BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session SB 221 (Simitian) As Introduced Hearing Date: April 12, 2011 Fiscal: No Urgency: No EDO SUBJECT Small Claims Court: Jurisdiction DESCRIPTION This bill would increase the small claims court jurisdictional limit from $7,500 to $10,000 in an action brought by a natural person. BACKGROUND Small claims courts were established for the purpose of providing a forum for parties seeking minor recoveries in civil disputes. Attorneys are prohibited from representing parties in small claims courts, thus leading to a somewhat more informal environment. As a part of the unification of the California courts, the Judicial Council of California and the California Law Revision Commission (CLRC) commissioned a project to study the three tracks of civil litigation (unlimited civil claims, limited civil claims, and small claims). In 2002, the results of the California Three Track Civil Litigation Study (three track study) were published. The three track study looked at issues of access to justice, quality of justice and infrastructure needs in small claims cases. A piece of the three track study addressed the jurisdictional limit for small claims courts that was set at $5,000 in 1990 (AB 3916(Lempert) Chapter 1683, Statutes of 1990). One of the recommendations from the three track study was to create pilot projects to study the effects of raising the small (more) SB 221 (Simitian) Page 2 of ? claims jurisdictional limit to $7,500 for some jurisdictions and to $10,000 for others. The pilot projects were recommended due to concerns that small claims court filings would significantly increase. Without an adequate number of judges or temporary judges who were sufficiently trained, there were concerns that an increase in filings would negatively impact the parties' rights. Another concern the three track study discussed was the underlying due process concerns associated with small claims courts. By electing to use the small claims court (rather than hire an attorney for a small claim in civil court) both parties are giving up their right to counsel and plaintiffs are giving up their right to appeal the ruling. However, the three track study also concluded that significant issues relating to access to justice were raised by a low jurisdictional limit in small claims court. SB 422 (Simitian, Chapter 600, Statutes of 2005) was intended to implement some of the recommendations of the three track study. Among other things, SB 422 raised the $5,000 jurisdictional limit set in 1990 to $7,500. The increase accounted for inflation as well as consideration of the increased costs associated with hiring an attorney and general costs associated with civil litigation. Consumers Union, which historically had opposed increases in the small claims jurisdictional limit, supported SB 422 "because it limitİed] the increase to $7,500 and to cases brought by natural persons only, and İmade] several other improvements, such as improvements related to . . . accessibility of small claims court advisory services, a mechanism to pay for these improvements, and a set of findings describing the additional problems that should be solved before any subsequent increase in small claims court jurisdiction." SB 422 was also supported by the Consumer Attorneys of California and the Judicial Council. This bill would increase the small claims court jurisdiction again from $7,500 to $10,000 for a natural person. CHANGES TO EXISTING LAW Existing law provides that small claims courts have jurisdiction in an action brought by a natural person, if the amount of the demand does not exceed $7,500. (Code Civ. Proc. Sec. 116.221.) SB 221 (Simitian) Page 3 of ? Existing law provides that a natural person may not file more than two small claims actions that exceed $2,500 in any year. (Code Civ. Proc. Sec. 116.231.) This bill would provide that small claims courts have jurisdiction in an action by a natural person, if the amount of the demand does not exceed $10,000. This bill would not impact the limitation on a natural person filing more than two small claims actions exceeding $2,500 in any year. This bill would repeal a duplicate provision of Code of Civil Procedure Section 116.221. COMMENT 1. Stated need for the bill The author writes: It is difficult to find an attorney to represent you in a case where the amount in dispute is less than $7,500. Attorney's fees are too high to justify the expense, thus denying justice to many parties. In support of this bill, Judicial Council writes, "İour] support for SB 221 takes into account the increasing difficulty of litigants to find attorneys willing to take cases valued at $10,000, or even higher, given the rising costs of litigation. The council is also mindful of the many challenges faced by self-represented litigants trying these actions as limited civil cases, which is an inefficient and burdensome process for the courts as well. Many litigants with claims in excess of the small claims limit have nowhere to turn, other than small claims court." 