Health Call of Detroit, Inc. v. Farmers Insurance Exchange

Filing 40

OPINION and ORDER Denying Defendant Farmer's 28 MOTION for Summary Judgment and, Denying as Moot 38 MOTION for Leave to File Nonconforming Reply Brief. Signed by District Judge Bernard A. Friedman. (TMcg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
HEALTH CALL OF DETROIT, INC.,
Plaintiff,

Civil Action No. 16-CV-11345

vs.

HON. BERNARD A. FRIEDMAN

FARMERS INS. EXCHANGE,
Defendant.
_________________________________/
OPINION AND ORDER DENYING DEFENDANT
FARMERS’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Farmers Insurance Exchange’s motions for
summary judgment and for leave to file a nonconforming reply brief [docket entries 28 and 38].
Health Call has responded, Farmers has replied, and Health call has filed a sur-reply. Pursuant to
E.D. Mich. LR 7.1(f)(2), the Court shall decide this motion without a hearing.
FACTS
The following facts are summarized from Health Call’s complaint and briefing:
In July 2011, six-year old Jaden was in a terrible car accident when another car
going 70 mph smashed into his family’s car. He was thrown from the back seat underneath the
dashboard. He suffered skull fractures, sacral factures, and a hemorrhagic contusion in his right
temporal lobe. Medics onsite unsuccessfully tried to resuscitate him several times. He was
airlifted to the University of Michigan Hospital, where he spent a week in a coma. Jaden was
diagnosed with severe traumatic brain injury. Because Jaden still suffers many side effects of the
accident, his “physicians have prescribed 24-hour attendant care services, primarily for supervision
purposes.” Pl.’s Br. p. 4.

In October 2011, Jaden’s mother Velma Sears-Roddy—acting on his behalf—
assigned to Health Call “any rights [Jaden] may have as a result of Health Call providing services.”
Id. at Ex. M. This included the right to “collect any and all benefits.” Id.
In July 2012, Velma—acting as Jaden’s next friend—filed a complaint against
Farmers, who was refusing to pay no-fault benefits. In January 2014, the case settled, and Velma—
acting on Jaden’s behalf—signed a partial release of claims against Farmers.1 Id. at Ex. K. For
the next year, Farmers paid for Jaden’s attendant care. In January 2015, Farmers sent a letter to
Velma, stating that based on the analysis of its physician, Dr. O’Leary, it would no longer pay for
attendant care for Jaden. In response, Jaden’s longtime physician, Dr. Pelshaw, wrote Farmers,
explaining Jaden’s need for attendant care, but to no avail.
In February 2015, Health Call began providing services to Jaden. In February 2016,
Health Call filed the instant complaint against Farmers, asserting a single violation of Michigan’s
No-Fault Act. In June 2017, Velma signed another assignment of benefits to Health Call. Id. at
Ex. N. This assignment states: “In consideration for the services provided to [Jaden] by Health
Call, [Jaden] assigns and transfers to Health Call all of [his] rights and interest in his[] insurance
benefits for services rendered by Health Call.” Id.
LEGAL STANDARD
Federal Rule of Civil Procedure 56(a) states that any party moving for summary
judgment must identify “each claim or defense . . . on which summary judgment is sought. The
court shall grant summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” A party must support its
assertions by:

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The release explicitly did not apply to Health Call’s services.

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(A) citing to particular parts of materials in the record, including
depositions, documents, electronically stored information, affidavits
or declarations, stipulations (including those made for purposes of
the motion only), admissions, interrogatory answers, or other
materials; or
(B) showing that the materials cited do not establish the absence or
presence of a genuine dispute, or that an adverse party cannot
produce admissible evidence to support the fact.
Fed. R. Civ. P. 56(c)(1). “The court need consider only the cited materials, but it may consider
other materials in the record.” Fed. R. Civ. P. 56(c)(3). If the moving party satisfies this burden,
the burden shifts to the nonmoving party to show that there is a genuine issue of material fact for
trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). “[T]he mere
existence of a scintilla of evidence in support of the [nonmoving party’s] position will be
insufficient [to defeat a motion for summary judgment]; there must be evidence on which the jury
could reasonably find for the [nonmoving party].” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
252 (1986).
DISCUSSION
I.

Law

The No-Fault Act established a system of mandatory no-fault automobile
insurance. Mich. Comp. Laws § 500.3101 et seq. This insurance is also called personal protection
insurance. Id. “Under personal protection insurance[,] an insurer is liable to pay benefits for
accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor
vehicle as a motor vehicle.” Mich. Comp. Laws § 500.3105(1). Under Mich. Comp. Laws §
500.3107(1)(a), personal protection insurance benefits are payable for “[a]llowable expenses
consisting of all reasonable charges incurred for reasonably necessary products, services and

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accommodations for an injured person’s care, recovery, or rehabilitation.” Bronson Methodist
Hosp. v. Auto-Owners Ins. Co., 814 N.W.2d 670, 677–78 (2012).
Decades of Michigan Court of Appeals cases had found that healthcare providers
could directly sue no-fault insurers to recover no-fault benefits. The Michigan Supreme Court
overruled that line of cases in Covenant Med. Ctr., Inc. v. State Farm Mut. Auto. Ins. Co., 895
N.W.2d 490, 493 (Mich. 2017), stating: “[T]he statutory no-fault scheme reveals no support for
an independent action by a healthcare provider against a no-fault insurer. . . . We therefore hold
that healthcare providers do not possess a statutory cause of action against no-fault insurers for
recovery of personal protection insurance benefits under the no-fault act.”
II.

