Edwin Bates Jr v. Auto Club Group Insurance Company

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.

STATE OF MICHIGAN

COURT OF APPEALS

EDWIN BATES, JR., UNPUBLISHED
March 26, 2019
Plaintiff,

and No. 340705
Wayne Circuit Court
KEYS OF LIFE SPECIALIZED CARE, INC., LC No. 15-003183-NF

Intervening Plaintiff-Appellee,

and

MICHIGAN SPINE AND PAIN CLINIC, PLLC,

Intervening Plaintiff,

v

AUTO CLUB GROUP INSURANCE
COMPANY,

Defendant-Appellant.

Before: O’BRIEN, P.J., and JANSEN and RONAYNE KRAUSE, JJ.

PER CURIAM.

In this no-fault action involving the standing of a healthcare provider to bring an action
against an insurer pursuant to an assignment of rights, defendant appeals by delayed leave
granted1 the judgment of the trial court in favor of intervening plaintiff-appellee, Keys of Life
Specialized Care, Inc., (KOL) following a jury trial. After the jury rendered its verdict but

1
Bates v Auto Club Group Ins Co, unpublished order of the Court of Appeals, entered October
30, 2017 (Docket No. 340705).
before judgment was entered, our Supreme Court rendered its decision in Covenant Med Ctr, Inc
v State Farm Mut Auto Ins Co, 500 Mich 191; 895 NW2d 490 (2017). The trial court held that,
notwithstanding Covenant’s holding that that healthcare providers have no direct cause of action
against insurers under the no-fault act, MCL 500.3101 et seq., plaintiff here had standing based
on written assignments from the insured. For the reasons explained in this opinion, we vacate
the trial court’s judgment and remand for further proceedings.

I. BACKGROUND

On March 13, 2015, Edwin Bates, Jr., filed a complaint for first-party benefits related to
an automobile collision in which he was injured. KOL moved to intervene, contending that it
incurred expenses by treating Bates’s injuries, and that defendant was obligated to pay those
expenses. The trial court granted KOL’s motion, and KOL then filed its own complaint against
defendant for damages related to defendant’s failure to pay benefits. Bates and the other
intervening plaintiff—Michigan Spine and Pain Clinic, PLLC—eventually settled and were
dismissed, leaving only KOL’s claim against defendant. A jury trial was held on that claim, and
the jury ultimately awarded KOL $100,000 for expenses incurred from treating Bates. After trial
but before judgment was entered, our Supreme Court decided Covenant. When KOL later
moved for entry of judgment, it argued that Covenant was inapplicable because KOL had an
implied-in-fact contract with Bates, whereby Bates had assigned KOL his rights to sue
defendant.

Plaintiff attached to its motion affidavits from Bates and LaShawn Davis, KOL’s owner
and director. According to Bates, he consented to KOL’s intervention in order to collect on the
bills owed to KOL for Bates’s treatment. Bates understood that, as a consequence, Bates was
giving up his right to personally sue for the money owed to KOL, and he was giving that right to
KOL. When Bates eventually settled with defendant, he recognized that his settlement did not
include any money related to KOL’s claim. Davis likewise understood that when KOL
intervened, it became the owner of the claims, and Bates consented to give up his right to sue for
the same claims. Davis further contended that following KOL’s intervention, all parties behaved
consistently with an assignment of rights having taken place. According to Davis, he asked
Bates to execute an assignment of rights document following the Covenant decision, which Bates
did.

Defendant objected to KOL’s motion for entry of judgment, contending that it was not
sufficient under Covenant that Bates and KOL “intended an assignment.” Defendant argued that
there must have been an actual assignment before KOL filed its complaint. By contending that a
written assignment was executed after Covenant was decided, defendant asserted that KOL was
essentially conceding that it lacked standing when it filed its petition. Defendant concluded that,
based on Covenant and KOL’s resulting lack of standing to bring an independent cause of action,
“the proper course of action” for the trial court was to “dismiss the suit.”

Several weeks later, on the day of the motion hearing, KOL filed a supplemental exhibit,
claiming that it had gone through boxes of documents stored in a garage (apparently stored there
in disarray because KOL had suffered a fire) and found seven written assignments executed by
Bates on August 1, 2014; October 3, 2014; December 3, 2014; January 5, 2015; March 3, 2015;
July 30, 2015; and September 30, 2015. At the hearing, KOL further argued that defendant had

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never raised a standing defense, the parties’ conduct evidenced an implied-in-fact assignment of
rights, and even if KOL had not previously been able to produce the requisite documents, its
recently-found assignments unequivocally established that Bates assigned his rights to KOL.