2. Small claims court jurisdictional limit increase from $7,500 to $10,000 SB 221 (Simitian) Page 4 of ? This bill would raise the jurisdictional limit for a natural person to file a claim in small claims court. This bill would not raise the jurisdictional limit for a business or any other entity other than a natural person. a. Small claims courts provide access to justice for parties In the three track study, the CLRC noted that "small claims courtİs] İare] a critical part of the court system. Litigants with smaller cases cannot justify the expense of an attorney, but many pro per litigants face substantial and often insurmountable difficulties in trying to represent themselves in regular civil court. The availability of a simplified procedure that is both quick and fair is essential. Further, what constitutes a 'smaller case' rises over time with inflation and with the cost of attorney representation." According to the United States inflation calculator, what cost $7,500 in 2005 would cost close to $8,500 in 2011. While it is difficult to quantify the cost of attorney representation, it can be presumed that attorneys are increasingly less likely to take cases with smaller claims on a contingency basis or to charge such a minimal fee that a small claims litigant could afford. This is especially true in light of the difficult economic situation in which many Californians find themselves. As a result, parties are either forced to lower their claims to fall within the jurisdictional limit or end up in civil court which is significantly more formal and expensive. The Judicial Council writes "according to small claims advisors, self-help advocates and others familiar with these matters, the inability of litigants with claims valued at $10,000 to find lawyers who are willing to take their cases has significantly worsened over the years with the burgeoning costs of litigation. Although the issue has not been subject to formal study in California, the fears expressed about the harmful effects of increasing the small claims court jurisdiction do not appear to have taken place." For these reasons, it is increasingly important to provide a forum for litigants to resolve their smaller claims. b. California small claims jurisdiction compared to other states SB 221 (Simitian) Page 5 of ? Approximately fourteen states are considering legislation that would increase the small claims court jurisdictional limit. Currently, California's existing jurisdictional limit is slightly higher than most states, although a few states are also considering increasing the jurisdictional limit to $10,000. It is important to recognize that California has a higher cost of living, so the higher jurisdictional amount for small claims courts would appear to be justified. c. Filing fees Filing fees for small claims courts are substantially less than filing fees for unlimited and limited civil cases. A plaintiff who has filed twelve or fewer claims in small claims court in the prior twelve months must pay a filing fee between $30 and $75 depending on the amount of the claim. For more than twelve claims in a twelve-month period the filing fee is $100 regardless of the claim amount. In contrast, to file the first paper in an unlimited civil case, the state-wide minimum fee is $395 and $370 for a limited civil case greater than $10,000 and $225 for a claim that is $10,000 or less. This can be cost prohibitive for a low-income litigant. By increasing the jurisdictional limit for small claims courts, litigants are able to exercise their legal rights in those courts without being inhibited by high filing fee costs in civil court. d. Small claims filings One of the concerns raised in 2005 regarding the increase in the jurisdictional amount for small claims was that there would be an influx of cases filed, thus significantly impacting the small claims courts. However, according to Judicial Council's most recent statewide court statistics report, small claims filings have been fairly stagnant, initially dropping and then increasing slightly since the jurisdictional increase in 2006 (256,086 in 2005-06; 224,485 in 2006-07; 227,733 in 2007-08; and 232,378 in 2008-09), while filings for limited civil cases have steadily increased every year since 2006 (503,353 in 2005-06 and 783,863 in 2008-09). According to the Judicial Council, "in the first year after the change from $5,000 to $7,500 occurred (2006-2007), there was actually a slight decrease in small claims filings (continuing a long-term trend). Subsequently, there have been modest increases in small claims filings each year. It appears SB 221 (Simitian) Page 6 of ? that other factors besides the increase in jurisdictional limits may account for most of the recent increases in small claims filings. This is suggested by the fact that filings in limited civil cases (i.e., cases under $25,000) have increased even more precipitously than small claims filings during the past few years. Thus, although the increase in jurisdictional limits in small claims may have had some impact on filings in small claims cases, it appears that the downturn in the economy is an even larger factor." e. Jurisdictional increase is limited to claims brought by a natural person This bill would only increase the small claims court jurisdiction for claims brought by a natural person. The small claims court's jurisdiction would remain at the $5,000 limit for an action brought by a business or any other entity. The policy behind keeping a lower threshold for businesses is to protect consumers who may become defendants. Because the