Shields v. Govt Employ

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 07a0231p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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Plaintiff-Appellant, -

STEFANIE SHIELDS,

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No. 05-2346

v.

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GOVERNMENT EMPLOYEES HOSPITAL ASSOCIATION, -

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INC. and STATE FARM MUTUAL AUTOMOBILE

Defendants-Appellees. -

INSURANCE COMPANY,

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Appeal from the United States District Court

for the Western District of Michigan at Grand Rapids.

No. 03-00395—Wendell A. Miles, District Judge.

Argued: April 25, 2007

Decided and Filed: June 20, 2007

Before: SILER and GILMAN, Circuit Judges; ZATKOFF, District Judge.*

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COUNSEL

ARGUED: Brent W. Boncher, SCHENK, BONCHER & RYPMA, Grand Rapids, Michigan, for

Appellant. Raymond J. Williams III, HEWSON & VAN HELLEMONT, Warren, Michigan, for

Appellees. ON BRIEF: Brent W. Boncher, Frederick J. Boncher, SCHENK, BONCHER &

RYPMA, Grand Rapids, Michigan, for Appellant. Raymond J. Williams III, Michael M. Carey,

HEWSON & VAN HELLEMONT, Warren, Michigan, for Appellees.

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OPINION

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RONALD LEE GILMAN, Circuit Judge. After suffering severe injuries in an automobile

accident, Stefanie Shields brought a declaratory action against her two insurers, Government

Employees Hospital Association, Inc. (GEHA) and State Farm Mutual Automobile Insurance

Company (State Farm). GEHA initially paid significant sums for Shields’s medical treatment, while

State Farm paid nothing due to a benefits-coordination clause in its policy. Later, however, GEHA

demanded reimbursement from the proceeds that Shields had received in a third-party tort settlement

*

The Honorable Lawrence P. Zatkoff, United States District Judge for the Eastern District of Michigan, sitting

by designation.

1

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as a result of the accident. Shields subsequently brought this declaratory action to challenge the

validity of GEHA’s demand for reimbursement or, alternatively, to require State Farm to replace the

amount that she would lose as a result of GEHA’s reimbursement claim.

Shields’s latter argument prevailed. The district court, however, awarded only a portion of

the attorney fees and none of the “penalty interest” sought by Shields. Specifically, the court

allowed fees only with respect to Shields’s claim against State Farm, excluding her claim against

GEHA. The court, moreover, declined to grant Shields any penalty interest because she had failed

to establish precisely when State Farm’s obligation to pay her became overdue. Shields’s appeal

is limited to the district court’s attorney-fee and penalty-interest determinations. For the reasons set

forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND

A. Factual background

The underlying facts are undisputed, as this court noted in State Farm’s earlier appeal in this

matter. Shields v. Gov’t Employees Hosp. Assoc., 450 F.3d 643, 645 (6th Cir. 2006). Briefly

summarized, Shields was severely injured in an automobile accident in February of 2003. Id. A

70-pound piece of steel fell from the back of a truck and crashed into her car, causing Shields

“extensive medical injuries.” Id. At the time of the accident, Shields was covered by both her

mother’s government-employee benefit plan with GEHA and by her mother’s no-fault automobile

insurance policy with State Farm. Id. The State Farm policy coverage for medical expenses and lost

wages, however, was “coordinated.” Id. This meant that, in exchange for a lesser premium, the

policy benefits payable by State Farm were subject to reduction by any amount “paid or payable”

to Shields under any other “individual, blanket or group accident or disability insurance.” Id.

GEHA paid $162,074 in benefits to cover Shields’s medical expenses. Because GEHA

provides insurance for federal employees under the Federal Employees Health Benefits Act, it is

authorized to seek reimbursement from funds paid to a claimant out of a related tort recovery. Id.

at 648. Although seeking reimbursement from a claimant is contrary to the provisions of Michigan’s

No Fault Insurance Act (MNFIA), federal law preempts Michigan’s statutory scheme. Id. Shields

ultimately obtained a settlement pursuant to her tort claim against the trucking company involved

in her accident. Id. at 645. Neither the amount nor the date of the settlement are set forth in the

record. On April 30, 2003, GEHA filed notice of its lien against any settlement that Shields might

obtain. Shields, in turn, sent a demand letter on May 15, 2003 seeking payment from State Farm

for all of her medical expenses that GEHA had initially covered.

