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Estate of Grimmett v. Encompass Indemnity Co.

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

November 21, 2017

ESTATE OF TONA GRIMMETT, MICHIGAN AMBULATORY SURGICAL CENTER, SOUTHEAST MICHIGAN SURGICAL HOSPITAL, LLC, OAKLAND MRI, LLC, Plaintiffs,
v.
ENCOMPASS INDEMNITY COMPANY, Defendant. MICHIGAN AMBULATORY SURGICAL CENTER, OAKLAND MRI, LLC, Cross-Claimants,
v.
ESTATE OF TONA GRIMMETT, Cross-Defendant

          MEMORANDUM AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS (DOC. 97), DENYING DEFENDANT'S MOTION TO DISMISS (DOC. 98), AND DENYING DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS (DOC.99).

          AVERN COHN, UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION AND PROCEDURAL HISTORY

         This is an automobile no-fault insurance case involving personal protection benefits. Plaintiff Brian Grimmett is the personal representative of the estate of Tona Grimmett (Grimmett), [1] who was injured in a motor vehicle accident on March 4, 2013. At the time of the accident, Grimmett was insured under a no-fault policy issued by Defendant Encompass Indemnity Company (Encompass) in accordance with Michigan's No-Fault Act, M.C.L. § 500.3101, et seq. (No-Fault Act). Grimmett sued Encompass in the Wayne County Circuit Court (14-005777-NF) because Encompass refused to cover her medical expenses (Doc. 8).

         Plaintiff Michigan Ambulatory Surgical Center, LLC (MASC) also sued Encompass in the Wayne County Circuit Court (15-014301-NF) for expenses it incurred performing a lumbar spine fusion surgery on Grimmett following the accident (Doc. 49). Encompass removed both cases to federal court, where they were consolidated into the present case (Doc. 27).[2]

         Southeast Michigan Surgical Hospital, LLC (Southeast) intervened as a plaintiff at the state level (Doc. 1), seeking to recover from Encompass expenses related to a cervical spine fusion surgery that Southeast performed on Grimmett following the accident.

         Oakland MRI, LLC (OMRI) intervened as a plaintiff after the case was removed to federal court (Doc. 21), seeking to recover from Encompass expenses related to an MRI scan that OMRI performed on Grimmett following the accident.

         On May 25, 2017, the Michigan Supreme Court decided in Covenant Med. Ctr., Inc. v. State Farm Mut. Auto. Ins. Co., 500 Mich. 191 (2017) that medical service providers have no statutory cause of action to collect personal protection insurance benefits from no-fault insurers under the No-Fault Act. Id. This holding applies retroactively. W A Foote Mem'l Hosp. v. Michigan Assigned Claims Plan, No. 333360, 2017 WL 3836645, at *14 (Mich. Ct. App. Aug. 31, 2017). In light of Covenant, MASC and OMRI filed amended complaints (Docs. 93, 94) presenting new theories of recovery against Encompass. Both parties also brought cross-claims against Grimmett to recover their expenses. Southeast did not amend its complaint, but has now requested leave to amend in order to cure any deficiencies revealed by the Court's ruling on the present motions.

         Now before the Court are Encompass' Motion to Dismiss MASC's claim pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. 97), Motion to Dismiss OMRI's claim pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. 98), and Motion for Judgment on the Pleadings as to Southeast's claim pursuant to Fed.R.Civ.P. 12(c) (Doc. 99). For the reasons that follow, all three motions are DENIED. Additionally, Southeast is granted leave to amend its complaint.

         II. LEGAL STANDARDS

         A. Fed.R.Civ.P. 12(b)(6)

         A Fed.R.Civ.P. 12(b)(6) motion seeks dismissal for a plaintiff's failure to state a claim upon which relief can be granted. “To survive a motion to dismiss under Rule 12(b)(6), a ‘complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.'” Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass'n, 176 F.3d 315, 319 (6th Cir. 1999) (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988)). A claim “must be dismissed . . . if as a matter of law it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Neitzke v. Williams, 490 U.S. 319, 327 (1989) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)) (internal quotation marks omitted).

         B. Fed.R.Civ.P. 12(c)

         Fed. R. Civ. P. 12(c) provides that "[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings." A motion for judgment on the pleadings under Rule 12(c) utilizes the same standard of review applicable under Rule 12(b)(6). Wee Care Child Ctr., Inc. v. Lumpkin, 680 F.3d 841, 846 (6th Cir. 2012). Thus, “[f]or purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment.” Poplar Creek Development Co. v. Chesapeake Appalachia, L.L.C., 636 F.3d 235, 240 (6th Cir. 2011).

         III. DISCUSSION

         The most salient among the healthcare providers' claims are those regarding assignments and third party beneficiaries, since the Covenant court explicitly left open the possibility of a provider cause of action based on each theory. MASC and Southeast argue that Grimmett validly assigned to them her rights to receive payment under her insurance contract with Encompass. MASC and OMRI argue that they are intended third party beneficiaries of the contract between Grimmett and Encompass.

         The Court will address each claim in turn.

