A publication for Credit and Finance Professionals
Choice of Venue - What's Best in a Collection Case?
By Rick Thomas
Oftentimes a creditor is faced with the question of where to file suit when it is apparent the debtor will not pay. There are several serious considerations that need to be taken into account before undertaking the decision of where to sue.
Usually, the creditor will sue in the state where the debtor is located, as, once a Judgment is obtained, that is where the execution of the Judgment will occur. There are, however, times when the creditor may want to consider a different forum. For instance, if the creditor and debtor are located indifferent states, the creditor may wish to file suit in the creditor's state for various reasons, including costs, difference in state laws, and convenience.
The first consideration is to determine if a particular state has jurisdiction over the parties. A court can have jurisdiction if the debtor is within the geographical jurisdiction of the Court, if the subject matter of the transaction occurred within the Court's jurisdiction, or if the parties agree to submit to the Court's jurisdiction. For the second consideration, the analysis of whether the Court has subject matter jurisdiction can be very involved, but a simple way to look at the issue is whether or not the debtor did something within the Court's jurisdiction that would be construed as submitting to the jurisdiction. An analogy would be if a motorist goes to another state, and, through negligent driving, causes an accident. By driving in the foreign state, the motorist submitted himself to that states jurisdiction. In a commercial setting, if the debtor solicits goods or services from the creditor, the debtor may have given the creditor's state jurisdiction. However, the easiest way for a creditor to be able to sue in the creditor's state is for the debtor to agree ahead of time that the creditor may bring suit in the creditor's state if necessary. This can be done by contract (many times banks and leasing companies have a provision in the lease or promissory note that the debtor agrees upon execution o the instrument that the creditor's state has jurisdiction if the creditor finds it necessary to file suit). This can also be accomplished through an order confirmation, or in a delivery receipt.
The second consideration is choosing the forum is to look at the law of the creditor's state as opposed to the debtor's state. While every state except Louisiana has adopted the Uniform Commercial Code, which governs most commercial transactions, there are differences in particular code sections. One of the most important considerations has to do with the Statute of Limitations for a particular type of case, which can vary greatly from one state to another. Another Achoice of law@ consideration is whether a particular state will allow a party to recover attorneys fees, collection costs, and/or prejudgment interest.
The third, and possibly most important consideration is expense. Many creditors find that by having the debtor agree to jurisdiction in the creditor's state, they can avoid costly travel to appear at hearings or trials, make I more expensive for the debtor to contest a case, and have the convenience of using the same collection agency and law firm for a majority of its cases.
However, as stated earlier, it will almost always be necessary for the creditor to transfer the Judgment, once obtained, to the debtor's state for execution. Fo that reason, many creditors feel it is quicker to just have suit filed in the debtor's state, rather than dealing with two different attorneys.
