MCKAY CONSULTING INC V ST JOHN HEALTH
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STATE OF MICHIGAN
COURT OF APPEALS
MCKAY CONSULTING, INC.,
UNPUBLISHED
January 20, 2009
Plaintiff-Appellee,
v
No. 273132
Wayne Circuit Court
LC No. 04-411858-CK
ST. JOHN HEALTH,
Defendant-Appellant,
and
OAKWOOD HEALTHCARE, INC., and HENRY
FORD HEALTH SYSTEM,
Defendants.
MCKAY CONSULTING, INC.,
Plaintiff-Appellee,
v
No. 273196
Wayne Circuit Court
LC No. 04-411858-CK
OAKWOOD HEALTHCARE, INC.,
Defendant-Appellant,
and
HENRY FORD HEALTH SYSTEM and ST.
JOHN HEALTH,
Defendants.
Before: Murray, P.J., and Hoekstra and Wilder, JJ.
PER CURIAM.
Defendants Oakwood Healthcare, Inc. (Oakwood) and St. John Health (St. John), appeal
as of right from various orders, including judgments following a jury trial, in this dispute over
express contracts for advice concerning Medicare reimbursement. We affirm.
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I
This case involves contingent fee contracts, whereby plaintiff agreed to “discuss the
application of certain Medicare reimbursement principles (the ‘Service’) that may identify
additional Medicare reimbursement owed” to the hospitals at issue. In turn, appellants agreed to
pay plaintiff a percentage of resulting additional Medicare reimbursement from the government.
Medicare reimbursements to hospitals for inpatient services are influenced by various
factors, including a wage index that is determined by a hospital’s geographic classification in a
particular metropolitan statistical area (MSA). Medicare rules allow hospitals to appeal their
geographic wage index classification. This was part of the information provided by plaintiff to
appellants. As a result, various Wayne county hospitals, with all of whom plaintiff had similar
contingent fee agreements, decided to apply as a group to be redesignated from the Detroit MSA,
for purposes of the wage index, to the Ann Arbor MSA, because the Ann Arbor MSA had a
higher wage index.
On May 13, 2003, McKay Consulting and Oakwood entered into a written agreement.
McKay agreed to provide its service, which consisted of providing confidential information, i.e.,
McKay agreed to “discuss the application of certain Medicare reimbursement principles . . . that
may identify additional Medicare reimbursement owed to OH [Oakwood Healthcare].” In
exchange for that service, Oakwood agreed to pay McKay Consulting a contingent fee “of 25%
of the additional Medicare reimbursement received by OH as a result of this Service for the three
Cost Report years for which the Service has effect.”
The Oakwood contract states: “For the avoidance of doubt, a description of the Service
has been initialed by each party and set forth as Exhibit A . . . following the execution and
delivery of this Agreement . . . .” Exhibit A states: “The service provided to Oakwood
Healthcare System will be limited to achieving a successful reclass, for the purpose of wages, to
the Ann Arbor Metropolitan Statistical Area.”
In late February or early March 2003, Bob (Robert) Brown, a principal of McKay
Consulting, had a meeting with Mike Pelc, then vice president of finance of the Detroit Medical
Center (DMC). Pelc said things had taken a very significant turn for the worse, and asked if
Brown had any idea he could pull out of his head to help the DMC financially. Brown said he
was not the one who came up with most of the original accounting ideas, but said he would talk
to Mike McKay. Brown talked with three or four people at McKay about how to help the DMC,
including Mike McKay and Bill (William) Nutt. There were “some really exotic” things they
talked about. In a week or ten days Nutt called Brown and said he thought he had something.
Nutt described to Brown the MSA. He explained that if all 18 hospitals in the Wayne county
MSA met certain relatively easy to meet wage and commission data, comparing them to
Washtenaw county, and if the two counties are contiguous, “there was a provision [in federal
regulations] where every hospital [in Wayne county] that participates in the Medicare program
could petition the government to reclass into Washtenaw County.”
In other words, “Wayne County hospitals which were getting paid less for the same care
as the hospitals in Ann Arbor could [petition to] reclass” to Washtenaw county’s compensation
rates. “We [at McKay Consulting] felt there was a good chance” of success in such a “reclass”
petition.
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Brown testified that in the late winter or early spring of 2003, there were rumors from
health lawyers in Washington, D.C., that the standard amount criterion test (one of the
requirements for a geographic reclassification) would be done away with. If that were to happen,
the Wayne county hospitals would succeed. Brown testified: “If the test was not done away
with, all bets were off. Something had to happen. Something had to give.” Thus, Brown
testified that the petition to “reclass” by Wayne county hospitals would only succeed if the
standard amount criterion were eliminated.
The Medicare regulation that allowed for group wage index reclassification was 42 CFR
412.234. The heading of section 412.234 is “Criteria for all hospitals in an urban county seeking
redesignation to another urban area.” Subsection (c) of section 412.234 provides: “(c)
Standardized amount inpatient operating costs – (1) Criteria. The urban hospitals must
demonstrate that their average incurred costs are more comparable to the amount the hospitals
would be paid if they were reclassified than the amount they would be paid under their current
classification.” Thus, section 412.234(c) provides the standardized amount criterion (SAC).
Brown testified that effective January 1, 2003, Congress had eliminated differences in the
standardized amount criterion for different regions of the country. Brown testified that this
rendered the standardized amount criterion in § 412.234 meaningless. But the standardized
amount criterion was still in place. Nutt testified that he and his legal counsel felt that the CMS
policy, retaining the SAC, was weak.
In April or May of 2003, McKay Consulting asked Carin Sigel, a Washington, D.C.,
Medicare attorney, to write a memo on the requirements for a reclassification. “We knew that
this project was going to be still risky, but we decided it was still a good thing to move forward
with because we felt like there was an opportunity here, even though it was going to be a
stretch.” McKay Consulting got Larry Oday, a Washington, D.C., lawyer with Medicare
expertise, involved, because “It was clear we were going to have to have some strategies in
which we’re going to have to look at the CMS agency to try to get relief. We were going to have
to possibly go to Congress or even the courts.”
