The White House Services v. Allstate Insurance Company
Filing
34
ORDER granting 23 plaintiff's Motion for ratification, denying 18 defendant's Motion to Dismiss and denying 19 defendant's Motion for Summary Judgment without prejudice. Signed by District Judge George Caram Steeh. (MBea)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
THE WHITE HOUSE SERVICES,
(Edwin Broadus),
Plaintiff,
Case No. 17-CV-12672
vs.
HON. GEORGE CARAM STEEH
ALLSTATE INSURANCE CO.,
Defendant.
_____________________________/
ORDER GRANTING PLAINTIFF’S MOTION FOR RATIFICATION
[ECF DOC. 23], DENYING DEFENDANT’S MOTION TO DISMISS
[ECF DOC. 18], AND DENYING DEFENDANT’S MOTION FOR
SUMMARY JUDGMENT WITHOUT PREJUDICE [ECF DOC. 19]
Plaintiff White House Services filed its complaint in Ingham County
Circuit Court on December 29, 2016. Defendant Allstate was served with
the complaint on March 21, 2017. The case was removed and venue was
transferred to this court on August 15, 2017. Plaintiff filed an amended
complaint on December 11, 2017. According to the amended complaint,
plaintiff provided medical services to Edwin Broadus, who sustained
catastrophic brain injuries in a motor vehicle collision occurring November
1, 1982. Plaintiff seeks to collect no-fault personal protection insurance
benefits under Michigan’s No-Fault Automobile Insurance Act (“No-Fault
Act” or “Act”).
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The matter is presently before the court on (1) plaintiff’s motion for
ratification, or in the alternative to join White House Custom Services, Inc.
as a party, (2) defendant’s motion to dismiss, (3) defendant’s motion for
summary judgment and (4) Edwin Broadus’ motion to intervene. Oral
argument was held on the motions on July 30, 2018.
FACTUAL BACKGROUND
The amended complaint alleges that plaintiff obtained an assignment
from Mr. Broadus’ legal guardian, Thomas Boynton, to collect the no-fault
benefits from Allstate for services provided by plaintiff. The assignment
attached to the amended complaint is dated December 8, 2017 and
purports to assign Mr. Broadus’ rights to receive payment for allowable
expenses under the No-Fault Act for the period between February 28, 2017
and December 8, 2017 (“Assignment One”). The amended complaint does
not refer to The White House Custom Services (“Custom”) at all, let alone
allege that services were provided by Custom or that Custom had an
assignment of benefits from Mr. Broadus.
On March 19, 2018, defendant filed a motion to dismiss arguing that
plaintiff is not the real party in interest pursuant to Fed. R. Civ. P. 17(a) and
does not have Article III standing to bring this action. On March 20, 2018,
defendant filed a motion for summary judgment claiming plaintiff did not
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provide lawfully rendered services to Mr. Broadus for which it is entitled to
Michigan no-fault benefits. Specifically, defendant alleges that plaintiff did
not possess the required license to provide adult foster care services in a
single apartment setting and therefore its services are not compensable
under the No-Fault Act.
On April 11, 2018, plaintiff moved for ratification, or in the alternative
to join Custom as a party. Plaintiff attached a document purporting to
assign Mr. Broadus’ right to collect no-fault benefits to Custom. On May 4,
2018, Edwin Broadus filed a motion to intervene in the action. Mr. Broadus
argues that defendant’s non-payment of his ongoing residential brain-injury
care, supervision and therapy has resulted in financial harm to plaintiff as
well as to himself by exposing him to personal liability for the unpaid
charges. In addition, Mr. Broadus is concerned that defendant’s nonpayment will jeopardize his ability to continue to reside in plaintiff’s braininjury program and receive the services he requires from plaintiff.
ANALYSIS
I.
Plaintiff’s Motion for Ratification or to Join Custom
For the first time, in its motion for ratification or joinder, plaintiff
argues the following facts: From January 22, 2016 through January 31,
2018, Edwin Broadus resided in a residential apartment living program and
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received care and supervision through Custom. On February 1, 2018,
Broadus was moved into plaintiff’s main facility and has received care and
supervision exclusively from plaintiff since that date. Allstate admittedly
has not made any payments for the time Mr. Broadus was living in the
apartment. Allstate represents that it has paid for services provided by
plaintiff in its main facility since February 1, 2018.
