7th Circuit: Collection agency entitled to fees after woman defaulted on small hospital debt

A collection agency didn’t violate the Fair Debt Collection Practices Act when it attempted to collect attorney fees and “fees-on-fees” from an Indianapolis woman who defaulted on a small debt to an Indiana hospital system, the 7th Circuit Court of Appeals has ruled.

In 2013, Ann Robbins incurred a medical debt to Community Health Network Inc. for services provided to her children. At the time of the service, she signed a written agreement to pay the charges the hospital billed to her with collection costs if she failed to do so.

But Robbins didn’t pay the charges billed to her, so Community Health referred the account to MED-1 Solutions for collection. Initial collection efforts were unsuccessful, so in 2014, MED-1 sued Robbins in Lawrence Township Small Claims Court, seeking $1,499 in unpaid medical bills and $375 in attorney fees on the hospital’s behalf.

Robbins disputed the debt and obtained an order for discovery. After MED-1 provided documentation, she agreed she owed the $1,499 and paid that amount in full — but refused to pay the attorney fees.

MED-1’s lawyer explained that because of her discovery request, his actual fees were now higher than the $375 he had originally sought. He offered to accept $375 to settle the dispute over fees and warned her that his fees would increase if more time was spent on the case, making her liable for fees-on-fees. But Robbins rejected the settlement offer.

Following a hearing, the small claims court ruled in MED-1’s favor and ordered Robbins to pay $1,725, which included an award of attorney fees and fees-on-fees.

Nine days before the hearing in small claims court, Robbins sued MED-1 in federal court alleging several violations of the FDCPA. She twice amended her complaint, and a magistrate judge dismissed some claims before abstaining and staying the case pending final resolution of the state-court case.

The state case had been dormant for almost two years and remained so for another 14 months.

In March 2018, Robbins moved to dismiss for failure to prosecute under Rule 41(E) of the Indiana Rules of Trial Procedure. The Marion Superior Court granted the motion and dismissed the case with prejudice, and Robbins reopened her federal action. The case was reassigned to a different magistrate judge, and the parties filed cross-motions for summary judgment.

Robbins asked the judge to give the state-court judgment res judicata effect in the FDCPA action and bar MED-1 from arguing that the agreement with Community Health required her to pay fees-on-fees. She also claimed as a matter of contract interpretation the costs-of-collection provision in the payment agreement did not cover fees-on-fees. The magistrate judge rejected these arguments, denied her motion and entered judgment for MED-1.

On Tuesday, the 7th Circuit affirmed the U.S. District Court for the Southern District of Indiana’s ruling.

In the opinion, Chief Judge Diane Sykes wrote that the preclusion doctrine doesn’t apply and that Robbins can’t use the superior court’s dismissal order offensively to block MED-1 from arguing that her contract with Community Health required her to pay the fees.

The appellate court found the contract was “straightforward,” as it stated, “In the event I do not pay such charges when due, I agree to pay costs of collection, including attorney[’s] fees and interest.”

“The contract provision putting defaulting debtors on the hook for the hospital’s collection costs, including attorney’s fees, is a standard fee-shifting provision,” Skyes wrote for the court, pointing to Walton v. Claybridge Homeowners Ass’n, Inc., 825, N.E.2d 818, 825 (Ind. Ct. App. 2005). “… The phrase ‘costs of collection, including attorney[’s] fees’ is comprehensive; nothing hints that fees incurred in collecting attorney’s fees are excluded.

“The foundational premise of Robbin’s FDCPA claim — under both § 1692e and § 1692f — thus falls apart,” the opinion continued. “And even if our interpretation of the contract is wrong, it does not necessarily follow that MED-1 violated the FDCPA. The Act is a debtor-protection statute, not a device to provide a windfall for debtors who prevail against debt collectors who bring nonfrivolous collection suits.”

The case is Ann Robbins v. MED-1 Solutions, LLC, 20-1343.

Please enable JavaScript to view this content.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets in {{ count_down }} days.