         A. Assignment

         i. Background

         The Michigan Supreme Court explicitly stated in Covenant that “our conclusion today is not intended to alter an insured's ability to assign his or her right to past or presently due benefits to a healthcare provider.” Covenant, 500 Mich. at 217 n.40. Thus, while a health care provider no longer has a statutory cause of action against insurers, it may still have a contract-based cause of action if there has been a valid assignment of rights. See Id. at 217 n.39 (acknowledging that contractual causes of action may still exist). An insurer has standing to “challenge an assignment if that challenge would render[ ] the assignment absolutely invalid or ineffective, or void.” Conlin v. Mortg. Elec. Registration Sys., Inc., 714 F.3d 355, 361 (6th Cir. 2013) (quoting Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399 F. App'x 97, 102 (6th Cir. 2010)) (internal quotation marks omitted). Here, Encompass has standing to challenge the assignments because it argues that the assignments are invalid.

         ii. MASC Assignment

         In its amended complaint, MASC alleges that the assignment of rights Grimmett signed on the day of her treatment (Doc. 93)[3] entitles it to receive payment directly from Encompass for the services rendered. Encompass says the assignment is invalid and unenforceable for several reasons: (1) the assignment mentioned only the name “Specialty Surgical Center” and did not reference “Michigan Ambulatory Surgical Center;” (2) the assignment was for future, not present rights under the policy because proof of reasonableness has to be submitted to the insurer before payment becomes due; (3) the assignment was not notarized, and it was not clear that MASC unambiguously accepted Grimmett's offer to assign rights; (4) the assignment did not comply with the Statute of Frauds because it was not signed by a MASC representative; (5) the assignment did not provide for the right to sue both the insurer and Grimmett; and (6) the policy contained an anti-assignment clause.

         iii. Southeast Assignment

         As previously mentioned, Southeast did not file an amended complaint after Covenant. In its response to Encompass' motion for judgment on the pleadings, however, Southeast asserts that it had a valid assignment of rights from Grimmett. The Court therefore allows Southeast to amend its complaint to include relevant arguments regarding an assignment of rights. See Fed.R.Civ.P. 15(a)(2) (“The court should freely give leave” to amend pleadings.).

         Encompass advances many of the same arguments in opposition to Southeast's assignment as it did regarding MASC's assignment, namely that: (1) Southeast's exact name does not appear on the assignment; (2) the assignment was for future benefits; (3) it is not clear that there was an offer and acceptance of the assignment; (4) the assignment violates the Statute of Frauds; and (5) the insurance contract contained an anti-assignment clause. In addition, Encompass argues that the assignment was not supported by consideration.

         iv. Assumed Name

         Michigan law provides that “[a] domestic or foreign corporation may transact business under any assumed name or names other than its corporate name.” Mich. Comp. Laws § 450.1217. “[T]he obvious purpose of the [assumed name] statute is to inform the public with whom it is dealing, and thereby serve its convenience and to prevent imposition and fraud.” Bankers Tr. Co. v. Bradfield, 324 Mich. 116, 123 (1949) (internal quotation marks omitted). This means that “[a] corporation that has complied with this statute has notified the public constructively regarding its assumed name. Accordingly, parties contracting with agents of the corporation operating under the assumed name cannot claim that they were without notice regarding the existence or identity of the corporation.” Penton Pub., Inc. v. Markey, 212 Mich.App. 624, 627 (1995).

         Michigan courts have also declined to allow a party to avoid a contract even though an assumed name certificate was not filed. See, e.g. People's State Bank v. Trombly, 241 Mich. 199, 208 (1928); Rossello v. Trella, 206 Mich. 20, 24 (1919). While an assignment and a contract are not the same in all respects, both involve manifestation of intent toward the other party. See Burkhardt v. Bailey, 260 Mich.App. 636, 654-55 (2004); W. Michigan Univ. Bd. of Trustees v. Slavin, 381 Mich. 23, 31 (1968) (“An offer is a unilateral declaration of intention.”). Thus, where the identity of an assignee is at issue, Michigan law regarding contracts entered into under an assumed name can be applied.

         Here, in each case Grimmett knew she was assigning her rights to the hospital that was about to perform surgery. Since MASC filed a Certificate of Assumed Name before the date of the surgery, [4] Grimmett was on constructive notice that Specialty Surgical Center and MASC were the same entity. Therefore, whether or not she actually knew the correct name of the hospital is irrelevant to determining the validity of the assignment.

         Because Southeast only showed it had an assignment in its response to Encompass' motion, it did not have a chance to respond to the name argument in Encompass' reply. As such, it has not provided documentation showing that “Michigan Surgical Hospital, ” the name that appears on the assignment, is the same entity as “Southeast Michigan Surgical Hospital.” It is for this reason also that the Court grants leave for Southeast to amend its complaint.

         v. Assignment of Present Rights

         In Michigan, an assignment is valid “if it clearly reflects the intent of the assignor to presently transfer ‘the thing' to the assignee.” Burkhardt v. Bailey, 260 Mich.App. 636, 654-55 (2004). As the Covenant court noted, only past or present rights to insurance benefits are assignable. Covenant, 500 Mich. at 217 n.40; Mich. Comp. Laws § 500.3143 (providing that assignments of future rights are void). Therefore, the Court must determine “whether the assignment in question purports to assign only past due and presently due benefits or ...


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