B. Procedural background

In June of 2003, Shields filed a lawsuit in federal district court against both GEHA and State

Farm. Jurisdiction was based upon diversity of citizenship. This court, in ruling on State Farm’s

separate appeal from the district court’s summary judgment order, described Shields’s suit as simply

seeking to “clarify all parties’ obligations.” Id. at 645. According to State Farm, however, Shields

took the position that “GEHA was not entitled to reimbursement . . . or alternatively . . . that

[GEHA] must seek payment directly from State Farm.” Shields agrees that she took a position

“questioning the legitimacy of GEHA’s right to seek repayment.” In the alternative, Shields sought

“a decision that State Farm was ultimately liable for the same medical expenses [for which GEHA

paid] and should have paid [her].” GEHA, State Farm, and Shields all filed motions for summary

judgment.

The district court ultimately granted summary judgment in favor of GEHA, granted Shields’s

motion for summary judgment as against State Farm, and denied State Farm’s motion. Essentially,

the court held that GEHA had properly sought reimbursement out of Shields’s third-party tort

No. 05-2346 Shields v. Gov’t Employees Hosp. Assoc., et al. Page 3

recovery, and that this reimbursement triggered State Farm’s obligation to pay Shields under the

latter’s coordinated policy. The court explained that “State Farm may not subtract the amount

initially paid by GEHA for [Shield’s] medical expenses, and repaid by [Shields], from the . . .

insurance benefits it would otherwise be responsible for paying.” Moreover, the district court’s

summary judgment order provided that Shields was entitled to recover attorney fees and 12%

penalty interest on State Farm’s “overdue” payment. State Farm appealed the merits of the district

court’s summary judgment order, but did not address fees or interest. Shields, 450 F.3d at 644. In

June of 2006, this court issued an opinion affirming the district court’s summary judgment

disposition. Id. at 651.

During the pendency of State Farm’s merits appeal, Shields filed a petition for the payment

of $29,739 in itemized attorney fees and $36,343 in penalty interest. GEHA filed a motion opposing

Shields’s petition, but State Farm did not. The district court granted only the portion of Shields’s

itemized fees that it determined were attributable to her claims against State Farm alone, and

awarded just half of the fees that were attributable to Shields’s claims against GEHA and State Farm

jointly. In total, the court awarded Shields $10,513 in attorney fees. Regarding penalty interest, the

district court awarded nothing at all because, based on the information provided by Shields, “it [was]

impossible for the court to determine when State Farm became liable, and therefore, when it became

dilatory.” Shields subsequently filed a motion for reconsideration, which the district court denied.

The sole issues in the present appeal concern the district court’s determinations regarding attorney

fees and penalty interest.

II. ANALYSIS

A. Standard of review

Under both Michigan and federal law, a trial court’s award of attorney fees is generally

reviewed under the abuse-of-discretion standard. Big Yank Corp. v. Liberty Mut. Fire Ins. Co., 125

F.3d 308, 312 (6th Cir. 1997); Shanafelt v. Allstate Ins. Co., 552 N.W.2d 671, 675 (Mich. Ct. App.

1996). The district court’s factual determinations, on the other hand, are reviewed under the clearly

erroneous standard, and its legal interpretations are reviewed de novo. Blackard v. Memphis Area

Med. Ctr. for Women, Inc., 262 F.3d 568, 572 (6th Cir. 2001). The substantive issues in this

diversity action are governed by Michigan law. See Hisrich v. Volvo Cars of N. Am., Inc., 226 F.3d

445, 449 (6th Cir. 2000) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)).

