Court Opinion

ID: 4408962
Source: CourtListenerOpinion
Date Created: 2019-06-21 09:07:42.799257+00
Date Added: 2024-06-11T14:52:49.545456
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                           STATE OF MICHIGAN

                            COURT OF APPEALS

CLIENT FINANCIAL SERVICES, INC.,                                     UNPUBLISHED
                                                                     June 20, 2019
               Plaintiff-Appellant,

v                                                                    No. 342875
                                                                     Oakland Circuit Court
BEAUMONT HEALTH,                                                     LC No. 2017-162332-CB

               Defendant-Appellee.

Before: BECKERING, P.J., and CAVANAGH and RONAYNE KRAUSE, JJ.

PER CURIAM.

       In this action for breach of contract, plaintiff appeals as of right the trial court’s opinion
and order granting summary disposition to defendant under MCR 2.116(C)(8) (failure to state a
claim upon which relief can be granted). We affirm.

                                        I. BACKGROUND

        In April 2016, plaintiff (a collections agency) and defendant (a hospital) entered into an
agreement titled, “Master Services Agreement” (MSA). 1 The pertinent aspect of the agreement
allowed plaintiff to provide collection services to defendant for defendant’s “self-pay” accounts
(accounts set up for defendant’s patients to pay their medical bills directly, rather than those
medical bills that are paid by the patients’ insurance companies), and “bad debt” accounts
(accounts that have not been paid while in self-pay “pursuant to a payment or agreement within
121 days of [the] account being assigned to [plaintiff] in self-pay).” If plaintiff succeeded in its
collection efforts, then defendant would pay plaintiff a contingency fee, which varied based on
the type of account plaintiff successfully collected.

1
  Subsidiaries of defendant were also parties to the agreement; however, their involvement is not
relevant for purposes of this appeal.

                                                -1-
       The MSA contained two key provisions. The first provision dealt with the ability of
defendant (referred to as “Buyer”) to elect to use the services of plaintiff (referred to as
“Vendor”), stating, in relevant part:
       Nothing contained herein shall be considered a guarantee of purchase by any
       Buyer. The terms and conditions set forth in this Agreement apply only to the
       extent that a Buyer elects to make a purchase of Vendor’s products or services
       under the Agreement.

The second key provision in the MSA is an integration or merger clause which states, in relevant
part:
       This Agreement and any exhibits and schedules properly incorporated from time
       to time are the complete Agreement and shall supersede any and all prior and
       contemporaneous understandings and Agreements either oral or in writing.

       The parties agreed on two addendums to the MSA: the first addendum, titled “Self-Pay
Services Addendum,” involved the scope of services for self-pay accounts assigned to plaintiff,
while the second addendum, titled “Bad Debt Services Addendum,” involved the scope of
services for bad debt accounts assigned to plaintiff.

        According to plaintiff, after the parties executed the MSA in April 2016, plaintiff
received all of defendant’s “Day 1” self-pay accounts, which are self-pay accounts that are
transferred to plaintiff for collection immediately upon the creation of the account—i.e., Day 1.
In May 2017, however, defendant hired a new Vice President, at which time defendant
announced a “change in policy.” This change in policy would “delay the transfer to [plaintiff] of
self-pay collection files from Day 1 to Day 30, beginning June 1, 2017,” meaning that plaintiff
would receive self-pay accounts 30 days after their creation, rather than on Day 1. Delaying the
transfer of self-pay accounts made collection efforts more difficult for plaintiff because the
longer the self-pay account remained outstanding, the less likely it was that plaintiff would
succeed in its collection efforts. According to plaintiff, defendant’s policy change also
“announced [defendant’s] intention to abandon its exclusive arrangement with [plaintiff], and
turn over self-pay accounts to competing collection agencies, thereby depriving [plaintiff] of
substantial income it had been promised under the [MSA].”