Mr. Broadus allegedly assigned his right to collect benefits to “White
House Services, Inc. / White House Custom Services, Inc.” (“Assignment
Two”). The period covered by Assignment Two is January 22, 2016 to
March 26, 2018. Assignment Two appears to have been signed by Mr.
Broadus on February 5, 2012 and by Paulette Boggs on behalf of “White
House Services, Inc. / White House Custom Services, Inc.” on April 5,
2018.
Plaintiff now alleges that defendant is responsible for services
rendered for treatment to Mr. Broadus by Custom, rather than plaintiff.
Plaintiff argues that Custom is therefore the real party in interest and the
proper party plaintiff. Plaintiff attaches Ms. Vaughn’s affidavit to its motion
for ratification, in which Vaughn ratifies having plaintiff bring this lawsuit on
Custom’s behalf and stating that Custom agrees to be bound by the results.
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Vaughn states that Custom will file a lawsuit in its own name if the court
denies plaintiff’s motion to ratify. (ECF Doc. 23, Exhibit 3, Vaughn Aff.)
Pursuant to Fed. R. Civ. P. 17(a)(1), “an action must be prosecuted in
the name of the real party in interest.” The purpose of this rule is to protect
the defendant against a subsequent action by the party entitled to recover,
and to ensure generally that the judgment will have its proper effect as res
judicata. Rule 17, Advisory Committee Notes. Where there is an objection
that the action is not brought in the name of the real party in interest, a
district court “may not dismiss an action for failure to prosecute in the name
of the real party in interest until, after objection, a reasonable time has been
allowed for the real party in interest to ratify, join, or be substituted into the
action.” Rule 17(a)(3).
An order permitting ratification, joinder or substitution is to have the
same effect as if the action had been commenced in the name of the real
party in interest. This means that the ratification will relate back to the date
the lawsuit was initially commenced. The purpose of Rule 17 is to avoid
injustice when an understandable mistake has been made in selecting the
party in whose name the action should be brought. The rule is to be
applied leniently when an honest mistake has been made in selecting the
proper plaintiff. However, if ratification is found not to be proper, then the
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action will be dismissed. See 6A Charles Alan Wright et al, Federal
Practice and Procedure §1543 (3d ed. 2010).
A.
Standing
Defendant relies on the decision in Zurich Ins. Co. v. Logitrans, Inc.
297 F.3d 528 (6th Cir. 2002), where the Sixth Circuit held that when a
plaintiff lacks Article III standing, it may not move for ratification. In Zurich
Insurance, defendant ACI subleased a warehouse to defendant Logitrans.
Logitrans provided services for Lear in connection with Lear’s manufacture
of automobile seats. A fire at the warehouse destroyed significant property
owned by Lear. Lear was insured by American Guarantee, who paid Lear’s
claims for damages. American Guarantee became Lear’s subrogee
regarding any claims Lear had against the defendants arising from the fire.
Zurich Switzerland brought the action as Lear’s purported subrogee,
notwithstanding the fact that Zurich Switzerland never issued an insurance
policy nor paid out any money to Lear. American Guarantee was not
named a party in the complaint. Just before trial, Logitrans filed a motion in
limine, in which it asserted that Zurich Switzerland was not Lear’s true
subrogee. Zurich Switzerland did not dispute that it was not the proper
plaintiff and filed a motion to substitute American Guarantee as the real
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party in interest pursuant to Rule 17(a). Defendants ACI and Logitrans
moved to dismiss the action pursuant to Rule 12(b)(6).
