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Kelley v. Med-1 Solutions

November 25, 2008


Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:07-cv-1245-SEB-JMS-Sarah Evans Barker, Judge.

The opinion of the court was delivered by: Flaum, Circuit Judge.


Before BAUER, FLAUM, and WILLIAMS, Circuit Judges.

Med-1 Solutions, LLC ("Med-1") is a debt-collector that filed lawsuits in Indiana state small claims court to collect hospital charges owed by debtors to its client, St. Vincent Carmel Hospital, Inc. ("St. Vincent"). Med-1 filed these suits in its own name. Med-1 demanded and received attorney feesin these proceedings. Debtors then sued in federal district court, contending that Med-1, its owner, and its in-house lawyers violated the Fair Debt Collection Practices Act ("FDCPA") when they demanded attorney fees in the small claims proceedings. The district court dismissed the case for lack of subject matter jurisdiction based on the Rooker-Feldman doctrine. For the reasons discussed below, we affirm.

I. Background

Bryan Kelley, Denise Boyd, Yvonne Emous, and Bettie Housely each received medical treatment at St. Vincent and signed an acknowledgment of financial responsibility to pay for that treatment. When they did not pay, St. Vincent hired Med-1 to collect the debts owed to it.

Med-1 is licensed as a debt collection agency in Indiana and specializes in collecting consumer debts owed to health care providers. William J. Huff is the sole owner of Med-1. In order to facilitate the collection of consumer debt, Med-1 employed three in-house attorneys: Francis R. Niper, Courtney Gaber, and Richard R. Huston.

In August 2006 and October 2006, Med-1 filed individual actions against the four debtors in Hamilton County, Indiana small claims court. The actions sought payment on the debts owed to St. Vincent. Even though Med-1 was given the right to collect the consumer debt for St. Vincent, the hospital always maintained ownership of that debt. Med-1 did not purchase consumer debt from St. Vincent. Yet, Med-1 filed the lawsuits solely in its name as plaintiff.

In each case, Med-1 filed the one-page small claims complaint form, and it attached additional documents as part of the complaint. The small claims complaint form did not include St. Vincent's name as a creditor. On the form, Med-1 described the claims sought as "unpaid medical bills," and it directed readers of the complaints to "see attached." In each case, the documents attached to the complaint form indicated that the debts were owed to St. Vincent.

One of the documents attached in each case was a financial consent form that the debtor had signed prior to receiving treatment. In addition to establishing debtor liability to St. Vincent, each financial consent form provided that the signatory was responsible for "reasonable attorney fees" if his or her hospital account was forwarded to a collection agency.

Through Gaber, Med-1 requested attorney fees in its small claims suits against the four debtors. As a result of its small claims actions, Med-1 obtained judgments in its favor against Kelley in the amount of $892.09, including $375.00 in attorney fees; against Boyd in the amount of $450.00, including an undisclosed amount in attorney fees; against Emous in the amount of $3,658.50, including $350.00 in attorney fees; and against Housely in the amount of $2,241.45, including $375.00 in attorney fees.

Debtors learned from deposition testimony given by Med-1 employees in an unrelated matter that Med-1 filed approximately 4,415 lawsuits against consumer-debtors from about October 2006 to October 2007. Med-1 did not own the debt in any of these cases, but it always filed the lawsuits in its own name as plaintiff. Med-1 demanded attorney fees in virtually all of these cases. In testimony, Med-1 employees admitted that Med-1 had agreements with St. Vincent and other health care providers that it would be paid attorney fees and court costs incurred with respect to the debt collection. Med-1 also would receive a percentage of the amounts collected after deduction of attorney fees and court costs. Additionally, debtors learned, Med-1 attorneys Gaber, Niper, and Huston had internal agreements with Med-1 whereby they would keep a certain percentage of attorney fees they had obtained (usually 20% or 25%). The remainder (75% or 80%) would go to Med-1.

On September 27, 2007, Kelley, Boyd, Emous, and Housely (hereinafter referred to as "plaintiffs") filed suit against Med-1, Huff, Niper, Gaber, and Huston ("defendants") in federal district court on behalf of themselves and all others similarly situated. They alleged that Med-1's representations that it was entitled to attorney fees violated §§ 1692e-f of the FDCPA, which generally prohibit the use of false, deceptive, or unfair means in connection with the collection of a debt. Plaintiffs claimed that Med-1 did not have the right to recover attorney fees from the plaintiffs without an assignment of ownership rights or contractual rights of the debt obligation from the health care provider; that Med-1 and its employees made false and misleading statements as to their entitlement to recover attorney fees; and that they were harmed by Med-1's deceptive demands for attorney fees. Plaintiffs also made state law fraud and equity claims not at issue on appeal. They requested damages in an amount no less than all the attorney fees awarded to defendants by the state court.

On December 14, 2007, defendants filed a motion to dismiss plaintiffs' complaint. On February 6, 2008, the U.S. District Court for the Southern District of Indiana dismissed plaintiffs' complaint for lack of subject matter jurisdiction. The district court applied the Rooker-Feldman doctrine in dismissing plaintiffs' federal FDCPA claims and their ...

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