        Plaintiff filed a complaint against defendant, alleging that defendant breached the terms
of the MSA by (1) failing to transfer all of defendant’s self-pay accounts to plaintiff for
collection on Day 1, and (2) failing to retain plaintiff as the exclusive collection agency for all of
defendant’s self-pay accounts.2 Plaintiff alleged that, in drafting the MSA, the parties had
intended for defendant to transfer all of defendant’s self-pay accounts to plaintiff on Day 1.

2
  Plaintiff also alleged that defendant was unjustly enriched by failing to transfer its self-pay
accounts to plaintiff and using other vendors (plaintiff’s competitors) for all of defendant’s Day 1
self-pay accounts. The trial court dismissed plaintiff’s unjust enrichment claim, and plaintiff
does not challenge that ruling on appeal.

                                                 -2-
Defendant filed a motion for summary disposition under MCR 2.116(C)(8), arguing that the
express terms of the MSA were plain, unambiguous, and afforded defendant the option to elect
to use plaintiff’s collection services for defendant’s self-pay accounts. Defendant also argued
that plaintiff’s breach of contract claim not only contradicted the clear and unambiguous
language of the MSA, but also rested entirely on extrinsic evidence—the testimony of
defendant’s representatives regarding the parties’ prior negotiations—which was inadmissible
under the parol-evidence rule. Defendant asserted that, because the MSA was a fully integrated
agreement per the MSA’s merger clause, plaintiff was barred from introducing extrinsic
evidence that contradicted the clear, unambiguous terms of the MSA. Plaintiff responded,
arguing that, while the MSA does not contain an express statement referencing Day 1 versus Day
30 self-pay accounts, the parties intended for defendant to transfer all of its self-pay accounts to
plaintiff on Day 1. Plaintiff also argued that the “gap filling” exception to the parol-evidence
rule should apply to interpret the MSA with extrinsic evidence because the MSA was incomplete
on its face.

        In granting defendant’s motion for summary disposition, the trial court determined that
the MSA, as written, did not provide plaintiff with the exclusive right to process Day 1 self-pay
accounts, and therefore, defendant could not have breached the MSA by refusing to transfer
those accounts to plaintiff. Rather, the trial court held that defendant had the right to elect when
it wished to use plaintiff’s collection services. With respect to plaintiff’s attempt to introduce
extrinsic evidence, the trial court determined that such an attempt was inappropriate given the
parties’ merger clause and the parol-evidence rule.

       Plaintiff now appeals, arguing that the trial court erred in granting summary disposition to
defendant because (1) defendant’s failure to transfer all of its self-pay accounts to plaintiff on
Day 1 violated the terms of the MSA, and (2) parol evidence is admissible to “fill the gap” in the
MSA regarding defendant’s obligation to transfer its self-pay accounts to plaintiff on Day 1.

                                  II. BREACH OF CONTRACT

        Plaintiff argues that the trial court erred in granting defendant’s motion for summary
disposition because defendant’s failure to transfer all of its self-pay accounts to plaintiff on Day
1 violated the terms of the MSA. We disagree.

       We review de novo a trial court’s decision on a motion for summary disposition. Rory v
Continental Ins Co, 473 Mich 457, 464; 703 NW2d 23 (2005). The standard for reviewing a
motion for summary disposition granted under MCR 2.116(C)(8) is as follows:
       A motion under MCR 2.116(C)(8) tests the legal sufficiency of the complaint.
       All well-pleaded factual allegations are accepted as true and construed in a light
       most favorable to the nonmovant. A motion under MCR 2.116(C)(8) may be
       granted only where the claims alleged are so clearly unenforceable as a matter of
       law that no factual development could possibly justify recovery. When deciding a
       motion brought under this section, a court considers only the pleadings. [Maiden
       v Rozwood, 461 Mich 109, 119-120; 597 NW2d 817 (1999) (quotation marks and
       citations omitted).]