The trial court decided in favor of KOL, reasoning:

Before the Supreme Court decision in Covenant, it was long held by Michigan
courts that medical providers had a right to an independent cause of action against
a no-fault insurance carrier for the recovery of [personal injury protection]
benefits. Although in the Supreme Court [sic] in the Covenant matter the
Supreme Court indicated that the courts had misinterpreted that statute, it is clear
that prior to that decision, that courts were operating under the idea that medical
providers did in fact have an independent cause of action.

Consequently, defendant’s argument that the trial court somehow failed to recognize or apply the
retroactive effect of Covenant mischaracterizes the trial court’s ruling. The trial court went on to
conclude that not only was it clear during the litigation that the parties were operating as though
an assignment existed, unlike in Covenant, KOL had produced actual, valid assignments. Again
contrary to defendant’s argument, the trial court did not rely on KOL’s waiver argument. The
trial court entered a judgment in favor of KOL.

II. STANDARD OF REVIEW

When defendant filed its objection to KOL’s motion for entry of judgment, it argued that
based on Covenant, KOL did not have an independent statutory cause of action against
defendant, and therefore its complaint—which only pleaded a direct cause of action against
defendant—must be dismissed. Though not styled as a motion for summary disposition, the
gravamen of defendant’s objection was a motion for summary disposition under MCR
2.116(C)(8) (failure to state a claim on which relief can be granted). See Jawad A Shah, MD, PC
v State Farm Mut Auto Ins Co, 324 Mich App 182, 204; 920 NW2d 148 (2018) (explaining that
this Court is not bound by a party’s choice of labels because this would exalt form over
substance).

Appellate courts review de novo a trial court’s grant of summary disposition. Innovation
Ventures v Liquid Mfg, 499 Mich 491, 506; 885 NW2d 861 (2016). In Maiden v Rozwood, 461
Mich 109, 119-120; 597 NW2d 817 (1999), our Supreme Court explained the process for
reviewing a motion filed under MCR 2.116(C)(8):

A motion under MCR 2.116(C)(8) tests the legal sufficiency of the
complaint. All well-pleaded factual allegations are accepted as true and construed
in a light most favorable to the nonmovant. Wade v Dep’t of Corrections, 439
Mich 158, 162; 483 NW2d 26 (1992). A motion under MCR 2.116(C)(8) may be
granted only where the claims alleged are “so clearly unenforceable as a matter of
law that no factual development could possibly justify recovery.” Id. at 163.
When deciding a motion brought under this section, a court considers only the
pleadings. MCR 2.116(G)(5).

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Whether a party has standing and whether the trial court has subject-matter jurisdiction are issues
of law that this Court reviews de novo. Groves v Dep’t of Corrections, 295 Mich App 1, 4; 811
NW2d 563 (2011).

III. ANALYSIS

Defendant argues that the trial court erred by entering judgment to KOL because its
complaint only states a direct cause of action against defendant, and it never amended its
complaint to plead an assignment from Bates. We agree that the trial court should not have
entered judgment in favor of KOL without first allowing KOL to amend its complaint, and
therefore remand for KOL to move to amend its complaint and for further proceedings as
necessary.

As explained by this Court in Bronson Healthcare Group, Inc v Michigan Assigned
Claims Plan, 323 Mich App 302, 305; 917 NW2d 682 (2018):

Relevant to the parties’ arguments, on May 25, 2017, the Michigan
Supreme Court decided Covenant, wherein the Court held that healthcare
providers do not have an independent statutory cause of action against insurers to
recover PIP benefits. [Covenant, 500 Mich at 195-196]. Since Covenant was
decided, this Court has . . . held that Covenant applies retroactively to cases
pending on direct appeal when Covenant was decided. W A Foote Mem Hosp v
Mich Assigned Claims Plan, 321 Mich App 159, 172-173, 909 NW2d 38 (2017).
See also VHS Huron Valley Sinai Hosp v. Sentinel Ins Co (On Remand), 322
Mich App 707, 713–714; 916 NW2d 218 (2018).

