MASON COUNTY V DEPARTMENT OF COMMUNITY HEALTH
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STATE OF MICHIGAN
COURT OF APPEALS
MASON COUNTY and OCEANA COUNTY,
FOR PUBLICATION
August 2, 2011
9:10 a.m.
Plaintiffs-Appellees,
v
DEPARTMENT OF COMMUNITY HEALTH,
DIRECTOR of DEPARTMENT OF
COMMUNITY HEALTH, DIRECTOR of
COMMUNITY MENTAL HEALTH SERVICES
BUREAU, and DIRECTOR of PROGRAM
DEVELOPMENT CONSULTATIONS &
CONTRACTS DIVISION,
No. 295365
Mason Circuit Court
LC No. 08-000269-CK
Defendants-Appellants,
and
WEST MICHIGAN COMMUNITY MENTAL
HEALTH SYSTEM and RICHARD
VANDENHEUVEL,
Defendants-Appellees.
Before: SAAD, P.J., and JANSEN and K. F. KELLY, JJ.
PER CURIAM.
The state defendants’1 appeal of right the trial court’s order granting summary disposition
and declaratory relief to plaintiffs Mason County and Oceana County (hereinafter county
plaintiffs). The appeal requires us to consider the statutory relationship between a community
1
The state defendants, the Department of Community Health, the director of the Department of
Community Health, the director of Community Mental Health Services Bureau, and the director
of the Program Development Consultations and Contracts Division, in their capacity as
defendants in this suit, will be referred to simply as “defendants.”
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mental health (CMH) authority, a county and the state Department of Community Health (DCH).
The trial court concluded that defendant West Michigan Community Mental Health System
(WMCMHS), a CMH authority, and county plaintiffs were engaged in an arms-length
transaction because under statute county plaintiffs did not have the ability to control or
significantly influence WMCMHS. As a result, the trial court awarded county plaintiffs
declaratory relief and concluded that they were owed rent under their contract with WMCMHS.
We agree and affirm.
I. BASIC FACTS AND PROCEDURAL BACKGROUND
This case concerns whether WMCMHS can breach contracts to pay rent to plaintiffs as a
result of its contract with defendant DCH. WMCMHS is a CMH authority created in 1997 by
Mason, Oceana, and Lake Counties under the procedures outlined in the mental health code,
MCL 330.1001 et seq. Defendant DCH is the state agency that oversees and funds health-related
services in the state of Michigan. In particular, it is the state agency that receives federal
Medicaid money and disperses that money to healthcare providers throughout the state, including
WMCMHS. WMCMHS and defendants are parties to a services contract that requires
WMCMHS to “maintain all pertinent financial and accounting records,” using the Office of
Management and Budget (OMB) Circular A-87 to determine all costs.
WMCMHS is housed in two buildings owned by county plaintiffs: Mason County’s
Madden Building and Oceana County’s Lincoln Street Building. The Madden Building was
built in 1987 and was paid for through bonds retired by using federal and state funds. The
original rental contract was a sublease agreement between Mason County and its department of
mental health board in effect from 1987 to 2003. Oceana County’s Lincoln Street Building was
purchased in 1987 by Oceana County for mental health services at that time administered by its
department of community mental health services. Oceana County and its department entered
into a ten-year lease.
When it was created in 1997, WMCMHS assumed the lease agreements with both
Oceana and Mason counties for the Madden Building and the Lincoln Street Building. In 2003,
WMCMHS and Mason County renegotiated the lease for a ten-year period, requiring annual rent
of $100,000, payable in semi-annual installments. In 2005, Oceana County and WMCMHS
agreed to a one-year extension of the Lincoln Street Building lease, which provided for monthly
payments of $3,125.
In November 2006, defendant DCH issued guidelines in which it stated that mental health
authorities’ expenditures must comply with the provisions in OMB Circular A-87 concerning
less-than-arms length transactions. OMB Circular A-87 states:
c. Rental costs under “less-than-arms-length” leases are allowable only up to the
amount (as explained in Attachment B, section 37.b) that would be allowed had
title to the property vested in the governmental unit. For this purpose, a less-thanarms-length lease is one under which one party to the lease agreement is able to
control or substantially influence the actions of the other. Such leases include,
but are not limited to those between (i) divisions of a governmental unit; (ii)
governmental units under common control through common officers, directors, or
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members; and (iii) a governmental unit and a director, trustee, officer, or key
employee of the governmental unit or his immediate family, either directly or
through corporations, trusts, or similar arrangements in which they hold a
controlling interest. For example, a governmental unit may establish a separate
corporation for the sole purpose of owning property and leasing it back to the
governmental unit. [Emphasis added.]
As a result, defendant DCH indicated that it would only use Medicaid monies to reimburse actual
costs for health authorities engaged in less-than-arms-length transactions with local
governments. In 2006, aware of defendants’ position on the rental of county-owned buildings
and believing that it had engaged in less-than-arms-length transactions with plaintiffs,
WMCMHS decided to withhold rent payments from county plaintiffs.