On May 13, 2003, there was a meeting among Brown, McKay and Doug Welday,
corporate controller of Oakwood Healthcare, Inc. Before the meeting, Brown sent Doug Welday
a letter attaching the proposed agreement; the letter also stated, inter alia:
If you are aware of the issues and taking appropriate steps to evaluate the
problem, no fee will be due us. If you choose not to address the issue you will
also owe us nothing. If you both were not aware and choose to pursue the issue
then the fee will be a percentage of the increased reimbursement as a result of the
service.
Also on May 13, 2003, McKay Consulting and Oakwood entered into the written
agreement. McKay agreed to provide its service, which consisted of providing confidential
information, i.e., McKay agreed to “discuss the application of certain Medicare reimbursement
principles . . . that may identify additional Medicare reimbursement owed to OH [Oakwood
Healthcare].” In exchange for that service, Oakwood agreed to pay McKay Consulting a
contingent fee “of 25% of the additional Medicare reimbursement received by OH as a result of
this Service for the three Cost Report years for which the Service has effect.”
-3-
The Oakwood contract states: “For the avoidance of doubt, a description of the Service
has been initialed by each party and set forth as Exhibit A . . . following the execution and
delivery of this Agreement . . . .” Trial Exhibit 6 is the only copy of the agreement containing
the Exhibit A. It states: “The service provided to Oakwood Healthcare System will be limited to
achieving a successful reclass, for the purpose of wages, to the Ann Arbor Metropolitan
Statistical Area.” This Exhibit A is initialed by McKay and Lynn Torossian, an Oakwood
executive.
There was trial testimony by Brown that if the standardized amount criterion were not
eliminated by the government, the Wayne county hospitals would not be allowed to reclassify to
the Ann Arbor MSA. Brown testified that at the time he met with Robert Plaskey, director of
reimbursement for Oakwood Healthcare System, and Welday on May 13, 2003, the section 412
application was the only vehicle for achieving a wage index reclassification for Oakwood. The §
412 application was to be made on behalf of all Wayne county hospitals, while § 508
applications (explained below) would be made by individual hospitals.
Brown testified that at the time of the May 13, 2003, meeting, he was aware of rumors
that the SAC requirement might be eliminated. Brown testified that the rumor or idea that the
SAC requirement might be eliminate came from McKay Consulting’s healthcare lawyers, and
there was reason to believe it might go away.
On May 14, 2003, Sigel prepared a draft memorandum to Brown and Nutt regarding the
hospital group application for reclassification. This memo stated: “staff members of MGCRB
have reviewed a draft of a proposed regulation that would eliminate the standardized amount
(cost comparison) criterion. The proposed change is included in the Medicare inpatient
prospective payment system (‘PPS’) rule to be issued in the next week or so.”1 Sigel’s memo
further states: “Significantly, we have heard from MGCRB staff . . . that CMS is changing the
policy requiring a group to meet the standardized amount (cost comparison) criterion.” The
memo also stated that the SAC “may be eliminated in the future if the proposed regulation is
subsequently finalized.”
Brown testified that later in May, 2003, a preliminary rule was released by CMS, but it
did not waive the standard amount criterion. Brown testified that this fact made the reclass
petition project much riskier. The final rule was released in August 2003. The final rule also did
not eliminate the SAC. This made the reclass petition project even riskier, according to Brown.
In June 2003, McKay Consulting and its attorneys began to consider political pressure as
a way to get a rule change on the SAC before the reclassification petition would be considered.
By June 10, 2003, McKay Consulting was planning to push politically to get a rule change
regarding the standardized amount criterion, in order to help the reclassification effort. The
group application was to be filed on behalf of 18 hospitals.
1
MGCRB stands for Medicare Geographic Classification Review Board.
-4-
In 2003 a bill was introduced in Congress known as the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (sometimes known as the DIMA), which set aside
dollars for hospital geographic wage index reclassifications. This was later passed by the 108th
Congress. “Section 508” was part of this legislation.
In July 2003, McKay Consulting contacted certain offices of the Michigan congressional
delegation. On August 12, 2003, CMS issued its proposed rule for outpatient prospective
payment system for the fiscal year 2004 in the Federal Register. In concise terms, the proposed
rule required that urban hospitals requesting group reclassification both meet and apply for both
the wage index, and the standard amount criterion, regardless of whether the hospitals would
receive increased reimbursement for both.
Later in August 2003, McKay Consulting negotiated with St. John to obtain an agreement
similar to that reached with Oakwood. On August 22, 2003, an agreement was reached between
McKay Consulting and St. John in substantially the same form as the agreement between McKay
Consulting and Oakwood, except that St. John agreed to pay McKay Consulting 15% of the
additional Medicare reimbursement received by its hospitals as a result of the service, with a
maximum of $850,000 per year:
That SJH will pay to MC a fee of fifteen percent (15%) of the additional
Medicare reimbursement received by SJH hospitals as a result of this Service for
the three (3) years for which the Service has effect. However, the total fee paid to
MC cannot exceed eight hundred [and] fifty thousand [dollars] ($850,000) per
year for each of the three (3) years reviewed under this Agreement for SJH.
Also on August 22, 2003, there were internal discussions at St. John, and with McKay and
Brown, about whether Oakland county hospitals would pursue a reclassification to the Ann
Arbor or Flint MSA.
Mike McKay testified that on August 27, 2003, St. John’s Oakland county hospitals
orally agreed to pay McKay Consulting 15%. McKay testified that “Every hospital in Oakland
County agreed to pay us 15 percent on our oral contract on August the 22nd,” but then McKay
agreed that it was actually on August 27th. Buckley’s testimony substantially agreed.
In or around September 2003, McKay completed the group application and submitted it
to the MGCRB. The application states that it is based on the Medicare regulation 412.234.
