Opinion ID: 2972492
Heading Depth: 2
Heading Rank: 2

Heading: issues

Text: 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 Nos. 04-1486/1541 Spectrum Health Continuing Care Group Page 5 v. Anna Marie Bowling Irrevocable Trust 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 (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.
Under Michigan law, issue preclusion, known as collateral estoppel, “precludes relitigation of an issue in a subsequent, different cause of action between the same parties where the prior proceeding culminated in a valid, final judgment and the issue was . . . actually litigated, and . . . necessarily determined.” People v. Gates, 452 N.W.2d 627, 630 (Mich.), cert. denied, 497 U.S. 1004 (1990). “[T]he party asserting preclusion bears the burden of proof.” United States v. Dominguez, 359 F.3d 839, 842 (6th Cir.), cert. denied, 125 S. Ct. 261 (2004). Therefore, to prove preclusion, Spectrum must demonstrate that: 1) the parties in both proceedings are the same or in privity, 2) there was a valid, final judgment in the first proceeding, 3) the same issue was actually litigated in the first proceeding, 4) that issue was necessary to the judgment, and 5) the party against whom preclusion is asserted (or its privy) had a full and fair opportunity to litigate the issue. Id. (citing Gates, 452 N.W.2d at 630-31). In this case, the district court found that preclusion was inappropriate because Spectrum failed to meet several of the preclusion requirements. Upon review, we conclude that Spectrum has not satisfied any of the last three requirements, and therefore, is not entitled to preclusion under Michigan law on this issue. First, Michigan courts have held that “[a] question has not been actually litigated until put into issue by the pleadings, submitted to the trier of fact for a determination, and thereafter determined.” VanDeventer v. Mich. Nat’l Bank, 432 N.W.2d 338, 341 (Mich. Ct. App. 1988). The courts have held that an issue which was uncontested or indirectly referenced in the prior judgment was not actually litigated for collateral estoppel purposes. See, e.g., Lichon v. Am. Universal Ins. Co., 459 N.W.2d 288, 295 (Mich. 1990) (holding that an underlying issue was not actually litigated in a prior criminal trial where the party entered plea of nolo contendere); Cogan v. Cogan, 385 N.W.2d 793, 795 (Mich. Ct. App. 1986) (holding that issue of paternity was not actually litigated in the original divorce proceeding which awarded child support). Applying those principles to this case, we conclude that Spectrum has failed to demonstrate that the validity of its lien was actually litigated in the Michigan proceeding. Bowling was simply seeking a protective order to certify that the settlement was in her best interest and to establish the Trust. While approval of the whole settlement necessarily encompasses Spectrum’s lien, there is no evidence in the record that the lien was ever specifically challenged or Medicaid’s balance-billing prohibition ever raised. Spectrum’s lien was never mentioned specifically in the order. The court only referenced the lien as part of the collective amount owed, noting that the settlement “provides Nos. 04-1486/1541 Spectrum Health Continuing Care Group Page 6 v. Anna Marie Bowling Irrevocable Trust for payment of all liens associated with [Bowling’s] medical care;” and that the settlement proceeds should be paid to the Trust “after satisfaction of the existing liens.” J.A. at 99-100 (Mich. Prob. Ct. Order at 1-2). Therefore, because the specific issue was never put forth and determined by the trier of fact, we conclude that it was not actually litigated in the Michigan proceeding. Furthermore, as the district court noted, the validity of Spectrum’s lien was unnecessary to the determination that the malpractice settlement was in Bowling’s best interest or to the establishment of the Trust. The probate court evaluated the settlement pursuant to Michigan Court Rule 2.420, which requires prior court approval for settlements involving legally incapacitated individuals. The comment to the rule lists factors that a court should consider in reaching its decision, but does not include the validity of any liens on the settlement. See Mich. Ct. R. 2.420 Cmt. to 2002 Am. Moreover, in reaching its decision, the Michigan court assumed that the Spectrum lien was enforceable, yet still found the settlement to be in Bowling’s best interest. If the lien was unenforceable and Spectrum was limited to the Medicaid payments, it stands to reason that the benefits of the settlement agreement to Bowling would not be diminished because the Trust would, at the least, receive the amounts specifically allocated to it. Therefore, we conclude that the enforcement of Spectrum’s lien was not necessary to the judgment in the Michigan proceeding. Finally, we conclude that the Trust did not have a full and fair opportunity to litigate the issue in the Michigan court. The issue of the enforcement of the lien was never raised before the probate court and was unrelated to the court’s determination. Moreover, Spectrum was not a party to the action nor in privity with a party to the action in the Michigan court.2 Therefore, the Trust never had a full and fair opportunity to challenge the enforcement of the lien in the Michigan proceeding. Because Spectrum has failed to satisfy several of the collateral estoppel requirements under Michigan law, we conclude that the issue of the validity of the lien is not precluded by the Michigan court judgment.