Plaintiffs brought this declaratory action in the Mason Circuit Court in July 2008, seeking
a judgment declaring that neither Mason County nor Oceana County was able to control or
substantially influence WMCMHS and, therefore, the leases they held were arms-length
transactions for which WMCMHS had a legal obligation to make rental payments. They further
sought a declaration that WMCMHS had the legal right to use state funds and local matching
funds for the leases.
Defendants moved for summary disposition, arguing that they had sovereign immunity,
that plaintiffs failed to state a cause of action against them and therefore the circuit court lacked
jurisdiction, and that plaintiffs lacked standing to challenge any contractual disputes arising
between defendants and WMCMHS because they were not parties to the contract. WMCMHS
responded in opposition, arguing that the true nature of the action was the interrelationship of its
lease contracts with plaintiffs and its service contract with defendants. Plaintiffs concurred in
these conclusions, asserting the lease amounts were not in dispute and were at or below fair
market value. The real question concerned the legal relationship between plaintiffs, defendants,
and WMCMHS.
The circuit court denied defendants’ motion, finding it had jurisdiction because Lake and
Mason Counties were within its geographical jurisdiction and the rights and responsibilities
regarding buildings owned by plaintiffs were in dispute. Although most of the funding at issue
came from federal sources, the circuit court concluded that that did not deprive the state court of
jurisdiction. The circuit court also found that plaintiffs had standing because they had an interest
in the contract WMCMHS had with the state. Complying with defendants’ guidelines
concerning OMB Circular A-87 made it impossible for WMCMHS to fulfill its contract with
plaintiffs.
In August 2009, defendants filed a second motion for summary disposition and plaintiffs
filed their own motion for summary disposition. Defendants argued for the first time that
jurisdiction was only proper in the Court of Claims because plaintiffs sought an interpretation of
a state contract and indirectly brought a claim for money damages against the state. Defendants
also reargued that plaintiffs lacked standing, plaintiffs illegally failed to transfer the countyowned buildings to WMCMHS upon its creation, as required by MCL 330.1205(3)(a), the leases
were not arms-length transactions, Oceana County was estopped from receiving rent payments
because of representations it made to the state in order to receive state financing for renovations
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of the Lincoln Building, and Mason County should not receive rental income from WMCMHS
because such income amounted to unjust enrichment given the state money used to finance the
Madden Building. Finally, defendants also argued for the first time that the Centers for
Medicare and Medicaid Services (CMS), the federal agency that oversees Medicaid, was a
required party to the lawsuit because federal money was implicated. Plaintiffs argued in their
summary disposition motion that there was no question of fact that they did not control
WMCMHS and the evidence shows the leases were negotiated at arms-length and were at or
below fair market rates.
The trial court granted plaintiffs’ motion for summary disposition. The circuit court
found plaintiffs had standing because defendants’ policy meant plaintiffs were no longer getting
their rent payments. The court also found that jurisdiction was proper because the issues
involved local entities more than the state. It concluded that plaintiffs’ mere ability to create the
mental health authority board did not amount to control and that there were numerous other
appointed bodies that were not controlled by the appointing authority. The court also held that
MCL 330.1224 did not allow at-will removal of board members. Thus, the court found the
leases were arms-length transactions.
The circuit court briefly addressed the other issues, finding that CMS did not need to be
joined, plaintiffs were not required to transfer the buildings to WMCMHS because the buildings
were not assets of the county agency, and county plaintiffs were not unjustly enriched by
receiving rents because the counties remained separate from the mental health authority.
Defendants objected to plaintiff’s proposed order, and a hearing was held on their
objections. The proposed order included not only a declaration that WMCMHS and plaintiffs
had an arms-length relationship in their lease agreements, but also that WMCMHS is legally
obligated to pay the accumulated lease payment to both counties and that defendants could not
declare the lease payments between the counties and WMCMHS ineligible. Defendants objected
to the implicit ruling that plaintiffs were “absolutely entitled to the reimbursement for these
rents” in addition to a ruling that these were arms-length transactions. WMCMHS agreed with
this position and argued that the court should not declare that it had an ongoing responsibility to
pay the rent. Defendants proposed an order that held that plaintiffs and WMCMHS have an
arms-length relationship, CMS did not need to be joined, and plaintiffs were not obligated to
transfer ownership of the buildings to WMCMHS when they created that entity.
At a hearing on defendants’ objections, the circuit court ruled that the rent was owed and
that the dollar amount was uncontested. Therefore, plaintiffs had a right to protect the amount
owed through the creation of an escrow account or by defendants posting a bond. The order that
the trial court ultimately entered found plaintiffs did not have the ability to control or
substantially influence WMCMHS and the leases between plaintiffs and WMCMHS were not
less-than-arms-length transactions. The court also found WMCMHS had a legal obligation to
pay the past-due rent and future rents due under the leases “unless there is a substantial or
material change in circumstances that applies in the future.” The court held that WMCMHS “has
the legal right to use Federal Medicaid, State general and local matching funds” to make the
lease payments. In addition, the court held that plaintiffs were not required to transfer their
buildings to WMCMHS, the Court of Claims did not have exclusive jurisdiction, plaintiffs did
not lack standing, CMS was not a necessary party, the order was stayed pending appeal, and
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WMCMHS had to “take actions” to escrow the amounts due under the leases or, alternatively, to
post a bond to ensure payment. Defendants now appeal.
