can get documents into evidence.  Those concepts are:

1.       Relevance – Why does this matter?

2.       Authentication – Is this real?

3.       Hearsay – Is this reliable?

The first concept is pretty self explanatory and is often easily understood because it involves logic that makes sense to a layperson.  For example, my client’s contract with the debtor is relevant to the issue of whether or not money is owed to my client.  Whereas, my client’s lease with their landlord has no bearing on the issue. 

It is with issues of authentication and hearsay, that clients and attorneys spend an inordinate amount of time explaining to each other and arguing with debtor’s counsel.  I could write pages upon pages trying to explain these concepts, so I will leave you with three helpful tips.  The last being the most useful.  Pay attention to rules on self-authenticating documents to hopefully ease the burden on yourself.  Hearsay is an out of court statement offered for its truth, it remains hearsay even if the declarant is now on the stand during trial.  Lastly, evidence law is determined by the trial judge that you are currently practicing before.  

I would like to wrap up by sharing a recent experience that illustrates why it is important to keep evidence concepts in mind throughout the legal process. 

I recently had a case where debtor’s counsel filed preliminary objections in response to my client’s complaint.  Simultaneously, debtor’s counsel served discovery requests.  More specifically, debtor’s counsel served a request for production of documents seeking the original credit application that was alleged in the complaint.  Debtor’s counsel filed preliminary objections asking the court to dismiss the complaint because we failed to attach the original credit application to our complaint.  The basis for these objections being that the failure to attach the original credit application was a violation of the Best Evidence Doctrine.  Well, we didn’t have the original credit application.  We told debtor’s counsel we didn’t have it in our responses to discovery.  However, in deciding the preliminary objections, the judge correctly overruled the debtor.  As simple as it sounds, debtor’s counsel forgot one importance aspect of the Best Evidence Doctrine.  It doesn’t come into play until a party is trying to put evidence into the record at trial.   

As for how that case turned out at trial … it will probably settle soon.     

by,

Shawn P. McClure

You do.  Seems simple enough.  However, you would be surprised at the number of creditors that are under the mistaken belief that the debtor will be on the hook for any and all expenses associated with a creditor’s lawsuit to collect on a debt.

For example, your case is scheduled for trial.  The parties are not close to settlement.  The debtor has retained counsel and has fought you every step of the way.  They have offered a 50% settlement.  You are not taking a dime less than, “everything your owed and then some.”

You must appear as a witness for trial.  The debtor still will not meet your demands.  “Well, you tell that son of a b@tch that I’m flying first class; staying at the Four Seasons and charging him for my time out of the office.  It’s going to cost him a lot more if I come to court.”

It is at this point that I must kindly point out that the debtor will not be on the hook for any of the aforementioned expenses in this $3,000.00 collection action.

This is result of a general rule of law often referred to as the “American Rule.”  The American Rule provides that each party is general responsible for paying its own attorneys’ fees and expenses associated with litigation.  Like any rule, there are exceptions. The two most common exceptions to the American Rule are the existence of a statute or contract that provides for the imposition of attorneys’ fees and costs on another party.  However, as stated above, the general rule is that every party, event the winning party, must pay its own attorneys’ fees and costs.

The reasoning behind the American Rule is to prevent discouraging people from seeking redress for their perceived wrongs or from expanding legal jurisrudence.  The American Rule recognizes that any other rule would have a chilling effect on one’s decision to pursue a meritorious claim merely because they may have to pay the defendant’s expenses if unsuccessful.

In sum, just because you are suing someone don’t think that it isnt going to cost you.

by Shawn P. McClure 

Under Pennsylvania common law, “the primary difference between a surety and a guarantor is the time at which a creditor can collect from each.  With regard to suretyship, the creditor can look to the surety for immediate payment upon the occurrence of a default by the principal obligor or debtor … However, where an individual is a guarantor, the creditor must first attempt to collect the debt from the principal debtor/obligor before demanding performance from the guarantor.”  Reuter v. Citizens & Northern Bank, 410 Pa.Super 199, 208, 599 A.2d 673, 678 (Pa. Super. 1991). 

Sounds troubling for a creditor.  After reading that statement, there is probably one question that quickly comes to mind.  What constitutes an “attempt?”  This question could be argued a hundred times over.  Thankfully, the Pennsylvania legislature has brought some clarity to this question. 

Under 13 Pa.C.S. § 1201, which is Pennsylvania’s codified version of the Uniform Commercial Code’s general definitional section, “[s]urety. Includes a guarantor or other secondary obligor.” 13 Pa.C.S. § 1201.  Thus, no “timing” requirement exists as to when a creditor can look to a guarantor for payment of a debt.      