B. Entitlement to attorney fees under § 500.3148

Michigan law provides that a claimant’s attorney fees “shall be a charge against the insurer

in addition to the benefits recovered, if the court finds that the insurer unreasonably refused to pay

the claim or unreasonably delayed in making proper payment.” Mich. Comp. Laws § 500.3148(1).

The district court’s initial order granting summary judgment in favor of Shields explained that

[i]n this case, the facts were not in question and there was no issue of constitutional

law. Michigan’s Supreme Court had constructed [sic] the relevant statutory

provision in regard to federal benefits, which is the situation here. State Farm relied

on a Court of Appeals decision addressing benefits paid by the insured’s employe[r],

and therefore, not applicable here. In light of the holdings in Sibley and Gunsell, the

court finds that State Farm’s refusal to reimburse Plaintiff was unreasonable.

Accordingly, the court awards Plaintiff her reasonable attorney fees and costs

incurred in bringing this action.

Although State Farm appealed the district court’s grant of summary judgment, it did not raise

the issue of attorney fees in that appeal. State Farm also failed to respond to Shields’s petition for

attorney fees and interest, even though GEHA objected separately. Shields accurately points out,

No. 05-2346 Shields v. Gov’t Employees Hosp. Assoc., et al. Page 4

moreover, that State Farm filed no cross-appeal from the district court’s partial grant of attorney

fees; only Shields presently appeals the partial fee award.

To the extent that State Farm seeks to argue for the first time on appeal—Shields’s appeal,

no less—for reversal of the fee award based on the reasonableness of its refusal to pay under

§ 500.3148, its argument is not well-taken. See Ford Motor Credit Co. v. Aetna Cas. and Sur. Co.,

717 F.2d 959, 962 (6th Cir. 1983) (quoting Massachusetts Mutual Life Insurance Co. v. Ludwig, 426

U.S. 479, 480 (1976), for the proposition that, in the absence of a cross-appeal, “the appellee may

not attack the decree with a view either to enlarging his own rights thereunder or of lessening the

rights of his adversary”); see also Wright v. Holbrook, 794 F.2d 1152, 1157 (6th Cir. 1986) (“[T]he

general rule is that this court will not consider issues not raised in the district court.”).

Even considering State Farm’s reasonableness argument for the limited purpose of refuting

Shields’s claim for an increased award, we conclude that the argument lacks merit. The contention

that State Farm reasonably relied on a single Michigan Court of Appeals decision in refusing to pay

Shields was undercut by this court’s ruling in State Farm’s earlier appeal on the merits. That ruling,

issued after the briefs were submitted in the present appeal, unanimously affirmed the district court’s

partial grant of summary judgment in favor of Shields. Shields, 450 F.3d at 651. In reaching its

conclusion, this court relied primarily on the Michigan Supreme Court’s holding in Sibley v. Detroit

Automobile Inter-Insurance Exchange, 427 N.W.2d 528 (Mich. 1988) (holding that a no-fault

insurer’s payment obligations were triggered when a claimant’s federal insurer, which had initially

paid benefits, sought reimbursement out of the claimant’s tort recovery).

This court in Shields was split only as to whether the contrary opinion in Dunn v. Detroit

Automobile Inter-Insurance Exchange, 657 N.W.2d 153 (Mich. Ct. App. 2003), upon which State

Farm relied, was either bad law in light of Sibley or simply inapposite. Shields, 450 F.3d at 648-51.

Holding that Dunn conflicted with Sibley, the Shields majority declined to apply it, whereas the

concurring opinion found Dunn to be distinguishable. Id at 651. Regardless of whether Dunn is

contrary to binding precedent or is simply inapposite, however, this court ultimately agreed with the

district court that the Michigan Supreme Court’s decision in Sibley compelled a result favorable to

Shields, and that Dunn was not controlling law. Id. The district court thus did not abuse its

discretion in determining that State Farm’s refusal to pay was unreasonable under § 500.3148.

