MARION COUNTY, Ind.—For U.S. consumers with too many bills and not enough money, the end of the line is often a small-claims court like the one here in Pike Township.To see the rest of the article, click here.
Judge A. Douglas Stephens, who presides over all the township's small-claims cases, calls himself a "Renaissance redneck" and wears a small gun strapped to his ankle while on the bench. He says he has little patience for the "feeble protests" of people who try to dodge their financial obligations.
Shortly after his 2003 election, he recalls, two insurance executives in "bad suits" sat silently in the back of his courtroom to see if he would rule in favor of their company in a dispute involving damage from a car accident. He says he did, based on the facts.
These days, his calendar is packed with cases from many insurance companies—sometimes more than 200 a day—against residents who allegedly owe money for insurance premiums or car accidents. The defendants live not only in Pike Township but in townships all over Marion County. Judge Stephens says that American Family Mutual Insurance Co., based in Madison, Wis., files all its cases against county residents in his township because "they had a problem with another judge who was consistently too tough," whom he declines to name. Judge Stephens says he is "totally impartial." American Family declined to comment.
As companies and debt collectors try to collect on overdue bills that piled up during the financial crisis, the recession and their aftermath, they are borrowing a tactic from plaintiffs' lawyers: They shop around for the best places to bring their claims. Debt collectors aren't so much worried about whether a court will rule that the debtor owes the money—most cases are fairly clear-cut on that point—but about how aggressively collectors can pursue a debtor's assets.
Lawsuits to collect on bad debts have to be filed in the state where a debtor lives. In most cases, debt collectors don't get to choose the court in which the case will be heard. Unless it involves an especially large debt, it will be the small-claims court in the debtor's county, and there's no way for a debt collector to pick the judge.
Parts of Indiana are particularly unusual. Although the state requires suits to be filed in the county where the borrower lives, in Marion County and one other county, collectors can choose among township courts—each with a single judge. The courts handle all collection disputes involving up to $6,000.
"We lawyers call it forum-shopping," says Richard Gonon, a lawyer for Accounts Recovery Bureau Inc., a Reading, Pa., medical debt-collection firm that has filed cases in Marion County.
Debt collectors regard Indiana as friendly territory. Companies can file small-claims suits by mail rather than sending lawyers to file them in person. If a debt collector wins in court, nearly all of a creditor's assets can be pursued for payment, including real estate, pension payments and cars, which are off-limits in many other states.
Marion County, where Indianapolis is located, is the state's most populous county. It is carved into nine townships, each with its own court—a vestige of a time in which every Indiana resident was supposed to be able to reach a courthouse on horseback in one day.
Eighty percent of debt-collection cases against Marion County residents involved less than $6,000 in 2009, the latest year for which figures are available, so they were handled by township courts. State law allows debt collectors to file the suits in any of the nine courts.
Jeff Bennett, who oversees the Warren Township court's budget and staff, says township courts depend on filing fees of $81 per case to fund a chunk of their operations. He says that creates a "perverse incentive" for judges and their staffs to be "accommodating" to collectors.
Decatur Township has become the preferred courthouse for lawyers who collect soured debt on behalf of medical providers, according to Pam Ricker, who has managed the court's operations for more than 25 years. The township has no hospitals.
Ms. Ricker says a lack of public transportation discourages many defendants from showing up in court, resulting in automatic wins for debt collectors.
"We certainly have our loyal attorneys," said Ms. Ricker. The court provides lawyers with coffee in a break room and a fax machine for their clerical needs.
Of the 106 Med Shield cases scheduled to be handled by the court one day in February, just three involved defendants who lived in the township, according to an analysis of court records by The Wall Street Journal.
The article seems to take a dim view of lawyers for creditors meeting with debtors before the hearing to see if a resolution can be reached. I don't see anything wrong with the practice, as long as it is made clear to the defendant that he or she does not have to agree to any resolution and can take the case before the judge. Many of the defendants have had no chance to communicate with the attorney to work out a resolution before the hearing. Their appearance in court provides that opportunity.
But the rest of the article is on point. Forum shopping is a terrible problem in the Marion County small claims courts. Creditors can file cases in any small claims court they want to. This creates competition among the small claims courts to provide a favorable forum for creditors. Small claims courts, which are run by filing fees, have an incentive to keep creditors happy so they will continue filing in their courts.
Marion County small claims courts often become far too chummy with creditors' attorneys, allowing them to set the court's schedule, use court offices for faxing and copying. The article noted that in Center Township, constables, on behalf of creditors, pass out to documents to defendant debtors asking for information.
A year or so ago, my law firm had a client who was sued in a southern Marion County small claims court on a judgment with a hospital that was about 12 years old. The amount was something like $400 and the court's records showed his wages had been garnished 11 years ago to pay the debt.
It should have been a slam dunk win for the client. The judgment was too old (the judgment becomes uncollectable after 10 years if not renewed, which it wasn't) and the hospital had no documentation showing how much was collected by the garnishment and how much still was owed. Guess who won? If your guess is the hospital's collection company, which files umpteen cases in that small claims court, you'd be correct. Indiana law making old judgments uncollectable and the requirement that the plaintiff prove its case, didn't matter.
The issue of small claims court forum shopping and the accompanying perverse financial incentive to rule in favor of collection companies, raises at least an appearance that justice is not being dispensed in those courts. Both the Indiana Supreme Court and the Indiana General Assembly have it within their authority to change the rules to restore the integrity of the judicial process in Marion County small claims courts. It is time they take action.