Regarding the standard amount criterion (and the Wayne county hospitals’ failure to meet it), the
application states, inter alia:
We . . . request that the MGCRB . . . take into account these facts, and
make a decision on the application based on the Wayne Co. hospitals meeting all
other criteria except the standard amount. The standard amount criteria should
not be considered for approval of this application. However we have included the
standard amount calculations as required by MGCRB rules, so that the application
will be considered complete.
Also in or around September 2003, McKay submitted an application for group
redesignation on behalf of Oakland county hospitals, for reclassification to the Flint MSA. On
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September 12, 2003, Sigel sent an email to Brown and others, forwarding a position paper. The
position paper concerns the hospitals’ wage index reclassification effort. The position paper
included several strategies for influencing federal reclassification policy.
On September 25, 2003, Nutt sent McKay an email stating: “We don’t meet the std
criteria and thus we are going to ask CMS or pass legislation taking away the std criteria and
payment. . . .” On September 29, 2003, Brown sent an email to Wayne county hospital
representatives about their next meeting to discuss, inter alia, “how to proceed both with CMS
and, possibly, Congress,” and to “[b]egin examining the resources available to us . . . .” On
September 30, 2003, Nutt sent an email to McKay, stating that he had spoken with Medicare
attorney Larry Oday about issues including a “[t]imetable for passage of the HR1 bill. . . .” The
H.R. 1 bill was the bill, mentioned above, to provide funding for hospital geographic wage index
reclassifications (see below). In October 2003, Connie Mack2 sent a letter on behalf of the
Wayne county hospitals to Tom Scully, administrator of the Center for Medicare & Medicaid
Services (CMS), requesting a meeting.
The House conference report for the DIMA legislation, which before passage was called
H.R. 1, was published in or around November 2003. The DIMA contained a provision called
section 508, which appropriated $900 million for struggling hospitals like Oakwood.
On November 26, 2003, McKay Consulting, in a letter by McKay to Doug Welday,
agreed to reduce its contingent fee for Oakwood from 25% to 15%. On or around November 28,
2003, the meeting between Wayne county hospital representatives and Scully occurred.
In December 2003, the hospitals’ effort to influence the federal policy regarding
reclassification continued. On December 2, 2003, Scully announced that he was resigning from
his position, effective December 16, 2003. On December 3, 2003, Ken Trester, an Oakwood
executive, sent an email to various persons indicating they would wait before moving forward
with a Congressional delegation letter, until contact was made with Scully’s assistant.
On December 5, 2003, the efforts to get the SAC waived intensified, given Scully’s
anticipated departure. By this time, the proposed legislation contained an appropriation of $900
million for hospitals’ geographic reclassifications. In or around early December 2003, Congress
passed the DIMA, containing § 508 and its $900 million appropriation.
As a result, in December 2003, the topic of § 508 funding arose amongst the hospitals.
On December 10, 2003, there was a conference call for the Wayne county hospital group. It was
noted that the advantage of using section 508 was that it appropriated new money. A St. John
Hospital representative’s contemporaneous notes indicate an effort to influence HHS.
Later on December 10, 2003 and December 11, 2003, drafts were exchanged of a letter to
be sent to Health & Human Services secretary Tommy Thompson, asking for his assistance both
2
Connie Mack is a former United States Senator from Florida.
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in receiving a ruling on the reclassification application, and for money from the $900 million of
appropriated funds.
Also on December 11, 2003, McKay forwarded to Brown a memo, to be forwarded to the
hospitals, indicating that there was a possibility that the reclassification could be achieved
through § 508 of the recently enacted legislation. The draft memo states: “It is our
understanding that the political committee has elected to pursue both a clarification /
memorandum of instruction to the existing group 412.234 application while encouraging a 508
solution.” It states: “It is in everyone’s best interest to push CMS for a resolution of the
clarification on the existing application while not closing any doors on the 508 process . . . .”
(Emphases deleted.)
On December 19, 2003, Thompson issued a notice establishing the § 508 one-time
reclassification appeal process. On December 31, 2003, CMS issued an official notice
indicating, in sum: “In accordance with section 508(a) of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, this notice establishes a one-time appeal process
by which a hospital may appeal the wage index classification otherwise applicable to the
hospital.”
On January 2, 2004, Nutt sent an email to Oday and Sigel exclaiming “we did it!!!”,
indicating that section 508 money had been granted, and raising questions about how to proceed,
including how individual hospitals would apply for the money. On January 5, 2004, Trester, the
Oakwood representative, sent an email to various persons summarizing the results of a
government-relations group conference call, stating: “It appears the Section II provision of
Section 508 opens the door for us to get reclassified to the Washtenaw index.”
On January 7, 2004, attorney Sigel prepared a memo to Brown, Nutt and McKay
regarding the Medicare appeal process for hospital wage index reclassification under § 508.
Sometime thereafter, an application form for reclassification under § 508 was prepared.
On January 22, 2004, Sigel prepared a memo to Brown, McKay and Nutt regarding a
discussion at a meeting of wage index options under § 508, and containing a draft letter to
Thompson. On January 23, 2004, the draft letter was forwarded to hospital representatives.
Also on January 29, 2004, Connie Mack sent the letter to Thompson. The letter states
that “Congress provided relief for communities like Wayne County by providing an alternative
method for hospitals to get relief through wage index reclassifications under Section 508 . . . .”
The letter asked which Ann Arbor wage index would be used, and asked for the higher of the
two possible indices to be used, stating that this would result in revenue of $58 million for the
hospitals.
On February 3, 2004, Brown emailed to the hospital representatives a memo stating that
the Wayne county hospitals’ group application had been denied because it did not meet the
standardized amount criteria under 42 CFR 412.234(c). The notice offered the option to appeal
the denial, but Brown’s memo advised them not to appeal, “as we’re preparing an appeal under
another provision which we’ve discussed with all of you.”
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On February 9, 2004, St. John Oakland Hospital filed with the MGCRB its appeal under
§ 508 of the wage index classification. On February 12, 2004, Plaskey sent to the MGCRB its §
508 appeal on behalf of Oakwood Southshore Medical Center. Oakwood also filed § 508
appeals on behalf of Oakwood Annapolis, Oakwood Hospital & Medical Center, and Oakwood
Heritage.