C. Amount of attorney fees awarded

In its partial grant of Shields’s petition for attorney fees, the district court awarded fees only

for the work Shields’s counsel had performed regarding the claim against State Farm. The court

declined to award fees for work performed in relation to Shields’s claim against GEHA, and the

court awarded half of the fees sought in relation to the work that overlapped both claims. Shields

argues on appeal that the district court erred in so apportioning the fees, contending that it instead

should have granted her petition for fees in full, irrespective of the claim to which the work related.

The district court, in so apportioning Shields’s attorney fees, relied primarily on the plain

language of Mich Comp. Laws § 500.3148, which provides for the availability of attorney fees

pursuant to litigation under the MNFIA. Section 500.3148(1) expressly provides for attorney fees

only “for advising and representing a claimant in an action for personal or property protection

insurance benefits which are overdue.” (Emphasis added.) The district court reasoned that, although

Shields’s claim against State Farm sought benefits “overdue” within the meaning of the statute, her

claim against GEHA simply sought a ruling that GEHA was not entitled to reimbursement out of

Shields’s third-party tort recovery for benefits that it had already paid. This claim against GEHA

clearly falls outside the statutory text that includes only actions for “insurance benefits which are

overdue.”

No. 05-2346 Shields v. Gov’t Employees Hosp. Assoc., et al. Page 5

Shields’s primary argument in response asserts that, because State Farm was the “but-for”

cause of Shields’s litigation against both insurers, her attorney fees for both claims are properly

chargeable to State Farm. This argument at first blush carries some appeal. After all, had State

Farm simply agreed to pay Shields instead of unreasonably refusing to do so, Shields would have

had no reason to object to GEHA’s claim for reimbursement because the entire transaction would

have had no net effect on her recovery. Shields asserts that her claim against GEHA was therefore

simply part and parcel of her response to State Farm’s refusal to pay. In other words, “questioning

the legitimacy of GEHA’s right to seek repayment” was simply another “avenue[] to protect

[Shields]” from her potential loss resulting from State Farm’s action.

Intertwined with Shields’s but-for argument is her assertion that the spirit or intent of

Michigan’s statutory scheme is designed to protect claimants from bearing the legal costs associated

with recalcitrant insurers or squabbles between insurers. Indeed, Michigan courts have held that the

MNFIA is to be “liberally construe[d]” in favor of intended beneficiaries. Farmers Ins. Exch. v.

AAA of Michigan, 671 N.W.2d 89, 91 (Mich. Ct. App. 2003).

Shields also relies heavily on Kalin v. Detroit Automobile Inter-Insurance Exchange, 316

N.W.2d 467 (Mich. Ct. App. 1982). In Kalin, the plaintiff was struck by a vehicle while in the

process of entering his own parked delivery truck. Id. at 469-70. The dispute essentially boiled

down to whether Kalin’s insurance carrier or that of the driver who struck him would pay for Kalin’s

medical expenses. Id. at 472-74. Regarding Kalin’s request for attorney fees, the court ultimately

affirmed the trial court’s award of half of Kalin’s attorney fees against each insurer, reasoning that

“[a] claimant who is clearly entitled to no-fault benefits should not be forced to hire an attorney

merely because the circumstances of his accident create problems of priority among insurers.” Id.

at 474. Furthermore, the court explained that “insurance companies can avoid liability for attorney

fees by sharing the payment of such a claimant’s no-fault benefits and then settling their differences

among themselves.” Id.

Shields’s reliance on Kalin, however, is misplaced. The present dispute, unlike Kalin, is not

simply a fight between two insurers with Shields on the sidelines. State Farm never challenged the

legitimacy of GEHA’s claim against Shields’s recovery. Instead, the only party contesting the

legitimacy of GEHA’s claim was Shields herself, and she lost on that argument. Furthermore,

Shields ultimately cannot overcome the plain statutory language that provides for attorney fees only

in relation to an action for “insurance benefits which are overdue.” Mich. Comp. Laws

§ 500.3148(1). Shields’s claim against State Farm falls within the statutory fee provision, but her

claim that GEHA had no right to reimbursement does not.