II. JURISDICTION
Defendants argue that the Court of Claims had exclusive jurisdiction over plaintiffs’
claims and, as a result, the circuit court lacked subject matter jurisdiction to issue its order. We
disagree. Whether a circuit court has jurisdiction over a particular case is a question of law
subject to de novo review. Sierra Club Mackinac Chapter v Dep’t of Environmental Quality,
277 Mich App 531, 544; 747 NW2d 321 (2008).
Under the Michigan Constitution, the circuit court has “original jurisdiction in all matters
not prohibited by law[.]” Const 1963, art 6, § 13; Lapeer Co Clerk v Lapeer Circuit Judges, 465
Mich 559, 568; 640 NW2d 567 (2002). The Court of Claims has exclusive jurisdiction over “all
claims and demands, liquidated and unliquidated, ex contractu and ex delicto, against the state
and any of its departments, commissions, boards, institutions, arms, or agencies.” MCL
600.6419(1)(a). This includes declaratory claims “against the state that involve contract or tort
without more[,]” even where money damages are not sought. Parkwood Ltd Dividend Housing
Ass’n v State Housing Dev Auth, 468 Mich 763, 773; 664 NW2d 185 (2003).
Thus, the Court of Claims, while having exclusive jurisdiction over
complaints based on contract or tort that seek solely declaratory relief against the
state, also has concurrent jurisdiction [with the circuit court] over complaints
seeking declaratory and equitable relief not based on tort or contract if ancillary to
a contract or tort claim. . . . [Duncan v State of Michigan, 284 Mich App 246,
286-287; 774 NW2d 89 (2009), vacated in part on other grounds and aff’d in part
486 Mich 906, vacated 486 Mich 1071, reinstated 488 Mich 957, recon den 488
Mich 1011 (2010).]
In this case, plaintiffs’ underlying claim is one for breach of contract against WMCMHS.
That breach of the contract between plaintiffs and WMCMHS occurred as a result of
WMCMHS’s contract with defendants. Not being parties to the contract between defendants and
WMCMHS, however, plaintiffs have no rights under that contract and could not seek a
declaratory ruling regarding the contract with the state at the Court of Claims. Although
defendants tried to pose this as a suit by plaintiffs for tortious interference with a contract, such a
suit would have no basis if, in fact, defendants were correctly interpreting the statutes and OMB
Circular A-87. Thus, there is only one possible underlying action: a simple breach of contract
between two parties, plaintiffs and WMCMHS, neither of which is a state agency. At best, then,
the Court of Claims would have concurrent jurisdiction over the action because it is ancillary to a
state contract. Duncan, 284 Mich App at 286-287. Still, the circuit court would retain
concurrent jurisdiction, and the circuit court did not err in concluding that it had subject matter
jurisdiction.
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II. ARMS-LENGTH TRANSACTION
Defendants’ next issue on appeal is that the circuit court erred in concluding that under
the mental health code plaintiffs did not have the ability to control WMCMHS and, as a result,
an arms-length transaction existed between plaintiffs and WMCMHS. We disagree.
A. STANDARD OF REVIEW
Statutory interpretation is a question of law that we consider de novo on appeal. Detroit
v Ambassador Bridge Co, 481 Mich 29, 35; 748 NW2d 221 (2008). We review for clear error
the circuit court’s factual findings. MCR 2.613(C); Pine Bluffs Area Prop Owners Ass’n, Inc v
DeWitt Landing & Dock Ass’n, 287 Mich App 690, 711; 792 NW2d 18 (2010).
The primary goal when interpreting statutes is “to give effect to the intent of the
Legislature.” Nastal v Henderson & Assocs Investigations, Inc, 471 Mich 712, 720; 691 NW2d
1 (2005). We give the words of the statute their common and ordinary meanings, and if the
language is clear, we presume that “the Legislature intended the meaning it clearly expressed and
further construction is neither required nor permitted. Id. To make effective the Legislature's
intent through statutory construction, the changes in an act must be construed in light of the act's
predecessor statutes and the law's historical development. Advanta Nat’l Bank v McClarty, 257
Mich App 113, 120; 667 NW2d 880 (2003).
B. STATUTORY HISTORY
Before addressing the merits of defendants’ argument, we first examine the historical
development of the mental health code and the changes in the provision of mental health services
made in 1995. The Michigan Constitution requires the Legislature to pass “suitable laws for the
protection and promotion of the public health.” Const 1963, art 4, § 51. Through that grant of
power, the Legislature codified the mental health code, § 116(e) of 1974 PA 258, in which the
Legislature directed that the Department of Mental Health (DMH):2
(i) [S]hall administer the provisions of chapter 2 so as to promote and
maintain an adequate and appropriate system of county community mental health
services throughout the state.
(ii) In the administration of chapter 2, it shall be the objective of the
department to shift from the state to a county the primary responsibility for the
direct delivery of public mental health services whenever such county shall have
2
Prior to 1996, the Department of Community Health was the Department of Mental Health.