On April 16, 2004, the MGCRB issued its decision that Providence Hospital would be
reclassified from the Detroit MSA to the Flint MSA under § 508. Also on April 16, 2004, the
MGCRB issued its decision approving the redesignation of Oakwood Hospital from the Detroit
MSA to the Ann Arbor MSA under § 508, and its decision approving the redesignation of
Oakwood Hospital & Medical Center.
In April 2004, McKay filed its complaint in the instant action. After the close of
discovery, Oakwood and St. John filed motions for summary disposition under MCR
2.116(C)(8) and (10). The trial court denied the motions vis-à-vis claims based on breach of an
express contract, with respect to any implied-in-law claim seeking recovery based on the actions
of McKay taken in furtherance of the defendants’ applications under § 508. The trial court held
that the written agreements did not restrict the contingent fee to funds received under a § 412
application. In concise terms, the trial court held that the agreement was ambiguous, because
there were two reasonably plausible constructions on the issue of whether a contingent fee was
owed on reimbursement received through § 508 as opposed to reimbursement received under §
412.
Plaintiff brought a motion in limine regarding lobbying, seeking to exclude evidence and
argument by defendants of lobbying. In concise terms, plaintiff sought to exclude any evidence
and argument related to defendants’ theory that the contract was void as against public policy, as
a contingent-fee contract for lobbying. The trial court granted this motion.
Later, St. John filed a motion for partial summary disposition under MCR 2.116(C)(7),
arguing that the statute of frauds, MCL 566.132(1), precluded plaintiff’s express oral contract
claim (regarding the Oakland county hospitals), arguing that the written agreement with St. John,
with its annual contingent-fee cap of $850,000, included St. John’s Oakland county hospitals.
However, the trial court found that McKay’s performance could have been completed within one
year, and denied the motion.
The jury returned a verdict in plaintiff’s favor. The jury answered special interrogatories
as follows. The May 13, 2003, agreement between Oakwood and McKay applied to the
additional reimbursement received by Oakwood under § 508. Regarding St. John, the jury found
that there were two contracts: the written one applied to St. John’s Wayne county hospitals, and
an oral contract that applied to St. John’s Oakland county hospitals. The jury found that both the
written and oral contracts with St. John applied to the reimbursement received under § 508. The
jury found $2,324,897 in damages against Oakwood, and $4,693,808 in damages against St. John
($2,143,808 for its Oakland county hospitals, and $2.55 million for its Wayne county hospitals).
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II
A
Oakwood first argues that that it is entitled to JNOV,3 summary disposition, or a new
trial, because the scope of the contract was limited to the success or failure of the application
under 42 CFR 412.234, and it is undisputed that that application was denied. We disagree.
1
This Court reviews a ruling on a summary disposition motion de novo. Willett v
Waterford Charter Twp, 271 Mich App 38, 45; 718 NW2d 386 (2006). A ruling on a motion for
new trial is reviewed for an abuse of discretion. McManamon v Redford Charter Twp, 273 Mich
App 131, 138; 730 NW2d 757 (2006).4 To the extent that this dispute requires the Court to
interpret the parties’ contract(s), the proper interpretation of a contract is a question of law,
reviewed de novo. Archambo v Lawyers Title Ins Corp, 466 Mich 402, 408; 646 NW2d 170
(2002).
This Court reviews de novo a trial court’s ruling on a motion for JNOV. Garg v Macomb
Co Community Mental Health Services, 472 Mich 263, 272; 696 NW2d 646 (2005). In doing so,
we consider the evidence and all legitimate inferences in the light most favorable to the
nonmoving party. Reed v Yackell, 473 Mich 520, 528; 703 NW2d 1 (2005). “A trial court
should grant a motion for JNOV only when there was insufficient evidence presented to create
an issue for the jury.” Attard v Citizens Ins Co of America, 237 Mich App 311, 321; 602 NW2d
633 (1999). But “a case should not be submitted to the jury where a verdict must rest upon
conjecture or guess.” Scott v Boyne City, G & A R Co, 169 Mich 265, 272; 135 NW 110 (1912).
2
Contracts are enforced according to their terms as a corollary of the parties’ liberty of
contract. Coates v Bastian Bros, Inc, 276 Mich App 498, 503; 471 NW2d 539 (2007), citing
Rory v Continental Ins Co., 473 Mich 457, 468; 703 N.W.2d 23 (2005). This Court examines
contractual language and gives the words their plain and ordinary meanings. Wilkie v AutoOwners Ins Co, 469 Mich 41, 47; 664 NW2d 776 (2003). “[A]n unambiguous contractual
provision is reflective of the parties’ intent as a matter of law,” and “[i]f the language of the
contract is unambiguous, we construe and enforce the contract as written.” Quality Products &
Concepts Co v Nagel Precision, Inc, 469 Mich 362, 375; 666 NW2d 251 (2003). Courts may not
impose an ambiguity on clear contract language. City of Grosse Pointe Park v Michigan Muni
3
JNOV stands for judgment non obstante veredicto, or judgment notwithstanding the verdict.
4
The determination that a trial court abused its discretion involves far more than a difference in
judicial opinion. Gilbert v DaimlerChrysler Corp, 470 Mich 749, 761-762, 685 N.W.2d 391
(2004). “Rather, an abuse of discretion occurs only when the trial court’s decision is outside the
range of reasonable and principled outcomes.” Saffian v Simmons, 477 Mich 8, 12; 727 NW2d
132 (2007).
-9-
Liability & Prop Pool, 473 Mich 188, 198; 702 NW2d 106 (2005). A contract is ambiguous
when two provisions “irreconcilably conflict with each other,” Klapp v United Ins Group
Agency, Inc, 468 Mich 459, 467, 663 NW2d 447 (2003), or “when [a term] is equally susceptible
to more than a single meaning,” City of Lansing Mayor v Pub Service Comm, 470 Mich 154,
166; 680 NW2d 840 (2004). Whether a contract is ambiguous is a question of law. Wilkie,
supra at 47. Only when contractual language is ambiguous does its meaning become a question
of fact. Port Huron Ed Ass’n v Port Huron Area School Dist, 452 Mich 309, 323; 550 NW2d
228 (1996).
