Lead Opinion
[¶ 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
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 Ash-ford, 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,
[¶ 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,
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.
[¶ 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.
[¶ 9.]This Court has applied this “other evidence of debt” language under both statutes. In Midcontinent Broadcasting Co. v. AVA Corp.,
[¶ 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]eeurity [i]nstrument accepted ... resulting from repossessing machines or equipment which secure a [s]ecurity [[Instrument [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 [[Instruments [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 [[Instruments!.]’ ” Id.
[¶ ll.]In this case, the contract bears little similarity to the contracts this Court examined in Midcontinent and Mardian (promissory note guaranties) and in Van-derwerjf (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,
[¶ 13.] Orion Financial Corp. v. American Foods Group, Inc.,
The service contract in this ease, like the employment contract in Overholt, does not constitute evidence of a debt owed by one party to the other, but instead creates mutual obligations to provide services and payment therefor.
The phrase “evidence of debt” as used in the statute refers to debtor-creditor relationships, such as those in bonds, mortgages, and promissory notes, not to every contract where one party is obligated to pay money to the other. More*479 over, the phrase “evidence of debt” when used elsewhere in the South Dakota Codified Laws is connected with banking or other debtor-creditor relationships. See, e.g., S.D. Codified Laws § 7-25A-25 (Michie 1993)(improvement districts’ authority to issue notes); S.D. Codified Laws § 15-2-18 (Michie 2001)(limitations on actions on instruments circulated as money); S.D. Codified Laws § 21-17A-3 (Michie 1987)(re-quirements for writ of attachment for a debt); S.D. Codified Laws § 21-47-3 (Michie 1987)(actions to foreclose real property mortgages); S.D. Codified Laws § 21-48-18 (Michie 1987)(same); S.D. Codified Laws § 44-10-10 (Michie 1997)(restricting sale of evidences of debt pledged to pledgee); S.D. Codified Laws § 47-8-1.1 (Michie 2000)(definition of transacting business); S.D. Codified Laws § 51A-4-1 (Michie 1990)(powers of banks); and S.D. Codified Laws § 58-26-3 (Michie 2000)(determining value of investments by insurance companies).
We conclude that because the Agreement is not “evidence of debt” within the meaning of S.D. Codified Laws § 15-17-39, the attorney fees provision is valid. Accordingly, we reverse the district court’s decision denying attorney fees and remand to the district court for a determination of an award of reasonable attorney fees and collection costs.
Orion,
[¶ 14.]Although this Court is not bound by federal court interpretations of SDCL 15-17-10 and SDCL 15-17-39, Orion provides a well reasoned analysis of the meaning and purpose of the “evidence of debt” language in SDCL 15-17-39. Moreover, its rationale is consistent with our cases. Like Assman, Orion recognized that service agreements are unlike guaranties on promissory notes or sales contracts that are evidence of debt. A service agreement “does not constitute evidence of a debt owed by one party to the other, but instead creates mutual obligations to provide services and payment therefor.” Orion,
[¶ 15.]Finally, both this Court’s and the Eighth Circuit’s analysis of the “evidence of debt” language is consistent with interpretations of similar language in other jurisdictions. See Hiller v. Olmstead,
[¶ 16.]One further example is T.F. James Co. v. Vakoch,
“[EJvidence of debt,” as contemplated by N.D.C.C. § 28-26-04, relates to a written instrument importing on its face the existence of debt, an acknowledgement of that debt, and a promise of payment. The general term, “evidence of debt,” “despite its seeming breadth,” includes only instruments similar to those specifically listed in N.D.C.C. § 28-26-04: a note, bond, mortgage, or security agreement. See Black’s Law Dictionary 535 (7th ed.1999)(diseussing the principle of ejusdem generis, and stating “seeming breadth” is not given effect). Evidence of debt is not a “catchall rubric embracing any and all writings” including those such as the commercial lease agreement in this case. Jones,450 F.2d at 524 .
T.F. James Co.,
[¶ 17.]Applying the principles embodied in all of these cases, we conclude that the trial court erred as a matter of law in its denial of attorney’s fees. Pesic-ka’s consent form is not a note, bond or mortgage nor is it a written instrument importing on its face the existence of a debt. Rather, like the financing agreement in Assman, the employment agreement in Overholt, and the service agreement in Orion, Pesicka’s agreement only describes the conditions under which certain services will be provided and it sets forth the rights, liabilities, and obligations of the parties with respect to those services. Therefore, the consent form is not “evidence of debt” within the meaning of SDCL 15-17-39.
[¶ 18.]Reversed and remanded for consideration of the appropriate factors for
Notes
. While the body of the dissent appears to acknowledge that attorney’s fees are recoverable upon an agreement of the parties, that rule does not appear to be followed in the dissent's footnote emphasizing that attorney’s fees may only be granted in those cases specifically allowed by statute (listing those specific statutes). Furthermore, any suggestion in the footnote that there is some sort of public policy violation to award attorney's fees based upon an agreement by the parties is contraiy to at least half a century of this Court's legal precedent.
. The current version of SDCL 15-17-39 actually came into being with amendments made in 1993. See 1993 S.D.Sess.L. ch. 165.
. All of the statutory cross-references in the quotation from Orion, supra remain valid with the exception of the reference to SDCL 47-8-1.1, which was repealed in 2005. See 2005 S.D.Sess.L. ch. 239, § 394.
. Under directly controlling authority, the dissent’s position regarding a lack of “fair negotiation” over the attorney's fee agreement may not be addressed in this appeal. That question must be left for another day.
