Traverse Village LLC v. Northern Lakes Community Mental Health

STATE OF MICHIGAN

COURT OF APPEALS

TRAVERSE VILLAGE, LLC, UNPUBLISHED

December 30, 2014

Plaintiff-Appellee,

and

LOUISE SHOMO,

Plaintiff,

v Nos. 317194; 317211

Grand Traverse Circuit Court

NORTHERN LAKES COMMUNITY MENTAL LC No. 13-029698-CK

HEALTH, GREGORY PAFFHOUSE, KAREN

CLINE, DAVE BRANDING, KEN BREHMER,

and CARRY GREY,

Defendants-Appellants.

Before: K. F. KELLY, P.J., and SAWYER and METER, JJ.

PER CURIAM.

In these consolidated appeals, defendants appeal from the trial court’s order denying

defendants’ motion for partial summary disposition. The trial court ruled that the individual

defendants were not entitled to qualified immunity from plaintiff’s1 federal due process claim

brought under 42 USC 1983 and that plaintiff stated a claim on which relief could be granted

under the fair and just treatment clause of the Michigan Constitution, Const 1963, art 1, § 17.

We reverse and remand for the reasons explained below.

I. FACTS

Plaintiff was a licensed adult-care facility for adults with mental impairments and

developmental disabilities. Defendant Northern Lakes Community Health Center (Northern) is a

1

Louise Shomo was added as a party late in the proceedings. For ease of reference, this opinion

uses the term “plaintiff” to refer to Traverse Village, LLC.

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community mental health agency as defined in the Michigan Mental Health Code and holds a

contract with the Michigan Department of Community Health to serve as the Prepaid Inpatient

Health Plan for five counties in Northwest Michigan, making it responsible for coordinating

services for disorders involving mental health, developmental disability, and substance abuse for

all Medicaid recipients in its assigned region.

On December 17, 2010, plaintiff and Northern entered into a Participating Provider

Agreement (the Agreement), under which plaintiff agreed to provide treatment services to

eligible consumers in exchange for reimbursement from Northern. Regarding its duration,

Section I of the Agreement stated:

B. Initial Term: This contract shall be in effect from December 17, 2010 to

September 30, 2011 inclusive, unless earlier terminated in accordance

with the termination section of this Agreement.

C. Evergreen Term: Unless either party has given the other party 70 calendar

days’ written notice prior to the expiration of the Initial Term, this

Agreement shall automatically be extended for a period not to exceed one

year (“Additional Term”).

Section X of the Agreement further provided that

B. This contract may be terminated or not renewed by either party without

cause with sixty (60) calendar day’s [sic] written notification to the other party

unless another date is mutually agreed to, in writing, by both parties.

On May 29, 2011, plaintiff sent a letter to Northern requesting that a resident be removed

from plaintiff’s facility, stating that the resident required more intense counseling and focused

intervention than its staff could provide. On June 13, 2011, plaintiff sent Northern a letter giving

24 hours’ notice that it was discharging the resident in purported compliance with Michigan

Adult Foster Care licensing rules. The Agreement provides as follows regarding patient

advocacy:

H. Health Care Professionals may not be prohibited from discussing

treatment options with the Consumer/guardian which may not reflect the

preferences of the NLCMH Health Care Professional as defined in CFR

Sec. 438.102.

I. The Provider, including any Health Care Professional employed or

contracted by the Provider, is not prohibited from advocating on behalf of

one or more consumers with respect to grievance and appeal, utilization

management, or authorization issues.

On June 17, 2011, Northern notified plaintiff that it was implementing a contract sanction

that would serve as a temporary action until Northern’s network-management-team meeting on

July 14, 2011, at which time Northern would conduct a formal review of plaintiff’s performance.

According to plaintiff, Louise Shomo, an owner of plaintiff, thereafter attended a meeting with

Northern officials to discuss the contract sanction, and a Northern representative indicated that

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the patient-transfer issue prompted the sanction. On July 15, 2011, Northern notified plaintiff in

writing that it had decided to not renew the Agreement when it expired on September 30, 2011,

in accordance with sections I(C) and X(B) of the Agreement. According to plaintiff, Northern’s

refusal to do business with plaintiff has rendered it unable to serve residents in the five-county

area within Northern’s supervision, which resulted in a significant loss of revenue that forced

plaintiff to close its facility and abandon its lease.

