9.2 Filing an Action to Collect a Debt

• Library: The Virginia Lawyer: A Deskbook for Practitioners (Virginia CLE) (2018 Ed.)

9.2 FILING AN ACTION TO COLLECT A DEBT ¹²⁴

9.201 Introduction. In many collection matters, an action must be filed against the debtor. In most cases, the attorney has a choice of jurisdictions and a choice of the court in which to file the case.

9.202 Choice of State or Federal Court.

A. In General. Few collection actions are filed in federal court, primarily because of the jurisdictional amount involved and the requirement of diversity of citizenship between the parties. ¹²⁵ However, if these requirements can be met, there are several possible reasons for choosing federal district court over state court.

B. Location of the Court. If the debtor is located in a rural county outside counsel's practice area, it may be advisable to keep the case out of the debtor's locality. It is less expensive for the debtor to hire local counsel to defend the claim in a local state court, whereas it is expensive and time consuming for counsel to travel to the debtor's county to pursue the matter.

C. Prevention of Stalling by the Defendant. Additionally, because of the Federal Rules of Civil Procedure, the extensive use of discovery, pretrial conferences, and summary judgment motions in the federal district courts, and the federal court's rigid policy against granting continuances, it is extremely difficult for a defendant to delay a case in which he or she does not have a valid defense.

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Finally, the federal courts in Virginia have what is known as the "rocket docket." Most cases can be tried within six months from the date of filing.

9.203 Choice of Circuit or General District Court.

A. In General. If the federal district court is not an option, the civil action must be filed either in the circuit court or the general district court of a city or county in which there is proper venue. Most cities and counties in Virginia have both a circuit court and general district court. Many cases that might be properly brought in the circuit court may also be brought in the general district court. ¹²⁶ In most cases, the only practical consideration in determining whether to use the circuit court or the general district court is the amount of the claim. General district courts have exclusive jurisdiction over any claim to specific personal property (detinue actions), damages for breach of contract, injury done to property (real or personal), or for any injury to a person that would be recoverable in an action at law when the amount of that claim does not exceed $4,500 exclusive of interest and attorney fees.

In addition, the general district court has concurrent jurisdiction with the circuit court in all suits in which the amount sued for is $25,000 or less, exclusive of interest and attorney fees, and exclusive jurisdiction to try and decide attachment cases in which the amount of the claim does not exceed $25,000, exclusive of attorney fees and interest. The court can also hear all unlawful detainer cases and cases involving distress warrants, in which cases there is no such monetary jurisdictional limits, and has the jurisdiction to try any claim, counterclaim, or cross-claim arising out of an unlawful detainer action that includes claims for damages sustained and for rent against any person obligated on the lease or any guarantee of that lease. Further, the court has jurisdiction, up to its jurisdictional limits, to try cases involving partition of personal property. ¹²⁷

Subsection (10) of section 16.1-77, enacted in 2016, grants jurisdiction to general district courts to submit a case to arbitration where the amount is within the court's jurisdictional limits. Virginia circuit courts are granted this power by section 8.01-577.

B. Choice of General District Court. Where this choice exists, the action should almost always be filed in general district court. The initial

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filing costs are less than in circuit court. Judgments in uncontested cases can be taken by default within 30 days of the date of filing of suit, and the date may be selected in advance by the attorney. Default judgments in circuit courts depend on the court's schedule and docket backlog.