The dissent relies on Vanderwerff,
Consequently, the trial court entered no findings of fact or conclusions of law on the issue. The only trial court language that related to that issue was a comment in the memorandum decision that "[tjhere was no testimony that there was any discussion or negotiation of the attorney's fee clause,” and it was "unlikely” that it was fairly negotiated. However, the trial court never ruled on this issue. Ultimately, it resolved the matter of attorney's
Notwithstanding this record, the dissent alleges "fair negotiation” was an alternative ruling that we should adopt. As is pointed out above, it was not an alternative ruling. However, even if it were, the trial court's mere speculation concerning that subject is not reviewable because the memorandum was not incorporated in its findings of fact and conclusions of law. See Poindexter v. Hand County Bd. of Equalization,
Dissenting Opinion
(dissenting).
[¶ 21.] I dissent. There are two independent grounds by which the circuit court’s decision should be affirmed: First, the section on billing and credit in the hospital’s “Consent Form” constitutes “other evidence of debt” and violates the public policy set forth in SDCL 15-17-39; second, the circuit court found that the clause authorizing attorney’s fees was not fairly negotiated by the parties. The majority opinion fails to recognize our State’s public policy
The circuit court did not abuse its discretion in denying the hospital attorney’s fees pursuant to SDCL 15-17-39.
[¶23.] “At common law the right to recover attorney’s fees from an opponent in litigation did not exist.” NBC Leasing Co. v. Stilwell,
[¶24.] In this case, the hospital’s collection agency is relying on the “Billing and Credit Policy” clause of its “Consent Form” document as an “agreement” between the hospital and Pesicka for attorney’s fees. SDCL 15-17-39 limits the type of instruments that can contain provisions for attorney’s fees:
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.
[¶ 25.] Our case law concerning this statute has been inconsistent. In Assman v. J.I. Case Credit Corp.,
[¶ 26.] The hospital' attempts to hide behind the fact that its document deals with consents, authorizations, and releases in addition to debt. The majority opinion should not be so easily fooled.
[¶ 27.] The “Billing and Credit Policy” section of the document not only constitutes “other evidence of debt” but specifies the conditions relating to debt in six specific ways:
1. All patient accounts will be considered due upon receipt of your bill.
2. As a courtesy to me, the business office and any physician of the hospital providing services will process my insurance if information is provided.
3. It is understood that all insurance deductibles be paid at the time of dismissal.
4. I will be billed on the - current balance of my account regardless of the insurance claim status.
5. Accounts over thirty (30) days old may bear interest at a rate allowed under South Dakota State Law.
6. 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.
The only evidence of debt and conditions relating to debt not specified above is the ultimate balance due on account. At the time the document was signed, the medical services had not yet been provided so the final debt amount could not be inserted. We should not accept form over substance in determining what constitutes other evidence of debt.
[¶29.] In summary, our case law was inconsistent on what types of documents constitute “other evidence of debt.” The circuit court examined the hospital’s document and its provision on “Billing and Credit Policy” and determined it constituted “other evidence of debt.” Under these circumstances, the court did not abuse its discretion in denying the hospital attorney’s fees.
The circuit court should he affirmed because the “Billing and Credit Policy” provision ivas not negotiated between the parties.
[¶ 30.] An agreement concerning attorney’s fees should be fairly negotiated between the parties. Vanderwerff,
In this case, there is no evidence of negotiation between McCance and Van-derwerff on the matter of attorney fees, as the aforementioned clause is in fíne print.
Id. Vandenverff did not reach the issue of whether the attorney’s fees clause was negotiated because it had not been addressed by the circuit court.
[¶ 31.] Unlike Vanderwerff, the circuit court did address whether the hospital’s provision providing for attorney’s fees was negotiated. In its memorandum opinion, the circuit court wrote:
The court would point out that the form is captioned as a “Consent Form” authorizing care and treatment and does not indicate that the fine print contains a contractual agreement to pay attorney’s fees. Even the fine print paragraph which contains this clause is captioned as “Billing and Credit Policy” and gives no indication that it contains a contractual agreement to pay attorney’s fees.
There was no testimony that there was any discussion or negotiation of the attorney’s fee clause and this court concludes that it ivas extremely unlikely that this clause was negotiated between the parties in light of the circumstances under which the form was signed (Ash-ford was seeking medical treatment), the fact that this was a preprinted form, the fine print used, and the captions on the page and paragraph which do not disclose that there was an agreement to pay attorney’s fees contained therein.
[¶ 32.] In short, even if this Court holds the “Consent Form” does not constitute “other evidence of debt,” we should affirm the circuit court because the form’s provision providing for attorney’s fees was not negotiated between the parties. In which case, the decision of the circuit court was right even if the majority opinion now concludes it was based on the wrong reason.
. SDCL 15-17-38 sets forth the public policy of the State of South Dakota as to an award of attorney's fees. It provides in part:
The compensation of attorneys and counselors at law for services rendered in civil and criminal actions and special proceedings is left to the agreement, express or implied, of the parties. However, attorneys' fees may be taxed as disbursements if allowed by specific statute.
The only attorneys’ fees that are allowed by statute are: divorce, annulment of marriage, determination of paternity, custody, visitation, separate maintenance, support or alimony. In case the above statute was not sufficiently clear in its public policy of prohibiting attorneys fees except where specifically allowed by statute, SDCL 15-17-39 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.
In other words, SDCL 15-17-39 provides that attorneys’ fees in "other evidence of debt" are against public policy. How could the public policy of the State of South Dakota be any clearer?