“The cardinal rule in the interpretation of contracts is to ascertain the intention of the
parties.” Zurich Ins Co v CCR & Co (On Reh), 226 Mich App 599, 603; 576 NW2d 392 (1997)
(internal quotes and citation omitted). “When the terms of a contract are unambiguous, their
construction is for this Court to determine as a matter of law.” Hubbell, Roth & Clark, Inc, v Jay
Dee Contractors, Inc, 249 Mich App 288, 291; 642 NW2d 700 (2001). A contract is read as a
whole, with meaning given to all terms, and technical, constrained constructions are avoided.
Singer v American States Ins, 245 Mich App 370, 374; 631 NW2d 34 (2001). “When the
parties’ intent in a . . . contract cannot be ascertained from the evidence submitted, any
ambiguities should be construed against the drafter.” Farmers Ins Exch v Kurzmann, 257 Mich
App 412, 417-418, 668 NW2d 199 (2003) (citations & internal quotation marks omitted).
“Ambiguities in a contract generally raise questions of fact for the jury; however, if a contract
must be construed according to its terms alone, it is the court’s duty to interpret the language.”
Id. at 418. The Court must determine the intent of the parties “by reference to the contract
language alone,” and may not look to extrinsic evidence to assess intent. Hubbell, Roth & Clark,
Inc, supra. But in “construing any contract . . . the court will ascertain the intent of the parties
both from the language used and from the surrounding circumstances.” Zurich Ins Co, supra at
607.
The terms of the agreement between plaintiff and Oakwood do not irreconcilably conflict
with one another, and therefore, the contract is unambiguous. Further, the duty imposed on
plaintiff (the “Service”) is not reasonably susceptible to more than one interpretation. The only
duty imposed on plaintiff was “to discuss the application of certain Medicare reimbursement
principles . . . .” The agreement further states: “For the avoidance of doubt, a description of the
Service has been initialed by each party and set forth as Exhibit A.” (Emphasis added.) Exhibit
A, initialed by both McKay and Torossian (Oakwood corporate director of revenue
management), states: “The service provided to Oakwood Healthcare System will be limited to
achieving a successful reclass, for the purpose of wages, to the Ann Arbor Metropolitan
Statistical Area.”
Oakwood’s argument is, in concise form, that the contract must be interpreted as a matter
of law to provide that plaintiff was only required to assist in a reclassification application under
42 CFR 412.234. This argument lacks merit. Neither the body of the agreement, nor Exhibit A
thereto, mentions 42 CFR 412.234. The agreement cannot reasonably be interpreted, as a matter
of law, to be limited to an application under § 412. Accordingly, the trial court did not err in
denying defendants’ motions for summary disposition, or in denying their motions for JNOV,
and did not abuse its discretion in denying their motions for a new trial.
While Oakwood’s argument, that contracts are interpreted to effectuate the intent of the
parties at the time the contract was made, is supported by authority, Sobczak v Korwicki, 347
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Mich 242, 249; 79 NW2d 471 (1956), that does not mean that Oakwood’s proposed
interpretation must prevail. As noted above, nothing in the plain language of the main
agreement, or in Exhibit A thereto, suggests that plaintiff’s work would be limited to assisting
with a § 412 application. Rather, both the plain language of the agreement, and Exhibit A, state
that plaintiff’s service would be, broadly, to discuss the application of Medicare reimbursement
principles, but that such service would be limited to achieving a successful geographic
reclassification, for purposes of wages. Since the agreement is silent on the question of whether
the limitation in Exhibit A would limit plaintiff’s work to assisting with a § 412 application, we
must rely on the broad language in the body of the agreement that describes plaintiff’s duty as
the duty to discuss Medicare reimbursement principles. The agreement cannot reasonably be
read to limit plaintiff’s duty to assisting with a § 412 application.
Oakwood argues that Torossian inadvertently initialed Exhibit A, that it is undisputed
that she lacked authority to do so, and that, as initialed, it was not returned to plaintiff. But
Oakwood cites no evidence that the initialing was inadvertent. In addition, it is undisputed that
the main agreement was properly executed, and the language of the main agreement
acknowledges that Exhibit A “has been initialed by each party . . . .” Therefore, to accept
Oakwood’s contention that Exhibit A was not initialed would be to contravene the plain
language of the agreement.
Even assuming, arguendo, that Exhibit A was not properly initialed by an Okawood
representative we still reject Oakwood’s contention, because the language of the main agreement
is not limited to pursuing an application under § 412. The trial court did not err in denying
defendants’ motions for summary disposition, or in denying their motions for JNOV, and did not
abuse its discretion in denying their motions for a new trial.
B
Oakwood next argues that it is entitled to JNOV, summary disposition, or a new trial,
because its contract with plaintiff was void ab initio, as a contingent-fee contract for lobbying,
since such contracts are against public policy. We disagree.
In Michigan, “courts will not enforce . . . a contract which violates a statute or which is
contrary to public policy.” Shapiro v Steinberg, 176 Mich App 683, 687; 440 NW2d 9 (1989).
Michigan courts “respect the freedom of individuals freely to arrange their affairs via contract by
upholding . . . that unambiguous contracts are not open to judicial construction and must be
enforced as written, unless a contractual provision would violate law or public policy.”
Bloomfield Estates Improvement Ass’n, Inc v City of Birmingham, 479 Mich 206, 212; 737
NW2d 670 (2007) (internal italics, ellipses, quotation marks, citations and brackets omitted;
emphasis added).
