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Secret settlement reached in dispute over Iowa Judicial Branch debt collection

Iowa State Capitol
Posted at 12:24 PM, May 02, 2022
and last updated 2022-05-02 13:24:36-04

A lawsuit over the legality of work performed on behalf of the Iowa Judicial Branch has been settled out of court with the terms of the deal kept confidential.

The result is that the public may never know whether a law firm that collected $58.6 million from Iowans through a contract with the Iowa Judicial Branch – while collecting nearly $12 million in fees for itself – acted illegally by using deceptive, high-pressure tactics to force the payment of court-ordered fees.

federal lawsuit filed in the fall of 2020 by Iowa Legal Aid and two other entities alleges the law firm of Linebarger, Googan, Blair & Sampson was hired by the Iowa Judicial Branch in 2010 to collect money owed to the state.

As part of that arrangement, the state was to pay Linebarger 25% of all debt that was collected. However, when Linebarger sent collection notices to Iowans, the firm allegedly added 25% onto the amount that was owed and characterized the total as the court-ordered obligation. It allegedly instructed the recipients to pay that amount to the state or face contempt-of-court action and the possible revocation of their driver’s licenses, all in violation of the federal Fair Debt Collection Practices Act and the Iowa Debt Collection Practices Act.

The Linebarger firm has countered that it is not a debt-collection company but a “law firm that has represented the Iowa Judicial Branch pursuant to a contract for services.” It says the terms “debt,” “debt collection” and “debt collector” are not applicable to its work “because government fines and legally imposed fees” are not legally considered debt.

Court records indicate the parties signed a settlement agreement last September, although the two sides are still arguing in court over legal expenses in the case. The terms of the settlement have not been disclosed, and in recent court filings, lawyers for the plaintiffs informed the judge that both sides had agreed that “they will not publicly disclose any terms of the settlement.”

Under Iowa law, public agencies are not allowed to enter into secret settlement agreements to resolve lawsuits and other disputes.

In this case, however, the Iowa Judicial Branch is not a party to the settlement, although the case involves work performed on its behalf. And although Iowa Legal Aid receives some public funding for its work, it is a nonprofit organization acting as the plaintiffs’ attorney, not as the plaintiff.

It’s possible that one central element of the lawsuit may yet be addressed by the judge in the case. The Linebarger firm has challenged the legal fees the plaintiffs’ attorneys have claimed, in part by arguing the lawsuit had no merit. The judge may have to rule on that issue, if only indirectly, simply to resolve the dispute over the legal fees.

Iowa bills differently for indigent defense

Alexander Vincent Kornya, litigation director and general counsel for Iowa Legal Aid, said Friday that while he can’t comment on any aspect of the settlement, the lawsuit itself “is about accountability – specifically, whether private law firms that collect debts for the government are beyond the reach of the laws that govern their peers. We believed they were accountable when we filed the case, that they violated the law, and we still believe that.”

He noted that Linebarger’s contract with the Iowa Judicial Branch ended in January 2021, after the Legislature assigned the debt-collection portfolio to the Iowa Department of Revenue. Despite that, Kornya said, the issues raised in the lawsuit could surface again.

“For example,” he said, “we understand that the Iowa Department of Revenue has contracted with Transworld Inc. – a well-known national private collection firm – to collect debt on behalf of the state of Iowa. Transworld’s activities may or may not include some role in collecting the same court debt that was at one time collected by Linebarger. To the extent that there may be any similar problems in the future — with Transworld or any other private sector contractor collecting debt on behalf of the state — we hope that this case will create some sense of accountability and adherence to the laws that have governed private debt collectors for the last 50 years.”

Kornya noted that the lawsuit against Linebarger focused not on unpaid fines and penalties, but on indigent-defense fees. The consequences faced by poor people who don’t pay their attorneys’ fees are far greater than those faced by people of means who hire a private attorney, he said. People in poverty who owe indigent-defense fees may be denied the expungement of their criminal case, have their tax refunds offset and – as the Linebarger lawsuit alleged – they may be subject to threats of drivers’ license revocations or even jail.

Kornya also noted that while 45 states charge some kind of fee for indigent defense, Iowa is different in that the fee represents the actual cost of the defense. Most states impose a cap that results in a much smaller fee, he said.

Also, he said, a person in Iowa is billed for indigent defense regardless of whether they win or lose their case, and many people are assessed those fees even in non-criminal cases.

A spokesman for the Iowa Judicial Branch declined comment Friday.

Fight over attorneys’ fees rolls on 

As part of the ongoing litigation over attorney fees in the Linebarger lawsuit, the Linebarger firm has accused Iowa Legal Aid and its co-counsel of “running the meter” in term of their expenses and said it “is fair for the court to ponder” whether the lawsuit was filed for the benefit of the plaintiffs or for “the financial benefit of plaintiffs’ counsel.”

Kornya said Friday that Iowa Legal Aid and its partners in the case have more clients than they can handle and there’s no need to steer more “business” their way.

“We serve approximately 14,000 Iowans each year, without charge, on civil legal issues that deal with access to the basic necessities of life,” he said. The lawsuit, he added, was aimed at reducing “the number of people in crisis walking through our doors, who can’t cover life’s necessities because they are presented with unwarranted and legally baseless threats of jail, license revocation, and other penalties.”

With at least 2,300 governmental clients nationwide, Linebarger reportedly collects more than $1 billion in government debt each year but has come under scrutiny for its debt-collection tactics and has been accused of threatening debtors with arrest and jail.

Iowa Capital Dispatch is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: info@iowacapitaldispatch.com. Follow Iowa Capital Dispatch on Facebook and Twitter.

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