Spectrum Health Cont. Care v. Anna Marie Bowling

• Decision Date: 14 June 2005
• Docket Number: No. 04-1486.,No. 04-1541.,04-1486.,04-1541.
• Citation: 410 F.3d 304
• Parties: SPECTRUM HEALTH CONTINUING CARE GROUP, Plaintiff-Appellee/Cross-Appellant, v. ANNA MARIE BOWLING IRREVOCABLE TRUST DATED JUNE 27, 2002, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

410 F.3d 304

SPECTRUM HEALTH CONTINUING CARE GROUP, Plaintiff-Appellee/Cross-Appellant, v. ANNA MARIE BOWLING IRREVOCABLE TRUST DATED JUNE 27, 2002, Defendant-Appellant/Cross-Appellee.

No. 04-1486.

No. 04-1541.

United States Court of Appeals, Sixth Circuit.

Argued: April 20, 2005.

Decided and Filed: June 14, 2005.

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Thomas M. Slavin, Bloomfield Hills, Michigan, for Appellant.

Kristi R. Gauthier, Miller, Shpiece & Tischler, Southfield, Michigan, for Appellee.

Thomas M. Slavin, Bloomfield Hills, Michigan, Mary T. Schmitt-Smith, Michael C. Gibbons, Roxanne J. Chang, Beier & Howlett, Bloomfield Hills, Michigan, for Appellant.

Kristi R. Gauthier, Wayne J. Miller, Miller, Shpiece & Tischler, Southfield, Michigan, for Appellee.

Before: NELSON and MOORE, Circuit Judges; RESTANI, Judge.^*

MOORE, J., delivered the opinion of the court, in which RESTANI, J., joined.

NELSON, J. (pp. 321-25), delivered a separate opinion concurring in part and dissenting in part.

OPINION

MOORE, Circuit Judge.

Defendant-Appellant, Anna Marie Bowling Irrevocable Trust Dated June 27, 2002 (the "Trust"), appeals the district court's grant of summary judgment in favor of Plaintiff-Appellee, Spectrum Health Continuing Care Group ("Spectrum"). The district court found that Spectrum's lien on the proceeds of a malpractice settlement was valid and enforceable, despite the fact that Spectrum already had accepted Medicaid payments for the care provided to Anna Marie Bowling ("Bowling"). In its appeal, the Trust argues that the lien violates Medicaid's balance-billing prohibition, and therefore is invalid. In its cross-appeal, Spectrum argues that the issue of the validity of the lien is precluded by two prior state-court judgments approving the malpractice settlement. Upon review, we conclude that the issue is not precluded by either of the state-court judgments, and that the lien on the settlement is prohibited by federal and state Medicaid law. Therefore, we REVERSE the district court's grant of summary judgment in favor of Spectrum and REMAND the case with instructions to the district court to enter judgment in favor of the Trust.

I. BACKGROUND

The material facts in this case are undisputed. On November 17, 1997, while undergoing surgery in a New York hospital, Bowling suffered a severe anoxic brain injury due to the improper administration of anesthesia. As a result of her injury, Bowling has little or no control of her limbs and is unable to speak. She requires twenty-four hour assistance with all daily activities. Bowling filed a medical-malpractice suit against the anesthesiologist and the hospital in the State of New York through her trial attorney, Joseph Dubinsky ("Dubinsky"), with Linda Ershow-Levenberg ("Ershow-Levenberg") serving as guardian ad litem in the suit.

Following the injury, Bowling sought long-term care in Grand Rapids, Michigan, where her sister resides. Spectrum is the parent company of a group of providers of sub-acute rehabilitation and nursing services, including Spectrum Health Continuing Care Center, formerly known as Grand Valley Health Center ("GVHC"). Spectrum agreed to admit Bowling to GVHC on the condition that Bowling's representatives provide written acknowledgment of a lien on the proceeds of a settlement or verdict in the malpractice suit to cover her medical costs. On November 24, 1998, Dubinksy sent a letter to Spectrum's counsel acknowledging "a lien on the proceeds owed Anna Bowling and/or her estate obtained either by settlement or verdict in the [malpractice] lawsuit." Joint Appendix ("J.A.") at 18 (Letter from Dubinsky to William Miller 1 (Nov. 24, 1998)). Ershow-Levenberg, Bowling's guardian ad litem in the malpractice suit, also signed the letter acknowledging the lien.

