Court Opinion

ID: 9925239
Source: CourtListenerOpinion
Date Created: 2024-01-19 06:06:08.346381+00
Date Added: 2024-06-11T09:19:53.072636
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

UHG BOCA, LLC,                                                         UNPUBLISHED
                                                                       January 18, 2024
               Plaintiff-Appellant,

v                                                                      No. 361539
                                                                       Oakland Circuit Court
MEDICAL MANAGEMENT PARTNERS, LLC,                                      LC No. 2016-154057-CB
UHG MICHIGAN, LLC, HEALTH SYSTEMS,
INC., DAVID KATZ, SCOTT ZACK, and CORY
MANN,

               Defendants-Appellees.

Before: K. F. KELLY, P.J., and JANSEN and HOOD, JJ.

PER CURIAM.

        Plaintiff appeals by right the trial court’s final judgment confirming an arbitration award
after denying in part and granting in part plaintiff’s motion to partially vacate the arbitration award.
Finding no errors warranting reversal, we affirm.

                       I. BASIC FACTS AND PROCEDURAL HISTORY

       The parties to the lawsuit are a group of connected business entities located in Michigan
and Florida and their members. Plaintiff UHG Boca, LLC, and defendant UHG Michigan, LLC,
were the members of defendant Medical Management Partners, LLC (“MPP”), and signatories to
an operating agreement concerning the same. Defendants David Katz, Scott Zack, and Cory Mann
managed defendant Health Systems, Inc.

        On July 18, 2016, plaintiff filed a complaint against defendants asserting various theories
of breach of contract and business torts related to the division of monies plaintiff believed due to
it under the MPP operating agreement and assignment agreement. The business conducted
between the parties was aimed at generating patient leads from car accidents and cross-referring
those patients to imaging and other services owned by the parties. As part of the lead-generation
effort, the parties illegally obtained police reports of accident victims. As a result, several
individuals were criminally charged.

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        In its complaint, plaintiff alleged: (1) breach of contract for failure to make distributions
under the MPP operating and assignment agreements and sought specific performance of the
agreement; (2) unjust enrichment; (3) conversion; (4) fraud in the inducement; (5) fraud and
misrepresentation; and (6) oppression. In general, plaintiff alleged that defendants improperly
diverted money from the collectibles that the businesses were to share and did not properly account
for those collectibles when dividing the proceeds upon dissolution of the businesses. The matter
was sent to binding arbitration by the trial court on November 11, 2016.

        The arbitrator, Michael R. Turco, received evidence and testimony during a hearing and
issued his final determination and award on October 27, 2021. The arbitrator noted in the opinion
that Zack, Katz, and Mann did not testify at the hearing and invoked their Fifth Amendment right
to refuse to testify when questioned about the stolen police reports. With regard to the breach-of-
contract claim, the arbitrator concluded that the wrongful conduct rule precluded enforcement of
the operating and assignment agreements. Specifically, the arbitrator concluded that the revenue
that plaintiff was seeking from defendants was the result of illegal patient billing or other illegal
business practices. Thus, in the arbitrator’s view, it would be contrary to public policy to enforce
the agreements. Concerning the fraud and conversion claims, the arbitrator concluded that fraud
claims were mere restatements of the contract claims and thus barred under the economic loss
doctrine, and otherwise determined it would be improper to divide the proceeds of illegal activity.

         The arbitrator did agree, however, that plaintiff had viable claims against defendants that
were not barred by the wrongful conduct rule. With regard to television and radio advertisements
paid for by plaintiff, for example, the arbitrator determined there was nothing illegal about those
activities and awarded plaintiff damages related to amounts it claimed were not reimbursed by
defendants. In addition, the arbitrator concluded that certain amounts taken by defendants Mann,
Zack, and Katz from the businesses were improper and awarded plaintiff damages to compensate
it for those funds.

       After the arbitrator issued the final award, plaintiff moved to vacate in part the arbitrator’s
award, asserting that the arbitrator improperly applied the wrongful conduct rule when he refused
to enforce the agreements. Plaintiff also argued the arbitrator improperly applied the adverse
inference rule when he concluded, on the basis of the adverse inference, that the parties were
conducting an illegal enterprise. The trial court disagreed and confirmed the award. This appeal
followed.

