ORDERS:
STATEMENT OF THE CASE
The above-captioned matter comes before this tribunal upon Petitioners’ request for a
contested case pursuant to S.C. Code Ann. § 12-56-65(C) (Supp. 2003). Petitioners seek the
refund of two administrative fees of fifteen dollars—for a total of thirty dollars—assessed by
Respondent Greenville Hospital System (GHS) for the collection of setoffs against their 1997
and 1998 tax refunds for debts owed to GHS. These administrative fees originated with the
South Carolina Association of Counties, which processed debt setoff claims, including the
claims against Petitioners, on behalf of GHS for a fee of fifteen dollars per claim. Petitioners
contend that GHS is not entitled to collect these administrative fees under the applicable
statutory and case law and relevant contractual provisions between Petitioners and GHS. GHS
argues that the administrative fees in dispute were legally collected pursuant to its contract with
Petitioners.
In order for a full understanding of the instant matter, a brief recitation of the procedural
history of this case is necessary. Petitioners were part of a putative bilateral class action matter
in which the plaintiffs sought a declaratory judgment against the South Carolina Department of
Revenue and various “claimant” or creditor agencies finding that the Department and the
claimant agencies had failed to provide proper notice before collecting delinquent debts from
their income tax refunds and had improperly assessed additional administrative fees for the
collection of those setoffs. See Gardner v. S.C. Dep’t of Revenue, 353 S.C. 1, 8-9, 577 S.E.2d
190, 194 (2003). The circuit court found that the claimant agencies had failed to provide the
plaintiffs with sufficient notice of the setoffs and that collection fees could only be assessed
against the plaintiffs if the fees accrued through contract, subrogation, tort, operation of law, or
some other legal theory; accordingly, the circuit court ordered the return of the amounts set-off
from the plaintiffs’ income tax refunds, including the amounts assessed as collection fees. See
id. at 9, 577 S.E.2d at 190. On appeal, the South Carolina Supreme Court affirmed the circuit
court’s conclusions that the notice of the setoffs provided by the claimant agencies was deficient
and that the agencies could only assess collection costs for the setoffs if those fees arose from
some legal theory. Id. at 23-24, 577 S.E.2d at 201-02. However, the Supreme Court also found
that the circuit court had failed to consider whether the plaintiffs had been prejudiced by the
deficient notice of the setoffs and failed to specifically address which of the claimant agencies, if
any, had a legal basis for assessing collection costs. Id. Therefore, the Court remanded the
matter to the claimant agencies for a determination of whether the plaintiffs had been prejudiced
by the inadequate notice of the setoffs and whether the collection fees assessed by the agencies
were accrued under a valid legal theory.
Id.
Upon remand, GHS determined that Petitioners had not been prejudiced by the deficient
notice of the setoffs against their tax refunds and that the Conditions of Admission signed by
Petitioner Patricia Donnels upon admission to GHS provided a contractual basis for the
assessment of collection fees for the setoffs. Petitioners now seek review of that determination
before this tribunal. However, as Petitioners have decided to abandon the issue of whether they
were prejudiced by the defective notice of the setoffs, see Pet’r Prehearing Statement at ¶¶ 4, 5,
the sole question raised in this case is whether GHS was authorized by contract or other legal
theory to assess an administrative fee upon Petitioners for the collection of the debt setoffs by
the Association of Counties. Further, the parties have entered Stipulations of Fact, as set forth
below, and have agreed that, as there are no remaining issues of material fact in dispute, this
tribunal should decide this case as a matter of law. See Pet’r Prehearing Statement ¶ 6; Resp’t
Mem. Of Law at 1.
STIPULATIONS OF FACT
On June 14, 2004, the parties filed the following Stipulations of Fact in this matter:
1.The debt for which Respondent GHS set off the Donnels’ 1997 and 1998 tax
refunds was incurred for services rendered by GHS to Petitioner Patricia C. Donnels on three
separate occasions. Specifically, Ms. Donnels received services from GHS on (fill in the dates)
[sic]. With respect to her admission on 1/23/1997, Ms. Donnels, on that same date, signed a
document titled GHS CONDITIONS OF ADMISSION (Exhibit A). With respect to her
admission on 2/11/1997, Ms. Donnels again signed on that date a document titled GHS
CONDITIONS OF ADMISSION (Exhibit B). With respect to her admission on 3/18/1997, Ms.
Donnels for the third time signed a document titled GHS CONDITIONS OF ADMISSION
(Exhibit C). Each one of those documents contained the following statement, which is the
concluding statement from the paragraph entitled Financial Agreement: “In the event that this
account is placed with a collection agency or an attorney for collection, the undersigned shall
pay all collection fees and reasonable attorney’s fees.”
2.In mid-to-late October 1997, the Donnels received a pre-setoff notice from GHS
advising them that their 1997 tax refund was going to be set off for the debt owed to GHS and
that the Donnels had a right to request a review prior to the setoff. (Exhibit D).