                                                -3-
        Issues involving the interpretation of contracts are also subject to de novo review.
Bronson Methodist Hosp v Mich Assigned Claims Facility, 298 Mich App 192, 196; 826 NW2d
197 (2012). This Court’s “primary goal in interpreting any contract is to give effect to the
parties’ intentions at the time they entered into the contract.” Bank of America, NA v First
American Title Ins Co, 499 Mich 74, 85; 878 NW2d 816 (2016). The parties’ intent is
determined “by interpreting the language of the contract according to its plain and ordinary
meaning.” Id. at 85-86. “[U]nless a contract provision violates law or one of the traditional
defenses to the enforceability of a contract applies, a court must construe and apply unambiguous
contract provisions as written.” Rory, 473 Mich at 461. Courts must “give effect to every word,
phrase, and clause in a contract and avoid an interpretation that would render any part of the
contract surplusage or nugatory.” Klapp v United Ins Group Agency, Inc, 468 Mich 459, 468;
663 NW2d 447 (2003). “A contract is ambiguous if its words may reasonably be understood in
different ways.” UAW-GM Human Resource Ctr v KSL Recreation Corp, 228 Mich App 486,
491; 579 NW2d 411 (1998) (quotation marks and citation omitted). “Where a written contract is
ambiguous, a factual question is presented as to the meaning of its provisions, requiring a factual
determination as to the intent of the parties in entering the contract.” Klapp, 468 Mich at 469,
quoting 11 Williston, Contracts (4th ed), § 30:7, pp 87-91.

        “A party asserting a breach of contract must establish by a preponderance of the evidence
that (1) there was a contract (2) which the other party breached (3) thereby resulting in damages
to the party claiming breach.” Miller-Davis Co v Ahrens Const, Inc, 495 Mich 161, 178; 848
NW2d 95 (2014). The only issue on appeal is whether plaintiff’s claim, that defendant breached
the MSA by failing to transfer all of its self-pay accounts exclusively to plaintiff on Day 1, is “so
clearly unenforceable as a matter of law that no factual development could possibly justify
recovery.” See Maiden, 461 Mich at 119 (quotation marks and citation omitted). To answer this
question, we look to the terms of the MSA.

        The MSA stated, “Nothing contained herein shall be considered a guarantee of purchase
by [defendant]. The terms and conditions set forth in this Agreement apply only to the extent
that [defendant] elects to make a purchase of [plaintiff’s] products or services under the
Agreement.” The parties’ Self-Pay Services Addendum also contained various provisions
regarding the parties’ obligations to one another once defendant transferred its self-pay accounts
to plaintiff. Indeed, two provisions in particular, (g) and (n), stated, in relevant part:

       [Plaintiff] and [defendant] agree to the following terms and conditions with regard
       to “Self[-]Pay Services” purchased by [defendant]:

                                              * * *

       g) Account resolution shall be achieved within 121 days of account placement
       unless a payment arrangement is established under the terms set forth by
       [defendant].

                                              * * *

                                                 -4-
       n) [Defendant] may handle or transfer incoming calls pertaining to accounts
       assigned to [plaintiff] should patient(s) decide to call [defendant]. [Emphasis
       added.]

        There is nothing ambiguous about the MSA or its terms. The first page of the agreement
demonstrates the optional or elective nature of the MSA because defendant could “elect[] to
make a purchase of” plaintiff’s collection services if defendant chose to do so. Indeed, the
provision explicitly states that the MSA is not a “guarantee of purchase” of plaintiff’s collection
services by defendant. Therefore, the plain and ordinary language of the MSA demonstrates that
defendant could “elect[]” when, or if at all, to transfer its self-pay accounts to plaintiff. See Bank
of America, 499 Mich at 85-86 (holding that contracting parties’ intent is determined by
interpreting the language of a contract according to its plain and ordinary meaning); see also
Rory, 473 Mich at 461 (“[A] court must construe and apply unambiguous contract provisions as
written.”)

