Mi Habilitation and Learning Center v. Community Living Services ( 2018 )

STATE OF MICHIGAN
COURT OF APPEALS
MICHIGAN HABILITATION & LEARNING UNPUBLISHED
CENTER, INC., and RESIDENTIAL STAFFING July 24, 2018
AGENCY,
Plaintiffs-Appellants,
v No. 338026
Oakland Circuit Court
COMMUNITY LIVING SERVICES, INC., LC No. 2016-151379-CK
Defendant-Appellee.
Before: BORRELLO, P.J., and M. J. KELLY and BOONSTRA, JJ.
PER CURIAM.
Plaintiffs, Michigan Habilitation & Learning Center, Inc. (MHLC) and Residential
Staffing Agency (RSA), appeal as of right the trial court order granting defendant, Community
Living Services, Inc. (CLS), summary disposition under MCR 2.116(C)(10). Because there are
no errors warranting reversal, we affirm.
I. BASIC FACTS
CLS is a nonprofit organization that contracts with the Detroit-Wayne County
Community Mental Health Agency (D-WCCMHA) to serve as the manager of a comprehensive
provider network serving individuals with developmental disabilities who receive Medicaid
benefits. In that capacity, CLS contracted with MHLC to provide residential services for
enrollees at MHLC’s group homes. In addition, a number of CLS’s enrollees entered into
personal services agreements directly with RSA for individualized staffing services. Although
CLS was not a party to these agreements, the agreements made it clear that CLS was the entity
that would render payment for services to RSA.
The contract between MHLC and CLS required MHLC to comply with extensive staff-
credentialing requirements. By way of example, the contract required MHLC to conduct
criminal background checks upon hiring new employees and annually thereafter, to ensure that
its staff maintained necessary licensing, training, and certifications, and to “maintain all
credentialing material in centrally located files.” Relevant to the current dispute, Article 13 of
the contract provided:
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[MHLC] acknowledges that for any non-compliance with the provisions
of this Contract, CLS may, in its sole discretion, impose one or more sanctions,
including, but not limited to the following:
* * *
Financial or other sanctions that result in a decrease or suspension of
[MHLC’s] payments;
* * *
Other sanctions up to and including termination of the Contract, and
removal of [MHLC] from the CLS provider network.
Similarly, the contracts between RSA and the enrollees required RSA to satisfy
substantially identical staff-credentialing requirements. For example, the contracts required RSA
to complete background checks to ensure that the staff was “in good standing with the law” and
to ensure that staff providing transportation have a valid driver’s license and an acceptable
driving record. The agreements also set forth a detailed list of training and certifications that
each staff member had to complete and update on a one to three year schedule, and the
agreements placed the responsibility to maintaining “a current training record for each
employee” on RSA. Finally, the agreements also provided that RSA agrees “that CLS, Inc., in
its sole discretion, may suspend or terminate funding for [RSA] if CLS, Inc. has determined that
[RSA] has failed to fulfill the terms outlined in this Personal Service Agreement . . . .”
The current dispute arose in June 2014, when MHLC and RSA’s former quality
assurance employee, Victoria Baughman, notified CLS that several of MHLC and RSA’s staff
members lacked required credentials, did not have valid driver’s licenses, engaged in a variety of
misconduct in the workplace, and failed to provide proper care for enrollees in MHLC’s group
homes. These allegations prompted CLS to undertake a thorough review of MHLC and RSA’s
operations, including the credentials of their staff. It is undisputed that, during the course of the
investigation, MHLC and RSA were unable to produce complete records demonstrating their
compliance with the screening, credentialing, or training requirements. Accordingly, CLS sent a
written notice to MHLC terminating the contract for residential services effective September 15,
2014. CLS asserted that MHLC had materially breached the contract and noted that despite
multiple opportunities to demonstrate its compliance with credentialing requirements, MHLC
was “unable to produce appropriate documentation that all staff had received background checks
and mandatory training, or possessed valid Michigan drivers’ licenses.” CLS also terminated all
of RSA’s personal services agreements with CLS’s enrollees effective September 15, 2014,
citing RSA’s failure to meet credentialing requirements.
After learning of the termination of their contracts, MHLC and RSA continued to seek
payment for services rendered before September 15, 2014. In response, CLS advised MHLC and
RSA that funding had been suspended for all claims for services rendered through September 15,
2014, for which compensation had not yet been disbursed because they had not demonstrated
that any of their reviewed staff members met the required credentialing criteria. Still, CLS
consented to allow MHLC and RSA to resubmit their claims with additional documentation to
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substantiate their claims. The additional information was submitted in January 2015. Again,
however, MHLC and RSA were unable to establish that their staff satisfied the credentialing
requirements set forth in the applicable contracts, so on April 15, 2015, CLS issued a final
determination affirming its suspension of payments to MHLC and RSA.