3.The 1997 pre-setoff notice advised the Donnels that a $40.00 fee would be added
to the underlying debt for which GHS was seeking a setoff, a charge that included the $15.00
administrative fee.
4.The $15.00 fee that GHS added to the Donnels’ debt is the amount that the South
Carolina Association of Counties charges GHS for processing the setoff request. (Exhibit
H—Agreement between GHS and South Carolina Association of Counties).
5.It was this $15.00 fee that GHS added to the Donnels’ underlying debt and set off
against the Donnels’ 1997 refund.
6.After receiving the 1997 pre-setoff notice, the Donnels did not contact GHS to
request a review or to dispute the amount that was owed. The Donnels did not dispute GHS’s
right to add the $40.00 fee to the debt that was owed.
7.After setoff of their 1997 tax refund, the Donnels received a Notice of Adjustment
from the DOR [the South Carolina Department of Revenue] that specifically advised them that
they had a right to appeal seizure of their refund by GHS. (Exhibit E).
8.It was clear from the Notice of Adjustment that a fee had been added to the
underlying debt that was being set off against the Donnels’ 1997 tax refund.
9.The Notice of Adjustment provided a name and address for the Donnels to
contact to exercise their right to appeal.
10.The Donnels did not avail themselves of the procedure outlined in the 1997
Notice of Adjustment.
11.In September of 1998, the Donnels received a pre-setoff notice for their 1998
refund. (Exhibit F).
12.The September 1998 pre-setoff notice specifically advised the Donnels that a
$40.00 fee would be added to the underlying debt for which GHS was seeking a setoff, a charge
that included the $15.00 administrative fee.
13.The $15.00 fee that GHS added to the Donnels’ debt is the amount that the South
Carolina Association of Counties charges GHS for processing the setoff request.
14.It was this $15.00 fee that GHS added to the Donnels’ underlying debt and set off
against the Donnels’ 1998 refund.
15.After receiving the 1998 pre-setoff notice, the Donnels did not contact GHS to
request a review or to dispute the amount that was owed. The Donnels did not dispute GHS’s
right to add the $40.00 fee to the debt that was owed.
16.After setoff of their 1998 tax refund, the Donnels received a Notice of Adjustment
from the DOR advising the Donnels that they had a right to appeal the seizure of their refund by
GHS. (Exhibit G).
17.The Donnels did not avail themselves of the procedure outlined in the 1998
Notice of Adjustment.
18.During the Gardner litigation, Ken Anthony and Pat Knie were attorneys of
record for the Donnels.
19.During a hearing in front of the Honorable Gary Clary on October 4, 1999, the
following exchange took place:
MR. MABRY:[GHS] did not charge a fee directly to the debtor but it is our position that our
agreement would allow this fifteen dollar charge to go and be assessed
against the debtor, and the reason is our agreement specifically provides in
the event - - -
THE COURT:Are you talking about the agreement with county?
MR. MABRY:No, Sir. The agreement that Mrs. Donald [Donnels] signed, she admits signing
on all three visits.
THE COURT:All right, I understand.
MR. MABRY:I apologize for not being clear - - -
MR. KNIE:And, we agree to that, Your Honor. We don’t quibble about the terms of
theirs; theirs is better than the rest.
CONCLUSIONS OF LAW
Based upon the foregoing Stipulations of Fact submitted by the parties, I conclude the
following as a matter of law:
As noted above, the sole issue in this matter is whether GHS was entitled to assess a
fifteen-dollar administrative fee against Petitioners to cover the fee the South Carolina
Association of Counties charged GHS in order to process its debt setoff requests against
Petitioners. In Gardner, the Supreme Court plainly held that, under the 1995 version of the
Setoff Debt Collection Act, collection costs or other administrative fees could only by recovered
by claimant agencies if those fees “accrued through contract, subrogation, tort, operation of law,
or any other legal theory.” Gardner, 353 S.C. at 24, 577 S.E.2d at 202; see also id. at 17, 577
S.E.2d at 198 (“[I]n order to be recoverable through the Setoff Debt Collection Act, collection
costs must accrue via some legal theory.”); S.C. Code Ann. § 12-56-20(4) (Supp. 1998)
(defining a “delinquent debt” as “including collection costs . . . which have accrued through
contract, subrogation, tort, operation of law, or any other legal theory.”). In the instant case,
GHS primarily relies upon the contract signed by Petitioner Patricia Donnels upon admission to
the hospital as the legal basis upon which it accrued the right to assess collection costs against
Petitioners. However, this reliance is misplaced.
The contract signed by Ms. Donnels upon admission to GHS does not authorize or
otherwise provide a legal basis for GHS to collect the administrative fees at issue from
Petitioners. The guiding principle in contract interpretation is to ascertain and give effect to the
intentions of the parties as expressed in the language of the contract. Gilbert v. Miller, 356 S.C.