action is brought in small claims court, those consumers will not have access to an attorney. There is a greater likelihood that businesses will have access to more resources and may potentially have access to outside legal services. This defeats the purpose of small claims court and could result in a consumer potentially being held to pay a significant amount of money without the aid of an attorney and with very little recourse. Since the increase proposed by this bill is limited to claims brought by a natural person, Consumers Union is neutral on this bill. 3. SB 422 Intent language SB 422 was amended to include language stating that it is the intent of the Legislature that before the jurisdictional limit is raised again certain services should be sufficiently funded. Specifically, SB 422 suggested that the small claims courts provide (i) in-person advice from legal professionals; (ii) adequate staffing levels that provide services to both parties and that; (iii) small claims courts have "professional, well-trained, compensated decision makers who meet standards established by the Judicial Council." By statute, each county must provide small claims advisory services. (Code of Civ. Proc. Secs. 116.260 and 116.940; see also California Rules of Court 3.2120.) According to Judicial Council, all of the counties in California provide small claims SB 221 (Simitian) Page 7 of ? legal advisors who help with small claims court and consumer problems. Additionally, most counties provide self-help centers which help with many legal issues. This appears to address the concern about providing parties with in-person professional legal advice. The second criterion is more difficult to quantify, although Judicial Council notes that efforts have been made to accomplish this goal. Finally, as a result of SB 422, in 2007 Judicial Council amended the Rules of Court relating to the training of temporary judges. Temporary judges are routinely used in small claims courts instead of an appointed or elected judge. Certain education, experience, and training requirements must be met in order for the court to appoint a temporary judge. Among other things, a temporary judge must be an attorney who has been admitted to practice for at least five years and must have completed training in bench conduct and demeanor, ethics, and specific substantive law training for small claims courts. (California Rules of Court Sections 2.811-2.818.) In support, Judicial Council states "notably, SB 221 keeps intact key protections from the 2005 legislation - the increased jurisdictional amount would only apply to actions brought by natural persons, and the enhanced training requirements for temporary judges and increased funding for small claims advisors would continue under this measure. Given the passage of time, the rising cost of litigation, and the lack of evidence of adverse court impacts from the last jurisdictional increases, the Judicial Council believes that SB 221 strikes the appropriate balance of providing increased access to justice for some individual consumers while at the same time not overwhelming the courts." 4. Opposition's concerns The Association of California Insurance Companies (ACIC) opposes this bill. ACIC contends that "a central feature of most insurance policies-one that is not ordinarily subject to policy limits-is the "duty to defend" undertaken by the insurer on behalf of the insured." As a result, ACIC believes that if the jurisdictional limit is raised, three things would happen: "first, insurers would be unable to meet their contractual obligations. Second, consumers would be deprived of a benefit under their insurance policies for which they paid a premium. Third, insurers will be unable to defend against fraud which increases each time the small claims court cap is raised." Further, ACIC notes that "the majority of insurance claims fall SB 221 (Simitian) Page 8 of ? below the $10,000 limit-in effect depriving a majority of insured claimants their right to a legal defense provided by their insurer." Finally, ACIC argues that if the limit is raised then "insurers would have little choice to appeal to the Superior Court . . .in these appeals, counsel can appear for parties . . . the number of such appeals is likely to increase substantially . . . that will eventually will result in higher costs to the judicial system." Support : Judicial Council Opposition : Association of California Insurance Companies HISTORY Source : Author Related Pending Legislation : None Known Prior Legislation : SB 422 (Simitian, Chapter 600, Statutes of 2005), among other things, raised the small claims court jurisdictional limit from $5,000 to $7,500. AB 1459 (Canciamilla, Chapter 618, Statutes of 2005) was identical to SB 422. AB 1131 (Ackerman, 2000) and SB 110 (Ackerman, 2001) would have applied small claims jurisdiction to suits by an assignee in specified circumstances. AB 1131 was held in the Senate Judiciary Committee and SB 110 was held in the Assembly. SB 1342 (Lockyer, 1997) would have increased the small claims court jurisdictional limit to $10,000 in auto accident cases. This bill was held in the Assembly. AB 246 (Lempert, 1997) would have increased the small claims court jurisdictional limit to $7,500. This bill was vetoed. ************** SB 221 (Simitian) Page 9 of ?