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S T A T E O F M I C H I G A N

C O U R T O F A P P E A L S

MICHIGAN HABILITATION & LEARNING 

CENTER, INC., and RESIDENTIAL STAFFING 

AGENCY,

Plaintiffs-Appellants,

UNPUBLISHED

July 24, 2018

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 staffcredentialing 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