Under New York law, “[t]he doctrine of collateral estoppel precludes a party from relitigating an issue which has previously been decided against him in a proceeding in which he had a fair opportunity to fully litigate the point.” Kaufman v. Eli Lilly & Co., 482 N.E.2d 63, 67 (N.Y. 1985) (internal quotation omitted). Two requirements must be satisfied before the doctrine is invoked: “[f]irst, the identical issue necessarily must have been decided in the prior action and be decisive of the present action, and second, the party to be precluded from relitigating the issue must have had a full and fair opportunity to contest the prior determination.” Id. New York courts have noted, however, that collateral estoppel is “an equitable doctrine,” “grounded on concepts of fairness and should not be rigidly or mechanically applied.” D’Arata v. N.Y. Cent. Mut. Fire Ins. Co., 564 N.E.2d 634, 636 (N.Y. 1990). “In the end, the fundamental inquiry is whether relitigation should be permitted in a particular case in light of what are often competing policy considerations, including fairness to the parties, conservation of the resources of the court and the litigants, and the societal interests in consistent and accurate results.” Staatsburg Water Co. v. Staatsburg Fire Dist., 527 N.E.2d 754, 756 (N.Y. 1988). Applying these principles, we conclude that under New York law collateral estoppel is inappropriate in this case. 2 The district court also found that Spectrum could not satisfy the first requirement for collateral estoppel which requires mutuality. Spectrum argues that under more recent Michigan caselaw, mutuality is not required. We need not decide the issue however, because Spectrum has failed to satisfy three of the other four requirements for collateral estoppel under Michigan law. Nos. 04-1486/1541 Spectrum Health Continuing Care Group Page 7 v. Anna Marie Bowling Irrevocable Trust First, Spectrum cannot demonstrate that the issue of approval of the settlement agreement in the New York proceeding is identical to the enforceability issue to be adjudicated in this case. New York courts have held that “[i]f the issue has not been litigated, there is no identity of issues between the present action and the prior determination.” Kaufman, 482 N.E.2d at 68. Thus, to be given preclusive effect, the issue must have been “actually litigated, squarely addressed and specifically decided.” Ross v. Med. Liab. Mut. Ins., 551 N.E.2d 1237, 1237 (N.Y. 1990). “An issue is not actually litigated if, for example, there has been a default, a confession of liability, a failure to place a matter in issue by proper pleading or even because of a stipulation.” Kaufman, 482 N.E.2d at 68 (emphasis added). Thus, where an issue is uncontested, such as an underlying point in a settlement agreement, the issue was not actually litigated in the prior proceeding and therefore is not precluded from a subsequent one. Id.; see also Arizona v. California, 530 U.S. 392, 414 (2000) (noting “that consent agreements ordinarily are intended to preclude any further litigation on the claim presented but are not intended to preclude further litigation on any of the issues presented” (internal quotation omitted)). In this case, the matter before the New York state court was judicial approval of the settlement in the medical-malpractice suit. See N.Y. C.P.L.R. 1207 (requiring prior judicial approval for settlements involving legally incapacitated individuals). The issue to be resolved was the fairness of the overall settlement to Bowling, not the validity of any of the underlying liens. The New York court order approved the settlement agreement including the payment to Spectrum. See J.A. at 91 (N.Y. Sup. Ct. Order at 6). Specifically, the court resolved the issue of whether a payment of $575,000 out of the total settlement proceeds of $4.57 million was in Bowling’s best interest. Because Spectrum’s lien was never contested or questioned in that proceeding, the parties effectively stipulated to its validity for purposes of approving the settlement agreement. As a result, the issue was never “actually litigated, squarely addressed and specifically decided” in the New York proceeding. Ross, 551 N.E.2d at 1237. Furthermore, the Trust lacked a full and fair opportunity to litigate the point. New York courts have held that a party did not have a full and fair opportunity where the point was not the focus of the prior proceeding, but only indirectly related to the material issues. Liddle, Robinson & Shoemaker v. Shoemaker, 768 N.Y.S.2d 183, 187 (N.Y. App. Div. 2003). As we stated above, the focus of the New York proceeding was the fairness of the $4.57 million settlement, not the validity of the individual liens. Moreover, Spectrum was neither a party nor in privity with a party to the proceeding. Therefore, we conclude the Trust did not have a full and fair opportunity to litigate the issue. Because the issue of the validity of the Spectrum lien was not identical to the approval of the settlement and the Trust did not have a full and fair opportunity to litigate the point, we conclude that under New York law, collateral estoppel is inappropriate in this case.