Franklin Collection Service, Inc. v. Jerry Stewart

Citation: Not availableDocket: 2002-IA-00591-SCT

Court: Mississippi Supreme Court; April 3, 2002; Mississippi; State Supreme Court

Original Court Document: View Document

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Franklin Collection Service, Inc. initiated nine separate actions in the Noxubee County Justice Court from June 1996 to December 2000, seeking judgments for unpaid medical bills owed by various defendants, all residents of Noxubee County. Each complaint included the debt amount, attorney fees, and court costs, asserting the debts were incurred on an open account, had been assigned to Franklin, and that written demands for payment were made more than 30 days prior to filing. Default judgments were granted against all defendants who did not respond. The judgments detailed specific amounts owed per debtor, including service providers and total amounts, which ranged from $234 to $1,107, covering both debts and additional costs. The judgments were ultimately reversed and rendered by the Supreme Court of Mississippi.

The majority of attorney fees allocated in the case were within the court's traditionally approved one-third of the debt, with the exception of Mrs. Neal, whose fee exceeded this threshold by $7. On December 18, 2000, the debtors filed separate civil actions against Franklin in Noxubee County Circuit Court, claiming the debts were not open accounts and alleging fraud and abuse of process. The case was initially removed to federal court in January 2001 but was remanded back to state court in June 2001, as the federal court ruled the action was not completely preempted by the Fair Debt Collections Practices Act. 

An order denying Franklin's motion to dismiss or for summary judgment was issued by the circuit court on April 4, 2002, which led to the certification of four issues for interlocutory appeal, consolidated into three issues by this Court. The appeal involved eleven plaintiffs from Noxubee County who were subjected to collection proceedings by Franklin for unpaid medical bills, with all defendants properly served and default judgments entered due to their lack of response.

The plaintiffs later sought recovery for attorney’s fees awarded in justice court judgments, alongside punitive damages, alleging misrepresentation, abuse of process, and fraud. Franklin countered by asserting that the lack of appeals from the justice court judgments barred the circuit court from addressing the attorney's fees. The circuit court denied Franklin's motion, allowing for interlocutory appeal. 

Ultimately, the Court found that the plaintiffs' challenges were barred by res judicata, deeming their claims of fraud and abuse of process meritless. The judgment of the Noxubee County Circuit Court was reversed and rendered, with the Court clarifying and rewording the issues raised. The plaintiffs contended that their failure to appeal did not preclude their claims, as they alleged a scheme to defraud and ethical violations by Franklin.

Res judicata applies to the open account procedure, attorney’s fees, and the failure to appeal, but does not prevent the review of misrepresentation, fraud, and abuse of process allegations due to case-specific circumstances. The doctrine aims to avoid multiple litigations and conserve judicial resources, as established in *Little v. V&G Welding Supply, Inc.*. A default judgment can be entered if a defendant fails to appear, provided there is jurisdiction and proper service of process. Such judgments carry preclusive effects on subsequent litigation. The proper appeal procedure from a justice court judgment allows for a de novo trial in circuit court, as outlined in Miss. Code Ann. 11-51-91. The plaintiffs did not challenge service or jurisdiction in the justice court, nor did they dispute the existence of the debt. Their complaints regarding the collection of attorney’s fees do not contest the debt itself. Plaintiffs are barred from contesting the default judgments because they failed to defend against the initial collection action or timely appeal it. Franklin claims the unpaid debts are "open accounts" eligible for attorney’s fees recovery under Miss. Code Ann. 11-53-81, while plaintiffs contest this classification. An "open account" is defined as one based on ongoing transactions that remain unsettled, as per *Westinghouse Credit Corp. v. Moore, McCalib, Inc.*.

