FRANKLIN COLLECTION SERVICE v. STEWART

COBB, JUSTICE, FOR THE COURT:

¶ 1. Franklin Collection Service, Inc. (Franklin) filed nine separate actions in the Noxubee County Justice Court over a period of four and a half years between June 1996 and December 2000. All sought to obtain judgments for unpaid medical bills owed to various medical service providers plus attorney's fees and court costs. It is undisputed that each of the justice court defendants was a Noxubee County resident and was properly served with process. Each of the standard "form" complaints stated the amount owed to the service provider plus a specific amount for the attorney's fee and for court costs. Further, the complaints stated that the debts were incurred upon open account, that the indebtedness had been assigned fully to Franklin, that a written demand for payment had been made more than 30 days before the suit was filed, and that the debtors had failed or refused to pay. In addition, the complaint stated that Franklin had hired counsel to prosecute the collection suit. None of the justice court defendants answered the complaint filed against them, and default judgments were entered against each one. Details of each of the nine complaints, including the following itemization of the judgments, are as follows:

Date of Name of Name of Service Debt Atty Court Total % Atty Judgment Debtor Provider Owed Fee Costs Judgment Fee 1. 05-16-96 Stewart Clay Co. Med. Center $644 $50 $52 $745 08% 2. 06-16-98 Cockrell Columbus Foot Clinic $403 $100 $79 $582 25% 3. 11-10-98 Binion Gold's Gym $163 $50 $54 $267 31% 4. 04-27-99 Neal Columbus Orthopaedic $130 $50 $54 $234 38% 5. 04-11-00 Jones Robert Trotter, M.D. $57 Family Health Clinic $179 Jeffrey Chain, M.D. $204 Columbus Orthopaedic $190 $150 $54 $834 24% 6. 04-11-00 Malone Clay Co. Med. Center $295 $75 $54 $424 25% 7. 08-08-00 Tate Lance Busch, M.D. $102 Columbus Orthopaedic $163 $75 $54 $394 28% 8. 10-10-00 Wilkerson Cardiology Assoc. N.M. $878 $175 $54 $1,107 20% 9. No date Woods Family Health Clinic $479 Kemper Comm. Hosp. $173 $150 $54 $856 23% With the exception of Mrs. Neal, whose $50 attorney fee was $7 more than one-third of her indebtedness, the percentage of the debt owed which was allocated for attorney's fees was well within the presumptively reasonable one-third of the indebtedness which this Court has traditionally approved as reasonable awards of attorneys' fees in collection matters.

¶ 2. On December 18, 2000, each of the debtors filed separate civil actions against Franklin in the Noxubee County Circuit Court, alleging that the debts sued upon were not open accounts and that Franklin and its attorneys perpetrated a fraud on the court and abuse of process on the debtors. In January 2001, the case was removed to federal court. In June of 2001 it was remanded to the Noxubee County Circuit Court, after the federal court held that the debtor's action was not completely preempted by the Fair Debt Collections Practices Act.

¶ 3. On April 4, 2002, the Noxubee County Circuit Court entered an order denying the motion to dismiss or for summary judgment filed by Franklin, and certified four issues for interlocutory appeal to this Court, which are consolidated into the three issues discussed below. We granted Franklin's petitions to bring these consolidated interlocutory appeals. See M.R.A.P.5.

¶ 4. For the purposes of this opinion the facts are limited to those which led to this appeal, not the underlying facts which led to the original complaints in justice court against the circuit court plaintiffs.

¶ 5. These actions involve eleven plaintiffs, all Noxubee County residents against whom Franklin, through attorneys T. Dale Beavers (Beavers), Mary E. Mason (Mason), Jeffrey Waldo (Waldo), and Unknown Attorney A (Attorney A), instituted collection proceedings in the Justice Court of Noxubee County, concerning unpaid medical bills for various medical services. It is undisputed that service of process was properly obtained on all, that the amount billed by the medical providers was owed, and that none of the justice court defendants appeared in the justice court or contested the allegations in the complaint in any way. In due time, default judgments were entered. In all cases, the judgment sought by Franklin included the debt amount, plus a specific attorney's fee, plus court costs. No appeals were perfected by any of the justice court defendants.

