Legal Question in Business Law in California

Re: Collections error

The aggrieved former customer can sue you; all it takes is filling out a few forms and paying the filing fee. Whether they will win under the facts given is another question.

The suit would probably be for malicious prosecution, and possibly other causes of action would be alleged against you as well, such as unlawful collection practices and/or trade libel. Proof of all the necessary elements to establish a claim for damages, including actual harm, would be required and where the collection effort was a bona fide mistake and there were no aggravating circumstances, that may be difficult. On the other hand, I would think you are likely to be liable for the other party's expenses, including it's attorney fees. I can't analyze your risks any further without more facts as to what specifically happened and how far the collection effort progressed before it was finally halted.

You should at this point find a trustworthy lawyer who can negotiate an early settlement with the customer and who can and will advise you forthrightly on whether you should consider a malpractice suit against your former attorney. Maybe the new attorney can also help you collect the original debt from the right debtor.