Plaintiff filed a complaint against Northern and several of its officers and management-

team members (the individual defendants), raising three claims. In Count I, plaintiff alleged that

Northern breached the Agreement by terminating it in retaliation for plaintiff advocating on

behalf of a patient. In Count II, plaintiff alleged, pursuant to 42 USC 1983, that all defendants

deprived plaintiff of property without due process of law under the Fourteenth Amendment of

the United States Constitution by (1) conducting no investigation before issuing the contract

sanction and terminating the Agreement, (2) refusing to give plaintiff specific reasons for the

sanction and termination, (3) failing to give plaintiff an opportunity to respond to the issues

supposedly justifying termination, and (4) refusing to hold a hearing at which plaintiff could

respond to witnesses and contest evidence supporting termination. In Count III, plaintiff alleged

that all defendants violated the fair and just treatment clause of the Michigan Constitution, 1963

Mich Const, art 1, § 17, by (1) conducting no investigation before issuing the contract sanction

and terminating the Agreement, (2) refusing to give plaintiff specific reasons for the sanction and

termination, (3) failing to provide witnesses or evidence supporting the sanction and termination,

and (4) failing to hold a hearing so that plaintiff could confront witnesses and evidence. In each

count, plaintiff requested injunctive relief in the form of “contract restoration,” as well as

damages, costs, and attorney fees.

Defendants moved for partial summary disposition, seeking the dismissal of Counts II

and III. Regarding Count II, defendants asserted that the individual defendants were entitled to

summary disposition under MCR 2.116(C)(7) because they had qualified immunity. Defendants

argued that plaintiff had no property interest in the continuation of the Agreement, and thus no

entitlement to procedural due process, where the Agreement expressly provided that either party

could decide to not renew the Agreement without cause by giving 60 days’ written notice.

Defendants also argued that plaintiff could not maintain its § 1983 claim against Northern in the

absence of a constitutional violation. Regarding Count III, defendants argued that plaintiff failed

to state a claim on which relief could be granted under MCR 2.116(C)(8) because only the state

can be liable for money damages arising from a violation of the Michigan Constitution and

because plaintiff made no allegations regarding how the individual defendants violated plaintiff’s

rights under the fair and just treatment clause.

The trial court denied defendants’ motion for summary disposition concerning Count II in

reliance on Bundo v Walled Lake, 395 Mich 679; 238 NW2d 154 (1976), concluding that

extrinsic evidence might ultimately show that plaintiff had a property interest protected by due

process in the renewal of the Agreement, despite the contractual language suggesting the

contrary. In denying defendants’ motion for summary disposition under Count III, the court

admitted that it was “somewhat puzzled by Count III,” and ultimately concluded that the issue

had not been appropriately briefed and that it was not clear whether any investigation had taken

place such that the fair and just treatment clause could be invoked.

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In Case No. 317194, the individual defendants appeal as of right challenging the trial

court’s denial of their request for qualified immunity from money damages. However,

defendants also ask this Court to order that summary disposition be granted regarding Count II in

its entirety on the basis that plaintiff’s due process argument fails as a matter of law. In Case No.

317211, this Court granted defendants’ application for leave to appeal the trial court’s ruling on

Count III and, on its own motion, consolidated the two appeals. Traverse Village LLC v

Northern Lakes Comm Mental Health, unpublished order of the Court of Appeals, issued

February 25, 2014 (Docket No. 317211).

II. STANDARD OF REVIEW

We review de novo whether the trial court properly granted or denied summary

disposition under MCR 2.116(C)(7) and (C)(8). See Feyz v Mercy Memorial Hospital, 475 Mich

663, 672; 719 NW2d 1 (2006). To the extent this case involves questions of contract

interpretation and constitutional law, we review those issues de novo as well. McDonald v Farm

Bureau Ins Co, 480 Mich 191, 197; 747 NW2d 811 (2008); Van Buren v Garter Belt Inc, 258

Mich App 594, 602; 673 NW2d 111 (2003).

III. ANALYSIS

A. DUE PROCESS CLAUSE

The individual defendants argue that the trial court committed error warranting reversal

in ruling that they did not have qualified immunity from the alleged due process violation. We

agree.