See MCL 330.3101 (Executive Reorganization Order No 1996-1).
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demonstrated a willingness and capacity to provide an adequate and appropriate
system of mental health services for the citizens of such county.
In 1995, the Legislature amended the mental health code by 1995 PA 290. At that time, the
Legislature assigned DCH responsibility for providing mental health services to residents of the
state of Michigan. See MCL 330.1116(1) and (2)(a). However, the legislature directed DCH “to
shift primary responsibility for the direct delivery of public mental health services from the state
to a community mental health services program [CMHSP] whenever the [CMHSP] has
demonstrated a willingness and capacity to provide an adequate and appropriate system of
mental health services for the citizens of that service area[,]” in accord with Chapter 2 of the
mental health code. MCL 330.1116(2)(b).
In sum, according to the language of the statutes, the goal as of 1974 was to shift
responsibility for mental health services from the state to the counties, whereas in 1995 the goal
became to shift the state’s responsibility to CMHSPs. In other words, the state has always
retained primary responsibility for mental health services but the objective since 1974 has been
to shift responsibility to localities and, in 1995, the local entity changed from counties to
CMHSPs.
When the mental health code was passed in 1974, counties delivered mental health
services through “county community mental health programs.” 1974 PA 258, § 200 et seq.
These entities should not be confused with CMHSPs, that came into being under 1995 PA 290
and will be further discussed below. With respect to the 1974 “county community mental health
programs,” section 210 of 1974 PA 258 provided that a single county or combination of
adjoining counties could elect to establish a county community mental health program by a
majority vote of each county’s board of commissioners. Section 204 provided that a county
community mental health program would be “an official county agency.” 1974 PA 258, § 204.
Section 212 provided for the establishment of a 12-member county community mental health
board, to be appointed by the county board of commissioners. Id. at § 212. The county
community mental health board could not have more than four county commissioners unless the
county community mental health board was made up of more than four counties, at which point
the number of county commissioners could equal the number of counties and the 12-person
board would increase to accommodate the extra appointments. Id. at § 222. A county board of
commissioners could remove a county community mental health board member for neglect of
official duty or misconduct in office. Id. at § 224. The county board of commissioners would
approve the county community mental health board’s annual plan and budget before it was sent
to the DMH, and the county community mental health board would submit annual requests for
county funds to the county board of commissioners. Id. at § 226(c) and (e). The county was
responsible for ten percent of the net costs for services “provided by [DMH], directly or by
contract, to a resident of that county.” Id. at § 302. Subject to certain qualifications, DMH was
responsible for 90 percent of the annual net cost of a county community mental health program.
Id. at § 308.
With regard to the CMHSPs created under 1995 PA 290, § 204(1) of the act, MCL
330.1204(1), provides as follows:
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A community mental health services program established under this
chapter shall be a county community mental health agency, a community mental
health organization, or a community mental health authority. A county
community mental health agency is an official county agency. A community
mental health organization or a community mental health authority is a public
governmental entity separate from the county or counties that establish it.
[Emphasis added.]
MCL 330.1100a(18) defines a “[c]ounty community mental health agency” as:
an official county or multicounty agency created under section 210 that operates
as a community mental health services program and that has not elected to
become a community mental health authority under section 205 or a community
mental health organization under the urban cooperation act of 1967, 1967 (Ex
Sess) PA 7, MCL 124.501 to 124.512. [Emphasis added.]
A “[c]ommunity mental health organization is “a community mental health services program that
is organized under the urban cooperation act of 1967 . . . .”3 MCL 330.1100a(15). Finally, a
“[c]ommunity mental health authority” is “a separate legal public governmental entity created
under section 205 to operate as a community mental health services program.” MCL
330.1100a(14).
To understand why the Legislature altered the provision of mental health services and
created CMHSPS, we must then examine the legislative history of Senate Bill 525, which was
enacted by 1995 PA 290. In Kinder Morgan Mich, LLC v City of Jackson, 277 Mich App 159,
170; 744 NW2d 184 (2007), this Court noted that
legislative analyses are “generally unpersuasive tool[s] of statutory construction.”
Frank W Lynch & Co v Flex Technologies, Inc, 463 Mich 578, 587; 624 NW2d
180 (2001). This is because legislative analyses are prepared by House and
Senate staff members and do not necessarily represent the views of any individual
legislator. Id. at 588 n 7. “Nevertheless, ‘[c]ourts may look to the legislative
history of an act, as well as to the history of the time during which the act was
passed, to ascertain the reason for the act and the meaning of its provisions.’”
Twentieth Century Fox Home Entertainment, Inc v Dep’t of Treasury, 270 Mich
App 539, 546; 716 NW2d 598 (2006) (citation omitted). Indeed, legislative bill
3
Section 4 of the Urban Cooperation Act, MCL 124.501 et seq., provides:
A public agency of this state may exercise jointly with any other public
agency of this state, with a public agency of any other state of the United
States, with a public agency of Canada, or with any public agency of the United
States government any power, privilege, or authority that the agencies share in
common and that each might exercise separately.
