Clayton Group Serv. V. First Allmerica Financial

• Decision Date: 28 September 2001
• Docket Number: No. 00-CV-74486-DT.,00-CV-74486-DT.
• Citation: 166 F.Supp.2d 566
• Parties: CLAYTON GROUP SERVICES, INC., Plaintiff, v. FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY; Group Perks, Inc., and Robert Schecter & Associates, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

166 F.Supp.2d 566

CLAYTON GROUP SERVICES, INC., Plaintiff, v. FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY; Group Perks, Inc., and Robert Schecter & Associates, Defendants.

No. 00-CV-74486-DT.

United States District Court, E.D. Michigan, Southern Division.

September 28, 2001.

COPYRIGHT MATERIAL OMITTED

Walter J. Czechowski, Centerline, Michigan, for plaintiff.

Paul R. Bernard, Detroit, Michigan, Francis R. Ortiz, Detroit, Michigan, for First Allamerica Financial, defendant.

Michael J. Sullivan, Southfield, Michigan, John M. Cooney, Southfield, Mich., for Group Perks and Robert Schecter & Assoc, defendant.

OPINION AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND FOR SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

This action arises out of a dispute between Plaintiff Clayton Group Services, Inc. ("Clayton") and Defendants First Allmerica Financial Life Insurance Company ("First Allmerica"), Robert Schechter & Associates ("Schechter"), and Group Perks, Inc. ("Group Perks") concerning the calculation of premiums charged by First Allmerica on a group health insurance policy issued to Clayton. Schechter and Group Perks are insurance agencies that have served as Clayton's agents concerning insurance, financial and employee benefits matters.

On June 29, 1999 Plaintiff sued these same Defendants in Michigan state court. Plaintiff's state court complaint alleged verbatim three of the four claims alleged by Plaintiff in the instant action: misrepresentation, breach of contract, and negligence. [Compare Counts I, II and III of Plaintiff's Complaint in this action with Plaintiff's state court complaint, Defendants Group Perks/Schechter's Brief, Ex. E.]¹ On February 9, 2000, Oakland County Circuit Judge Steven Andrews granted Defendant First Allmerica's motion for summary disposition in the state court action and dismissed Plaintiff's claims against this defendant. Then, on March 28, 2000, the Oakland County Circuit Court granted Defendants' Schechter's and Group Perks' motion for summary disposition, and entered a judgment of dismissal on the merits in favor of all the Defendants. Plaintiff filed an appeal of right with the Michigan Court of Appeals.²

Meanwhile, after the Oakland County Circuit Court rendered its decision dismissing Plaintiff's state court complaint and during the pendency of Plaintiff's state appeal to the Michigan Court of Appeals, Plaintiff filed the instant action in this Court.

Defendants now have moved for summary judgment and dismissal of Plaintiff's Complaint in its entirety on res judicata and/or Rooker-Feldman grounds. Plaintiff has responded to Defendants' motions and has also cross-moved for summary judgment in its favor. Having reviewed and considered the parties' motions, briefs and supporting documents the Court has determined that oral argument is not necessary. Therefore, pursuant to Eastern District of Michigan Local Rule 7.1(e)(2), this matter will be decided "on the briefs." This Opinion and Order sets forth the Court's ruling.

II. FACTUAL BACKGROUND

Plaintiff Clayton Group Services, Inc. is an environmental safety consulting company with approximately 500 employees throughout the United States. As of January 1, 1997, Plaintiff's employees were insured under a group health care policy issued by First Allmerica. Because of its significant claims history, Plaintiff's premiums with First Allmerica for policy year 1998 would have been substantially larger that those which Plaintiff paid in 1997. Plaintiff, therefore, decided to examine the possibility of switching health care programs, and consulted Group Perks/Schechter, who investigated the availability of HMO coverage. Because of logistical problems presented by Plaintiff's far-reaching operations, it was determined that it would be impossible to enroll all of Plaintiff's employees into an HMO plan before the termination of the First Allmerica plan. Therefore, certain employees were left on the First Allmerica policy until their HMO policies could be put into effect.

Plaintiff and Group Perks/Schechter were concerned about the effect that leaving employees on the First Allmerica policy would have on the premium that First Allmerica would charge. At Plaintiff's request, Group Perks/Schechter contacted First Allmerica. According to Plaintiff, Peter Mendler of Group Perks/Schechter and Joseph Graham, the sales manager of First Allmerica discussed the language of the Group Policy, and Mr. Graham erroneously stated that the maximum premium for any given month was based on the number of Plaintiff's employees covered under the plan that month. Thus, Mr. Mendler was assured that Plaintiff would only be charged for the employees that were left on the First Allmerica plan. [See Mendler Dep., Plaintiff's Ex. B, pp. 28-29.]

