An assignment is the transfer of property, or an interest in property, from one person (the “assignor”) to another (the “assignee”), which confers a complete right in the subject matter to the assignee. Arnold v DMR Fin Servs Inc, 448 Mich 671, 674 n 2; 532 NW2d 852 (1995).
Assignment clauses are routinely utilized in contract law, and such assignments may occur after litigation involving the assignor has begun.
This scenario was recently examined by the Michigan Court of Appeals in Enhance Center v Auto Owners et al. Although unpublished, Enhance Center illustrates that, while an assignor and assignee may share an interest, they may not be considered parties in privity for purposes of res judicata when the assignment occurs before a judgment is rendered in the first lawsuit. And therefore, res judicata will not bar a subsequent suit brought by the assignee.
Kelly Johnson, the assignor, was involved in an automobile accident in which she received chiropractic care services from Enhance Center, the assignee. Johnson filed a lawsuit seeking, in relevant part, first-party benefits against her insurer. During the discovery process, Johnson refused to comply with a request for admission and a court-order to produce discovery materials. This prompted her insurer to move for partial summary disposition seeking the dismissal of Johnson’s first-party claim.
However, before the motion was decided by the trial court, Johnson assigned to Enhance Center her right to pursue her claim for the “non-payment of the services provided by Enhance Center.” Enhance Center was not a party to the litigation and made no effort to intervene. The trial court subsequently dismissed with prejudice Johnson’s claim for first-party benefits.
Enhance Center then filed its own lawsuit against Johnson’s insurer seeking payment for the chiropractic services rendered to Johnson. The trial court dismissed Enhance Center’s lawsuit, holding that it was barred by res judicata. The Court of Appeals reversed.
The Court of Appeals held that Enhance Center was not bound by the judgment against Johnson in the first action because the assignment occurred before the judgment was entered and Enhance Center had no opportunity to be heard in the first case. It noted the main issue for review was whether Johnson and Enhance Center should be considered parties in privity for res judicata purposes. The Court held that they were not considered parties in privity, relying on Aultman, Miller & Co v Sloan, 115 Mich 151, 154; 73 NW 123 (1897), which held that a party assigned a right to sue is not bound by a judgment obtained after the assignment is made unless the party had a right to have the merits of its claims adjudicated. The Court emphasized that to hold otherwise would deprive Enhance Center of its due process rights. Accordingly, the Court held that Enhance Center’s suit was not barred by res judicata and reversed and remanded for further proceedings.
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Sarah Nadeau, Editor of The Garan Report Publication, is a Shareholder in our Detroit Office. Sarah can be reached at 313.446.1530 or snadeau@garanlucow.com