In C-Spine Orthopedics, PLLC, No. 359681 (Mich. Ct. App. April 6, 2023), the Michigan Court of Appeals considered whether a lawsuit initiated by a medical provider for first-party personal injury protection benefits can be dismissed based on the doctrine of res-judicata.
Background on C-Spine Orthopedic, PLLC
In April of 2019, claimant Benjamin Moore sustained injuries in a motor vehicle accident. The vehicle he operated was insured through Progressive Insurance Company. Moore’s wife drove a vehicle insured by Liberty Mutual Insurance Company. She would also drive Moore’s vehicle, but she was never included on the Progressive application for insurance.
Plaintiff C-Spine Orthopedic, PLLC, treated Moore for his injuries. Moore executed an assignment giving C-Spine his right to collect PIP benefits in the amount of his bills for treatment on August 25, 2021.
Two lawsuits were initiated in regards to the accident, C-Spine filed suit on September 10, 2019 against Progressive to recover PIP benefits for the services provided to Moore, and Moore filed suit on April 2, 2020 against Progressive and Liberty Mutual for no-fault benefits relating to the other costs related to the crash.
Progressive moved for summary disposition in Moore’s suit, claiming material misrepresentation by omitting his wife on his insurance application. The trial court found that Moore had committed fraud in the inducement and rescinded policy, dismissing his claims with prejudice on November 2, 2021. Progressive filed a subsequent motion in the case with C-Spine arguing the claims are barred by res judicata and collateral estoppel. The trial court granted the motion finding that C-Spine’s claims were barred by res judicata.
The Court of Appeals’ Ruling
On appeal, C-Spine argued that res judicata was applied in error due to lack of privity, because as the assignee, it was not bound by a judgment obtained by Moore after the assignment took place.
The Court of Appeals reversed, finding C-Spine and Moore lacked privity. The elements of res judicata are as follows, (1) the prior action was decided on the merits, (2) both actions involve the same parties or their privies, and (3) the claims in the second case were, or could have been, resolved in the first case. Adair v. Michigan, 470 Mich 105, 121 (2004). The Court relied on the Supreme Court decision in Mecosta Co Med Ctr. Metro Group Prop & Cas Ins Co, 509 Mich 276, at 279-280 (2022), on facts similar to this case, in which it held “whether res judicata and collateral estoppel applied against an assignee in cases where the assignor had received a judgment after the assignment, and concluded that they did not.” In Mecosta, the insured was injured in a car accident and assigned his rights to seek PIP benefits before suing for other benefits. Id. While the suit was pending, the assignees initiated their own lawsuit to obtain payment of benefits. Id. The insured was found to have not properly maintained insurance and summary disposition was granted against him. Id. at page 281. The defendants in the assignees’ case filed their own dispositive motion arguing res judicata and collateral estoppel based on the judgment in the insured’s case, which was granted. Id.
The Supreme Court in Mecosta, held that res judicata and collateral estoppel did not bar the assignees’ claims because they were neither parties to the earlier suit nor privies with respect to the entered judgment. Id. at 279-280. “To be in privity is to be so identified in interest with another party that the first litigant represents the same legal right that the later litigant is trying to assert.” Id. at 283, quoting Adair, 470 Mich at 122. “But the mere succession of rights to the same property or interest does not, by itself, give rise to privity with regard to subsequent actions by and against the assignor. Id. “When the litigation involving the assignor occurs after the assignment, the rights could not have been affected by the litigation at the time they were transferred to the assignee. Id. Importantly, á judgment entered after the assignment does not bind the assignee because the assignee is not in privity with the assignor with respect to that judgment.” Id at 285.
Progressive tried to argue that the case falls outside the Mecosta framework because the prior judgment granted rescission, which nullified the assignment because it rendered the insurance contract void ab initio. However, the Court in C-Spine, found that Mecosta stood for the basic principal that a party may not use res judicata or collateral estoppel against an assignee who received the assignment before the judgment, and the fact that the court in Moore’s case granted the equitable remedy of rescission does not affect the provider’s rights, because the provider was not involved in the case. As such, the Court did not consider C-Spine’s interest when deciding that rescission was just and equitable, and therefore reversed, the trial court’s ruling and held that res judicata and collateral estoppel did not apply due to lack of privity.
C-Spine reminds us to consider two essential factors when determining the application of res judicata and collateral estoppel in determining privity in provider cases: (1) the date of any assignments made by the insured and (2) the dates of any judgments obtained by defendant/defendants against the insured.
As the Court put, “mere succession doesn’t translate to privity.” Prior to determining whether to assert the doctrine of res judicata or collateral estoppel, one must investigate whether, (1) potential assignments were made, (2) the timing for those assignments, and (3) ensure any judgements against the assignor occurred prior to the date of the assignment.