Credit Collection Services v. Pesicka, 23946.

• Decision Date: 23 August 2006
• Docket Number: No. 23946.,23946.
• Citation: 2006 SD 81,721 N.W.2d 474
• Parties: CREDIT COLLECTION SERVICES, INC., a South Dakota Corporation, Plaintiff and Appellant, v. Bradley J. PESICKA and Martina Ashford, Defendants.
• Court: South Dakota Supreme Court

721 N.W.2d 474

2006 SD 81

CREDIT COLLECTION SERVICES, INC., a South Dakota Corporation, Plaintiff and Appellant, v. Bradley J. PESICKA and Martina Ashford, Defendants.

No. 23946.

Supreme Court of South Dakota.

Considered on Briefs on May 23, 2006.

Decided August 23, 2006.

David M. Hosmer, Yankton, South Dakota, Attorney for plaintiff and appellant.

ZINTER, Justice.

[¶ 1.] Credit Collection Services, Inc. (CCS) appeals a judgment denying attorney's fees in a breach of contract action against Bradley Pesicka and his former wife Martina Ashford. We reverse and remand.

FACTS

[¶ 2.] In 2003, Pesicka and Ashford, who were still married, received medical services from Avera Sacred Heart Hospital in Yankton, South Dakota. In connection with obtaining these services, Pesicka signed a contract entitled "Consent Form." The one page printed form was on Avera letterhead and contained provisions on the following matters: authorization for care and treatment; consent to blood test for healthcare provider protection; procurement of information; authorization for release of information; personal items acknowledgement; Medicare consent; Medicare/Champus acknowledgement of receipt; assignment of insurance benefits; precertification; billing and credit policy; and, patient self determination and advance directives. The section on billing and credit policy provided:

All patient accounts will be considered due upon receipt of your bill. As a courtesy to me, the business office and any physician of the hospital providing services will process my insurance if information is provided. It is understood that all insurance deductibles be paid at the time of dismissal. I will be billed on the current balance of my account regardless of the insurance claim status. Accounts over thirty (30) days old may bear interest at a rate allowed under South Dakota State Law. Accounts over ninety (90) days old may be referred to an attorney or an agency for collection at which time the undersigned shall become responsible for all attorney's fees and collection expenses. (emphasis added).

[¶ 3.] Pesicka made only two small payments on the debt to Avera and failed to pay the balance. Avera assigned the debt to CCS for collection. CCS attempted to collect the debt but was unsuccessful. CCS then commenced a breach of contract action against Pesicka and Ashford. A default judgment was entered against Ashford, and Pesicka failed to appear for trial. Thereafter, a judgment was also entered against Pesicka in the amount of $12,569.51. CCS subsequently filed a motion for attorney's fees relying on that portion of the consent form in which the parties agreed that Pesicka would be responsible for those fees. Pesicka did not appear or resist the motion. Nevertheless, the trial court denied CCS's motion reasoning that the consent form's provision for attorney's fees violated public policy and was void. CCS appeals.

ISSUE

[¶ 4.] Did the trial court err in denying CCS's motion for attorney's fees?

[¶ 5.] An award of attorney's fees is reviewed under the abuse of discretion standard. In re South Dakota Microsoft Antitrust Litigation, 2005 SD 113, ¶ 27, 707 N.W.2d 85, 97. "`[B]y definition, a decision based on an error of law is an abuse of discretion.'" State v. Vento, 1999 SD 158, ¶ 5, 604 N.W.2d 468, 469. The question in this case is a question of law: does SDCL 15-17-39 prohibit an award of attorney's fees to CCS based upon the attorney's fee provision in the consent form signed by Pesicka. See State v. Schroeder, 2004 SD 21, ¶ 5, 674 N.W.2d 827, 829 (construction of a statute is a question of law and is fully reviewable without deference to the trial court's interpretation); Microsoft, 2005 SD 113 at ¶ 28, 707 N.W.2d at 98 ("standards and procedures applied by trial court in determining attorney fees are legal questions" and "trial court's conclusions of law are given no deference and are reviewed . . . de novo.").

[¶ 6.] "An award of attorney's fees is not the norm. The party requesting . . . fees has the burden to show, by a preponderance of the evidence, the basis for such an award." Jacobson v. Gulbransen, 2001 SD 33, ¶ 31, 623 N.W.2d 84, 91. In this jurisdiction the recovery of attorney fees is governed by the American rule, which provides:

each party bears the party's own attorney fees. However, attorney fees are allowed when there is a contractual agreement that the prevailing party is entitled to attorney fees or there is statutory authority authorizing an award of attorney fees.

