'Collectibility' held crucial to debt's value Appellate court fills gap in Maryland law, defines accounts receivable

Judicial precedent

December 01, 1998|By Andrea F. Siegel | Andrea F. Siegel,SUN STAFF

Maryland's intermediate appeals court plowed new legal ground yesterday, ruling that judges must consider "collectibility" to determine the value of accounts receivable.

The 24-page published ruling plugged what the three-judge panel of the Court of Special Appeals found was a gap in the law. Maryland did not define "accounts receivable," and laws about recovering money in circumstances similar to the ones in this case give no method for valuing the sums.

But yesterday, the court defined accounts receivable as "a balance from a debtor on an open account, usually for services rendered or goods provided." While it gave no precise way to value them, the court made clear that the unpaid balance was not necessarily the value.

Instead, it said "the value of accounts receivable are based on the collectibility." That depends on the solvency of those who owe the money, on the validity of the debt and on any other evidence that would shed light on the whether the money can be collected.

"If you are trying to prove a case that you are entitled to accounts receivable, you better put on a showing of how much of that is collectible," said Robin F. Banks, one of two attorneys for Chevy Chase-based Medi-Cen Corp., one of the parties in yesterday's ruling. "Absent that evidence, you are going to be sent back" to the trial court, Banks said.

That is what the appellate court did in this case, reversing a Montgomery County Circuit judge and returning the case to him for a finding on what could be collected from the accounts receivable.

The ruling stems from the judge's decision to award half of the uncollected accounts receivable to Dr. H. Robert Birschbach, a Bethesda physician specializing in internal medicine and gastroenterology, from Medi-Cen, his one-time billing, collection and marketing service. Attorneys for Birschbach were unavailable yesterday.

A January 1995 agreement provided that Medi-Cen would take half of the money it collected for Birschbach from a bank account to which both had access. Birschbach canceled the contract as of May 1, 1996.

Birschbach did not receive any funds from Medi-Cen after that. But he sued and argued that he was entitled to $28,741.91 -- half of the outstanding uncollected accounts receivable for his patient services through April 30, 1996.

At a trial in April 1997 before Montgomery County Circuit Judge J. James McKenna, Medi-Cen said it had collected about $7,000, leaving nearly $58,000 uncollected. Neither side produced evidence of what could reasonably be expected to be collected. McKenna awarded Birschbach half of the uncollected amount. Medi-Cen appealed.

The appellate court found that without a showing that the accounts were 100 percent collectible, McKenna could not award the doctor 50 percent.

It said the plaintiff bears the burden of proof. Birschbach argued that he gave his records to Medi-Cen without keeping copies for himself and so did not know what was collected.

Pub Date: 12/01/98

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