The district court denied the motion to substitute claiming Zurich
Switzerland failed to show that the prosecution of the case in Zurich
Switzerland’s name instead of American Guarantee’s name was an
understandable mistake. After concluding that plaintiff Zurich Switzerland
was not a proper party, the court dismissed its claims pursuant to Rule
12(b)(6). The Sixth Circuit upheld the district court’s decision, finding that
Zurich Switzerland did not have standing to bring the suit because it did not
suffer an injury. The Sixth Circuit stated the reasons for its holding:
An attorney made a mistake and filed the action in the name of
Zurich Switzerland, when Zurich Switzerland had no claims
whatsoever against the defendants, and no Article III standing
to sue. American Guarantee, a totally separate entity, which
was not vigilant in protecting its claims, cannot now benefit from
Zurich Switzerland's mistake so as to take advantage of the
suspension of the limitations period.
Several other circuit courts have acknowledged that there is a
distinction between questions of Article III standing and Rule
17(a) real party in interest objections.
Zurich Ins. 297 F.3d at 532-33.
“In order for a federal court to exercise jurisdiction over a matter, the
party seeking relief must have standing to sue.” Id. at 532. To establish
Article III standing, a plaintiff must have suffered an “injury in fact” which is
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concrete and particularized and “actual or imminent.” In addition, there
must be a causal connection between the injury and the complained of
conduct. Finally, it must be likely, as opposed to speculative, that the injury
will be redressed by a favorable decision. Id.
On the issue of standing, defendant points out that plaintiff and
Custom are distinctly separate corporate entities. Plaintiff filed its Articles
of Incorporation on June 1, 2009 and Custom filed its Articles of
Incorporation on April 24, 2012. Each entity received separate
identification numbers from the State of Michigan and each is separately in
good standing according to State records. Each entity bills for the services
it provides, and Custom billed Allstate for the services provided to Mr.
Broadus that are at issue in this lawsuit. (ECF No. 18, Defendant’s Motion
to Dismiss, Ex. C)
In response, plaintiff maintains that both it and Custom are closely
held corporations with the same sole shareholder, Jacquelyn Vaughn.
Plaintiff’s accountant Susan Schmidt avers that plaintiff and Custom are
members of a Michigan Unitary Business Group (UBG) and are treated as
a single taxpayer. Plaintiff files taxes on behalf of itself and Custom.
Plaintiff is the controlling member who determines allocation of proceeds
issued by insurance companies between the two entities, regardless of
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which provides the services. Plaintiff controls Custom and has a financial
interest in any amount received by Custom. Schmidt opines that if Custom
is not paid, plaintiff suffers financial harm because it is responsible for
allocating income and losses between the two companies.
Plaintiff urges the court to conclude that it does have Article III
standing because it will suffer financial harm if Custom is not paid for the
services it provided. The court finds that Zurich Switzerland is
distinguishable from the facts of this case. The named plaintiff in Zurich
Switzerland did not suffer any injury, whether traceable to the defendant’s
conduct or not. In this case, if Custom is not paid for the services it
provided, there is an indication that plaintiff will suffer financial harm. This
is because plaintiff and Custom are closely-affiliated entities, plaintiff is
responsible for allocating income and losses between itself and Custom,
and the two entities are members of a Michigan Unitary Business Group
and are therefore treated as a single taxpayer. Additionally, plaintiff
brought this lawsuit based on rights it thought it had under Assignment
One. While plaintiff now admits it was mistaken in bringing the lawsuit
instead of Custom, there was at least a basis for its mistake. In Zurich
Switzerland, the named plaintiff had no basis for believing it had a claim
against the defendant.
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For the reasons given above, the court finds that plaintiff has standing
to move for ratification by Custom as the real party in interest.
B.
Validity of Assignment Two
Custom’s claim against Allstate arises from Assignment Two, which is
purported to be an assignment of rights from Mr. Broadus to Custom.
Assignment Two contains a signature for Mr. Broadus and is dated
February 5, 2012, which is several years before the services were provided
by Custom beginning on January 22, 2016. If the February 5, 2012 is the
date Mr. Broadus signed Assignment Two, it would be an improper
assignment of a future benefit. The Michigan No-Fault Act provides that an
agreement for assignment of a right to benefits payable in the future is void.
MCL 500.3143. Therefore, the date that Assignment Two was signed by
Mr. Broadus is material to whether Custom has a claim against Allstate.
C.
