Calhoun County v. Blue Cross Blue ShieldCalhoun County v. Blue Cross Blue Shield
Dеfendant Blue Cross and Blue Shield of Michigan appeals as of right a final judgment entered in favor of plaintiff, Calhoun County, in the amount of $1,138,943. Defendant’s appeal challenges several preliminary rulings made by the trial court when deciding the parties’ cross-motions for summary disposition, as well as the trial court’s denial of defendant’s motion to amend its affirmative defenses. We reverse the trial court’s order granting plaintiff summary disposition on its breach-of-contract and fiduciary-duty claims and remand for entry of an order granting defendant’s motion for summary disposition of those claims.
I. FACTUAL BACKGROUND
This case is one of a series involving defendant and vаrious governmental entities. Calhoun County has for years contracted with defendant to administer its self-insured health care plan. Defendant is governed by various Michigan statutes and is legally obligated to subsidize insurance policies for any Medicare-eligible person who is not a member of a “group.” Defendant internally refers to this subsidy as “other than group” (OTG). Defendant is also required to maintain a contingency fund and ensure that each “line of business” is independently funded. Defendant’s self-insurance plan is one “line of business.”
In the late 1980s, defendant separately billed its customers for the cost of the OTG subsidy. Many self-insured customers were dissatisfied with paying the OTG charge; as a result, some customers hired defendant’s competitors, while others simply refused to pay the OTG charge. Defendant ultimately decided to merge mandatory business charges such as the OTG charge into the hospital claims for self-insured plans. Thus, the various business charges were no longer “visible” on billing statements, but were instead built into the bill submitted to the customer (after a reduction had already occurred because of defendant’s network discounts). According to defendant, these built-in charges were part of an access fee that was structured in part as the cost for access to defendаnt’s hospital network discounts.
II. THE CONTRACT BETWEEN THE PARTIES
Since 1990, plaintiff has contracted with defendant to administer plaintiffs self-insured
The ASC outlined plaintiffs financial responsibilities as follows:
A. General Obligations.
The Group1 -2 -1 will immediately assume: all risks; all financial obligations, including but not limited to Amounts Billed, court costs, and attorney’s fees; and all other liabilities BCBSM may assume or which might otherwise attach with respect to processing Coverage pursuant to this Contract. The Group will make full payment and satisfaction to BCBSM for all amounts resulting from such risks, financial obligations, and liabilities. Group responsibility will not, however, include amounts resulting directly from any negligent processing/payment of claims by BCBSM.
B. Specific Obligations.
The Group will, for each Contract Year, pay BCBSM the total of the following amounts:
1. Amounts Billed during the current Contract Year.
2. The hospital prepayment reflecting the amount BCBSM determines is necessary for its funding of the prospective hospital reimbursement.
3. The actual administrative charge.
4. The group conversion fee.
5. Any late payment charge.
6. Any statutory and/or contractual interest.
7. Stop Loss premiums, if applicable.
8. Cost containment program fee, if applicable.
9. Any other amounts which are the Group’s responsibility pursuant to this Contract, including but not limited to risks, obligations or liabilities, deficit amounts relating to previous agreements, and deficit amounts relating to settlements.
The Provider Network Fee, contingency, and any cost transfer subsidies or surcharges ordered by the State Insurance Commissioner as authorized pursuant to 1980 PA. 350 [MCL 550.1101 et seq.] will be reflected in the hospital claims cost contained in Amounts Billed. [Emphasis added.]
The ASC defined “Amounts Billed” as “the amount the Group owes in accordance with BCBSM’s standard operating procedures for payment of Enrollees’ claims” and “Provider Network Fee” as “the amount allocated to the Group fоr the expenses incurred by BCBSM in the establishment, management and maintenance of its participating hospital, physician and other health care provider networks.” The ASC expressly incorporated additional documents, including schedules, and contained a severability clause.
Each year the parties agreed to a new fee for defendant’s administrative services, which was typically detailed in a document titled “Schedule A.” The Schedule As included an “administrative charge” and a fee for “excess loss coverage” or “stop-loss coverage.” The 1994 Schedule A also contained the following рrovision:
8. Effective with your current renewal, your hospital claims cost will reflectcertain charges for provider network access, contingency, and other subsidies as appropriate. [Emphasis added.]