                                 II. STANDARDS OF REVIEW

        “This Court reviews de novo a trial court’s ruling on a motion to vacate or modify an
arbitration award. This means that we review the legal issues presented without extending any
deference to the trial court.” Radwan v Ameriprise Ins Co, 327 Mich App 159, 164; 933 NW2d
385 (2018) (quotation marks and citation omitted). “Whether an arbitrator exceeded his or her
authority is also reviewed de novo.” Id. (citation and quotation marks omitted). “Arbitrators
exceed their powers whenever they act beyond the material terms of the contract from which they
draw their authority or in contravention of controlling law.” Miller v Miller, 474 Mich 27, 30; 707
NW2d 341 (2005).

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        [A]ny error of law must be discernible on the face of the award itself. By “on its
        face” we mean that only a legal error that is evident without scrutiny of intermediate
        mental indicia will suffice to overturn an arbitration award. Courts will not engage
        in a review of an arbitrator’s mental path leading to [the] award. Finally, in order
        to vacate an arbitration award, any error of law must be so substantial that, but for
        the error, the award would have been substantially different. [Washington v
        Washington, 283 Mich App 667, 672; 770 NW2d 908 (2009) (citation and
        quotation marks omitted; alteration in original).]

                                           III. ANALYSIS

                                A. WRONGFUL CONDUCT RULE

       In its first three issues presented on appeal, plaintiff argues that the arbitrator incorrectly
applied the wrongful conduct rule. We disagree.

      In its arbitration decision, the arbitrator stated the following concerning the wrongful
conduct rule:

        Regardless of which party pulled the actual strings, the fact is that the enterprise
        acted illegally and, in doing so, generated profits. Agreements to divide profits
        generated through those wrongful actions are unenforceable because they violate
        public policy or through application of the Wrongful Conduct Rule. Regardless of
        Petitioners’ failed efforts to arrest the illegal conduct, the fact remains that
        Petitioners and Respondents (i) jointly owned certain clinics and other businesses,
        (ii) those businesses engaged in wrongful or illegal conduct, and (iii) the revenue
        over which they are fighting is the direct result of the clinics’ or businesses’ illegal
        or wrongful activities. As much as I dislike the idea of anyone profiting from
        fleecing the no fault system, I find the Operating and Assignment and Assumption
        Agreements are unenforceable . . . .

         “[A] person cannot maintain an action if, in order to establish his cause of action, he must
rely, in whole or in part, on an illegal or immoral act or transaction to which he is a party.” Orzel
by Orzel v Scott Drug Co, 449 Mich 550, 558; 537 NW2d 208 (1995) (citation and quotation marks
omitted; alteration in original). “When a plaintiff’s action is based on his own illegal conduct, and
the defendant has participated equally in the illegal activity, a similar common-law maxim, known
as the ‘doctrine of in pari delicto’ generally applies to also bar the plaintiff’s claim . . . .” Id. “The
rule rests on the public policy premise that courts should not, directly or indirectly, encourage or
tolerate illegal activities.” Hashem v Les Stanford Oldsmobile, Inc, 266 Mich App 61, 89; 697
NW2d 558 (2005).

        The arbitrator did not erroneously apply the wrongful conduct rule. The arbitrator
concluded, on the basis of the evidence and testimony submitted, that the parties engaged in
various illegal and wrongful activities that formed the basis of the monies that were being sought
in the lawsuit. Whether each activity was criminally charged or a violation of a criminal statute
does not bar the imposition of the wrongful conduct rule, as plaintiff suggests. See Orzel, 449
Mich at 561 (stating “where the plaintiff’s illegal act only amounts to a violation of a safety statute,

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such as traffic and speed laws or requirements for a safe workplace, the plaintiff’s act, while illegal,
does not rise to the level of serious misconduct sufficient to bar a cause of action by application of
the wrongful conduct rule.”). Similarly, the plaintiff’s wrongful conduct was the proximate cause
of its injuries in that it sought to recover monies that were improperly obtained under the
agreements. Thus, under the wrongful conduct rule, plaintiff was precluded from using the courts
to divide the proceeds of ill-gotten gains, see Hashem, 266 Mich App at 89, and the arbitrator did
not err when it applied the rule to plaintiff’s claims.