¶ 6. On December 18, 2000, the justice court defendants filed their circuit court complaints, in separate actions, against Franklin and Beavers, Mason, Waldo and Attorney A, seeking, as damages, recovery of the attorney's fees awarded by the justice court judgments and also seeking punitive damages and court costs, based upon a putative claim for "misrepresentation and abuse of process" and "perpetrat[ion of] a fraud on the Justice Court of Noxubee County." Franklin responded by filing a motion to dismiss or for summary judgment, arguing that because none of the justice court judgments had been appealed, any challenge in the circuit court concerning the propriety of the "open account" attorney's fee remedy, as well as the fee amount awarded, was barred.

¶ 7. The circuit court denied Franklin's motion to dismiss or for summary judgment; however, leave was given for Franklin to seek an interlocutory appeal. Four issues were certified for these consolidated interlocutory appeals. After careful consideration, this Court finds that the challenge to the application of the open account collection law and procedure raised by the plaintiffs is barred by the doctrine of res judicata and that the assertions made regarding misrepresentation, fraud and abuse of process are without merit. Accordingly, this Court reverses and renders the judgment of the Noxubee County Circuit Court. For the sake of clarity, the issues have been combined and reworded.

I. WHETHER THE JUSTICE COURT JUDGMENT BARS ANY LITIGATION CONCERNING THE AWARD OF ATTORNEY'S FEES WHEN NO DIRECT APPEAL WAS TAKEN FROM THE JUSTICE COURT RULING.

¶ 8. The plaintiffs argue that the res judicata argument is inapplicable because their failure to appear and to perfect an appeal does not bar this subsequent litigation which is based on a scheme to cheat and defraud. They further argue that Franklin used tactics that constituted a fraud upon the court and constituted ethical violations which led to an abuse of process. We hold that res judicata is applicable with regard to the questions regarding the open account procedure, award of attorney's fees and failure to appeal, but that it does not foreclose, under the facts and circumstances of this case, our review of the allegations of misrepresentation, fraud and abuse of process.

¶ 9. The doctrine of res judicata reflects the refusal of the law to tolerate a multiplicity of litigation. Little v. VG Welding Supply, Inc., 704 So.2d 1336, 1337 (Miss. 1997). Res judicata bars all issues that might have been (or could have been) raised and decided in the initial suit, in addition to all issues that were actually decided in the first action. It is a doctrine of public policy "designed to avoid the `expense and vexation attending multiple lawsuits, conserve judicial resources, and foster reliance on judicial action by minimizing the possibilities of inconsistent decisions.' " Id.

¶ 10. A judgment for default may be entered if the defendant fails to appear and the plaintiff appears. Uniform Rules of Procedure For Justice Court 2.06. In order for a court to enter a default judgment, the court must have had jurisdiction and proper service of process. McCain v. Dauzat, 791 So.2d 839, 842 (Miss. 2001). A judgment by default is given the same effect as if a verdict was entered for the plaintiff and accordingly can have preclusive effect on other litigation. Strain v. Gayden, 197 Miss. 353, 20 So.2d 697, 700 (1945). See also In re Evans, 252 B.R. 366, 371 (Bankr. N.D. Miss. 2000). The proper procedure for an appeal from a justice court judgment is found in Miss. Code Ann. § 11-51-91 (Rev. 2002), which allows for a de novo trial by the circuit court.

¶ 11. None of the circuit court plaintiffs allege they were improperly served nor do any allege jurisdiction was improper in the justice court. Further, they do not dispute that the debt was actually owed. They did not avail themselves of presenting a defense in the justice court to the underlying collection action, and then they neglected to appeal from the default judgment rendered by the justice court.

¶ 12. The plaintiffs are basing their complaints upon the alleged improper collection of attorneys' fees in the underlying collection actions instituted by Franklin but argue that they do not dispute the original debt. The amount of the debt for which Franklin sued included attorney's fees and court costs, and this is the same amount awarded by the justice court in the default judgments.

¶ 13. The plaintiffs cannot simply fail to defend a suit to collect a debt and also fail to appeal the default judgment entered against them and then file suit and argue that the judgment, though not in dispute, was the result of fraud or abuse of process. If they do so, they do so at their own peril, especially in circumstances such as those before this Court, where their allegations of fraud and abuse of process are without merit. The proper avenue available to attack the judgment, the attorney's fees awarded and the alleged fraud was to defend the action in justice court or to make a timely appeal of the judgment to the circuit court. The plaintiffs are procedurally barred by the doctrine of res judicata from bringing any action concerning the default judgments of the justice court.