In Federoff v Ewing, 386 Mich 474, 480-481; 192 NW2d 242 (1971), our Supreme Court
stated: “We in legal Michigan are committed to the so-called broad rule; that whether a contract
or contractual provision is contrary to public policy depends upon its purpose and tendency and
not upon an actual showing of public injury.” (Emphasis added.) Federoff extensively discussed
Mahoney v Lincoln Brick Co, 304 Mich 694, 705-707; 8 NW2d 883 (1943), which involved a
contract in which the plaintiff agreed to sell defendant brick and tile for state buildings to be
constructed. The defendant agreed to pay the plaintiff “$2 per thousand on brick and six per cent
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on the price of tile sold.” Id. at 695. Our Supreme Court affirmed a circuit court decision
refusing to enforce the contract against the defendant, on the grounds that the contract was
against public policy. Id. at 705-706.
Lobbying is defined by statute in Michigan to mean “communicating directly with an
official in the executive branch of state government or an official in the legislative branch of
state government for the purpose of influencing legislative or administrative action.” MCL
4.415(2).
In addition, for purposes of public policy, our case law only considers “lobbying” a
contract that calls for the exertion of personal or political influence, as opposed to meritorious
advocacy or technical expertise. In Mahoney, our high court stated:
Any contract under which the parties proposed and intended by political
influence or coercion to affect the judgment and decision of such architects in the
selection of materials would be contra bonos mores and void. The testimony is
convincing that the parties intended that plaintiff would use or attempt to use such
political influence, pressure, and means as he could to induce the purchase of
defendant’s brick and tile. This was clearly an attempt to exercise improper
influence on State-employed architects in respect to public business entrusted to
them. The record is barren of any proof that plaintiff had the influence he claimed
for himself, except by inference. However, such type of contract is against the
public good and is void. [Mahoney, supra at 705 (emphasis added).]
Similarly, in Hays v City of Kalamazoo, 316 Mich 443, 462-463; 25 NW2d 787 (1947),
our Supreme Court cited and discussed, favorably, a Texas decision that made this distinction:
In Galveston County v. Gresham, (Tex. Civ.App.), 220 S.W. 560, 563, the
court of civil appeals of Texas upheld an agreement between county authorities
and an attorney for the rendition of services in connection with placing before
congress the desirability of the construction of a sea wall within the county. It
was held that the project was properly to be regarded as county business. In
answer to the claim that the agreement contravened public policy in that it was a
lobbying contract, the court referred to the conclusion reached by the lower court
that there was no evidence to support such charge, and said: ‘To say that the
record justifies this conclusion is putting it mildly, when, by the uncontroverted
testimony, ‘to represent the county as its attorney before the proper committee or
committees of Congress in the matter of the sea wall’ was carried out by the
appellee's simply appearing publicly before the river and harbors committee of
Congress, explaining and urging its approval of the protective improvement, and
that with no attempt at, nor thought of using his personal influence with any
member of Congress. Such is not this court’s conception of what it takes to make
a ‘lobbying’ contract.’
Hays also discussed an Iowa decision:
A similar conclusion was reached by the supreme court of Iowa in Kemble
v. Weaver, 200 Iowa 1333, (206 N.W. 83). There a board of supervisors, acting
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on behalf of a public drainage district, employed attorneys to appear before
State legislature for the purpose of obtaining an appropriation to pay
assessment on State-owned lands. The agreement was upheld as against
contention that it violated a rule of public policy against lobbying contracts,
court pointing out that no improper influences were exerted on members of
legislature. [Hays, supra at 463.]
the
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In an older case, Beal v Polhemus, 67 Mich 130, 132-133; 34 NW 532 (1887), our high Court
stated:
It is contended, in an able argument by the counsel for the defendant, that
the contract is void as opposed to public policy. This argument is based upon the
assumption that Beal, who was a prominent member and leader of the then
dominant party in the nation, sold his influence with our senators, and that this
contract was given in payment for such influence; that, in consideration of the
payment of the sum therein mentioned, Beal stipulated to exert his personal and
party influence upon an officer of the government. And it is claimed that such
personal influence cannot be a matter of bargain and sale to be enforced by the
courts. He cites an extract from the opinion of the United States supreme court in
the case of Oscanyan v. Arms Co., 103 U.S. 261, in which it is said that “personal
influence to be exercised over an officer of the government in the procurement of
contracts is not a vendible article in our system of laws and morals, and the
courts of the United States will not lend their aid to the vender to collect the price
of this article.” We fully indorse this language, and we agree in much that was
said upon the argument as to the deplorable effect of corruption in the
governmental service, and the necessity of courts refusing in any and all cases any
aid to those who are seeking to recover the price of their labors as lobbyists, either
before congress or any department of the government. [Emphasis added.]
Accordingly, the lobbying contract that Michigan public policy prohibits, is a contract for
exerting personal influence.5
We find that Oakwood’s contract with McKay is not void ab initio or against public
policy, as it is not a contingent-fee contract for lobbying. By its plain and unambiguous terms,
Oakwood’s contract with McKay was only a contract to “discuss the application of certain
Medicare reimbursement principles . . . .” There is no evidence that McKay lobbied state
officials, and there is no indication in Oakwood’s contract that it was contracting for McKay to
exert personal influence on the federal government.6 Therefore, the contract at issue was not a
5
In addition, in Michigan, “[l]obbying does not include the providing of technical information
by a person other than a person defined in subsection (5) or an employee of a person as defined
in subsection (5) when appearing before an officially convened legislative committee or
executive department hearing panel.” MCL 4.415(2).
6
That McKay took it upon itself to engage in contacts with officials of the federal government to
enhance the potential for the success of Oakwood’s reimbursement application does not change
(continued…)
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“lobbying contract” of the kind, the enforcement of which, is prohibited by public policy.7 The
trial court therefore did not err in denying Oakwood summary disposition and JNOV, and did not
abuse its discretion in denying Oakwood a new trial.
C
Oakwood next argues that since the provision under which recovery was obtained, § 508,
did not exist at the time the contract was entered into, the trial court erred in denying its motion
for remittitur because the damages awarded exceeded the parties’ contractual expectation interest
at the time of contracting, leaving McKay with a windfall. We review a trial court’s decision on
a motion for remittitur for an abuse of discretion. Coble v Green, 271 Mich App 382, 392; 722
NW2d 898 (2006).
