Ann Robbins v. Med-1 Solutions, LLC ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-1343
ANN ROBBINS,
Plaintiff-Appellant,
v.
MED-1 SOLUTIONS, LLC,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:14-cv-01703-TAB-SEB — Tim A. Baker, Magistrate Judge.
____________________
ARGUED SEPTEMBER 30, 2020 — DECIDED SEPTEMBER 14, 2021
____________________
Before SYKES, Chief Judge, and WOOD and BRENNAN,
Circuit Judges.
SYKES, Chief Judge. Ann Robbins defaulted on a small debt
to an Indiana hospital system for services provided to her
minor children. The hospital hired MED-1 Solutions, LLC
(“MED-1”), to collect the debt. After MED-1 filed a small-
claims action, Robbins paid the debt but refused to pay
attorney’s fees as required by the agreement she signed
when the care was provided. MED-1 then incurred more
2 No. 20-1343
attorney’s fees—the parties refer to these as “fees-on-fees”—
as the small-claims proceeding moved forward for the
purpose of recovering the attorney’s fees that were initially
incurred. The small-claims court ordered Robbins to pay
both the initial attorney’s fees and the fees-on-fees, and she
appealed to the Marion County Superior Court. Under then-
existing Indiana law, the appeal initiated a de novo proceed-
ing, so MED-1 filed a new complaint.
Meanwhile, just before the final hearing in small-claims
court, Robbins filed suit against MED-1 in the Southern
District of Indiana seeking damages under the Fair Debt
Collection Practices Act (“FDCPA” or “the Act”), 15 U.S.C.
§§ 1692–1692p. Among other claims, she alleged that MED-1
violated the Act by attempting to collect attorney’s fees and
fees-on-fees that were not contractually owed. A magistrate
judge stayed the case to await the outcome of the state
proceedings. But the state-court case sat dormant for a long
time. Perhaps because the stakes were so small, MED-1
didn’t pursue it, and the Superior Court eventually dis-
missed it for failure to prosecute.
Robbins then returned to federal court and revived the
FDCPA case, and the parties filed cross-motions for sum-
mary judgment. As relevant here, Robbins raised res judica-
ta, arguing that the state court’s dismissal order precluded
MED-1 from claiming that the contract required her to pay
attorney’s fees and fees-on-fees. In the alternative, she ad-
vanced a contractual argument that she was not required to
pay fees-on-fees. These alternatives formed the basis of her
FDCPA claim; she contended that MED-1 violated the Act by
trying to collect sums she did not owe. The magistrate judge
rejected these arguments and entered judgment for MED-1.
No 20-1343 3
We affirm. The Superior Court’s dismissal order does not
have preclusive effect here. And because Robbins’s contract
with the hospital system required her to pay all collection
costs, including attorney’s fees, MED-1 did not violate the
FDCPA by attempting to collect fees-on-fees in the state-
court proceedings.
I. Background
In 2013 Robbins incurred a medical debt to Community
Health Network, Inc., a hospital system in central Indiana,
for medical services provided to her children. At the time of
the services, she signed a written agreement to pay the
charges the hospital billed to her, together with collection
costs if she failed to do so: “In the event I do not pay such
charges when due, I agree to pay costs of collection, includ-
ing attorney[’s] fees and interest.” Robbins did not pay the
charges billed to her, so Community Health referred the
account to MED-1 for collection. Initial collection efforts
were unsuccessful, so in July 2014 MED-1 sued Robbins in
Lawrence Township Small Claims Court seeking $1,499 in
unpaid medical bills and $375 in attorney’s fees on Commu-
nity Health’s behalf.
Robbins disputed the debt and obtained an order for dis-
covery from the small-claims court. After MED-1 provided
documentation, she agreed that she owed the $1,499 in
medical charges and paid that amount in full. But she re-
fused to pay the attorney’s 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. He also
warned her that his fees would increase if he was forced to
4 No. 20-1343
spend more time on the case, inevitably making her liable
for fees-on-fees. 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’s fees and fees-on-fees.
Robbins appealed the case to the Marion County Superior
Court. Under Indiana law in effect at that time, an appeal
from a small-claims judgment involved a de novo proceed-
ing in the Superior Court. IND. CODE § 33-34-3-15. So MED-1
filed a new complaint.
While playing defense in state court, Robbins went on
offense in federal court. Nine days before the hearing in
small-claims court, she sued MED-1 in federal court alleging
several violations of the FDCPA. She twice amended her
complaint, and a magistrate judge presiding by consent
dismissed some claims and then abstained and stayed the
case pending final resolution of the state-court case. See Colo.
River Water Conservation Dist. v. United States, 424 U.S. 800(1976).
But the state-court case had been dormant for almost two
years and remained so for another fourteen months. For
reasons unknown—but probably related to the small
amount of fees at issue—MED-1 did not pursue the matter.
In March 2018 Robbins moved to dismiss for failure to
prosecute under Rule 41(E) of the Indiana Rules of Trial
Procedure. On May 22, 2018, the Superior Court granted the
motion and dismissed the case with prejudice pursuant to
Rule 41(E).