Alternatively, an “action” under § 500.3148(1) could arguably be construed to encompass

both a claim against an insurer for overdue benefits as well as other related claims. The Michigan

Supreme Court, however, implicitly adopted a different view in Proudfoot v. State Farm Mutual

Insurance Co., 673 N.W.2d 739 (Mich. 2003). In Proudfoot, the claimant had been rendered

disabled by an automobile accident and consequently had to retrofit her home to make it wheelchair

accessible. Id. at 740. She later submitted an $815.10 architect’s bill to State Farm, her no-fault

insurer, for preparing building plans. Id. at 741. State Farm, however, denied the claim as an

unreasonable expense under its policy. Proudfoot filed suit in state court before the actual

modification work commenced. Id.

The Michigan Supreme Court affirmed the lower court’s declaratory judgment that the home

modifications were reasonably necessary and therefore should have been covered by State Farm.

Id. at 743. Regarding attorney fees, however, the Michigan Supreme Court affirmed the lower

court’s grant of fees only with respect to Proudfoot’s claim that State Farm should have covered the

$815.10 architect’s fee, because only that claim was “overdue.” Id. at 744. Other related elements

No. 05-2346 Shields v. Gov’t Employees Hosp. Assoc., et al. Page 6

of Proudfoot’s action regarding State Farm’s liability for future expenses, the Court held, did not

fall within the § 500.3148 definition of allowable fees. Id.

The Michigan Supreme Court has thus differentiated between attorney fees attributable to

recovering “overdue” benefits under § 500.3148 and those attributable to other aspects of the

litigation not covered by that statute. Shields’s attempt to combine the noncompensable work that

her counsel performed in relation to the GEHA claim with the compensable work performed in

relation to the State Farm claim is inconsistent with Michigan law. Moreover, Shields’s policy

arguments notwithstanding, analogous scenarios arise frequently in litigation. A civil rights

plaintiff, for instance, who raises a claim under 42 U.S.C. § 1983 for which attorney fees might be

available often must determine whether to also raise related state-law claims for which fees are

generally not recoverable. Faced with this strategic cost-benefit choice, Shields’s counsel chose to

litigate a flawed claim against GEHA in addition to the meritorious claim against State Farm.

Michigan law does not support awarding Shields her attorney fees in relation to her failed claim that

GEHA was not entitled to reimbursement.

D. Penalty interest

As explained above, the district court’s initial order granting summary judgment in favor of

Shields also provided that she was “entitled to interest on the overdue payment at the rate of 12%

per year.” The district court’s subsequent order, however, denied Shields any penalty-interest award

after it concluded that she had not presented adequate information to determine when State Farm

became delinquent on the payment. Ultimately, the district court reaffirmed its decision by denying

Shields’s petition for reconsideration of this issue.

Under Michigan law, a claimant is entitled to 12% penalty interest on “overdue” benefits.

Mich. Comp. Laws § 500.3142(3). Michigan caselaw employs the term “penalty interest” to

distinguish the high rate of interest recoverable under § 500.3142 from ordinary statutory interest.

See, e.g., Shanafelt v. Allstate Ins. Co., 552 N.W.2d 671, 679 (Mich. Ct. App. 1996) (“[W]e would

note that a plaintiff may recover both statutory and penalty interest.”). Overdue benefits are defined

as benefits “not paid within 30 days after an insurer receives reasonable proof of the fact and of the

amount of loss sustained.” Mich. Comp. Laws § 500.3142(2). Shields petitioned the district court

below for $36,343 in penalty interest. The spreadsheet attached to her petition shows that this sum

is the result of calculating 12% interest on each individually itemized medical treatment billed,

beginning on the date of the particular treatment and running through December 31, 2004.