Oakwood’s argument lacks merit. Before § 508 became an option, the parties anticipated
that the § 412 applications might net millions of dollars for the hospitals. For fiscal year 2003,
the wage index for the Detroit MSA was 1.006, whereas the wage index for Ann Arbor was
1.1029, and the wage index for Flint was 1.0814. Thus, it was in the interest of Wayne county
hospitals to apply (and they did apply) to be reclassified to the Ann Arbor wage index. Such a
reclassification would have resulted in a wage index of 1.0547, the average of the Detroit MSA
wage index and the Ann Arbor MSA wage index. By such a reclassification, Wayne county
hospitals stood to gain about $27 million per annum for inpatient payments. Thus, the jury’s
award against Oakwood, of $2,324,897, was not excessive, nor did it exceed the expectation
interests of the parties. The trial court did not abuse its discretion in denying the motion for
remittitur.
D
Next, St. John argues that the trial court erred in granting McKay’s motion in limine
regarding lobbying, precluding defendants from arguing that a contingent fee contract for
lobbying is void as against public policy, and that it is entitled to JNOV or a new trial. We
disagree.
This Court reviews a trial court’s decision on a motion in limine for an abuse of
discretion. Bartlett v Sinai Hosp, 149 Mich App 412, 418; 385 NW2d 801 (1986). Whether a
contract violates public policy is a question of law that this Court reviews de novo. Royal
Property Group, LLC v Prime Ins Syndicate, Inc, 267 Mich App 708, 721; 706 NW2d 426
(2005).
Whether a contract violates public policy is a question of law. Cardinal Mooney High
School v Michigan High School Athletic Ass’n, 437 Mich 75, 80; 467 NW2d 21 (1991). Juries
decide questions of fact, see, e.g., Bertrand v Alan Ford, Inc, 449 Mich 606, 617; 537 NW2d 185
(…continued)
the plain meaning of the services contracted for by Oakwood.
7
Because we find that the contracts at issue are not lobbying contracts, it is not necessary for us
to consider Oakwood’s argument that the enforcement of these contracts is prohibited by the
Byrd amendment, 31 USC 1352(a)(1), under federal law.
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(1995), while courts decide questions of law, see, e.g., Riddle v McLouth Steel Products Corp,
440 Mich 85, 96; 485 NW2d 676 (1992). Thus, while the trial court could properly submit to the
jury the factual question of whether there was lobbying, it would not have been proper for the
trial court to allow the jury to decide, as a matter of law, whether the contracts were void ab
initio. Therefore, the trial court did not abuse its discretion in granting plaintiff’s motion in
limine. To have denied plaintiff’s motion in limine, would have allowed defendants to present to
the jury a legal question (whether the contract was void as against public policy) that was beyond
the jury’s proper role.
Moreover, we have concluded above that Oakwood’s contract was not a contract for
lobbying. St. John’s contract with McKay is substantially similar in those respects that are
relevant to this issue. Therefore, St. John’s contract with McKay also fails the test of being a
contract for lobbying, and St. John is, as a result, not entitled to JNOV or a new trial.
E
Next, St. John argues that McKay was not entitled to contract damages in excess of the
annual cap of $850,000 contained in St. John’s contract with McKay, and that this contract
covered St. John’s Wayne county and Oakland county hospitals. St. John argues that the trial
court erred in denying its motion for partial summary disposition, its motion for directed verdict,
and its motion for partial judgment notwithstanding the verdict. This Court reviews the trial
court’s denial of a motion for summary disposition motion de novo. Willett, supra. This Court
reviews rulings on a motion for directed verdict de novo. Coates, supra at 502. This Court
reviews rulings on a motion for JNOV de novo. Garg, supra at 272.
Whether a contract is ambiguous is a question of law. Wilkie, supra at 47. We conclude
that the trial court did not err in finding that, on this narrow question, the written agreement is
ambiguous. The written agreement is between plaintiff and “St. John Health.” St. John argues
that, on its face, St. John Health is the equivalent of all hospitals in the St. John Health Hospital
system, but it points to no evidence that validates this conclusory assertion. We agree with the
trial court that absent additional evidence of the meaning of the words “St. John Health,” the
term is silent on the question of whether it applies only to St. John’s Wayne county hospitals, or
also to its Oakland county hospitals and could therefore reasonably be interpreted either way on
that question. Accordingly, the trial court did not err in permitting the jury to determine whether
there was one contract or two contracts between McKay and St. John Health. The jury’s
conclusion, that there was a separate oral contract for St. John’s Oakland county hospitals, is a
final finding of fact on this record.8 An appellant cannot flatly argue “the jury’s conclusion was
wrong.” It is axiomatic that, in Michigan law, on a question of fact, this Court will not substitute
its judgment for that of the trier of fact. Ellsworth v Hotel Corp of America, 236 Mich App 185,
194; 600 NW2d 129 (1999). The trial court did not err in denying St. John’s motion for partial
summary disposition, its motion for directed verdict, and its motion for partial JNOV.
8
We note that St. John did not challenge the jury’s finding of fact, that there was a separate oral
agreement between McKay and St. John’s Oakland county hospitals, as against the great weight
of the evidence.
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F
Next, St. John argues that “judgment as a matter of law” should be granted to it on the
claim of an oral contract for its Oakland county hospitals, because, under the statute of frauds,
that contract could not have been performed within one year. This Court reviews a ruling on a
summary disposition motion de novo. Willett, supra at 45. Whether a statute of frauds bars
enforcement of a contract is a question of law reviewed de novo. Kloian v Domino’s Pizza,
LLC, 273 Mich App 449, 458; 733 NW2d 766 (2006).