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analyses do have probative value in certain, limited circumstances. North Ottawa
Community Hosp v Kieft, 457 Mich 394, 406 n 12; 578 NW2d 267 (1998); Kern v
Blethen-Coluni, 240 Mich App 333, 338 n 1; 612 NW2d 838 (2000); Seaton v
Wayne Co Prosecutor, 233 Mich App 313, 321 n 3; 590 NW2d 598 (1998).
House Legislative Analysis, SB 525, February 9, 1996 (hereinafter “Bill Analysis”)
addresses this bill.4 It notes that the bill was intended, in pertinent part, to amend the mental
health code to require a shift of primary responsibility for mental health services from the state to
CMHSPs rather than from the state to counties.5 Bill Analysis, pp 1, 7. Consistent with the
definition of “community mental health authority” found in MCL 330.1100a(14), the analysis
indicated:
A community mental health organization or a community mental health authority
would be a public governmental entity separate from the county or counties that
established it. . . . [Bill Analysis, p 8].
In the first “arguments for” section, Bill Analysis, p 35, it is noted that the changes were
intended “to provide more flexibility and authority for the locally-based CMH system,” and that
the amended code would see CMHSPs “as a single-entry point to access mental health services.”
In the second “arguments for” section, it is noted that “[p]erhaps the most significant aspect of
the bill is that direct delivery of mental health services would be shifted from the county CMH to
a new entity, the CMHSP.” Id. at p 36. In the first “arguments against” section, id. at 37, it is
noted that there were concerns with the fact that governmental immunity was being extended to
the employees and board members of CMH authorities. In this context, the analysis stated:
[U]nlike a CMHSP agency in which an elected body of officers (the county board
of commissioners) is closely involved by developing policies and procedures and
exercising budgetary and other controls, an authority would be a separate entity
from the county and would be virtually untouchable even by the commissioners
who vote it into existence. For instance, the commissioners would have to ask to
see a copy of the authority’s budget, and then only for informational purposes.
Other than dissolving an authority, a county board of commissioners would have
little if no input into the delivery of services to the mentally ill and
4
The bill was also addressed in an earlier analysis by the Senate Fiscal Agency, Senate Fiscal
Agency Analysis, SB 525, June 14, 1995. That analysis provides no additional insights. It is
noted that at that time, the community mental health authorities were referred to as community
mental health entities.
5
While the Bill Analysis indicates that this was a required shift from counties to CMHSPs, the
“county community mental health agency” that is one of the three recognized CMHSPs is an
“official county or multicounty agency.” Thus, while referred to as a CMHSP, it appears that a
county could elect to retain control by choosing this form of CMHSP.
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developmentally disabled population of the area served by the authority. . . . [Id.
(emphasis in original).]
The analysis indicates that a CMH authority was intended to be largely autonomous from the
governing body of the county.
C. ANALYSIS
Defendants contend that pursuant to the mental health code, plaintiffs have the ability to
control or substantially influence WMCMHS and, therefore, there was no arms-length
transaction between plaintiffs and WMCMHS. According to defendants, plaintiffs are granted
through statute the ability to establish a mental health authority such as WMCMHS, to appoint
all of WMCMHS’s board members, to remove WMCMHS board members, to approve funding
to support WMCMHS, and to dissolve WMCMHS. In fact, plaintiffs may appoint up to four of
their county commissioners to WMCMHS’s board. The circuit court, in contrast, concluded that
plaintiffs’ ability under statute to create the authority and appoint members to the board did not
amount to the ability to control or substantially influence and did not render the transaction lessthan-arms-length. We agree.
As noted above, the OMB Circular A-87 provides the definition for a less-than-armslength transaction. A less-than-arms-length lease “is one under which one party to the lease
agreement is able to control or substantially influence the actions of the other.” OMB-Circular
A-87 gives some examples of less-than-arms length transactions including, but not limited to:
(i) divisions of a governmental unit; (ii) governmental units under common
control through common officers, directors, or members; and (iii) a governmental
unit and a director, trustee, officer, or key employee of the governmental unit or
his immediate family, either directly or through corporations, trusts, or similar
arrangements in which they hold a controlling interest.
Other than these examples, OMB Circular A-87 does not define “control” or “influence.” The
Michigan Supreme Court has defined “control” to mean “to ‘exercise restraint or direction over;
dominate, regulate, or command; to hold in check; curb.” DaimlerChysler Corp v State Tax
Comm, 482 Mich 220, 250; 753 NW2d 605 (2008), quoting Webster’s Universal College
Dictionary (1997).
While some provisions of 1995 PA 290 could be construed as indicating that a CMH
authority is not autonomous from the county, the bulk of this act, consistent with the legislative
analysis discussed above, indicates that autonomy was intended and counties do not have the
ability to control or substantially influence a CMH authority. The act indicates that the
authorities are, in essence, run independently from the counties. Moreover, the act indicates that
the state, not counties, exerts control over CMHSPs, including the CMH authorities.