Robbins then reopened her federal action. The case was
reassigned to a different magistrate judge, and the parties
No 20-1343 5
filed cross-motions for summary judgment. Robbins raised
several arguments, but only two are important here. She
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 inter-
pretation that the costs-of-collection provision in the pay-
ment agreement did not cover fees-on-fees. Success on either
argument would provide a basis for her FDCPA claim: if she
wasn’t obligated to pay fees-on-fees—either because MED-1
was barred from contesting the point or because the contract
did not require her to do so—then MED-1 arguably violated
the Act by trying to collect sums it was not legally entitled to
collect.
The magistrate judge rejected these arguments, denied
her motion, and entered judgment for MED-1. This appeal
followed.
II. Discussion
We review a summary judgment de novo. Richards v.
PAR, Inc., 954 F.3d 965, 967 (7th Cir. 2020). We begin with
Robbins’s res judicata argument, which is governed by
Indiana’s preclusion rules. The Full Faith and Credit Act,
28 U.S.C. § 1738, requires us to “apply the preclusion law of
the state that rendered the judgment to determine whether
res judicata controls this case.” Hicks v. Midwest Transit, Inc.,
479 F.3d 468, 471 (7th Cir. 2007).
Indiana’s preclusion doctrine follows the norm of distin-
guishing between res judicata, or claim preclusion, and
collateral estoppel, or issue preclusion. In Indiana, claim
preclusion “acts as a complete bar to subsequent litigation
6 No. 20-1343
on the same claim between identical parties.” Edwards v.
Edwards, 132 N.E.3d 391, 396 (Ind. Ct. App. 2019). Claim
preclusion has four prerequisites:
(1) the former judgment must have been ren-
dered by a court of competent jurisdiction;
(2) the former judgment must have been ren-
dered on the merits; (3) the matter now in issue
was, or could have been, determined in the
prior action; and (4) the controversy adjudicat-
ed in the former action must have been be-
tween the parties to the present suit or their
privies.
Afolabi v. Atl. Mortg. & Inv. Corp., 849 N.E.2d 1170, 1173 (Ind.
Ct. App. 2006). Where applicable, claim preclusion is a
powerful prohibition against claim splitting; it bars claims
that were actually litigated in the prior action and also
claims that could have been litigated. Id.But claim preclusion applies defensively; it is invoked by a
defendant who “seeks to prevent a plaintiff from asserting a
claim that the plaintiff has previously litigated and lost.”
Thrasher, Buschmann & Voelkel, P.C. v. Adpoint Inc., 24 N.E.3d
487, 494 (Ind. Ct. App. 2015). Offensive claim preclusion is
nonexistent. A plaintiff cannot reassert a claim that he has
already won.
Issue preclusion, or collateral estoppel, is a related but
somewhat different principle. Issue preclusion
operates to bar a subsequent re-litigation of the
same fact or issue where that fact or issue was
necessarily adjudicated in a former suit and the
same fact or issue is presented in the subse-
No 20-1343 7
quent lawsuit. In that situation, the first adju-
dication will be held conclusive even if the sec-
ond is on a different claim.
Tofany v. NBS Imaging Sys., Inc., 616 N.E.2d 1034, 1037 (Ind.
1993).
Unlike claim preclusion, issue preclusion does not re-
quire identity of the parties and can be used either defen-
sively or offensively. “Regardless of whether the use is
termed ‘offensive’ or ‘defensive,’ collateral estoppel is
asserted against a party who had a prior opportunity to
litigate an issue and lost.” Id. Defensive issue preclusion
applies “when the defendant seeks to prevent a plaintiff
from asserting a claim [that] the plaintiff had previously
litigated and lost against another defendant.” Id. Offensive
issue preclusion applies when the “plaintiff seeks to fore-
close the defendant from litigating an issue the defendant
ha[d] previously litigated unsuccessfully in an action with
another party.” Id. (quoting Parklane Hosiery Co. v. Shore,
439 U.S. 322, 326 n.4 (1979)).
Offensive issue preclusion raises concerns about fairness,
however, so Indiana courts limit its use, allowing it only
“subject to the requirements set forth in Parklane Hosiery.” Id.
at 1038. The Supreme Court explained in Parklane Hosiery
that allowing the offensive use of issue preclusion may be
unfair when the “defendant in the first action is sued for
small or nominal damages [and] may have little incentive to
defend vigorously, particularly if future suits are not fore-
seeable.” 439 U.S. at 330.
Robbins relies on res judicata—i.e., claim preclusion—but
that strain of preclusion doctrine is no help to her. She
8 No. 20-1343
invokes preclusion offensively to establish a necessary predi-
cate for her FDCPA claim. As we’ve explained, however,
claim preclusion is a shield, not a sword.
