In this interesting case, the Court is called upon to consider the scope of a collection agent’s duty after receiving credible information that a debtor has filed for bankruptcy protection to determine if the creditor’s claim was discharged.
The issue is presented to the Court via an Amended Motion for Sanctions (“the Motion”) filed by chapter 7 Debtor targeting collection agent Medical Recovery Services (“MRS”), alleging that MRS willfully violated the discharge injunction in this case, and seeking an award of damages. The Motion came before the Court for a hearing on September 20, 2017, at which the parties, represented by counsel, presented evidence, testimony, and arguments. The Court then took the issues under advisement.
Regrettably, the material facts in this case resemble what the Court suspects is a fairly typical scenario concerning collection practices employed by collection agents in their dealings with discharged debtors.
On April 29, 2013, Debtor filed a chapter 7 bankruptcy petition. In her schedules, she did not list a debt she owed to Dr. Jamison d/b/a Brad Jamison Chiropractic for medical treatments she had received. Id. According to her testimony at the hearing and in her answers to interrogatories, Debtor failed to schedule Dr. Jamison’s claim because she did not believe she owed Dr. Jamison any money at the time she filed her petition. As it turns out, this assumption was incorrect, and Debtor’s omission would play a role in later events.
The notice sent by the Clerk to listed creditors at the time of the bankruptcy filing indicated that, based upon the schedules, Debtor’s case would not yield any distributions to creditors, and therefore, creditors need not file proofs of claim unless later directed to do so. A discharge was entered in Debtor’s bankruptcy case on October 21, 2013. And just over a year later, on November 18, 2014, the chapter 7 trustee filed a “no-asset” report and requested that the bankruptcy case be closed. An order closing the case was entered on November 19, 2014.
Prior to filing her bankruptcy petition, Debtor had visited Dr. Jamison’s office for treatment on nine separate occasions, and had accrued an unpaid debt totaling $390. Ex. 207. Following her bankruptcy filing, Debtor returned to see Dr. Jamison twice more, on March 3 and April 2, 2014. However, Debtor paid the charges for each of those two treatments in cash. Id.
Dr. Jamison utilized a third-party service called Entrada to bill his patients. Presumably still unaware of the bankruptcy filing, on November 10, 2015, Debtor’s account, now delinquent for the $390 for her prebankruptcy treatments, was assigned to MRS, a local collection agency that collects medical debts. Ex. 204A. It is unclear whether Dr. Jamison or Entrada assigned Debtor’s account to MRS to collect.
The information MRS received from Entrada to initiate the collection process was scant. It listed Debtor’s personal information and the amount of the delinquent account balance. It showed the date of Debtor’s last office treatment and the date that balance was “brought forward,” both listed as August 11, 2014, and also contained a brief log of events concerning Debtor’s account, including notes about phone calls made to Debtor, notices sent to her, and such.
Following assignment of the debt, as was its usual practice, MRS mailed a “first notice” to Debtor on November 13, 2015. Ex. 204B. Lacking any response, MRS sent Debtor a “final notice” on December 14, 2015. Id. Per MRS protocols, when there was no response from Debtor nor activity on the account following the “final notice,” the account was reviewed by MRS personnel and approved for referral to counsel for legal action on October 19, 2016. Ex. 204D.
Smith, Driscoll & Associates, PLLC (the “Law Firm”), the attorneys hired by MRS to take legal action to collect Debtor’s account, also received only the briefest information from MRS about Debtor’s account in what was called a “legal account summary” sheet. Ex. 204F. In the Law Firm’s records, while Brad Jamison Chiropractic was listed as the “client,” it is clear that the Law Firm took its instructions from MRS. The summary sheet contained only Debtor’s personal information, the original and current balance on her account – in this case, both $390 – and the date the unpaid debt was supposedly incurred, again, that being August 11, 2014. Id. Relying upon the summary sheet, the Law Firm filed suit in state court on behalf of MRS, as plaintiff, against Debtor, as defendant, on October 21, 2016. Ex. 200 at p. 1. The complaint sought to recover the $390 principal amount owing to Brad Jamison Chiropractic, plus prejudgment interest and attorneys fees, for a total prayer of $1,056.91. Id.