A collection for recovery on an open account, particularly in the context of medical bills, qualifies as a collection action under Mississippi law, specifically referencing statute 11-53-81. This statute applies whether the collection is initiated by the medical provider or a collection agency on their behalf, whereby those who fail to pay are liable for reasonable attorney's fees upon a judgment in favor of the plaintiff. Previous case law, such as Anderson v. Lancaster, supports the classification of medical accounts as open accounts. Additionally, in Wise v. Gulf States Collection Services, a collection agency's attempt to recover fees for a disputed hospital bill was deemed an ordinary contract case, highlighting that liability cannot arise without an agreement for services.

The justice court acted appropriately in entering a default judgment against the plaintiffs, who were properly served but failed to appear. The plaintiffs' claim that they can pursue an independent action against the collection agency, alleging abuse of process and ethical violations regarding fee sharing, lacks merit. The criteria for abuse of process require an illegal use of process, ulterior motives, and resultant damages, none of which were substantiated in this case. The plaintiffs' assertions regarding the inapplicability of attorney's fees under the open account statute are unfounded, and any ethical violations by Franklin's attorneys do not suffice to support a separate civil action.

The circuit court's denial of Franklin’s motion to dismiss or for summary judgment is reversed. The plaintiffs' claims regarding attorneys’ fees are barred by res judicata, and debt collection for medical services qualifies as open accounts under Miss. Code Ann. 11-53-81, negating claims of abuse of process. Consequently, the court grants summary judgment, dismissing the plaintiffs’ complaints with prejudice. 

In dissent, Justice McRae argues that material factual disputes exist, particularly regarding whether the collection proceedings constitute open accounts and whether Franklin Collection is entitled to attorneys' fees. Two legal issues are also raised: whether the plaintiffs are barred from pursuing abuse of process claims and the existence of a private right of action for ethical violations against Franklin Collection. McRae contends that the plaintiffs are not barred from claiming abuse of process and that while ethical violations do not create a private right of action, they may support the abuse of process claim. 

The definition of "open account" is pivotal, typically involving ongoing transactions not yet settled. Previous cases illustrate that various services, including medical collections, can qualify as open accounts.

The Court has not previously ruled on whether an unpaid medical bill, classified as an account receivable, can retain its "open account" status after being sold to a collection agency. The sale of the account to Franklin Collection indicates that the account has effectively been closed, as no further transactions are expected between the original creditor and the collection agency. The appeal record lacks sufficient evidence to determine if the medical bills were "sold" or "assigned," making it unclear if the collection efforts pertain to an "open account" that would allow for recovery of reasonable attorney's fees under §11-53-81. 

Additionally, the entitlement of Franklin Collection to attorney's fees hinges on whether the debt was held as an "open account." Issues arise regarding Franklin Collection's practices, including the involvement of unlicensed individuals in drafting and filing complaints. If no attorneys contributed to the collection process, it raises questions about the reasonableness of the fees charged. For instance, the collection sought a total of $267.00 for a $163.00 debt, including $50.00 in fees and $54.00 in costs, which may not reflect reasonable attorney's fees if minimal legal work was performed.

Franklin Collection argues that the plaintiffs cannot maintain a claim for abuse of process because it was not raised as a counterclaim in the justice court proceedings. However, such claims are not considered mandatory counterclaims, and procedural rules allow for counterclaims in justice court. Lastly, there is no private right of action against Franklin Collection for violations of ethical and disciplinary rules, but such violations can support the plaintiffs' claim of abuse of process.

Ethical and disciplinary violations in other jurisdictions can serve as evidence for separate civil actions, as established in *Allen v. Lefkoff, Duncan, Grimes, Dermer, P.C.* and *Mayol v. Summers, Watson, Kimpel*. The elements required to prove abuse of process include: (1) illegal use of the process that is not warranted or authorized, (2) an ulterior motive, and (3) resulting damages from the improper use. The *McLain v. West Side Bone & Joint Center* case outlines that abuse of process can occur through the malicious misuse of civil or criminal processes for unlawful results, justifying a claim for recovery of damages incurred.