Moreover, Pennsylvania statute provides that:                                                  

“[e]very written agreement hereafter made by one person to answer for the default of another shall subject such person to the liabilities of a suretyship, and shall confer upon him the rights incident thereto, unless such agreement shall contain in substance the words: “This is not intended to be a contract of suretyship,” or unless each portion of such agreement intended to modify the rights and liabilities of suretyship shall contain in substance the words: “This portion of the agreement is not intended to impose the liability of a suretyship.”

      8 P.S. § 1. See, also, Keystone Bank v. Flooring Specialists, Inc., 513 Pa. 103, 113, 518 A.2d 1179, 1184 (1986) (“section 1201 of the UCC is not the sole authority for treating a guarantor, especially where he has ‘guaranteed payment,’ as a surety.”).

      Accordingly, where Pennsylvania law applies, a creditor with adequately drafted documents does not have to first look to the principal debtor/obligor for payment before pursuing a guarantor.    

by Scott Schuster, Esq.

Since clients ask about this all the time, I thought it would be a good time to give a quick refresher on 20-day claims and briefly discuss how creditors are faring in Bankruptcy cases when it comes to 20-day claims.

Under most state laws, a credit seller has the right to “reclaim” goods (get them back or get a lien for the value), from a defaulting buyer. Most state laws require a reclamation notice be given within 20 days of the delivery. Some require as few as 10 days. Recognizing the difficulty with these short timeframes, earlier changes to the Bankruptcy Code enabled creditors to give notice within 20 days after the bankruptcy filing. The right still only covered deliveries in the 10 days before the bankruptcy.

The 2005 amendments expanded the notice rights to provide that, when goods are sold to a debtor within 45 days of a bankruptcy filing, the seller has a right to reclaim those goods, so long as the seller gives notice within the first 20 days of the bankruptcy. Failure to provide this notice results in a waiver of the reclamation right. Sellers often miss this “notice deadline” and lose their right to reclaim their goods. Further, because the rights of a reclaiming seller are subject to the rights of a prior, properly perfected lienholder on the type of goods sold, this reclamation right is often illusory. Section 503(b)(9) was inserted into the Bankruptcy Code as a way of offering relief to sellers of goods whose reclamation right is rendered meaningless – either by failing to give the required notice or because of a prior lienholder’s rights.

Creditors have had mixed results in the first three years following the addition of section 503(b)(9) to the Code. For starters, obtaining an allowed administrative claim requires an upfront investment. The creditor must do one of two things: 1) get the debtor to agree to allow the 503(b)(9) claim; or, 2) if the debtor refuses to agree, file a motion with the court. This means that the creditor often has to hire an attorney and expend resources upfront.

More importantly, debtors will often challenge the 503(b)(9) claim in an attempt to get the creditor to negotiate the amount. Debtors will often claim that they received the goods outside of the required 20-day window. This forces the creditor to show evidence, through supporting documentation and testimony. Debtors sometimes take this position solely as a negotiation tactic. Debtors know that it will cost the creditor valuable time and money to litigate the case and that the creditor may be willing to settle for less in order to avoid litigation.

Be sure to check back for A Refresher on 503 (b)(9) “20-Day Claims” Part 2

by Shawn P. McClure, Esq.

by Shawn P. McClure, Esq.

So you’ve met with an attorney and you have been informed that you have a “strong” case. Of course you instruct your attorney to immediately run to the nearest courthouse and file a writ, summons, complaint or whatever legal document is necessary in order to immediately get the ball rolling. In the words of a certain sports broadcaster on crisp fall mornings, “Not so fast my friend!”¹

Almost as important to the determination of whether or not you have a factual basis for a lawsuit, is the decision of what court to file that lawsuit in.² However, before narrowing in on a particular court, there is the question of what type of court you will file in.

Our country has a dual court system; we have both state and federal courts. Generally, the difference between the two court systems boils down to jurisdiction. Jurisdiction is a court’s ability to hear a particular matter. State and local courts are, for the most part, courts of general jurisdiction with the ability to hear almost every type of dispute. Federal courts are established under the U.S. Constitution for the purpose of deciding disputes involving the Constitution and laws passed by Congress. However, there are certain scenarios where a particular matter may fall within both the jurisdiction of the state and federal court systems.

For the entire article please visit: http://www.bernsteinlaw.com/publications/021810_1.htm and tell us what you think.

by Shawn P. McClure, Esq.

In a perfect world, a creditor would never have to file a lawsuit to collect on balances due and owing from debtors.  In a great world, any judgment obtained as a result of a lawsuit would immediately be paid by the judgment debtor.  In reality, creditors are often forced to sit on a judgment and hope that their judgment debtor either comes into some money or tries to sell a piece of real estate encumbered by their judgment lien.  This can take years. 