25, 30, 586 S.E.2d 861, 864 (Ct. App. 2003). Therefore, if a contract’s language is clear and
capable of legal construction, the court’s function is to interpret its lawful meaning and the intent
of the parties as found in the agreement. Id. at 30-31, 586 S.E.2d at 864. Further, “[a] clear and
explicit contract must be construed according to the terms the parties have used, with the terms
to be taken and understood in their plain, ordinary, and popular sense.” Id. at 31, 586 S.E.2d at
864; see also C.A.N. Enters., Inc v. S.C. Dep’t of Health & Human Servs. Fin. Comm’n, 296
S.C. 373, 377, 373 S.E.2d 584, 586 (1988) (“When a contract is unambiguous, clear and explicit,
it must be construed according to the terms the parties have used, to be taken and understood in
their plain, ordinary and popular sense.”). In the case at hand, upon each of her three admissions
to GHS, Ms. Donnels signed a document entitled “CONDITIONS OF ADMISSION,” which
contained the following “Financial Agreement”:
I understand that I am obligated to pay the patient’s account according to the
regular rates and terms of GHS. I do hereby appoint GHS as my true and lawful
attorney to collect the claims, endorse the checks, and give full and final receipt
for all amounts collected. In the event benefits exceed the actual charges for this
account, I authorize GHS to apply the overpayment to any other account for
which I am responsible. I understand GHS could obtain my/our credit report for
review in collection of this debt. In the event that this account is placed with a
collection agency or an attorney for collection, the undersigned shall pay all
collection fees and reasonable attorney’s fees.
See Exhibits A, B, & C to the parties’ Stipulations of Fact (emphasis added). Under the plain
language of this financial agreement, GHS is authorized to assess, and Ms. Donnels is required
to pay, collections fees associated with her account only if the account is placed with either a
collection agency or an attorney for collection. Here, GHS sought to collect the debt owed by
Ms. Donnels through a setoff against Petitioners’ tax refund processed on behalf of GHS by the
South Carolina Association of Counties, and the collection costs assessed by GHS against
Petitioners derive from the fees charged by the Association of Counties for processing the setoff.
Therefore, as the Association is plainly not an attorney, the only remaining question is whether
the Association can be considered a “collection agency” such that the fee it charged GHS for
securing the debt setoffs can be recovered from Petitioners pursuant to Ms. Donnels’ contract
with the hospital. I find that the South Carolina Association of Counties is not such a “collection
agency” as contemplated in the contract between the parties and that its fees cannot be recovered
from Petitioners in this matter.
In its plain, ordinary, and popular sense, the term “collection agency” does not include
the South Carolina Association of Counties, even when it processes debt setoff claims on behalf
of its members. A collection agency is commonly understood to mean an agency primarily
engaged in the business of collecting delinquent debts from individuals and businesses on behalf
of creditors. These collection agencies, like collection attorneys, typically exert significant
effort and expend considerable resources in securing payment of these debts, generally through
extensive dealings with the debtor individuals or businesses. The South Carolina Association of
Counties, which is considered a “political subdivision” for purposes of the 1995 Setoff Debt
Collection Act, see S.C. Code Ann. § 12-56-20(1) (Supp. 1998), is a non-profit organization
focused on improving county government in South Carolina, not a business primarily engaged in
the collection of delinquent debts, and the assistance it provides to county governments by
processing debt setoff claims with the Department of Revenue, while valuable, does not involve
the sort of expenditure of time and resources associated with collections efforts by collection
agencies and attorneys.
In short, the South Carolina Association of Counties is not a “collection
agency” as that term is generally understood and as it is used in the contract between Ms.
Donnels and GHS.
Because the Association of Counties is not a collection agency, GHS is not authorized by
its contract with Ms. Donnels to recover from her the fees charged by the Association for filing
the debt setoff. GHS’s Conditions of Admission clearly provide for the recovery of collection
costs only if Ms. Donnels’ account is placed with a collection agency or an attorney. However,
GHS did not choose to seek collection of Ms. Donnels’ debts by placing her account with a
collection agency or attorney, but rather opted to collect the debt through a setoff against
Petitioners’ tax refund processed by the South Carolina Association of Counties. Accordingly,
GHS’s attempt to collect the fees charged by the Association from Ms. Donnels is not supported
by the terms of its contract with her.
Therefore, because the administrative fee assessed against Petitioners by GHS did not
accrue through contract or any other legal theory,
GHS was not authorized, under the 1995
Setoff Debt Collection Act, to collect that fee from Petitioners. See Gardner, 353 S.C. at 24, 577
S.E.2d at 202. GHS must, therefore, refund the improperly collected administrative fee to
Petitioners. Id.
ORDER
Based upon the Stipulations of Fact and Conclusions of Law stated above,
IT IS HEREBY ORDERED that Respondent GHS must REFUND to Petitioners the
two administrative fees of fifteen dollars, for a total of thirty dollars ($30.00), improperly
assessed by GHS against Petitioners for the collection of debt setoffs against their 1997 and 1998
tax refunds.
AND IT IS SO ORDERED.
______________________________
JOHN D. GEATHERS
Administrative Law Judge
Post Office Box 11667
Columbia, South Carolina 29211-1667
December 2, 2004
Columbia, South Carolina |