Crisman v. Determan Chiropractic, Inc., 2004 SD 103, ¶ 26, 687 N.W.2d 507, 513. (citations omitted)(emphasis added). Thus, even if there is no statute authorizing attorney's fees, they are recoverable if the parties' contract so provides. Microsoft, 2005 SD 113 at ¶ 29, 707 N.W.2d at 98; City of Aberdeen v. Rich, 2003 SD 27, ¶ 25, 658 N.W.2d 775, 781; Jacobson, 2001 SD 33 at ¶ 31, 623 N.W.2d at 91; Estate of O'Keefe, 1998 SD 92, ¶ 17, 583 N.W.2d 138, 142; Vanderwerff Implement, Inc. v. McCance, 1997 SD 32, ¶ 17, 561 N.W.2d 24, 27; O'Connor v. King, 479 N.W.2d 162, 166 (S.D.1991); Assman v. J.I. Case Credit Corp., 411 N.W.2d 668, 671 (S.D.1987); Lowe v. Steele Const. Co., 368 N.W.2d 610, 614 (S.D.1985); NBC Leasing Co. v. Stilwell, 334 N.W.2d 496, 500 (S.D.1983); Tracy v. T & B Const. Co., 85 S.D. 337, 340, 182 N.W.2d 320, 322 (1970); Dodds v. Bickle, 77 S.D. 54, 62, 85 N.W.2d 284, 289 (1957).¹

[¶ 7.] CCS argued that Avera's consent form was a contractual agreement authorizing an award of attorney's fees. However, the trial court held that the contract was "evidence of debt." Therefore, it held that the provision authorizing attorney's fees was void under SDCL 15-17-39, which provides:

Any provision contained in any note, bond, mortgage, or other evidence of debt that provides for payment of attorneys' fees in case of default of payment or foreclosure is against public policy and void, except as authorized by specific statute. (emphasis added).

On appeal, CCS argues that the consent form is not a "note, bond, mortgage, or other evidence of debt," and therefore, the provision authorizing attorney's fees was not prohibited by this statute. We agree with CCS.

[¶ 8.] Before SDCL 15-17-39 was enacted, SDCL 15-17-10 contained the same relevant language:

Any provision contained in any note, bond, mortgage, or other evidence of debt for the payment of any attorney fee in case of default in payment or of proceedings had to collect such note, bond, or evidence of debt or to foreclose such mortgage is hereby declared to be against public policy and void.

SDCL 15-17-10 (1984 Rev.)(emphasis added). SDCL 15-17-39 replaced SDCL 15-17-10 in 1992. See 1992 S.D.Sess.L. ch. 148, §§ 4 & 26.²

[¶9.] This Court has applied this "other evidence of debt" language under both statutes. In Midcontinent Broadcasting Co. v. AVA Corp., 329 N.W.2d 378 (S.D. 1983), the Court reversed an award of attorney's fees in a lawsuit against guarantors on a promissory note, holding that a guaranty was "other evidence of debt." The Court observed that the principals could not be liable for attorney's fees on the promissory note and the "guaranty agreement [was] linked to the note." Id. at 381. Therefore, the attorney's fee collection provision of the guaranty was void. In International Multifoods Corp. v. Mardian, 379 N.W.2d 840 (S.D.1985), this Court followed Midcontinent and again denied attorney's fees in an action against guarantors on a promissory note, holding that the guaranty was "other evidence of debt." In Vanderwerff, supra, this Court examined a sales contract that required the payment of $2,575 for a farm implement. The contract also permitted the recovery of attorney's fees upon default. This Court concluded that the sales contract constituted "other evidence of debt" under SDCL 15-17-39, and therefore, the attorney's fee provision was void.

[¶ 10.] On the other hand, in Assman, supra, a retail purchaser defaulted on the purchase of farm machinery and a financing company incurred attorney's fees repossessing the collateral. This Court permitted the financing company to recover attorney's fees from the implement dealer under a provision of a "Retail Financing Agreement" between the financing company and the implement dealer. That agreement allowed the financing company to recover "`any net loss which [the financing company might] sustain on any [s]ecurity [i]nstrument accepted . . . resulting from repossessing machines or equipment which secure a[s]ecurity [i]nstrument [originating from the retail purchaser] including . . . legal expenses. . . .'" Id. at 671 (emphasis original). This Court held that the "Retail Financing Agreement" was not "other evidence of debt." Rather, this Court noted that agreement "was designed `to set forth the conditions under which [s]ecurity [i]nstruments [with retail purchasers would] be accepted by [the financing company on assignment] from [the implement dealer], and to establish the rights, liabilities and obligations of [the financing company and implement dealer] with respect to such [s]ecurity [i]nstruments[.]'" Id.

[¶ 11.] In this case, the contract bears little similarity to the contracts this Court examined in Midcontinent and Mardian (promissory note guaranties) and in Vanderwerff (fixed-price sales contract). Rather, this contract is like the agreement in Assman, which merely governed the terms and conditions of providing services and further governed the rights, liabilities and obligations of the parties with respect to those services.

[¶ 12.] Two Eighth Circuit Court of Appeals decisions construing SDCL 15-17-10 and SDCL 15-17-39 also provide thoughtful analysis on this question. In Overholt Crop Insurance Service Co. v. Travis, 941 F.2d 1361 (8th Cir.1991), the Eighth Circuit, relying upon our decision in Assman, upheld an attorney's fee award authorized by a provision in an employment agreement. The court noted that the language under...