Based on these assurances, Plaintiff alleges that it switched the majority of its employees to separate insurance contracts with HMOs in February 1998. However, First Allmerica still charged Clayton premiums reflecting coverage for the employees that had been switched to HMOs. Plaintiff subsequently learned that premiums for the First Allmerica policy were actually determined on a three-month "lag" time, i.e., based on the number of employees that were covered under the plan in the third preceding month, not how many employees were currently covered under the plan. Plaintiff asked Allmerica to refund what it considered to be an overcharge of $113,304.78, reflecting premiums it was charged for employees no longer covered under the First Allmerica policy, but this request was refused.

THE STATE COURT ACTION

When First Allmerica refused to reimburse Plaintiff for the alleged overcharge, Plaintiff filed suit in Oakland County Circuit Court, alleging that First Allmerica "carelessly, negligently and/or purposely" misled Plaintiff regarding "the interpretation of the Group Policy to the detriment of the Plaintiff." Plaintiff further alleged that First Allmerica breached the insurance contract by violated the policy provisions concerning the requisite notice for premium rate increases. Plaintiff also asserted claims of negligence and misrepresentation against its agent Group Perks/Schechter based upon Peter Mendler's alleged misinterpretation of the premium provisions of the policy.

After the completion of substantial discovery in the state court case, the Circuit Court granted Defendants' motions for summary disposition. The state court found that "Plaintiff's cause of action stems from the terms of the Plan regarding the monthly claim limit and the rate notice provision," and that "plaintiff's claims [against First Allmerica'] have their genesis in the Plan." Therefore, the state judge held that Plaintiff's claims were preempted by ERISA. [See Plaintiff's Brief, Ex. F.] The court subsequently granted Group Perks/Schechter's motion for summary disposition on the same grounds that it granted First Allmerica's motion, finding that Plaintiff's negligence and misrepresentation claims against these Defendants were sufficiently related to an ERISA Plan to be preempted. [See Group Perks/Schechter Brief, Ex. G.] Plaintiff also filed a motion for reconsideration and/or clarification asking the state court to declare that, because its decision was predicated upon ERISA preemption, it was not a ruling "on the merits." Judge Andrews refused to so modify or clarify his prior rulings and, instead, specifically held that his rulings "constituted a dismissal on the merits of Plaintiff's state claims...." Id. at p. 4. Plaintiff appealed Judge Andrews' decisions to the Michigan Court of Appeals. That appeal is still pending.

After the briefing phase of the state appeal was completed, Plaintiff filed its Complaint in this action with this Court. As indicated above, the first three counts in Plaintiff's Complaint in this action are identical to those in its state-court complaint alleging claims of negligence, breach of contract and misrepresentation. The only difference between the two complaints is that Plaintiff has now included in this action a fourth count which Plaintiff alleges "arises under" ERISA. [Complaint, Count IV, ¶ 2.] The substantive allegations under this count, however, merely re-assert Plaintiff's allegations of breach of contract, negligence and misrepresentation and cast them as ERISA claims. See id. Count IV, ¶¶ 1, 6(a)-(d).

Defendants now seek entry of summary judgment and dismissal of Plaintiff's Complaint in its entirety arguing that this action is barred by under principles of res judicata (claim preclusion) and/or the Rooker-Feldman doctrine.

III. DISCUSSION

A. THE RES JUDICATA EFFECT OF THE STATE COURT DECISION

The res judicata effect of state court judgments in federal court is governed by 28 U.S.C. § 1738 which requires the federal court to look to state law of res judicata.³ Smith, Hinchman and Grylls, Associates v. Tassic, 990 F.2d 256, 257 (6th Cir.1993). see also, Migra v. Warren City School Dist., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984) ("[A] Federal Court must give to a State Court judgment the same preclusive effect as would be given that judgment under the law of the state in which the judgment was rendered.")

Under Michigan law, the doctrine of res judicata precludes parties or their privies from relitigating issues that were or could have been raised in an earlier action, if:

(1) The prior action was decided on its merits;

(2) The issues raised in the second case either were resolved in the first, or through the exercise of reasonable diligence might have been raised and resolved in the first case; and

(3) Both actions involved the same parties or their privies.

Smith, Hinchman, supra, 990 F.2d at 257-58 (quoting Reithmiller v. Blue Cross & Blue Shield of Michigan, 824 F.2d 510 (6th Cir.1987)).

Contrary to Plaintiff's assertions, these elements are met in this case. The state court entered a final judgment and specifically ruled that its decision...