        Plaintiff fails to point out any ambiguity within the MSA regarding when, or if, self-pay
accounts were to be transferred to plaintiff. In fact, plaintiff concedes that “there is no doubt that
the MSA does not contain an express statement referencing ‘Day 1’ vs ‘Day 30’ ” self-pay
accounts. Plaintiff asserts that the MSA’s failure to state when plaintiff’s services are to
commence demonstrates an ambiguity within the MSA. However, defendant argues, and we
agree, that this omission speaks to the optional and elective nature of the MSA. In fact, the MSA
does indicate when plaintiff’s services are to commence—when defendant “elects to make a
purchase.” Therefore, plaintiff’s argument that the MSA is ambiguous is without merit.

        Notwithstanding the elective nature of the MSA, plaintiff argues that defendant did in
fact “make a purchase” of plaintiff’s collection services by transferring Day 1 self-pay accounts
to plaintiff before defendant announced its policy change in May 2017. Specifically, plaintiff
argues that defendant “incorrectly interprets” the clause regarding the elective nature of the MSA
by “referring to the purchase of [plaintiff’s services] on a singular account basis, rather than to
the purchase of [plaintiff’s] services in general.” Plaintiff’s argument, however, contradicts the
plain and ordinary language of the MSA. Defendant clearly had the option to engage plaintiff’s
collection services on an account-by-account basis. Indeed, it makes little sense for the parties to
enter into an agreement that would require defendant to transfer all of defendant’s self-pay
accounts to plaintiff, while at the same time including a provision that allows defendant to
choose when to “make a purchase” of plaintiff’s collection services for those self-pay accounts.
(Emphasis added). The plain and ordinary meaning of the MSA and its elective nature is
supported by two provisions in the Self-Pay Services Addendum (provisions (g) and (n)), which
indicate that self-pay accounts had to be “place[d]” or “assigned” to plaintiff in order to trigger
the parties’ obligations. Even the Bad Debt Services Addendum defined a bad debt as “an
account that has not been paid while in self-pay (not paid pursuant to a payment or agreement
within 121 days of account being assigned to [plaintiff] in self-pay).” (Emphasis added.)
Therefore, plaintiff’s interpretation of the MSA (that defendant made a purchase of plaintiff’s
collection services in general, which required defendant to transfer all of its self-pay accounts to
plaintiff on Day 1) contradicts the express terms of the MSA and its elective nature. See Bank of
America, 499 Mich at 85-86; Rory, 473 Mich at 461.

                                                 -5-
        Plaintiff also argues that the terms of the Self-Pay Services Addendum demonstrate that
the parties intended for defendant to transfer all of its self-pay accounts to plaintiff on Day 1
because both parties’ obligations in that addendum cannot be met unless defendant transferred its
self-pay accounts on Day 1. However, nothing in the Self-Pay Services Addendum required
defendant to transfer all of its self-pay accounts to plaintiff on Day 1. Rather, plaintiff’s
argument speaks more to the difficulty in successfully collecting on self-pay accounts that are
transferred to plaintiff on Day 30 or later. For example, plaintiff argues that provision (g) in the
Self-Pay Services Addendum, which requires plaintiff to resolve self-pay accounts within 121
days of placement (thereby becoming a “bad debt”), illustrates that the parties intended for
defendant’s self-pay accounts to be transferred to plaintiff on Day 1. Plaintiff argues that if the
parties intended for the self-pay account to be transferred at Day 30, then the account would
become a “bad debt” only 91 days after plaintiff received it. However, the parties defined a “bad
debt” as an account that has not been paid while in self-pay “pursuant to a payment or agreement
within 121 days of account being assigned to [plaintiff] in self-pay.” (Emphasis added.) That is,
the 121-day deadline for plaintiff to resolve the self-pay account does not begin until defendant
actually assigns the self-pay account to plaintiff for collection. Therefore, plaintiff can meet its
obligation in provision (g) regardless of whether the self-pay account is transferred on Day 1 or
Day 30.

