Dean Kaplan

Dean Kaplan

If you have to sue your business customer for unpaid invoices, would you rather sue where your company is located or where the debtor company is located?  Below I share insights from our experience as a collection agency with this issue and hope others will share their experiences and advice in the comment section below.

We have many clients whose credit applications stipulate that if there is litigation, jurisdiction and venue will be in the county/state where the client headquarters is located and shall be governed by the laws of that state.  This has several advantages for our client:

  • Harder for out-of-state debtor business to defend – they have to engage an attorney in the client’s state, not just their regular local attorney;
  • Easier for client and harder for debtor to appear in person for depositions, trial etc.;
  • No travel costs for client and potential travel costs for debtor.

As a result of these and other factors, we find that the likelihood of a business debtor defending a collection lawsuit declines significantly if it is done in our client’s home state and the debtor is from out of state.  This has the clear advantage of getting a default judgment (after proper service) in a relatively short period of time where as it may have been very inexpensive and easy for the debtor to delay the trial and drive up our client’s costs if we had sued where the out of state debtor is located.

Of course, to collect on the judgment, we typically have to get it domesticated in the state where the debtor business (and their assets) are located, and then retain an attorney in that state on a contingency basis to perform judgment collection efforts.  Having two attorneys involved drives up the cost to our client, with the local attorney often wanting a fixed fee rather than a contingency fee for getting the judgment since they don’t control the judgment collection process.  This higher level of expense can make it harder for a client to justify pursuing smaller balances.

In many situations where we do not anticipate a defense, our clients will decide to sue where the debtor business is located despite the language in their credit application saying it should be litigated  in the client’s home state.  This saves money and time when there is no defense.  But, if the debtor does defend, the first delay tactic can be on venue and jurisdiction.  Admittedly, that doesn’t happen often (as then the debtor has to defend the lawsuit in our client’s home state), but it is a risk that has gone against us a couple of times.  We also have the awkward possibility of pursuing the debt in an out of state court, but according to the laws of the state where our client is located.

We’ve never seen a business credit application where the credit grantor has the express option to sue either in their home state or where their business customer is located.  That would eliminate the risk when choosing to sue where the debtor is located but preserving the right to get the home field advantage.  We have found that informing a delinquent business that any litigation would be in our client’s home state per the credit application has been a helpful tool to generate payments without going to court.  So, from the perspective of our collection agency, we prefer when our clients have this home state language.

What is your experience?  What do you recommend?  Please share your thoughts and advice in the comment section below.

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