             B. PUBLIC POLICY AND UNJUST ENRICHMENT/CONVERSION

       Next, plaintiff claims that the arbitrator erred when he denied plaintiff’s requests for relief
on the basis of public policy. Plaintiff also argues the arbitrator improperly dismissed the
conversion and unjust enrichment claims. We disagree.

        “[I]f a contract be void as against public policy, the court will neither enforce it while
executory, nor relieve a party from loss by having performed it in part.” Epps v 4 Quarters
Restoration, LLC, 498 Mich 412, 542-543; 872 NW2d 518 (2015); see also Jaenick v Davidson,
290 Mich 298, 298; 287 NW 472 (1939) (“All contracts which are founded on an act prohibited
by a statute under a penalty are void although not expressly declared to be so and neither law nor
equity will enforce a contract made in violation of such a statute or one that is in violation of public
policy”). “The rationale that Michigan courts have used to support the wrongful-conduct rule are
rooted in the public policy that courts should not lend their aid to a plaintiff who founded his cause
of action on his own illegal conduct.” Orzel, 449 Mich at 559.

        The arbitrator concluded that plaintiff was not entitled to relief, in part, because the
contracts were unenforceable in that they served an improper purpose to split the proceeds of an
illegal operation. This conclusion was made on the basis of testimony and evidence presented to
the arbitrator, as well as the adverse inferences the arbitrator applied, which will be discussed in
more detail below. Because this Court’s review is limited to whether the arbitrator exceeded his
authority or made a substantial error of law, the factual conclusion that the arbitrator came to is
entitled to the Court’s deference. See Washington, 283 Mich App at 672. Accordingly, because
the purpose of the agreements between the parties was to exploit and then share the profits from
illegal activities, plaintiff cannot seek redress in the courts for any injuries it may have suffered
under those agreements. See Orzel, 449 Mich at 559.

       Plaintiff also contends that the conversion and unjust enrichment claims were erroneously
dismissed. However, Michigan law is clear that in order to maintain an action in tort, the plaintiff
must show a breach of a duty separate from the contractual breach. Sherman v Sea Ray Boats, Inc,
251 Mich App 41, 47-48; 649 NW2d 783 (2002); Gonyea v Motor Parts Federal Credit Union,
192 Mich App 74, 82; 480 NW2d 297 (1991). Because plaintiff failed to show that defendants
breached a duty separate and distinct from those imposed by the agreements, the arbitrator did not
err when he dismissed those claims.

                                C. ADVERSE INFERENCE RULE

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       Lastly, plaintiff argues that the arbitrator erred when he decided to assign adverse
inferences to the decision of certain witnesses not to testify regarding the stolen police reports. We
disagree.

         “The privilege against self-incrimination permits a defendant to refuse to answer official
questions in any other proceeding, no matter how formal or informal, if the answer may incriminate
him or her in future criminal proceedings.” In re Blakeman, 326 Mich App 318, 333; 926 NW2d
326 (2018). However, “the Fifth Amendment does not forbid adverse inferences against parties
to civil actions when they refuse to testify in response to probative evidence offered against them:
the amendment does not preclude the inference where the privilege is claimed by a party to a civil
cause.” Id. at 334 n 4 (quotation marks and citation omitted). While plaintiff is correct that certain
witnesses that did not testify were defendants, individuals associated with plaintiff also refused to
testify at the hearing. Moreover, contrary to plaintiff’s assertion, the arbitrator did not rely solely
on the adverse inferences when he made his determination that the businesses were operating in
an illegal fashion. Accordingly, the arbitrator did not did not err when it applied the adverse-
interest rule.

       Affirmed. Defendants, as the prevailing parties, may tax costs. MCR 7.219(A).

                                                               /s/ Kirsten Frank Kelly
                                                               /s/ Kathleen Jansen
                                                               /s/ Noah P. Hood

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