        Plaintiff asserts that other provisions of the Self-Pay Services Addendum “would be for
naught unless [plaintiff] was to be responsible for collecting patient self-pay accounts from Day
1.” Similar to the 121-day deadline to resolve self-pay accounts, all of the other provisions in the
Self-Pay Services Addendum can be accomplished regardless of when those self-pay accounts
are assigned to plaintiff. The mere fact that plaintiff will have a more difficult time collecting on
those self-pay accounts after Day 1 does not establish a claim for breach of contract. See UAW-
GM, 228 Mich App at 492 (“[D]isappointed parties will have a great incentive to describe
circumstances in ways that escape the explicit terms of their contracts.”) (Quotation marks and
citation omitted.) Accordingly, the trial court properly granted defendant’s motion for summary
disposition.

                                     III. PAROL EVIDENCE

       Plaintiff also argues that parol evidence is admissible to “fill the gap” in the MSA
regarding defendant’s obligation to transfer its self-pay accounts to plaintiff on Day 1. We
disagree.

        “Whether extrinsic evidence should be used in contract interpretation is a question of law
that this Court reviews de novo.” In re Kramek Estate, 268 Mich App 565, 573; 710 NW2d 753
(2005).

       The parol-evidence rule provides that “[p]arol evidence of contract negotiations, or of
prior or contemporaneous agreements that contradict or vary the written contract, is not
admissible to vary the terms of a contract which is clear and unambiguous.” UAW-GM, 228
Mich App at 492 (quotation marks and citation omitted).
       Where the parties have included an express integration or merger clause within
       the agreement, ‘‘it is conclusive and parol evidence is not admissible to show that
       the agreement is not integrated except in cases of fraud that invalidate the

                                                -6-
       integration clause or where an agreement is obviously incomplete ‘on its face’
       and, therefore, parol evidence is necessary for the ‘filling of gaps.’ ’’ [Hamade v
       Sunoco, Inc (R & M), 271 Mich App 145, 169; 721 NW2d 233 (2006), quoting
       UAW-GM, 228 Mich App at 502.]

        The MSA contained an integration clause, which stated, “This Agreement and any
exhibits and schedules properly incorporated from time to time are the complete Agreement and
shall supersede any and all prior and contemporaneous understandings and Agreements either
oral or in writing.” Accordingly, parol evidence of the parties’ prior negotiations regarding Day
1 self-pay accounts is inadmissible absent fraud or evidence that the agreement was incomplete
on its face. See Hamade, 271 Mich App at 169; UAW-GM, 228 Mich App at 502. On appeal,
plaintiff only alleges that the MSA was incomplete on its face.

        Plaintiff fails to establish the evidence of a “gap” in the MSA rendering it incomplete.
Plaintiff argues that, because the MSA does not contain “any section setting forth when
[plaintiff’s] services are to commence, . . . [e]xtrinsic evidence must be allowed to demonstrate
that both sides fully understood and agreed that [plaintiff’s] services were to begin from the
inception of the account”—i.e., Day 1. However, as discussed above, the MSA does indicate
when plaintiff’s services are to commence—when defendant “elects to make a purchase” of
plaintiff’s services by transferring the account, either a self-pay account or a bad-debt account, to
plaintiff for collection. Therefore, the MSA is complete on its face, and there are no gaps to fill
so as to permit the introduction of parol evidence. See Hamade, 271 Mich App at 169; see also
UAW-GM, 228 Mich App at 495 (“The conclusion that parol evidence is not admissible to show
that a written agreement is not integrated when the agreement itself includes an integration
clause is consistent with the general contract principles of honoring parties’ agreements as
expressed in their written contracts and not creating ambiguities where none exist.”)

        In summary, the trial court did not err in granting defendant’s motion for summary
disposition under MCR 2.116(C)(8) because, under the plain and ordinary meaning of the MSA,
defendant was not required to transfer all of its self-pay accounts to plaintiff on Day 1. Further,
plaintiff’s attempt to introduce parol evidence was improper because the MSA was a fully
integrated agreement that was complete on its face.

       Affirmed. Defendant is entitled to costs as the prevailing party. See MCR 7.219(A).

                                                              /s/ Jane M. Beckering
                                                              /s/ Mark J. Cavanagh
                                                              /s/ Amy Ronayne Krause

                                                -7-