Some debtors' attorneys over-litigate small cases. They use, and perhaps overuse, discovery in circuit court cases and create unnecessary work for the creditor's attorney. In cases where the amount of the claim is slightly over the statutory limit, the creditor may wish to reduce the claim to $25,000 and sue in the general district court where extensive discovery is not available. In fact, the creditor's attorney can use the general district court case as a discovery tool. If the general district court decision is unfavorable, the attorney can evaluate whether or not the matter justifies an appeal to circuit court. It is very inexpensive for the creditor to appeal the case to the circuit court since, unless a counterclaim has been filed, the plaintiff is not required to post a bond. ¹²⁸ A debtor who loses and wishes to appeal must post a bond, unless bond is waived by the court because the debtor is deemed indigent (and even this bond cannot be waived in unlawful detainer cases), and the judgment will be collectable if the creditor prevails again in circuit court. ¹²⁹ Bond may also be waived if the defendant's liability carrier provides written irrevocable confirmation of coverage in the amount of the judgment. ¹³⁰

The right of a defendant to remove a case to circuit court was abolished by the 2007 legislature. The defendant can no longer insist on trial in circuit court unless the defendant first loses the general district court case and appeals. In that event, the defendant must post an appeal bond, which will satisfy the judgment if the plaintiff prevails again. ¹³¹ The demise of removal provides the plaintiff with a substantial tactical advantage.

C. Choice of Circuit Court. There are several reasons to file suit in a circuit court when the same action might have been filed in the general district court. First, in rural counties, the general district judge often has represented many of the residents before becoming judge and may have a conflict of interest, and scheduling a substitute judge might cause a delay in setting the hearing. In this situation, it is sometimes necessary to proceed in

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circuit court, where a judge can usually be brought in from a neighboring county in the circuit if there are conflicts of interest.

Second, in some areas of the state, certain judges are known to have a predisposition against creditors. Attorneys in those areas, whenever possible, should file their actions in the circuit court if the case might be contested.

Third, the attorney may develop a litigation history with certain debtors who have been sued many times—debtors who know how to use the informality of the district courts to their advantage. Those debtors consistently come into court, set the cases for trial, and stall as long as possible in the district court, particularly in cities or larger counties where a contested case cannot be tried for several months. The same debtors are not as familiar with the circuit court procedure and, therefore, are unable to handle the cases by themselves. It is not advantageous for them to stall if they are going to have to pay an attorney to assist them. In those cases, it is often to the creditor's advantage to bypass the general district court and proceed directly with circuit court action.

Finally, most general district courts require the creditor or the creditor's attorney to appear in order to obtain a judgment, even in a default case. Most circuit courts do not require an appearance if the suit is filed by an affidavit and statement. Therefore, if the debtor is located in a rural area and the attorney does not get to that location very often, it might be possible to file the suit and obtain a judgment, and even bring execution once judgment has been obtained, without actually ever appearing in court.

9.204 Venue.

A. In General. In handling collection cases, the attorney often has a choice of where the action can be brought, as proper venue may lie in more than one city or county, subject to the provisions of the FDCPA, which imposes federal limitations on venue in consumer cases. ¹³² The most important practical consideration in selecting the place to sue is finding the court that is the most convenient for the attorney, the client, and the plaintiff's witnesses. The corollary of this is that the attorney may wish to select a venue that is least advantageous or the most inconvenient for the defendant, the defendant's counsel, and the defendant's witnesses.

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B. Preferred Venue. Section 16.1-76 of the Virginia Code provides that in all civil actions over which the general district courts have jurisdiction, venue is determined by sections 8.01-257 and 8.01-261 of the Virginia Code.

Section 8.01-261 concerns "preferred venue." It deals with venue only in certain types of actions. For example, venue in an attachment action lies only in the city or county in which there is proper venue over the principal defendant or in which the principal defendant has estate or debts owing to him or her. The location of the co-defendant in an attachment action or the place where the co-defendant might be served does not present the plaintiff with an additional choice of venue. Sections 8.01 -257 and 8.0 1-261 are limitations on venue. Section 8.01-257 should be reviewed before filing any action, and section 8.01-261 should be reviewed when filing any of the specific actions listed in that section.

C. Permissible Venue. Section 8.01-262 of the Virginia Code deals with "permissible venue." It sets out at length the threshold requirements for bringing a suit in any particular city or county. Under this section, the case may be brought in any city or county in which venue would be proper. It is always proper to sue a defendant where he or she resides or has his or her principal place of employment or, in the case of...