Plaintiff alleges that defendants deprived it of due process in violation of the Fourteenth

Amendment of the United States Constitution when they decided to not renew the Agreement.

Plaintiff brings this constitutional claim under 42 USC 1983, which provides, in pertinent part:

Every person who, under color of any statute, ordinance, regulation,

custom, or usage, of any State or Territory or the District of Columbia, subjects,

or causes to be subjected, any citizen of the United States or other person within

the jurisdiction thereof to the deprivation of any rights, privileges, or immunities

secured by the Constitution and laws, shall be liable to the party injured in an

action at law, suit in equity, or other proper proceeding for redress . . . .

Section 1983 “is not itself a source of substantive rights,” but merely provides “a method

for vindicating federal rights elsewhere conferred . . . .” Baker v McCollan, 443 U S 137, 144, n

3; 99 S Ct 2689; 61 L Ed 2d 433 (1979). In addition, “[t]he doctrine of qualified immunity

protects government officials from liability for civil damages insofar as their conduct does not

violate clearly established statutory or constitutional rights of which a reasonable person would

have known.” Pearson v Callahan, 555 US 223, 231; 129 S Ct 808; 172 L Ed 2d 565 (2009)

(citation and quotation marks omitted). In determining whether a government official violated a

“clearly established” right, “[t]he contours of the right must be sufficiently clear [such] that a

reasonable official would understand that what he is doing violates that right.” Anderson v

Creighton, 483 US 635, 640; 107 S Ct 3034; 97 L Ed 2d 523 (1987); see also Pearson, 555 US

at 243-244.

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We conclude that no factual development could provide a basis for recovery under the

due process clause of the Fourteenth Amendment. In Whispering Pines AFC, Home Inc v Dep’t

of Treasury, 212 Mich App 545, 550; 538 NW2d 452 (1995), this Court held that “various

constitutional rights may be waived by contract with a government agency, even though such

constitutional rights are not specified by the language of the contract, if the waiver is clearly

embraced within the terms of that contract.” The sole limitation on this ability, said the Court, is

that the decision “not be the product of fraud or tainted with equivalent bad faith.” Id. at 551.

Here, plaintiff waived any right it might have had to a hearing upon Northern’s decision to not

renew the Agreement when it unambiguously agreed that Northern could do so (1) “without

cause” and (2) by giving 60 days’ written notice. Under Whispering Pines, 212 Mich App at

550, it matters not whether the Agreement specifically referenced plaintiff’s due process rights,

and plaintiff’s voluntary submission to the 60-day notice procedure plainly foreclosed any

entitlement it may have otherwise had to a hearing. Because plaintiff does not allege that the

Agreement was the product of fraud or equivalent bad faith, or that it otherwise violates public

policy, its unambiguous language must be enforced as written. Rory v Continental Ins Co, 473

Mich 457, 491; 703 NW2d 23 (2005).2

Having waived any right to additional process beyond the 60-day written notice

procedure provided for under the Agreement, plaintiff had no constitutionally protected right to a

hearing at which to challenge defendants’ reasons for not renewing the Agreement—let alone a

clearly established one. Accordingly, we conclude that the trial court erred in denying the

individual defendants’ motion for summary disposition under MCR 2.116(C)(7). Although

defendants ask this Court to venture beyond the qualified immunity issue appealed as of right

and order that Count II be dismissed in its entirety, we choose simply to remand for proceedings

not inconsistent with this opinion.

B. FAIR AND JUST TREATMENT CLAUSE

Next, defendants argue that they are entitled to summary disposition with respect to

plaintiff’s claim under the fair and just treatment clause of the Michigan Constitution, Const

1963, art 1, § 17; it provides:

2

Although plaintiff correctly asserts that defendants did not raise their waiver argument below,

“[t]his Court may overlook preservation requirements if the failure to consider the issue would

result in manifest injustice, if consideration is necessary for a proper determination of the case,

or if the issue involves a question of law and the facts necessary for its resolution have been

presented.” Nuculovic v Hill, 287 Mich App 58, 63; 783 NW2d 124 (2010). We conclude that

not only is this issue a legal one for which the facts have been sufficiently presented, but that it is

necessary for a proper determination of the case. Further, while defendants may not have been

specific about their waiver argument below, they did argue that their contractual right to not

renew the Agreement without cause upon 60 days’ notice should be enforced as written, which is

the essence of their waiver argument.