II. WHETHER THE JUSTICE COURT MAY ENTER A DEFAULT JUDGMENT AND AWARD ATTORNEY'S FEES ON "OPEN ACCOUNTS."

¶ 14. Franklin argues that the unpaid debts were "open accounts" and therefore subject to Miss. Code Ann. § 11-53-81 (Rev. 2002) which provides for recovery of the attorneys' fees along with the debts. The plaintiffs argue that the debts are not open accounts within the meaning of § 11-53-81. This Court has defined an "open account" as an account based on continuing transactions between the parties which have not closed or been settled. Westinghouse Credit Corp. v. Moore McCalib, Inc. , 361 So.2d 990, 992 (Miss. 1978). We have also recognized that a collection for recovery, on an open account, amounts to a collection action where the debt is based on a series of credit transactions. Allen v. Mac Tools, Inc. 671 So.2d 636, 644 (Miss. 1996).

¶ 15. It has long been held that § 11-53-81 is applicable in the collection of medical bills, either in a direct action by the unpaid medical provider or by a collection agent or agency acting on behalf of the medical provider. The availability of this remedy is generally well settled, and we find nothing in the cases before us to warrant a departure from the rule that accounts established by medical providers for services provided to their patients are open accounts within the purview of § 11-53-81, and the statutory provision that "the person who fails to pay the open account shall be liable for reasonable attorney's fees to be set by the judge for the prosecution and collection of such claim when judgment on the claim is rendered in favor of the plaintiff" is applicable. In Anderson v. Lancaster, 215 Miss. 179, 60 So.2d 595 (1952) this Court acknowledged that medical accounts are considered "open accounts." In Anderson, the doctor and patient had a verbal agreement concerning the date on which payment of the open account would be made, and this Court found for the doctor on a statute of limitations claim. Id. at 596-97. In Wise v. Gulf States Collection Services, 633 So.2d 1025, 1027 (Miss. 1994), an attorney for the collection agency sent a collection letter regarding an unpaid bill due to Forrest General Hospital for an unpaid bill for an adopted baby's seven-week stay in the hospital. The bill was disputed by the adopting parents who had not been involved with the hospital arrangements. This Court acknowledged that the case brought by the collection agency was "an ordinary contract case involving a suit on an open account" and because the adopting parents, who had not sought the services nor entered into any agreement to be responsible for the hospital bills, could not be found liable.

¶ 16. Miss. Code Ann. § 11-9-127 (Supp. 2003) provides that a justice court judge can enter a default judgment against one or more parties that fail to appear before the court on the specified trial date. The plaintiffs do not deny that they were all properly served with process and all failed to appear and defend the collection action. Pursuant to statutory law, the justice court was not in error by entering a default judgment, which included reasonable attorney's fees, on Franklin's collection actions against the plaintiffs.

III. WHETHER A DEBTOR MAY PROCEED IN AN INDEPENDENT ACTION AGAINST THE CREDITOR COLLECTION AGENCY WHEN THE DEBTOR FAILED TO DEFEND OR APPEAL THE ORIGINAL JUDGMENT.

¶ 17. The plaintiffs allege that Franklin and its attorneys are liable for an abuse of process in the collection of attorney's fees and that they violated certain ethical rules regarding fee sharing with non-lawyers.

¶ 18. "The elements of abuse of process are: (1) the party made an illegal use of the process, a use neither warranted nor authorized by the process, (2) the party had an ulterior motive, and (3) damage resulted from the perverted use of process." McLain v. West Side Bone Joint Ctr., 656 So.2d 119, 123 (Miss. 1995). The record is devoid of any evidence to support the plaintiffs' claims of abuse of process. The allegations of the plaintiffs that the debts owed were not debts for which attorney's fees are authorized by the open account provisions of § 11-53-81, and that Franklin and its attorneys knew that, are simply unfounded. Franklin had ample cause to file the collection actions against the plaintiffs, and even if it were assumed, for argument sake, that Franklin violated any ethical rules regarding their attorneys, that alone would not be enough support this claim as an independent civil action.

¶ 19. We hold that the circuit court erred by denying Franklin's motion to dismiss or for summary judgment. The plaintiffs' actions are procedurally barred with regard to their claims on the merits regarding attorneys' fees, by the doctrine of res judicata. Because we hold that collection of debts incurred for services performed by medical providers are properly pursued as open accounts under § 11-53-81, there is no merit to the claims of abuse of process. Therefore, we reverse the circuit court's orders denying Franklin's motions to dismiss or for summary judgment, and we render summary judgment finally dismissing the plaintiffs' complaints and actions with prejudice.

¶ 20. REVERSED AND RENDERED.