The Schedule As from 1995 to 2006 contained a substantially similar provision, stating either, “Your hospital claims cost reflects certain charges for provider network access, contingency, and other subsidies as appropriate,” or something quite similar, while the 2007 Schedule A contained a more detailed provision acknowledging the agreed-upon fees and charges:
11. A portion of your hospital savings has been retained by BCBSM to cover the ASC Access Fee. The ASC Access Fee covers (a) costs associated with the establishmеnt, management and maintenance of BCBSM’s participating hospital, physician and other health provider networks, (b) charges to help maintain BCBSM’s surplus at an appropriate level in compliance with regulatory and Blue Cross and Blue Shield Association standards, and (c) cost transfer subsidies or surcharges authorized pursuant to 1980 BA. 350, such as the group conversion fee and the ‘other than group’ subsidy. [Emphasis added.]
The access fee
III. PROCEDURAL HISTORY
Plaintiffs complaint contained two counts alleging breach of contract as well as additional counts alleging breach of fiduciary duty, conversion, and constructive fraud. In general, each of plaintiffs allegations centered on the assertion that the parties had not agreed to a price for the access fee and, even if they had, defendant unilaterally charged excessive fees in violation of the parties’ agreement. In particular, with respeсt to its first breach-of-contract claim, plaintiff alleged that there was no agreement between the parties on the access fee because the lack of a stated price made the term so vague that no contract regarding that fee existed:
19. The contractual relationship between the parties is governed by two documents — the Master Contract and the yearly Schedule A. Plaintiff agreed to pay Defendant an Administrative Fee and Stop Loss Coverage. Plaintiff did not agree to pay Defendant an ASC Access Fee or other fee other than an Administrative Fee and Stop Loss Covеrage. To the extent that the Master Contract or Schedule A make reference to charges for “provider network access, contingency and other subsidies as appropriate,” that provision is so vague, uncertain or ambiguous that an enforceable contract does not exist regarding that fee. The amount, price or method to determine the amount or the price is absent. [Emphasis added.]
Plaintiffs second breach-of-contract claim asserted that if there was a contract regarding the fees, defendant violated the covenant of good faith and fair dealing by unilaterally detеrmining the fee, which was unreasonably high.
After initially denying both motions for summary disposition, the trial court held a second hearing just prior to trial to reconsider the competing motions for
And what I’ve come up with is this: that the Plaintiffs theory in this case is that there is-that the contract between the parties provides for an access fee but provides for an indefinite means of determining what that fee will be. And so in looking at the contract language, it seems to me that there isn’t-as a matter of law there is no agreement on what the рrice term was for the access fee.
And the Plaintiffs counsel has presented a line of cases that indicate in that instance that that part of the contract providing for an access fee is unenforceable, which leads one to the conclusion that the Defendant is not allowed to charge an access fee. They did charge it. And so the only factual issue remaining for the jury is to determine if there was the issue of fraudulent concealment and how far back the Plaintiff can go with their claim for reimbursement of the access fee that the Defendant has already collected.
The Defendant’s theory of the case is that there was definitely an agreement for an access fee. There is a means for determining it even if it refers to the Defendant’s standard operating procedure or other what I would term indefinite terms, and even if there-but even if the price is indefinite in nature, that the Defendant has not been harmed because the Defendant should be able to show that there certainly was an agreement for an access fee, and they ought to be able to present evidence about what that fee would or should have been worth. Really it strikes me as a quantum meruit type of analysis.
In any event, I told the attorneys I’ve decide — I’m deciding this legal issue in favor of the Plaintiff. So that gets us down to only one real factual issue, determining- and that is determining when [plaintiff] knew or should have known of the existence of this claim. And then that will determine how far back they can go.
The trial court then ruled that defendant was plaintiffs fiduciary as a matter of law:
Another part of this case is the allegation that the Plaintiff breached a fíduciary-or the Defendant breached a fiduciary duty it owed to the Plaintiff. The Defendant is asserting that’s an issue of law. I agree with that. And I’m determining based on what’s been presented already that’s not contested that there was a fiduciary duty, and that’s becausе the Defendant was receiving health care claims from health care providers for the Defendant’s employee, acting as their agent and paying those claims, accounting for those things to the Plaintiff, and then billing the Plaintiff for those items.
And [defendant’s counsel] correctly pointed out that there has to be a scope to that duty, and, as I see it, the scope of the duty was simply to bill the Plaintiff accurately for claims that were presented. And so the part of this case that’s troubling to me is that bills were presented to the Plaintiff that said we paid X number of dollars of health care claims for your employees оver the past year, with no disclosure that some percentage of those payments were actually this access fee that was never diselosed-at least prior to 2006 was never clearly disclosed by the Defendant to the Plaintiff.
So I’m ruling as a matter of law on that issue. So I believe the only remaining issue is the issue of fraudulent concealment.
The trial court ultimately entered an order granting partial summary disposition to plaintiff on the breach-of-contract and breach-of-fiduciary-duty claims, and plaintiff later voluntarily dismissed the remaining three claims. Defendant moved to add a counterclaim for quantum meruit and return of its consideration, which the trial court denied.