With regard to independence from the counties, as previously noted, MCL 330.1204
provides that a CMH authority is “a public governmental entity separate from the county or
counties that establish it.” MCL 330.1204(1). Its board sets its policies and procedures. MCL
330.1204(2). It has numerous powers, MCL 330.1205(4)(f), including the power to, in its own
name,
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(i) Enter into contracts and agreements.
(ii) Employ staff.
(iii) Acquire, construct, manage, maintain, or operate buildings or
improvements.
(iv) Subject to subdivision (e), acquire, own, operate, maintain, lease, or
dispose of real or personal property, . . .
(v) Incur debts, liabilities, or obligations that do not constitute the debts,
liabilities, or obligations of the creating county or counties.
(vi) Commence litigation and defend itself in litigation.
[MCL
330.1205(4)(f).]
Further, it can finance the purchase of real or tangible personal property, MCL 330.1205(10),
and is “responsible for all executive administration, personnel administration, finance,
accounting, and management information system functions.” MCL 330.1205(5)(b). The county
is “not liable for any intentional, negligent, or grossly negligent act or omission, for any financial
affairs, or for any obligation of a CMH authority, its board, employees, representatives, or
agents.” MCL 330.1205(6). Moreover, an authority employee is not a county employee. MCL
330.1205(8).
The boards of CMHSPs, including CMH authorities, must, among other things:
(a) Annually conduct a needs assessment to determine the mental health
needs of the residents of the county or counties it represents and identify public
and nonpublic services necessary to meet those needs. Information and data
concerning the mental health needs of individuals with developmental disability,
serious mental illness, and serious emotional disturbance shall be reported to the
department in accordance with procedures and at a time established by the
department, along with plans to meet identified needs. . . .
(b) Annually review and submit to the department a needs assessment
report, annual plan, and request for new funds for the community mental health
services program. . . .
(c) . . . In the case of a community mental health authority, provide a copy
of its needs assessment, annual plan, and request for new funds to the board of
commissioners of each county creating the authority.
(d) Submit the needs assessment, annual plan, and request for new funds
to the department by the date specified by the department. The submission
constitutes the community mental health services program’s official application
for new state funds.
* * *
(f) Submit to each board of commissioners for their approval an annual
request for county funds to support the program. . . .
(g) Annually approve the community mental health services program’s
operating budget for the year.
(h) Take those actions it considers necessary and appropriate to secure
private, federal, and other public funds to help support the community mental
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health services program.
(i) Approve and authorize all contracts for the provision of services.
(j) Review and evaluate the quality, effectiveness, and efficiency of
services being provided by the community mental health services program. The
board shall identify specific performance criteria and standards to be used in the
review and evaluation. These shall be in writing and available for public
inspection upon request.
(k) [A]ppoint an executive director of the community mental health
services program who meets the standards of training and experience established
by the department.
(l) Establish general policy guidelines within which the executive director
shall execute the community mental health services program.
(m) Require the executive director to select a physician, a registered
professional nurse with a specialty certification . . . or a licensed psychologist to
advise the executive director on treatment issues. [MCL 330.1226 (emphasis
added).]
This statute indicates that a county’s involvement in the running of a CMH authority is limited to
the receipt of a copy of reports, and the approval of the county portion of the budget. It is noted
that MCL 330.1226a allows a CMHSP board to create a special fund account to receive fees and
third-party reimbursements, but only with approval of the board of county commissioners.
However, reports regarding the funds are sent to DCH. Id.
Defendants argue that plaintiffs exert control through the appointment process. We
conclude that the appointment process does not grant plaintiffs the ability to control or
substantially influence. Although plaintiffs appoint all members of the board members, no more
than four of 12 board members can be county commissioners. MCL 330.1222(2). Other board
members must be “representative of providers of mental health services recipients or primary
consumers of mental health services, agencies and occupations having a working involvement
with mental health services, and the general public.” MCL 333.1222(1). As a result, two-thirds
of board members that are appointed by plaintiffs are interested in the provision of mental health
services and have no loyalty to cause them to prefer plaintiffs over WMCMHS. The county
commissioners operating in a dual role may, indeed, influence board decisions in favor of
plaintiffs, but, without more, this cannot be said to amount to substantial influence. They lack a
majority vote, but even more importantly, they have the duty and ethical obligation to act in the
best interest of the CMH authority while performing in their capacity as board members.
Defendants assert that plaintiffs have the ability to control because WMCMHS’s board
members can be removed by plaintiffs at will. We again disagree. The relevant sentence of the
statute reads:
A board member may be removed from office by the appointing board of
commissioners or, if the board member was appointed by the chief executive
officer of a county or a city under section 216, by the chief executive officer who
appointed the member for neglect of official duty or misconduct in office after
being given a written statement of reasons and an opportunity to be heard on the
removal. [MCL 330.1224 (emphasis added).]