Her argument fares no better if reframed as one of issue
preclusion. First, and most importantly, the Indiana
Supreme Court has held that a dismissal for failure to prose-
cute under Rule 41(E) does not have issue-preclusive effect
because “no issue was actually litigated.” Afolabi, 849 N.E.2d
at 1176. That is independently sufficient to defeat Robbins’s
preclusion argument. Second, as we’ve explained, Indiana
law authorizes the offensive use of issue preclusion subject to
considerations of fairness under the factors identified in
Parklane Hosiery. One of those factors is the “incentive to
litigate the prior action”—in particular, the minimal incen-
tive to litigate when damages are small or nominal. Tofany,
616 N.E.2d at 1038 (discussing Parklane Hosiery).
That factor looms large here. MED-1 did not have a
strong incentive to prosecute the dispute over attorney’s fees
in the Marion County Superior Court. It had already suc-
cessfully collected the debt Robbins owed to Community
Health; all that remained was a fight over $1,725 in attor-
ney’s fees and fees-on-fees. There was little incentive to go to
the mat in a de novo proceeding in the Superior Court over a
sum of that size. Here, in contrast, MED-1 has been accused
of acting unlawfully in seeking attorney’s fees and fees-on-
fees from Robbins on Community Health’s behalf. The
answer to the underlying contractual question forms the
basis for Robbins’s FDCPA claim, which carries the potential
for liability for actual or statutory damages, an award of
attorney’s fees, reputational harm to MED-1, and a prece-
No 20-1343 9
dential decision that may undermine its long-term interests
in efficient debt collection.
Accordingly, for not one but two reasons, Indiana pre-
clusion doctrine does not apply. Robbins cannot use the
Superior Court’s dismissal order offensively to block MED-1
from arguing that her contract with Community Health
required her to pay attorney’s fees and fees-on-fees. We now
move to the merits of that question, which is a necessary
predicate for the FDCPA claim.
The FDCPA protects consumers from “abusive debt col-
lection practices by debt collectors.” 15 U.S.C. § 1692(e).
Robbins alleges that MED-1 violated §§ 1692e and 1692f of
the Act. Section 1692e forbids debt collectors from using
“any false, deceptive, or misleading representation or means
in connection with the collection of any debt.” This includes
a “false representation of … the character, amount, or legal
status of any debt,” § 1692e(2)(A), and the “use of any false
representation or deceptive means to collect or attempt to
collect any debt,” § 1692e(10). Section 1692f prohibits the use
of “unfair or unconscionable means to collect or attempt to
collect any debt.” It goes on to identify eight specific unfair
practices “[w]ithout limiting the general application” of the
statute. One of the enumerated unfair practices is the “collec-
tion of any amount … unless such amount is expressly
authorized by the agreement creating the debt or permitted
by law.” § 1692f(1).
Robbins’s claim rests on the premise that her payment
agreement with Community Health did not require her to
pay fees-on-fees. On that foundation she argues that
MED-1’s pursuit of fees-on-fees was a false statement in
10 No. 20-1343
violation of § 1692e and an unfair debt-collection practice in
violation of § 1692f.
The predicate contract-interpretation issue is straight-
forward. Here again is the relevant provision in the payment
agreement: “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 parties’ disagreement centers on the
scope of the phrase “costs of collection.” Robbins argues that
the phrase is limited to the cost of collecting unpaid medical
bills, which would include MED-1’s original attorney’s fees
but not the fees-on-fees, which were incurred in an effort to
collect attorney’s fees. MED-1 reads “costs of collection”
more broadly to encompass all costs associated with collec-
tion, including the cost of collecting attorney’s fees.
We agree with MED-1’s reading. 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. Indiana law recognizes that the “purpose
of a fee-shifting provision is to make the prevailing party to
a contract whole.” Walton v. Claybridge Homeowners Ass’n,
Inc., 825 N.E.2d 818, 825 (Ind. Ct. App. 2005). Community
Health would not be made whole if it had to absorb the cost
of collecting the attorney’s fees it was owed under the
agreement. Indeed, reading “costs of collection” to exclude
fees-on-fees would “not fully compensate [the hospital] for
enforcing its rights.” Id. 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. And even if
our interpretation of the contract is wrong, it does not
No 20-1343 11
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. A debt collector who
unsuccessfully sues a debtor has not necessarily made a
false, deceptive, or misleading representation in violation of
§ 1692e, nor engaged in an unfair or unconscionable debt-
collection practice in violation of § 1692f. See Eades v.
Kennedy, PC Law Offices, 799 F.3d 161, 172 (2d Cir. 2015)
(suggesting that debt collectors who file unsuccessful debt-
collection lawsuits violate the FDCPA only if the lawsuits
are frivolous, baseless, or otherwise in bad faith).
But we have no need to explore that point here.
Robbins’s payment agreement with Community Health
contained a broad fee-shifting provision that entitled the
hospital to recover its attorney’s fees as part of its costs of
collection, including the fees incurred in connection with
collecting its attorney’s fees. MED-1’s effort to recover fees-
on-fees did not violate the FDCPA.
AFFIRMED