IV ANALYSIS
Defendant argues that the trial court erred in denying its motion for summary disposition of plaintiffs breach-of-contract claims. Defendant’s argument is two-fold. First, defendant argues that the access fee was specific enough that the contract did not fail for indefiniteness. Second, defendant argues that even if the contract was ineffective, the remedy would not be liability for breach of a contract, but would instead be a ruling that the failure of consideration caused there to be no contract between the parties.
This Court reviews de novo the grant or denial of а motion for summary disposition filed under MCR 2.116(C)(10). Maiden v Rozwood,
In addressing the validity of the trial court’s decision, both parties cite evidence produced at the trial held on the fraudulent-concealment issue. Much of that evidence, and of course all the trial testimony, was not available to the trial court when it decided the motions for summary disposition prior to trial. Consequently, we cannot look to that evidence in determining whether the trial court properly granted the motion. Peña v Ingham Co Rd Comm,
A. WAS THERE A CONTRACT?
With respect to plaintiffs first breach-of-contract claim, defendant’s primary аrgument is that the trial court erred in granting partial summary disposition to plaintiff on the basis that the contract was missing an essential term. Construction and interpretation of a contract are questions of law that we review de novo, meaning that we do so without deference to the trial court’s decision.
Under ordinary contract principles, if contractual language is clear, construction of the contract is a question of law for the court. If the contract is subject to two reasonable interpretations, factual development is necessary to determine the intent of the parties and summary disposition is therefore inappropriate. If the contract, although inartfully worded or clumsily arranged, fairly admits of but one interpretation, it is not ambiguous. The language of a contract should be given its ordinary and plain meaning. [Citations omitted.]
There are five elements of a valid contract: “(1) parties competent to contract, (2) a proper subject matter, (3) a legal consideration, (4) mutuality of agreement, and (5) mutuality of obligation.” Hess v Cannon Twp,
There is no dispute that elements one and two have been satisfied, i.e., that the parties were competent to contract and that the contract involved a proper subject matter. The parties also do not seem to dispute that there was legal consideration supporting the contract. The essence of consideration — whatever form it takes — is that there be a bargained-for exchange between the parties. Higgins v Monroe Evening News,
Despite the concession that a valid contract existed between the parties, plaintiffs breach-of-contract claim asserts that the failure to specify in the contract the actual dollar amount of the access fee rendered that “contract term” indefinite.
In acсordance with this principle, the absence of certain terms — including at times the price — does not necessarily render a contract invalid. Some 40 years ago, in J W Knapp Co v Sinas,
Even though important terms of the contract were indefinite the trial judge acted properly in supplying the necessary additions. In an appropriate case an agreement may be enforced as a contract even though incоmplete or indefinite in the expression of some term, if it is established that the parties intended to be bound by the agreement, particularly where one or another of the parties has rendered part or full performance. Where the price is indefinite, the purchaser may be required to pay and the seller to accept a reasonable price. Where the time of performance is indefinite, performance may be required to be rendered within a reasonable time. Each case will turn on its own facts and circumstances. See 1 Corbin on Contracts, § § 95, 96, 99,102; 5 Williston on Contracts, § 1459; 1 Williston on Contracts (3d еd), § § 36, 36A, 40, 41, 49; Restatement, Contracts, § 5. [Emphasis added.]
In reviewing the contract terms agreed to by the parties, we reach several legal conclusions. First, the parties agreed to all the terms of the ASC and Schedule A, so there is no question that they “ ‘intended to enter into a binding contract[.]’ ” Nichols,
According to this unnumbered provision, the parties agreed that plaintiff would be charged for additional fees beyond the administrative charge and stop-loss coverage, and that those fees would be reflected in the hospital claims cost contained in “Amounts Billed.” The term “Amounts Billed” was broadly defined in the ASC as
This is also reflected in Schedule A, which has since at least January 2007 reflected the parties’ agreement that the access fee covered three specific costs or charges and would be retained by defendant as a part of the overall savings realized by plaintiff:
11. A portion of your hospital savings has been retained by BCBSM to cover the ASC Access Fee. The ASC Access Fee covers (a) costs associated with the establishment, management and maintenance of BCBSM’s participating hospital, physician and other health provider networks, (b) charges to help maintain BCBSM’s surplus at an appropriate level in compliance with regulatory and Blue Cross and Blue Shield Association standards, and (c) cost transfer subsidies or surcharges authorized pursuant to 1980 EA. 350, such as the group conversion fee and the ‘other than group’ subsidy.
