Many small businesses are involved in lawsuit over a business matter at some point in time during the operation of the business. If you are a small business owner and you have decided that a lawsuit against another person or business is worthwhile, you and your attorney should determine which court has the power to hear and decide your case. Then, you should file the lawsuit in the proper court and serve the defendant, who is the person or business that you are suing. When the defendant makes a general appearance in court, the defendant has accepted the court's authority in the case.
Court's Authority to Hear Case
A court's power to affect legal interests is called the court's jurisdiction. Obtaining jurisdiction is essential since any action taken by a court which does not have jurisdiction is subject to nullification. Without jurisdiction, a court's orders are also void from the beginning.
A court cannot exercise judicial power unless it has:
- Authority over the subject matter and
- Authority over the person or property of the defendant
The latter requires that the court has a proper basis on which to base its authority and that the defendant be properly notified of the commencement of the lawsuit. Even if these requirements are met, a court can decline to exercise its authority if, in the interest of substantial justice, the case should be heard in another court.
Authority over Subject Matter
Subject matter jurisdiction refers to the power of a particular court to hear a certain kind of case. It includes the power to decide certain categories of cases and the power to grant certain kinds of relief. Courts are given these powers by state and federal constitutions and laws.
A court's power may be "general" and virtually unlimited, or it may be "limited." For example, a supreme court usually has the authority to hear any kind of case, unless it is prohibited by the constitution or by law. On the other hand, a small claims court's power is usually limited to cases where the amount in controversy is less than a certain amount of money, like $3,000 or $5,000.
Authority over a Person or Property
In order to hear a case, the court must not only have authority over the subject matter, but also authority over the defendant's person or property. Personal jurisdiction requires a ''basis'' and ''notice.'' Both the notice and the basis requirements can be waived by the defendant.
A court has a proper basis to hear a case only if it is authorized by law, and applying the law is constitutional.
A court can constitutionally assert its authority over a defendant only if the relationship among the defendant, the court and the lawsuit makes it fair to do so. This broad standard is applied whether the plaintiff seeks an "in personam" judgment against the defendant or a judgment limited to specific property of the defendant ("in rem" or "quasi-in-rem").
In order for a court to have personal jurisdiction over a defendant:
- The defendant must have sufficient contacts, ties or relations (also called minimum contacts) with the state in which the court is located, and
- Litigating the case in that court cannot be unduly burdensome or unfair
Courts also have authority over property located in their state. They may exercise authority over nonresidents in lawsuits which seek to affect rights to property found in their state. That is called "in rem" jurisdiction.
In order for a court to have authority over a defendant, the defendant also must receive notice of the lawsuit. This is usually given by handing the defendant a summons to appear in court.
Commencement of the Lawsuit
A lawsuit is typically commenced by filing the summons with notice or a summons and complaint and required fees with the clerk of the court. The summons is a document which notifies the defendant that he or she must file an answer to the complaint or appear in a specific court by a certain date or face a default judgment. The complaint is a document which sets out the plaintiff's claims against the defendant. The defendant must be served with the complaint and summons within a certain amount of time.
A summons may be served on the defendant by various methods, but it must be served according to the laws of the state in which the lawsuit is brought. If the lawsuit is filed in federal court, service must comply with federal laws. Possible methods of service on a natural person include:
- Personal delivery of the summons
- Leaving the summons with a person of suitable age at the defendant's home or business and mailing a copy of the summons to the defendant at his last known residence
- Delivery of the summons to the defendant's designated agent
- Affixing the summons to the door of the business or home of the defendant and mailing a copy of the summons to the last known residence or actual place of business of the defendant
- Service by publication
Service upon a domestic or foreign corporation may be made by giving the summons to an officer, director, managing or general agent, or cashier or assistant cashier or to any other agent authorized by appointment or by law to receive service.
Service in a lawsuit against a general partnership can be made by serving any one of the partners.
Service on a state is made by serving the attorney general or an assistant attorney general. Some laws also require service on the chief executive of the governmental agency involved.
Proof of Service
The plaintiff may have to file proof of service on the defendant with the court. That depends on the law and on the method of service used.
Appearance of Defendant
A defendant who has been served with a summons is required by law to appear before the court to answer the complaint. A defendant who fails to appear within the time allowed by law is in default and judgment may be taken against that defendant.
A defendant may make a formal appearance by:
- Serving a notice of appearance or an answer to the complaint
- Making a motion for an extension of time to answer
- Making a motion to dismiss the case
The formal appearance by the defendant gives the court personal jurisdiction or authority over the defendant. If the defendant wants to object to the court's jurisdiction, he must raise objections to jurisdiction in the proper manner before making a formal appearance.
If you have any questions about filing a lawsuit or you need the assistance of a lawyer to file a lawsuit, contact a small business lawyer in your area.
Questions for Your Attorney
- Once a lawsuit has been filed, can the defendant object to the court's authority over the subject matter of the lawsuit?
- If I sue a defendant who has moved to a different state, how do I go about serving that defendant?
- Do I have to serve a defendant for a case in small claims court?