If you're a lawyer who sends out these letters, stop reading now
I hold these attorneys in very low regard. If you're one of them and your feelings get hurt easily, you probably won't want to read the rest. Plus, I'm going to tell people your secrets and ruin your money-making racket.
I got a threatening letter from a lawyer! What should I do?
Short answer: You can probably just ignore them, and use the letter at the bottom of your cat's littler box. They'll send more threatening letters, demanding even more money, but you are probably safe in ignoring those, too.
Don't call them, talk to them, or make deals with them!
These guys get more stern with every letter, demanding even more money each time. Ignore their threats; they rarely, if ever actually sue anyone. If they call you, tell them you will only communicate with them in writing, then hang up. They're just hoping you'll be scared enough to send them money. If you make an agreement to pay them over time, it's probably an enforceable contract... even if a lawyer COULD get you out of it, it would cost a lot more than you agreed to pay in the first place.
Read Penal Code ?490.5
The full text of all California statutes is available at http://www.leginfo.ca.gov/calaw.html
Okay, I've read it... what does it mean?
We're concerned about subsections (b), which makes parents liable for a child's actions, and subsection (c), which applies to adults. Both say a minor or adult who shoplifts "shall be liable to the merchant or library facility for damages of not less than fifty dollars ($50) nor more than five hundred dollars ($500), plus costs," and "the adult or emancipated minor shall be liable to the merchant for the retail value of the merchandise if it is not recovered in merchantable condition." That means you're required to compensate them for their losses, plus the cost of any merchandise that's too damaged to re-sell. If you take an ice cream bar and it melts before they catch you, add the 89 cents it would cost you to buy it; in the question posted by one Avvo user, her child took a bottled soft drink which was recovered unopened, so it was "in merchantable condition" and there were no additional damages.
What are damages?
Damages are the losses someone suffers as a result of your actions (or your child's). What are the merchant's damages in this case? The store clerk or loss prevention employee who arrested you is on salary, and would have been working, anyway, so they didn't incur any additional costs as a result. The only damages would be the cost of any merchandise they couldn't put back on the shelf and sell to somebody else.
What are costs?
In a small claims action, it's the filing fee, plus the costs of serving a the lawsuit on you. The filing fee is thirty dollars for claims of less than $1500, unless the person has filed more than 12 claims in the past 12 months; then the fees go up to $100. (Since these guys rarely, if ever, sue anyone, the fee would probably be $30.) It can cost up to a hundred dollars to hire a private process server to serve you with the summons, but small claims cases are typically mailed by the court clerk at minimal cost.
But they're threatening to add legal fees, and ruin my credit, too!
Penal Code ?490.5 does not allow them to recover legal fees. They can't report you to a credit agency because you don't legally owe them anything unless they successfully sue you.
If they can't get this much money in a lawsuit, why do they send out these letters?
They make money on sheer volume. Even if a small percentage of the people they contact actually respond, they still make plenty of money -- especially since they demand amounts they could never justify in court. Keep in mind that most of these firms get paid by keeping a percentage of what they collect, with the balance going to the store they represent. If they don't get a response, they'll eventually quit wasting time and postage.
So what if they actually take me to small claims court?
First of all, lawyers aren't allowed in small claims court unless they're making a claim for their own loss, so someone from the store, not the law firm, would have to come to court. I don't know who they'd send; I'm on an email list of two thousand criminal defense attorneys in California, and nobody has ever heard of an actual lawsuit under this section. You'd be up against a non-lawyer who probably wouldn't know how to present the case. Besides, the most they could get is $500 (plus the value of any damaged merchandise) and they'd have to prove their damages to get to that amount. It's very unlikely they would bother. According to an article published by the Wall Street Journal in February, 2008, "A partner at [Palmer, Reifler & Associates, one of the biggest civil recovery law firms] has said that it sends out about 1.2 million civil-recovery demand letters a year but follows up by suing fewer than 10 times a year." There's a link to the full article at the end of this guide.
Can I offer to settle for less than the full amount?
***UPDATED JANUARY 18, 2010. I used to suggest offering a nominal $50 settlement to get them to go away. Until recently, I had never seen one of these settlements rejected. However, some Avvo readers have told me their settlement checks were returned with a demand for even more money. Based on this new information, I can no longer suggest trying to settle these demands. If you aren't willing to pay the full amount, just ignore them and they will most likely go away.
Special note on letters from Nordstrom department stores
***UPDATED SEPTEMBER 10, 2010. I recently learned that Nordstrom department stores is sending out notices threatening criminal prosecution if you don't pay: "Failure to address this matter within 10 days of the date of this letter will result in our turning this matter over to an outside agency for criminal and/or civil action." This appears to be a very serious violation of Federal and State collection laws, as well as an act of criminal extortion under the California Penal Code. If you receive one of these letters, I strongly urge you to contact the Federal Trade Commission, Consumer Response Center, Washington, DC 20580-0001, and the Attorney General's Office, California Department of Justice, Attn: Public Inquiry Unit, P.O. Box 944255 Sacramento, CA, 94244-2550.
Final thoughts, and disclaimer
This legal guide is based on CALIFORNIA LAW, and intended to apply to claims made under Penal Code ?490.5 only. I AM NOT LICENSED TO PRACTICE IN ANY OTHER STATE, AND THE LAWS OF YOUR STATE MAY BE DIFFERENT. Your circumstances may vary; for instance, if store employees were injured as a result of your actions, or if the store incurred other losses in excess of the limits of Penal Code ?490.5, contact a lawyer immediately. Please understand that this is a discussion of general principles based on California law, not specific legal advice, and it does not create an attorney-client relationship. Laws of another state are probably different, and you should consult a lawyer licensed to practice law in your jurisdiction. Good luck!