Consequently, the parties unequivocally agreed to the payment of the access fee, what it cоvered, and how it would be paid. This takes us to the ultimate question raised by plaintiff: Does the contract’s failure to reference a specific dollar amount for, or allegedly a means for calculating, the access fee make the fee unenforceable? For the reasons expressed below, we answer that question in the negative.
In determining the answer to this question, we first look to the language of the parties’ agreement. Meagher,
Turning to the contract itself, there is no doubt that the parties entered into a valid and enforceable contract that has been pеrformed by both parties over a significant
It is simply not enough to say that the fee agreed to is not binding because no specific dollar figure was placed in the contract.
B. FIDUCIARY DUTY
The trial court also held as a matter of law that defendant had a fiduciary
A fiduciary relationship is
“[a] relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships — such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client — require the highest duty of care. Fiduciary relationships [usually] arise in one of four situations: (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer.” [In re Karmey Estate,468 Mich 68 , 74 n 2;658 NW2d 796 (2003), quoting Black’s Law Dictionary (7th ed).]
Even assuming that defеndant owed a fiduciary duty to plaintiff, as a result of our holding that defendant was authorized by the contract to charge the access fee, plaintiff cannot maintain its breach-of-fiduciary-duty claim. Plaintiffs complaint specifically alleges that defendant had a duty to “clearly disclose to Plaintiff that it was charging Plaintiff additional fees, the amount of those fees and not to undertake a program of misinformation . . . regarding those fees.” Plaintiff then alleged that defendant violated that duty “by. . . charging and . . . receiving a secret fee from plaintiffs account.”
We reverse the trial court’s order granting plaintiff summary disposition of its claims for breach of contract and fiduciary duty and remand for entry of an order granting defendant’s motion for summary disposition of those claims.
No costs, neither side having prevailed in full on the merits of the case. MCR 7.219(A).
Notes
The material facts are taken from plaintiffs complaint and the parties’ motions for summary disposition. To the extent we have utilized some nonmaterial fаcts brought forward at trial, it has only been to provide some context to the circumstances giving rise to this case.
“The Group” refers to plaintiff.
Although the contract denotes this fee as the “ASC Access Pee,” the parties mostly refer to it as the “access fee.” We will do the same.
Defendant’s motion was filed in lieu of an answer and was filed pursuant to MCR 2.116(C)(8). Plaintiffs motion for partial summary disposition was brought pursuant to MCR 2.116(C)(10) and sought judgment only on its breach-of-contract claims.
A three-day jury trial was conducted to determine whether defendant had fraudulently concealed the access fee from plaintiff. If the jury had found in plaintiffs favor, plaintiff would have been able to recover damages for the breach of contract beyond the applicable statute of limitations. However, after one hour of deliberations, the jury found that defendant had not fraudulently concealed the access fee from plaintiff.
“ ‘Meeting of the minds’ is a figure of speech for mutual assent.” Kamalnath v Mercy Mem Hosp Corp,
Plaintiff states its position this way in its brief on appeal: “The parties agree that there is a contract. Indeed, this contract was performed: claims were processed and paid, advances were made, quarterly and annual settlements occurred - all pursuant to the contract. The dispute is simply over one of its terms - the ASC Access Fee.”
In a December 21, 1992, ruling, Michigan Insurance Commissioner David J. Dykhouse stated that, with respect to the OTG costs, “it is BCBSM’s obligation to pursue the collection of cost transfers from its ASC customers.” Final Decision (Case No. 91-11806-BC), p 5. The rationale was that because defendant’s ASC customers derive a benefit from defendant’s tax-exempt status, it is not unreasonable to expect that the ASC customers would also contribute (just as defendant’s other lines of business do) a cost transfer to foster the affordability of health care coverage for Michigan’s elderly residents. See Pipefitters Local 636 Ins Fund v Blue Cross Blue Shield of Mich,
It is primarily for this reason that the cases relied on by plaintiff are of no real assistance. In Dayton v Stone,
Though there is no need to rely on decisions from outside our state to decide this issue, we note that this point has been recognized before today. See, e.g., GEM Advisors, Inc v Corporación Sidenor, SA,
Plaintiffs counsel admitted to the trial court at the October 23,2008, motion hearing that defendant does “have a methodology,” but argued that plaintiff did not agree to it.
As a result of this conclusion, we need not address defendant’s alternative argument that if there was no readily ascertainable and agreed-upon fee amount, the result would not be a cause of action for breach of contract, but would instead be that no contract between the parties existed, at least as far as the access fee was concerned.
Plaintiff also alleged that defendant fraudulently concealed the fees, but as noted the jury rejected that position.