In February 2016, MHLC and RSA filed a complaint against CLS, asserting claims for
breach of contract and unjust enrichment. After discovery, the parties filed cross-motions for
summary disposition. Following oral argument on the motions, the trial court granted summary
disposition in CLS’s favor. MHLC and RSA moved for reconsideration, submitting new
documentary evidence in support of its claim that most of their staff met nearly all of the
requirements. The court, however, refused to consider the new evidence, and denied the motion
for reconsideration.
This appeal follows.
II. SUMMARY DISPOSITION
A. STANDARD OF REVIEW
MHLC and RSA argue that the trial court erred by granting CLS summary disposition.
Challenges to a trial court’s decision to grant or deny summary disposition are reviewed de novo.
Barnard Mfg Co, Inc v Gates Performance Engineering, Inc, 285 Mich App 362, 369; 775
NW2d 618 (2009). “Under MCR 2.116(C)(10), a party may be entitled to summary disposition
if there is no genuine issue with respect to any material fact and the moving party is entitled to
judgment as a matter of law.” Stenzel v Best Buy Co, Inc, 318 Mich App 411, 415; 898 NW2d
236 (2016), vacated in part on other grounds 320 Mich App 801 (2017). A genuine issue of
material fact exists if the record, viewed in a light most favorable to the nonmoving party,
establishes a matter in which reasonable minds could differ. Allison v AEW Capital Mgt, LLP,
481 Mich 419, 425; 751 NW2d 8 (2008).
B. ANALYSIS
MHLC and RSA first contend that the trial court erred by summarily dismissing their
breach of contract claim. In order to prevail on a claim for breach of contract, MHLC and RSA
had to establish that a contract existed, “the other party breached the contract, and the breach
resulted in damages.” See Bank of America, NA v First American Title Ins Co, 499 Mich 74,
100; 878 NW2d 816 (2016). Here, it is undisputed that pursuant to multiple contracts, CLS was
required to pay MHLC and RSA for services provided to developmentally disabled adults, but
that they have not paid for some of the services rendered before September 15, 2014.
CLS argues that it is not required to make those payments because MHLC and RSA
committed the first substantial breach of the contracts by failing to demonstrate that their staff
met the credentialing requirements in the contracts. Under long-standing Michigan law the party
“who commits the first substantial breach of a contract cannot maintain an action against the
other contracting party for failure to perform.” Ehlinger v Bodi Lake Lumber Co, 324 Mich 77,
89; 36 NW2d 311 (1949) (quotation marks and citation omitted). Slight deviations in the
performance of a contractual promise will not always negate the other party’s reciprocal duty to
perform, Antonoff v Basso, 347 Mich 18, 28; 78 NW2d 604 (1956), but when the noncomplying
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performance amounts to a substantial or material breach of the contract, the breaching party is
precluded from maintaining a claim for breach of contract based on the nonbreaching party’s
subsequent failure to perform. Baith v Knapp-Stiles, Inc, 380 Mich 119, 126; 156 NW2d 575
(1968).
The relevant contracts contained numerous requirements pertaining to the qualifications
and training of MHLC and RSA’s staff members. The staff had to pass criminal background
checks, have and maintain valid driver’s licenses, complete initial training in a number of areas,
and complete additional or refresher training within certain timeframes. MHLC and RSA were
required to maintain records of the above credentialing requirements. Prior to terminating the
relevant contracts and suspending payment for services already rendered under those agreements,
CLS requested that MHLC and RSA provide documentation to substantiate that their staff
members met the credentialing requirements. MHLC and RSA provided a number of
documents, but admitted that they were unable to establish that all of the credentialing
requirements were met by their staff members. Although CLS provided additional opportunities
for MHLC and RSA to show that their staff met the credentialing requirements, they were never
able to do so, and CLS terminated the contract. At the time the summary disposition motions
were filed in January 2017 (over two years after the contracts were terminated for
noncompliance with the credentialing requirements), MHLC and RSA were still unable to
demonstrate that their staff were qualified and had satisfied all the contractually-mandated
training requirements.
Nevertheless, MHLC and RSA argue that because their staff members did, in fact, render
services to CLS’s enrollees and because no substantial deficiencies with the services were
substantiated, they did not substantially breach the respective contracts by failing to ensure that
their staff members were properly credentialed. To determine the significance of the initial
breach, “the court should consider whether the nonbreaching party obtained the benefit it
reasonably expected to receive.” Omnicom of Mich v Giannetti Inv Co, 221 Mich App 341, 348;
561 NW2d 138 (1997). MHLC and RSA suggest that the purpose of the contracts was merely to
provide care to enrollees, which was properly provided by MHLC and RSA, regardless of
whether their staff possessed the required credentials.