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The right of all individuals, firms, corporations and voluntary associations

to fair and just treatment in the course of legislative and executive investigations

and hearings shall not be infringed.

Defendants argue that plaintiff has failed to state a claim on which relief can be granted based on

this clause because it failed to allege how defendants treated it unfairly or unjustly during the

course of an investigation. We agree.3

Plaintiff alleges that defendants treated it unfairly or unjustly by conducting no

investigation or a sham investigation before deciding to not renew the Agreement, refusing to

explain and present the cause for not renewing, and refusing to hold a hearing at which plaintiff

could contest defendants’ cause for not renewing. However, the parties’ rights and obligations

owed to one another were governed by the terms of the Agreement, and plaintiff points to no

provision giving defendants an obligation to conduct an investigation, explain its reasons for not

renewing, or hold a hearing to allow plaintiff to contest defendants’ reasons for not renewing.

To the contrary, plaintiff unambiguously agreed that defendants could not renew the Agreement

without cause, a hearing, or an investigation, with the nonrenewal requiring nothing more than

60 days’ written notice. Accordingly, plaintiff could not have been treated unfairly or unjustly

by defendants’ decision to not renew the Agreement in accordance with the terms to which

plaintiff freely assented.

Moreover, plaintiff alleges that defendants conducted a “sham investigation” at best, but

this Court has clarified that an investigation implicating the fair and just treatment clause

requires a “searching inquiry” or a “careful examination.” Carmacks Collision, Inc v Detroit,

262 Mich App 207, 211; 684 NW2d 910 (2004). In Carmacks, this Court held that a city’s bid-

selection process for municipal contracts did not “rise to the level of an ‘investigation’ as that

term is properly understood” where the city merely asked for certain information and

documentation to judge the bidders’ qualifications and the plaintiff voluntarily participated in the

information-gathering process by submitting a bid. Id. at 211-212. As in Carmacks, plaintiff

voluntarily participated in defendants’ information-gathering process regarding plaintiff’s

advocacy of its patients by giving defendants written notice of its activities. Further, this Court

clarified in By Lo Oil Co v Dep’t of Treasury, 267 Mich App 19, 40-41; 703 NW2d 822 (2005),

that the fair and just treatment clause requires “some active conduct during the ‘course of’ a

hearing or investigation,” noting that “the historical context in which this clause was adopted

suggests that it was intended to protect against the excesses and abuses of Cold War legislative

or executive investigations or hearings.” Here, plaintiff does not allege that defendants made any

3

Plaintiff contends that defendants did not properly raise this argument below, but defendants

did argue in their motion for summary disposition that plaintiff made no allegations regarding

how the individual defendants violated plaintiff’s rights under the fair and just treatment clause.

Further, we again find that this is a legal issue for which the facts have been sufficiently

presented and that its consideration is necessary for a proper determination of the case. Hill, 287

Mich App at 63.

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“active conduct” towards it during “the course” of whatever fact-gathering process it conducted.

At most, plaintiff alleges that defendants are guilty of inaction, by failing to hold a hearing,

failing to explain the basis for not renewing the Agreement, and failing to allow plaintiff the

opportunity to challenge defendants’ basis for not renewing the Agreement. Moreover,

temporally, these alleged failures would have occurred after defendants’ fact-gathering process,

rather than during it. Finally, to the extent plaintiff challenges the adequacy of defendants’ fact-

gathering process, the plain text of the fair and just treatment clause does not mandate adequate

investigations. Const 1963, art 1, § 17. Accordingly, defendants are entitled to summary

disposition with respect to plaintiff’s claim under the fair and just treatment clause of the

Michigan Constitution.4

Reversed and remanded for proceedings not inconsistent with this opinion. We do not

retain jurisdiction.

/s/ Kirsten Frank Kelly

/s/ David H. Sawyer

/s/ Patrick M. Meter

4

Having reached this conclusion, we need not address defendants’ more limited argument that

plaintiff may not maintain a damages claim against them, as individuals or entities that are not

“the state,” for violating the Michigan Constitution.

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