Analysis
a. Retroactivity of Covenant

The Court finds that Covenant applies retroactively. It is axiomatic that when the
Court sits in diversity jurisdiction it applies Michigan law as the Michigan Supreme Court would.
Berrington v. Wal-Mart Stores, Inc., 696 F.3d 604, 607 (6th Cir. 2012). Michigan Court of
Appeals rulings inform this inquiry, but are not binding.  Ososki v. St. Paul Surplus Lines, 156 F.
Supp. 2d 669, 674 (E.D. Mich. 2001).
The Michigan Supreme Court has, in light of Covenant, vacated and remanded
cases to the Michigan Court of Appeals for reconsideration. See Spectrum Health Hosps. v.
Westfield Ins. Co., 897 N.W.2d 166, 167 (Mich. 2017); Bronson Methodist Hosp. v. Mich.
Assigned Claims Facility, 897 N.W.2d 735 (Mich. 2017). This demosntrates that the Michigan
Supreme Court considers Covenant retroactive. Indeed, the Michigan Court of Appeals has
explicitly applied Covenant retroactively. See Eubanks v. State Farm Mut. Auto. Ins. Co., No.
330078, 2017 WL 3044126, at *3 (Mich. Ct. App. July 18, 2017) (“In accordance with Covenant

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Med. Center, we hold that intervening plaintiffs in this case have no statutory cause of action
against defendant for recovery of personal protection insurance benefits under the no-fault act.”).
Finally, under Bezeau v. Palace Sports & Entm’t, Inc., 795 N.W.2d 797 (Mich.
2010), the Court must weigh whether applying Covenant retroactively will result in injustice.
Health Call has alleged both statutory and contractual theories of liability. Because it still has its
assignment claim, granting summary judgment as to the statutory claim does not work an injustice.
Thus, Health Call’s statutory claim is dismissed.
b. The Assignment
Farmers’s Standing to Challenge the Assignment. Under Sixth Circuit case law,
“[a]n obligor may assert as a defense any matter which renders the assignment absolutely invalid
or ineffective, or void.” Livonia Properties Holdings, LLC v. 12840-12976 Farmington Rd.
Holdings, LLC, 399 F. App’x 97, 102 (6th Cir. 2010) (quotation marks omitted). Here, Farmers
is the obligor to the assignment at issue, and as a defense it argues that the assignments are invalid.
Therefore, contrary to Health Call’s assertions, Farmers has standing.
Validity of the Assignment. The parties are well acquainted with the law of
assignments and the Court’s role when it exercises diversity jurisdiction, so the Court will not
repeat them.
The question here is whether, as Farmers argues, the assignments are invalid
because parents cannot assign their children’s rights to no-fault benefits. There is no genuine
dispute as to any material fact. The parties agree that Velma—acting on Jaden’s behalf—assigned
to Health Call in October 2011 and June 2017 Jaden’s rights to no-fault benefits. The only question
is whether Farmers is entitled to judgment as a matter of law because the assignments were invalid.

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The Court finds that because Velma’s June 2017 assignment was valid, Farmers is
not entitled to judgment as a matter of law.2
No Michigan case law directly addresses Farmers’s argument.

The parties

extensively discuss Woodman ex rel. Woodman v. Kera LLC, in which the Michigan Supreme
Court found that “a parent lacks authority to bind his child by contract.” 785 N.W.2d 1, 2 (Mich.
2010). At first blush Woodman seems relevant. But as Health Call notes, Woodman’s issue was
“whether a minor can be bound by a contract signed on his behalf by a” parent, id. at 5, not whether
an obligor can be bound by such a contract. In Woodman, the minor, through his parent, sought
to avoid enforcement of the contract his parent signed. Here, neither the minor nor his parent
opposes enforcing the assignment. These are different scenarios, so Woodman is of no help.
Further, the court in Woodman stated that contracting parties may transfer the rights of third parties
so long as they had the “legally cognizable authority to do so.” Id. at 8. Under Michigan law,
parents do have the authority to “sign[] contracts for or on behalf of the minor.” People v.
Abraham, 234 Mich. App. 640, 651 (1999). See also Lucas v. Awaad, 299 Mich. App. 345, 360–
61 (2013). The Court recognizes the tension between these two propositions: parents cannot
contractually bind their children, yet parents may sign contracts on their children’s behalf. The
Court concludes that parents may contract on their child’s behalf—as happened here—but if the
child, through the parents, wishes to avoid that contract, the parent’s signature will not prevent it
from doing so.
This conclusion is supported by the only Michigan case of which the Court is aware
that explicitly mentions this question. In Hillsdale Cmty. Health Ctr. v. Pioneer State Mut. Ins.
Co., No. 285681, 2009 WL 2873002, at *4 n.4 (Mich. Ct. App. Sept. 8, 2009), the Michigan Court

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Therefore, the Court need not discuss the October 2011 assignment.