    Does this judgment simply sit interest free?  If not, then what interest rate is applicable to the judgment?  The answer to the first question is easy.  Under Pennsylvania law, at a minimum, interest will acrue on the judgment at the rate of six percent per annum.  As a creditor you have the ability to determine whether that rate is higher or lower when contracting with your future debtor at the beginning of your relationship.  

    Pennsylvania law provides that a plaintiff is entitled to interest on a judgment for a specific sum of money from the date of the verdict.  42 Pa.C.S.A. § 8101, (“Except as otherwise provided by another statute, a judgment for a specific sum of money shall bear interest at the lawful rate from the date of the verdict or award, or from the date of the judgment, if the judgment is not entered upon a verdict or award.”).  “Thus the general rule is that a plaintiff is entitled to interest on a judgment from the date of the verdict, and for purposes of computing interest, judgment and verdict are synonymous.” Osial v. Cook, 2002 PA Super 214, 803 A.2d 209, 215 (Pa. Super. 1994).

    A plaintiff receives statutory post-judgment interest as a matter of right where the damages are ascertainable by computation. Pittsburgh Constr. Co. v. Griffith, 2003 PA Super 374 (Pa. Super. 2003).

    Currently, the statutory rate of interest in the Commonwealth of Pennsylvania is fixed at six percent (6%) per annum, “but parties to a contract may agree to a higher rate.” Id; See, 41 P.S. § 202; In re Estate of Braun, 437 Pa. Super. 372, 650 A.2d 73, 78 (Pa. Super. 1994) (“the courts of this Commonwealth have found that the parties may agree to a post-judgment interest rate in excess of that provided by statute”); see, e.g., Miller v. City of Reading, 369 Pa. $71, 473-474, 87 A.2d 223, 226 (1952) (party who illegally fails to pay a debt is liable to pay interest thereon at the statutory rate unless the parties expressly agree otherwise); Smith v. Mitchell, 420 Pa. Super. at 144, 616 A.2d at 21 (Pa. Super. 1992) (quoting Daset Mining Corp. v. Industrial Fuels Corp., 326 Pa. Super. 14, 36, 473 A.2d 584, 595 (1984) and recognizing that in contracts concerning the payment of the sum of money at a rate higher or lower than the legal rate, they can agree to have the agreed upon interest rate continue after the debt becomes due; in the absence of an agreement, the interest rate fixed by law attaches); Cumberland Valley Cooperative Association v. Martin, 11 D.& C. 4^th 10, 12 (C.C.P. Cumberland County 1991) (specific intent of the parties prevails over the statutory rate; parties’ agreement to pay post-judgment interest rate of 15% was upheld).

    Therefore, if the parties’ agreement is silent as to interest or refers to “legal” or “lawful” interest, the judgment creditor is limited to six percent (6%) per annum in post-judgment interest.  However, where the parties’ agreement expressly provides for a higher interest rate and the plaintiff has plead this higher rate, Pennsylvania law allows for the imposition of post-judgment interest at the higher, agreed upon rate.  Once again, another example of why it is better to plan for the worst and hope for the best when entering into a creditor/debtor relationship.   

by Scott E. Schuster, Esq.

by Shawn P. McClure

A couple of months ago, I attended a presentation by a well known trial attorney.  He opened the seminar by stating that he had never represented a Plaintiff/Creditor in a breach of contract action.  Given the fact that the audience consisted of creditors’ rights attorneys, collection agencies and credit managers, this statement raised some eyebrows. 

This gentleman was quick to qualify this statement by saying that he has tried thousands of “broken promise” cases, but never a breach of contract case.  His point was that it is important to remember that these breach of contract cases (i.e. broken promises) are being heard and decided by people just like you and me.  As such, it is important not only to keep things as simple as possible, but to make sure that we don’t exclude the human element to such cases.

I think that this lesson translates to all stages of any collection effort.  It is something that everyone in the credit industry needs to remember.  From the initial telephone call to your Debtor, through the closing argument your attorney makes during a jury trial, all that is at issue is a broken promise.  The key is conveying to those involved, the Debtor, Debtor’s Counsel, Judge, Jury, etc., the simplicity and humanity of the situation.

Webster’s Dictionary defines a “promise” as, “a declaration that one will do or refrain from doing something specified.”  It is as simple as that.  Once you learn to communicate this characterization of your claim to the Debtor or their attorney, your successful collections will undoubtedly increase.  Just remember, don’t break any promises of your own.  If settlement discussions break down and you have threatened legal action, be sure to act promptly by contacting your creditors’ rights attorney.”