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Covenant Medical Center, Inc. v. Auto-Owners Ins. Co.

United States District Court, E.D. Michigan, Northern Division

October 13, 2017

COVENANT MEDICAL CENTER, INC., a Michigan non-profit corporation, and MICHIGAN SPINE AND BRAIN INSTITUTE, P.C., Plaintiff,
v.
AUTO-OWNERS INSURANCE COMPANY, and HOME-OWNERS INSURANCE COMPANY Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO AMEND AND DIRECTING FILING OF AMENDED COMPLAINT

          THOMAS L. LUDINGTON UNITED STATES DISTRICT JUDGE

         Sandra Foor (“Insured” or “Ms. Foor”) was injured in an automobile accident on March 16, 2010. Am. Compl. at 3, ECF No. 11-2. Plaintiffs Covenant Medical Center (Covenant) and Michigan Spine and Brain Institute (Michigan Spine) provided Ms. Foor medical care for injuries allegedly arising from the automobile accident. Id. Covenant provided Ms. Foor medical care on May 24, 2016, August 16, 2016, from August 24-27, 2016, October 18-26, 2016, November 3-8, 2016, November 22, 2016, and February 6, 2017. Id. Michigan Spine provided Ms. Foor medical care on August 24, 2016 and December 5, 2016. Id. at 5.

         At the time of the accident, Ms. Foor was insured under a no-fault policy issued by Defendant Home-Owners Insurance Company (“Defendant” or “Insurer”). Id. at 3. Between December 2016 and February 2017, Plaintiffs billed Defendant and furnished itemized charges and medical records documenting healthcare services provided to Ms. Foor. Id. at 4. Plaintiffs filed a Complaint on February 21, 2017 in Saginaw County Circuit Court against Home-Owners Insurance Company, and Auto-Owners Insurance Company, who was dismissed on July 19, 2017. Compl., ECF No. 1-2. Defendant removed the action to this Court on April 14, 2017. Not. Rem., ECF No. 1. Plaintiffs filed the instant Motion to Amend Complaint on July 14, 2017. ECF No. 11. Plaintiffs Covenant and Michigan Spine seek damages in a principal amount of $39, 560.95 and $2, 455.00, respectively, pursuant to the Michigan No-Fault Act, M.C.L 500.3101 et seq., plus interest, costs, and attorney fees, for medical bills in connection with treatment provided to Sandra Foor. Am. Compl. at 3. Plaintiffs also seek to double their principal damages pursuant to the Medicare Secondary Payer Act (“MSPA”), 42 U.S.C. § 1395y et seq. Id.

         Plaintiffs' original complaint and proposed amended complaint sought to recover no-fault damages on a direct cause of action as a healthcare provider against the Defendant insurance company for non-payment of the insured's health benefits. At the time of the original complaint, the direct cause of action was permissible under Michigan law. However, on May 25, 2017, the Michigan Supreme Court decided Covenant Medical Center, Inc. v. State Farm Mutual Automobile Insurance Co., 895 N.W.2d 490 (Mich. 2017). In Covenant the court held that a healthcare provider possesses no statutory cause of action under the Michigan no-fault act against an insurer for recovery of Personal Injury Protection (“PIP”) benefits owed to its insured, overruling a long line of appellate precedent. Id.

         Plaintiffs filed the instant Motion to Amend on July 14, 2017. ECF No. 11. The proposed amended complaint retained the direct cause of action against insurers, as Plaintiffs asserted in their Motion that Covenant should not be applied retroactively. Mot. Am. at 2. At the hearing on the Motion, however, Plaintiffs' counsel explained that Plaintiffs will no longer pursue the direct action under the no-fault act, based on the decision of the Michigan Court of Appeals on August 31, 2017 regarding retroactivity. W A Foote Mem'l Hosp. v. Michigan Assigned Claims Plan. 2017 WL 3836645 (Mich. Ct. App. Aug. 31, 2017). The proposed amended complaint asserts three additional causes of action: two derivative causes of action for breach of contract, and one cause of action for declaratory relief. The viability of these three alternative causes of action are at issue in the instant motion to amend.

         I.

         Plaintiffs' two derivative causes of action for breach of contract arise out of an assignment agreement. Roughly one month after the Michigan Supreme Court's decision in Covenant, Ms. Foor entered into an agreement dated June 23, 2017, assigning to Plaintiffs her rights, benefits, and causes of action arising out of her automobile injury and subsequent medical care. Br. Ex. A (Assignment), ECF No. 11-3. The Assignment also designated Plaintiffs as Ms. Foor's authorized representative “for the purpose of pursuing payment” of her hospital bills. Id.

         In response to the Motion to Amend, Defendant contends that amendment would be prejudicial and futile. Defendant contends that amendment would be prejudicial because the proposed amended complaint alleges “alternative parties rather than alternative claims” by asserting a “direct action, as well as on behalf of Ms. Foor.” Resp. at 11. Defendant contends that amendment would be futile to the extent the proposed amendment complaint seeks to recover for healthcare services provided to Ms. Foor prior to June 6, 2016 that have allegedly been released by Ms. Foor. Resp. at 6.[1] Defendant contends that amendment would also be futile with respect to dates of healthcare service not covered by the release because the assignment of benefits was invalid, and the proposed amended claims are time barred. Resp. at 9-12.

         II.

         Federal Rule of Civil Procedure 15(a)(2) provides that a party may amend its pleading with the court's leave and that “the court should freely give leave when justice so requires.” Denial of a motion to amend is appropriate, however, “‘where there is ‘undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc.'” Morse v. McWhorter, 290 F.3d 795, 800 (6th Cir. 2002) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)).

         “Prejudice” in the context of Rule 15 means more than the inconvenience of having to defend against a claim. See Monahan v. N.Y.C. Dept. of Corr., 214 F.3d 275, 284 (2d Cir. 2000). It requires something more substantial. In some situations, the closing of discovery is sufficient to warrant a finding of prejudice to the opponent. See R.S.W.W., Inc. v. City of Keego Harbor, 397 F.3d 427, 441 (6th Cir. 2005).

         An amendment would be futile if the amended complaint does not state a claim upon which relief can be granted. Midkiff v. Adams Cty. Reg'l Water Dist., 409 F.3d 758, 767 (6th Cir. 2005). A pleading fails to state a claim under Rule 12(b)(6) if it does not contain allegations that support recovery under any recognizable legal theory. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In considering a Rule 12(b)(6) motion, the Court construes the pleading in the non-movant's favor and accepts the allegations of facts therein as true. See Lambert v. Hartman, 517 F.3d 433, 439 (6th Cir. 2008). The pleader need not provide “detailed factual allegations” to survive dismissal, but the “obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In essence, the pleading “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face” and “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678-79 (quotations and citation omitted).

         III.

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