Michigan’s principal statute of frauds, MCL 566.132, provides, in pertinent part:
(1) In the following cases an agreement, contract, or promise is void unless that
agreement, contract, or promise, or a note or memorandum of the agreement,
contract, or promise is in writing and signed with an authorized signature by the
party to be charged with the agreement, contract, or promise:
(a) An agreement that, by its terms, is not to be performed within 1 year from the
making of the agreement. [Emphasis added.]
Well-established principles guide our construction of statutes. The Healing Place at
North Oakland Med Ctr v Allstate Ins Co, 277 Mich App 51, 58; ____ NW2d ____ (2007)
(internal quotation marks and citations omitted). We give effect to legislative intent as expressed
in the statute’s terms, giving the words thereof their plan and ordinary meanings. The Healing
Place, supra at 58-59, citing McManamon, supra at 135. When the statutory language poses no
ambiguity, we do not look beyond its words, nor need we construe it, but we merely enforce it as
written. The Healing Place, supra at 59 (internal quotation marks and citations omitted).
As noted, supra, the written contract between McKay and St. John is ambiguous as to
what “St. John Health” means, and therefore, the trial court correctly permitted the jury to
determine whether there was a separate oral contract covering St. John’s Oakland county
hospitals. The jury’s finding that there was a separate oral contract for St. John’s Oakland
county hospitals is supported by the evidence. Therefore, we next consider whether the
agreement was barred by the statute of frauds. MCL 566.132.(1)(a).
“To determine whether an agreement comes within this section, the proper inquiry is
whether the contract is capable of performance within one year of the agreement.” Dumas v
Auto Club Ins Ass’n, 437 Mich 521, 533; 473 NW2d 652 (1991) (opinion by Riley, J.). We have
construed the one-year rule strictly:
[I]f there is any possibility that an oral contract is capable of being
completed within a year, it is not within the statute of frauds, even though it is
clear that the parties may have intended and thought it probable that it would
extend over a longer period and even though it does so extend. [Drummey v
Henry, 115 Mich App 107, 111; 320 NW2d 309 (1982). Emphasis added.] [Hill
v Gen Motors Acceptance Corp, 207 Mich App 504, 509-510; 525 NW2d 905
(1994) (emphasis in Drummey).]
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Thus, “[t]he rule is that, by any possibility, it is capable of being completed within a year, it is
not within the statute . . . .” Dumas, supra at 533 (citations omitted).
Naturally, before we can ascertain whether the oral agreement (the existence of which we
must accept, since the trier of fact found it) could be performed within one year, we must
ascertain its terms. St. John argues that the oral contract, by its terms, for full performance,
required the service to take place, and payment of 15% of reimbursement to occur. Thus, the
parties agree that the terms of the oral agreement were the same as the written agreement with St.
John, except that the oral agreement lacked the annual fee cap of $850,000. In other words, the
terms of the oral agreement were, concisely, as follows: St. John would pay to McKay a fee of
15 percent of the additional Medicare reimbursement received by St. John’s Oakland hospitals as
a result of this service for the three years for which the service has effect.
Notably, the service (discussing Medicare reimbursement principles) does not necessarily
occur over three years; it merely has effects (and indeed, only potential effects) over three years.
Thus, plaintiff could have discussed Medicare reimbursement principles with St. John within one
year of the oral agreement, and that discussion (plaintiff’s performance) would have been
completed within one year. More notably still, it was possible that plaintiff could have
completed its discussion of Medicare principles, and the St. John Oakland county hospitals could
have been finally denied additional reimbursement, within one year of the oral agreement. Thus,
using the strict construction of the statute of frauds required by our precedent, we find that the
oral agreement was capable of being performed within one year. Hill, supra at 509-510. The
statute of frauds, therefore, does not apply, and the trial court correctly refused to grant summary
disposition, or JNOV, on this issue.
G
Next, St. John argues that it is entitled to a new trial, because the trial court’s denial of its
motion to sever resulted in substantial and actual prejudice to it. Although this Court reviews for
an abuse of discretion a circuit court’s decision on a motion to sever, the decision to sever trials
should be ordered only upon the most persuasive showing that the convenience of all parties and
the court requires it. LeGendre v Monroe Co, 234 Mich App 708, 719; 600 NW2d 78 (1999).
MCR 2.206 allows joinder of defendants where the right to relief arises out of “the same
transaction, occurrence, or series of transactions or occurrences and if a question of law or fact
common to all of the defendants will arise,” or if the presence of several defendants “will
promote the convenient administration of justice.” Here, McKay approached both Oakwood and
St. John to try to get them to participate in a group application for geographic reclassification
from the Detroit MSA to the Ann Arbor MSA, for purposes of the wage index. Once both
Oakwood and St. John, and other hospital-owning entities, signed-onto the project, they all
worked together to achieve its success. Thus, the agreements with Oakwood and St. John were
part of the same transaction, or series of transactions.
There were common issues of law and fact. Common issues of fact included whether and
to what extent the actual performance of the agreements included activity that could be
considered lobbying. Common issues of law included whether the contracts were void as against
public policy, and whether they were ambiguous regarding whether they only applied to the §
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412 application, or also applied to the money received via the § 508 applications. In light of the
foregoing, the trial court did not abuse its discretion in denying St. John’s motion to sever.
H
St. John argues, finally, that the jury’s award of damages, premised on a contingent fee
for reimbursements received under § 508, was excessive, because the damages awarded were
note based on the parties’ expectation interest, formulated in connection with the § 412
application, and were not foreseeable, requiring JNOV, a new trial, or remittitur. For the reasons
set forth in section II C, supra, which rejects Oakwood’s similar argument, this argument by St.
John also lacks merit.
III
The trial court did not err in denying summary disposition and JNOV to Oakwood and St.
John, and did not abuse its discretion in denying them a new trial and remittitur. The trial court
did not err in granting McKay’s motion in limine regarding lobbying. The trial court did not err
in denying a directed verdict to St. John. Finally, the trial court did not abuse its discretion in
denying St. John’s motion to sever.
Affirmed.
/s/ Christopher M. Murray
/s/ Joel P. Hoekstra
/s/ Kurtis T. Wilder
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