7th Cir. Deductions Collecting “Fee On Fee” Did Not Violate FDCPA


The United States Court of Appeals for the Seventh Circuit recently upheld the judgment in favor of a debt collector against allegations his efforts to collect attorney fees incurred to collect a debt – including costs incurred to collect attorney fees – violated federal law on fair debt collection practices. .

In that decision, the Seventh Circuit concluded that the dismissal of a related legal action brought by the debt collector to recover attorney fees for failure to prosecute did not have exclusive effect and did not violate the FDCPA, 15 USC § 1692 et seq., arose because the plain language of the underlying agreement required the consumer to pay all collection costs, including attorney fees.

A copy of the notice in Robbins vs. Med-1 Solutions, LLC is available at: Link to Opinion.

A consumer incurred medical costs for treatment of her minor children through a hospital system. The written agreement signed by the consumer at the time of service provision on the condition that she agrees to pay the fees that the hospital has billed her, as well as “collection costs, including legal fees.[‘s] fees and interest ”, if it has not made the payment on time. After the consumer’s default, the supplier hired a company to collect the debt which filed a collection suit.

After initially disputing the debt, the consumer agreed that she owed the $ 1,499 in medical bills and paid that amount in full, but refused to pay the debt collector’s legal fees. The debt collector offered to accept $ 375 to resolve the fee dispute, which the consumer rejected due to warnings from the debt collector’s attorneys that a protracted dispute over unpaid fees would result in his liability for legal fees additional (“charge on charge”). .

The court in the collection action ultimately ruled in favor of the debt collector, ordering the consumer to pay the debt collector $ 1,725 ​​for his legal fees incurred. The consumer appealed the decision. Under the state law in force at the time, the appeal opened de novo and the debt collector filed a new complaint to recover the costs.

Meanwhile, prior to the small claims adjudication, the consumer separately sued the debt collector in federal court, alleging that the debt collector’s attempts to collect attorney fees and professional fees that were not owed by contract violated the FDCPA prohibitions on using “any false, misleading or deceptive representation or means in connection with the collection of any debt” (§1692e) and the use of “unfair or unreasonable means to collect or attempt to collect a debt ”(§1692f).

The federal court of first instance stayed the case pending the outcome of the state proceedings which lay dormant for almost two years, possibly due to the small amount at stake, and were ultimately dismissed with prejudice for failure to prosecute.

After the stay in the federal case was lifted, the parties filed counterclaims for summary judgment. The consumer made two arguments which would provide a basis for her FDCPA claim: (i) that res judicata effectively prohibits the debt collector from arguing that the agreement required the consumer to pay costs over costs as a result of the rejection of the debt legal action again filed by the collector, and; (ii) that the provision on collection costs in the agreement did not contractually oblige the consumer to pay costs over costs.

The federal court of first instance rejected these arguments and handed down a judgment in favor of the debt collector. The consumer appealed in a timely manner.

On appeal, the Seventh Circuit first considered the consumer res judicata argument, which is governed by Indiana’s exclusionary rules under the Full Faith and Credit Act (28 USC § 1738). Under Indiana law, the authority of res judicata or the exclusion of a claim “precludes any subsequent litigation over the same claim between identical parties.” Edwards vs. Edwards, 132 NE3d 391, 396 (Ind. Ct. App. 2019). However, the exclusion of claims is invoked defensively “to prevent a claimant from asserting a claim that he has already contested and lost” (Thrasher, Buschmann & Voelkel, PC v. Adpoint Inc., 24 NE3d 487, 494 (Ind. Ct. App. 2015)) – and is not a remedy available for a claimant to reaffirm a claim he has already won.

Reframing the consumer’s argument under the exclusion of the issue, or collateral estoppel, which can be used “offensively” when the “plaintiff seeks to prevent the defendant from arguing an issue that the defendant has.[d] previously unsuccessfully pleaded in an action with another party ”(Tofany v. NBS Imaging Sys., Inc., 616 NE2d 1034, 1037 (Ind. 1993)) did not offer any different results.

Primarily, the Indiana Supreme Court ruled that a dismissal for want of prosecution does not have exclusive effect because “no issue has in fact been contested.” Afolabi, 849 NE2d to 1176. While this was independently sufficient to defeat the consumer’s claim, the Seventh Circuit also noted that the relevant state law also takes into account certain factors, including “the inducement to bring legal action ”to consider the fairness of the offensive use of exclusion issue. Tofany at 1038. The Seventh Circuit found that this factor also defeated any request for problem exclusion, concluding that the debt collector had little incentive to pursue the attorney fee dispute given the small amount of damages. stake.

For these reasons, the Seventh Circuit ruled that the exclusion doctrine did not apply, and the Seventh Circuit rejected the consumer res judicata argument.

Then the Seventh Circuit responded to the consumer’s claim that the agreement did not allow the debt collector to collect fees on fees, and the debt collector’s attempts to collect were a false statement in violation of § 1692e and an unfair debt collection practice in violation of § 1692f.

More specifically, during the execution of the agreement, the consumer agreed that “[i]In the event that I do not pay these fees when due, I agree to pay the collection costs, including legal fees.[’s] fees and interest. The consumer argued that “collection costs” should be limited only to the cost of collecting unpaid medical bills and attorney fees related to bill collection, while the debt collector argued for the language to be interpreted more broadly, to include all costs associated with recovery, including the costs of recovering attorneys’ fees.

The Seventh Circuit concluded that the sentence is complete and that reading “collection costs” to exclude costs over costs “would not fully compensate [the hospital] to enforce rights ”and goes against the interpretation of Indiana law on standard fee transfer provisions. Walton v. Claybridge Homeowners Ass’n, Inc., 825 NE2d 818, 825 (Ind. Ct. App. 2005) (Indiana law recognizes that “the purpose of a charge-transfer provision is to make the winning part of a contract whole.”).

Since contract language allowed for fee-on-fee collection, consumer collection attempts did not violate the FDCPA.

For these reasons, the judgment in favor of the debt collector was upheld.


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