One-Year Back Rule and Relation-Back Doctrine
The one-year back rule in the Michigan No-Fault Act requires that an
action for recovery of personal protection insurance benefits for accidental
bodily injury be commenced no more than one year after the most recent
allowable expense is incurred. MCL 500.3145(1). For example, if
Assignment Two was effective on April 5, 2018, the date that plaintiff and
Custom allegedly signed it, then the one-year back rule provides that
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Custom can only recover for services under the assignment dating back to
April 5, 2017.
Defendant argues that by trying to utilize Rule 17’s ratification
procedure to allow Custom’s claims to be part of this case, plaintiff is
attempting to use Rule 17’s relation-back doctrine to toll the No-Fault Act’s
one-year back rule. This issue was recently addressed by the Michigan
Court of Appeals in Shah v State Farm Mut. Auto Ins. Co., 324 Mich App
182, decided May 8 2018, (Docket No 340370). The plaintiffs in Shah were
medical providers that filed suit for no-fault benefits on February 24, 2017
for services provided to George Hensley. Following the Supreme Court’s
decision in Covenant Med. Ctr. v. State Farm Mut. Auto Ins. Co., 500 Mich
191 (2017), the defendant moved for summary disposition arguing the
plaintiffs did not have standing to bring their claim under the No-Fault Act.
Id., at 1-2. The plaintiffs obtained an assignment from Mr. Hensley on July
11, 2017 and filed a motion for leave to amend the complaint to reflect that
the suit was being pursued through the assignment of rights. The plaintiffs
argued that the amended complaint should relate back to the date of the
original complaint. Id., at 2-3. While the defendant challenged the
assignment based on an anti-assignment clause in its policy, it also argued
that the one-year-back rule of MCL 500.3145(1) would bar the assigned
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claims, or portion of the claims, even if the assignments were valid,
because the plaintiffs could not obtain any rights greater than those held by
Mr. Hensley at the time of the assignment was executed. Id., at 3. The
Court of Appeals agreed, holding:
“An assignee stands in the position of the assignor, possessing
the same rights and being subject to the same defenses.”
Thus, plaintiffs could not obtain any greater rights from Hensley
on the date of the assignments—July 11, 2017—than Hensley
himself possessed on that date. Had Hensley filed an action
directly against defendant on July 11, 2017, he would not have
been permitted to recover any benefits beyond the portion of
the loss incurred one year before that date. MCL 500.3145(1).
Accordingly, plaintiffs also could not obtain any right to recover
benefits for losses incurred more than one year before July 11,
2017, through an assignment of rights from Hensley. . . .
Through the assignment, plaintiffs only obtained the rights
Hensley actually held at the time of the execution of the
assignment, and plaintiffs cannot rely on the relation-back
doctrine (Fed.R.Civ.P. 15 amendment of pleadings) to
essentially gain the potential for a greater right to recovery than
they actually received.
Id. at 11-12 (citations omitted). Pursuant to MCL 500.3145(1) (No-Fault
Act) and Shah, any claims by Custom under Assignment Two do not relate
back to the original filing date by plaintiff. This conclusion is further
supported by the Michigan Supreme Court’s holding that the one-year back
rule must be strictly enforced according to its plain meaning and does not
permit tolling. Devillers v. Auto Club Ins. Ass’n, 473 Mich. 562, 582-83
(2005).
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If Mr. Broadus made Assignment Two on April 5, 2018, the date that
plaintiff and Custom allegedly signed it, then the one-year back rule
provides an assignment of services from April 5, 2017 until January 31,
2018. However, if Mr. Broadus made Assignment Two on February 5,
2012, then it is void as an assignment of future services.
The fact that plaintiff and Custom are so closely related, with the
same sole shareholder, and common administrative staff and employees,
likely explains why the lawsuit was mistakenly brought in the name of the
wrong entity. The court finds that defendant will not suffer any prejudice by
allowing Custom to ratify this case. If defendant determines that it needs
more time for discovery due to the substitution of Custom, the court will
accommodate a request to extend the discovery schedule to avoid
prejudice, as justice dictates.
