Ask a Lawyer // April 2016 // Got Paid? No? Now What?

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In my very first Ask A Lawyer column for AIGA, I talked about having contact provisions that incentivized clients to pay you on time or at least gave you the ability to penalize late payment. My advice (business advice—not legal advice since this column is not legal advice) still stands. But let’s assume for moment that your client has stiffed you-not paid you what you are owed under your contract. Whether it is $1,000 or $10,000 or more, the client owes you money for the work you did. What should I do now Matt, you may ask, sue their pants off?!?!?!?!

Not so fast, young Jedi. Before breaking out the light sabers or blasters, you might want to try a little negotiation first, even if your hand is tickling your light saber on your belt.

The Demand Letter

First I suggest you hire your own Darth Vader (actually a lawyer) and let your Darth Vader send a demand letter, or what I lovingly refer to as a “nasty-gram”, to your client. In my experience, honest clients generally want to make good on their debts, but may have gotten behind or something catastrophic happened and they don’t know how to tell you. Often a letter from a lawyer gets attention and usually a phone call. Some clients will give you a bunch of different excuses, but for some reason a letter from a lawyer for honest clients will get you what you want—payment. You may need to accept a payment plan, but that is often better than any other step. Besides, it is your Darth Vader who is doing the nasty-gram sending—not you.

But what if the demand letter does not work, what then?

Assuming you have exhausted all of your dispute resolution mechanisms, such as mediation (which I strongly encourage) or informal pleas such as a demand letter, it is time to begin “aggressive negotiations” as Anakin Skywalker called it. The nature and scope of your aggressive negotiation will depend on three factors: how much does the client owe you, how big is your legal budget, and how much is the client using the work you did?

X-Wing Fighter Suit—the Small Claims Court

Can’t my Darth Vader just Jedi Mind Trick them in to paying? Alas, no. Lawyers in this Galaxy have not actually mastered the Force—yet…….

But Matt, you say, I don’t want to spend thousands of dollars on a $2,500 claim, which is certainly understandable. That is why the courts have the nimble and speedy process of small claims court or the X-Wing fighter of lawsuits.

In most jurisdictions, if your claim is $5,000 or less, you can file an action in small claims court. In many jurisdictions, business owners can represent themselves and don’t need a lawyer to appear in court on small claims. Most small claims get a trial date in eight to ten weeks. Generally, small claims “trials” take less than an hour. In my experience, about half of the defendants don’t even show up.

The Millennium Falcon Suit—Breach of Contract Claim

“She ain’t pretty but she’s got it where it counts,” said Han Solo of the Millennium Falcon. Well, a breach of contract suit “ain’t pretty” but it will get you where you want to go. If your claim is greater than $5,000 but less than say $15,000 you can probably still be in a small-claims like setting with trial dates that comes sooner. Larger claims may take a little longer.

This kind of lawsuit is usually at the state court level and thus tends to be a bit cheaper. In certain circumstances, you can take a breach of contract to federal court, but the client needs owe you at least $75,000 in order to do that. If you have a good written contract that you followed, the proof of the claim is pretty straight-forward. One reason why I always write contracts that require the client to given you written approval of your work for delivery and printing/launch is that you have a document that says the client accepted the work. Produce that email to the other side and often times a settlement offer is forthcoming.

Now, never fear, statistically you will almost never have to go to trial. More than 95 percent of all claims will settle long before your court date because the facts will usually come out quickly.

Star Destroyer Suit—Copyright Infringement Claims

If your client has not paid you, but is using your work, you have the potential for a copyright suit, the big Star Destroyer of a lawsuit.

When you create something and put it in a fixed medium, then you own the copyrights to that creation. Although many design contracts may be considered and written as works made for hire, you should not assign any rights until such time as you have been paid in full. (If your contract doesn’t say that, get that fixed.) AIGA strongly recommends your client contract state that rights do not transfer until such time as full payment is made, even under works made for hire.

If you client is using your work without paying for it, the first thing you should do is immediately file for a copyright registration. Registration costs just $35 plus legal fees if you hire an attorney to help you. There is some disagreement among courts about whether it is necessary to have the actual registration certificate to bring an action for copyright infringement or if you just need an application on file. Given the current copyright review backlog of about eight months, you might want to file the application and then consider your lawsuit. But you have a little time—you have to bring a copyright infringement lawsuit within three years of the first infringing use.

The beauty (or ugliness depending on your point of view) of a copyright infringement lawsuit is that copyright is a federal law and thus you take clients to federal court. But federal court is expensive so this might be your last resort. The payoff though, assuming you win, is quite hefty. Willful copyright infringement carries a fine of up to $150,000 per infringing use and the damages to can add up quickly. With your client contract, the client would be on notice that they do not have the authority to use your work until they pay for it. Those facts might be enough to show a willful violation.

But being honest, rarely will you need to break out the Star Destroyer claim. Usually, the threat will be enough.

So your Darth Vader comes through and you win the lawsuit. Not so fast, young Jedi—you still have to collect that judgment but that is another adventure for another time.

(P.S. Sorry, my family has been watching the Star Wars movies recently and it is in my head)


BIO Disclaimer

MATT JOHNSTON IS A SOLO ATTORNEY WITH A FOCUS ON SMALL BUSINESS REPRESENTATION, COPYRIGHT AND TRADEMARK LAW, AND DISPUTE RESOLUTION. MANY OF MATT’S CLIENTS ARE DESIGNERS AND CREATIVE PROFESSIONALS WHOSE CONCERNS OVERLAPPING MATT’S PRACTICE AREAS. MATT CONCENTRATES ON DRAFTING CLEAR CONTRACTS OF ALL TYPES AND HELPING DESIGNERS WITH THE LEGAL SIDE OF THE DESIGN BUSINESS. AS A BENEFIT TO AIGA MEMBERS, MATT OFFERS A 10% DISCOUNT ON ALL CONSULTATION APPOINTMENTS, FLAT FEE PROJECTS, AND HOURLY FEES.
THE CONTENT OF THIS COLUMN IS FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE APPLICABLE IN ANY SPECIFIC SITUATION. NO ATTORNEY-CLIENT RELATIONSHIP IS CREATED THROUGH THIS COLUMN. IF YOU NEED CONFIDENTIAL LEGAL ADVICE, MATT IS AVAILABLE FOR PRIVATE AND PRIVILEGED CONSULTATIONS. CONTACT MATT IF YOU HAVE SPECIFIC CONCERNS.
By Matthew S. Johnston
Published April 12, 2016
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