Bowling was admitted to GVHC in December 1998, where she remained until September 23, 2002. In April 1999, she became eligible to receive benefits from Michigan's Medicaid program. "Anticipating delay in realizing its lien on the medical malpractice lawsuit," Spectrum applied for and accepted Medicaid payments for Bowling's care. J.A. at 14 (Compl. at 3). Specifically, GVHC received $101,021.86 from Medicaid for services provided to Bowling from May 1999 through September 2002, along with monthly Medicaid co-payments from Bowling's representatives of $45,233.87. The total customary cost of Spectrum's services provided to Bowling during the time she resided at GVHC was $639,594.67, leaving a shortfall of approximately $538,572.81.¹ J.A. at 20-21 (Spectrum Chart of Monthly Charges).

On July 18, 2002, the parties in Bowling's medical-malpractice suit reached a settlement agreement. That same day, the Probate Court of Kent County, Michigan, entered a protective order approving the settlement and establishing the Trust for Bowling's benefit. On October 9, 2002, the Supreme Court of the State of New York approved the settlement in the malpractice suit which included "[p]ayment of Anna Bowling's outstanding healthcare liens." J.A. at 88 (N.Y. Sup.Ct. Order at 3). Specifically, the court allocated the lump-sum amount to the various healthcare liens, including $575,000 to GVHC. The amount reflected the shortfall between Spectrum's customary cost for its services and the amount paid already by Medicaid. On February 23, 2003, pursuant to the settlement agreement, Dubinsky sent Spectrum a check for $575,000. Spectrum refunded $36,427.19 to the Trust to reach the proper shortfall amount of $538,572.81. The settlement proceeds were also used to reimburse Michigan's Medicaid agency approximately $104,719.68.

Co-trustees of the Trust later objected to the payment of funds from the settlement proceeds to Spectrum on the ground that federal and state law prohibit a service provider from receiving additional money for services which have already been paid for by Medicaid. The parties agreed to place the disputed amount in an interest-bearing trust account pending resolution of the issue. On May 5, 2003, Spectrum filed a declaratory judgment action against the Trust in the Circuit Court of Kent County, Michigan, seeking to clarify its right to enforce the lien. Pursuant to 28 U.S.C. § 1441, the Trust removed the action to the United States District Court for the Western District of Michigan and filed a counterclaim alleging that federal Medicaid law renders the lien invalid and unenforceable when the lien holder has already accepted Medicaid payments for the services provided. The parties filed cross motions for summary judgment on their respective declaratory judgment claims.

On February 20, 2004, the district court issued its opinion. First, the court held that the issue of the validity of the lien was not precluded by either of the state-court decisions approving the malpractice settlement. Under both Michigan and New York law, the court found that the requirements for issue preclusion had not been met. Second, the court held that under federal and state Medicaid law, the lien was valid and enforceable. The district court held that the additional money was recovered not from the beneficiary, but rather from the third-party tortfeasor, and therefore the recovery was not prohibited by the balance-billing prohibition. Moreover, the lien only attached to the portion of the award specifically allocated for medical expenses, and therefore did not interfere with Bowling's personal property. As a result, the district court entered summary judgment in favor of Spectrum. Both parties appeal from the district court's ruling.

II. ANALYSIS

A. Standard of Review

"We review the district court's summary judgment determinations under Federal Rule of Civil Procedure 56 de novo." Hoge v. Honda of Am. Mfg., Inc., 384 F.3d 238, 243 (6th Cir.2004). Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "For cross-motions for summary judgment, we must evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the non-moving party." Beck v. City of Cleveland, 390 F.3d 912, 917 (6th Cir.2004) (internal quotation omitted). We have noted, however, that "[t]he filing of cross-motions for summary judgment does not necessarily mean that an award of summary judgment is appropriate." Id.

B. Issue Preclusion

We first consider whether summary judgment in Spectrum's favor is proper on the ground that the doctrine of issue preclusion bars the Trust's declaratory judgment claim. Because we conclude that Spectrum has failed to meet the requirements for issue preclusion under both Michigan and New York law, we affirm the district court's ruling on this ground.

The Full Faith and Credit Act mandates that "judicial proceedings ... shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State ... from which they are taken." 28 U.S.C. § 1738. The United States Supreme Court has interpreted the act as requiring that "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." Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984). In this case, Spectrum argues that the Michigan and New York state-court judgments approving the malpractice settlement preclude the Trust's declaratory-judgment claim. Accordingly, we must examine the laws of each of the respective states to resolve Spectrum's argument.

1. Issue Preclusion Under Michigan Law

Under Michigan law, issue preclusion, known as collateral estoppel, "precludes relitigation of an issue in a subsequent, different cause of action between the...