In this case, Covenant is clearly dispositive with regard to plaintiff’s
claims against defendants. Quite simply, as a healthcare provider, plaintiff has no
independent statutory claim against defendants. Covenant, 500 Mich at 195; W A
Foote Mem Hosp, 321 Mich App at 172-173. Under Covenant, defendants are
entitled to summary disposition because plaintiff has no cause of action against
defendants, and plaintiff has therefore failed to state a claim on which relief may
be granted. See MCR 2.116(C)(8).

The reasoning from Bronson is equally applicable here. Based on Covenant, healthcare
providers like KOL do not have an independent statutory cause of action against insurers like
defendant. Because Covenant applies retroactively, KOL’s complaint—which only pleaded a
direct cause of action against defendant—failed to state a claim on which relief could be granted.
Defendant was therefore entitled to summary disposition under MCR 2.116(C)(8), and the trial
court’s judgment to KOL is vacated.

Despite that KOL failed to state a claim on which relief could be granted, we hold that
because KOL claims to have an assignment of right from Bates, it should be permitted to amend
its complaint to pursue recovery under an assigned-claim theory. As the Bronson Court
explained:

[P]laintiff argues that if Covenant does apply to this case, plaintiff should be
given the opportunity to amend its complaint to pursue benefits on an
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 assigned-claim theory because plaintiff can establish that the injured party treated
by plaintiff assigned her claims to plaintiff. In this regard, we note that an
agreement to assign a “right to benefits payable in the future is void.” MCL
500.3143. However, an injured person may assign “his or her right to past or
presently due benefits to a healthcare provider.” Covenant Med Ctr, Inc, 500
Mich at 217 n 40. In Covenant, the Court expressly recognized that a healthcare
provider’s inability to bring a direct cause of action did not alter the injured
party’s ability to assign past or presently due benefits. Id. Given this fact, we
agree that, in the circumstances presented in this case, plaintiff should be given an
opportunity to move the district court to amend its complaint. See W A Foote
Mem Hosp, 321 Mich App at 196. [Bronson Healthcare Group, Inc, 323 Mich
App at 306-307.]

Unlike in Bronson, the trial court here entered a judgment in favor of KOL, but, as
already explained, that judgment was improper and is therefore vacated. Thus, this case is
essentially in the same posture as was the case in Bronson, so the proper remedy is to remand for
the trial court to allow KOL to move to amend its complaint to pursue recovery under an
assigned-claim theory. Defendant should then be allowed to answer KOL’s amended complaint,
including asserting affirmative defenses, and permitted discovery on the validity of the
assignments alleged by KOL.

KOL contends that remanding for it to amend its complaint is unnecessary because the
trial court “constructively granted” its motion to amend its complaint,2 citing Cole v Ladbroke
Racing Michigan, Inc, 241 Mich App 1, 10; 614 NW2d 169 (2000) (“Although no motion to
amend was filed until after the court ruled, it is clear to this Court that the trial court
constructively granted leave to amend by allowing argument and, ultimately, dismissing the
action based on the [Equine Activity Liability Act, MCL 691.1661 et seq.]. Because plaintiff
briefed the issue and was afforded an opportunity for oral argument in response to defendant’s
second motion for summary disposition, we find no prejudice.”). There are numerous problems
with this position. First, and most problematic, there is no amended complaint—or even a
proposed amended complaint—in the lower court record, which in itself belies the assertion that
the trial court granted KOL’s motion to amend its complaint. Second, unlike in Cole, we cannot
conclude that constructively granting KOL’s motion to amend its complaint would not prejudice
defendant. KOL alleges that either there was an “implied-in-fact” assignment of rights from
Bates to KOL, or that Bates assigned his rights to KOL in the written assignments provided on
the day of the hearing on KOL’s motion for entry of judgment. If these theories of assignment
were alleged in KOL’s complaint, defendant could have conducted discovery on the issues. But
because these theories were never pleaded, defendant has never been given that opportunity.
Moreover, as to the written assignments, defendant never had a chance to properly contest the
validity of the assignments because they were presented the day that the trial court entered

2
KOL never filed a formal motion to amend its complaint. Rather, in its answer to defendant’s
motion to dismiss the case based on Covenant, KOL argued that, if necessary, it could amend its
complaint to seek recovery on an assigned-claim theory.

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judgment. Thus, we cannot conclude that any “constructive grant” of KOL’s motion to amend
its complaint did not prejudice defendant.