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Defendants argue that the clause set off by commas severs the beginning of the sentence from the
“for cause” qualifier that follows and, as a result, defendants have the ability to remove board
members at will. Defendant’s reading of the statute is without merit because it leaves “or”
hanging without an explanation. Instead, the clause cited is an essential interrupting dependent
clause that must be set off by commas. It interrupts the flow of the sentence to explain that a
chief executive officer’s (CEO) power to remove a board member exists only where the CEO has
appointed the member pursuant to MCL 330.1216. Thus, the sentence identifies two authorities
with the power of removal, “[t]he appointing board of commissioners” and the appointing CEO,
and then, following the interrupting clause, identifies the grounds for which each authority may
remove the member—“for neglect of official duty or misconduct in office after being given a
written statement of reasons and an opportunity to be heard on the removal.” Thus, whichever
authority is involved, board members may only be removed for cause and after a hearing.
Plaintiffs’ authority to remove board members for cause only greatly reduces plaintiffs’ ability to
control or substantially influence WMCMHS.
Moreover, plaintiffs’ capacity to dissolve WMCMHS under MCL 330.1205(2)(b) and
MCL 330.1220 is also not a real or actual ability to control the board. As a practical matter,
plaintiffs’ mental health costs would greatly increase if WMCMHS was dissolved.6 Defendants
6
Counties have a financial incentive to create a CMH authority. Under MCL 330.1302, counties
are made financially liable for ten percent of the net cost of services, except as otherwise
provided in Chapter 3 (and subsection (2) which is not pertinent here). Under MCL 330.1308(1)
the state is made responsible for 90 percent of the annual net cost of a community mental health
services program. However, under MCL 330.1308(2), an exception to the local match
requirement is carved out for CMH authorities:
Beginning in the fiscal year after a community mental health services program
becomes a community mental health authority under section 205, if the department
increases the amount of state funds provided to community mental health services
programs for the fiscal year, all of the following apply:
(a) The amount of local match required of a community mental health authority
for that fiscal year shall not exceed the amount of funds provided by the community
mental health services program as local match in the year in which the program became
a community mental health authority.
(b) Subject to the constraint of funds actually appropriated by the county or
county board of commissioners, the amount of county match required of a county or
counties that have created a community mental health authority shall not exceed the
amount of funds provided by the county or counties as county match in fiscal year 19941995 or the year the authority is created, whichever is greater.
(c) If the local match provided by the community mental health services program
is less than the level of local match provided in the year in which the community mental
health services program became a community mental health authority, subdivision (a)
does not apply.
(d) The state is not obligated to provide additional state funds because of the
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are correct in stating that the proper test is not whether plaintiffs actually control the board but
whether they have that ability. As the court stated in Biloxi Regional Med Ctr v Bowen, 835 F2d
345, 352 (D DC 1987):
We realize, of course, that the District Court was properly concerned not
with the actual but with the potential ability of the City to influence the Center.
Indeed, the power of the sword of Damocles is not that it falls but that it hangs.
Here, though, the power that the City has over the Center is more akin to the
power that the butter-knife of Damocles might have on those above whom it
hangs. Realistically, if the City had any ability to influence the Center’s actions
or policies, it was not “significant.”
In sum, the counties’ involvement with CMH authorities is limited to appointing board
members, reviewing documents, approving county funding, which covers a relatively small part
of a CMH authority’s budget, and having the power to dissolve a CMH authority. As previously
noted, a county board of commissioners had very similar control over the appointment of
members to county community mental health boards under 1974 PA 258. However, unlike
CMH authorities, these community mental health programs were official county agencies.
Moreover, the county board(s) of commissioners would approve the county community mental
health board’s annual plan and budget before it was sent to the DMH.
By making a CMH
authority “a public governmental entity separate from the county,” and by taking away the
county’s responsibility for approving the annual plan and budget, it appears that, consistent with
the legislative analysis, the intent of 1995 PA 290 was to substantially take away the control of
the county board of commissioners.7
Consistent with this conclusion, we note that the state exerts substantial control over
CMHSPs, including CMH authorities. The state is required to financially support CMHSPs,
including the authorities. MCL 330.1202; MCL 330.1240. The state can audit or call for an
audit of a CMHSP. MCL 330.1244(d). The state reviews “annual plan, needs assessment,
limitation on local funding levels provided for in subdivisions (a) and (b). [Emphasis
added.]
This indicates that there is a local match required of the CMH authority itself, as well as a local
match required of the county. However, of import here is the fact that the local match for both
entities is capped if a county elects to create an authority. Accordingly, if plaintiffs dissolve
WMCMHS, the state through MDCH would obtain responsibility for providing mental health
services in Mason, Oceana and Lake Counties and plaintiffs would lose the “financial liability
cap incentive or ‘match limit’ [they] currently enjoy[.]” Their portion of the costs for providing
mental health services would increase to ten percent.
7
Compare Oakland Co v Dep’t of Mental Health, 178 Mich App 48, 59-60; 443 NW2d 805
(1989), lv gtd 434 Mich 900 (1990), app dis 437 Mich 1041 (1991) (given that DMH was
discharging its obligation to provide mental health services by having counties deliver them
pursuant to 1975 PA 258, as evidenced in part by state controls, appropriations for mental health
services were to the state even though paid to local units of government such that the Headlee
Amendment, Const 1963, art 9, § 30, was not implicated).