When Debtor became aware of this legal action, she promptly consulted her bankruptcy lawyer, Aaron Tolson, about it. Mr. Tolson filed a “Notice of Bankruptcy” in the state court action on November 22, 2016. While apparently not intended to be a formal response to the complaint, the notice advised the Law Firm and state court that the debt sought to be collected from Debtor in the action had been incurred before her bankruptcy petition was filed, and therefore, that it was subject to the discharge entered in the bankruptcy case. Id.
The Law Firm maintained an automated call log to contemporaneously document any phone calls made or received by its staff concerning its collection cases. Ex. 206. The system recorded the time of any call, and date-stamped the entry concerning the call. The call log for Debtor’s case indicated that, presumably in response to the notice he had filed in the collection action, an employee of the Law Firm called Mr. Tolson on December 1, 2016, and left a message requesting that he contact the Law Firm. Id.
While Tolson did nothing further in the state court action, because contact with an attorney for Debtor had occurred, on December 7, 2016, the Law Firm filed a “Notice of Intent to Take Default” indicating that it intended to seek a default judgment against Debtor unless a response to the complaint was promptly filed. The Law Firm sent Mr. Tolson a copy of the default notice, accompanied by a letter stating that, after a review by MRS of the account information, it appeared the charges referenced in the complaint had been incurred on August 11, 2014, was therefore a post-bankruptcy debt, and had not been discharged in Debtor’s bankruptcy case.
The Law Firm’s next call log entry for Debtor’s case was December 21, 2016, and evidenced a call with Mr. Tolson in which he apparently acknowledged the Law Firm’s understanding that the debt involved in the legal action was incurred post-bankruptcy, and advised that he had sent a letter to Debtor informing her that she needed to take care of the debt. During that call, Mr. Tolson further allegedly informed the Law Firm that he was not representing Debtor in the state court action. According to the Law Firm’s paralegal who testified at the hearing, following that call, the Law Firm “felt comfortable” in moving forward with the legal action.
The following day, December 22, 2016, MRS filed an application for entry of clerk’s default and a default judgment in the state court action.
On January 3, 2017, a clerk’s default was entered, and on the same day, a judgment was entered by the state court in favor of MRS and against Debtor for $1,076.91, which included principal, interest, attorneys fees, plus filing and service fees.
The Law Firm then set out to enforce the judgment. It recorded an abstract of the judgment, executed by the Bonneville County clerk, in Jefferson County, Idaho on January 10, 2017. Ex. 201. The following day, the Law Firm filed an application for order of continuing garnishment in the state court action, which was granted in an order entered on January 18, 2017. When the garnishment order was served on Debtor’s employer, her office manager informed Debtor about its consequences. This apparently motivated Debtor to pursue the matter of the judgment more pointedly and directly.
On January 23, 2017, Debtor personally called the Law Firm to inquire about the basis for the garnishment. During this call, she “insisted” to the person to whom she spoke that the debt being collected had been discharged in her bankruptcy.
Debtor then contacted Mr. Tolson’s office to again enlist his help. In response, on January 27, 2017, his law partner, Andrew Wayment, called and spoke with counsel for MRS, who, finally, agreed to retrieve an itemized list of services provided by Dr. Jamison to Debtor from MRS to support the judgment debt. Ex. 206. SueAnn Anderson, the assistant manager at MRS, was asked by the Law Firm to review its database concerning Debtor’s account. When she did, she located the brief document generated by Entrada which had been given to MRS when the agency was assigned Debtor’s account to collect; MRS, in turn, provided the document to the Law Firm on February 16, 2017. Ex. 205. But as discussed above, that cryptic summary document did not itemize the dates of services provided by Dr. Jamison to Debtor, or the charges or payments made on the account. As noted above, as is relevant here, the document indicated the balance due on Debtor’s account had been “brought forward” on August 11, 2014, that the delinquent balance was $390, and that Debtor’s last visit to Dr. Jamison occurred on August 11, 2014. Id. The document given to the Law Firm by MRS also acknowledged that Debtor had informed MRS that, while she had visited Dr. Jamison twice in 2014, that she had paid the charges for those visits in cash.