Defendant, in contrast to KOL, argues that rather than remanding the case to allow KOL
to amend its complaint, we must remand for the trial court to dismiss the case in its entirety.
Defendant’s argument boils down to this: our Supreme Court in Covenant held that healthcare
providers like KOL lack statutory standing to bring an independent cause of action against
insurers like defendant, and because standing is jurisdictional, the trial court has no jurisdiction
to allow KOL to amend its complaint and can only dismiss the action for lack of jurisdiction.
See In re Beatrice Rottenberg Living Trust, 300 Mich App 339, 355; 833 NW2d 384 (2013) (“if
a party lacks statutory standing, then the court generally lacks jurisdiction to entertain the
proceeding or reach the merits”).

Defendant’s argument appears to confuse subject-matter jurisdiction and standing. When
a court lacks subject-matter jurisdiction, it must dismiss the case. Bowie v Arder, 441 Mich 23,
56; 490 NW2d 568 (1992). But “[s]ubject-matter jurisdiction and standing are not the same
thing. Jurisdiction of the subject matter is the right of the court to exercise judicial power over a
class of cases, not the particular case before it; to exercise the abstract power to try a case of the
kind or character of the one pending.” Glen Lake-Crystal River Watershed Riparians v Glen
Lake Ass’n, 264 Mich App 523, 528; 695 NW2d 508 (2004), quoting Altman v Nelson, 197 Mich
App 467, 472; 495 NW2d 826 (1992). The circuit court clearly has subject-matter jurisdiction to
hear no-fault claims, so it had subject-matter jurisdiction over this case. A “[p]laintiff’s failure
to plead or prove sufficient facts to support [its] standing [does] not deprive the circuit court of
subject matter jurisdiction.” Altman, 197 Mich at 476. Thus, the circuit court was not deprived
of subject-matter jurisdiction—and therefore was not required to dismiss the case—solely
because KOL failed to plead facts to support its standing.

Covenant held that healthcare providers could not bring an independent cause of action
against insurers, but it expressly left open the option for healthcare providers to bring a cause of
action against insurers under an assigned-claim theory. Covenant, 500 at 217 n 40; 218. In
Kearns v Mich Iron & Coke Co, 340 Mich 577, 582; 66 NW2d 230 (1954), our Supreme Court
explained that “where an assignment is such that satisfaction of the judgment obtained by the
assignee will discharge the defendant from his obligation to the assignor, for the purpose of the
suit the assignee is the real party in interest and may maintain an action in his own name.”
(Quotation marks and citation omitted; emphasis added.) Later, in Stillman v Goldfarb, 172
Mich App 231, 237; 431 NW2d 247 (1988), this Court explained that the real-party-in-interest
doctrine is a “standing doctrine.” Thus, while KOL does not have statutory standing to bring an
independent cause of action against defendant, KOL does have standing to bring a cause of
action against defendant under an assigned-claim theory. That is what KOL seeks to do by
amending its complaint. The trial court was not deprived of jurisdiction to decide whether KOL
could amend its complaint to establish standing due solely to KOL’s failure to sufficiently plead
facts to support that it had standing. See Altman, 197 Mich at 476.

In fact, based on the facts here, our court rules required that the trial court allow KOL to
amend its complaint to establish standing. When a party moves to dismiss an action based on a
party’s lack of standing, the motion is properly brought under MCR 2.116(C)(8) or (10). See
Leite v Dow Chem Co, 439 Mich 920, 920 (1992) (explaining that a challenge to the

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real-party-in-interest is properly brought under MCR 2.116(C)(8) or (10)); Stillman, 172 Mich
App at 237. Under MCR 2.116(I)(5), “If the grounds asserted are based on subrule (C)(8), (9),
or (10), the court shall give the parties an opportunity to amend their pleadings as provided by
MCR 2.118, unless the evidence then before the court shows that amendment would not be
justified.” Here, defendant moved to dismiss KOL’s complaint under MCR 2.116(C)(8) based
on KOL’s lack of statutory standing. Because the evidence suggested that, if allowed to amend
its complaint, KOL would be able establish standing under an assigned-claim theory, MCR
2.116(I)(5) required the trial court to allow KOL to amend its complaint.

The trial court’s judgment is vacated and the case is remanded for further proceedings.
We do not retain jurisdiction.

/s/ Colleen A. O’Brien
/s/ Amy Ronayne Krause

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