Starting the interest calculation from the date on which each medical service was rendered,

however, is unjustified under the circumstances of this case. The only overdue benefit at issue is

the payment that State Farm refused to make in response to GEHA’s reimbursement claim, which

arose long after the treatments. Relying on Shanafelt, Shields argues to the contrary that State

Farm’s obligations arose as it received the medical bills shortly after each treatment was rendered,

and that the action and rights of GEHA are irrelevant. In Shanafelt, the claimant brought suit against

a no-fault liability insurer regarding an “uncoordinated” policy pursuant to which the insurer had

denied a claim for benefits. 552 N.W.2d at 673. The court held that the claimant incurred expenses

as treatment was administered, irrespective of the fact that the claimant’s health insurance policy

was already covering the expenses. Id. at 676.

Shanafelt, however, is inapposite because, as the court in that case emphasized, “one salient

fact immediately becomes apparent: the instant plaintiff has brought suit against the insurer

providing uncoordinated coverage.” Id. at 678 (emphasis in original). Benefits under an

uncoordinated policy become payable irrespective of another insurer’s rights and actions. In the

present case, however, the State Farm policy was coordinated, meaning that benefits were not

payable at the time the medical care was rendered because they were otherwise covered by GEHA,

No. 05-2346 Shields v. Gov’t Employees Hosp. Assoc., et al. Page 7

Shields’s primary insurer. Indeed, had Shields not obtained a third-party settlement from which

GEHA was entitled to recoup the benefits it had paid, State Farm would never have had to pay

Shields any medical benefits at all. See Shields, 450 F.3d at 646 (holding that State Farm’s

obligation to pay arose only because, once GEHA demanded reimbursement, GEHA’s initial

payment to Shields no longer qualified as an “amount paid” under the coordination clause of State

Farm’s policy). Shields’s argument that penalty interest should begin accumulating from the date

that the medical care was administered thus runs contrary to both law and logic.

The district court ultimately denied Shields’s petition for penalty interest on the ground that

she had not provided “all the necessary figures and dates to determine when, and to what extent,

State Farm’s obligation to reimburse [Shields] arose.” We agree. As explained above, the district

court properly determined that State Farm’s obligation arose as a result of—and thus only

after—GEHA exercised its right to reimbursement by asserting a lien against Shields’s settlement

for a specific amount. The record simply contains no indication of precisely when and in what

amount Shields obtained the settlement funds, nor does it demonstrate when and in what amount

GEHA actually sought reimbursement. Although the record does reflect that GEHA submitted a

notice of its lien on April 30, 2003 against any settlement Shields might receive, this letter provides

no indication of when or if a settlement had been reached, nor of the settlement amount.

In its denial of Shields’s motion to reconsider, the district court also referred to two other

documents submitted by Shields. First, the court took note of an April 17, 2003 letter from GEHA

stating that its reimbursement lien claim totaled only $1,734.00 at that time, but that GEHA would

continue to update that figure “until settlement.” This letter plainly fails to establish when GEHA

asserted a lien for the full $162,074. Second, the court referenced a demand letter sent by Shields

to State Farm on May 15, 2003 that sought payment of the full amount. As the district court

explained, however, even assuming that a settlement had been reached by the date of Shields’s

demand letter, the extent of GEHA’s actual reimbursement claim at that point (and State Farm’s

resultant obligation) cannot be determined from the record.

Shields’s extensive briefing on appeal leaves unanswered the question of why, particularly

after the district court denied her petition for penalty interest, she did not simply submit

documentation regarding the date of the settlement agreement and the extent of GEHA’s claim for

reimbursement in her petition for reconsideration. Such documentation would likely have allowed

the district court to determine the proper date from which to begin calculating the penalty interest

that Shields was due. Without establishing the date or dates on which State Farm’s obligation arose,

however, Shields cannot establish when payment became “overdue” for the purpose of calculating

penalty interest under § 500.3142. The district court’s determination that Shields failed to produce

sufficient evidence to ascertain precisely when State Farm’s obligation arose for the purpose of

calculating penalty interest, therefore, was not clearly erroneous.

III. CONCLUSION

For all of the reasons set forth above, we AFFIRM the judgment of the district court.