It is a difficult task comparing the cost of using Small Claims Court versus Mediation to resolve a dispute since there are myriad factors to consider. Much of the cost will depend on the actions and decisions of the other party to the dispute, the mediator chosen, the judge you are assigned and also the jurisdiction in which the case is heard.
Another very important factor is how one defines "cost". Since most of us have so little free time available, we should rightly assign a 'cost' to our time even if it is not a financial outlay. It is similar to what economists might call the "opportunity cost": "the loss of potential gain from other alternatives when one alternative is chosen". Typically a good metric is the approximate amount you earn for an hour of work; although another metric might be more suitable for your personal circumstances.
It should be noted that some small claims courts in the U.S. and Canada do offer free or subsidized mediation services, although usually you can only make use of these services after you have already gone through the trouble of filing a claim in court and possibly requesting a trial date.
The cost of mediation is generally broken down into three categories:
- The fees charged by the mediation institution's fees;
- The fees and expenses of the mediator chosen by the parties; and
- The party’s direct costs., such as the cost of travel and other out-of-pocket expenses.
Costs vary widely depending on these factors. Institutions typically charge between $30 and several hundred dollars to file a small claims case. The parties also typically have to split the cost of the mediator's time which can vary anywhere between $70 and $400 per hour depending on the complexity of the dispute and whom the parties choose to be the mediator.
One way to reduce some of the costs of mediation is to take advantage of online services - several companies offer these services, including eQuibbly and Modria. Although, only a small proportion of mediators are currently taking advantage of the convenience and cost-savings of mediating online, this will change in the not too distant future as people come to appreciate its benefits.
Cost of Small Claims Court
To file a suit in small claims court, you will need to pay a filing fee. The amount varies from about $15 to $200 depending on the State as well as the amount being claimed.
Some States do not allow attorneys in small claims court. However, since there are some complicated procedures and technical rules that could cause problems for your case if not followed correctly, to give yourself the best chance of winning, you might want to consult with an attorney. For a decent attorney you can expect to pay at least $250 per hour and often much more. Assuming a 2 hour consult, that is at least $500.
As the saying goes: time is money. Filling out all the forms correctly, reading, and understanding and following the rules and procedures, often takes much longer than one would expect. One example is the requirement in most jurisdictions that your signature be notarized - typically by a lawyer, a court clerk, or a licensed Notary. Assuming you value your time at an average of $40 per hour, the following is how much your time alone will cost, disregarding all other hard costs:
Filing Suit: Time Required: 10 Hours. Cost: $400.
(travel to court to file suit and for trial, waiting in line, filling out forms, signing forms in front of a notary)
Supporting Your Case: Time Required: 4 Hours. Cost: $160.
(collecting evidence, finding witnesses, serving defendant)
Attorney Consultation: Time Required: 2 Hours. Cost: $80.
Reviewing claim closer to trial: Time Required: 3 Hours. Cost: $120.
(since the trial will be months after the incident and months after you filed the claim you won't remember the details)
Attending Trial: Time Required: 4 Hours. Cost: $160.
(You're not given a specific time - you're given a window of time where you must be in court waiting for your case to be heard)
Total Time Requiredl: 23 Hours. Total Cost: $920
These costs above do not include the extra time you will have to spend if the defendant does not show up in court and later asks for the case to be re-opened and heard, or does show up and asks for an adjournment to a later date. In some jurisdictions there also is a mandatory pre-trial hearing where you have to meet with a representative of the court to discuss your case and see if there is a way to settle it before trial.
Time Off Work
In most cases you will have to attend court during the work week, both to file the initial paperwork, and to attend trial, and possibly a pre-trial hearing. So you will need to take some time off work on two or three days. This could be anywhere from 5 to 10 hours. Assuming an average hourly wage of $40, that is between $200 and $400 of lost wages.
When you file suit, the defendant must be given formal notice in writing that you are suing them. In most States, you will have to bear this cost which could be upwards of $30 to $100 for a courier or licensed process server.
Total Cost of Small Claims Court
Based on the above assumptions and depending on your circumstances and how you value your time, taking your case to small claims court could cost anywhere from $100 to $2,000 if you represent yourself in court. If you want to be represented by an attorney you can add on at least another $2,000 since it is unlikely an attorney will take on a case for less given the responsibilities and liabilities.
Other Possible Costs and Points of Note
There are other possible costs - they are not standard, but circumstances may require them. For instance, since written witness statements are typically not allowed in small claims court, if you need the testimony of a witness you will have to convince the witness to attend the trial and pay them a small fee for doing so. In some jurisdictions there is also the slight possibility that if the defendant loses, the judge may grant an appeal to the defendant which means another attendance in court for you. The other party may also bring a motion for one reason or another that may require you to attend court again at a later date.
Most people expect that if they go to court their case will be heard in front of a judge, but that is not often the case for small claims court. Often small claims cases are heard and decided by Magistrates who are lawyers appointed by the Court, or possibly by a clerk who are not required to have a law degree. It should also be noted that small claims judgments are public information and could appear on your credit report, affecting your credit rating.
There is no doubt that many readers of this post have years of experience with formal mediation - your comments on this piece are very welcome.