The purpose of Rule 17 is to avoid injustice when an understandable
mistake has been made, and because the rule is to be applied leniently, the
court will permit ratification of Custom as the real party in interest.
Plaintiff’s motion for ratification is GRANTED.
II.
Other Motions
The complaint and amended complaint are based on plaintiff’s claims
under Assignment One. However, in the motion for ratification, plaintiff
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attaches Assignment Two and argues for the first time that it was Custom
who provided the services that are the subject of the complaint. Plaintiff is
directed to amend its complaint to conform to its allegations and to the facts
as now alleged. The amended complaint shall be filed on or before
January 3, 2019.
Defendant’s motion to dismiss is DENIED for the reasons given in the
discussion of plaintiff’s motion for ratification.
The case is not well enough developed to address the merits of
defendant’s motion for summary judgment at this time. Therefore,
defendant’s motion for summary judgment is DENIED WITHOUT
PREJUDICE.
Mr. Broadus filed a motion to intervene in the lawsuit. Mr. Broadus is
represented by the same attorney who is representing plaintiff. The motion
alleges the following facts: Mr. Broadus transferred into the residential
brain-injury program operated by Custom and plaintiff on January 22, 2016.
He is pleased with his care and therapy and desires to continue living with
and receiving services from plaintiff and Custom. Mr. Broadus fears that
defendant’s non-payment will jeopardize his ability to continue to reside in
the brain-injury program and receive the services he requires. For this
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reason, Mr. Broadus seeks to intervene in this lawsuit so he can protect his
rights under the No-Fault Act.
Mr. Broadus asserts an interest in the action because he fears his
care and ability to live in his chosen residence are at risk, as well as his
financial liability for over two years’ worth of unpaid services rendered by
plaintiff and Custom. Additionally, if this case is dismissed, Mr. Broadus
may be prevented from taking any action himself because many of the
unpaid charges would be barred by the one-year back rule. Lastly, Mr.
Broadus only assigned the right to collect for unpaid services through
March 26, 2018, so expenses incurred after that date are not protected by
the parties to this action.1 Mr. Broadus seeks to intervene as of right
pursuant to Fed. R. Civ. P. 24(a)(2), which requires a party to demonstrate:
“(1) the motion to intervene is timely; (2) the proposed intervenor has a
substantial legal interest in the subject matter of the case; (3) the proposed
intervenor’s ability to protect that interest may be impaired in the absence
of intervention; and (4) the parties already before the court may not
adequately represent the proposed intervenor’s interest.” Blount-Hill v.
1
Defendant asserts
it has paid plaintiff for these services.
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Zelman, 636 F.3d 278, 283 (6th Cir. 2011). Alternatively, Mr. Broadus asks
that permissive intervention be allowed pursuant to Rule 24(b).
The court sees cause for concern that Mr. Broadus’ interests may be
impaired if intervention is not permitted. It is defendant’s position that
neither plaintiff nor Custom are licensed to provide foster care services as
required by Michigan’s adult foster care facility licensing act. If such
services were not lawfully rendered pursuant to MCL 500.3157, defendant
contends it is not liable for them. Defendant argues that it is a conflict of
interest for plaintiff’s counsel to represent both plaintiff and Mr. Broadus
because Mr. Broadus is ultimately liable for the foster care services plaintiff
and Custom seeks to collect from Allstate.
The court directs plaintiff to provide the waiver of conflicts entered by
Mr. Broadus for in camera review on or before January 3, 2019.
CONCLUSION
For the reasons stated in this opinion and order, plaintiff’s motion for
ratification is GRANTED, defendant’s motion to dismiss is DENIED,
defendant’s motion for summary judgment is DENIED WITHOUT
PREJUDICE. Plaintiff is directed to file an amended complaint on or before
January 3, 2019. In addition, plaintiff is to provide the court with Mr.
Broadus’ waiver of conflicts of interest for in camera review by January 3,
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2019. The court will set a status conference to discuss the posture of the
case, including the need for a guardian ad litem or conservator for Mr.
Broadus, as well as the need for any further discovery and motions.
Dated: December 12, 2018
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
December 12, 2018, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk
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