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of Appeals assumed that a parent’s assignment of no-fault benefits on behalf of her minor child is
valid and binding on obligors.3 Critically, in Hillsdale, the minor and her parent were not seeking
to avoid the contract. Therefore, the court did not find the contract invalid.
Other states disagree on a parent’s right to assign insurance benefits on behalf of
their child. For example, the Mississippi Supreme Court has held that because a child is the “only
party entitled to [insurance] proceeds via his injuries, his parents ha[ve] no right to assign them.”
Cooper Tire & Rubber Co. v. Striplin By & Through Striplin, 652 So. 2d 1102, 1104 (Miss. 1995).
But several other states’ courts have held that because parents are responsible for their children’s
healthcare costs, they own and may assign corresponding causes of action to health care providers.
See, e.g., Kennedy v. Kiss, 412 N.E.2d 624, 628 (Ill. App. 1980).
The Court finds this latter reasoning more persuasive. Here, Jaden is not on the
hook for medical bills, but Velma. See Newman v. Hoholik, 138 Mich. App. 66, 69 (1984). Of
course, if Velma had not made the assignments, she herself could sue Farmers. Velma owned a
cause of action and, in effect, assigned it to Health Call.
Further, Farmers’s argument that Jaden cannot contract as he is a minor and Velma
cannot contract for him as she is a third party would effectively bar Jaden from assigning what
everyone agrees is a legitimate cause of action. Under Michigan law, however, “[g]enerally, all
legitimate causes of action are assignable.” Grand Traverse Convention & Visitor’s Bureau v.
Park Place Motor Inn, Inc., 176 Mich. App. 445, 448 (1989). Farmers has not shown why this
cause of action should be treated differently. The case law strongly militates against Farmers’s
position.

3

Though Hillsdale was decided in 2009, a year before Woodman, Woodman merely summarized and repeated over
100 years of Michigan law; its rule was nothing new and, thus, would not have overturned Hillsdale.

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Finally, the Court notes that Farmers accepted the October 2011 assignment as
valid. It paid $30,000 for that assignment, treating Velma as though she had the authority to
transfer Jaden’s rights.
In sum, Velma, acting on Jaden’s behalf, assigned his rights to insurance benefits
and her right to seek reimbursement from Farmers to Health Call in exchange for healthcare
services. Because neither she nor Jaden have expressed a desire to void that assignment, it is valid.
June 2017 Assignment as Basis for the Complaint. As stated above, in addition to
alleging a statutory theory of liability, Health Call also alleges a contractual theory of liability:
“Jaden Sears has assigned his rights to obtain payment for these medical benefits to Plaintiff.”
Compl. ¶ 10. Velma—acting on Jaden’s behalf—twice assigned these rights: first in October 2011,
and second in June 2017.
Farmers asserts that the October 2011 assignment is invalid because, in violation
of Michigan law, it assigns Jaden’s rights to all future insurance benefits. Farmers does not argue
that the June 2017 assignment is invalid, but only that Health Call’s complaint cannot rely on it
because the complaint was filed almost fourteen months before Velma made the June 2017
assignment.4 In sum, the narrow question here is not whether Health Call may switch theories of
liability (as Farmers implies in its briefing); rather, it is whether Health Call may base its April
2016 complaint on the June 2017 assignment.
The Court finds, first of all, that from day one Farmers has known that at least one
of Health Call’s theories was based on an assignment of Jaden’s rights. The June 2017 assignment
does not change or amend the complaint, but merely buttresses the October 2011 assignment. The

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At the outset, the Court notes that, contrary to Farmers’s assertions, the June 2017 assignment is not a supplemental
pleading. See Fed. R. Civ. P. 7(a). A pleading is a document filed with the Court; this is an assignment—nothing
more.

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Court will not prioritize form over substance. The June 2017 assignment may form the basis of
Health Call’s theory of liability.
Second, given the Sixth Circuit’s liberal amendment rules, see, e.g., Duggins v.
Steak ‘N Shake, Inc., 195 F.3d 828, 834 (6th Cir. 1999), if Health Call chooses, it may amend its
complaint within ten days of this order being entered to clarify this issue.
For the foregoing reasons,

IT IS ORDERED that Farmers’s motion for summary judgment is denied.

IT IS FURTHER ORDERED that Health Call may amend its complaint within ten
days of this order being entered.

IT IS FURTHER ORDERED that Farmers’s motion for leave to file a
nonconforming brief is denied as moot.

s/Bernard A. Friedman
BERNARD A. FRIEDMAN
SENIOR UNITED STATES DISTRICT JUDGE
Dated: September 12, 2017
Detroit, Michigan

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served upon counsel of record
and any unrepresented parties via the Court’s ECF System to their respective email or First Class
U.S Mail addresses disclosed on the Notice of Electronic filing on September 12, 2017.
s/Teresa McGovern
Case Manager Generalist

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