Review of the relevant contracts, however, demonstrates that the purpose of the
contractual arrangements was to facilitate the provision of medically necessary services to CLS’s
enrollees by properly qualified and credentialed individuals. The contracts include multiple
sections requiring that the staff providing the services meet specific and enumerated
requirements. They also require MHLC and RSA to provide documentation in support of their
claims that their staff met the requirements. If the parties had intended only that the services be
provided without regard to who provided those services, there would have been no need to
include multiple provisions detailing the requirements for the staff in the contracts. Moreover,
the deposition testimony taken also makes clear that who performed the services was essential to
the contract. For instance, a CLS representative testified that when services are performed by
staff who lacks the proper credentials, CLS does not submit those claims to D-WCCMHA
because those claims are not reimbursable under Medicaid guidelines. In other words, if services
are provided by a non-credentialed service provider, funding cannot be secured to pay for those
services, notwithstanding the fact that the individual enrollee actually received the services.
Thus, even viewing the record in the light most favorable to MHLC and RSA, it is apparent that
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an essential part of the contract was the provision of services by individuals who were qualified
to provide the services.
MHLC and RSA were unable to establish that during the relevant periods of time even
one staff member satisfied all credentialing requirements. Therefore, although MHLC and RSA
staff provided services to CLS’s enrollee’s, there is nothing in the record to support that it was
the service contemplated under the relevant contracts, so, as a matter of law, CLS did not obtain
the benefit it reasonably expected to receive. See id. The trial court did not err by granting CLS
summary disposition.1
Next, MHLC and RSA argue that the trial court erred by granting summary disposition
because CLS did not establish that it sustained damages as a result of their breach of contract. In
support, they direct our attention to Alan Custom Home Inc, 256 Mich App 505; 667 NW2d 379
(2003). In Alan, this Court held that “[t]he party asserting a breach of contract has the burden of
proving its damages with reasonable certainty, and may recover only those damages that are the
direct, natural, and proximate result of the breach.” Id. at 512. In that case, however, the
defendants’ counter-claim for breach of contract was dismissed because the defendants could not
prove that the plaintiff caused their damages. Here, CLS did not file a claim for breach of
contract, so they have no obligation to prove that they sustained damages.2
1
Alternatively, MHLC and RSA argue that they substantially complied with the contract
because, despite the existence of “gaps” in the records, “most of the staff had almost all of the
credentials.” In other words, they posit there is a question of fact with regard to whether the
missing credentials were so significant as to constitute a substantial breach of the contracts.
However, the record reflects that they had over 100 employees and that none of them satisfied all
of their credentialing requirements. Further, before their motion for reconsideration, MHLC and
RSA made no attempt to demonstrate that the missing credentials were so unimportant that their
absence did not prevent CLS from receiving the benefit it reasonably expected to receive under
the operative contracts.
2
Despite determining that CLS did not need to prove damages, the trial court concluded that
CLS did, in fact, sustain damages as a result of MHLC and RSA’s failure to provide that its staff
was properly credentialed. This is supported by testimony from CLS’s representatives who
testified that, when services are performed by individuals who lack the proper credentials, CLS
cannot submit those claims to D-WCCMHA. Furthermore, CLS’s representatives testified that
CLS’s funding is based on the claims it submits to D-WCCMHA. Thus, because MHLC and
RSA could not substantiate that its staff had all of the mandated credentials, CLS could not
submit the claims to D-WCCMHA, and because it could not submit the claims to D-WCCMHA,
CLS could not ultimately receive and/or retain funding for the services provided by individuals
who were not properly credentialed. Accordingly, although no CLS representative testified to
the “exact” amount of damages caused by the lack of credentials, it is clear that CLS was
negatively affected by MHLC and RSA’s breach of contract.
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Lastly, MHLC and RSA argue that even if the trial court had properly found that they
substantially breached the contracts, it erred by dismissing their unjust-enrichment claim because
the contracts were effectively rescinded, which requires a return to the status quo, rather than a
forfeiture. In order to recover under a theory of unjust enrichment, MHLC and RSA were
required to establish two elements: “(1) the receipt of a benefit by defendant from plaintiff[s],
and (2) an inequity resulting to plaintiff[s] because of the retention of the benefit by defendant.”
Belle Isle Grill Corp v Detroit, 256 Mich App 463, 478; 666 NW2d 271 (2003). When a party
can demonstrate these elements, the law implies a contract to prevent unjust enrichment. Id.Yet, a contract cannot be implied when an express contract already addresses the pertinent
subject matter. Id. In this case, there were express contracts covering the subject matter.
Pursuant to those agreements, MHLC and RSA agreed that if they failed to comply with the
terms of the contracts, CLS, in its sole discretion, could take a variety of actions, including
suspending funding. Thus, there is no basis for the unjust-enrichment claims.
Affirmed. CLS may tax costs as the prevailing party. MCR 7.219(A).
/s/ Stephen L. Borrello
/s/ Michael J. Kelly
/s/ Mark T. Boonstra
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