AN ASSIGNMENT DOES NOT ALWAYS ESTABLISH PRIVITY BETWEEN THE ASSIGNEE AND ASSIGNOR

R. Michael John

In Mecosta County Medical Center et al v. Metropolitan Group Property and Casualty Insurance Company and State Farm, the Michigan Supreme Court, in lieu of granting leave to appeal, affirmed in a unanimous opinion authored by Justice Viviano the Court of Appeals’ decision that the doctrines of res judicata and collateral estoppel did not bar the plaintiffs/providers their right, in a separate action, to seek payment of medical bills incurred by the injured party Jacob Myers.

On August 15, 2016, Jacob Myers suffered serious injuries as a result of a single car accident. He incurred substantial medical bills from Mecosta County Medical Center and Mary Free Bed Hospital in excess of $600,000. He assigned his right to no-fault benefits for all care provided by both before August 2017.

In August 2017, two lawsuits were filed: one in Wayne County by Jacob Myers for PIP benefits relating to other costs arising from the crash; and the other in Kent County by Mecosta County Medical Center and Mary Free Bed Hospital to recover payment of the medical bills incurred by Jacob Myers.

In both cases, the insurers filed summary disposition motions on coverage defense grounds. The Kent County motions were pending when the Wayne County motions were granted. In the Kent County case, both insurers then filed second motions for summary disposition arguing that the Wayne County orders granting their summary disposition motions barred plaintiffs’ claims under the doctrines of res judicata and collateral estoppel. The trial court agreed and granted their respective motions.

In a 2-1 decision, the Court of Appeals reversed finding that the assignment did not create privity between Myers and the providers. Consequently, these doctrines did not apply, and the providers had a right to pursue their separate claims.

In the Supreme Court, Justice Viviano started his analysis by looking at the two doctrines, both of which, although somewhat different, prevent a litigant from getting the proverbial “second bite at the apple.” Whereas res judicata involves preclusion of entire claims, collateral estoppel focuses on specific issues within an action. In order to apply either doctrine, certain elements have to be satisfied. The one element common to both is that the one [Metropolitan/State Farm] who seeks to apply either doctrine must show that the parties in the subsequent action [Kent County] were parties or privies of parties in the original action [Wayne County].

Neither Mecosta Medical Center nor Mary Free Bed Hospital were parties in the Wayne County action. Therefore, the application of those doctrines in the Kent County case turned on whether they were privies of Myers with respect to the dismissal order that was entered against him in the Wayne County case after the assignment.

Although generally a relationship based on assignment of rights is deemed to be one of privity, that is not true in all circumstances. The assignees [Mecosta Medical Center/Mary Free Bed Hospital] succeeded to those rights described in the assignment subject to any earlier adjudication involving the assignor [Jacob Myers] that defined those rights. However, when the litigation involving the assignor [Jacob Myers] occurs after the assignment, the rights held by the assignor [Jacob Myers] could not yet have been affected by litigation at the time they were transferred to the assignees [Mecosta Medical Center/Mary Free Bed Hospital]. In conclusion, Justice Viviano wrote: “It is therefore well established that a judgment entered after the assignment does not bind the assignee [Mecosta Medical Center/Mary Free Bed Hospital] because the assignee is not in privity with the assignor [Jacob Myers] with respect to that judgment.” In other words, once Myers assigned his right to no-fault benefits, nothing he did or suffered after he parted with his right could affect the rights previously vested in the providers because they were no longer his privies by the time of his litigation with Metropolitan and State Farm.

To make clear, though, this result does not bar Metropolitan and State Farm from asserting all available contractual and statutory defenses against the claims by the providers in the Kent County case. In fact, the providers admitted at the trial court hearing on the Metropolitan and State Farm’s motions that they would have to prove as part of their case-in-chief that Myers was entitled to no-fault benefits.

Notably, per MCL 500.3112, as amended, a medical provider no longer needs an assignment to make a direct claim for no-fault benefits from a no-fault insurer. Justice Viviano referenced this change but, in a footnote, made clear that this now statutory cause of action was not before the Court and, therefore, the Court was not going to decide “whether a medical provider bringing such an action would be in privity with an insured for purposes of res judicata or collateral estoppel.”

In an attempt to answer this question (again not addressed by the Supreme Court), the fact that a provider now has a direct cause of action against the no-fault insurer does not change the fact that the claim is still derivative. The provider did not purchase the no-fault insurance policy, an individual did. The provider has to rely on the existence of that no-fault insurance policy to make a claim, or file a lawsuit, for no-fault benefits. Using language from cases explaining what “privity” means, a number of which were cited in this Supreme Court decision, a provider, even without an assignment, still would be succeeding to a right held by the insured [“such an identification of interest of one person with another as to represent the same legal right” Adair v Michigan 470 Mich105,122 (2004)], and thus would be in privity with the insured. If true, an essential element of res judicata and collateral estoppel would be satisfied in the event an insurer sought to apply one or the other doctrine.

As to this last point, although perhaps not true in all situations, it might at least be true as to aspects of the claim the insured and provider share in common, e.g., proving that the injured person has coverage. This is a fundamental issue common to the insured’s claim and to the provider’s claim, i.e., both have to prove coverage. Arguably then, a judgment or order in the original action that there is no coverage should bar a subsequent action, whether filed by the insured or provider, on res judicata or collateral estoppel grounds.