Firms such as Medical Recovery Services can't ask for attorney's fees that are higher than what patients paid for their medical care, the Idaho Supreme Court unanimously ruled in March.
The decision upheld a lower court ruling against Medical Recovery Services, the collection company owned by 2nd District Republican primary challenger Bryan Smith.
In the March 19 ruling, the court affirmed that Bonneville County Magistrate Judge Michelle Mallard was justified in cutting attorney's fees requested by Medical Recovery Services and rejected a request that the collection agency be awarded further attorney's fees for work done during the appeal.
The case involved three patients, all from Idaho Falls, who were treated between December 2010 and April 2011 at Community Care, an urgent and primary care clinic.
In each of the cases, Medical Recovery Services argued it was owed $350 in attorney's fees - more than the cost of the care provided.
Renee Lewis was treated by Community Care on Dec. 29, 2010. She was charged $192.98 for her care. Medical Recovery Services sought a total of $779.17 for the principle plus interest and fees.
Stephanie Strawn was treated April 28, 2011, resulting in $268.40 in medical bills. Medical Recovery Services asked for a total of $852.36.
Joseph Knight was treated April 8, 2011, at a cost of $342.96. Medical Recovery Services argued he should pay a total of $868.43.
The sign-in form at the clinic included a clause in which the patient agreed to pay $350 or 35 percent of the principle in attorney fees, whichever was more, if their case was sent to collections.
Mallard issued a "default judgment" - meaning the patients lost because they did not respond to the lawsuits - in favor of Medical Recovery Services in all three cases, but she reduced the attorney fees to the amount of the original cost of care, relying on state laws regulating collection agencies.
Bryan Zollinger, an attorney with Smith, Driscoll and Associates, appealed to the 7th District Court, where Judge Dane H. Watkins upheld Mallard's decision Nov. 8, 2012. Zollinger then appealed to the Idaho Supreme Court.
Zollinger argued that state rules governing collection agencies should not apply in the cases because the contracts mandating $350 in attorney fees were contracts between the patients and the clinic, not between the patients and Medical Recovery Services.
"That contention is wholly without merit," wrote Justice Jim Jones in his nine-page opinion. "(Medical Recovery Services) acknowledges that it is a licensee under (state collection agency laws). Indeed, (it) is a collection agency and in the business of collecting debts for other parties."
Zollinger also argued that state collection agency laws were unconstitutional, a charge the court rejected.
"Since (Medical Recovery Services) failed to prevail on appeal, it is not entitled to a fee award," Jones wrote.
"We affirm the decision of the district court," he said. "No costs are awarded."
The Idaho Statesman reported that state records show Medical Recovery Services and Diversified Equity Systems, another collection firm from which Smith earns money, have been involved in more than 10,000 court cases across southern and eastern Idaho.