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request for funds, annual contract, and operating budget[,]” and approves or disapproves state
funding. MCL 330.1232; MCL 330.1234. Moreover, the state oversees the expenditures of
CMHSPs, MCL 330.1236, and the state is responsible for certifying CMHSPs and can revoke
certifications and cancel state funding, MCL 330.1232a(8) and (14)(a). That the counties do not
have similar authority is a further indicator that they do not have the ability to control or
substantially influence the board of a CMH authority. To conclude otherwise would appear to be
a repudiation of the statutory scheme.
Further, we are not persuaded by defendants’ argument that plaintiffs had actual control
over WMCMHS. Larry VanSickle, who served as chairman of Oceana County’s Board of
Commissioners and as a member of WMCMHS’s board, testified that he considered Oceana
County’s interests when he cast votes as part of the WMCMHS’s board. Another board member
recognized the potential influence of plaintiffs through the dual role of some county
commissioners. Still, even considering the close relationship between WMCMHS’s board
members who were also county commissioners, plaintiffs did not have the ability to control or
even substantially influence WMCMHS. As noted above, board members who were also county
commissioners did not make up a majority of WMCMHS’s board and, accordingly, did not have
the ability to control or substantially influence. Moreover, all of WMCMHS’s board members
owed a duty of loyalty to WMCMHS. As a result, plaintiffs and WMCMHS were engaged in an
arms-length transaction.
Finally, defendants contend that, even if there was an arms-length relationship, plaintiffs
were not entitled to rent payments because either they previously agreed not to accept rent
payments from the county agencies that preceded WMCMHS or they accepted state financing
for the building and would be unjustly enriched by rent payments from WMCMHS. In return for
state financing for the Lincoln Street Building, Oceana County agreed in 1993 to tie future lease
payments for the mental health agency to the costs connected with using the building and not
more. Despite this agreement with the state, Oceana later demanded rent payments from
WMCMHS that were greater than the costs to use the building. Similarly, the Madden Building
was financed with state and federal money for the purpose of providing mental health services in
Mason County. As a result, Mason County should not be entitled to rent payments. We
disagree.
We conclude that plaintiffs were not unjustly enriched by the rent payments because
WMCMHS and plaintiffs are separate legal entities, MCL 330.1204(1), and WMCMHS did not
own the buildings at issue. When WMCMHS was created in 1997, plaintiffs had no obligation
to transfer their buildings to WMCMHS. Under MCL 330.1205(3)(a), “[a]ll assets, debts, and
obligations of the county community mental health agency or community mental health
organization, including, but not limited to, equipment, furnishings, supplies, cash, and other
personal property, shall be transferred to the CMH authority.” However, at the time WMCMHS
was created, the county agency did not hold title to either building, but merely leased them. The
leasehold was transferred, as required by statute. The Legislature certainly anticipated that
county agencies, often housed in county-owned, state-and-federally-funded buildings, would stay
in those facilities. It allowed mental health authorities to purchase real property and to be
reimbursed for such purchases if carried out by lease-purchase arrangements. MCL 330.1242(a).
There does not appear to be any inequities from allowing the independent CMH authorities to
continue to rent appropriate space from the counties at or below fair market rates.
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For these reasons the trial court did not err in concluding that plaintiffs and WMCMHS
were engaged in an arms-length transaction and plaintiffs were entitled to rent payments.
III. NECESSARY PARTY
Defendants’ final issue on appeal is that the circuit court erred in failing to require
plaintiffs to join CMS as a necessary party to the litigation. We disagree. The circuit court’s
decision regarding joinder is reviewed for abuse of discretion. See PT Today, Inc v Comm’r of
the Office of Fin & Ins Servs, 270 Mich App 110, 136; 715 NW2d 398 (2006). The circuit court
did not abuse its discretion if the outcome of its decision is within the range of principled
outcomes. Taylor v Currie, 277 Mich App 85, 99; 743 NW2d 571 (2007).
Under MCR 2.205(A), persons must be joined if “their presence in the action is essential
to permit the court to render complete relief[.]” The purpose of the rule is to prevent the splitting
of causes of action and to ensure that all parties having a real interest in the litigation are present.
Id.; Gordon Food Serv, Inc v Grand Rapids Material Handling Co, 183 Mich App 241, 243; 454
NW2d 137 (1989).
While it is possible that WMCMHS could seek federal dollars to pay back rents, at this
point it is unclear where exactly the money will come from. If the state continued to receive
federal money without a deduction for the payments defendants refused to pay WMCMHS, then
it would be state dollars that would fund plaintiffs’ shortfall. On the other hand, if the state
continued to pay WMCMHS the same amount but only prohibited the funds’ use for rent,
WMCMHS can only look to itself for the source of the money. Until additional payment by
CMS is sought either administratively or through further litigation, there is nothing requiring the
presence of that agency in the legal proceedings. The circuit court did not abuse its discretion in
not requiring CMS to be a party, especially where none of the parties, nor CMS itself, requested
that it be joined.
Affirmed.
/s/ Henry William Saad
/s/ Kathleen Jansen
/s/ Kirsten Frank Kelly
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